SHINYO
MARINER LIMITED SELECTED FINANCIAL INFORMATION
The
following selected historical statement of operations data for the period
from
December 22, 2004 (date of incorporation) to December 31, 2004, and the
years
ended December 31, 2005 and 2006 and the selected historical balance sheet
data
as of December 31, 2005 and 2006 have been derived from Shinyo Mariner
Limited’s
audited financial statements included elsewhere in this joint proxy
statement/prospectus. Shinyo Mariner Limited’s audited financial statements are
prepared and presented in accordance with United States generally accepted
accounting principles, or U.S. GAAP. For a description of the basis of
presentation of these financial statements see note 1 to Shinyo Mariner
Limited’s audited financial statements. The following selected historical
statement of operations data for the nine months ended September 30, 2006
and
2007 and the selected balance sheet data as of September 30, 2007 have
been
derived from Shinyo Mariner Limited’s unaudited financial statements prepared in
accordance with U.S. GAAP and included elsewhere in this joint proxy
statement/prospectus.
The
following selected historical balance sheet data as of December 31, 2004
have
been derived from our unaudited financial statements not included in this
joint
proxy statement/prospectus.
We have prepared the unaudited information on
the same basis as the audited financial statements, and have included,
in our
opinion, all adjustments, consisting only of normal and recurring adjustments
that we consider necessary for a fair presentation of the financial information
set forth in those statements. You should read the selected historical
financial
data in conjunction with those financial statements and the accompanying
notes
and “Management’s Discussion and Analysis of Financial Condition and Result of
Operations of the SPVs.” Shinyo Mariner Limited’s historical results do not
necessarily indicate results expected for any future periods.
|
|
Period
from
December 22, 2004
|
|
Year
ended
|
|
Nine
months
ended
|
|
|
|
to
December 31,
|
|
December 31,
|
|
September
30,
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
2006
|
|
2007
|
|
|
|
|
|
(in thousands
of US$)
|
|
|
|
Statement
of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
$
|
11,498
|
|
$
|
8,857
|
|
$
|
7,848
|
|
$
|
9,293
|
|
Total
operating expenses
|
|
|
(1
|
)
|
|
(5,783
|
)
|
|
(7,853
|
)
|
|
(5,054
|
)
|
|
(6,773
|
)
|
Total
other expense
|
|
|
(8
|
)
|
|
(2,274
|
)
|
|
(3,074
|
)
|
|
(2,342
|
)
|
|
(2,191
|
)
|
Net
income
|
|
|
(9
|
)
|
|
3,441
|
|
|
(2,069
|
)
|
|
453
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data (at end of period) :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
-
|
|
|
1,462
|
|
|
357
|
|
|
|
|
|
1,144
|
|
Total
assets
|
|
|
5,870
|
|
|
57,901
|
|
|
57,872
|
|
|
|
|
|
53,348
|
|
Total
liabilities
|
|
|
5,879
|
|
|
54,469
|
|
|
56,509
|
|
|
|
|
|
51,656
|
|
Total
shareholder's equity
|
|
|
|
)
|
|
3,432
|
|
|
1,363
|
|
|
|
|
|
1,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
-
|
|
|
7,919
|
|
|
3,490
|
|
|
6,278
|
|
|
5,766
|
|
Net
cash used in investing activities
|
|
|
-
|
|
|
(53,580
|
)
|
|
(1,916
|
)
|
|
-
|
|
|
(2,929
|
)
|
Net
cash used in financing activities
|
|
|
-
|
|
|
47,123
|
|
|
(2,680
|
)
|
|
(3,380
|
)
|
|
(2,050
|
)
|
SHINYO
SAWAKO LIMITED SELECTED FINANCIAL INFORMATION
The
following selected historical statement of operations data for the period
from
March 2, 2006 (date of incorporation) to December 31, 2006 and the selected
historical balance sheet data as of December 31, 2006 have been derived
from
Shinyo Sawako Limited’s audited financial statements included elsewhere in this
joint proxy statement/prospectus. Shinyo Sawako Limited’s audited financial
statements are prepared and presented in accordance with United States
generally
accepted accounting principles, or U.S. GAAP. For a description of the
basis of
presentation of these financial statements see note 1 to Shinyo Sawako
Limited’s
audited financial statements. The following selected historical statement
of
operations data for the period from March 2, 2006 (date of incorporation)
to
September 30, 2006 and the nine months ended September 30, 2007 and the
selected
balance sheet data as of September 30, 2007 have been derived from Shinyo
Sawako
Limited’s unaudited financial statements prepared in accordance with U.S. GAAP
and included elsewhere in this joint proxy statement/prospectus. We have
prepared the unaudited information on the same basis as the audited financial
statements, and have included, in our opinion, all adjustments, consisting
only
of normal and recurring adjustments that we consider necessary for a fair
presentation of the financial information set forth in those statements.
You
should read the selected historical financial data in conjunction with
those
financial statements and the accompanying notes and “Management’s Discussion and
Analysis of Financial Condition and Result of Operations of the SPVs.” Shinyo
Sawako Limited’s historical results do not necessarily indicate results expected
for any future periods.
|
|
Period from March 2,
2006 to December 31,
2006
|
|
Period from
March
2, 2006 to
September 30,
2006
|
|
Nine months
ended
September 30,
2007
|
|
|
|
(in
thousands of US$)
|
|
Statement
of Operations Data
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
20,028
|
|
$
|
14,669
|
|
$
|
10,599
|
|
Total
operating expenses
|
|
|
(11,978
|
)
|
|
(8,770
|
)
|
|
(5,727
|
)
|
Total
other expense
|
|
|
(2,333
|
)
|
|
(1,637
|
)
|
|
(1,766
|
)
|
Net
income
|
|
|
5,717
|
|
|
4,262
|
|
|
3,105
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data (at end of period) :
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
5,676
|
|
|
|
|
|
6,922
|
|
Total
assets
|
|
|
57,719
|
|
|
|
|
|
54,521
|
|
Total
liabilities
|
|
|
52,002
|
|
|
|
|
|
45,699
|
|
Total
shareholder's equity
|
|
|
5,717
|
|
|
|
|
|
8,823
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow Data:
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
10,458
|
|
|
1,965
|
|
|
8,972
|
|
Net
cash used in investing activities
|
|
|
(53,887
|
)
|
|
(53,887
|
)
|
|
-
|
|
Net
cash used in financing activities
|
|
|
49,105
|
|
|
53,030
|
|
|
(7,725
|
)
|
ENERGY
INFRASTRUCTURE
ACQUISITION CORP. AND SPVs TO BE ACQUIRED
(TO
BE KNOWN AS VAN ASIA TANKERS CORPORATION)
UNAUDITED
PRO FORMA SUMMARY FINANCIAL DATA
Anticipated
Accounting Treatment
The
Business Combination will be accounted for as a “reverse merger” since, among
other considerations, immediately following completion of the transaction,
the
stockholder of the SPVs immediately prior to the Business Combination will
have
effective control of Energy Infrastructure through its approximately 39%
stockholder interest in the combined entity, assuming no stockholder redemptions
(46% in the event of maximum stockholder redemptions) and control of a
majority
of the board of directors and all of the senior executive positions. For
accounting purposes, the SPVs (through Energy Merger, a newly-formed holding
company) will be deemed to be the accounting acquirer in the transaction
and,
consequently, the transaction will be treated as a recapitalization of
the SPVs,
i.e., the issuance of stock by the SPVs (through Energy Merger) for the
stock of
Energy Infrastructure. Accordingly, the combined assets, liabilities and
results
of operations of the SPVs will become the historical financial statements
of
Energy Infrastructure, and Energy Infrastructure’s assets, liabilities and
results of operations will be consolidated with the SPVs beginning on the
acquisition date. No step-up in basis or intangible assets or goodwill
will be
recorded in this transaction, except that the concurrent acquisition of the
50% equity interest in three of the SPVs currently held by a third party
will
result in the step-up of the proportionate share of assets and liabilities
acquired to reflect consideration paid.
The
following unaudited pro forma summary financial information has been
prepared assuming that the business combination has occurred at the beginning
of
the applicable period for pro forma statements of operations data and at
the
respective date for pro forma balance sheet data. Two different levels of
approval of the acquisition by Energy Infrastructure's stockholders are
presented, as follows:
|
·
|
Assuming
No Redemption of Shares: This presentation assumes that no stockholders
exercised their redemption rights;
and
|
|
·
|
Assuming
Redemption of 6,525,118 Shares (one share less than 30%): This
presentation assumes that holders of 6,525,118 shares of Energy
Infrastructure's outstanding common stock exercise their redemption
rights.
|
The
unaudited pro forma summary information is for illustrative purposes only.
You should not rely on the unaudited pro forma summary balance sheet
as being indicative of the historical financial position that would have
been
achieved had the Business Combination been consummated as of the balance
sheet date. See “Risk Factors – Risks Relating to Energy Merger — The
historical financial and operating data of the SPVs and the pro forma summary
financial information of Energy Merger may not be representative of Energy
Merger’s future results because Energy Merger has no operating history as a
stand-alone entity or as a publicly traded company.”
Unaudited
Pro Forma Summary Statements of Operations Data
(in
thousands, except per share amounts)
|
|
Nine months ended
September 30,
2007
|
|
Year ended
December 31,
2006
|
|
Revenue
|
|
$
|
92,448
|
|
|
100,089
|
|
Operating
income
|
|
$
|
16,473
|
|
|
41,879
|
|
Net
income
|
|
$
|
1,445
|
|
|
21,118
|
|
|
|
|
|
|
|
|
|
Net income
per share
–
assuming no redemption of shares:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.03
|
|
$
|
0.45
|
|
Diluted
|
|
$
|
0.03
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
Shares
used in computation of net income per share, assuming no redemption
of
shares:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
46,990,247
|
|
$
|
46,990,247
|
|
Diluted
|
|
$
|
52,298,792
|
|
$
|
52,298,792
|
|
|
|
|
|
|
|
|
|
Net income
per share – assuming redemption of 6,525,118 of
shares:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.04
|
|
$
|
0.53
|
|
Diluted
|
|
$
|
0.03
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
Shares
used in computation of net income per share, assuming redemption
of
6,525,118 shares:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
40,195,129
|
|
$
|
40,195,129
|
|
Diluted
|
|
$
|
45,503,674
|
|
$
|
45,503,674
|
|
The
unaudited pro forma balance sheet data reflects the acquisition of the SPVs
holding a fleet of vessels from Vanship and the drawdown of the loan
to
partially finance that transaction as further discussed in the “Summary” section
of this document. The historical balance sheet of Energy Infrastructure
at
September 30, 2007 used in the preparation of the unaudited pro forma
financial
information
has been derived from the unaudited balance sheet of Energy Infrastructure
at
September
30,
2007. Energy Merger did not exist
as
of
September 30, 2007 and has therefore not been reflected in the unaudited
pro
forma financial information.
Separate
pro forma balance sheet information has been presented for the following
circumstances (1) that no Energy Infrastructure
stockholders
exercise their right to have their shares redeemed upon the consummation
of the
Business Combination and
(2) that
holders of 6,525,118 shares of Energy Infrastructure common stock
elect to have
their shares redeemed upon the consummation of the Business Combination
at the
redemption value of $10.00 per share, based on the amount held in
the Energy
Infrastructure Trust Account, plus interest income to date thereon,
at September
30, 2007.
For
more
detailed financial information, see
“
Unaudited
Pro
Forma Condensed Combined Financial Information
”
.
Unaudited
Pro Forma Summary Balance Sheet Data
(in
thousands)
|
|
At
September 30, 2007
|
|
|
|
Assuming
No Redemption of
Shares
|
|
Assuming
Redemption of 6,525,118
Shares
|
|
Current
assets
|
|
$
|
26,426
|
|
$
|
3,758
|
|
Total
assets
|
|
|
606,001
|
|
|
583,332
|
|
Current
liabilities
|
|
|
60,893
|
|
|
60,893
|
|
Total
liabilities
|
|
|
438,066
|
|
|
438,066
|
|
Common
stock subject to possible redemption
|
|
|
–
|
|
|
–
|
|
Equity
funding replacement offering
|
|
|
–
|
|
|
42,522
|
|
Stockholders'
equity
|
|
|
167,934
|
|
|
102,744
|
|
MARKET
PRICE AND DIVIDEND INFORMATION
Energy
Infrastructure’s units commenced trading on the American Stock Exchange under
the symbol “EIIU,” on July 18, 2006. Effective on October 4, 2006, Energy
Infrastructure’s common stock and warrants began to trade separately under the
symbols “EII,” and “EII.WS”, respectively, and the units ceased trading. The
closing high and low sales prices of Energy Infrastructure’s units, common
stock, and warrants as reported by the American Stock Exchange, for the quarters
indicated are as follows:
|
|
Units
|
|
Common
Stock
|
|
Warrants
|
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
Quarter (July 21 to September 30)
|
|
$
|
10.00
|
|
$
|
9.70
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Fourth
Quarter (October 1 to October 4) (1)
|
|
|
9.85
|
|
|
9.74
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Fourth
Quarter (October 5 to December 31) (1)
|
|
|
-
|
|
|
-
|
|
|
9.55
|
|
|
9.11
|
|
|
0.78
|
|
|
0.27
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
-
|
|
|
-
|
|
|
9.64
|
|
|
9.31
|
|
|
0.86
|
|
|
0.45
|
|
Second
Quarter
|
|
|
-
|
|
|
-
|
|
|
9.86
|
|
|
9.56
|
|
|
1.67
|
|
|
0.80
|
|
Third
Quarter
|
|
|
-
|
|
|
-
|
|
|
9.9
|
|
|
9.61
|
|
|
1.66
|
|
|
0.82
|
|
Fourth
Quarter (October 1 to December 5) (2)
|
|
|
-
|
|
|
-
|
|
|
10.83
|
|
|
9.71
|
|
|
1.61
|
|
|
1.07
|
|
Fourth
Quarter (December 6 to December 31)
|
|
|
-
|
|
|
-
|
|
|
10.14
|
|
|
9.88
|
|
|
1.30
|
|
|
0.95
|
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter (January 1, 2008 to February 8, 2008)
|
|
|
-
|
|
|
-
|
|
|
9.96
|
|
|
9.86
|
|
|
1.14
|
|
|
0.69
|
|
|
(1)
|
Energy
Infrastructure's units ceased trading on October 4, 2006. Energy
Infrastructure's common stock and warrants commenced trading separately
as
of this date.
|
|
(2)
|
The
last full trading day prior to the announcement of a proposal
for a
business combination involving Energy Merger. On February 8,
2008, the
closing price of Energy Infrastructure common stock and warrants
was $9.86
and $0.73, respectively.
|
As
of February 11, 2008, there were nine stockholders of record of Energy
Infrastructure common stock and three holders of record of Energy Infrastructure
warrants
.
Such
numbers do not include beneficial owners holding shares or warrants through
nominee names.
Energy
Infrastructure is a blank check company and as a result, has never declared
or
paid any dividends on its common stock.
Stockholders
are urged to obtain a current market quotation for Energy Infrastructure
securities.
Energy
Merger's securities are not currently listed and do not trade on any stock
exchange. Energy Merger has applied to list its
common
stock and warrants on the American Stock Exchange under the symbols
"[ ]" and [ ]," respectively. Energy Merger
is a
recently formed company and no dividends have been paid on any Energy Merger
securities.
RISK
FACTORS
You
should carefully consider the following risk factors, together with all of
the
other information included in this joint proxy statement/prospectus, before
you
decide whether to vote or direct your vote to be cast to approve the proposals
contained in this proxy statement.
If
we
complete the acquisition of the SPVs pursuant to the Business Combination,
we
will be subject to a number of risks. You should carefully consider the risks
we
describe below and the other information included in this joint proxy
statement/prospectus before you decide how you want to vote on the Business
Combination Proposal. Following the closing of the acquisition, the market
price
of our common stock could decline due to any of these risks, in which case
you
could lose all or part of your investment. In assessing these risks, you
should
also refer to the other information included in this joint proxy
statement/prospectus, including our financial statements and the accompanying
notes. You should pay particular attention to the fact that we would become
a
holding company with substantial operations outside of the United States.
As a
result, we would be subject to legal and regulatory environments that differ
in
many respects from those of the U.S. Our business, financial condition or
results of operations could be affected materially and adversely by any of
the
risks discussed below.
Risks
Relating to Energy Merger
Energy
Merger has no operating history and may not operate profitably in the
future.
Energy
Merger was formed on November 30, 2007 as a wholly-owned subsidiary of Energy
Infrastructure. Energy Merger has entered into an agreement and plan of merger
with Energy Infrastructure and an agreement to acquire the capital stock
of nine
vessel-owning SPVs from Vanship but it has no operating history
.
Its
financial statements do not provide a meaningful basis for you to evaluate
its
operations and ability to be profitable in the future and it may not be
profitable in the future.
The
historical financial and operating data of the SPVs and the pro forma combined
financial information of Energy Merger may not be representative of Energy
Merger’s future results because Energy Merger has no operating history as a
stand-alone entity or as a publicly traded company.
The
historical financial and operating data of the SPVs and the pro forma combined
financial information of Energy Merger may not be representative of Energy
Merger’s future results because Energy Merger has no operating history as a
stand-alone entity or as a publicly traded company. Energy Merger’s pro forma
financial
information
has been adjusted to give effect to pro forma events that are directly
attributable to the Business Combination,
factually supportable, and expected to have a continuing impact on the combined
results of the SPVs and Energy Infrastructure. The results of operations,
cash
flows and financial condition reflected in the SPVs financial statements
include
all expenses allocable to their operations. However, due to factors such
as the
additional administrative and financial obligations associated with operating
as
a publicly traded company, such financial information may not be indicative
of
the results of operations that the SPVs would have achieved had they operated
as
a public entities for all periods presented or of future results that Energy
Merger may achieve as a publicly traded company with its expected holding
company structure.
Energy
Merger
’s
senior
executive officers and directors may not be able to organize and effectively
manage a publicly traded operating company which could adversely affect Energy
Merger’s overall financial position.
None
of
the individuals who will serve as Energy Merger’s senior executive officers or
directors have previously organized and managed a publicly traded operating
company, and Energy Merger’s senior executive officers and directors may not be
successful in doing so. The demands
of
organizing and managing a publicly traded operating company are much greater
as
compared to a private
company
and some of Energy Merger’s senior executive officers and directors may not be
able to meet those increased demands. Failure to organize and effectively
manage
Energy Merger could adversely affect Energy Merger’s overall financial
position.
Energy
Merger
may be
unable to retain key management personnel, which may negatively affect the
effectiveness of its management and its results of
operations.
Energy
Merger’s success will depend to a significant extent upon the abilities and
efforts of Captain C.A.J. Vanderperre, its Chairman and Mr. Fred Cheng, its
Chief Executive Officer and member of its board of directors. Captain
Vanderperre and Mr. Cheng are the directors and co-founders of Vanship, the
company from which Energy Merger will acquire its initial fleet. Captain
Vanderperre is the founder and Chairman of the Manager.
Energy
Merger’s
success
will partially depend upon its ability to retain these two individuals and
the
loss of either of these individuals
could
adversely affect Energy Merger’s business prospects and financial condition.
Energy
Merger does not intend to enter into employment agreements with, or maintain
“key man” life insurance on, either of these individuals.
Energy
Merger will depend on its Manager to operate its
business.
Energy
Merger is a recently formed company with no current plans to have any employees
other than a Chief Executive Officer and Chief Financial Officer. Pursuant
to a
management agreement, Van Asia Capital Management Limited, or the Manager,
and
certain of its affiliates will provide Energy Merger with its officers and
with
technical, administrative and strategic services (including vessel maintenance,
crewing, purchasing, shipyard supervision, insurance, assistance with regulatory
compliance and financial services). The Manager is a newly formed ship
management company that will have no operations prior to the Business
Combination. Energy Merger’s operational success and ability to execute its
growth strategy will depend significantly upon the Manager’s satisfactory
performance of these services. Energy Merger’s business will be harmed if the
Manager fails to perform these services satisfactorily. In addition, if the
management agreement were to be terminated or if its terms were to be altered,
Energy Merger’s business could be adversely affected, as it may not be able to
immediately replace such services, or even if replacement services are
immediately available, the terms offered may be less favorable to Energy
Merger
than the ones to be offered by the Manager.
Energy
Merger’s ability to compete for and to enter into new charters and expand its
relationships with its charterers will depend largely on its relationship
with
the Manager and the Manager’s reputation and relationships in the shipping
industry. If the Manager suffers material damage to its reputation or
relationships, it may harm Energy Merger’s ability to:
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renew
existing charters upon their
expiration;
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·
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successfully
interact with shipyards during periods of vessel construction
constraints;
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·
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obtain
financing on commercially acceptable
terms;
|
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maintain
satisfactory relationships with its customers and suppliers;
or
|
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·
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successfully
execute its growth strategy.
|
If
Energy
Merger’s ability to do any of the foregoing is impaired, it could have a
material adverse effect on Energy Merger’s business, results of operations and
financial condition.
The
Manager is expected to subcontract technical management of Energy Merger’s fleet
to its affiliate, Univan Ship Management Limited, or Univan, a technical
ship
management company that has provided technical management for the fleet
prior to
the completion of the Business Combination. If either the Manager or Univan
encounter business or financial difficulties, Energy Merger may not
be able
to adequately charter, maintain or staff its vessels. Because the Manager
and
Univan are privately held, it is unlikely that information about their
financial
strength would become public prior to any default under the management
agreement. As a result, an investor in Energy Merger’s shares might have little
advance warning of problems affecting the Manager or Univan, even though
those
problems could have a material adverse effect on Energy Merger. The loss
of the
Manager’s or Univan’s services or the failure by either of them to perform their
obligations to Energy Merger could materially and adversely affect Energy
Merger’s business, financial condition, results of operations and ability to pay
dividends.
Energy
Merger will depend on directors who may
have
conflicts of interest.
Upon
consummation of the Business Combination, Captain Charles Arthur Joseph
Vanderperre will serve as the Chairman of Energy Merger’s board of directors and
Mr. Fred Cheng will be a member of Energy Merger’s board of directors and Energy
Merger’s Chief Executive Officer. These two directors are also the directors and
co-founders of Vanship, the company from which Energy Merger will acquire
its
initial fleet. In addition, Captain Vanderperre founded and currently controls
both the Manager and its affiliate, Univan, the company to which the Manager
will initially subcontract technical management for the vessels in Energy
Merger’s fleet. None of Captain Vanderperre, Mr. Cheng, the Manager or Univan
will be required to devote all of their professional time to Energy Merger.
In
addition, it is expected that all of them will continue to engage in shipping
activities and other businesses not involving Energy Merger. Captain Vanderperre
and Mr. Cheng
may
devote less time to Energy Merger than if they were not engaged in such other
business activities,
owe
fiduciary duties to the stockholders of each company with which they are
affiliated and may have conflicts of interest in matters involving or affecting
Energy Merger and its customers. In addition, due to their respective interests
in Vanship, the Manager and Univan, they may have conflicts of interest when
faced with decisions that could have different implications for Vanship,
the
Manager and Univan than they do for Energy Merger. We cannot assure you that
any
of these conflicts of interest will be resolved in Energy Merger’s
favor.
One
of
Energy
Merger’s stockholders, Vanship, will be able to influence Energy Merger,
including the outcome of stockholder votes, and the concentration of ownership
of Energy Merger’s shares by Vanship could have an adverse effect on the market
price of Energy Merger’s common stock.
Upon
the
completion of the Business Combination, assuming that Vanship purchases
5,000,000 units in the Business Combination Private Placement, Vanship
is
expected to own at least 39.4% of Energy Merger’s outstanding shares of common
stock. Pursuant to the contractual obligations of Energy Merger under the
Share
Purchase Agreement, Vanship is expected to effectively control the election
of
(i) eight individuals to initially serve on Energy Merger’s nine person board of
directors upon completion of the Business Combination and (ii) three of
Energy
Merger’s nine directors thereafter for so long as it continues to own at least
25% of Energy Merger’s outstanding shares of common stock.
While
Vanship has no agreement, arrangement or understanding relating to the
voting of
its shares of Energy Merger’s common stock, it will effectively control the
outcome of matters on which Energy Merger’s stockholders are entitled to vote,
including the election of directors, the adoption or amendment of provisions
in
Energy Merger’s articles of incorporation or bylaws and possible mergers,
corporate control contests and other significant corporate transactions.
This
concentration of ownership may have the effect of delaying, deferring or
preventing a change in control, a merger, consolidation, takeover or other
business combination. This concentration of ownership could also discourage
a
potential acquirer from making a tender offer or otherwise attempting to
obtain
control of Energy Merger, thereby depriving stockholders of Energy Merger
from
the opportunity to receive a control premium for their shares, which could
in
turn have an adverse effect on the market price of Energy Merger’s common
stock.
Vanship
and its affiliates may acquire or charter vessels that compete with Energy
Merger’s fleet and such competition may adversely affect Energy Merger’s
business and results of operations.
Captain
Vanderperre and Mr. Cheng, who will be Energy Merger’s Chairman and Chief
Executive Officer, respectively, upon consummation of the Business Combination,
are the directors and co-founders of Vanship. Under the Share Purchase
Agreement, Vanship has agreed that for the three years following the Business
Combination it will not engage in any business that would directly compete
with
Energy Merger’s anticipated business of owning and chartering VLCCs. However,
this agreement is subject to certain exceptions and during the three year
period
subsequent to the Business Combination, Vanship will be permitted to engage
in
competitive businesses provided that it first offers the opportunity to acquire
or participate in such competitive business to Energy Merger. In the event
that
Vanship were to offer Energy Merger the opportunity to acquire or participate
in
a competitive business and Energy Merger were to refuse such offer, Vanship
would be permitted to pursue the business opportunity and compete with Energy
Merger. In addition, Energy Merger’s articles of incorporation provide that if a
person, such as Captain Vanderperre or Mr. Cheng, who serves as a director
or
officer of both Vanship and Energy Merger acquires knowledge of a business
opportunity that may be valuable to Energy Merger, such director or officer
is
not required to communicate or offer such business opportunity to Energy
Merger
unless the business opportunity is offered to such director or officer solely
in
such person’s capacity as a director or officer of Energy Merger. If Energy
Merger and Vanship were to compete in the business of owning and chartering
VLCCs, we cannot assure you that the directors or officers of Energy Merger
who
also serve as directors or officers of Vanship, the Manager and Univan would
provide business opportunities of which they become aware to Energy Merger
in
lieu of Vanship. As a result, Energy Merger’s business and results of operations
may be adversely affected.
The
management agreement between Energy Merger and the Manager may be less favorable
to Energy Merger than agreements that Energy Merger could obtain from
unaffiliated third parties.
Upon
consummation of the Business Combination, Energy Merger intends to enter
into a
management agreement with the Manager for management of substantially all
of its
operations as well as commercial and technical management of Energy Merger’s
fleet. The Manager is a newly formed ship management company that is controlled
by Captain Vanderperre. The management agreement has been negotiated in the
context of an affiliated relationship. The negotiation of this agreement
may
have resulted in prices and other terms that are less favorable to Energy
Merger
than terms Energy Merger might have obtained in arm's-length negotiations
with
unaffiliated third parties for similar services. In addition, any future
amendments to the management agreement may result in terms that are less
favorable to Energy Merger than terms Energy Merger might obtain in arm's-length
negotiations with an unaffiliated third party.
Energy
Merger will depend upon a few significant customers for a large part of its
revenue and the loss of one or more of these customers could adversely affect
its financial performance.
Energy
Merger expects to derive a significant part of its revenue from a small number
of customers. For the year 2008, the SPVs that Energy Merger will acquire
are
expected to derive 100% of their revenue from five customers. If one or more
of
these customers is unable to perform under one or more charters with the
SPVs
and Energy Merger is not able to find a replacement charter, or if a customer
exercises certain rights to terminate the charter, Energy Merger could suffer
a
loss of revenue that could materially adversely affect its business, financial
condition, results of operations and cash available for distribution as
dividends to its stockholders.
Energy
Merger could lose a customer or the benefits of a time charter if, among
other
events:
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·
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the
customer fails to make charter payments because of its financial
inability, disagreements with Energy Merger or
otherwise;
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·
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the
customer terminates the charter because Energy Merger fails to
deliver the
vessel within a fixed period of time, the vessel is lost or damaged
beyond
repair, there are serious deficiencies in the vessel or prolonged
periods
of off-hire, or Energy Merger defaults under the
charter;
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·
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the
customer terminates the charter because the vessel has been subject
to
seizure for more than the period specified in its charter;
or
|
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the
customer terminates the charter because of the occurrence of war
or
hostilities between certain countries specified in its
charter.
|
If
Energy
Merger loses a key customer, it may be unable to obtain charters on comparable
terms or may become subject to the volatile spot market, which is highly
competitive and subject to significant price fluctuations. The loss of any
of
Energy Merger’s customers, period charters or vessels, or a decline in payments
under its charters, could have a material adverse effect on its business,
results of operations and financial condition and its ability to pay
dividends.
If
Energy
Merger fails to manage its planned growth properly, it may not be able to
successfully expand its fleet, thereby adversely affecting its overall financial
position.
Energy
Merger intends to continue to expand its fleet. Energy Merger’s growth will
depend on:
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locating
and acquiring suitable vessels;
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identifying
and consummating acquisitions or joint
ventures;
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integrating
any acquired vessels successfully with its existing
operations;
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enhancing
its customer base;
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managing
its expansion; and
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obtaining
required financing.
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During
periods in which charter hire rates are high, vessel values generally are
high
as well, and it may be difficult to identify vessels for acquisition at
favorable prices. In addition, growing any business by acquisition presents
numerous risks such as undisclosed liabilities and obligations, difficulty
experienced in obtaining additional qualified personnel and managing
relationships with customers and suppliers and integrating newly acquired
operations into existing infrastructures, and the possibility that new building
warranties or indemnification agreements with respect to used vessels will
be
unenforceable or insufficient to cover potential losses and difficulties
associated with imposing common standards, controls, procedures and policies.
Energy Merger may not be successful in executing its growth plans and may
incur
significant expenses and losses, which could adversely affect the price of
Energy Merger’s common stock and warrants and its ability to pay
dividends.
In
the
highly competitive
VLCC
shipping industry, Energy Merger may not be able to compete for charters
with
new
entrants or established companies with greater resources which may adversely
affect its results of operations.
Energy
Merger will employ its vessels in a highly competitive market that is capital
intensive and fragmented. Competition arises primarily from other vessel
owners,
including major oil companies as well as independent tanker companies, some
of
whom have substantially greater resources and experience than Energy Merger.
Competition
for the chartering of VLCCs can be intense and depends on price, location,
size,
age, condition and
the
acceptability of the vessel and its managers to the charterers. Due in part
to
the fragmented market, competitors
with
greater resources could operate larger fleets through consolidations or
acquisitions that may be able to offer better prices
and
fleets, which could result in Energy Merger not obtaining full-time charters
for
its vessels or obtaining lower rates under its charters, either of which
could
adversely affect its results of operations.
Purchasing
and operating secondhand vessels may result in increased operating costs
and
vessel o
ff-hire,
which could adversely affect Energy Merger’s
earnings.
Energy
Merger will acquire a fleet of secondhand vessels with
an
average age of approximately 12.9 years
and
Energy Merger may purchase additional secondhand vessels in the future. Energy
Merger’s inspection of secondhand vessels prior to purchase does not provide it
with the same knowledge about their
condition and cost of any required or anticipated repairs that it would have
had
if these vessels had been built for and operated exclusively by Energy Merger.
Generally, Energy Merger will not receive the benefit of warranties on
secondhand vessels.
In
general, the costs to maintain a vessel in good operating condition increase
with the age of the vessel. Due to improvements in engine technology, older
vessels are typically less fuel efficient and more costly to maintain than
more
recently constructed vessels. Cargo insurance rates increase with the age
of a
vessel, making older vessels less desirable to charterers.
Governmental
regulations, safety, environmental or other equipment standards related to
the
age of tankers and other types of vessels may require expenditures for
alterations or the addition of new equipment to Energy Merger’s vessels to
comply with safety or environmental laws or regulations that may be enacted
in
the future. These laws or regulations may also restrict the type of activities
in which Energy Merger’s vessels may engage or the geographic regions in which
they may operate. Energy Merger cannot predict what alterations or modifications
its vessels may be required to undergo in the future or that as its vessels
age,
market conditions will justify any required expenditures or enable it to
operate
its vessels profitably during the remainder of their useful lives. The
acquisition of secondhand vessels may result in higher operating and maintenance
costs due to the age and condition of those vessels which could adversely
affect
Energy Merger’s earnings.
Energy
Merger
’s
vessels may be subject to unbudgeted periods of off-hire, which could adversely
affect its cash flow and financial condition.
Under
the
terms of the charter agreements under which the vessels in Energy Merger’s
initial fleet will operate, when a vessel is “off-hire,” or not available for
service, the charterer generally is not required to pay the hire rate, and
Energy Merger will be responsible for all costs, including the cost of fuel
bunkers unless the charterer is responsible for the circumstances giving
rise to
the lack of availability. A vessel generally will be deemed to be off-hire
if
there is an occurrence preventing the full working of the vessel due to,
among
other things:
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operational
deficiencies;
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drydocking
for repairs, maintenance or
inspection;
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delays
due to accidents;
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crewing
strikes, labor boycotts, certain vessel detentions or similar problems;
or
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Energy
Merger’s failure to maintain the vessel in compliance with its
specifications, contractual standards and applicable country of
registry
and international regulations or to provide the required
crew.
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Any
unbudgeted and sustained periods of off-hire would have an adverse effect
on
Energy Merger’s cash flow, financial condition and results of
operations.
Energy
Merger
’s
vessels may suffer damage and it may face unexpected drydocking costs, which
could adversely affect its cash flow and financial
condition.
If
Energy
Merger’s vessels suffer damage, they may need to be repaired at a drydocking
facility. The costs of drydock repairs
are
unpredictable and can be substantial. Energy Merger may have to pay drydocking
costs that its insurance does not cover. The
loss of
earnings while these vessels are being repaired and reconditioned, as well
as
the actual cost of these repairs, would decrease its earnings.
In
addition, space at drydocking facilities is sometimes limited and not all
drydocking facilities are conveniently located. Energy Merger may be unable
to
find space at a suitable drydocking facility or it may be forced to move
a
damaged vessel to a drydocking facility that is not conveniently located
to the
vessel’s position. The loss of earnings while any of Energy Merger’s vessels are
forced to wait for space or to relocate to drydocking facilities that are
farther away from the routes on which its vessels trade would further decrease
its earnings.
One
of
the vessels that Energy Merger expects to acquire is subject to a
mutual sale provision between the SPV that owns the vessel and the charterer
of
the vessel, which, if exercised, could reduce the size of Energy Merger’s fleet
and reduce its future
revenue.
The
SPV
that owns the vessel Shinyo Ocean has agreed to a mutual sale provision with
its
charterer whereby either party can request the sale of the vessel provided
that
a price can be obtained that is at least $3,000,000 greater than the then
current value of the vessel as set forth in the charter agreement. If this
provision is exercised, Energy Merger may not be able to obtain a replacement
vessel for the price at which it sells the vessel. In such a case, the size
of
Energy Merger’s fleet would be reduced and Energy Merger may experience a
reduction in its future revenue.
Energy
Merger
may not
have adequate insurance to compensate it if it loses its vessels, which may
have
a material adverse effect on its financial condition and results of
operation.
There
are
a number of risks associated with the operation of ocean-going vessels,
including mechanical failure, collision, human error, war, terrorism, property
loss, cargo loss or damage and business interruption due to political
circumstances in foreign countries, hostilities and labor strikes. Any of
these
events may result in loss of revenue, increased costs and decreased cash
flows.
In addition, following the terrorist attack in New York City on September
11,
2001, and the military response of the United States, the likelihood of future
acts of terrorism may increase, and Energy Merger’s vessels may face higher
risks of attack. Future hostilities or other political instability, as shown
by
the attack on the Limburg in Yemen in October 2002, could affect Energy Merger’s
trade patterns and adversely affect its operations and revenue, cash flows
and
profitability and could preclude Energy Merger’s ability to obtain insurance for
such acts at reasonable rates and receive insurance proceeds for any resulting
loss. In addition, the operation of any vessel is subject to the inherent
possibility of marine disaster, including oil spills and other environmental
mishaps, and the liabilities arising from owning and operating vessels in
international trade.
Energy
Merger is expected to procure hull and machinery insurance, protection and
indemnity insurance, which includes environmental damage and pollution insurance
coverage and war risk insurance for its fleet. Energy Merger does not expect
to
maintain for all of its vessels insurance against loss of hire, which covers
business interruptions that result from the loss of use of a vessel. Energy
Merger may not be adequately insured against all risks. If Energy Merger’s
insurance is not enough to cover claims that may arise, the deficiency may
have
a material adverse effect on Energy Merger’s financial condition and results of
operations.
Energy
Merger cannot assure investors that it will adequately insure against all
risks
and Energy Merger may not be able to obtain adequate insurance coverage at
reasonable rates for its fleet in the future. For example, a catastrophic
spill
could exceed Energy Merger’s insurance coverage and have a material adverse
effect on its financial condition. In addition, Energy Merger may not be
able to
procure adequate insurance coverage at commercially reasonable rates in the
future and Energy Merger cannot guarantee that any particular claim will
be
paid. Moreover, Energy Merger’s insurance policies may contain deductibles for
which it will be responsible and limitations and exclusions which may increase
its costs or lower its revenue. In the past, new and stricter environmental
regulations have led to higher costs for insurance covering environmental
damage
or pollution, and new regulations could lead to similar increases or even
make
this type of insurance unavailable. Furthermore, even if insurance coverage
is
adequate to cover Energy Merger’s losses, Energy Merger may not be able to
timely obtain a replacement ship in the event of a loss. Energy Merger may
also
be subject to calls, or premiums, in amounts based not only on its own claim
records but also the claim records of all other members of the protection
and
indemnity associations through which Energy Merger will receive indemnity
insurance coverage for tort liability. Energy Merger’s payment of these calls
could result in significant expenses to it that could reduce its cash flows
and
place strains on its liquidity and capital resources.
Energy
Merger will not be able to take advantage of favorable opportunities in the
current spot market with respect to vessels employed on medium- to long-term
time charters.
The
spot
market for VLCCs is very volatile but is currently at an historically high
level. The nine tankers that Energy Merger will acquire are contractually
committed to period charters, with the remaining terms of these charters
expiring during the period from and including 2009 through 2017. Although
period
charters will generally provide reliable revenue, they will also limit the
portion of Energy Merger’s fleet available for spot market voyages during an
upswing in the tanker industry cycle, when spot market voyages might be more
profitable. In addition, if Energy Merger were to sell a vessel that is
committed to a medium or long term charter, Energy Merger may not be able
to
realize the full charter free fair market value of the vessel during a period
when spot market charters are more profitable than the charter agreement
under
which the vessel operates. Energy Merger may re-charter its vessels on medium-
or long-term charters or charter them in the spot market upon expiration
or
termination of the vessels’ current charters. If Energy Merger is not able to
employ its vessels profitably under time charters or in the spot market,
its
results of operations and operating cash flow may suffer and it may be unable
to
pay you dividends.
Unless
Energy Merger sets aside reserves or is able to borrow funds for vessel
replacement, at the end of a vessel's useful life Energy Merger’s revenue will
decline, which would adversely affect its business, results of operations
and
financial condition.
Unless
Energy Merger maintains reserves or is able to borrow funds for vessel
replacement, it will be unable to replace the vessels in its fleet upon the
expiration of their remaining useful lives, which we expect to range from
5 to
17
years,
based on a 25 year estimated useful life from the date of the vessel's initial
delivery from the shipyard, or a useful life extending no later than the
year
2015 with respect to single-hull vessels. Energy Merger’s cash flows and income
will be dependent on the revenue earned by the chartering of its vessels
to
customers. Any reserves set aside for vessel replacement would not be available
for dividends. If Energy Merger is unable to replace the vessels in its fleet
upon the expiration of their useful lives, its business, results of operations,
financial condition and ability to pay dividends will be materially and
adversely affected.
Delays
in deliveries or non-delivery of newbuildings could harm Energy Merger’s
operations.
Energy
Merger may contract to acquire newbuilding vessels subsequent to the completion
of the Business Combination. The delivery of any newbuilding vessels could
be
delayed, cancelled or otherwise not completed as a result of, among other
things: quality or engineering problems or delays in the receipt of construction
materials such as steel; changes in governmental regulations or maritime
organization standards; labor disturbances or catastrophic events at a shipyard
or financial crisis of a shipbuilder; a backlog of orders at the relevant
shipyards; political or economic disturbances which adversely affect the
relevant shipyards; changes Energy Merger needs to make to the vessel
specifications; Energy Merger’s inability to obtain necessary permits or
approvals or to receive the required classifications for the vessels; Energy
Merger’s inability to finance the purchase of the vessels; weather interference
or a catastrophic event, such as a major earthquake or fire or any other
force
majeure; or a shipbuilder’s failure to otherwise meet the scheduled delivery
dates for the vessels or failure to deliver the vessels at all.
If
the
delivery of a vessel is delayed or cancelled in circumstances where Energy
Merger has committed the vessel to a charter, Energy Merger may be obliged
to
source an alternative vessel for its customer and pay the differential between
the rate agreed with Energy Merger and the rate for the substitute vessel.
The
costs involved could be significant. In addition, in some cases, if the delivery
of a vessel to Energy Merger’s customer is delayed, the customer may not be
obliged to honor the relevant time charter.
If
delivery of a vessel is delayed or cancelled, it could have an adverse effect
on
Energy Merger’s business, results of operations, cash flow and financial
condition.
Energy
Merger, or any of its
foreign corporate subsidiaries, may become subject to United States federal
income taxation on its U.S. source shipping income.
Some
of
the vessels owned by the SPVs have in the past operated to and from the United
States on occasion. Most of the vessels are operated under a time charter
that
allows the charterer to determine where the vessel goes. If a vessel operates
to
or from the United States, a portion of the charter income from the vessel
attributable to such trips may constitute “United States source gross
transportation income.” United States source gross transportation income
generally is subject to U.S. federal income tax at a 4% rate, unless exempt
under Section 883 of the Code. It is unclear at this time whether the exemption
under Section 883 of the Code will be available to Energy Merger or any of
the
SPVs for any United States source gross transportation income that they might
have earned or whether the SPVs will be entitled to reimbursement from the
charterer under any charter for any United States tax that would be imposed
if
the exemption is not available.
Energy
Merger
is a
holding company, and will depend on the ability of its subsidiaries to
distribute funds to it in order to satisfy its financial obligations or to
make
dividend payments.
Energy
Merger is a holding company and its subsidiaries, all of which will be
wholly-owned by it either directly or indirectly, will own all of Energy
Merger’s operating assets. Energy Merger will have no significant assets other
than the equity interests in its wholly-owned subsidiaries. As a result,
Energy
Merger’s ability to make dividend payments depends on its subsidiaries and their
ability to distribute funds to Energy Merger. If Energy Merger is unable
to
obtain funds from its subsidiaries, Energy Merger may not be able to meet
all of
its obligations and may not be able to pay dividends.
The
assumptions underlying Energy Merger’s “Forecasted Cash Available for Dividends,
Reserves and Extraordinary Expenses” are inherently uncertain and are subject to
significant business, economic, financial, regulatory and competitive risks
and
uncertainties that could cause actual results to differ materially from those
forecasted.
The
financial forecast in Energy Merger’s “Statement of Forecasted Results of
Operations and Cash Available for Dividends, Reserves and Extraordinary
Expenses” has been prepared by the management of Energy Infrastructure and
Energy Infrastructure has not received an opinion or report on it from any
independent registered public accounting firm and the forecast has not been
prepared in accordance with generally accepted accounting principles. The
assumptions underlying the forecast are inherently uncertain and are subject
to
significant business, economic, regulatory and competitive risks and
uncertainties that could cause actual results to differ materially from those
forecasted. If Energy Merger does not achieve the forecasted results, Energy
Merger may not be able to operate profitably, successfully implement its
business strategy to expand its fleet or pay dividends to its stockholders
in
which event the market price of Energy Merger’s common shares may decline
materially.
Energy
Merger
’s
loan
agreements will contain restrictive covenants that may limit its liquidity
and
corporate activities.
The
new
senior secured credit facility that Energy Merger expects to enter into and
any
future loan agreements may impose operating and financial restrictions on
Energy
Merger and the SPVs. These restrictions may limit their ability to:
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incur
additional indebtedness;
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create
liens on its assets;
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sell
capital stock of its subsidiaries;
|
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engage
in mergers or acquisitions;
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make
capital expenditures;
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change
the management of its vessels or terminate or materially amend
the
management agreement relating to each vessel;
and
|
Therefore,
Energy Merger may need to seek permission from its lenders in order to engage
in
some important corporate or other actions. The lenders’ interests may be
different from those of Energy Merger and its stockholders, and Energy Merger
cannot guarantee that it will be able to obtain the lenders’ permission when
needed or desired. This may prevent Energy Merger from taking actions that
are
in its best interest and restrict its growth and flexibility in operating
its
business.
Servicing
the debt that Energy Merger will incur upon completion of the Business
Combination will limit funds available for other purposes and if Energy Merger
cannot service its debt, it may lose its vessels.
Energy
Merger expects to incur approximately $415 million of indebtedness in
connection
with the purchase of the SPVs
and may
also incur additional debt to finance the acquisition of additional vessels.
Pursuant to its committed term sheet with its lenders, Energy Merger
will be
eligible to borrow no more than $415 million upon completion of the Business
Combination and the actual amount that it will be able to draw down under
its
credit facility will depend on the estimated charter free value of the
vessels
that Energy Merger will acquire. Energy Merger will be required to dedicate
a
portion of its cash flow from operations to pay the principal and interest
on
its debt. These payments will limit funds available for working capital,
capital
expenditures and other purposes, including making distributions to stockholders
and further equity or debt financing in the future. Amounts borrowed
under the
credit facility will bear interest at variable rates. Increases in prevailing
rates would generally increase the amounts that Energy Merger would have
to pay
to its lenders, even though the outstanding principal amount would remain
the
same, and as a result its net income and cash flows would decrease.
A
1/8 %
increase or decrease in the rate of interest that Energy Merger would
have to
pay to its lenders will cause its annual interest expense to increase
or
decrease by approximately $519,000.
Energy Merger expects its earnings
and cash flow to vary from year to year due to the cyclical nature of
the tanker
industry. If Energy Merger does not generate or reserve enough cash flow
from
operations to satisfy its debt obligations, it may have to undertake
alternative
financing plans, such as:
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seeking
to raise additional capital;
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·
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refinancing
or restructuring its debt;
|
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·
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selling
tankers or other assets; or
|
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·
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reducing
or delaying capital investments.
|
However,
these alternative financing plans, if necessary, may not be sufficient to
allow
Energy Merger to meet its debt obligations. If Energy Merger is unable to
meet
its debt obligations or if some other default occurs under its credit
agreements, the lenders could elect to declare that debt, together with accrued
interest and fees, to be immediately due and payable and proceed against
the
collateral securing that debt, which will constitute its entire fleet and
substantially all of its assets.
The
market value of the vessels that Energy Merger will acquire, which is near
historically high levels, may decrease, which could limit the amount of funds
that it can borrow under its credit facility, cause it to fail to meet certain
financial covenants in its credit facility and adversely affect its operating
results.
The
market value of VLCCs has been volatile and market prices for secondhand
vessels
are currently near historically high levels. You should expect the market
value
of the vessels that Energy Merger intends to acquire to fluctuate depending
on
general economic and market conditions affecting the shipping industry and
prevailing charter hire rates, competition from other shipping companies
and
other modes of transportation, types, sizes and age of vessels, applicable
governmental regulations and the cost of newbuildings. If the market value
of
Energy Merger’s vessels declines, it may not be able to draw down funds under
its credit arrangements, distribute dividends and it may not be able to obtain
other financing or incur debt on terms that are acceptable to it or at
all.
If
the
market value of Energy Merger’s vessels decreases, it may breach some of the
covenants contained in the financing agreements relating to its indebtedness
at
the time, including covenants in the credit facility that it expects to enter
into in connection with the completion of the Business Combination. If it
does
breach any such covenants and it is unable to remedy the relevant breach,
its
lenders could accelerate its debt and foreclose on its vessels. In addition,
if
the book value of a vessel is impaired due to unfavorable market conditions
or a
vessel is sold at a price below its book value, Energy Merger would incur
a loss
that could have a material adverse effect on its business, financial condition,
results of operations and ability to pay dividends.
Risk
s
Relating to Energy Merger’s Industry
Energy
Merger’s fleet will include four single hull tankers which may be unable to
trade in many markets after 2010, thereby adversely affecting Energy Merger’s
overall financial position.
Four
of
the nine vessels that Energy Merger will acquire in the Business Combination
are
single hull tankers. The United States, the European Union and the International
Maritime Organization, or IMO, have all imposed limits or prohibitions on
the
use of these types of tankers in specified markets after certain target dates,
depending on certain factors such as the size of the vessel and the type
of
cargo. In the case of the four single hull tankers that Energy Merger will
acquire, these phase out dates range from 2010 to 2015. As of April 15, 2005,
the Marine Environmental Protection Committee of the IMO has amended the
International Convention for the Prevention of Pollution from Ships to
accelerate the phase out of certain categories of single hull tankers, including
the types of vessels that will be included in Energy Merger’s fleet, from 2015
to 2010 unless the relevant flag states extend the date. This change could
result in some or all of the single hull tankers that Energy Merger will
acquire
being unable to trade in many markets after 2010.
Following
a spill of approximately 10,800 tonnes of crude oil in South Korean waters
by
the 1993 built, single-hulled VLCC “Hebei Spirit” in November 2007, there have
been a number of announcements by South Korean government officials and refiners
that suggest that South Korea may ban the use of single-hull vessels no later
than 2011. The single-hull vessels that Energy Merger will acquire occasionally
operate in South Korean waters and any acceleration of the single-hull phase
out
by South Korea, or other regions in which these single-hull vessels trade,
could
affect Energy Merger’s ability to employ and generate revenue from these vessels
and could materially and adversely affect the market value of Energy Merger’s
shares.
In
addition, single hull tankers are subject to more restrictive regulatory
requirements than double hull tankers and are likely to be chartered less
frequently and at lower rates. Additional regulations may be adopted in the
future that could further adversely affect the useful lives of the single
hull
tankers that Energy Merger will acquire, as well as Energy Merger’s ability to
generate income from them. If the economic lives assigned to the tankers
prove
to be too long because of new regulations or other future events, higher
depreciation expense and impairment losses could be required in future periods
due to the reduction in the useful lives of the affected vessels, thereby
having
a materially adverse effect on Energy Merger’s results of operations. In
addition, any reduction in economic lives assigned to Energy Merger’s vessels
could result in a breach of covenants contained in the financing agreements
relating to its indebtedness at the time.
Vessel
values may fluctuate which may result in the incurrence of a loss upon disposal
of a vessel or increase the cost of acquiring additional
vessels.
Vessel
values may fluctuate due to a number of different factors, including: general
economic and market conditions affecting the shipping industry; competition
from
other shipping companies; the types and sizes of available vessels; the
availability of other modes of transportation; increases in the supply of
vessel
capacity; the cost of newbuildings; governmental or other regulations;
prevailing freight rates; and the need to upgrade second hand and previously
owned vessels as a result of charterer requirements, technological advances
in
vessel design or equipment or otherwise. In addition, as vessels grow older,
they generally decline in value. Due to the cyclical nature of the product
tanker market, if for any reason Energy Merger sells any of its owned vessels
at
a time when prices are depressed, it could incur a loss and Energy Merger’s
business, results of operations, cash flow and financial condition could
be
adversely affected.
Conversely,
if vessel values are elevated at a time when Energy Merger wishes to acquire
additional vessels, the cost of acquisition may increase and this could
adversely affect Energy Merger’s business, results of operations, cash flow and
financial condition.
Any
decrease in shipments of crude oil from the Arabian Gulf or West Africa may
adversely affect Energy Merger’s financial
performance.
The
demand for very large crude carrier, or VLCC, oil tankers derives primarily
from
demand for Arabian Gulf and West African crude oil, which, in turn, primarily
depends on the economies of the world's industrial countries and competition
from alternative energy sources. A wide range of economic, social and other
factors can significantly affect the strength of the world's industrial
economies and their demand for Arabian Gulf and West African crude
oil.
Among
the
factors which could lead to a decrease in demand for Arabian Gulf and West
African crude oil are:
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increased
refining capacity in the Arabian Gulf or West African regions;
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increased
use of existing and future crude oil pipelines in the Arabian Gulf
or West
African regions;
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a
decision by OPEC to increase its crude oil prices or to further
decrease
or limit their crude oil
production;
|
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armed
conflict in the Arabian Gulf or West Africa and political or other
factors;
|
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increased
oil production in other regions, such as Russia; and
|
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the
development and the relative costs of nuclear power, natural gas,
coal and
other alternative sources of
energy.
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Any
significant decrease in shipments of crude oil from the Arabian Gulf may
adversely affect Energy Merger’s financial performance.
An
economic slowdown in the Asia Pacific region could have a material adverse
effect on
Energy
Merger’s business, financial position and results of
operations.
A
significant number of the port calls made by Energy Merger’s vessels are
expected to involve the delivery of crude oil to ports in the Asia Pacific
region. As a result, a negative change in economic conditions in any Asia
Pacific country, but particularly in China or India, may have an adverse
effect
on Energy Merger’s future business, financial position and results of
operations, as well as its future prospects. In particular, in recent years,
China has been one of the world’s fastest growing economies in terms of gross
domestic product, including demand for crude oil. Energy Merger cannot assure
you that such
growth
will be sustained or that the Chinese economy will not experience contraction
in
the future. Moreover, any slowdown
in the
economies of the United States, the European Union or certain Asian countries
may adversely effect economic growth in China and elsewhere. Energy Merger’s
business, financial position and results of operations, as well as its future
prospects, will likely be materially and adversely affected by an economic
downturn in any of these countries.
Risks
involved with operating ocean going vessels could affect
Energy
Merger’s business and reputation, which would adversely affect its
revenue.
The
operation of an ocean-going vessel carries inherent risks. These risks include
the possibility of:
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crew
strikes and/or boycotts;
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environmental
accidents;
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cargo
and property losses or damage; and
|
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business
interruptions caused by mechanical failure, human error, war, terrorism,
political action in various countries or adverse weather
conditions.
|
Any
of
these circumstances or events could have a material adverse effect on Energy
Merger’s financial condition and results of operations.
Energy
Merger
’s
worldwide operations will expose it to global risks that may interfere with
the
operation of its vessels.
Energy
Merger is expected to conduct its operations worldwide. Changing economic,
political and governmental conditions in the countries where Energy Merger
is
incorporated or engaged in business or in Hong Kong where all its vessels
are
registered
,
affect
Energy Merger’s operations. In the past, political conflicts, particularly in
the Arabian Gulf, resulted
in
attacks on vessels, mining of waterways and other efforts to disrupt shipping
in
the area. Acts of terrorism and piracy have
also
affected vessels trading in regions such as the South China Sea. The likelihood
of future acts of terrorism may increase, and Energy Merger’s vessels may face
higher risks of being attacked. In addition, future hostilities or other
political instability in regions where Energy Merger’s vessels trade could have
a material adverse effect on its trade patterns and adversely affect its
operations and performance.
Rising
fuel prices may adversely affect Energy Merger’s results of
operations.
Fuel
is
the most significant operating expense for the vessels that Energy Merger
will
acquire. Although the charterers of the vessels are responsible for fuel
costs
with respect to eight of the vessels in Energy Merger’s initial fleet, one of
the vessels operates under a consecutive voyage charter pursuant to which
the
vessel owner is responsible for fuel costs. In addition, an increase in the
price of fuel would decrease the amount of profit share that Energy Merger
is
eligible to earn under the charter agreements that have a profit share
arrangement. The price and supply of fuel is unpredictable and fluctuates
based
on events outside Energy Merger’s control, including geopolitical developments,
supply and demand for oil and gas, actions by OPEC and other oil and gas
producers, war and unrest in oil producing countries and regions, regional
production patterns and environmental concerns. As a result, an increase
in the
price of fuel may adversely affect Energy Merger’s results of operations.
Exposure
to currency exchange rate fluctuations will result in fluctuations in Energy
Merger’s cash flows and operating results.
Energy
Merger will generate all its revenue in U.S. dollars, but its Manager will
incur
certain vessel operating expenses and general and administrative expenses,
in
currencies other than the U.S. dollar. This difference could lead to
fluctuations in expenses that Energy Merger will be required to reimburse
to the
Manager, which could affect its financial results. Expenses incurred in foreign
currencies increase in dollar terms, which will be Energy Merger’s functional
and reporting currency, when the value of the U.S. dollar falls, which would
reduce Energy Merger’s profitability.
Energy
Merger
may become dependent on spot charters in the volatile shipping markets which
may
have an adverse impact on the stability of its cash flows and
revenue.
Energy
Merger may employ one or more of its vessels on spot charters when the existing
period charters on its vessels expire. The spot charter market is highly
competitive and rates within this market are subject to volatile fluctuations,
while longer-term period time charters provide income at pre-determined rates
over more extended periods of time. If Energy Merger decides to spot charter
its
vessels, there can be no assurance that Energy Merger will be successful
in
keeping all its vessels fully employed in these short-term markets or that
future spot rates will be sufficient to enable its vessels to be operated
profitably. A significant decrease in charter rates could affect the value
of
Energy Merger’s fleet and could adversely affect its profitability and
cash
flows with the result that its ability to service and repay its debt to its
lenders and to pay dividends to its stockholders could be impaired.
Energy
Merger’s operating results from its tankers will be subject to seasonal
fluctuations, which may adversely affect its operating results and ability
to
pay dividends.
Energy
Merger operates its tankers in markets that have historically exhibited seasonal
variations in demand and, therefore, charter rates. This seasonality may
result
in quarter-to-quarter volatility in its operating results with respect to
any of
its vessels that become engaged in the spot charter market or that are subject
to longer term charters that contain market related profit sharing arrangements.
The tanker sector is typically stronger in the fourth and first quarters
of the
calendar year in anticipation of increased consumption of oil and petroleum
in
the northern hemisphere during the winter months. As a result, Energy Merger’s
revenue from its tankers may be weaker during the fiscal quarters ended June
30
and September 30, and, conversely, revenue may be stronger in fiscal quarters
ended December 31 and March 31. This seasonality could increase the volatility
of Energy Merger’s operating results and cash flows and adversely affect Energy
Merger’s cash available for dividends in the future.
The
cyclical nature of the tanker industry may lead to volatile changes in charter
rates which may adversely affect Energy Merger’s
earnings.
Upon
closing of the Business Combination, all of Energy Merger’s vessels will be
trading on medium or long-term charters, which expire during the period from
and
including 2009 through 2017. Historically, the tanker industry has been highly
cyclical, with volatility in profitability and asset values resulting from
changes in the supply of and demand for tanker capacity. Fluctuations in
charter
rates and vessel values result from these changes in the supply and demand
for
tanker capacity. If the tanker market is depressed in the future, Energy
Merger’s earnings and available cash flow may decrease.
The
factors affecting the supply and demand for tanker vessels are outside of
Energy
Merger’s control, and the nature, timing and degree of changes in industry
conditions are unpredictable. The factors that influence demand for tanker
capacity include:
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changes
in global crude oil production;
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demand
for oil and production of crude oil and refined petroleum
products;
|
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changes
in oil production and refining
capacity;
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global
and regional economic and political
conditions;
|
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the
distance oil and oil products are to be moved by
sea;
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environmental
and other regulatory developments; and
|
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changes
in seaborne and other transportation patterns, including changes
in the
distances over which cargo is transported due to geographic changes
in
where oil is produced, refined and
used.
|
The
factors that influence the supply of tanker capacity include:
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the
number of newbuilding deliveries;
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the
scrapping rate of older vessels;
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port
or canal congestion;
|
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the
number of vessels that are out of service;
and
|
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national
or international regulations that may effectively cause reductions
in the
carrying capacity of vessels or early obsolescence of
tonnage.
|
If
the
number of new ships delivered exceeds the number of tankers being scrapped
and
lost, tanker capacity will increase. If the supply of tanker capacity increases
and the demand for tanker capacity does not increase correspondingly, the
charter rates paid for Energy Merger’s tankers could materially decline. Any
decline in charter rates as a result of significant changes in the levels
of the
supply of and demand for tanker vessels or otherwise could negatively impact
Energy Merger’s business, results of operations, cash flow and financial
condition.
Compliance
with strict regulatory requirements, including environmental laws and
regulations and inspection and vetting procedures, may have an adverse effect
on
Energy Merger’s business.
The
shipping industry is affected by numerous regulations in the form of
international conventions, national, state and local laws as well as national
and international regulations enforced in the jurisdictions in which Energy
Merger’s vessels will operate and be registered. Current regulation of vessels,
particularly in the areas of safety and environmental impact, may change
in the
future and require Energy Merger to incur significant capital expenditures
and/or additional operating costs in order to keep its vessels in compliance.
In
addition, any future carbon tax on the bunker fuel used by Energy Merger’s
vessels or a tax based on the carbon dioxide emissions of Energy Merger’s
vessels could significantly increase Energy Merger’s operating costs. In
addition, in the event of any breach of environmental laws or regulations,
including as a result of environmental discharges, Energy Merger may be subject
to severe fines and penalties.
International
shipping is also subject to increasingly rigorous security and customs
inspection and related procedures in countries of origin and destination
and
trans-shipment points. These procedures can result in cargo seizure, delays
in
the loading, offloading, trans-shipment or delivery of cargo and the levying
of
customs duties, fines or other penalties against exporters or importers and,
in
some cases, carriers.
Energy
Merger will be required by various governmental and regulatory agencies to
obtain certain permits, licenses and certificates in order to operate its
fleet.
Energy Merger will also be subject to stringent vetting procedures, carried
out
by its customers. Failure to hold valid permits, licenses and certificates
or to
secure and maintain sufficient vetting approvals from its customers could
negatively affect Energy Merger’s ability to employ its vessels, including as a
result of its charterers cancelling or not renewing existing charters or
a
failure to attract new customers. In addition, a failure to hold a necessary
permit, license, certificate or approval in respect of one vessel could have
an
adverse impact on other vessels under Energy Merger’s control.
Each
of
these factors may adversely affect Energy Merger’s business, results of
operations, cash flow and financial condition.
Capital
expenditures and other costs necessary to operate and maintain Energy Merger’s
vessels may increase due to changes in governmental regulations, safety or
other
equipment standards, which may adversely affect Energy Merger’s
revenue.
Changes
in governmental regulations, safety or other equipment standards, as well
as
compliance with standards imposed by maritime self-regulatory organizations
and
customer requirements or competition, may require Energy Merger to make
additional capital expenditures. In order to satisfy these requirements,
Energy
Merger may, from time to time, be required to take its vessels out-of-service
for extended periods of time, with corresponding loss of revenue. In the
future,
market conditions may not justify these expenditures or enable Energy Merger
to
operate some or all of its vessels profitably during the remainder of their
economic lives. In addition, Energy Merger may need to incur additional
indebtedness to finance such capital expenditure, which may not be available
on
reasonable terms or at all, or which Energy Merger may be prohibited from
incurring by the terms of its then existing indebtedness.
If
any of
Energy
Merger’s vessels fails to maintain its class certification and/or fails any
annual survey, intermediate survey, drydocking or special survey, it could
have
a material adverse impact on Energy Merger’s financial condition and results of
operations.
The
hull
and machinery of every commercial vessel must be classed by a classification
society authorized by its country of registry. The classification society
certifies that a vessel is safe and seaworthy in accordance with the applicable
rules and regulations of the country of registry of the vessel and the Safety
of
Life at Sea Convention or SOLAS. Energy Merger’s vessels are expected to be
classed with one or more classification societies that are members of the
International Association of Classification Societies.
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. Energy Merger’s vessels are expected to be on special
survey cycles for hull inspection and
continuous survey cycles for machinery inspection. Every vessel will also
be
required to be drydocked every two to three years for inspection of the
underwater parts of such vessels.
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. Any such inability
to carry
cargo or be employed, or any such violation of covenants, could have a material
adverse impact on Energy Merger’s financial condition and results of operations.
Maritime
claimants could arrest
Energy
Merger’s vessels, which could interrupt its cash
flow.
Crew
members, suppliers of goods and services to a vessel, shippers of cargo and
other parties may be entitled to a maritime lien against that vessel for
unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien
holder may enforce its lien by arresting a vessel through foreclosure
proceedings. The arresting or attachment of one or more of Energy Merger’s
vessels could interrupt its cash flow and require it to pay large sums to
have
the arrest lifted which could have a material adverse effect on Energy Merger’s
financial condition and results of operations. In addition, in some
jurisdictions, such as South Africa, under the “sister ship” theory of
liability, a claimant may arrest both the vessel which is subject to the
claimant’s maritime lien and any “associated” vessel, which is any vessel owned
or controlled by the same owner. Claimants could try to assert “sister ship”
liability against one of Energy Merger’s vessels for claims relating to another
of its vessels.
Governments
could requisition
Energy
Merger’s vessels during a period of war or emergency, resulting in loss of
earnings.
A
government could requisition for title or seize Energy Merger’s vessels.
Requisition for title occurs when a government takes control of a vessel
and
becomes the owner. Also, a government could requisition Energy Merger’s vessels
for hire. Requisition for hire occurs when a government takes control of
a
vessel and effectively becomes the charterer at dictated
charter
rates. Generally, requisitions occur during a period of war or emergency.
Government requisition of one or more of
Energy
Merger’s vessels could have a material adverse effect on Energy Merger’s
financial condition and results of operations.
Risks
Relating to Energy Merger’s Common Stock
Energy
Merger’s common share price may be highly volatile and future sales of its
common shares could cause the market price of its common shares to decline.
The
market price of Energy Merger’s common shares may fluctuate significantly in
response to many factors, such as actual or anticipated fluctuations in its
operating results, changes in financial estimates by securities analysts,
economic and regulatory trends, general market conditions, rumors and other
factors, many of which are beyond Energy Merger’s control. Investors in Energy
Merger’s common shares may not be able to resell their shares at or above their
purchase price due to those factors, which include the risks and uncertainties
set forth in this joint proxy statements/prospectus.
If
outstanding warrants are exercised, the underlying common shares will be
eligible for future resale in the public market. ‘‘Market overhang’’ from the
warrants
could
have an adverse effect on the common stock’s market
price.
Outstanding
warrants to purchase an aggregate of 21,750,398 shares of common stock
issued in
connection with Energy Infrastructure’s private placement and initial public
offering will become exercisable after consummation of the Business Combination.
In addition, currently outstanding convertible loans aggregating $2,685,000
will
be converted, into 268,500 units, at a price of $10.00 per unit, Energy
Infrastructure will be issuing an aggregate of 1,000,000 units to its President
and Chief Operating Officer (or any assignee thereof) upon consummation
of the
Business Combination, and Vanship will purchase up to 5,000,000 units at
a
purchase price of $10.00 per unit, all resulting in the issuance of up
to
6,268,500 additional units. If these warrants are exercised, a substantial
number of additional shares of common stock of Energy Merger will be eligible
for resale in the public market, which could adversely affect the market
price.
In addition, exercise of such warrants and conversion of such convertible
loans
could cause dilution of existing stockholder interests in Energy Merger.
See
"Description of Energy Infrastructure Securities - Warrants."
Registration
rights held by
Energy
Infrastructure’s stockholders who purchased shares prior to the initial public
offering may
have
an adverse effect on the market price of Energy Merger’s common
stock.
Energy
Infrastructure’s initial stockholders who purchased common stock prior to the
initial public offering are entitled to demand that Energy Merger register
the
resale of their shares at any time after they are released from escrow
which,
except in limited circumstances, will not be before July 18, 2009. If such
stockholders exercise their registration rights with respect to all of
their
shares, there will be an additional 5,268,849 shares of common stock eligible
for trading in the public
market.
In addition, each of Energy Corp., which purchased units in Energy
Infrastructure’s private placement
in July
2006 and holders of shares of common stock issuable upon conversion of
the
convertible loans is entitled to demand the registration of the securities
underlying the 825,398 units and 268,500 units, respectively, at any time
after
Energy Infrastructure announces that it has entered into a letter of intent,
an
agreement in principle or a definitive agreement in connection with a business
combination. Energy Infrastructure announced Energy Merger’s entry into the
Share Purchase Agreement on December 6, 2007. Under the Share Purchase
Agreement, Energy Merger has agreed, with some limited exceptions, to include
(i) the 13,500,000 shares of Energy Merger’s common stock comprising the stock
consideration portion of the aggregate purchase price for the SPVs, (ii)
the
shares of Energy Merger’s common stock underlying the 425,000 warrants that Mr.
George Sagredos will transfer to Vanship, and (iii) the 1,000,000 units
and
underlying shares and warrants included in the units to be issued to George
Sagredos (or his assignees) in Energy Merger’s registration statement of which
this joint proxy statement/prospectus is a part. Energy Merger has also
granted
the holders of such securities (on behalf of themselves or their affiliates)
the
right, under certain circumstances and subject to certain restrictions,
to
demand that Energy Merger register the resale of such
securities
in the
future.
In
addition, such securityholders will have the ability to exercise certain
piggyback registration rights 180 days following the
effective
date of the Business Combination. In connection with Business Combination
Private Placement, Energy Merger will grant to Vanship certain demand and
piggyback registration rights with respect to up to 5,000,000 units.
If
all of
these securityholders exercise their registration rights with respect to
all of
their warrants and shares of common
stock,
there will be additional warrants and shares of common stock eligible for
trading in the public market. The sale or perception that
these
additional securities are available for sale may have an adverse effect
on the
market price of Energy Merger’s warrants and common stock. See "Shares Eligible
for Future Sale - Registration Rights."
Investors
should not rely on an investment in
Energy
Merger if they require dividend income. It is not certain that Energy Merger
will pay a dividend and the return on an investment in Energy Merger, if
any,
may come solely from appreciation of its common stock, which is also not
assured.
Under
the
Share Purchase Agreement and subject to its ability to do so under applicable
law, Energy Merger has agreed to pay dividends of $1.54 per share to Energy
Merger's public stockholders by the end of the first year following the
consummation of the Business Combination. Vanship has agreed, and it is a
condition to the closing of the Business Combination that Energy Merger insiders
shall have agreed, to waive any right to receive dividend payments in the
one-year period immediately following the consummation of the Business
Combination in order to facilitate the payment of these dividends to Energy
Merger’s public stockholders. These dividend waivers will be made by
stockholders holding approximately 55% of Energy Merger’s common stock (on an
undiluted basis) in the first year following the Business Combination and
accordingly, annual dividends of $1.54 per share should not be considered
indicative of any dividend payments subsequent to the first anniversary of
the
Business Combination.
Energy
Merger
’s
projection that it will be able to pay dividends of $1.54 per share to its
public stockholders by the end of the first year following the Business
Combination is based on numerous assumptions, including the assumption that
no
stockholders of Energy Merger vote against the Business Combination and demand
that their shares be redeemed. Funds from the Trust Account that are used
to
redeem shares of Energy Merger’s stock following completion of the Business
Combination may decrease the amount of funds available for payment of these
dividends. In addition, one or more assumptions which form the basis of such
projection may not occur. Accordingly, Energy Merger may achieve lower than
anticipated revenue in its first full year of operations and
may
incur
expenses or liabilities that would reduce or eliminate the cash available
for
distribution of these dividends.
As a
result, Energy Merger may not have sufficient funds to pay dividends of $1.54
per share, or any other amount, to its public stockholders by the end of
the
first year following the completion of the Business Combination.
The
payment of dividends following the Business Combination will be in the
discretion of Energy Merger’s board of directors and will depend on market
conditions and Energy’s Merger’s business strategy in any given period. The
timing and amount of dividends, if any, will depend on Energy Merger’s earnings,
financial condition, cash requirements and availability, fleet renewal and
expansion, restrictions in its loan agreements, the provisions of Marshall
Islands law
affecting
the payment of dividends and other factors. Marshall Islands law generally
prohibits the payment of dividends other
than
from surplus or while a company is insolvent or would be rendered insolvent
upon
the payment of such dividends, or if there is no surplus, dividends may be
declared or paid out of net profits for the fiscal year in which the dividend
is
declared and for the preceding fiscal year. Energy Merger may not pay dividends
in the anticipated amounts and frequency set forth in this joint proxy
statement/prospectus or at all.
Investor
confidence and the market price of Energy Merger’s common stock may be adversely
impacted if Energy Merger is unable to comply with Section 404 of the
Sarbanes-Oxley Act of 2002.
Subsequent
to completion of the Business Combination, Energy Merger will become
subject to
Section 404 of the Sarbanes-Oxley Act of 2002, which will require it
to include
in its annual report on Form 20-F its management's report on, and assessment
of
the effectiveness of, its and its Manager’s internal controls over financial
reporting.
Potential
material weaknesses may be identified and reported as a result of the
requirements if (i) Energy Merger
fails to maintain the adequacy of its
internal controls over financial reporting, (ii) it fails to effectively
monitor
its Manager’s internal controls over financial reporting, or (iii) its Manager
fails to maintain the adequacy of its own internal controls over financial
reporting. Any material weaknesses reported could result in an adverse
reaction in the financial marketplace due to a loss of investor confidence
in
the reliability of Energy Merger’s financial statements, which ultimately could
harm its business and could negatively impact the market price of its
common
stock. We believe the total cost of Energy Merger’s initial compliance and the
future ongoing costs of complying with these requirements may be
substantial.
Risk
s
Related to the Redomiciliation Merger
Energy
Merger is incorporated in the Republic of the Marshall Islands, which does
not
have a well-developed body of corporate law, causing its public stockholders
to
have more difficulty in protecting their interests.
Energy
Merger’s corporate affairs are governed by its articles of incorporation and
bylaws and by the Marshall Islands Business Corporations Act, or BCA. The
provisions of the BCA resemble provisions of the corporation laws of a number
of
states in the United States. However, there have been few judicial cases
in the
Republic of the Marshall Islands interpreting the BCA. The rights and fiduciary
responsibilities of directors under the law of the Republic of the Marshall
Islands are not as clearly established as the rights and fiduciary
responsibilities of directors under statutes or judicial precedent in existence
in certain United States jurisdictions. Stockholder rights may differ as
well.
While the BCA does specifically incorporate the non-statutory law, or judicial
case law, of the State of Delaware and other states with substantially similar
legislative provisions, Energy Merger’s public stockholders may have more
difficulty in protecting their interests in the face of actions by the
management, directors or controlling stockholders than would stockholders
of a
corporation incorporated in a United States jurisdiction. For more information
with respect to how stockholder rights under Marshall Islands law compares
with
stockholder rights under Delaware law, please see the section entitled
“Comparison of Energy Infrastructure and Energy Merger Stockholder
Rights.”
Being
a foreign private issuer will exemp
t
Energy Merger from certain Securities and Exchange Commission requirements
that
provide stockholders the protection of information that must be made available
to stockholders of United States public companies.
Energy
Merger is expected to continue to be a foreign private issuer within the
meaning
of the rules promulgated under the Securities Exchange Act of 1934. As such,
it
will be exempt from certain provisions applicable to United States public
companies including:
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The
rules requiring the filing with the SEC of quarterly reports on
Form 10-Q
or current reports on Form 8-K;
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·
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The
sections of the Securities Exchange Act regulating the solicitation
of
proxies, consents or authorizations with respect to a security
registered
under the Securities Exchange Act;
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·
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Provisions
of Regulation FD aimed at preventing issuers from making selective
disclosures of material information;
and
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The
sections of the Securities Exchange Act requiring insiders to file
public
reports of their stock ownership and trading activities and establishing
insider liability for profits realized from any ‘‘short swing’’ trading
transactions (i.e., a purchase and sale, or a sale and purchase,
of the
issuer’s equity securities within less than six
months).
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Because
of these exemptions, Energy Merger’s stockholders will not be afforded the same
protections or information generally available to stockholders of Energy
Infrastructure or investors holding shares in other public companies organized
in the United States.
Energy
Merger
is incorporated under the laws of the Marshall Islands and its directors
and
officers are non-U.S. residents, and although you may bring an original action
in the courts of the Marshall Islands or obtain a judgment against Energy
Merger, its directors or its management based on U.S. laws in the event you
believe your rights as a stockholder have been infringed, it may be difficult
to
enforce judgments against Energy Merger, its directors or its
management.
Energy
Merger is incorporated under the laws of the Republic of the Marshall Islands,
and all of its assets are located outside
of the
United States. Energy Merger’s business will be operated primarily from its
offices in Hong Kong. In addition, Energy Merger’s directors and officers,
following the Redomiciliation Merger, will be non-residents of the United
States, and all or a
substantial
portion of the assets of these non-residents are and are expected to continue
to
be located outside the United States. As a result, it may be difficult
or
impossible for you to bring an action against Energy Merger or against
these
individuals in the United States if you believe that your rights have been
infringed under securities laws or otherwise. Even if you are successful
in
bringing an action of this kind, the laws of the Marshall Islands and of
other
jurisdictions may prevent or restrict you from enforcing a judgment against
Energy Merger’s assets or the assets of its directors and officers. Although you
may bring an original action against Energy Merger, its affiliates or any
expert
named in this prospectus in the courts of the Marshall Islands based on
U.S.
laws, and the
courts
of
the Marshall Islands may impose civil liability, including
monetary damages, against Energy Merger, its affiliates or any
expert
named in this prospectus for a cause of action arising under Marshall Islands
law, it may be impracticable for you to do
so given
the geographic location of the Marshall Islands. Furthermore, in order
to
enforce any such judgment against Energy Merger, its officers or its directors,
it is likely that enforcement proceedings would need to be taken in
jurisdictions where such assets are located, which are likely to be outside
the
Marshall Islands and United States. For more information regarding the
relevant
laws of the Marshall Islands, please read “Enforceability of Civil
Liabilities.”
There
is a risk that Energy Merger could be treated as a U.S. domestic corporation
for
U.S. federal income tax purposes after the
Business
Combination and Redomiciliation Merger, which could result in significantly
greater U.S. federal income tax liability to Energy Merger.
Section
7874(b) (‘‘Section 7874(b)’’) of the Internal Revenue Code of 1986, as amended,
or the Code, generally provides that a corporation organized outside the
United
States which acquires, directly or indirectly, pursuant to a plan or series
of
related transactions substantially all of the assets of a corporation organized
in the United States will be treated as a domestic corporation for U.S. federal
income tax purposes if stockholders of the acquired corporation own at least
80%
(of either the voting power or the value) of the stock of the acquiring
corporation after the acquisition. If Section 7874(b) were to apply to the
Redomiciliation Merger, then Energy Merger, as the surviving entity, would
be
subject to U.S. federal income tax on its worldwide taxable income following
the
Business Combination and Redomiciliation Merger as if Energy Merger were
a
domestic corporation.
Although
it is not expected that Section 7874(b) will apply to treat Energy Merger
as a
domestic corporation for U.S. federal income tax purposes, because of the
absence of extensive guidance on how the rules of Section 7874(b) will apply
to
the transactions contemplated by the Business Combination and Redomiciliation
Merger, this result is not entirely free from doubt. As a result, stockholders
and warrant holders are urged to consult their own tax advisors on this issue.
The balance of this discussion assumes that Energy Merger will be treated
as a
foreign corporation for U.S. federal income tax purposes. This topic is
discussed in more detail below under the heading “Taxation — United States
Federal Income Taxation.”
Energy
Infrastructure generally will recognize gain (but not loss) for U.S. federal
income tax purposes as a result of the
Redomiciliation
Merger, which will result in increased U.S. federal income tax liability
to
Energy Infrastructure.
As
a
result of the Redomiciliation Merger, Energy Infrastructure generally will
recognize gain (but not loss) for U.S. federal income tax purposes equal
to the
excess, if any, of the fair market value of each of its assets over such
asset’s
adjusted tax basis at the effective time of the Redomiciliation Merger. Any
such
gain generally would be attributable to the appreciation in value of the
non-cash assets of Energy Infrastructure (including its rights under the
Share
Purchase Agreement) at the time of the Redomiciliation Merger. Since any
such
gain will be determined based on the value of such assets at that time, the
amount of such gain (and any U.S. federal income tax liability to Energy
Infrastructure by reason of such gain) cannot be determined at this time.
This
topic is discussed in more detail below under the heading “Taxation — United
States Federal Income Taxation.” Stockholders and warrant holders are urged to
consult their own tax advisors on this tax issue and other tax issues in
connection with the Redomiciliation Merger.
There
is a risk that Energy Merger will be classified as a passive foreign investment
company, or ‘‘PFIC,’’ which could result in adverse U.S. federal income tax
consequences to U.S. holders of common stock or warrants of Energy
Merger.
Energy
Merger will be treated as a PFIC for any taxable year in which either (1)
at
least 75% of its gross income (looking through certain corporate subsidiaries)
is passive income or (2) at least 50% of the average value of its assets
(looking through certain corporate subsidiaries) produce, or are held for
the
production of, passive income. Passive income generally includes dividends,
interest, rents, royalties, and gains from the disposition of passive assets.
If
Energy Merger were a PFIC for any taxable year during which a U.S. holder
held
its common stock or warrants, the U.S. holder may be subject to increased
U.S.
federal income tax liability and may be subject to additional reporting
requirements. Based on the expected composition of the assets and income
of
Energy Merger and its subsidiaries after the Business Combination and
Redomiciliation Merger, it is not anticipated that Energy Merger will be
treated
as a PFIC following the Business Combination and Redomiciliation Merger.
The
actual PFIC status of Energy Merger for any taxable year, however, will not
be
determinable until after the end of its taxable year, and accordingly there
can
be no assurance as to the status of Energy Merger as a PFIC for the current
taxable year or any future taxable year. We urge U.S. holders to consult
their
own tax advisors regarding the possible application of the PFIC rules. For
a
more detailed discussion of the PFIC rules, see ‘‘Taxation — United States
Federal Income Taxation — Tax Consequences to U.S. Holders of Common Stock and
Warrants of Energy Merger — Passive Foreign Investment Company
Rules.’’
Risks
Relating to Energy Infrastructure Acquisition Corp.
Energy
Infrastructure
’s
directors and executive officers have interests in the Business Combination
that
may be different from
yours.
In
considering the recommendation of Energy Infrastructure’s directors to vote to
approve the Business Combination, you should be aware that they have agreements
or arrangements that provide them with interests in the Business Combination
that may differ from, or may be in addition to, those of Energy Infrastructure
stockholders generally. If the Business Combination is not
approved
and Energy Infrastructure does not acquire another target business by July
21,
2008, Energy Infrastructure will be required to liquidate and, subject to
stockholder approval, it will distribute to all of the holders of shares
issued
in its initial public
offering
in proportion to their respective equity interests, an aggregate amount equal
to
funds on deposit in the Trust Account, including any interest
not
previously released to it
(net
of
any taxes payable and the repayment of
convertible
loans aggregating $2,685,000,
if not
earlier converted)
,
plus
any remaining available assets. Energy Infrastructure’s officers and directors
have waived their respective rights to participate in any liquidation
distribution with respect to the 5,268,849 shares of common stock issued
to them
prior to our initial public offering and Energy Corp. has waived its rights
to
participate in any liquidation with respect to the 825,398 shares of common
stock acquired by it in the private placement and Energy Infrastructure would
not distribute funds from the Trust Account with respect to the Energy
Infrastructure warrants,
which
would expire.
In
connection with Energy Infrastructure’s initial public offering, Energy
Infrastructure’s current officers and directors agreed to indemnify Energy
Infrastructure to the extent of their pro rata beneficial interest in Energy
Infrastructure immediately prior to the initial public offering for debts
and
obligations to vendors that are owed money by Energy Infrastructure for services
rendered or products sold to Energy Infrastructure, but only to the extent
necessary to ensure that certain liabilities do not reduce the initial
$209,250,000 placed in the Trust Account. If the Business Combination is
consummated, Energy Infrastructure’s officers and directors will not have to
perform such obligations. If the Business Combination is not consummated,
however, certain of Energy Infrastructure’s officers and directors would
potentially be liable for any claims against the Trust Account by vendors
who
have not explicitly waived their right to make claims against the Trust Account.
The
personal and financial interests of the members of Energy Infrastructure’s board
of directors and executive officers may
have
influenced their motivation in identifying and selecting a target business
and
attempting to timely complete a business combination. Consequently, their
discretion in identifying and selecting a suitable target business may result
in
a conflict of interest when determining whether the terms, conditions and
timing
of a particular business combination are appropriate and in Energy
Infrastructure’s stockholders’ best interest.
You
should not place undue reliance on the fairness
opinion.
The
board
of directors of Energy Infrastructure received an opinion from New Century
Capital Partners on October 17, 2007 as to the fairness of the consideration
to
be paid to Vanship in exchange for the shares of the SPVs. The conclusion
reached by New Century Capital Partners was partially based on a comparable
company analysis that factored the closing stock price of certain comparable
publicly traded shipping companies on October 16, 2007. There have been
significant fluctuations in the market for publicly traded companies, including
shipping companies, in the past several months and such fluctuations may
continue until the Business Combination occurs. It is not certain what the
implied enterprise value of the combined SPVs would be if the same analysis
were
performed based on market prices at the time of the Business Combination.
Accordingly, it is not certain that the same analysis performed as of the
date
of the Business Combination would lead New Century Capital Partners to a
view
that the consideration to be paid to Vanship in exchange for the shares of
the
SPVs would be fair to Energy Infrastructure’s stockholders from a financial
point of view.
In
addition, the fairness opinion was prepared for the benefit of Energy
Infrastructure’s board of directors and does not purport to opine as to the
enterprise value of Energy Merger or the price at which Energy Merger’s shares
may trade subsequent to the Business Combination. Certain of the assumptions
that were used by New Century Capital Partners in performing the analyses
underlying the fairness opinion were provided by management of Energy
Infrastructure. The management of Energy Merger subsequent to the Business
Combination may have different views regarding such assumptions, including
assumptions used in the discounted cash flow analysis related to the combined
SPVs' weighted average cost of capital and the forecast financial information,
including forecast capital expenditures, that should be reflected in valuing
the
combined SPVs as a going concern. Accordingly, the fairness opinion should
not
be used to assess the enterprise value of Energy Merger or the price at which
Energy Merger’s common stock will trade subsequent to the Business
Combination.
For
the
foregoing reasons, investors are cautioned against placing undue reliance
on the
fairness opinion. The board of directors of Energy Infrastructure intends
to
obtain a bringdown fairness opinion prior to requesting the SEC to accelerate
effectiveness of this joint proxy statement/prospectus.
The
combined company’s working capital could be reduced if stockholders exercise
their redemption rights.
Pursuant
to E
n
ergy
Infrastructure’s certificate of incorporation, holders of shares purchased in
Energy Infrastructure’s initial public offering (other than Energy
Infrastructure’s initial stockholders) may vote against the Business Combination
and demand that Energy Infrastructure redeem their shares for a cash payment
of
$10.00 per share, plus a portion of the interest earned not previously released
to it (net of taxes payable), as of the record date. Energy Infrastructure
will
not consummate the Business Combination if holders of 6,525,119 or more shares
exercise these redemption rights. To the extent the Business Combination
is
consummated and holders have demanded to so redeem their shares, there will
be a
corresponding reduction in the amount of funds available to the combined
company
following the Business Combination. As of
2008,
the record date, assuming the Business Combination is approved, the maximum
amount of funds that could be disbursed to Energy Infrastructure’s stockholders
upon the exercise of their redemption rights is approximately
$ .
Energy
Infrastructure may not have sufficient funds to complete the Business
Combination.
If
holders of the maximum permissible number of shares elect redemption without
Energy Infrastructure being required to abandon the Business Combination,
as of
September 30, 2007, a total of approximately $65,838,441 of the Trust Account
would have been disbursed, leaving approximately $149,690,645 available
in the
Trust Account, plus up to $50,000,000 from the Business Combination Private
Placement, for the purchase of the SPVs and the payment of liabilities.
Energy
Infrastructure estimates that it will be required to pay approximately
$228,000,000 to Vanship in satisfaction of the cash consideration portion
of the
purchase price of the SPVs and that Energy Merger will be required to maintain
minimum cash reserves of $15,000,000 upon completion of the Business Combination
in order to draw down funds under its credit facility to refinance the
existing
debt of the SPVs. Accordingly, in the event that holders vote against the
Business Combination Proposal and exercise their redemption rights, Energy
Infrastructure may not have funds available to proceed with the Business
Combination unless it is able to obtain additional capital.
Assuming
that Energy Infrastructure stockholders approve the Business Combination,
Energy
Merger intends to sell such number of shares of its common stock equal
to the
number of shares of Energy Infrastructure common stock that are redeemed
upon
completion of the Business Combination. The proceeds of such sale would
be used
to fund redemptions of common stock by Energy Infrastructure’s stockholders.
There can be no assurance that Energy Merger will be able to successfully
complete such sale.
To
the
extent such sale is not completed and Energy Infrastructure has insufficient
funds to complete the Business Combination, the Business Combination will
not
occur, and it is likely that Energy Infrastructure will be required to
dissolve
and liquidate.
Energy
Infrastructure
will be required to dissolve and liquidate if it does not consummate a business
combination, in which event its stockholders may be held liable for claims
by
third parties against Energy Infrastructure to the extent of distributions
received by them.
If
Energy
Infrastructure does not consummate the Business Combination or another business
combination by July 21, 2008, then, pursuant to Article sixth of its
certificate of incorporation, Energy Infrastructure’s officers must take all
actions necessary in accordance with the General Corporation Law of the State
of
Delaware to dissolve and liquidate Energy Infrastructure as soon as reasonably
practicable after that date. Therefore, Energy Infrastructure will be required
to dissolve and liquidate the Trust Account to its public stockholders if
it
does not complete the Business Combination, or another business combination,
by
July 21, 2008.
Under
Sections 280 through 282 of the General Corporation Law of the State of
Delaware, stockholders of a corporation may be held liable for claims by
third
parties against the corporation to the extent of distributions received by
them
in dissolution of the corporation. If a corporation complies with certain
procedures intended to ensure that it makes reasonable provision for all
claims
against it, including a 60-day notice period during which any third-party
claims
can be brought against the corporation, a 90-day period during which the
corporation may reject any claims brought, and an additional 150-day waiting
period before any liquidating distributions are made to stockholders, any
liability of stockholders with respect to a liquidating distribution is limited
to the lesser of such stockholder’s pro rata share of the claim or the amount
distributed to the stockholder, and any liability of the stockholder would
be
barred after the third anniversary of the dissolution. Although Energy
Infrastructure will seek stockholder approval to liquidate the Trust Account
to
its public stockholders as part of a plan of dissolution and liquidation,
it
does not intend to comply with those procedures. In the event that Energy
Infrastructure’s directors recommend, and the stockholders approve, a plan of
dissolution and liquidation where it is subsequently determined that the
reserve
for claims and liabilities was insufficient, stockholders who received a
return
of funds from the Trust Account could be liable for claims made by creditors
to
the extent of distributions received by them. As such, Energy Infrastructure’s
stockholders could potentially be liable for any claims to the extent of
distributions received by them in dissolution. Accordingly, third parties
may
seek to recover from Energy Infrastructure stockholders amounts owed to them
by
Energy Infrastructure.
The
procedures Energy Infrastructure must follow under Delaware law if it is
required to dissolve and liquidate may result in substantial delays in the
liquidation of the Trust Account to its public stockholders as part of its
plan
of dissolution and distribution.
If
third parties bring claims against
Energy
Infrastructure, the proceeds held in trust could be reduced, which would
result
in a per-share liquidation value receivable by Energy Infrastructure’s public
stockholders from the Trust Account as part of its plan of dissolution and
liquidation that is less than $10.00.
Energy
Infrastructure’s placing of funds in trust may not protect those funds from
third party claims against it. Energy Infrastructure has
not
procured waivers from any creditors or prospective target businesses, and
if the
Business Combination is not effected, the material creditors of Energy
Infrastructure would consist of its legal advisors, accountants, and service
providers in connection with the Business Combination, such as experts and
printers. As of December 31, 2007, there are no creditor claims against Energy
Infrastructure.
Accordingly,
the proceeds held in trust could be subject to claims that could take priority
over the claims of Energy Infrastructure
’s
public
stockholders, which would result in a per-share liquidation value receivable
by
Energy Infrastructure’s public
stockholders from funds held in the Trust Account that is less than $10.00
per
share, plus interest (net of any taxes due on such interest and repayment
of
$2,685,000 of convertible loans).
In
connection with its initial public offering, Energy Infrastructure’s initial
officers and directors each entered into a letter agreement whereby they
agreed
to indemnify Energy Infrastructure against any loss, liability, claims, damage
and expense whatsoever (including, but not limited to, any and all legal
and
other expenses reasonably incurred in investigating, preparing or defending
against any litigation, whether pending or threatened, or any claim whatsoever)
which Energy Infrastructure may
become
subject as a result of any claim by any vendor that is owed money by Energy
Infrastructure for services rendered or products
sold but
only to the extent necessary to ensure that such loss, liability, claim,
damage
or expense does not reduce the amount
in
the
Trust Account. Pursuant to these letter agreements, Energy Infrastructure
may
seek indemnity from its officers and directors to the extent of their
pro
rata
beneficial interest in Energy Infrastructure immediately prior to the initial
public offering and to the
extent
interest held in the Trust Account is not sufficient to fund the Energy
Infrastructure’s liabilities and expenses. Energy Infrastructure, Energy
Merger
and both
of their boards of directors may be obligated to seek enforcement of the
letter
agreements to ensure against reductions in the Trust Account.
In
the
event that Energy Infrastructure’s board recommends and its stockholders approve
a plan of dissolution and liquidation
where it
is subsequently determined that the reserve for claims and liabilities is
insufficient, stockholders who received a return of funds from the Trust
Account
as part of the liquidation could be liable for claims made by
creditors.
Additionally,
if Energy Infrastructure is forced to file a bankruptcy case or an involuntary
bankruptcy case is filed against it which is not dismissed, the funds held
in
the Trust Account may be subject to applicable bankruptcy law, and may be
included
in Energy Infrastructure’s bankruptcy estate and subject to the claims of third
parties with priority over the claims of Energy Infrastructure’s stockholders.
Energy Infrastructure’s stockholders could also be required to return any
distributions received by them in
dissolution
as a preference or under other avoidance or recovery theories under applicable
bankruptcy law. To the extent any
bankruptcy claims deplete the Trust Account, Energy Infrastructure may not
be
able to return the liquidation amounts due to its public
stockholders.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
joint proxy statement/prospectus contains forward-looking statements. These
forward-looking statements include information about possible or assumed
future
results of operations or the performance of Energy Merger after the
Redomiciliation
Merger or Business Combination, the expected completion and timing of the
Redomiciliation Merger and other information relating to
the
Redomiciliation Merger
or
Business Combination
.
Words
such as “projects,” “predicts,” “should,” “forecasts,” “expects,” “intends,”
“plans,” “believes,” “ anticipates,” “estimates,” and variations of such words
and similar expressions are intended to identify the forward-looking statements.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, no assurance can be given that such expectations
will
prove to have been correct. These statements involve known and unknown risks
and
are based upon a number of assumptions and estimates which are inherently
subject to
significant
uncertainties and contingencies, many of which are beyond our control. Actual
results may differ materially from
those
expressed or implied by such forward-looking statements. Forward-looking
statements include statements regarding:
|
·
|
the
delivery and operation of assets of Energy Merger, the surviving
corporation in the Redomiciliation
Merger;
|
|
·
|
Energy
Merger’s future operating or financial results, including the amount of
fixed hire and profit share that Energy Merger may
receive;
|
|
·
|
future,
pending or recent acquisitions, business strategy, areas of possible
expansion, and expected capital spending or operating
expenses;
|
|
·
|
future
payments of dividends and the availability of cash for payment
of
dividends;
|
|
·
|
statements
about tanker industry trends, including charter rates and vessel
values
and factors affecting vessel supply and
demand;
|
|
·
|
expectations
about the availability of vessels to purchase, the time which it
may take
to construct new vessels or vessels’ useful
lives;
|
|
·
|
expectations
about the availability of insurance on commercially reasonable
terms;
|
|
·
|
Energy
Merger’s ability to repay its credit facility, to obtain additional
financing and to obtain replacement charters for its
vessels;
|
|
·
|
assumptions
regarding interest rates;
|
|
·
|
changes
in production of or demand for oil and petroleum products, either
globally
or in particular regions;
|
|
·
|
greater
than anticipated levels of newbuilding orders or less than anticipated
rates of scrapping of older
vessels;
|
|
·
|
change
in the rate of growth of the world and various regional
economies;
|
|
·
|
risks
incident to vessel operation, including discharge of pollutants;
and
|
|
·
|
unanticipated
changes in laws and regulations, including laws and regulations
related to
the use of single-hulled vessels.
|
Given
these uncertainties, you should not place undue reliance on these
forward-looking statements. Also, forward-
looking
statements represent our estimates and assumptions only as of the date of
this
prospectus. You should read this joint
proxy
statement/prospectus and the documents that we reference herein and have
filed
as exhibits to the registration
statement
of which this joint proxy statement/prospectus forms a part completely and
with
the understanding that our actual
future
results and ability to pay dividends may be materially different from what
we
expect. Except as required by law, we do not undertake any
obligation
to update or revise any forward-looking statements contained in this joint
proxy
statement/prospectus, whether as a
result
of new information, future events or otherwise.
THE
ENERGY INFRASTRUCTURE SPECIAL MEETING
Time,
Place and Purpose of the Special Meeting
This
joint proxy statement/prospectus is being furnished to Energy Infrastructure
stockholders as part of the solicitation of proxies by Energy Infrastructure’s
board of directors for use at the Special Meeting of Energy Infrastructure
stockholders to be held at
,
New York, New York, on
, 2008, at
10:00 a.m. Eastern standard time. The purpose of the Special Meeting is for
Energy Infrastructure stockholders to consider and vote on two proposals:
(i)
the merger of Energy Infrastructure with and into Energy Merger, its
wholly-owned Marshall Islands subsidiary, for the purpose of redomiciling
Energy
Infrastructure to the Marshall Islands as part of the acquisition of the
SPVs,
and as an effect of such merger, adopt the articles of incorporation and
bylaws
of Energy Merger and (ii) the acquisition by Energy Merger of all the
outstanding shares of nine vessel-owning SPVs from Vanship, pursuant to the
terms of the Share Purchase Agreement, resulting in each SPV becoming wholly
owned by Energy Merger, in exchange for an aggregate purchase price of
$778,000,000, consisting of $643,000,000 in cash (reduced by the aggregate
amount of net indebtedness of the SPVs at the time of the completion of the
Business Combination and subject to other closing adjustments) and 13,500,000
shares of common stock of Energy Merger. In addition to such purchase price,
Energy Merger will be obligated to effect the transfer of 425,000 warrants
of
Energy Merger from one of Energy Infrastructure's initial stockholders to
Vanship upon completion of the Business Combination and Vanship may receive
an
additional 3,000,000 shares of Energy Merger common stock following each
of the
first and second anniversaries of the Business Combination (6,000,000 shares
in
the aggregate), subject to certain annual earning criteria of the vessels
in
Energy Merger’s initial fleet, all as more particularly described in this joint
proxy statement/prospectus. Adoption and approval of the Business Combination
is
conditioned upon the adoption and approval of the Redomiciliation Merger.
Energy
Merger cannot complete the Business Combination unless the Redomiciliation
Merger is adopted and approved. You are also being asked to vote upon a proposal
to approve the adjournment of the Special Meeting to solicit additional proxies
in the event that Energy Infrastructure has not obtained the requisite
stockholder approval of the Business Combination and Redomiciliation Merger.
See
“Adjournments and Postponements” below. The Share Purchase Agreement is attached
as Appendix A to this joint proxy statement/prospectus. The Merger Agreement
is
attached as Appendix B to this joint proxy statement/prospectus. This joint
proxy statement/prospectus and the enclosed form of proxy are first being
mailed
to Energy Infrastructure stockholders on or about
,
2008.
Record
Date and Voting
The
holders of record of shares of Energy Infrastructure common stock as of the
close of business on the record date, which
was
,
2008, are entitled to receive notice of, and to vote at, the Special Meeting.
On
the record date, there were 27,221,747 shares of Energy Infrastructure common
stock outstanding.
The
holders of a majority of the shares of Energy Infrastructure common stock
that
were outstanding on the record date,
represented
in person or by proxy, will constitute a quorum for purposes of the Special
Meeting. A quorum is necessary to
hold
the
Special Meeting. Abstentions and properly executed broker non-votes will
be
counted as shares present and entitled
to
vote
for the purposes of determining a quorum. “Broker non-votes” result when the
beneficial owners of shares of Energy Infrastructure common stock do not
provide
specific voting instructions to their brokers. Brokers are precluded from
exercising
their
voting discretion with respect to the approval of non-routine matters such
as
the proposed merger, and, thus, absent
specific
instructions from the beneficial owner of those shares, brokers are not
empowered to vote the shares with respect to
the
approval of such matters.
Holders
of shares of Energy Infrastructure common stock will have one vote for each
share of Energy Infrastructure common stock
held by
them at the close of business on the record date. Energy Infrastructure warrants
do not have voting rights.
Required
Vote
Approval
of the Redomiciliation Merger requires the affirmative vote of holders of
a
majority of Energy Infrastructure’s outstanding common stock. Approval of the
Business Combination requires the affirmative vote of a majority of the votes
cast at the Special Meeting, provided there is a quorum. If the stockholders
approve the Business Combination, the Business Combination will only proceed
if
holders of shares purchased in Energy Infrastructure’s initial public offering,
representing less than 30% of the total shares sold in the initial public
offering and private placement, exercise their redemption rights. Energy
Infrastructure’s board of directors will abandon the Business Combination if
holders of 6,525,119 (which number represents 30% of the total shares sold
in
Energy Infrastructure’s initial public offering and private placement) or more
of the shares of common stock issued in Energy Infrastructure’s initial public
offering vote against the Business Combination and exercise their right to
redeem their shares into a pro rata portion of the Trust Account. In addition,
pursuant to the Merger Agreement, it is a condition to the obligation of
Energy
Infrastructure and Vanship to consummate the Business Combination that the
Redomiciliation Merger Proposal be approved by Energy Infrastructure’s
stockholders.
Abstaining
from voting or not voting on a proposal (including broker non-votes), either
in
person or by proxy or voting instruction, will not have an effect on the
vote
relating to the Business Combination, since Energy Infrastructure's certificate
of incorporation provides that only votes cast at the meeting will count
toward
the vote on the Business Combination. An abstention will not count toward
the
30% ‘‘against and redeeming’’ vote that would result in the Business
Combination’s abandonment, and if you abstain you would be unable to exercise
any redemption rights upon approval of the Business Combination. With respect
to
the Redomiciliation Merger Proposal an abstention or a broker non-vote will
have
the same effect as a vote against the proposal.
Broker
Non-Votes
A
broker
non-vote occurs when a broker submits a proxy card with respect to shares
held
in a fiduciary capacity (typically referred to as being held in ‘‘street name’’)
but declines to vote on a particular matter because the broker has not received
voting instructions from the beneficial owner. Under the rules that govern
brokers who are voting with respect to shares held in street name, brokers
have
the discretion to vote such shares on routine matters, but not on non-routine
matters. Routine matters include the election of directors and ratification
of
auditors. The matters currently planned to be considered by the stockholders
are
not routine matters. As a result, brokers can only vote the Energy
Infrastructure shares if they have instructions to do so. Broker non-votes
will
not be counted in determining whether the proposals to be considered at the
meeting are approved.
Voting
Your Shares
Each
share of common stock that you own in your name entitles you to one vote
per
proposal. Your proxy card shows the number of shares you own.
There
are
three ways to vote your shares at the Special Meeting:
By
signing and returning the enclosed proxy card
.
If you
submit a proxy card, your ‘‘proxy,’’ whose names are listed on the proxy card,
will vote your shares as you instruct on the card. If you sign and return
the
proxy card, but do not give instructions on how to vote your shares, your
shares
will be voted as recommended by the Energy Infrastructure board ‘‘FOR’’ approval
of each proposal.
By
telephone or on the internet
.
You can
submit a proxy by following the telephone or internet voting instructions
included with your proxy card. If you do, you should not return the proxy
card.
You
can
attend the Special Meeting and vote in person. We will give you a ballot
when
you arrive. However, if your shares are held in the name of your broker,
bank or
another nominee, you must get a proxy from the broker, bank or other nominee.
That is the only way we can be sure that the broker, bank or nominee has
not
already voted your shares.
Redemption
Rights
Any
holder of shares that were issued in Energy Infrastructure’s initial public
offering who votes against the Business Combination may, at the same time,
demand that Energy Infrastructure redeem his, her or its shares for $10.00
per
share, plus a portion of the interest earned and not previously released
to
Energy Infrastructure (net of taxes payable). If so demanded and the Business
Combination is consummated, Energy Infrastructure will redeem the shares.
A
stockholder who has submitted a proxy but has not properly exercised redemption
rights may still exercise those rights prior to the Special Meeting by
submitting a later dated proxy, together with a demand that Energy
Infrastructure redeem the stockholder’s shares for $10.00 per share, plus a
portion of the interest earned and not previously released to Energy
Infrastructure (net of taxes payable). After the Special Meeting, an Energy
Infrastructure stockholder may not exercise redemption rights or correct
invalidly exercised rights. You will only be entitled to receive cash for
these
shares if you continue to hold them through the closing of the Business
Combination and then tender your stock certificate(s) to Energy Infrastructure
or to Energy Infrastructure’s duly appointed tender agent. If you exercise your
redemption rights, then you will be exchanging your shares for cash and will
no
longer own these shares. Exercise of redemption rights will not affect any
warrants held by that stockholder. Do not send your stock certificate(s)
with
your proxy. If the Business Combination is consummated, redeeming stockholders
will be sent instructions on how to tender their shares of common stock and
when
they should expect to receive the redemption amount. Stockholders will not
be
requested to tender their shares of common stock before the Business Combination
is consummated.
You
will
lose your redemption rights if you submit an incomplete or untimely demand
for
redemption. To exercise redemption rights a Energy Infrastructure stockholder
must:
|
·
|
Vote
against the Business Combination
Proposal;
|
|
·
|
Contemporaneous
with that vote against the Business Combination Proposal, send
a written
demand to Energy Infrastructure (Attn: Susan Dubb) at Suite 1300,
1105
North Market Street, Wilmington, Delaware 19899, which demand must
state:
|
|
·
|
The
name and address of the
stockholder;
|
|
·
|
That
the stockholder has voted against the Business
Combination;
|
|
·
|
That
the stockholder demands redemption of the stockholder’s shares into cash;
and
|
|
·
|
The
address for delivery of the check for the aggregate redemption
payment to
be received by the stockholder if the shares are redeemed into
cash.
|
If
the
Business Combination is approved by the Energy Infrastructure stockholders
and
is consummated, Energy Infrastructure will promptly pay to any holder who
voted
against the Business Combination and properly and timely demanded redemption
and
who has submitted the holder’s stock certificate(s) to Energy Infrastructure, or
to its duly appointed tender agent, the stockholder's pro rata portion of
funds
in the Trust Account. Any such payment will only be made after the holder
submits his, her or its stock certificates to Energy Infrastructure or to
its
duly appointed tender agent. The certificate(s) representing the shares being
redeemed should not be submitted prior to the meeting or at the time that
the
redeeming stockholder votes against the Business Combination and submits
the
written demand for redemption, but only after the Business Combination has
been
approved. (Energy Infrastructure recommends sending the certificate by
registered mail with proper insurance, since risk of loss will remain with
the
stockholder until the certificate is received by Energy Infrastructure).
Energy
Infrastructure will not charge any stockholder for costs incurred by Energy
Infrastructure with respect to the exercise of redemption rights, such as
the
costs of redeeming shares from street name to physical
certificates.
The
closing price of Energy Infrastructure’s common stock on February 8, 2008 was
$9.86 and the amount of cash held in the Trust Account on September 30,
2007 was
$215,529,086. If a public stockholder would have elected to exercise redemption
rights on such date, he or she would have been entitled to receive approximately
$10.09 per share, though no assurance is given as to the actual redemption
price, which could be lower than such amount.
Questions
About Voting
.
If you
have any questions about how to vote or direct a vote in respect of your
Energy
Infrastructure common stock, you may call Susan Dubb of Energy Infrastructure,
at (302) 656-1771. You may also want to consult your financial and other
advisors about the vote.
Revoking
Your Proxy and Changing Your Vote
.
If you
give a proxy, you may revoke it or change your voting instructions at any
time
before it is exercised by:
|
·
|
If
you sent in a proxy, by sending another proxy card with a later
date;
|
|
·
|
If
you submitted a proxy by telephone, by calling the same number
and
following the instructions;
|
|
·
|
If
you submitted a proxy by internet, by going to the same internet
website
and following the instructions;
|
|
·
|
Notifying
Energy Infrastructure in writing before the Special Meeting that
you have
revoked your proxy; or
|
|
·
|
Attending
the Special Meeting and voting in
person.
|
If
your
shares are held in ‘‘street name,’’ consult your broker for instructions on how
to revoke your proxy or change your vote.
If
you do
not vote your shares of Energy Infrastructure common stock in any of the
ways
described above, it will have the same effect as a vote against the adoption
of
the Redomiciliation Merger Proposal, but will not have the effect of a vote
against the Business Combination Proposal and demand of redemption of your
shares into a pro rata share of the Trust Account in which a substantial
portion
of the proceeds of Energy Infrastructure’s initial public offering are
held.
Solicitation
Costs.
Energy
Infrastructure is soliciting proxies on behalf of the Energy Infrastructure
board of directors. This solicitation is being made by mail, but also may
be
made in person or by telephone or other electronic means. Energy Infrastructure
and its respective directors, officers, employees and consultants may also
solicit proxies in person or by mail, telephone or other electronic means.
These
persons will not be paid for doing this.
Energy
Infrastructure has not hired a firm to assist in the proxy solicitation process
but may do so if it deems this assistance necessary. Energy Infrastructure
will
pay all fees and expenses related to the retention of any proxy solicitation
firm.
Energy
Infrastructure will ask banks, brokers and other institutions, nominees and
fiduciaries to forward its proxy materials to their principals and to obtain
their authority to execute proxies and voting instructions. Energy
Infrastructure will reimburse them for their reasonable expenses.
Stock
Ownership.
Information
concerning the holdings of certain Energy Infrastructure stockholders is
set
forth above in the Summary and below under ‘‘Beneficial Ownership of
Securities.’’
Adjournments
and Postponements
You
are
also being asked to vote for the adoption and approval of a proposal to allow
Energy Infrastructure to adjourn the
Special
Meeting in order to solicit proxies in the event that Energy Infrastructure
has
not obtained the requisite stockholder approval
of the
Business Combination and the Redomiciliation Merger. Notice of any adjournment
may be sent to each Energy Infrastructure stockholder by mail, facsimile
or
other electronic means of communication (in the manner permitted under Section
232 of the General Corporation Law of the State of Delaware). In the event
the
meeting is adjourned, Energy Infrastructure
’s
board
of directors may fix a new record date for the adjourned meeting; in which
case,
a notice of the adjourned
meeting
will be given to each Energy Infrastructure stockholder of record on the
new
record date. If you transfer your shares of Energy Infrastructure
common
stock prior to such new record date then you may not be entitled to vote
on the
Business Combination and/or
the
Redomiciliation Merger. Any adjournment or postponement of the Special Meeting
for the purpose of soliciting additional
proxies
will allow Energy Infrastructure stockholders who have already sent in their
proxies to revoke them at any time before they are voted at the Special Meeting.
Approval of the proposal to allow Energy Infrastructure to adjourn the
Special
Meeting in order to solicit proxies
will
require the affirmative vote of holders of a majority of the shares of Energy
Infrastructure’s common stock represented in person or by proxy and entitled to
vote at the Special Meeting.
BACKGROUND
AND REASONS FOR THE BUSINESS COMBINATION
AND
THE REDOMICILIATION MERGER
Background
of the Acquisition
The
terms
of the Share Purchase Agreement are the result of arm’s length negotiations
between representatives of Energy Infrastructure and Vanship Holdings Ltd.,
or
Vanship. The following is a brief discussion of the background of Energy
Infrastructure’s efforts to identify potential candidates for a business
combination, the selection of Vanship, and the negotiations.
Energy
Infrastructure is a blank check company organized under the laws of the State
of
Delaware on August 11, 2005. We were formed to acquire, through a merger,
capital stock exchange, asset acquisition or other similar business combination,
one or more businesses that supports the process of bringing energy, in the
form
of crude oil, natural and liquefied petroleum gas, and refined and specialized
products (such as petrochemicals), from production to final consumption
throughout the world. On July 21, 2006, Energy Infrastructure consummated
its
initial public offering of 20,250,000 units with each unit consisting of
one
share of its common stock and one warrant. Each warrant entitles the holder
to
purchase one share of Energy Infrastructure common stock at an exercise price
of
$8.00 per share. The units sold in Energy Infrastructure’s initial public
offering were sold at an offering price of $10.00 per unit, generating gross
proceeds of $202,500,000. Prior to the closing of Energy Infrastructure’s
initial public offering, Energy Corp., a company formed under the laws of
the
Cayman Islands and controlled by Energy Infrastructure’s President and Chief
Operating Officer purchased an aggregate of 825,398 units at a price of $10.00
per unit in a private placement, for aggregate gross proceeds of $8,253,980.
On
August 31, 2006 the underwriters of Energy Infrastructure’s initial public
offering exercised their over allotment option to purchase an additional
675,000
units, generating an additional $6,750,000 in gross proceeds. This resulted
in a
total of $209,250,000 in net proceeds, including certain deferred offering
costs
and deferred placement fees being held in the Trust Account.
Energy
Infrastructure’s units commenced trading on the American Stock Exchange under
the symbol “EIIU,” on July 18, 2006. Effective on October 4, 2006, Energy
Infrastructure’s common stock and warrants began to trade separately under the
symbols “EII,” and “EII.WS”, respectively, and the units ceased
trading.
The
$209,250,000
which
was placed into the Trust Account will be released to Energy Infrastructure
upon
consummation of the acquisition, or upon the dissolution and liquidation
of
Energy Infrastructure in accordance with the General Corporation Law of the
State of Delaware. Subsequent to its initial public offering, Energy
Infrastructure’s officers and directors commenced an active search for a
prospective business combination. Other than its initial public offering
and the
pursuit of a business combination, Energy Infrastructure has not engaged
in any
business to date.
Review
of Prospective Business Combination Targets
Following
Energy Infrastructure’s initial public offering in July 2006 until June 1, 2007,
the date of Energy Infrastructure’s initial contact with Vanship,
Energy
Infrastructure
evaluated
15 prospective transactions. Exploratory discussions were held with respect
to
effecting a business combination, either through a merger, the acquisition
of an
operating business or an asset acquisition, with nine of such prospective
transactions. These candidates were engaged in the tanker, offshore supply,
oil
refinery and storage, terminal and oil rig sectors. Energy Infrastructure
agreed
to the substantive terms of a business combination with two of these companies.
In connection therewith, Energy Infrastructure entered into a Memorandum
of
Understanding on April 24, 2007, with Ancora Investment Trust, a tanker
operating company, for the initial purchase of 16 ships. Energy Infrastructure
commenced due diligence which included reviewing the charter-party agreements
for the vessels, reviewing class records and physically inspecting a number
of
vessels through an independent surveyor. The Memorandum of Understanding
was
subsequently terminated on July 3, 2007 due to the decision of Ancora not
to
sell the ships. Energy Infrastructure entered into a letter of intent dated
October 8, 2007, with FR8, a freight and tanker operator, for the acquisition
of
its business. The letter of intent expired without a formal termination by
the
parties. Energy Infrastructure received preliminary information regarding
the
potential transaction with FR8 but did not commence due diligence.
Further
to exploratory discussions, Energy Infrastructure's executive officers offered
for, or considered offering or entered into negotiations with the prospective
business combinations appearing below. All of the prospective business
combinations were accorded serious consideration by Energy Infrastructure's
executive officers but other than the proposed transaction were rejected
prior
to reaching an agreement in principle.
Nature
of Business
|
|
Activity
Period
|
|
Reasons
for Rejection
|
|
|
|
|
|
Oil
Refinery & Gas Stations
|
|
September
2006
|
|
Price
disagreement
|
Tanker
Fleet
|
|
October
2006
|
|
Seller
decided not to sell
|
LPG
fleet & Gas Trader
|
|
October
2006
|
|
Did
not agree on valuation
|
Naptha
Terminal
|
|
December
2006
|
|
Sellers
opted for other buyer
|
Natural
Gas Exploration
|
|
January
2007
|
|
Sellers'
economics
|
Freight
& Tanker Operator
|
|
February
2007
|
|
Seller
did not meet the deadlines
|
Oil
Refinery
|
|
May
2007
|
|
Did
not agree on valuation
|
Tanker
fleet
|
|
June
2007
|
|
Seller
decided not to sell
|
Oil
Rigs
|
|
July/Aug
2007
|
|
Seller
decided not to sell
|
History
of the Negotiations to Acquire the SPVs from Vanship
Vanship
was first identified as a potential business target by Fortis Securities
LLC, or
Fortis, in June 2007. Energy Infrastructure’s Chief Financial Officer, Marios
Pantazopoulos, during the course of his prior employment with Oceanbulk Maritime
SA, had previously had business contacts with Fortis and its shipping team
in
Piraeus and Rotterdam. In October 2006, representatives of Fortis met with
Mr.
Pantazopoulos during the Athens Marine Money Conference to discuss Energy
Infrastructure’s initial public offering and Fortis’s potential role in
identifying potential acquisition targets for Energy Infrastructure. A meeting
was scheduled for May 2007 so that principals of Fortis could meet with Mr.
George Sagredos, Energy Infrastructure’s Chief Operating Officer. In June 2007,
Fortis provided Energy Infrastructure with an offering memorandum for Vanship
as
part of a selected bidding process. During this time, Energy Infrastructure
was
in contact with principals of Fortis.
Energy
Infrastructure, its subsidiaries, affiliates and related parties had no prior
connections or business contacts with Vanship or its subsidiaries, affiliates
and related parties. Further, there is no relationship, affiliation or other
connection between the officers, directors, and affiliates of Energy
Infrastructure and the officers, directors, and affiliates of
Vanship.
From
June
1, 2007 until early August 2007, Fortis, Energy Infrastructure’s management and
Maxim Group LLC, a financial advisor to Energy Infrastructure and the lead
underwriter of Energy Infrastructure’s initial public offering, evaluated
various scenarios in relation to the acquisition of certain vessels. Energy
Infrastructure entered into a confidentiality agreement with Fortis on August
1,
2007 relating to the Vanship transaction.
After
having discussions with Vanship management and proposing a potential structure
for a business combination to Vanship management, a conference call was held
on
August 3, 2007 between Captain Vanderperre and Mr. Fred Cheng, representing
Vanship, Messrs. George Sagredos and Marios Pantazopoulos, representing Energy
Infrastructure, representatives of Maxim and representatives of Fortis.
On
August
8
th
,
2007,
Messrs. Sagredos and Pantazopoulos, a representative of Fortis and a
representative of Maxim flew to Hong Kong to attend a series of meetings
with
Vanship's principals and management team. The parties discussed potential
structures for a business combination, general information regarding each
other's business activities and procedural issues relating to a potential
business combination. The structure for a business combination, vessels to
be
acquired and the basic financial terms and other obligations were tentatively
agreed during this series of meetings.
A
non-binding term-sheet was executed on August 31, 2007. On September 15,
2007,
Vanship confirmed that it had reached an agreement in principle with a joint
venture partner that held a 50% indirect interest in three of the SPVs, pursuant
to which Vanship would acquire a 100% direct interest in the three jointly
held
SPVs prior to or contemporaneously with the closing. Accordingly, Vanship
commenced, as per its obligation under the term-sheet, to produce financial
statements of the SPVs prepared in accordance with US GAAP and audited under
US
GAAS and Energy Infrastructure's legal and financial advisors commenced due
diligence of the nine SPVs and commenced drafting a definitive purchase
agreement. On September 28, 2007, Messrs. Sagredos and Cheng met to discuss
procedures, strategy and management roles in connection with a potential
business combination.
On
October 6, 2007, during the Athens Marine Money Conference in Greece, Messrs.
Sagredos and Pantazopoulos met with a representative of Fortis to discuss
various aspects of the proposed transaction. On October 19 and 20, Captain
Vanderperre and Mr. Cheng, representing Vanship and Mr. Sagredos and Mr.
Pantazopoulos, representing Energy Infrastructure had various meetings. On
October 19, 2007, New Century Capital Partners rendered its fairness opinion
via
a conference call to the entire board of directors of Energy Infrastructure.
On
Monday, October 22, 2007, the board of directors of Energy Infrastructure
held a
meeting and voted to approve the transaction.
Advisors
Energy
Infrastructure engaged the following advisors to assist management in
identifying, evaluating, structuring and marketing transactions with potential
targets.
On
December 18, 2006, Energy Infrastructure entered into an advisory agreement
to
engage Maxim Group LLC, or Maxim, the lead underwriter in Energy
Infrastructure’s initial public offering, to advise Energy Infrastructure and
provide services in connection with identifying a potential acquisition target.
Those services included creating financial models and valuation analysis,
advice
on structuring, assisting in the preparation of term sheets and letters of
intent, soliciting and acting as an intermediary in discussions with a potential
acquisition target, assisting in the negotiation and preparation of agreements
and assisting in due diligence. In exchange for such services, Energy
Infrastructure is obligated to pay Maxim a financial advisory fee payable
in
cash equal to 0.75% of the consideration received by the acquisition target
in
the transaction, but not to exceed $2,750,000. The advisory fee shall be
payable
upon the consummation of a transaction. In addition, to the advisory fee,
if
Maxim introduced the acquisition target to Energy Infrastructure, Energy
Infrastructure agreed to pay Maxim a finder’s fee payable in cash equal to 0.50%
of the consideration received by the acquisition target in the transaction
at
the consummation of the transaction. If a transaction is not consummated
by
Energy Infrastructure Maxim is not entitled to receive the advisory fees
or the
finder’s fee. The continuing obligations of Energy Infrastructure to Maxim under
the Underwriting Agreement, dated July 20, 2006, are separate and apart from
the
obligations of Energy Infrastructure to Maxim under this advisory agreement.
Energy Infrastructure is also obligated to reimburse Maxim for all reasonable
out-of-pocket expenses, that have been approved by Energy Infrastructure,
incurred by Maxim in connection with the services being provided. On July
2,
2007, Energy Infrastructure entered into an advisory agreement to engage
the
Investment Bank of Greece, or IBG, to advise Energy Infrastructure and provide
services in connection with identifying a potential acquisition target. IBG
was
engaged to assist in identifying potential acquisition targets, including
integrated shipping companies, shipping pool services and assets/vessels
of a
company, and to provide advice, and assistance with respect to defining
objectives, performing valuation analysis, structuring, planning, negotiating
and financing a potential transaction. IBG may also provide services for
transactions identified by a third party. In the event that an acquisition
is
consummated, IBG will receive a fixed fee of $1,200,000. In addition to such
fixed fee, and whether or not a transaction is consummated, IBG will also
be
reimbursed by Energy Infrastructure for all pre-approved reasonable
out-of-pocket expenses arising out of the engagement.
Reasons
for the Redomiciliation Merger
Vanship,
a non-U.S. company with no substantial connection to the United States, will
receive a substantial portion of the consideration for the sale of the SPVs
in
the form of stock of a publicly-traded corporation incorporated outside of
the
United States. Vanship stated that it was not willing to accept this stock
as
consideration for the SPVs if the purchasing company is a U.S. corporation.
The
SPVs
have operated almost exclusively outside of the United States throughout
their
entire history. None of the ships owned by the SPVs are operated under U.S.
flag, and these ships operate predominantly outside of U.S. territorial waters.
It is expected that the ships will continue to be operated predominantly
outside
of the United States after the Business Combination. As a result, given the
minimal contacts with the United States, Vanship is more comfortable acquiring
a
controlling interest in a Marshall Islands corporation than in a U.S.
corporation, which would be subject to the jurisdiction of U.S. federal,
state
or local courts.
In
addition, Vanship is incorporated outside of the United States, and is
aware
that most of its competitors are incorporated in jurisdictions outside
of the
United States, such as the Republic of the Marshall Islands, operate outside
of
the United States, and therefore are subject to little or no U.S. income
tax.
Prior
to
the proposed transaction, neither Vanship nor any of the SPVs was subject
to the
U.S. corporate net income tax (although a portion of the charter hire may
have
been subject, from time to time, to the U.S. tax on gross U.S. source
transportation income).
If Vanship received stock in Energy
Infrastructure and Energy Infrastructure remained a U.S. corporation, the
income
from operation of the ships, when distributed to Energy Infrastructure
(following the Business Combination), would be subject to U.S. federal
income
tax at a top marginal rate of 35% at the Energy Infrastructure level, and
any
dividends from Energy Infrastructure to its non-U.S. stockholders, including
Vanship, would additionally be subject to U.S. withholding tax of up to
30%.
Vanship indicated that such taxation would be unacceptable to
it.
Vanship
and the board of directors of Energy Infrastructure also concluded that
redomiciling to the Marshall Islands would permit greater flexibility and
possibly improved economics in structuring future acquisitions as Energy
Merger
expands, because a non-U.S. owner of a potential target would likely view
being
a stockholder in a publicly-traded Marshall Islands corporation more favorably
than being a stockholder in a U.S. corporation. In addition, as a foreign
(non-U.S.) corporation, Energy Merger is expected to qualify for foreign
private
issuer status with the U.S. Securities and Exchange Commission, which would
reduce the reporting requirements under the Securities Exchange Act of 1934,
as
amended, and result in significantly lower costs associated with ongoing
financial and reporting compliance.
For
the
reasons described above, Vanship and the board of directors of Energy
Infrastructure determined that in order to compete in the most favorable
manner
with other international shipping companies listed in the U.S. public markets,
almost all of which are domiciled outside of the United States, it was advisable
for Energy Infrastructure to redomicile to the Republic of the Marshall Islands
by means of the Redomiciliation Merger.
Satisfaction
of 80% Test
In
accordance with the terms of the initial public offering, it is a requirement
that the target of Energy Infrastructure’s initial
business
combination have a fair market value equal to at least 80% of the amount
in the
Trust Account (exclusive of the underwriters’ contingent compensation and Maxim
Group LLC’s contingent placement fees being held in the Trust Account) at the
time of the Business Combination. The Energy Infrastructure board of
directors
,
based
on their financial skills, knowledge of and experience in the international
shipping industry, determined that it was qualified to make the determination
with regard to the net asset requirement. As a result of the Redomiciliation
Merger,
Energy Infrastructure will merge with and into Energy Merger, with Energy
Merger
as the surviving corporation. On
December
3
,
2007,
Energy
Merger entered into a Share Purchase Agreement with respect to shares of
the
nine SPVs
.
Based
on the independent vessel valuations in the form of “desk
appraisals” performed by purchase and sale brokers recognized in the
international shipping industry, Energy Infrastructure’s board of directors,
after consulting with its shipbroker and financial advisor Maxim and relying
on
the fairness opinion of New Century Capital Partners, determined that the
aggregate purchase price of $778,000,000, consisting of $643,000,000 in cash
(reduced by the aggregate amount of net indebtedness of the SPVs at the time
of
the completion of the Business Combination and subject to other closing
adjustments) and 13,500,000 shares of common stock of Energy Merger
,
which
amount was negotiated at arms-length, was
fair to
and in the best interests of Energy Infrastructure and its stockholders and
appropriately reflects the value of the vessels held by the SPVs. In reaching
this conclusion, Energy Infrastructure’s board of directors also took into
account that Energy Merger may issue up to an additional 6,000,000 shares
of
Energy Merger to Vanship if certain revenue targets are achieved. Energy
Infrastructure’s board of directors was satisfied that, consistent with industry
practice, the value of the Share Purchase Agreement that Energy Merger entered
into is equivalent in value to the underlying value of the vessels to which
the
Share Purchase Agreement relates. On September 30, 2007, 80% of the net assets
of Energy Infrastructure was
equal
to
$
168,000,000
.
Accordingly, the board of directors determined that the requirement that
the
target of Energy Infrastructure’s
initial
business combination will have a fair market value equal to at least 80%
of
the
amount that will be held the Trust Account (exclusive of the underwriters’
contingent compensation and Maxim Group LLC’s contingent placement fees being
held in the Trust Account) at the time of the Business Combination is
satisfied
.
Energy
Infrastructure directors and executive officers, who have interests in the
merger that may be different from, or in addition to, the interests of its
unaffiliated stockholders, have actively participated in the negotiations
related to the Share Purchase Agreement. See “Risk Factors—Risks Relating to
Energy Infrastructure Acquisition Corp.—Energy Infrastructure’s directors and
executive officers have interests in the Business Combination that may be
different from yours.”
Recommendations
of the Board of Directors
Energy
Infrastructure’s board of directors, after reviewing the transaction criteria
set forth herein, concluded that the Redomiciliation Merger with Energy Merger
and the Business Combination was the only business combination transaction
that
had been evaluated by Energy Infrastructure’s board of directors that satisfied
all of its criteria.
Fairness
Opinion
New
Century Capital Partners delivered its written fairness opinion to the board
of
directors on October 17, 2007, and subsequently made a formal presentation,
via
a conference call, to Energy Infrastructure's board of directors on October
19,
2007. The fairness opinion stated that, as of October 17, 2007, based upon
and
subject to the assumptions made, matters considered, procedures followed,
methods employed and limitations on New Century Capital Partners' review
as set
forth in the fairness opinion, it is New Century Capital Partners’ opinion that
the consideration to be paid in conjunction with the Business Combination
was
fair, from a financial point of view, to the stockholders of Energy
Infrastructure. The fairness opinion provided by New Century Capital Partners
is
based on the consideration described in the draft Share Purchase and Merger
Agreement dated October 16, 2007 (which agreement was subsequently renamed
the
Share Purchase Agreement and executed on December 3, 2007). The consideration
to
be paid to Vanship which is contemplated by the October 16, 2007 draft Share
Purchase and Merger Agreement is identical to that contemplated by the executed
December 3, 2007 Share Purchase Agreement. The full text of the written fairness
opinion of New Century Capital Partners is attached as Appendix C and is
incorporated by reference into this joint proxy
statement/prospectus.
You
are
urged to read the New Century Capital Partners’ fairness opinion carefully and
in its entirety for a description of the assumptions made, matters considered,
procedures followed, methods employed and limitations on the review that
it has
undertaken in rendering its fairness opinion. The summary of the New Century
Capital Partners’ fairness opinion set forth in this joint proxy
statement/prospectus is qualified in its entirety by reference to the full
text
of the fairness opinion.
The
New
Century Capital Partners’ fairness opinion is for the use and benefit of Energy
Infrastructure's board of directors in connection with its consideration
of the
Business Combination and it does not constitute a recommendation to the board
of
directors or to any holders of Energy Infrastructure's common stock as to
how to
vote or proceed with respect to any of the proposals set forth in this joint
proxy statement/prospectus.
In
arriving at its opinion, New Century Capital Partners took into account an
assessment of general economic, market and financial conditions, as well
as its
experience in connection with similar transactions and securities valuations
generally. In so doing, among other things, New Century Capital
Partners:
|
·
|
Reviewed
financial statements of the SPVs
for
the fiscal years 2005 and 2006;
|
|
·
|
Reviewed
publicly available filings by Energy Infrastructure, including
its
Registration Statement on Form S-1 filed on July 17, 2006 and quarterly
filings on Form 10-Q for the periods ended June 30, 2006, September
30,
2006, March 31, 2007, June 30, 2007 as well as Form 10-K for the
year
ended December 31, 2006;
|
|
·
|
Reviewed
the draft Share Purchase and Merger Agreement dated on October 16,
2007;
|
|
·
|
Reviewed
the term sheet relating to the Business
Combination;
|
|
·
|
Reviewed
the valuation reports prepared by Simpson, Spence & Young, Ltd. and
Clarkson Research Services Limited, dated August 29, 2007 and October
12,
2007, respectively;
|
|
·
|
Conducted
management financial and operational due diligence telephonically
with
Marios Pantazopoulos of Energy Infrastructure and Fred Cheng of
Vanship;
|
|
·
|
Developed
a selected group for comparative purposes of publicly traded tanker
companies;
|
|
·
|
Reviewed
publicly available financial data, stock market performance data
and
trading multiples of companies in the business sector of tankers
for
comparative purposes;
|
|
·
|
Reviewed
certain publicly available information for precedent single hull
and
double hull transactions for tanker acquisitions for the period
January 1,
2005 to October 16, 2007;
|
|
·
|
Developed
financial forecasts and a discounted cash flow analysis for the
combined
SPVs using assumptions supplied to New Century Capital Partners
by Energy
Infrastructure; and
|
|
·
|
Conducted
such other studies, analyses and inquiries as it deemed
appropriate.
|
In
rendering its fairness opinion, New Century Capital Partners assumed the
accuracy and completeness of all of the information that has been supplied
to it
with respect to Energy Infrastructure, the SPVs and the vessels without assuming
any responsibility for any independent verification of any such information.
Further, New Century Capital Partners relied upon the assurance of management
of
Energy Infrastructure that they were not aware of any facts or circumstances
that would make such information inaccurate or misleading in any respect
material to its analysis. New Century Capital Partners has not made any physical
inspection or independent appraisal of any of the properties or assets of
Energy
Infrastructure or Vanship, nor has New Century Capital Partners evaluated
the
solvency or fair value of Energy Infrastructure or any of the SPVs under
any
domestic or international laws relating to bankruptcy, insolvency, or similar
matters. New Century Capital Partners assumed that the Business Combination
will
be consummated on the terms and conditions described in the draft Share Purchase
and Merger Agreement reviewed by them. New Century Capital Partners' fairness
opinion is necessarily based on business, economic, market and other conditions
as they exist and can be evaluated by New Century Capital Partners at the
date
of its written fairness opinion.
The
written fairness opinion only addresses the matters specifically addressed
therein. Without limiting the foregoing, the written opinion does not address:
(i) matters that require legal, regulatory, accounting, insurance, tax or
other
professional advice; (ii) the underlying business decision of Energy
Infrastructure or any other party to proceed with or effect the Business
Combination; (iii) the fairness of any portion or aspect of the Business
Combination not expressly addressed in the fairness opinion; (iv) the relative
merits of the Business Combination as compared to any alternative business
strategies that might exist for Energy Infrastructure or the effect of any
other
transaction in which Energy Infrastructure might engage; (v) any matters
related
to the risks associated with the assets and/or equity interests to be acquired
in the Business Combination, including without limitation, the fluctuation
in
currency exchange rates, property rights and regulatory considerations; or
(vi)
the tax or legal consequences of the Business Combination to either Energy
Infrastructure, its stockholders or any other party.
With
respect to the financial information, forecasts and assumptions furnished
to or
discussed with New Century Capital Partners by Energy Infrastructure, New
Century Capital Partners has assumed that such information has been reasonably
prepared and that it reflects the best currently available estimates and
judgment of Energy Infrastructure's management as to the expected future
financial performance of the combined SPVs. For purposes of New Century Capital
Partners' written fairness opinion, New Century Capital Partners assumed
that
each of Energy Infrastructure and Vanship is not a party to any pending material
transaction other than the Business Combination and those activities undertaken
in the ordinary course of business. Further, New Century Capital Partners
makes
no representations as to the actual value which may be received in connection
with the Business Combination, nor the legal, regulatory (foreign or domestic),
tax or accounting effects of consummating the Business Combination.
New
Century Capital Partners assumed that the Business Combination will be
consummated in a manner that complies in all respects with the applicable
provisions of the Securities Act of 1933, the Securities Exchange Act of
1934
and all other applicable foreign, federal and state securities rules and
regulations. New Century Capital Partners assumed that the Business Combination
will be consummated substantially in accordance with the terms and conditions
set forth in the draft Merger and Share Purchase Agreement, without any further
amendments to these terms and conditions.
New
Century Capital Partners' analysis and fairness opinion are necessarily based
upon market, economic and other conditions as they existed on and could be
evaluated on October 17, 2007. Accordingly, although subsequent developments
may
affect its fairness opinion, New Century Capital Partners has not assumed
any
obligation to update, review or reaffirm its fairness opinion.
In
connection with rendering its fairness opinion, New Century Capital Partners
performed certain financial, comparative and other analyses as summarized
below.
Each of the analyses that New Century Capital Partners conducted provided
a
valuation methodology, in order to determine the valuation of the combined
SPVs.
The summary of New Century Partners' analyses and valuation methodologies
described below are not a complete description of the analyses underlying
New
Century Capital Partners' fairness opinion. The preparation of a fairness
opinion is a complex process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application
of
those methods to the particular circumstances and, therefore, a fairness
opinion
is not readily susceptible to partial analysis or summary description. In
addition, New Century Capital Partners may have given various analyses more
or
less weight than other analyses, and may have deemed various assumptions
more or
less probable than other assumptions. The estimates contained in New Century
Capital Partners' analyses and the ranges of valuations resulting from any
particular analysis are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than the
analyses suggest. Accordingly, New Century Capital Partners' analyses and
estimates are inherently subject to substantial uncertainty. New Century
Capital
Partners believes that its analyses must be considered as a whole and that
selecting portions of its analyses or the factors it considered, without
considering all analyses and factors collectively, could create an incomplete
and misleading view of the process underlying the analyses that New Century
Capital Partners performed in connection with the preparation of its fairness
opinion.
The
summaries of the financial reviews and analyses include information presented
in
tabular format. In order to fully understand New Century Capital Partners'
financial reviews and analyses, the tables must be read together with the
accompanying text of each summary. The tables alone do not constitute a complete
description of the financial analyses, including the methodologies and
assumptions underlying the analyses, and if viewed in isolation could create
a
misleading or incomplete view of the financial analyses that New Century
Capital
Partners performed.
The
analyses performed were prepared solely as part of New Century Capital Partners'
analysis of the fairness, from a financial point of view, to Energy
Infrastructure with respect to the consideration to be paid in connection
with
the proposed acquisition of nine vessel-owning companies from Vanship, and
were provided to Energy Infrastructure's board of directors in connection
with
the delivery of New Century Capital Partners' fairness opinion. The fairness
opinion of New Century Capital Partners was just one of the many factors
taken
into account by Energy Infrastructure's board of directors in making its
determination to approve the transaction, including those described elsewhere
in
this joint proxy statement/prospectus.
Comparable
Company Analysis
This
method applies the comparative public market information of companies comparable
to the combined SPVs. The methodology assumes that companies in the same
industry share similar markets. The potential for revenue and earnings growth
is
usually dependent upon the characteristics of the growth rates of these markets,
and companies in the same industry experience similar operating characteristics.
The underlying components in the comparable company analysis assume both
the
combined SPVs and the comparable companies are ongoing concerns.
Using
publicly available information, New Century Capital Partners compared selected
financial data of the SPVs with similar data of selected publicly traded
tanker
companies considered by New Century Capital Partners to be comparable to
the
combined SPVs. In this regard, New Century Capital Partners noted that although
such companies were considered similar, none of the companies has the same
management, makeup, size or combination of business as the combined SPVs.
The
comparable group includes: Aries Maritime Transport Limited, Arlington Tankers
Limited, Double Hull Tankers, Inc., General Maritime Corporation, Knightsbridge
Tankers Limited, Nordic American Tanker Shipping Limited, Omega Navigation
Enterprises, Inc., and Ship Finance International Limited.
New
Century Capital Partners analyzed the following financial data for each
of the
comparable companies: (1) the “enterprise value,” defined as common stock market
value (the number of fully-diluted shares multiplied by the closing price
of the
common stock), plus total debt and preferred stock, less cash as a multiple
of
2007 and 2008 estimated EBITDA (which EBITDA estimates reflect a mean consensus
of research analysts’ EBITDA estimates as reported by Institutional Brokers
Estimate Service), for each of the comparable companies; and (2) the closing
price of the common stock on October 16, 2007 as a multiple of the net
asset
value per share for each of the comparable companies. New Century Capital
Partners also analyzed the annualized dividends per the closing price of
the
common stock on October 16, 2007. New Century Capital Partners performed
valuation analyses by applying certain market trading statistics of the
comparable companies to the historical and estimated financial results
of the
combined SPVs.
New
Century Capital Partners examined Wall Street research of the comparable
companies, and for other publicly traded companies and New Century Capital
Partners also examined other industry research and made the following
observations: While a variety of valuation methodologies and metrics are
used in
determining a shipping company’s value, New Century Capital Partners found that
the majority of time companies are valued using next-year’s EBITDA and applying
an enterprise value/EBITDA multiple to determine a shipping company’s value;
additionally, but to a lesser extent, a company’s current net asset value was
considered. As a result, New Century Capital Partners applied weights to
the
various valuation methodologies in order to determine the combined SPVs’
enterprise value and equity value. As a result of these valuation analyses,
New
Century Capital Partners derived an average implied enterprise value of
approximately $993 million for the combined SPVs.
Energy
Infrastructure Acquisition Corp. and SPV's To Be Acquired
|
(to
be known as Van Asia Tankers Corporation)
|
Unaudited
Pro Forma Condensed Combined Statement of Operations
|
Year
Ended December 31, 2006
|
|
|
Aggregate
SPV’s
to
be
Acquired
|
|
Energy
Infrastructure
Acquisition
|
|
Pro
Forma
Adjustments
and Eliminations
|
|
Pro
Forma
Combined
Companies
(with
no stock)
|
|
Additional
Pro Forma
Adjustments
for Redemption of
6,525,118
Shares of Common Stock
|
|
Pro
Forma
Combined
Companies
(with
stock)
|
|
|
|
(Note
A)
|
|
Corp.
|
|
Debit
|
|
Credit
|
|
(redemption)
|
|
Debit
|
|
Credit
|
|
(redemption)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
100,088,680
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
$
|
100,088,680
|
|
|
|
|
|
|
|
$
|
100,088,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
14,960,874
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
14,960,874
|
|
|
|
|
|
|
|
|
14,960,874
|
|
Voyage
expenses
|
|
|
14,148,786
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
14,148,786
|
|
|
|
|
|
|
|
|
14,148,786
|
|
Depreciation
expenses
|
|
|
23,286,636
|
|
|
-
|
|
|
1,719,000
|
(8
|
)
|
|
|
|
|
|
|
|
25,005,636
|
|
|
|
|
|
|
|
|
25,005,636
|
|
Write-off
of drydocking costs
|
|
|
24,789
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
24,789
|
|
|
|
|
|
|
|
|
24,789
|
|
Management
fee
|
|
|
782,064
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
782,064
|
|
|
|
|
|
|
|
|
782,064
|
|
Commission
|
|
|
2,234,537
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
2,234,537
|
|
|
|
|
|
|
|
|
2,234,537
|
|
Share-based
compensation
|
|
|
-
|
|
|
5,334,679
|
|
|
|
|
|
|
5,334,679
|
|
|
(6
|
)
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
General
and administrative expenses
|
|
|
462,415
|
|
|
590,266
|
|
|
|
|
|
|
|
|
|
|
|
|
1,052,681
|
|
|
|
|
|
|
|
|
1,052,681
|
|
Total
operating expenses
|
|
|
55,900,101
|
|
|
5,924,945
|
|
|
|
|
|
|
|
|
|
|
|
|
58,209,367
|
|
|
|
|
|
|
|
|
58,209,367
|
|
Operating
income
|
|
|
44,188,579
|
|
|
(5,924,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
41,879,313
|
|
|
|
|
|
|
|
|
41,879,313
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
3,688,277
|
|
|
2,182,796
|
|
|
2,182,796
|
(3
|
)
|
|
|
|
|
|
|
|
3,308,445
|
|
|
|
|
|
|
|
|
3,308,445
|
|
|
|
|
|
|
|
|
|
|
379,832
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(19,926,428
|
)
|
|
(55,899
|
)
|
|
526,667
|
(1
|
)
|
|
19,602,495
|
|
|
(4
|
)
|
|
(24,013,205
|
)
|
|
|
|
|
|
|
|
(24,013,205
|
)
|
|
|
|
|
|
|
|
|
|
23,486,538
|
(2
|
)
|
|
379,832
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off
of deferred loan costs
|
|
|
(194,519
|
)
|
|
-
|
|
|
|
|
|
|
194,519
|
|
|
(5
|
)
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
Other,
net
|
|
|
(27,766
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,766
|
)
|
|
|
|
|
|
|
|
(27,766
|
)
|
Total
other income (expense)
|
|
|
(16,460,436
|
)
|
|
2,126,897
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,732,526
|
)
|
|
|
|
|
|
|
|
(20,732,526
|
)
|
Net
income (loss) before income taxes
|
|
|
27,728,143
|
|
|
(3,798,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
21,146,787
|
|
|
|
|
|
|
|
|
21,146,787
|
|
Income
taxes
|
|
|
(29,086
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,086
|
)
|
|
|
|
|
|
|
|
(29,086
|
)
|
Net
income (loss)
|
|
$
|
27,699,057
|
|
$
|
(3,798,048
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
21,117,701
|
|
|
|
|
|
|
|
$
|
21,117,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.45
|
|
|
|
|
|
|
|
$
|
0.53
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding (Note C) -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,990,247
|
|
|
|
|
|
|
|
|
40,195,129
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,298,792
|
|
|
|
|
|
|
|
|
45,503,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends paid per common share (Note B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.54
|
|
|
|
|
|
|
|
$
|
1.54
|
|
Pro
Forma
Adjustments:
|
(1)
|
To
record amortization of deferred loan origination costs based
on provisions
of the loan agreements ($4,650,000 / 108 mo X 12 mo + $10,000
/ 12 mo X 12
mo).
|
|
(2)
|
To
record interest expense on the DVB Merchant Bank (Asia) Ltd,
Fortis Bank
S.A./N.V. and NIBC Bank Ltd credit facility as if it had
been in place
from the beginning of the period
presented.
|
|
(3)
|
To
eliminate interest income earned on funds held in
trust.
|
|
(4)
|
To
eliminate, effective January 1, 2006, interest expense on
indebtedness to
be repaid pursuant to the
agreement.
|
SPV's
to be acquired
|
|
$
|
19,546,596
|
|
Energy
Infrastructure Acquisition Corp.
|
|
|
55,899
|
|
|
|
$
|
19,602,495
|
|
|
(5)
|
To
eliminate non-recurring expense from write-off of deferred
loan
costs.
|
|
(6)
|
To
eliminate, effective January 1, 2006, the expense of terminated
share-based compensation arrangements of Energy
Infrastructure.
|
(7)
To
eliminate intercorporate SPV interest income and expense on intercorporate
SPV
loan.
|
(8)
|
To
adjust depreciation expense of vessels of three SPV's to
reflect the
acquisition of the remaining 50% joint venture interest,
concurrently with
the Business Combination, based upon the stepped-up historical
costs of
Vanship.
|
|
(A)
|
The
column entitled "Aggregate SPV's To Be Acquired" represents
the sum of the
historical financial statements of each respective SPV, and
does not
purport to represent the the financial position of the SPV's
presented on
a combined or consolidated basis under U.S.
GAAP.
|
|
(B)
|
The
cash dividends paid per common share is the amount required
under the
share purchase agreement, however, such dividend may not
be able to be
paid if sufficient cash is not available or if the lenders
under the
credit facility place restrictions on the payment of dividends.
The Energy
Infrastructure insiders have agreed to waive dividends declared
with
respect to common shares held by
them.
|
|
(C)
|
Although
the purchase of 5,000,000 units by Vanship and the issuance
of 1,000,000
units to Sagredos are directly attributable to the Business
Combination,
such transactions are not expected to have a continuing impact
on the
post-transaction financial statements, and therefore have
not been
included in the unaudited pro forma condensed combined statements
of
operations presented herein, other than in the calculation
of weighted
average number of common shares
outstanding.
|
|
(D)
|
Pro
forma entries are recorded to the extent they are a direct
result of the
Business Combination and are expected to have continuing
future
impact.
|
|
(E)
|
No
consideration has been given to the earn-out shares potentially
issuable
in the unaudited pro forma condensed combined statements
of operations
presented herein.
|
|
(F)
|
The
pro forma condensed combined financial statements do not
give effect to
any issuance of convertible preferred stock or other convertible
securities that may ultimately be issued as part of the Business
Combination, as no determination has been made to date with
respect to the
specific provisions of such
securities.
|
STATEMENT
OF FORECASTED RESULTS OF OPERATIONS AND CASH AVAILABLE
FOR
DIVIDENDS,
RESERVES AND EXTRAORDINARY EXPENSES
All
of the information set forth below is for illustrative purposes only. The
underlying assumptions may prove to be incorrect. Actual results will almost
certainly differ, and the variations may be material. The information set
forth
below has not been prepared in accordance with United States generally accepted
accounting principles. Energy Merger may have materially lower revenues,
set
aside substantial reserves or incur a material amount of extraordinary expenses.
You should not assume or conclude that we will pay any dividends in any period.
Energy
Merger does not as a matter of course make public projections as to future
sales, earnings, or other results. However, the management of Energy Merger
has
prepared the prospective financial information set forth below to present
the
forecasted cash available for dividends, reserves, and extraordinary expenses
during Energy Merger's first full operating year.
These
financial forecasts have been prepared by the management of Energy
Infrastructure and Energy Infrastructure has not received an opinion or any
other form of assurance
on it from any independent registered public accounting firm and the forecast
has not been prepared in accordance with generally accepted accounting
principles. The assumptions underlying the forecast are inherently uncertain
and
are subject to significant business, economic, regulatory and competitive
risks
and uncertainties that could cause actual results to differ materially from
those forecasted. If Energy Merger does not achieve the forecasted results,
Energy Merger may not be able to operate profitably, successfully implement
its
business strategy to expand its fleet or pay dividends to its stockholders
in
which event the market price of Energy Merger’s common shares may decline
materially.
This
information is not fact and should not be relied upon as being necessarily
indicative of future results, and readers of this joint proxy
statement/prospectus are cautioned not to place undue reliance on the
prospective financial information.
You
should not rely upon this prospective financial information as necessarily
indicative of Energy Merger's future results and we caution you not to place
undue reliance on this forecasted financial information. Neither Energy Merger's
independent registered public accounting firm, nor any other independent
accountants, have compiled, examined, or performed any procedures with respect
to the prospective financial information contained herein, nor have they
expressed any opinion or any other form of assurance on such information
or its
achievability, and assume no responsibility for, and disclaim any association
with, the prospective financial information.
Under
the
Share Purchase Agreement and subject to its ability to do so under applicable
law, Energy Merger has agreed to pay dividends of $1.54 per share to Energy
Merger's public stockholders by the end of the first year following the
consummation of the Business Combination. Vanship has agreed, and it is a
condition to the closing of the Business Combination that Energy Merger insiders
shall have agreed, to waive any right to receive dividend payments in the
one-year period immediately following the consummation of the Business
Combination in order to facilitate the payment of these dividends. These
dividend waivers will be made by stockholders holding approximately 55% of
Energy Merger’s common stock (on an undiluted basis) in the first year following
the Business Combination and accordingly, annual dividends of $1.54 per share
should not be considered indicative of any dividend payments subsequent to
the
first anniversary of the Business Combination. . Energy Merger intends to
source
the aforesaid dividend payments from Energy Merger's revenues from vessel
operations. Energy Merger has prepared the forecasted financial information
to
present the cash that it expects to have available by the end of the first
year
following the consummation of the Business Combination, which is referred
to
herein as Energy Merger's first full operating year, for:
·
|
expenses
and reserves for vessel upgrades, repairs and drydocking;
|
·
|
expenses
and reserves for further vessel acquisitions;
|
·
|
principal
payments on the new credit facility;
|
·
|
reserves
required by lenders under Energy Merger's loan agreements; and
|
·
|
reserves
as Energy Merger's board of directors may from time to time determine
are
required for contingent and other liabilities and general corporate
purposes.
|
Energy
Merger calls these items "dividends, reserves and extraordinary expenses."
The
actual results achieved during Energy Merger's first full operating year
will
vary from those set forth in the forecasted financial information, and those
variations may be material. In addition, investors should not assume that
the
forecasted available cash for Energy Merger's first full operating year may
be
extrapolated to any other period. As disclosed under "Risk Factors," Energy
Merger's business and operations are subject to substantial risks which increase
the uncertainty inherent in the forecasted financial information. Many of
the
factors disclosed under "Risk Factors" could cause actual results to differ
materially from those expressed in the forecasted financial information.
The
forecasted financial information assumes the successful implementation of
Energy
Merger's business strategy. No assurance can be given that Energy Merger's
business strategy will be effective or that the benefits of Energy Merger's
business strategy will be realized during its first full operating year,
if
ever.
The
forecasted financial information should be read together with the information
contained in "Risk Factors," " Management’s Discussion and Analysis of Financial
Conditions and Results of Operations of the SPVs" and Energy Merger's financial
statements contained herein.
The
following table contains information based on assumptions regarding the fleet
and the charter rates earned by the vessels during the first full year of
Energy
Merger's operations. As of the date of this joint proxy statement/prospectus,
all of the vessels in the fleet other than the Shinyo Jubilee are committed
under time charter agreements with international companies. Pursuant to these
agreements, the SPVs provide a vessel to these companies, or charterers,
at a
fixed, per-day charter hire rate for a specified term. Under the agreements,
the
vessel owner is responsible for paying operating costs. The charterers, in
addition to the daily charter hire, are generally responsible for the cost
of
all fuels with respect to the vessels (with certain exceptions, including
during
off-hire periods), port charges, costs related to towage, pilotage, mooring
expenses at loading and discharging facilities and certain operating expenses.
The charterers are not obligated to pay the applicable vessel owner charterhire
for off-hire days, which include days a vessel is out-of-service due to,
among
other things, repairs or drydockings. Under the time charter agreements,
the
vessel owner is generally required, among other things, to keep the related
vessels seaworthy, to crew and maintain the vessels and to comply with
applicable regulations. The vessel owners are also required to provide
protection and indemnity, hull and machinery, war risk and oil pollution
insurance coverage.
The
vessel Shinyo Jubilee operates under a consecutive voyage charter agreement.
Under the consecutive voyage charter agreement, the vessel owner is paid
freight
(per ton of crude oil) on the basis of moving crude oil from a loading port
to a
discharge port for multiple voyages through September 2009. The freight rate
is
based on a fixed Worldscale rate. The vessel owner is responsible for paying
both operating costs and voyage costs and the charterer is generally responsible
for any delay at the loading or discharging ports. Under the consecutive
voyage
charter agreement, the vessel owner is generally required, among other things,
to keep the related vessel seaworthy, to crew and maintain the vessel and
to
comply with applicable regulations. The vessel owner is also required to
provide
protection and indemnity, hull and machinery, war risk and oil pollution
insurance cover.
The
charter rates provided in the following table are based on these charters.
However there can be no assurance that each of Energy Merger's charterers
will
fully perform under the respective charters or that Energy Merger will actually
receive the amounts anticipated. As a
result,
there can be no assurance that the vessels in the fleet will earn daily charter
rates during Energy Merger's first full year of operations that are equal
to
those provided in the table below.
|
|
Net Daily Charter
|
|
Net Daily
|
|
Total Daily Net
|
|
Vessel Name
|
|
Base Rate(1)
|
|
Profit Share(2)
|
|
Charter Revenue
|
|
Shinyo
Alliance
|
|
$
|
29,700
|
|
$
|
-
|
|
$
|
29,700
|
|
|
|
|
|
|
|
|
|
|
|
|
C
Dream
|
|
|
|
|
|
|
|
|
|
|
Current
Charter concludes March 2009
|
|
|
28,322
|
|
|
-
|
|
|
28,322
|
|
Charter
commencing March 2009
|
|
|
29,250
|
(3)
|
|
12,480
|
(5)
|
|
41,730
|
|
|
|
|
|
|
|
|
|
|
|
|
Shinyo
Kannika
|
|
|
38,025
|
|
|
7,556
|
(6)
|
|
45,581
|
|
|
|
|
|
|
|
|
|
|
|
|
Shinyo
Ocean
|
|
|
38,400
|
|
|
8,000
|
(7)
|
|
46,400
|
|
|
|
|
|
|
|
|
|
|
|
|
Shinyo
Jubilee
|
|
|
35,000
|
(4)
|
|
-
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Shinyo
Splendor
|
|
|
38,019
|
|
|
-
|
|
|
38,019
|
|
|
|
|
|
|
|
|
|
|
|
|
Shinyo
Mariner
|
|
|
31,980
|
|
|
-
|
|
|
31,980
|
|
|
|
|
|
|
|
|
|
|
|
|
Shinyo
Navigator
|
|
|
42,705
|
|
|
-
|
|
|
42,705
|
|
|
|
|
|
|
|
|
|
|
|
|
Shinyo
Sawako
|
|
|
38,111
|
|
|
-
|
|
|
38,111
|
|
(1)
|
Net
Daily Charter Base Rates are net of Broker commission fees. Broker
commissions are fees payable under a charter agreement to the
parties that
brokered the transaction between a vessel owner and a
charterer.
|
(2)
|
Net
Daily Profit Share is net of commission fees and assumes a daily
average
spot rate of $59,500.
|
(3)
|
Second
time charter starts after expiry of first charter.
|
(4)
|
Estimated
Time Charter Equivalent, or TCE. Time charter equivalent is a
measure of
the average daily revenue performance of a vessel on a per voyage
basis.
Vanship’s method of calculating TCE is consistent with industry standards
and is determined by dividing net voyage revenue by voyage days
for the
relevant time period. Net voyage revenues are voyage revenues
minus voyage
expenses. Voyage expenses primarily consist of port, canal and
fuel costs
that are unique to a particular voyage, which would otherwise
be paid by
the charterer under a time charter contract.
|
(5)
|
Subject
to profit sharing provision in which actual annual net average
daily time
charter earnings between $30,001 and $40,000 are split equally
between the
SPV and charterer, and actual annual net average daily time charter
earnings in excess of $40,000 are split 40% to SPV and 60% to
charterer.
|
(6)
|
Subject
to profit sharing provision in which income (referenced to the
BITR) in
excess of $44,000 per day is split equally between SPV and
charterer.
|
(7)
|
Subject
to profit sharing provision in which income (referenced to BITR3)
in
excess of $43,500 per day is split equally between the SPV and
charterer.
|
We
expect
that Energy Merger's expenses during the first full operating quarter will
consist of:
|
·
|
Interest
expense on Energy Merger's credit facility. Energy Merger has
assumed
that:
|
-
|
Energy
Merger will have outstanding, during its first full operating
year, an
aggregate principal amount of $415,000,000 under its credit facility;
and
|
-
|
The
debt facility will be divided into Loans A and B, with final
maturity
dates of no later than June 30, 2017 and December 31, 2010, respectively.
The loans A and B will be subdivided into nine tranches, with
each tranche
corresponding to a particular SPV. The drawdowns under each tranche
are to
be completed by June 30, 2008. Loan A will bear interest at LIBOR
plus a
margin of 1.0% to 1.30% depending the ratio of the aggregate
drawdown to
the charter free fair market value of the double hull vessels,
while Loan
B will bear interest at LIBOR plus a margin of 1.75% to 2.75%
depending
the ratio of the aggregate drawdown to the charter free fair
market value
of the single hull vessels. Based on the leverage ratios upon
closing,
both the Loan A and Loan B will have margins of 1.15% and 1.75%
respectively. Loan A and Loan B require first year principle
repayments of
$18,600,000 and $22,000,000 respectively.
|
|
·
|
General
and administrative expenses including salaries payable to Energy
Merger's
officers and employees and directors' fees, office rent, travel,
communications, insurance, legal, auditing and investor relations,
professional expenses, which Energy Merger expects will equal
$3,800,000.
|
Energy
Merger does not expect to incur ordinary cash expenses other than those
listed
above, which Energy Merger calls its ordinary cash expenses. Energy Merger
may,
however, have unanticipated extraordinary cash expenses, which could include
major vessel repairs and drydocking costs that are not covered by its management
agreements, vessel upgrades or modifications that are required by new laws
or
regulations, other capital improvements, costs of claims and related litigation
expenses or contingent liabilities.
Energy
Merger will generate all its revenue in U.S. dollars but its Manager will
incur
certain vessel operating and general and administrative expenses in currencies
other than the U.S. dollar
This
difference could lead to fluctuations in net income due to changes in the
value
of the U.S. dollar relative to other currencies. Expenses incurred in foreign
currencies against which the U.S. dollar falls in value can increase, which
would result in a decrease in Energy Merger's net income.
The
table
below sets forth the amount of cash that would be available during the
first
full year of operations to Energy Merger for dividends, reserves and
extraordinary expenses in the aggregate based on the assumptions listed
below.
This
amount
is
an estimate, as revenues and expenses may change in the future.
Energy
Merger's assumptions for the first full operating year include the following:
|
·
|
Energy
Infrastructure stockholders approve and authorize the Redomiciliation
Merger and no stockholders exercise redemption rights.
|
|
·
|
The
aggregate purchase price of the vessels in the fleet is
$778,000,000.
|
|
·
|
Energy
Merger will borrow $415,000,000 under its credit facility (refinance
the
existing debt of the SPVs).
|
|
·
|
The
issuance of 1,000,000 units to Energy Infrastructure's President
and
Chief-Operating Officer (or any assignee thereof) in exchange
for the
cancellation of options to purchase an aggregate 2,688,750 shares
of
common stock, the issuance of 5,000,000 units to Vanship in connection
with the Business Combination Private Placement and the issuance
of
268,500 units upon the conversion of convertible loans aggregating
$2,685,000.
|
|
·
|
Estimated
average vessel operating expenses for the fleet of $6,547 per
vessel per
calendar day which includes management fees for all of the vessels
payable
to Energy Merger Management's technical manager.
|
|
·
|
Energy
Merger will calculate depreciation on the vessels on the straight-line
method over the estimated useful life of each vessel, after taking
into
account its estimated residual value, from date of acquisition.
Each
vessel’s useful life is estimated as 25 years from the date originally
delivered from the shipyard, or a useful life extending no later
than the
year 2015 with respect to single-hull vessels. Amortization comprises
costs associated with drydocking of Energy Merger's vessels.
Energy Merger
will capitalize the costs associated with drydockings as they
occur and
amortizes these costs on a straight line basis.
|
|
·
|
Scheduled
dry dockings for the C. Dream, Shinyo Kannika, Shinyo Navigator,
Shinyo
Ocean and Shinyo Splendor will cost $2,851,000 in aggregate.
|
·
|
Energy
Merger's first full operating year consists of 365 days and each
of the
vessels in the fleet will be owned by Energy Merger for 365 days.
|
|
·
|
Each
of the vessels in the fleet upon delivery to Energy Merger will
earn
charter revenue and additional hire pursuant to applicable profit
share
provisions described in the table above for 355.9 days (which
includes 4.1
days for scheduled drydockings) and Energy Merger's charterers
will timely
pay charter hire when due.
|
|
·
|
Energy
Merger will not receive any insurance proceeds or other income.
|
|
·
|
Energy
Merger will not sell any vessels and none of the vessels will
suffer a
total loss or constructive total loss or suffer any reduced hire
or
unscheduled off-hire time.
|
|
·
|
Energy
Merger will have no other cash expenses or liabilities other
than its
estimated ordinary cash expenses.
|
|
·
|
Energy
Merger will qualify for the exemption available under Section
883 under
the Code and will therefore not pay any U.S. federal income taxes.
|
|
·
|
Energy
Merger will not incur any additional indebtedness.
|
Other
than management fees, interest expenses on Energy Merger's credit facility,
directors' fees, and officers' and employees' salaries, which will be fixed
for
Energy Merger's first full operating year, none of Energy Merger's fees
or
expenses are fixed.
Statement
of Forecasted Results of Operations and Cash Available
for
Dividends,
Reserves and Extraordinary Expenses during
Energy
Merger's First Full Operating Year
(unaudited)
|
|
First Full
Operating Year
(in thousands of U.S. dollars)
|
|
Net
Revenue
|
|
$
|
120,575
|
|
Less:
Operating expenses
|
|
|
(21,507
|
)
|
Less:
General and administrative expenses
|
|
|
(3,800
|
)
|
Less:
Depreciation & Amortization
|
|
|
(40,706
|
)
|
Less:
Net interest expense
|
|
|
(20,268
|
)
|
|
|
|
|
|
Net
Income
|
|
$
|
35,912
|
|
Adjustments
to reconcile net income to Estimated EBITDA:
|
|
|
|
|
Add:
|
|
|
|
|
Depreciation
& Amortization
|
|
|
40,706
|
|
Interest
expense
|
|
|
20,268
|
|
|
|
|
|
|
ESTIMATED
EBITDA(1)
|
|
$
|
95,268
|
|
Adjustments
to reconcile estimated EBITDA to estimated cash available for
distribution:
|
|
|
|
|
Less:
|
|
|
|
|
Cash
interest expense
|
|
|
(20,268
|
)
|
Maintenance
capital expenses
|
|
|
(2,851
|
)
|
Required
debt Amortization
|
|
|
(40,600
|
)
|
|
|
|
|
|
Plus:
|
|
|
|
|
Beginning
unrestricted cash balance(2)
|
|
|
9,519
|
|
|
|
|
|
|
Forecasted
Available Cash for Distribution
|
|
$
|
41,068
|
|
|
|
|
|
|
Dividends
to publicly held common shares outstanding(3)(4)
|
|
$
|
32,536
|
|
|
|
|
|
|
Ending
Unrestricted Cash Balance
|
|
$
|
8,532
|
|
Total
Ending Cash Balance Including Restricted Cash(5)
|
|
$
|
27,532
|
|
(1)
|
EBITDA
represents net income before interest, taxes, depreciation and
amortization. EBITDA is not a recognized measure under U.S. GAAP,
but is a
measure that management believes is highly correlated to cash
and useful
for the purpose of reconciling expected cash earnings to cash
available
for distribution. Additionally, EBITDA will be used as a supplemental
financing measure by management and by external users of our
financial
statements, such as investors, for the reasons discussed
below.
|
|
Financial
and operating performance.
EBITDA
will allow us to measure the financial and operating performance
of our
assets without regard to financing methods, capital structure
or the
accounting effects of capital expenditures and acquisitions.
For instance,
our net income will be affected by whether we finance assets
or operations
with debt or equity. Likewise, our net income will be affected
by our
assets' depreciation or amortization schedules. We anticipate
that
investors will use EBITDA as an indication of significant future
operating
cash inflows. By reviewing our earnings before the impact of
interest,
taxes, depreciation and amortization, we, our investors and others
will be
able to understand the performance of our assets and operations
on a more
comparable basis from period to period and against the performance
of
other companies in our
industry.
|
|
Liquidity.
EBITDA
will allow us to assess the ability of our assets to generate
cash
sufficient to service debt, make distributions to our shareholders
and
undertake capital expenditures.
|
|
EBITDA
should
not be considered an alternative to net income, operating income,
cash
flows from operating activities or any other measure of financial
performance or liquidity presented in accordance with U.S. GAAP.
EBITDA
excludes some, but not all, items that affect net income and
operating
income, and these measures may vary among other companies. Therefore,
EBITDA as presented above may not be comparable to similarly
titled
measures of other companies.
|
|
|
(2)
|
Does
not include $15,000,000 that Energy Merger will be required to
maintain as
a cash reserve pursuant to the covenants under its credit
facility.
|
|
|
(3)
|
Energy
Merger cannot assure you that it will have available cash in
the amounts
presented above or at all, or that the lenders under its credit
facility
will not place restrictions on the payment of
dividends.
|
(4)
|
Represents
21,127,500 shares outstanding held by public stockholders, multiplied
by
the dividend of $1.54 per share during the first operating year
in
accordance with the Dividend Policy of Energy Merger. Vanship
has agreed,
and it is a condition to the closing of the Business Combination,
that
Energy Merger insiders will waive any right to receive dividend
payments
in the one-year period immediately following the consummation
of the
Business Combination in order to facilitate the payment of these
dividends
to Energy Merger’s public stockholders.
|
|
|
(5)
|
Includes
$15,000,000 that Energy Merger will be required to maintain as
a cash
reserve pursuant to the covenants under its credit
facility.
|
CAPITALIZATION
OF ENERGY INFRASTRUCTURE
The
following table sets forth the capitalization of Energy Infrastructure
Acquisition Corp. as of September 30, 2007:
•
on
an
as adjusted basis giving effect to the Business Combination.
•
on
an
as further adjusted basis giving effect to the Business Combination,
the
redemption of 6,525,118 common shares subject to possible redemption,
and the
equity funding replacement offering. The equity funding replacement offering
represents the capital to be raised to provide the cash necessary to
fund the
redemption amount of shareholders who elect to have their shares redeemed
at
closing. The capitalization table does not give effect to any issuance
of
convertible preferred stock or other convertible securities that may
ultimately
be issued as part of the Business Combination, as no determination has
been made
to date with respect to the specific provisions of such securities, See
related
risk factor elsewhere in the merger proxy.
There
have been no significant adjustments to Energy Infrastructure Aquisition
Corp.'s
capitalization since September 30, 2007, as so adjusted.
You
should read this capitalization table together with "Management's Discussion
and
Analysis of Financial Condition and Results of Operations",
the
financial statements and related notes, and the unaudited pro forma condensed
combined financial statements and related notes, all appearing
elsewhere
in this joint proxy statement/prospectus.
|
|
As
of September 30, 2007
|
|
|
|
(in
thousands)
|
|
|
|
Actual
|
|
As
Adjusted
|
|
As
Further
Adjusted
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
Convertible
loans payable to stockholder
|
|
$
|
2,685
|
|
$
|
-
|
|
$
|
-
|
|
Long-term
acquisition financing, including current portion of
$40,600,000
|
|
|
-
|
|
|
415,000
|
|
|
415,000
|
|
Total
debt
|
|
|
2,685
|
|
|
415,000
|
|
|
415,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock subject to possible redemption
|
|
|
64,597
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
funding replacement offering
|
|
|
-
|
|
|
-
|
|
|
42,522
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.0001 par value; 1,000,000 shares authorized, none
issued
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Common
stock, $0.0001 par value, authorized - 89,000,000 shares;
issued and
outstanding - 27,221,747 shares, inclusive of shares subject
to possible
redemption actual, 46,990,247 shares, as adjusted, and 40,195.129
shares,
as further adjusted
|
|
|
3
|
|
|
5
|
|
|
4
|
|
Paid-in
capital in excess of par
|
|
|
152,684
|
|
|
116,062
|
|
|
51,465
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings (deficit accumulated during the development
stage)
|
|
|
(7,768
|
)
|
|
51,868
|
|
|
51,275
|
|
Total
stockholders' equity
|
|
|
144,919
|
|
|
167,935
|
|
|
102,744
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capitalization
|
|
$
|
212,201
|
|
$
|
582,935
|
|
$
|
560,266
|
|
RELATED
PARTY TRANSACTIONS
Transactions
in Connection with the Founding and Initial Public Offering of Energy
Infrastructure
Private
Placements
.
On
December 30, 2005, Energy Infrastructure issued an aggregate of 5,831,349
shares
of Energy Infrastructure’s common stock in a private transaction to the
individuals set forth below for $25,000 in cash, at a purchase price of $0.004
per share, as follows:
Name
|
|
Number
of
Shares(l)
|
|
Relationship
to Us
|
Arie
Silverberg
|
|
583,134
|
|
Chief
Executive Officer and Director
|
Marios
Pantazopoulos
|
|
145,784
|
|
Chief
Financial Officer and Director
|
George
Sagredos
|
|
2,332,541
|
|
Chief
Operating Officer, President and Director
|
Andreas
Theotokis
|
|
2,040,972
|
|
Chairman
of the Board of Directors and Director
|
Jonathan
Kollek
|
|
583,134
|
|
Director
|
David
Wong
|
|
145,784
|
|
Director
|
(1)
All such numbers give retroactive effect to a 0.4739219-for-1 stock
dividend effective as of April 21,
2006.
|
In
June
2006, Mr. Sagredos transferred 397,778 of his shares to Marios Pantazopoulos
for
nominal consideration.
Each
of
Messrs. Sagredos and Theotokis subsequently transferred the shares owned
by them
to Energy Corp., a corporation formed under the laws of the Cayman Islands.
On
July
18, 2006 an aggregate of 562,500 shares were surrendered for cancellation
by
certain of Energy Infrastructure’s stockholders.
The
holders of the majority of these shares are entitled to make up to two demands
that we register these shares. The holders of the majority of these shares
may
elect to exercise these registration rights at any time after the date on
which
these shares of common stock are released from escrow, which, except in limited
circumstances, is not before July 18, 2009. In addition, these stockholders
have
certain “piggy-back” registration rights on registration statements filed
subsequent to the date on which these shares of common stock are released
from
escrow. We will bear the expenses incurred in connection with the filing
of any
such registration statements.
Energy
Corp., a corporation formed under the laws of the Cayman Islands, which is
controlled by Energy Infrastructure’s President and Chief Operating Officer,
purchased 825,398 units from Energy Infrastructure at a purchase price of
$10.00
per unit in a private placement in accordance with Regulation S under the
Securities Act of 1933. Mr. Sagredos originally agreed to purchase the 825,398
units from Energy Infrastructure in January 2006 pursuant to the terms of
a
subscription agreement, and subsequently assigned such rights to Energy Corp.
in
June 2006, which assumed such obligations pursuant to the terms of an Assignment
and Assumption Agreement.
The
holders of such units subscribed for in the Regulation S private placement
have
been granted demand and “piggy-back” registration rights with respect to the
825,398 shares, the 825,398 warrants and the 825,398 shares underlying the
warrants at any time commencing on the date we announce that we have entered
into a letter of intent with respect to a proposed a business combination.
The
demand registration may be exercised by the holders of a majority of such
units.
We will bear the expenses incurred in connection with the filing of any such
registration statements.
Because
the units sold in the Regulation S private placement were originally issued
pursuant to an exemption from the registration requirements under the federal
securities laws, the holders of the warrants purchased in the Regulation
S
private placement may be able to exercise their warrants even if, at the
time of
exercise, a prospectus relating to the common stock issuable upon exercise
of
such warrants is not current.
The
units
purchased in the Regulation S private placement contain restrictions prohibiting
their transfer until the earlier of a business combination or Energy
Infrastructure’s liquidation. In addition, the holders of such units will agree
to vote the shares of common stock included in such units in favor of a business
combination brought to the stockholders for their approval, and to waive
their
respective rights to participate in any liquidation distribution occurring
upon
Energy Infrastructure’s failure to consummate a business
combination.
Stockholder
Loans
.
On
October 6, 2005, Mr. Sagredos advanced a total of $300,000 to Energy
Infrastructure to cover expenses related to Energy Infrastructure’s public
offering, which loan, plus accrued interest, was repaid from the proceeds
of the
public offering. Mr. Sagredos made an additional loan to Energy Infrastructure
in the amount of $475,000, four days prior to the effective date of the public
offering. Such loan bears interest at a per annum interest rate equivalent
to
the per annum interest rate applied to funds held in the Trust Account during
the same period that such loan is outstanding, and principal and accrued
interest is to be repaid from interest accrued on the Trust Account. Such
loan
has been repaid in full from the Trust Account.
In
addition, four days prior to the effective date of the public offering,
Robert
Ventures Limited, a corporation formed under the laws of the British Virgin
Islands controlled by George Sagredos loaned Energy Infrastructure an additional
$2,550,000 in the form of a convertible loan. An additional loan in the
amount
of $135,000 was made by Robert Ventures Limited prior to the exercise of
the
over-allotment option. Such loans amounting to $2,685,000 in the aggregate
bear
interest at a per annum rate equivalent to the per annum interest rate
applied
to the funds held in the Trust Account during the quarterly period covered
by
such interest payment. We became obligated to make quarterly interest payments
on such loans on the expiration of the first full quarter after the date
that we
had drawn down at least $1 million in accrued interest on the Trust Account
to
fund Energy Infrastructure’s working capital requirements. Such loans are due
the earlier of Energy Infrastructure’s liquidation or the consummation of a
business combination. Quarterly interest payments and the repayment of
principal
(if not earlier converted) will be made from interest accrued on the Trust
Account. In addition, the principal of the convertible loan is convertible
into
units at a conversion price of $10.00 per unit, subject to adjustment,
commencing two business days following Energy Infrastructure’s filing of a
preliminary proxy statement with respect to a business combination. These
securities have the same registration rights as the units to be sold in
the
Regulation S private placement. Pursuant to the terms of the Share Purchase
Agreement, Mr. Sagredos has agreed to convert the convertible loans into
268,500
units concurrent with the completion of the Business
Combination.
In
the
event the Business Combination is not completed, the repayment of the
convertible loans is subordinate to the public stockholders receiving a minimum
of $10.00 per share, subject to any valid claims by Energy Infrastructure’s
creditors which are not covered by amounts in the Trust Account or indemnities
provided by Energy Infrastructure’s officers and directors, in the event of
Energy Infrastructure’s liquidation and dissolution.
Options
.
Energy
Infrastructure granted Mr. Sagredos, Energy Infrastructure’s President and Chief
Operating Officer and a director, concurrent with the closing of Energy
Infrastructure’s public offering, options to purchase an aggregate of 2,688,750
shares of Energy Infrastructure’s common stock. The options will vest in four
quarterly installments with 672,187 options vesting on each of the first
three
installments, and the remaining 672,189 options vesting on the final
installment. The first installment shall vest on the date of expiration of
the
three-month period immediately following the consummation of a business
combination. We granted Mr. Theotokis, Energy Infrastructure’s Chairman of the
board of directors, concurrent with the closing of Energy Infrastructure’s
public offering, assignable options to purchase an aggregate of 896,250 shares
of Energy Infrastructure’s common stock. The options will vest in four quarterly
installments with 224,062 options vesting on each of the first three
installments and the remaining 224,064 options vesting on the final installment.
The first installment shall vest on the date of expiration of the three-month
period immediately following the consummation of a business combination.
Each of
the options, which is assignable, is exercisable for a five-year period from
the
date of vesting at an exercise price of $.01 per share, and contains cashless
exercise provisions. In the event of a stock dividend, recapitalization,
reorganization merger or consolidation, or certain other events, the exercise
price and number of underlying shares of common stock may be adjusted. The
shares of common stock underlying the options will be subject to a six-month
holding period from the date of issuance. The vesting of the options following
the consummation of the business combination is contingent upon each of Messrs.
Sagredos and Theotokis remaining as an officer of Energy Infrastructure on
each
applicable quarterly vesting date. However, options that have already vested
shall continue for their five-year term regardless of whether Mr. Sagredos
continues to be an officer and/or director of Energy Infrastructure. When
such
shares are issued, we have agreed to use Energy Infrastructure’s best efforts to
register such shares under the Securities Act of 1933. We will bear the expenses
incurred in connection with the filing of any such registration statements.
All
of
the above-described options to purchase an aggregate of 2,688,750 shares
of
Energy Infrastructure common stock will be tendered for cancellation concurrent
with the completion of the Business Combination.
Transactions
in Connection with the Business Combination
Expenses
.
Energy
Infrastructure will reimburse its officers and directors for any reasonable
out-of-pocket business expenses incurred by them in connection with certain
activities on Energy Infrastructure’s behalf such as identifying and
investigating possible target businesses and business combinations. There
is no
limit on the amount of accountable out-of-pocket expenses reimbursable by
Energy
Infrastructure, which will be reviewed only by Energy Infrastructure’s board or
a court of competent jurisdiction if such reimbursement is
challenged.
Other
than reimbursable out-of-pocket expenses payable to Energy Infrastructure’s
officers and directors, no compensation or fees of any kind, including finders
and consulting fees, will be paid to any of Energy Infrastructure’s existing
stockholders, officers or directors who owned Energy Infrastructure’s common
stock prior to the public offering, or to any of their respective affiliates
for
services rendered to Energy Infrastructure prior to or with respect to the
business combination.
Options
.
In
connection with the Business Combination, the options to purchase an aggregate
of 2,688,750 shares of Energy Infrastructure’s common stock granted to Mr.
Sagredos and the options to purchase an aggregate of 896,250 shares of Energy
Infrastructure’s common stock granted to Mr. Theotokis will be tendered for
cancellation.
Upon
consummation of the Business Combination, Mr. Sagredos (or his assignees)
shall
receive 1,000,000 units of Energy Merger. Mr. Sagredos has agreed to transfer
500,000 of such units to Marios Pantazopoulos, Energy Infrastructure's
chief
financial officer and a director, and a director of Energy
Merger.
Vanship
Warrants
.
Under
the Share Purchase Agreement, Energy Merger has agreed to effect the transfer
of
425,000 warrants to purchase Energy Infrastructure common stock from one
of
Energy Infrastructure’s initial stockholders. Each warrant will be exercisable
for one share of Energy Merger common stock with an exercise price of $8.00
per
share. It is expected that these warrants will be transferred to Vanship
by
Robert Ventures Limited, an off-shore company controlled by Mr. George
Sagredos.
Vanship
Registration Rights
.
Under
the Share Purchase Agreement, Energy Merger has agreed, with some limited
exceptions, to include (i) the 13,500,000 shares of Energy Merger’s common stock
comprising the stock consideration portion of the aggregate purchase price
for
the SPVs, and (ii) the shares of Energy Merger’s common stock underlying the
425,000 warrants that Mr. George Sagredos will transfer to Vanship in Energy
Merger’s registration statement of which this joint proxy statement/prospectus
is a part. We refer to these securities, collectively with the 6,000,000
shares
of Energy Merger’s common stock that Vanship is eligible to earn in the two year
period following the Business Combination based on certain revenue targets
as
the Registrable Securities. Energy Merger has also granted Vanship (on behalf
of
itself or its affiliates that hold Registrable Securities) the right, under
certain definitive, pre-determined circumstances and subject to certain
restrictions, including lock-up and market stand-off restrictions, to require
Energy Merger to register the Registrable Securities under the
Securities
Act of 1933, as amended, in the future. Under the Share Purchase Agreement,
Vanship also has the right to require Energy Merger
to
make
available shelf registration statements permitting sales of shares into the
market from time to time over an extended
period.
Vanship will have the ability to exercise certain piggyback registration
rights
180 days following the
effective
date of the Business Combination. In addition, in connection with the Business
Combination Private Placement, Energy Merger will grant to Vanship certain
demand and piggyback registration rights with respect to up to 5,000,000
units.
Business
Combination Private Placement
.
Under
the Share Purchase Agreement, Vanship has agreed to purchase up to 5,000,000
units from Energy Merger at a purchase price of $10.00 per unit, but only
to the
extent necessary to secure the acquisition financing described under the
heading
“Acquisition Financing.” Each unit will consist of one share of Energy Merger’s
common stock and one warrant to purchase one share of Energy Merger’s common
stock at an exercise price of $8.00 per warrant. The proceeds from such private
placement, if any, are expected to be retained by Energy Merger and not
contributed to the SPVs.
Transactions
in Connection with Energy Merger
Management
Agreement
.
Upon
the closing of the Business Combination, Energy Merger expects to enter
into a
management agreement with the Manager, pursuant to which the Manager will
provide the strategic, commercial, administrative, technical and crew management
services necessary to support Energy Merger’s business. It is expected that the
Manager will subcontract technical management of the vessels in Energy
Merger’s
fleet to its affiliate, Univan. Both the Manager and Univan were founded
and are
controlled by Captain C.A.J. Vanderperre. Captain Vanderperre will be the
Chairman of Energy Merger’s board of directors upon completion of the Business
Combination. He is also the Chairman and a co-founder of Vanship, the company
from which Energy Merger will acquire its initial fleet.
DESCRIPTION
OF ENERGY INFRASTRUCTURE SECURITIES
Given
below is a summary of the material features of Energy Infrastructure’s
securities. This summary is not a complete discussion of the certificate
of
incorporation and bylaws of Energy Infrastructure that create the rights
of its
stockholders. You are urged to read carefully this joint proxy
statement/prospectus. We also refer you to Energy Infrastructure’s certificate
of incorporation and bylaws, which have been filed as exhibits to SEC reports
filed by Energy Infrastructure. Please see “Where You Can Find Additional
Information.”
General
Energy
Infrastructure is authorized to issue 89,000,000 shares of common stock,
par
value $0.0001, and 1,000,000 shares of preferred stock, par value $0.0001.
As of
the date of this joint proxy statement/prospectus, 27,221,747 shares of common
stock are outstanding, held by nine record holders. No shares of preferred
stock
are currently outstanding.
Common
stock
Energy
Infrastructure stockholders are entitled to one vote for each share held
of
record on all matters to be voted on by stockholders. In connection with
the
vote required for the Business Combination, Energy Corp. has agreed to vote
an
aggregate of 825,398 shares of Energy Infrastructure common stock acquired
by
them in the Private Placement and any shares of Energy Infrastructure common
stock they may acquire in the future in favor of the Business Combination
and
thereby waive redemption rights with respect to such shares. All of Energy
Infrastructure’s officers and directors have agreed to vote an aggregate of
5,268,849 shares of Energy Infrastructure common stock issued to them prior
to
our initial public offering in accordance with the vote of the holders of
a
majority of the shares issued in our initial public offering. Additionally,
our
officers and directors will vote all of their shares in any manner they
determine, in their sole discretion, with respect to any other items that
come
before a vote of our stockholders.
Our
board
of directors is divided into three classes, each of which will generally
serve
for a term of three years with only one class of directors being elected
in each
year. There is no cumulative voting with respect to the election of directors,
with the result that the holders of more than 50% of the shares voted for
the
election of directors can elect all of the directors.
If
Energy
Infrastructure is forced to liquidate prior to a business combination, our
public stockholders are entitled to share ratably in the Trust Account,
inclusive of any interest (net of taxes payable), and any net assets remaining
available for distribution to them after payment of liabilities. Our officers
and directors have agreed to waive their rights to share in any distribution
with respect to common stock owned by them if we are forced to
liquidate.
Our
stockholders have no redemption, preemptive or other subscription rights
and
there are no sinking fund or redemption provisions applicable to the common
stock, except that public stockholders have the right to have their shares
of
common stock redeemed for cash equal to their pro rata share of the Trust
Account if they vote against the Redomiciliation Merger, elect to exercise
redemption rights and the Redomiciliation Merger is approved and completed.
A
stockholder who exercises redemption rights will continue to own any warrants
to
acquire Energy Infrastructure common stock owned by such stockholder as such
warrants will remain outstanding and unaffected by the exercise of redemption
rights.
There
are
no limitations on the right of non-residents of Delaware to hold or vote
Energy
Infrastructure’s common shares.
Preferred
stock
Energy
Infrastructure’s certificate of incorporation authorizes the issuance of
1,000,000 shares of blank check preferred stock with such designation, rights
and preferences as may be determined from time to time by our board of
directors. Accordingly, our board of directors is empowered, without stockholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of common stock, although the underwriting agreement
entered into in connection with our initial public offering prohibits Energy
Infrastructure, prior to a business combination, from issuing preferred stock
which participates in any manner in the proceeds of the Trust Account, or
which
votes as a class with the common stock on a business combination. The preferred
stock could be utilized as a method of discouraging, delaying or preventing
a
change in control of Energy Infrastructure.
Warrants
We
have
21,750,398 warrants issued and outstanding and Energy Merger may issue up
to an
additional 6,000,000 warrants (as part of units) upon completion of the Business
Combination. Each warrant entitles the registered holder to purchase one
share
of our common stock at a price of $8.00 per share, subject to adjustment
as
discussed below, at any time commencing on the completion of a business
combination. Following the effectiveness of the Business Combination, our
warrants will become excersisable. The warrants will expire on July 17, 2010
at
5:00 p.m., New York City time.
We
may
call the warrants for redemption
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in
whole and not in part;
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at
a price of $0.0001 per warrant at any time after the warrants become
exercisable, subject to the right of each warrant holder to exercise
his
or her warrant prior to the date scheduled for
redemption;
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upon
not less than 30 days’ prior written notice of redemption to each warrant
holder; and
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if,
and only if, the reported last sale price of the common stock equals
or
exceeds $14.25 per share, for any 20 trading days within a 30 trading
day
period ending on the third business day prior to the notice of
redemption
to warrant holders.
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We
have
established this criteria to provide warrant holders with a reasonable premium
to the initial warrant exercise price as well as a reasonable cushion against
a
negative market reaction, if any, to our redemption call. If the foregoing
conditions are satisfied and we call the warrants for redemption, each warrant
holder shall then be entitled to exercise his or her warrant prior to the
date
scheduled for redemption, however, there can be no assurance that the price
of
the common stock will exceed the call trigger price or the warrant exercise
price after the redemption call is made.
The
warrants are issued in registered form under a warrant agreement between
Continental Stock Transfer & Trust Company, as warrant agent, and Energy
Infrastructure. You should review a copy of the warrant agreement, which
has
been filed as an exhibit to SEC reports filed by Energy Infrastructure, for
a
complete description of the terms and conditions applicable to the
warrants.
The
exercise price and number of shares of common stock issuable on exercise
of the
warrants may be adjusted in certain definitive, pre-determined circumstances
including in the event of a stock dividend, or our recapitalization,
reorganization, merger or consolidation. However, the warrants will not be
adjusted for issuances of common stock at a price below their exercise
price.
The
warrants may be exercised upon surrender of the warrant certificate on or
prior
to the expiration date at the offices of the warrant agent, with the exercise
form on the reverse side of the warrant certificate completed and executed
as
indicated, accompanied by full payment of the exercise price, by certified
check
payable to Energy Infrastructure, for the number of warrants being exercised.
The warrant holders do not have the rights or privileges of holders of common
stock and any voting rights until they exercise their warrants and receive
shares of common stock. After the issuance of shares of common stock upon
exercise of the warrants, each holder will be entitled to one vote for each
share held of record on all matters to be voted on by stockholders.
No
warrants will be exercisable unless at the time of exercise a prospectus
relating to common stock issuable upon exercise of the warrants is current
and
the common stock has been registered or qualified or deemed to be exempt
under
the securities laws of the state of residence of the holder of the warrants.
Under the terms of the warrant agreement, we have agreed to meet these
conditions and use our best efforts to maintain a current prospectus relating
to
common stock issuable upon exercise of the warrants until the expiration
of the
warrants. However, we cannot assure you that we will be able to do so. The
warrants may be deprived of any value and the market for the warrants may
be
limited if the prospectus relating to the common stock issuable upon the
exercise of the warrants is not current or if the common stock is not qualified
or exempt from qualification in the jurisdictions in which the holders of
the
warrants reside.
No
fractional shares will be issued upon exercise of the warrants. If, upon
exercise of the warrants, a holder would be entitled to receive a fractional
interest in a share, we will, upon exercise, round up to the nearest whole
number the number of shares of common stock to be issued to the warrant
holder.
Dividends
We
are a
blank check company and therefore we have not paid any dividends on our common
stock. It is the present intention of our board of directors to retain all
earnings, if any, for use in our business operations and, accordingly, our
board
does not anticipate declaring any dividends in the foreseeable future, if
the
Redomiciliation Merger is not approved. Please read “Dividend Policy of Energy
Merger.”
Transfer
agent and warrant agent
The
transfer agent for our securities and warrant agent for our warrants is
Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New
York 10004.
DESCRIPTION
OF ENERGY MERGER SECURITIES
Energy
Infrastructure stockholders who receive shares of Energy Merger in the merger
will become stockholders of Energy Merger. Energy Merger is a corporation
organized under the laws of the Republic of the Marshall Islands and is subject
to the provisions of Marshall Islands law. Given below is a summary of the
material features of Energy Merger’s securities. This summary is not a complete
discussion of the articles of incorporation and bylaws of Energy Merger that
create the rights of its stockholders. You are urged to read carefully the
articles of incorporation and bylaws of Energy Merger which have been filed
as
exhibits to Energy Merger’s registration statement on Form F-1/F-4. Please see
“Where You Can Find Additional Information.”
General
Energy
Merger is authorized to issue 119,000,000 shares of common stock, par value
$0.0001, and 1,000,000 shares of preferred stock, par value $0.0001. As of
the
date of this joint proxy statement/prospectus, 100 shares of common stock
are
outstanding. No shares of preferred stock are currently
outstanding.
Common
Stock
Upon
consummation of the Business Combination, after giving effect to the issuance
of
13,500,000 shares to Vanship in the Business Combination, the issuance of
1,000,000 units to Energy Infrastructure's President and Chief Operating
Officer
(or any assignee thereof), the issuance of 5,000,000 units to Vanship in
connection with the Business Combination Private Placement and the issuance
of
268,500 units upon the conversion of convertible loans aggregating $2,685,000,
Energy Merger will have outstanding 46,990,247 shares of common stock, assuming
that no stockholders vote against the Business Combination and exercise
redemption rights. In addition, Energy Merger will have 28,018,890 shares
of
common stock reserved for issuance upon the exercise of the warrants. Under
certain definitive, pre-determined circumstances, in the future, Energy Merger
may issue up to an additional 6,000,000 shares of common stock to Vanship.
See
“Share Purchase Agreement—Purchase Price.”
Each
outstanding share of common stock entitles the holder to one vote on all
matters
submitted to a vote of
stockholders.
Subject to preferences that may be applicable to any outstanding shares of
preferred stock, holders of shares of
common
stock are entitled to receive ratably all dividends, if any, declared by
Energy
Merger’s board of directors out of funds legally available for dividends.
Holders of common stock do not have conversion, redemption or preemptive
rights
to subscribe to any of Energy Merger’s securities. All outstanding shares of
common stock are, and the shares to be issued in the Redomiciliation Merger
when
issued will be, fully paid and non-assessable. The rights, preferences and
privileges of holders of common stock are subject to the rights of the holders
of any shares of preferred stock which Energy Merger may issue in the
future.
There
are
no limitations on the right of non-residents of Republic of the Marshall
Islands
to hold or vote Energy Merger’s common shares.
Preferred
Stock
As
of the
date of this joint proxy statement/prospectus, Energy Merger is authorized
to
issue up to 1,000,000 shares of blank check preferred stock. The rights,
designations and preferences of the preferred stock can be determined, and
the
shares can
be
issued, upon the authority of Energy Merger’s board of directors, without any
further vote or action by Energy Merger’s stockholders.
The
Share
Purchase Agreement provides that, so long as Vanship owns at least 25% of
the
outstanding common stock of Energy Merger, Vanship will have the right to
appoint one Class A, one Class B and one Class C director of
Energy Merger. Energy Merger intends to amend its articles of incorporation,
issue such shares of convertible preferred stock or other convertible securities
and enter into such agreements with Vanship as are necessary to give effect
to
this right upon or prior to the completion of the Business
Combination.
Warrants
Upon
consummation of the Business Combination, each outstanding Energy Infrastructure
warrant will be assumed by Energy Merger with the same terms and restrictions
except that each will be exercisable for common stock of Energy Merger. For
a
description of the terms and restrictions, please read “Description of Energy
Infrastructure Securities Warrants.”
Conflicts
of Interest
Article
Ninth of Energy Merger’s articles of incorporation addresses actual and
potential conflicts of interest that may arise as a result of Vanship’s equity
holding in Energy Merger and certain individuals serving as officers and
directors of both Vanship (including its other subsidiaries) and Energy Merger.
Generally, Vanship is entitled to engage in the same or similar business
as
Energy Merger and Energy Merger will not have any right to business
opportunities known to or pursued by Vanship or its affiliates. Furthermore,
Vanship will not have a duty to present business opportunities to Energy
Merger.
Similarly, directors and officers of both Vanship (including its other
subsidiaries) and Energy Merger will not have a duty to present business
opportunities to Energy Merger, unless they are expressly offered in writing
to
an individual solely in his capacity as a director or officer of Energy Merger.
These provisions terminate upon (1) Vanship ceasing to control 10% of Energy
Merger’s common stock voting power and (2) no person serving as a director or
officer of both Vanship (including its other subsidiaries) and Energy Merger.
A
two-thirds majority vote of both the board of directors and stockholders
of
Energy Merger is necessary to amend Article Ninth of the Energy Merger articles
of incorporation.
COMPARISON
OF ENERGY INFRASTRUCTURE AND ENERGY MERGER STOCKHOLDER
RIGHTS
In
the
Redomiciliation Merger, each share of Energy Infrastructure common stock,
par
value $0.0001 per share, will be converted into one share of Energy Merger
common stock, par value $0.0001 per share, and each warrant to purchase shares
of Energy Infrastructure will be assumed by Energy Merger and will contain
the
same terms and provisions except that each will be exercisable for shares
of
Energy Merger. Energy Infrastructure is a Delaware corporation. The rights
of
its stockholders derive from Energy Infrastructure’s certificate of
incorporation and bylaws and from the DGCL. Energy Merger is a Marshall Islands
corporation. The rights of its stockholders derive from Energy Merger’s articles
of incorporation and bylaws and from the BCA.
The
following is a comparison setting forth the material differences of the rights
of Energy Infrastructure stockholders and Energy Merger stockholders. Certain
significant differences in the rights of Energy Infrastructure stockholders
and
those of Energy Merger stockholders arise from differing provisions of Energy
Infrastructure’s and Energy Merger’s respective governing corporate instruments.
The following summary does not purport to be a complete statement of the
provisions affecting, and differences between, the rights of Energy
Infrastructure stockholders and those of Energy Merger stockholders. This
summary is qualified in its entirety by reference to the DGCL and the BCA
and to
the respective governing corporate instruments of Energy Infrastructure and
Energy Merger, to which stockholders are referred.
Objects
and Purposes
Energy
Infrastructure.
The
purposes and powers of Energy Infrastructure are set forth in the third
paragraph of Energy Infrastructure’s certificate of incorporation. These
purposes include any lawful act or activity for which corporations may be
organized under the DGCL. Pursuant to Energy Infrastructure’s amended and
restated certificate of incorporation, Energy Infrastructure will dissolve
and
liquidate its trust account to its public stockholders if it does not complete
a
business combination within 18 months after the consummation of its initial
public offering (or within 24 months after the consummation of its initial
public offering if certain extension criteria are satisfied).
Energy
Merger.
The
purposes and powers of Energy Merger are set forth in the third paragraph
of
Energy Merger’s articles of incorporation. The purpose of Energy Merger is to
engage in any lawful act or activity relating to the business of owning or
operating tanker ships and other types vessels used as a means of conveyance
and
transportation by water, any other lawful act or activity customarily conducted
in conjunction with waterborne shipping.
Authorized
Capital Stock
Energy
Infrastructure.
Energy
Infrastructure is authorized to issue 89,000,000 shares of common stock,
par
value $0.0001, and 1,000,000 shares of preferred stock, par value $0.0001.
As of
the date of joint proxy statement/prospectus, 27,221,747 shares of common
stock
are outstanding and there are nine record holders. No shares of preferred
stock
are currently outstanding.
Energy
Merger.
Energy
Merger is authorized to issue 119,000,000 shares of common stock, par value
$0.0001, and 1,000,000 shares of preferred stock, par value $0.0001. As of
the
date of this joint proxy statement/prospectus, 100 shares of common stock
are
outstanding. No shares of preferred stock are currently
outstanding.
Board
of Directors
Energy
Infrastructure.
Under
the DGCL, the certificate of incorporation, an initial bylaw or a bylaw adopted
by the stockholders of a Delaware corporation may create a classified board
with
staggered terms. A maximum of three classes of directors is allowed with
members
of one class elected each year for a maximum term of three years. There is
no
statutory requirement as to the number of directors in each class or that
the
number in each class be equal.
Energy
Infrastructure’s bylaws provide that its board of directors shall consist of not
less than one nor more than nine members as designated from time to time
by
resolution of the board. Energy Infrastructure’s board of directors currently
has five members. Directors are elected by the affirmative vote of a majority
of
the shares represented at the annual meeting of stockholders. Energy
Infrastructure’s board of directors is divided into three classes with only one
class of directors being elected in each year and each class serving a
three-year term.
Energy
Infrastructure’s certificate of incorporation and bylaws do not provide for
cumulative voting for the election of directors. If any vacancy occurs in
the
membership of the board of directors, it may be filled by a vote of the majority
of the remaining directors then in office although less than a quorum, or
by a
sole remaining director and each director so chosen shall hold office until
the
next annual meeting and until such director’s successor shall be duly elected
and shall qualify, or until such director’s earlier resignation, removal from
office, death or incapacity.
Energy
Merger.
The
board
of directors of Energy Merger is divided into three classes that are as nearly
equal in number as possible. Class A Directors initially serve until the
2009
annual meeting of stockholders, Class B Directors initially serve until the
2010
annual meeting of stockholders, and Class C Directors initially serve until
the
2011 annual meeting of stockholders. At each annual meeting of stockholders
after the foregoing initial terms, the directors of each class are elected
for
terms of three years.
Pursuant
to its bylaws, the board of directors of Energy Merger may, in the absence
of an
independent quorum, from time to time, in its discretion, fix amounts which
shall be payable to members of the board of directors for attendance at the
meetings of the board or committee thereof and for services rendered to Energy
Merger.
The
Share
Purchase Agreement provides that, so long as Vanship owns at least 25% of
the
outstanding common stock of Energy Merger, Vanship will have the right to
appoint one Class A, one Class B and one Class C director of Energy
Merger. Energy Merger intends to amend its articles of incorporation, issue
such
shares of convertible preferred stock or other convertible securities and
enter
into such agreements with Vanship as are necessary to give effect to this
right
upon or prior to the completion of the Business Combination.
Special
Meetings of Stockholders
Energy
Infrastructure.
Energy
Infrastructure’s bylaws provide that a Special Meeting of stockholders may be
called by a majority of the entire board of directors, or the Chief Executive
Officer, and shall be called by the Secretary at the request in writing of
stockholders holding not less than a majority of all of the outstanding stock
of
Energy Infrastructure entitled to vote at such meeting.
Energy
Merger.
A
special
meeting of Energy Merger’s stockholders may be called at any time by the
affirmative vote of sixty-six and two-thirds percent (66⅔%) or more of the
members of the entire board of directors, or the Chief Executive Officer,
and
shall be called by the Secretary at the request in writing of stockholders
owning a majority in amount of the entire capital stock of the corporation
issued and outstanding and entitled to vote.
Mergers,
Share Exchanges and Sales of Assets
Energy
Infrastructure.
The
DGCL
generally requires a majority vote of the outstanding shares of the corporation
entitled to vote to effectuate a merger. The certificate of incorporation
of a
Delaware corporation may provide for a greater vote. In addition, the vote
of
stockholders of the surviving corporation on a plan of merger is not required
under certain definitive, pre-determined circumstances.
Energy
Infrastructure’s certificate of incorporation provides that, in connection with
a business combination, such as a merger, each outstanding share of common
stock
shall be entitled to one vote per share of common stock.
Energy
Merger.
The
Marshall Islands Business Corporations Act, or the BCA, provides that a merger
in which the Marshall Islands corporation is not the surviving corporation
requires the affirmative vote of the holders of at least a majority of the
outstanding shares of capital stock of the Marshall Islands corporation entitled
to vote thereon. The BCA further provides that a sale, lease, exchange or
other
disposition of all or substantially all the assets of the Marshall Islands
corporation, if not made in the usual or regular course of the business actually
conducted by such Marshall Islands corporation, requires the affirmative
vote of
the holders of at least 66⅔% of the outstanding shares of capital stock of the
Marshall Islands corporation entitled to vote thereon, unless any class of
shares is entitled to vote thereon as a class, in which event such authorization
shall require the affirmative vote of the holders of a majority of the shares
of
each class of shares entitled to vote as a class thereon and of the total
shares
entitled to vote thereon.
Anti-takeover
Provisions
Energy
Infrastructure.
Several
provisions of Energy Infrastructure’s certificate of incorporation and bylaws
may have anti-takeover effects. These provisions are intended to avoid costly
takeover battles, lessen Energy Infrastructure’s vulnerability to a hostile
change of control and enhance the ability of the board of directors to maximize
stockholder value in connection with any unsolicited offer to acquire Energy
Infrastructure. However, these anti-takeover provisions, which are summarized
below, could also discourage, delay or prevent (1) the merger or acquisition
of
Energy Infrastructure by means of a tender offer, a proxy contest or otherwise,
that a stockholder may consider in its best interest and (2) the removal
of
incumbent officers and directors.
Energy
Infrastructure’s certificate of incorporation authorizes the issuance of
1,000,000 shares of blank check preferred stock with such designation, rights
and preferences as may be determined from time to time by our board of
directors. Energy Infrastructure’s board of directors may issue shares of
preferred stock on terms calculated to discourage, delay or prevent a change
of
control of its company or the removal of its management.
Energy
Infrastructure’s certificate of incorporation provides for a board of directors
serving staggered, three-year terms. Energy Infrastructure’s board of directors
currently has five members. The classified board provision could discourage
a
third party from making a tender offer for Energy Infrastructure’s shares or
attempting to obtain control of the company. It could also delay stockholders
who do not agree with the policies of the board of directors from removing
a
majority of the board of directors for up to three years.
Energy
Infrastructure’s certificate of incorporation and bylaws prohibit cumulative
voting in the election of directors. These provisions may discourage, delay
or
prevent the removal of incumbent officers and directors.
Energy
Infrastructure’s bylaws provide that a special meeting of stockholders may be
called by a majority of the entire board of directors, or the Chief Executive
Officer, and shall be called by the Secretary at the request in writing of
stockholders holding not less than a majority of all of the outstanding stock
of
Energy Infrastructure entitled to vote at such meeting. These provisions
could
prevent stockholders representing less than a majority of the outstanding
stock
of Energy Infrastructure from forcing the board of directors to call a special
meeting which could discourage, delay or prevent a change of control of the
company or the removal of management.
The
DGCL
contains provisions which prohibit corporations from engaging in a business
combination with an interested stockholder for a period of three years after
the
time of the transaction in which the person became an interested stockholder,
unless: (1) prior to the time of the transaction that resulted in a stockholder
becoming an interested stockholder, the board of directors approved either
the
business combination or the transaction that resulted in the stockholder
becoming an interested stockholder; (2) upon consummation of the transaction
that resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain shares);
or
(3) at or subsequent to the date of the transaction that resulted in the
stockholder becoming an interested stockholder, the business combination
is
approved by the board of directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66⅔% of the
outstanding voting stock that is not owned by the interested
stockholder.
For
purposes of these provisions, a “business combination” includes mergers,
consolidations, exchanges, asset sales, leases and other transactions resulting
in a financial benefit to the interested stockholder and an “interested
stockholder” is any person or entity that beneficially owns 30% or more of our
outstanding voting stock and any person or entity affiliated with or controlling
or controlled by that person or entity.
Energy
Merger
.
Several
provisions of Energy Merger’s articles of incorporation and bylaws may have
anti-takeover effects. These provisions are intended to avoid costly takeover
battles, lessen Energy Merger’s vulnerability to a hostile change of control and
enhance the ability of the board of directors to maximize stockholder value
in
connection with any unsolicited offer to acquire Energy Merger. However,
these
anti-takeover provisions, which are summarized below, could also discourage,
delay or prevent (1) the merger or acquisition of Energy Merger by means
of a
tender offer, a proxy contest or otherwise, that a stockholder may consider
in
its best interest and (2) the removal of incumbent officers and
directors.
Energy
Merger’s articles of incorporation authorizes the issuance of 1,000,000 shares
of blank check preferred stock with such designation, rights and preferences
as
may be determined from time to time by our board of directors. Energy Merger’s
board of directors may issue shares of preferred stock on terms calculated
to
discourage, delay or prevent a change of control of the company or the removal
of management.
Energy
Merger’s articles of incorporation provides for a board of directors serving
staggered, three-year terms. The classified board provision could discourage
a
third party from making a tender offer for Energy Merger’s shares or attempting
to obtain control of the company. It could also delay stockholders who do
not
agree with the policies of the board of directors from removing a majority
of
the board of directors for up to three years.
Energy
Merger’s articles of incorporation and bylaws do not provide for cumulative
voting in the election of directors. These provisions may discourage, delay
or
prevent the removal of incumbent officers and directors.
Energy
Merger’s bylaws provide that stockholders seeking to nominate candidates for
election as directors or to bring business before an annual meeting of
stockholders must provide timely notice of their proposal in writing to the
corporate secretary. Generally, to be timely, a stockholder’s notice must be
received at Energy Merger’s principal executive offices not less than 90 days
nor more than 120 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders. Energy Merger’s bylaws also specify
requirements as to the form and content of a stockholder’s notice. These
provisions may impede a stockholder’s ability to bring matters before an annual
meeting of stockholders or make nominations for directors at an annual meeting
of stockholders.
Supermajority
Provisions
The
BCA
generally provides that the affirmative vote of a majority of the outstanding
shares entitled to vote at a meeting of stockholders is required to amend
a
corporation’s articles of incorporation, unless the articles of incorporation
requires a greater percentage. Energy Merger’s articles of incorporation provide
that the following provisions in the articles of incorporation may be amended
only by an affirmative vote of 66⅔% or more of the outstanding shares of Energy
Merger’s capital stock entitled to vote generally in the election of
directors:
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the
board of directors shall be divided into three
classes;
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the
directors are authorized to make, alter, amend, change or repeal
the
bylaws by vote not less than 66⅔% of the entire board of directors;
and
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the
stockholders are authorized to alter, amend or repeal our bylaws
by an
affirmative vote of 66⅔% or more of the outstanding shares of Energy
Merger’s capital stock entitled to vote generally in the election of
directors.
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Transfer
Agent
The
registrar and transfer agent for Energy Merger common stock and warrant agent
for warrants exercisable for shares of Energy Merger is Continental Stock
Transfer & Trust Company, 17 Battery Place, New York, New York
10004.
Listing
Energy
Infrastructure’s common stock and warrants currently trade on the American Stock
Exchange under the symbols “EII” and “EII.WS”, respectively. Energy Merger has
applied to list its common shares and warrants on the American Stock Exchange
under the symbols “_____” and “________”, respectively.
Dividends
Energy
Infrastructure.
The DGCL
allows the board of directors of a Delaware corporation to authorize a
corporation to declare and pay dividends and other distributions to its
stockholders, subject to any restrictions contained in the certificate of
incorporation, either out of surplus, or, if there is no surplus, out of
net
profits for the current or preceding fiscal year in which the dividend is
declared. However, a distribution out of net profits is not permitted if
a
corporation’s capital is less than the amount of capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets, until the deficiency has been repaired.
Energy
Merger.
Marshall
Islands law generally prohibits the payment of dividends if the company is
insolvent or would be rendered insolvent upon the payment of such dividends
and
dividends may be declared and paid out of surplus only; but in the case there
is
no surplus, dividends may be declared or paid out of net profits for the
fiscal
year in which the dividend is declared and for the preceding fiscal year.
Declaration and payment of any dividend is subject to the discretion of Energy
Merger’s board of directors. The timing and amount of dividend payments will be
dependent upon Energy Merger’s earnings, financial condition, cash requirements
and availability, restrictions in Energy Merger’s loan agreements, the
provisions of Marshall Islands law affecting the payment of distributions
to
stockholders and other factors. The payment of dividends is not guaranteed
or
assured, and may be discontinued at any time at the discretion of Energy
Merger’s board of directors. Because Energy Merger is a holding company with no
material assets other than the stock of its subsidiaries, Energy Merger’s
ability to pay dividends will
depend
on
the earnings and cash flow of its subsidiaries and their ability to pay
dividends to Energy Merger. If there is a substantial
decline
in the charter market, Energy Merger’s earnings would be negatively affected,
thus limiting its ability to pay dividends.
Indemnification
of Directors and Officers and Limitation of Liability
Energy
Infrastructure.
The DGCL
classifies indemnification as either mandatory indemnification or permissive
indemnification.
A Delaware corporation is required to indemnify a present or former director
or
officer against expenses actually and reasonably incurred
in an
action that the person successfully defended on the merits or
otherwise.
Under
the
DGCL, in non-derivative third-party proceedings, a corporation may indemnify
any
director, officer, employee or agent who is or is threatened to be made a
party
to the proceeding against expenses, judgments and settlements actually and
reasonably incurred in connection with a civil proceeding, provided such
person
acted in good faith and in a manner the person reasonably believed to be
in the
best interests of and not opposed to the corporation and, in the case of
a
criminal proceeding, had no reasonable cause to believe the conduct was
unlawful. Further, in actions brought on behalf of the corporation, any
director, officer, employee or agent who is or is threatened to be made a
party
can be indemnified for expenses actually and reasonably incurred in connection
with the defense or settlement of the action if the person acted in good
faith
and in a manner reasonably believed to be in and not opposed to the best
interests of the corporation; however, indemnification is not permitted with
respect to any claims in
which
such person has been adjudged liable to the corporation unless the appropriate
court determines such person is entitled
to
indemnity for expenses.
Unless
ordered by a court, the corporation must authorize permissive indemnification
for existing directors or officers in each case by: (i) a majority vote of
the
disinterested directors even though less than a quorum; (ii) a committee
of
disinterested directors, designated by a majority vote of such directors
even
though less than a quorum; (iii) independent legal counsel in a written opinion;
or (iv) the stockholders. The statutory rights regarding indemnification
are
non-exclusive; consequently, a corporation can indemnify a litigant in
circumstances not defined by the DGCL under any bylaw, agreement or otherwise,
subject to public policy limitations.
Under
the
DGCL, a Delaware corporation’s certificate of incorporation may eliminate
director liability for monetary damages for breach of fiduciary duty except:
(i)
an act or omission not in good faith or that involves intentional misconduct
or
knowing violation of the law; (ii) a breach of the duty of loyalty; (iii)
improper personal benefits; or (iv) certain unlawful distributions.
Energy
Infrastructure’s certificate of incorporation and bylaws provide that any
director, officer, employee or agent shall be indemnified to the fullest
extent
authorized or permissible under Delaware law, provided that such person acted
in
good faith and in a manner which he believed to be in, or not opposed to,
the
best interests of Energy Infrastructure, and with respect to any criminal
action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
In
order to be indemnified, such indemnification must be ordered by a court
or it
must be decided by a majority vote of a quorum of the whole Energy
Infrastructure board of directors that such person met the applicable standard
of conduct set forth in this paragraph.
Energy
Infrastructure’s certificate of incorporation provides that a director shall not
be personally liable to the corporation or its stock holders for monetary
damages for breach of fiduciary duty as a director; provided however, that
nothing in the certificate of incorporation shall eliminate or limit the
liability of any director (i) for breach of the director’s duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL, or (iv) for any transaction from which
the
director derived an improper personal benefit.
Energy
Merger
.
Energy
Merger’s bylaws provide that any person who is or was a director or officer of
Energy Merger, or is or was serving at the request of Energy Merger as a
director or officer of another corporation, partnership, joint venture, trust
or
other enterprises shall be entitled to be indemnified by Energy Merger upon
the
same terms, under the same conditions, and to the same extent as authorized
by
Section 60 of the BCA, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of Energy Merger,
and,
with respect to any criminal action or proceeding, had no reasonable cause
to
believe his conduct was unlawful.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, Energy Infrastructure
and
Energy Merger have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
Amendments
to Certificate of Incorporation and Bylaws
Under
the
DGCL, under the following circumstances, a class of stockholders has the
right
to vote separately on an amendment to a Delaware corporation’s certificate of
incorporation even if the certificate does not include such a right: (i)
increasing or decreasing the aggregate number of authorized shares of the
class
(the right to a class vote under this circumstance may be eliminated by a
provision in the certificate); (ii) increasing or decreasing the par value
of
the shares of the class; or (iii) changing the powers, preferences, or special
rights of the shares of the class in a way that would affect them adversely.
Approval by outstanding shares entitled generally to vote is also required.
Under the DGCL, a corporation’s certificate of incorporation also may require,
for action by the board or by the holders of any class or series of voting
securities, the vote of a greater number or proportion than is required by
the
DGCL.
The
BCA
provides that notwithstanding any provisions in the articles of incorporation,
the holders of the outstanding shares of a class shall be entitled to vote
as a
class upon a proposed amendment, and in addition to the authorization of
an
amendment by a vote of the holders of a majority of all outstanding shares
entitled to vote thereon, the amendment shall be authorized by a vote of
the
holders of a majority of all outstanding shares of the class if the amendment
would increase or decrease the aggregate number of authorized shares of such
class, or alter or change the powers, preferences or special rights of the
shares of such class so as to affect them adversely. If any proposed amendment
would alter or change the powers, preferences, or special rights of one or
more
series of any class so as to affect them adversely, but shall not affect
the
entire class, then only the shares of the series so affected by the amendment
shall be considered a separate class for purposes of this section.
Energy
Infrastructure
.
Energy
Infrastructure’s certificate of incorporation may be amended if a majority of
the outstanding stock entitled to vote thereon, and a majority of the
outstanding stock of each class entitled to vote thereon as a class has been
voted in favor of the amendment. Energy Infrastructure’s bylaws may be amended
or repealed, and new bylaws may be adopted, either (i) by the affirmative
vote
of the holders of a majority of the outstanding stock of Energy Infrastructure,
or (ii) by the affirmative vote of a majority of the board of directors of
Energy Infrastructure.
Energy
Merger.
Generally,
the BCA provides that amendment of Energy Merger’s articles of incorporation may
be authorized by a vote of the holders of a majority of all outstanding shares
entitled to vote thereon at a meeting of stockholders or by written consent
of
all stockholders entitled to vote thereon. Energy Merger’s bylaws may be amended
by the affirmative vote of 66⅔% of entire board of directors, or by the
affirmative vote of the holders of 66⅔% or more of the outstanding shares of
stock entitled to vote thereon (considered for this purpose as one
class).
COMPARISON
OF MARSHALL ISLANDS CORPORATE LAW TO DELAWARE CORPORATE
LAW
Energy
Merger’s corporate affairs are governed by Energy Merger’s amended and restated
articles of incorporation, amended and restated bylaws and the Business
Corporation Act, or BCA. The provisions of the BCA resemble provisions of
the
corporation laws of a number of states in the United States. For example,
the
BCA allows the adoption of various anti-takeover measures such as stockholder
rights plans. While the BCA also provides that it is to be interpreted according
to the laws of the State of Delaware and other states with substantially
similar
legislative provisions, there have been few, if any, court cases interpreting
the BCA in the Marshall Islands and we can not predict whether Marshall Islands
courts would reach the same conclusions as United States courts. Thus, you
may
have more difficulty in protecting your interests in the face of actions
by the
management, directors or controlling stockholders than would stockholders
of a
corporation incorporated in a United States jurisdiction which has developed
a
substantial body of case law. The following table provides a comparison between
the statutory provisions of the BCA and the DGCL relating to stockholders’
rights.
Marshall
Islands
|
|
Delaware
|
|
|
|
Stockholder
Meetings
|
|
·
|
May
be held at a time and place as designated in the bylaws
|
|
·
|
May
be held at such time or place as designated in the certificate
of
incorporation or the bylaws, or if not so designated, as determined
by the
board of directors
|
|
|
|
|
|
·
|
May
be held within or outside the Marshall Islands
|
|
·
|
May
be held within or outside Delaware
|
|
|
|
|
|
·
|
Notice:
|
|
·
|
Notice:
|
|
|
|
|
|
|
·
|
Whenever
stockholders are required to take action at a meeting, written
notice
shall state the place, date and hour of the meeting and indicate
that it
is being issued by or at the direction of the person calling
the
meeting
|
|
|
·
|
Whenever
stockholders are required or permitted 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, by which stockholders may be deemed to
be present
and vote at such meeting
|
|
|
|
|
|
|
|
·
|
A
copy of the notice of any meeting shall be given personally or
sent by
mail not less than 15 nor more than 60 days before the
meeting
|
|
|
·
|
Written
notice shall be given not less than ten nor more than 60 days
before the
meeting
|
|
|
|
|
|
Stockholder’s
Voting Rights
|
|
·
|
Any
action required to be taken by meeting of stockholders may be
taken
without meeting if consent is in writing and is signed by all
the
stockholders entitled to vote
|
|
·
|
Stockholders
may act by written consent to elect directors
|
|
|
|
|
|
·
|
Any
person authorized to vote may authorize another person or persons
to act
for him by proxy
|
|
·
|
Any
person authorized to vote may authorize another person or persons
to act
for him by proxy
|
|
|
|
|
|
·
|
Unless
otherwise provided in the articles of incorporation, a majority
of shares
entitled to vote constitutes a quorum. In no event shall a quorum
consist
of fewer than one-third of the shares entitled to vote at a
meeting
|
|
·
|
For
stock corporations, certificate of incorporation or bylaws may
specify the
number of members necessary to constitute a quorum but in no
event shall a
quorum consist of less than one-third of the shares entitled
to vote at
the meeting. In the absence of such specifications, a majority
of shares
entitled to vote at the meeting shall constitute a
quorum
|
|
|
|
|
|
·
|
The
articles of incorporation may provide for cumulative
voting
|
|
·
|
The
certificate of incorporation may provide for cumulative
voting
|
Marshall
Islands
|
|
Delaware
|
|
|
|
Limits
on Rights of Non-Resident or Foreign Stockholders to Hold or
Exercise
Voting Rights
|
|
·
|
There
are no limits on the rights of non-resident or foreign stockholders
to
hold or exercise voting rights.
|
|
·
|
There
are no limits on the rights of non-resident or foreign stockholders
to
hold or exercise voting rights.
|
|
|
|
|
|
Right
to Inspect Corporate books
|
|
·
|
Any
stockholder may during the usual hours of business inspect, for
a purpose
reasonably related to his interests as a stockholder, and make
copies of
extracts from the share register, books of account, and minutes
of all
proceedings.
|
|
·
|
Any
stockholder, in person or through an agent, upon written demand
under oath
stating the purpose thereof, has the right during usual business
hours to
inspect for any proper purpose and make copies or extracts from
the
corporation’s stock ledger, a list of its stockholders, and books and
records.
|
|
|
|
|
|
·
|
The
right of inspection may not be limited in the articles or
bylaws.
|
|
|
|
|
|
|
|
|
Indemnification
|
|
·
|
For
actions not by or in the right of the corporation, a corporation
shall
have the power to indemnify any person who was or is a party
or is
threatened to be made a party to any threatened or pending action
or
proceeding by reason of the fact that he is or was a director
or officer
of the corporation against expenses (including attorneys’ fees), judgments
and amounts paid in settlement if he acted in good faith and
in a manner
reasonably believed to be in or not opposed to the best interests
of the
corporation, and, with respect to any criminal action or proceeding,
had
no reasonable cause to believe that his conduct was
unlawful.
|
|
·
|
For
actions not by or in the right of the corporation, a corporation
shall
have the power to indemnify any person who was or is a party
or is
threatened to be made a party to any threatened or pending action
or
proceeding by reason of the fact that he is or was a director,
officer,
employee or agent of the corporation against expenses (including
attorneys’ fees), judgments and amounts paid in settlement if he acted in
good faith and in a manner reasonably believed to be in or not
opposed to
the best interests of the corporation, and, with respect to any
criminal
action or proceeding, had no reasonable cause to believe that
his conduct
was unlawful.
|
|
|
|
|
|
Duties
of Directors and Officers
|
|
·
|
Directors
and officers shall discharge their duties in good faith and with
that
degree of diligence, care and skill which ordinarily prudent
men would
exercise under similar circumstances in like positions. They
may rely upon
financial statements of the corporation represented to them to
be correct
by the president or the officer having charge of its books or
accounts or
by independent accountants.
|
|
·
|
Directors
owe a duty of care and a duty of loyalty to the corporation and
have a
duty to act in good faith.
|
|
|
|
|
|
Right
To Dividends
|
|
·
|
A
corporation may declare and pay dividends in cash, stock or other
property
except when the company is insolvent or would be rendered insolvent
upon
payment of the dividend or when the declaration or payment would
be
contrary to any restrictions contained in the articles of incorporation.
Dividends may be declared and paid out of surplus only, but if
there is no
surplus dividends may be paid out of the net profits for the
fiscal year
in which the dividend is declared and for the preceding fiscal
year.
|
|
·
|
Directors
may declare a dividend out of its surplus, or, if there’s no surplus, then
generally out of its net profits for the year in which the dividend
is
declared and/or the preceding fiscal
year.
|
Marshall
Islands
|
|
Delaware
|
|
|
|
Bylaws
|
|
·
|
Except
as otherwise provided in the articles of incorporation, bylaws
may be
amended, repealed or adopted by a vote of stockholders. If
so provided in
the articles of incorporation or in a stockholder approved
bylaw, bylaws
may also be amended, repealed, or adopted by the board of
directors, but
any bylaw adopted by the board of directors may be amended
or repealed by
the stockholders.
|
|
·
|
After
a corporation has received any payment for any of its stock,
the power to
adopt, amend, or repeal bylaws shall be in the stockholders
entitled to
vote; provided, however, any corporation may, in its certificate
of
incorporation, provide that bylaws may be adopted, amended
or repealed by
the board of directors. The fact that such power has been
conferred upon
the board of directors shall not divest the stockholders
of the power nor
limit their power to adopt, amend or repeal the bylaws.
|
|
|
|
|
|
Removal
of Directors
|
|
·
|
Any
or all of the directors may be removed for cause by a vote
of the
stockholders or if the articles of incorporation or bylaws
so provide, by
the board. If the articles of incorporation or bylaws so
provide,
directors may be removed without cause by vote of the
stockholders.
|
|
·
|
Any
or all directors on a board without staggered terms may be
removed with or
without cause by the affirmative vote of a majority of shares
entitled to
vote in the election of directors unless the certificate
of incorporation
otherwise provides. Directors on a board with staggered terms
generally
may only be removed for cause by the affirmative vote of
a majority of
shares entitled to vote in the election of directors.
|
|
|
|
|
|
Directors
|
|
·
|
Board
must consist of at least one member
|
|
·
|
Board
must consist of at least one member
|
|
|
|
|
|
·
|
Number
of members can be changed by an amendment to the bylaws,
by the
stockholders, or by action of the board under the specific
provisions of a
bylaw
|
|
·
|
Number
of board members shall be fixed 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
|
|
|
|
|
|
·
|
If
the board is authorized to change the number of directors,
it can only do
so by an absolute majority (majority of the entire board)
|
|
|
|
|
|
|
|
|
·
|
Unless
a greater proportion is required by the articles of incorporation,
a
majority of the entire board, in person or by proxy, shall
constitute a
quorum for the transaction of business. The bylaws may lower
the number
required for a quorum to one-third the number of directors
but no
less
|
|
·
|
A
majority of the total number of directors shall constitute
a quorum for
the transaction of business unless the certificate or bylaws
require a
greater number. The bylaws may lower the number required
for a quorum to
one-third the number of directors but no less.
|
|
|
|
|
|
Dissenter’s
Rights of Appraisal
|
|
·
|
Stockholders
have a right to dissent from a merger or sale of all or substantially
all
assets not made in the usual course of business, and receive
payment of
the fair value of their shares
|
|
·
|
Appraisal
rights shall be available for the shares of any class or
series of stock
of a corporation in certain mergers or consolidations
|
|
|
|
|
|
·
|
A
holder of any adversely affected shares who does not vote
on or consent in
writing to an amendment to the articles of incorporation
has the right to
dissent and to receive payment for such shares if the
amendment:
|
|
|
|
|
|
|
|
|
|
|
Alters
or abolishes any preferential right of any outstanding shares
having
preference; or
|
|
|
|
Marshall
Islands
|
|
Delaware
|
|
|
|
|
|
Creates,
alters, or abolishes any provision or right in respect to the
redemption
of any outstanding shares; or
|
|
|
|
|
|
|
|
|
|
|
|
Alters
or abolishes any preemptive right of such holder to acquire shares
or
other securities; or
|
|
|
|
|
|
|
|
|
|
|
|
Excludes
or limits the right of such holder to vote on any matter, except
as such
right may be limited by the voting rights given to new shares
then being
authorized of any existing or new class
|
|
|
|
|
|
|
|
|
Stockholder’s
Derivative Actions
|
|
·
|
An
action may be brought in the right of a corporation to procure
a judgment
in its favor, by a holder of shares or of voting trust certificates
or of
a beneficial interest in such shares or certificates. It shall
be made to
appear that the plaintiff is such a holder at the time of bringing
the
action and that he was such a holder at the time of the transaction
of
which he complains, or that his shares or his interest therein
devolved
upon him by operation of law.
|
|
·
|
In
any derivative suit instituted by a stockholder of a corporation,
it shall
be averred in the complaint that the plaintiff was a stockholder
of the
corporation at the time of the transaction of which he complains
or that
such stockholder’s stock thereafter devolved upon such stockholder by
operation of law.
|
|
|
|
|
|
·
|
Complaint
shall set forth with particularity the efforts of the plaintiff
to secure
the initiation of such action by the board or the reasons for
not making
such effort.
|
|
|
|
|
|
|
|
|
·
|
Such
action shall not be discontinued, compromised or settled, without
the
approval of the High Court of the Republic.
|
|
|
|
|
|
|
|
|
·
|
Attorney’s
fees may be awarded if the action is successful.
|
|
|
|
|
|
|
|
|
·
|
Corporation
may require a plaintiff bringing a derivative suit to give security
for
reasonable expenses if the plaintiff owns less than 5% of any
class of
stock and the shares have a value of less than $50,000.
|
|
|
|
|
|
|
|
|
Class
Actions
|
|
·
|
Rule
23 of Marshall Islands Rules of Civil Procedure allows for class
action
suits in the Marshall Islands and is modeled on the federal rule,
F.R.C.P.
Rule 23.
|
|
|
Rule
23 of the Delaware Chancery Court Rules allows for class action
suits in
Delaware and is modeled on the federal rule, F.R.C.P. Rule
23.
|
TAXATION
United
States Federal Income Taxation
General
The
following is a summary of certain material U.S. federal income tax consequences
of the Business Combination to Energy Merger, of the Redomiciliation Merger
to
Energy Infrastructure and the holders of our common stock and warrants (which
we
refer to collectively as our “securities”), and of owning common stock and
warrants in Energy Merger following the Redomiciliation Merger and Business
Combination. The discussion below of the U.S. federal income tax consequences
to
“U.S. Holders” will apply to a beneficial owner of our securities that is for
U.S. federal income tax purposes:
|
·
|
an
individual citizen or resident of the United
States;
|
|
·
|
a
corporation (or other entity treated as a corporation) that is
created or
organized (or treated as created or organized) in or under the
laws of the
United States, any state thereof or the District of
Columbia;
|
|
·
|
an
estate whose income is includible in gross income for U.S. federal
income
tax purposes regardless of its source;
or
|
|
·
|
a
trust if (i) a U.S. court can exercise primary supervision over
the
trust’s administration and one or more U.S. persons are authorized to
control all substantial decisions of the trust, or (ii) it has
a valid
election in effect under applicable U.S. Treasury regulations to
be
treated as a U.S. person.
|
If
a
beneficial owner of our securities is not described as a U.S. Holder and
is not
an entity treated as a partnership or other pass-through entity for U.S.
federal
income tax purposes, such owner will be considered a “Non-U.S. Holder.” This
discussion does not consider the tax treatment of partnerships or other
pass-through entities that hold our common stock or warrants, or of persons
who
hold our common stock or warrants, or will hold the common stock or warrants
of
Energy Merger, through such entities. If a partnership (or other entity
classified as a partnership for U.S. federal income tax purposes) is the
beneficial owner of our securities (or the common stock or warrants of Energy
Merger), the U.S. federal income tax treatment of a partner in the partnership
will generally depend on the status of the partner and the activities of
the
partnership.
The
U.S.
federal income tax consequences applicable to Non-U.S. Holders of owning
common
stock and warrants in Energy Merger are described below under the heading
“Tax
Consequences to Non-U.S. Holders of Common Stock and Warrants of Energy
Merger.”
This
summary is based on the Internal Revenue Code of 1986, as amended, or the
Code,
its legislative history, Treasury regulations promulgated thereunder, published
rulings and court decisions, all as currently in effect. These authorities
are
subject to change or differing interpretations, possibly on a retroactive
basis.
This
discussion does not address all aspects of U.S. federal income taxation that
may
be relevant to Energy Merger, Energy Infrastructure or any particular holder
of
our securities or of common stock and warrants of Energy Merger based on
such
holder’s individual circumstances. In particular, this discussion considers only
holders that own and hold our securities, and will acquire the common stock
and
warrants of Energy Merger as a result of owning our securities, and will
own and
hold such common stock and warrants, as capital assets within the meaning
of
Section 1221 of the Code. This discussion does not address the potential
application of the alternative minimum tax or the U.S. federal income tax
consequences to holders that are subject to special rules,
including:
|
·
|
financial
institutions or “financial services
entities”;
|
|
·
|
taxpayers
who have elected mark-to-market
accounting;
|
|
·
|
governments
or agencies or instrumentalities
thereof;
|
|
·
|
regulated
investment companies;
|
|
·
|
real
estate investment trusts;
|
|
·
|
certain
expatriates or former long-term residents of the United
States;
|
|
·
|
persons
that actually or constructively own 10% or more of our voting
shares;
|
|
·
|
persons
that hold our common stock or warrants as part of a straddle, constructive
sale, hedging, conversion or other integrated transaction;
or
|
|
·
|
persons
whose functional currency is not the U.S.
dollar.
|
This
discussion does not address any aspect of U.S. federal non-income tax laws,
such
as gift or estate tax laws, or state, local or non-U.S. tax laws.
We
have
not sought, and will not seek, a ruling from the Internal Revenue Service,
or
the IRS, or an opinion of counsel as to any U.S. federal income tax consequence
described herein. The IRS may disagree with the discussion herein, and its
determination may be upheld by a court.
BECAUSE
OF THE COMPLEXITY OF THE TAX LAWS AND BECAUSE THE TAX CONSEQUENCES TO ENERGY
INFRASTRUCTURE, ENERGY MERGER OR TO ANY PARTICULAR HOLDER OF OUR SECURITIES
OR
OF THE COMMON STOCK OR WARRANTS OF ENERGY MERGER FOLLOWING THE REDOMICILIATION
MERGER AND BUSINESS COMBINATION MAY BE AFFECTED BY MATTERS NOT DISCUSSED
HEREIN,
EACH HOLDER OF OUR SECURITIES IS URGED TO CONSULT WITH ITS TAX ADVISOR WITH
RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE REDOMICILIATION MERGER AND
THE
BUSINESS COMBINATION, AND THE OWNERSHIP AND DISPOSITION OF OUR SECURITIES
AND OF
THE COMMON STOCK AND WARRANTS OF ENERGY MERGER, INCLUDING THE APPLICABILITY
AND
EFFECT OF STATE, LOCAL AND NON-U.S. TAX LAWS, AS WELL AS U.S. FEDERAL TAX
LAWS.
Tax
Consequences of the Business Combination to Energy Merger
Energy
Merger should not recognize any gain or loss for U.S. federal income tax
purposes as a result of the Business Combination.
Tax
Consequences of the
Redomiciliation
Merger
Tax
Consequences to U.S. Holders of Common Stock and
Warrants
The
Redomiciliation Merger is expected to qualify as a reorganization for U.S.
federal income tax purposes under Code Section 368(a). If the transaction
qualifies as a reorganization, a U.S. Holder of our securities will not
recognize gain or loss upon the exchange of our securities solely for common
stock and warrants of Energy Merger pursuant to the Redomiciliation Merger.
A
U.S. Holder’s aggregate tax basis in the common stock and warrants of Energy
Merger received in connection with the Redomiciliation Merger generally will
be
the same as the aggregate tax basis of our securities surrendered in the
transaction (except to the extent of any tax basis allocated to a fractional
share for which a cash payment is received in connection with the transaction).
The holding period of the common stock and warrants in Energy Merger received
in
the Redomiciliation Merger generally will include the holding period of the
securities of Energy Infrastructure surrendered in the Redomiciliation Merger.
A
stockholder of Energy Infrastructure who redeems its shares of common stock
for
cash (or receives cash in lieu of a fractional share of our common stock
pursuant to the Redomiciliation Merger) generally will recognize gain or
loss in
an amount equal to the difference between the amount of cash received for
such
shares (or fractional share) and its adjusted tax basis in such shares (or
fractional share).
Tax
Consequences to Energy Infrastructure and Energy
Merger
Section
7874(b) of the Code, or Section 7874(b), generally provides that a corporation
organized outside the United States which acquires, directly or indirectly,
pursuant to a plan or series of related transactions, substantially all of
the
assets of a corporation organized in the United States will be treated as
a
domestic corporation for U.S. federal income tax purposes if stockholders
of the
acquired corporation own at least 80% of either the voting power or the value
of
the stock of the acquiring corporation after the acquisition by reason of
owning
shares in the acquired corporation. If Section 7874(b) were to apply to the
Redomiciliation Merger, Energy Merger, as the surviving entity, would be
subject
to U.S. federal income tax on its worldwide taxable income following the
Redomiciliation Merger and Business Combination as if it were a domestic
corporation, and Energy infrastructure would not recognize gain (or loss)
as a
result of the Redomiciliation Merger.
After
the
completion of the Business Combination, which will occur immediately after
and
as part of the same plan as the Redomiciliation Merger, it is expected that
the
former stockholders of Energy Infrastructure will own less than 80% of the
shares of Energy Merger. Accordingly, it is not expected that Section 7874(b)
will apply to treat Energy Merger as a domestic corporation for U.S. federal
income tax purposes. However, due to the absence of full guidance on how
the
rules of Section 7874(b) will apply to the transactions contemplated by the
Redomiciliation Merger and the Business Combination, this result is not entirely
free from doubt. If, for example, the Redomiciliation Merger were viewed
for
purposes of Section 7874(b) as occurring prior to, and separate from, the
Business Combination, the stock ownership threshold for applicability of
Section
7874(b) generally would be satisfied because the stockholders of Energy
Infrastructure, by reason of owning shares of Energy Infrastructure, would
own
all of the shares of Energy Merger immediately after the Redomiciliation
Merger.
Although normal step transaction tax principles and an example in the temporary
regulations promulgated under Section 7874(b) support the view that the
Redomiciliation Merger and the Business Combination should be viewed together
for purposes of determining whether Section 7874(b) is applicable, because
of
the absence of guidance under Section 7874(b) directly on point, this result
is
not entirely certain. The balance of this discussion assumes that Section
7874(b) does not apply and that Energy Merger will be treated as a foreign
corporation for U.S. federal income tax purposes.
Even
if
Section 7874(b) does not apply to a transaction, Section 7874(a) of the Code,
or
Section 7874(a) generally provides that where a corporation organized outside
the United States acquires, directly or indirectly, pursuant to a plan or
series
of related transactions, substantially all of the assets of a corporation
organized in the United States, the acquired corporation will be subject
to U.S.
federal income tax on its “inversion gain” without reduction by certain tax
attributes, such as net operating losses, otherwise available to the acquired
corporation if the stockholders of the acquired corporation own at least
60%
(but less than 80%) of either the voting power or the value of the stock
of the
acquiring corporation after the acquisition by reason of owning shares in
the
acquired corporation. Energy Merger expects that after the
completion
of the
Redomiciliation Merger and the Business Combination, the former stockholders
of
Energy Infrastructure will own less than 60% of the shares of Energy Merger
by
reason of owning shares of Energy Infrastructure prior to the Redomiciliation
Merger and the Business Combination. As a result, it is anticipated that
Section
7874(a) would not apply to restrict Energy Infrastructure from using any
net
operating losses or other tax attributes that may otherwise be available
to
Energy Infrastructure to offset any inversion gain. For this purpose, inversion
gain generally would include any gain recognized under Section 367 of the
Code
by reason of the transfer of the properties of Energy Infrastructure to Energy
Merger pursuant to the Redomiciliation Merger.
Under
Section 367 of the Code, Energy Infrastructure generally will recognize gain
(but not loss) as a result of the Redomiciliation Merger equal to the difference
between the fair market value of each asset of Energy Infrastructure over
such
asset’s adjusted tax basis at the time of the Redomiciliation Merger. Any such
gain generally would be attributable to the appreciation in value of the
non-cash assets of Energy Infrastructure (including its rights under the
Share
Purchase Agreement) at the time of the Redomiciliation Merger.
Tax
Consequences to U.S. Holders of Common Stock and Warrants of Energy
Merger
Taxation
of Distributions Paid on Common Stock
Subject
to the passive foreign investment company, or PFIC, rules discussed below,
a
U.S. Holder will be required to include in gross income as ordinary income
the
amount of any dividend paid on the common stock of Energy Merger. A distribution
on such common stock will be treated as a dividend for U.S. federal income
tax
purposes to the extent the distribution is paid out of current or accumulated
earnings and profits of Energy Merger (as determined under U.S. federal income
tax principles). Such dividend will not be eligible for the dividends-received
deduction generally allowed to U.S. corporations in respect of dividends
received from other U.S. corporations. Distributions in excess of such earnings
and profits will be applied against and reduce the U.S. Holder’s basis in its
common stock in Energy Merger and, to the extent in excess of such basis,
will
be treated as gain from the sale or exchange of such common stock.
With
respect to non-corporate U.S. Holders for taxable years beginning before
January
1, 2011, dividends may be taxed at the lower rate applicable to long-term
capital gains (see “Taxation on the Disposition of Common Stock and Warrants”
below) provided that (1) the common stock of Energy Merger is readily tradable
on an established securities market in the United States, (2) Energy Merger
is
not a PFIC, as discussed below, for either the taxable year in which the
dividend
was paid
or the preceding taxable year, and (3) certain holding period requirements
are
met. It is not clear whether a U.S. Holder’s holding period for its shares in
Energy Merger would be suspended for purposes of clause (3) above for the
period
that such holder had a right to have its common stock in Energy Infrastructure
redeemed by us. Under published IRS guidance, common stock is considered
for
purposes of clause (1) above to be readily tradable on an established securities
market in the United States only if it is listed on certain exchanges, which
include the American Stock Exchange. We expect that the stock of Energy Merger
will be listed on the American Stock Exchange. Nevertheless, U.S. Holders
should
consult their own tax advisors regarding the availability of the lower capital
gains tax rate for any dividends paid with respect to Energy Merger’s common
stock.
Taxation
on the Disposition of Common Stock and Warrants
Upon
a
sale or other taxable disposition of the common stock or warrants in Energy
Merger, and subject to the PFIC rules discussed below, a U.S. Holder generally
will recognize capital gain or loss in an amount equal to the difference
between
the amount realized and the U.S. Holder’s adjusted tax basis in the common stock
or warrants. See “— Exercise or Lapse of a Warrant” below for a discussion
regarding a U.S. Holder’s basis in the common stock acquired pursuant to the
exercise of a warrant.
Capital
gains recognized by U.S. Holders generally are subject to U.S. federal income
tax at the same rate as ordinary income, except that long-term capital gains
recognized by non-corporate U.S. Holders are generally subject to U.S. federal
income tax at a maximum rate of 15% for taxable years beginning before January
1, 2011 (and 20% thereafter). Capital gain or loss will constitute long-term
capital gain or loss if the U.S. Holder’s holding period for the common stock or
warrants exceeds one year. The deductibility of capital losses is subject
to
various limitations.
Exercise
or Lapse of a Warrant
Subject
to the discussion of the PFIC rules below, a U.S. Holder generally will not
recognize gain or loss upon the exercise of a warrant to acquire common stock
in
Energy Merger. Common stock acquired pursuant to the exercise of a warrant
for
cash generally will have a tax basis equal to the U.S. Holder’s tax basis in the
warrant, increased by the amount paid to exercise the warrant. The holding
period of such common stock generally would begin on the day after the date
of
exercise of the warrant. The terms of the warrants of Energy Merger that
will be
exchanged for the existing warrants of Energy Infrastructure generally provide
for an adjustment to the number of shares of common stock for which the warrant
may be exercised or to the exercise price of the warrants pursuant to certain
anti-dilution provisions. Such adjustments may, under certain circumstances,
result in constructive distributions that could be taxable to the U.S. Holder
of
the warrants. Conversely, the absence of an appropriate adjustment similarly
may
result in a constructive distribution that could be taxable to the U.S. Holders
of the common stock in Energy Merger. See “—Taxation of Distributions Paid on
Common Stock,” above. If a warrant is allowed to lapse unexercised, a U.S.
Holder generally will recognize a capital loss equal to such holder’s tax basis
in the warrant. U.S. Holders should consult their own tax advisors concerning
the tax treatment of any warrants of Energy Merger that they hold and the
effect
of any adjustment provisions contained in such warrants.
Passive
Foreign Investment Company Rules
A
foreign
corporation will be a passive foreign investment company, or PFIC, if at
least
75% of its gross income in a taxable year, including its pro rata share of
the
gross income of any company in which it owns or is considered to own at least
25% of the shares by value, is passive income. Alternatively, a foreign
corporation will be a PFIC if at least 50% of its assets in a taxable year,
ordinarily determined based on fair market value and averaged quarterly over
the
year, including its pro rata share of the assets of any company in which
it owns
or is considered to own at least 25% of the shares by value, are held for
the
production of, or produce, passive income. Passive income generally includes
dividends, interest, rents, royalties, and gains from the sale or other
disposition of passive assets.
Based
on
the expected composition of the assets and income of Energy Merger and its
subsidiaries after the Redomiciliation Merger and the Business Combination,
it
is not anticipated that Energy Merger will be treated as a PFIC following
the
Redomiciliation Merger and the Business Combination. Although there is no
legal
authority directly on point, such position is based principally on the view
that, for purposes of determining whether Energy Merger is a PFIC, the gross
income Energy Merger derives or is deemed to derive from the time chartering
and
voyage chartering activities of its wholly-owned subsidiaries should constitute
services income, rather than rental income. Accordingly, Energy Merger intends
to take the position that such income does not constitute passive income,
and
that the assets owned and operated by Energy Merger or its wholly-owned
subsidiaries in connection with the production of such income (in particular,
the vessels) do not constitute passive assets under the PFIC rules. While
there
is analogous legal authority supporting this position consisting of case
law and
IRS pronouncements concerning the characterization of income derived from
time
charters and voyage charters as services income for other tax purposes, in
the
absence of any direct legal authority specifically relating to the statutory
provisions governing PFICs, the IRS or a court could disagree with such
position. The actual PFIC status of Energy Merger for any taxable year will
not
be determinable until after the end of its taxable year, and accordingly
there
can be no assurance with respect to the status of Energy Merger as a PFIC
for
the current taxable year or any future taxable year.
If
Energy
Merger were a PFIC for any taxable year during which a U.S. Holder held its
common stock or warrants, and the U.S. Holder did not make either a timely
qualified electing fund, or QEF, election for the first taxable year of its
holding period for the common stock or a mark-to-market election, as described
below, such holder will be subject to special rules with respect
to:
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any
gain recognized by the U.S. Holder on the sale or other disposition
of its
common stock or warrants; and
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any
“excess distribution” made to the U.S. Holder (generally, any
distributions to such U.S. Holder during a taxable year that are
greater
than 125% of the average annual distributions received by such
U.S. Holder
in respect of the common stock of Energy Merger during the three
preceding
taxable years or, if shorter, such U.S. Holder’s holding period for the
common stock).
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Under
these rules,
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the
U.S. Holder’s gain or excess distribution will be allocated ratably over
the U.S. Holder’s holding period for the common stock or
warrants;
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the
amount allocated to the taxable year in which the U.S. Holder recognized
the gain or received the excess distribution or any taxable year
prior to
the first taxable year in which Energy Merger was a PFIC will be
taxed as
ordinary income;
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the
amount allocated to other taxable years will be taxed at the highest
tax
rate in effect for that year applicable to the U.S. Holder;
and
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the
interest charge generally applicable to underpayments of tax will
be
imposed in respect of the tax attributable to each such other taxable
year.
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In
addition, if Energy Merger were a PFIC, a distribution to a U.S. Holder that
is
characterized as a dividend and is not an excess distribution would not be
eligible for the reduced rate of tax applicable to certain dividends paid
before
2011 to non-corporate U.S. Holders, as discussed above. Furthermore, if Energy
Merger were a PFIC, a U.S. Holder who acquires its common stock or warrants
from
a deceased U.S. Holder who dies before January 1, 2010 generally will be
denied
the step-up of U.S. federal income tax basis in such stock or warrants to
their
fair market value at the date of the deceased holder’s death. Instead, such U.S.
Holder would have a tax basis in such stock or warrants equal to the deceased
holder’s tax basis, if lower.
In
general, a U.S. Holder may avoid the PFIC tax consequences described above
in
respect to its common stock in Energy Merger by making a timely QEF election
to
include in income its pro rata share of our net capital gains (as long-term
capital gain) and other earnings and profits (as ordinary income), on a current
basis, in each case whether or not distributed. A U.S. Holder may make a
separate election to defer the payment of taxes on undistributed income
inclusions under the QEF rules, but if deferred, any such taxes will be subject
to an interest charge.
A
U.S.
Holder may not make a QEF election or, as described below, a mark-to-market
election with respect to its warrants. As a result, if a U.S. Holder sells
or
otherwise disposes of a warrant to purchase common stock of Energy Merger
(other
than upon exercise of a warrant), any gain recognized generally will be subject
to the special tax and interest charge rules treating the gain as an excess
distribution, as described above, if Energy Merger was a PFIC at any time
during
the period the U.S. Holder held the warrants.
If
a U.S.
Holder that exercises such warrants properly makes a QEF election with respect
to the newly acquired common stock in Energy Merger (or has previously made
a
QEF election with respect to its common stock in Energy Merger), the QEF
election will apply to the newly acquired common stock, but the adverse tax
consequences relating to PFIC shares will continue to apply with respect
to such
common stock (which generally will be deemed to have a holding period for
the
purposes of the PFIC rules that includes the period the U.S. Holder held
the
warrants), unless the U.S. Holder makes a purging election. The purging election
creates a deemed sale of such stock at its fair market value. The gain
recognized by the purging election will be subject to the special tax and
interest charge rules treating the gain as an excess distribution, as described
above. As a result of the purging election, the U.S. Holder will have a new
basis and holding period in the common stock acquired upon the exercise of
the
warrants for purposes of the PFIC rules.
The
QEF
election is made on a stockholder-by-stockholder basis and, once made, can
be
revoked only with the consent of the IRS. A U.S. Holder generally makes a
QEF
election by attaching a completed IRS Form 8621 (Return by a Stockholder
of a
Passive Foreign Investment Company or Qualified Electing Fund), including
the
information provided in a PFIC annual information statement, to a timely
filed
U.S. federal income tax return for the tax year to which the election relates.
Retroactive QEF elections generally may be made only by filing a protective
statement with such return and if certain other conditions are met or with
the
consent of the IRS.
In
order
to comply with the requirements of a QEF election, a U.S. Holder must receive
certain information from Energy Merger. There is no assurance, however, that
Energy Merger will have timely knowledge of its status as a PFIC in the future
or that Energy Merger will be willing or able to provide the information
needed
by a U.S. Holder to support a QEF election.
If
a U.S.
Holder has elected the application of the QEF rules to its common stock in
Energy Merger, and the special tax and interest charge rules do not apply
to
such stock (because of a timely QEF election for the first tax year of the
U.S.
Holder’s holding period for such stock or a purge of the PFIC taint pursuant to
a purging election), any gain recognized on the appreciation of such stock
generally will be taxable as capital gain and no interest charge will be
imposed. As discussed above, a U.S. Holder that has made a QEF election is
currently taxed on its pro rata share of the QEF’s earnings and profits, whether
or not distributed. In such case, a subsequent distribution of such earnings
and
profits that were previously included in income generally will not be taxable
as
a dividend. The tax basis of a U.S. Holder’s shares will be increased by amounts
that are included in income pursuant to the QEF election, and decreased by
amounts distributed but not taxed as dividends, under the above rules. Similar
basis adjustments apply to property if by reason of holding such property
the
U.S. Holder is treated under the applicable attribution rules as owning shares
in a PFIC with respect to which a QEF election was made.
Although
a determination as to Energy Merger’s PFIC status will be made annually, an
initial determination that it is a PFIC will generally apply for subsequent
years to a U.S. Holder who held common stock or warrants of Energy Merger
while
it was
a PFIC,
whether or not it met the test for PFIC status in those subsequent years.
A U.S.
Holder who makes the QEF election discussed above for the first tax year
in
which the U.S. Holder holds (or is deemed to hold) common stock in Energy
Merger
and for which it is determined to be a PFIC, however, will not be subject
to the
PFIC tax and interest charge rules (or the denial of basis step-up at death)
discussed above in respect to such stock. In addition, such U.S. Holder will
not
be subject to the QEF inclusion regime with respect to such stock for the
tax
years in which Energy Merger is not a PFIC. On the other hand, if the QEF
election is not effective for each of the tax years in which Energy Merger
is a
PFIC and the U.S. Holder holds (or is deemed to hold) common stock in Energy
Merger, the PFIC rules discussed above will continue to apply to such stock
unless the holder makes a purging election and pays the tax and interest
charge
with respect to the gain inherent in such stock attributable to the pre-QEF
election period.
Alternatively,
if a U.S. Holder owns common stock in a PFIC that is treated as marketable
stock, the U.S. Holder may make a mark-to-market election. If the U.S. Holder
makes a valid mark-to-market election for the first tax year in which the
U.S.
Holder holds (or is deemed to hold) common stock in Energy Merger and for
which
it is determined to be a PFIC, such holder generally will not be subject
to the
PFIC rules described above in respect of such common stock. Instead, in general,
the U.S. Holder will include as ordinary income each year the excess, if
any, of
the fair market value of its common stock at the end of its taxable year
over
the adjusted basis in its common stock. The U.S. Holder also will be allowed
to
take an ordinary loss in respect of the excess, if any, of the adjusted basis
of
its common stock over the fair market value of its common stock at the end
of
its taxable year (but only to the extent of the net amount of previously
included income as a result of the mark-to-market election). The U.S. Holder’s
basis in its common stock will be adjusted to reflect any such income or
loss
amounts, and any further gain recognized on a sale or other taxable disposition
of the common stock will be treated as ordinary income.
Currently,
a mark-to-market election may not be made with respect to warrants. As a
result,
if a U.S. Holder exercises a warrant and properly makes a mark-to-market
election with respect to the newly acquired common stock in Energy Merger
(or
has previously made a mark-to-market election in respect of its common stock
in
Energy Merger), the PFIC tax and interest charge rules generally will apply
to
any gain deemed recognized under the mark-to market rules for the first tax
year
for which such election applies in respect of such newly acquired stock (which
generally will be deemed to have a holding period for purposes of the PFIC
rules
that includes the period the U.S. Holder held the warrants).
The
mark-to-market election is available only for stock that is regularly traded
on
a national securities exchange that is registered with the Securities and
Exchange Commission or on Nasdaq, or on a foreign exchange or market that
the
IRS determines has rules sufficient to ensure that the market price represents
a
legitimate and sound fair market value. While we expect that the common stock
of
Energy Merger will be regularly traded on the American Stock Exchange, U.S.
Holders should consult their own tax advisors regarding the availability
and tax
consequences of a mark-to-market election in respect to Energy Merger’s stock
under their particular circumstances.
If
Energy
Merger is a PFIC and, at any time, has a non-U.S. subsidiary that is classified
as a PFIC, U.S. Holders generally would be deemed to own a portion of the
shares
of such lower-tier PFIC, and generally could incur liability for the deferred
tax and interest charge described above if Energy Merger receives a distribution
from, or disposes of all or part of its interest in, the lower-tier PFIC.
There
is no assurance that Energy Merger will have timely knowledge of the status
of
such subsidiary as a PFIC in the future or that Energy Merger will be willing
or
able to provide the information needed by a U.S. Holder to support a QEF
election in respect of a lower-tier PFIC. U.S. Holders are urged to consult
their own tax advisors regarding the tax issues raised by lower-tier
PFICs.
If
a U.S.
Holder owns (or is deemed to own) shares during any year in a PFIC, such
holder
may have to file an IRS Form 8621 (whether or not
a QEF or
mark-to-market election is made).
The
rules
dealing with PFICs and with the QEF and mark-to-market elections are very
complex and are affected by various factors in addition to those described
above. Accordingly, U.S. Holders of common stock and warrants in Energy Merger
should consult their own tax advisors concerning the application of the PFIC
rules to such common stock and warrants under their particular
circumstances.
Tax
Consequences to Non-U.S. Holders of Common Stock
and
Warrants of Energy Merger
Dividends
paid to a Non-U.S. Holder in respect of its common stock in Energy Merger
generally will not be subject to U.S. federal income tax, unless the dividends
are effectively connected with the Non-U.S. Holder’s conduct of a trade or
business within the United States (and, if required by an applicable income
tax
treaty, are attributable to a permanent establishment or fixed base that
such
holder maintains in the United States).
In
addition, a Non-U.S. Holder generally will not be subject to U.S. federal
income
tax on any gain attributable to a sale or other disposition of common stock
or
warrants in Energy Merger unless such gain is effectively connected with
its
conduct of a trade or business in the United States (and, if required by
an
applicable income tax treaty, is attributable to a permanent establishment
or
fixed base that such holder maintains in the United States) or the Non-U.S.
Holder is an individual who is present in the United States for 183 days
or more
in the taxable year of sale or other disposition and certain other conditions
are met (in which case, such gain from United States sources generally is
subject to tax at a 30% rate or a lower applicable tax treaty
rate).
Dividends
and gains that are effectively connected with the Non-U.S. Holder’s conduct of a
trade or business in the United States (and, if required by an applicable
income
tax treaty, are attributable to a permanent establishment or fixed base in
the
United States) generally will be subject to tax in the same manner as for
a U.S.
Holder and, in the case of a Non-U.S. Holder that is a corporation for U.S.
federal income tax purposes, may also be subject to an additional branch
profits
tax at a 30% rate or a lower applicable tax treaty rate.
Backup
Withholding and Information Reporting
In
general, information reporting for U.S. federal income tax purposes will
apply
to distributions made on the common stock of Energy Merger within the United
States to a non-corporate U.S. Holder and to the proceeds from sales and
other
dispositions of common stock or warrants of Energy Merger to or through a
U.S.
office of a broker by a non-corporate U.S. Holder. Payments made (and sales
and
other dispositions effected at an office) outside the United States will
be
subject to information reporting in limited circumstances.
In
addition, backup withholding of U.S. federal income tax, currently at a rate
of
28%, generally will apply to distributions paid on the common stock of Energy
Merger to a non-corporate U.S. Holder and the proceeds from sales and other
dispositions of stock or warrants of Energy Merger by a non-corporate U.S.
Holder, in each case who:
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fails
to provide an accurate taxpayer identification
number;
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is
notified by the IRS that backup withholding is required;
or
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in
certain circumstances, fails to comply with applicable certification
requirements.
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A
Non-U.S. Holder generally may eliminate the requirement for information
reporting and backup withholding by providing certification of its foreign
status, under penalties of perjury, on a duly executed applicable IRS Form
W-8
or by otherwise establishing an exemption.
Backup
withholding is not an additional tax. Rather, the amount of any backup
withholding will be allowed as a credit against a U.S. Holder’s or a Non-U.S.
Holder’s U.S. federal income tax liability and may entitle such holder to a
refund, provided that certain required information is timely furnished to
the
IRS.
Marshall
Islands Taxation
Energy
Merger is incorporated in the Marshall Islands. Under current Marshall Islands
law, Energy Merger is not subject to tax on income or capital gains, no Marshall
Islands withholding tax will be imposed upon payment of dividends by Energy
Merger to its stockholders, and holders of common stock or warrants of Energy
Merger that are not residents of or domiciled or carrying on any commercial
activity in the Marshall Islands will not be subject to Marshall Islands
tax on
the sale or other disposition of such common stock or warrants.
SHARES
ELIGIBLE FOR FUTURE SALE
As
of the
date of this joint proxy statement/prospectus, Energy Infrastructure has
27,221,747 shares of common stock outstanding. In respect of the stock
consideration portion of the aggregate purchase price of the vessels in
the
SPVs, concurrently with the Redomiciliation Merger, Energy Merger will
issue
13,500,000 shares of common stock to Vanship,
up
to
6,525,118 shares of common stock on a one-for-one basis with the shares
redeemed
in connection with the Business Combination,
up to 5,000,000 units to
Vanship in connection with the Business Combination Private Placement,
1,000,000
units to Energy Infrastructure's President and Chief Operating Officer
(or any
assignee thereof), and 268,500 units upon conversion of the outstanding
convertible debt. Accordingly, immediately following the Redomiciliation
Merger,
Energy Merger will have up to 46,990,247 shares of common stock outstanding.
Of
these shares, 35,425,000 shares, including the shares of common stock being
offered for resale in this joint proxy statement/prospectus will be freely
tradable without restriction or further registration under the Securities
Act,
except for any shares held by an affiliate of Energy Merger within the
meaning
of Rule 144 under the Securities Act. All of the remaining 11,565,247
shares will be restricted securities under Rule 144, in that they were
issued in
private transactions not involving a public offering.
The
13,500,000 shares
of
Energy
Merger issued to Vanship in respect of the stock consideration and
up
to
5,000,000 units that Vanship may be obligated to purchase from Energy Merger
in
connection with the Business Combination
are
subject to a lock-up for
(1)
180
days with respect to one-half of the shares comprising such securities; and
(2)
365 days with respect to the remaining shares comprising such securities,
in
each case commencing upon the closing of the Business Combination. Mr. Sagredos
(and any permitted assignee and/or transferee as permitted by the Share Purchase
Agreement) will be subject to similar restrictions with respect to the 1,000,000
units issued to Mr. Sagredos in connection with the Business Combination
for a
period of 180 days commencing upon the closing of the Business
Combination.
Rule
144
The
availability of Rule 144 will vary depending on whether restricted shares
are
held by an affiliate or a non-affiliate. Under Rule 144 as in effect on the
date
of this prospectus, an affiliate who has beneficially owned restricted shares
of
our common stock for at least six months would be entitled to sell within
any
three-month period a number of shares that does not exceed the greater of
either
of the following:
|
·
|
1%
of the number of shares of common stock then outstanding, which
after the
Redomiciliation Merger will equal 407,218 shares; and
|
|
·
|
the
average weekly trading volume of the common stock during the four
calendar
weeks preceding the filing of a notice on Form 144 with respect
to the
sale.
|
However,
the six month holding period increases to one year in the event we have not
been
a reporting company for at least 90 days. In addition, any sales by affiliates
under Rule 144 are also limited by manner of sale provisions and notice
requirements and the availability of current public information about
us.
The
volume limitation, manner of sale and notice provisions described above will
not
apply to sales by non-affiliates. For purposes of Rule 144, a non-affiliate
is
any person or entity who is not our affiliate at the time of sale and has
not
been our affiliate during the preceding three months. A non-affiliate who
has
beneficially owned restricted shares of our common stock for six months may
rely
on Rule 144 provided that certain public information regarding us is available.
The six month holding period increases to one year in the event we have not
been
a reporting company for at least 90 days. However, a non-affiliate who has
beneficially owned the restricted shares proposed to be sold for at least
one
year will not be subject to any restrictions under Rule 144 regardless of
how
long we have been a reporting company.
Rule
144(k)
Under
Rule 144(k), a person who is not deemed to have been one of our affiliates
at
the time of or at any time during the three months preceding a sale, and
who has
beneficially owned the restricted shares proposed to be sold for at least
two
years, including the holding period of any prior owner other than an affiliate,
is entitled to sell their shares without complying with the manner of sale,
public information, volume limitation or notice provisions of Rule
144.
SEC
Position on Rule 144 Sales
The
Securities and Exchange Commission has taken the position that promoters
or
affiliates of a blank check company and their transferees, both before and
after
a business combination, would act as an “underwriter” under the Securities Act
when reselling the securities of a blank check company. Accordingly, Rule
144
may not be available for the resale of those securities despite technical
compliance with the requirements of Rule 144, in which event the resale
transactions would need to be made through a registered offering.
Registration
Rights
Holders
of a majority of the aggregate of 5,268,849 shares of common stock issued
to
officers and directors of Energy Infrastructure prior to our initial public
offering are entitled to make up to two demands that Energy Infrastructure
registers these shares. The holders of the majority of these shares may elect
to
exercise these registration rights at any time after the date on which these
shares of common stock are released from escrow, which, except in limited
circumstances, is not before the completion of the Business Combination.
In
addition, these stockholders have certain piggyback registration rights on
registration statements filed subsequent to the date on which these shares
of
common stock are released from escrow. Energy Infrastructure, and if the
Redomiciliation Merger is approved, Energy Merger, as the successor to Energy
Infrastructure, will bear the expenses incurred in connection with the filing
of
any such registration statements.
In
connection with Energy Infrastructure’s initial public offering, Energy
Infrastructure issued an aggregate of 825,398 units to Energy Corp., an
off-shore company controlled by one of Energy Infrastructure’s officers. Energy
Infrastructure has granted the holders of such units demand and piggyback
registration rights with respect to the 825,398 shares, the 825,398 warrants
and
the 825,398 shares underlying the warrants at any time commencing on the
date
Energy Infrastructure publicly announces that it has entered into a letter
of
intent with respect to a proposed business combination. The demand registration
may be exercised by the holders of a majority of such units. Energy
Infrastructure announced its entry into the definitive agreement with respect
to
the acquisition of the vessels on December 3, 2007. In addition, Energy
Infrastructure has granted the holders of such units certain registration
rights
commencing at the time Energy Infrastructure consummates its initial business
combination with a target business. Energy Infrastructure, and if the
Redomiciliation Merger is approved, Energy Merger, as the successor to Energy
Infrastructure, will bear the expenses incurred in connection with the filing
of
any such registration statements.
Under
the
Share Purchase Agreement, Energy Merger has agreed, with some limited
exceptions, to include (i) the 13,500,000 shares of Energy Merger’s common stock
comprising the stock consideration portion of the aggregate purchase price
for
the SPVs, (ii) the shares of Energy Merger’s common stock underlying the 425,000
warrants that Mr. George Sagredos will transfer to Vanship, and (iii) the
1,000,000 units and underlying shares and warrants included in the units
issued
to Mr. Sagredos (or his assignees) in Energy Merger’s registration statement of
which this joint proxy statement/prospectus is a part. We refer to these
securities, collectively with the 6,000,000 shares of Energy Merger’s common
stock that Vanship is eligible to earn in the two year period following the
Business Combination based on certain revenue targets as the Registrable
Securities. Energy Merger has also granted to the holders of such securities
(on
behalf of themselves or their affiliates that hold Registrable Securities)
the
right, under certain definitive, pre-determined circumstances and subject
to
certain restrictions, including lock-up and market stand-off restrictions,
to
require Energy Merger to register the Registrable Securities under the
Securities
Act of 1933, as amended, in the future. Under the Share Purchase Agreement,
the
holders of such securities also have the right to require Energy
Merger
to
make
available shelf registration statements permitting sales of shares into the
market from time to time over an extended
period.
In addition, the holders of these securities will have the ability to exercise
certain piggyback registration rights 180 days following the
effective
date of the Business Combination. In addition, in connection with the Business
Combination Private Placement, Energy Merger will grant to Vanship certain
demand and piggyback registration rights with respect to up to 5,000,000
units.
SELLING
STOCKHOLDER
The
following table identifies the selling stockholders, the number and percentage
of shares of common stock beneficially owned by the selling stockholders
after
the consummation of the Redomiciliation Merger, the number of shares of common
stock that the selling stockholders may offer or sell, and the number and
percentage of shares of common stock beneficially owned by the selling
stockholders, assuming that the selling stockholders exercise all options
and
warrants then exercisable by them and that the selling stockholders sell
all of
the shares that may be sold by them. We have prepared this table based upon
information furnished to Energy Infrastructure by or on behalf of the selling
stockholders. As used in this joint proxy statement/prospectus, “the selling
stockholders” refers to Vanship and Mr. George Sagredos, as the holders of
record of the indicated securities, and includes the respective pledgees,
assignees successors-in-interest, donees, transferees or others who may later
hold the selling stockholders’ interests.
Vanship
is currently a global shipping company carrying on business from Hong Kong.
Energy Merger intends to purchase shares of nine SPVs each owning a vessel
from
Vanship upon the approval and consummation of the Business Combination.
In
connection with the Business Combination, pursuant to the Share Purchase
Agreement, Vanship has agreed that it will not directly or indirectly, offer,
sell, agree to offer or sell, solicit offers to purchase, grant any call
option
or purchase any put option with respect to, pledge, borrow or otherwise dispose
of any of the registrable securities under the Share Purchase Agreement,
or
otherwise enter into any swap, derivative or other transaction or arrangement
that transfers to another, any economic consequence of ownership of any of
the
registrable securities for a period of
(1)
180
days with respect to one-half of such shares; and (2) 365 days with respect
to
the remaining shares, in each case commencing upon the issuance of such
registrable securities.
Notwithstanding
the foregoing, Vanship and its vessel owning subsidiaries are permitted to
transfer all or any portion of the stock consideration among themselves or
any
of its affiliates provided that such transfer would not require registration
under the Securities Act.
Mr.
Sagredos (and any permitted assignee and/or transferee as permitted by the
Share
Purchase Agreement) will be subject to similar restrictions with respect
to the
1,000,000 units issued to Mr. Sagredos in connection with the Business
Combination for a period of 180 days commencing upon the closing of the Business
Combination.
|
|
Shares of Common Stock Beneficially
Owned After the Redomiciliation Merger
and Prior to the Offering
|
|
|
|
Shares of Common
Stock Beneficially
Owned After the
Offering
|
|
Selling
Stockholder
|
|
Number of
Shares
Beneficially
Owned
|
|
Percent of
Class(1)
|
|
Number of
Shares
Owned
Following
Issuance of
Additional
Stock(2)
|
|
Percent of
Class(1)
|
|
Number of
Shares Being
Offered
|
|
Number of
Shares
Beneficially
Owned(2)
|
|
Percent
of
Class(1)
|
|
Vanship
Holdings, Ltd.(3)
|
|
|
23,925,000
|
(4)
|
|
50.9
|
%
|
|
29,925,000
|
(5)
|
|
|
%
|
|
13,925,000
|
(6)
|
|
16,000,000
|
|
|
34.0
|
%
|
George
Sagredos(7)
|
|
|
5,955,753
|
|
|
|
%
|
|
5,955,753
|
|
|
|
%
|
|
1,000,000
|
|
|
|
|
|
|
|
Marios
Pantazopoulos
|
|
|
1,490,003
|
|
|
3.1
|
%
|
|
1,490,003
|
|
|
2.8
|
%
|
|
1,000,000
|
|
|
490,803
|
|
|
1.0
|
%
|
(1)
|
Assumes
that no stockholders redeem and includes shares of common stock
issuable
upon exercise of warrants within 60 days of effectiveness of the
registration statement of which this prospectus is a
part.
|
(2)
|
Assumes
Energy Merger achieves certain pre-determined revenue targets which
are
not subject to change.
|
(3)
|
Captain
Charles Arthur Joseph Vanderperre and Mr. Fred Cheng, constituting
the
board of directors of Vanship, have shared voting power and shared
investment power over the shares owned by Vanship. Captain Vanderperre
and
Mr. Cheng will serve on the board of directors of Energy Merger
and Mr.
Cheng will serve as Energy Merger’s Chief Executive Officer.
|
(4)
|
Includes
(i) 13,500,000 shares of common stock, (ii) 425,000 warrants and
the
shares underlying the warrants and (iii) 10,000,000 shares of common
stock
underlying units (giving effect to the exercise of warrants included
in
such units).
|
(5)
|
Includes
(i) 19,500,000 shares of common stock, (ii) 425,000 warrants and
the
shares underlying the warrants (iii) and 10,000,000 shares of common
stock
underlying units (giving effect to the exercise of warrants included
in
such units).
|
(6)
|
Includes
(i) 13,500,000 shares of common stock, and (ii) 425,000 warrants
and the
shares underlying the warrants.
|
(7)
|
Includes
4,418,753 shares of common stock owned by Energy Corp., a
corporation
organized under the laws of the Cayman Islands, which is
wholly-owned by
Energy Star Trust, a Cayman Islands Trust. Mr. Sagredos,
as one of the two
co-enforcers and beneficiaries of Energy Star Trust, has
voting and
dispositive control over the shares owned by Energy
Crop
.
|
PLAN
OF DISTRIBUTION
Energy
Merger is registering under the Securities Act (i) up to 6,525,118 shares
of its
common stock to fund redemptions of common stock by Energy Infrastructure’s
stockholders in connection with the completion of the Business Combination,
and
(ii) shares of its common stock for sale by the selling stockholders
We
anticipate that the shares of common stock offered for sale to fund redemptions
will be sold in a direct offering to investors which may be identified
by one or
more broker-dealers engaged by Energy Merger for such purpose.
As used in
this joint proxy statement/prospectus, “the selling stockholders” refer to
Vanship and Mr. George Sagredos as the holders of record of the indicated
securities and includes the respective pledgees, assignees
successors-in-interest, donees, transferees or others who may later hold
the
selling stockholders’ interests and would be identified in an amendment to this
prospectus at the appropriate time. Energy Merger has agreed to pay the
costs
and fees of registering the shares, but the selling stockholders will
pay any
brokerage commissions, discounts or other expenses relating to the sale
of the
shares.
The
selling stockholders may sell the shares on any national market or exchange
where the shares are listed or quoted, in the over-the-counter market or
otherwise, at market prices prevailing at the time of sale, at prices related
to
the prevailing market prices, or at negotiated prices. In addition, the
selling
stockholders may sell some or all of their shares through:
|
·
|
a
block trade in which a broker-dealer may resell a portion of the
block, as
principal, in order to facilitate the
transaction;
|
|
·
|
purchases
by a broker-dealer, as principal, and resale by the broker-dealer
for its
account;
|
|
·
|
ordinary
brokerage transactions and transactions in which a broker solicits
purchasers; or
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange.
|
When
selling the shares, the selling stockholders may enter into hedging
transactions. For example, the selling stockholders may:
|
·
|
enter
into transactions involving short sales of the shares by
broker-dealers;
|
|
·
|
sell
shares short themselves and redeliver such shares to close out
their short
positions;
|
|
·
|
enter
into option or other types of transactions that require the selling
stockholder to deliver shares to a broker-dealer, who will then
resell or
transfer the shares under this prospectus;
or
|
|
·
|
loan
or pledge the shares to a broker-dealer, who may sell the loaned
shares
or, in the event of default, sell the pledged
shares.
|
The
selling stockholders may negotiate and pay broker-dealers commissions, discounts
or concessions for their services. Broker-dealers engaged by the selling
stockholders may allow other broker-dealers to participate in resales. The
selling stockholders and any broker-dealers involved in the sale or resale
of
the shares, however, may qualify as “underwriters” within the meaning of Section
2(a)(11) of the Securities Act. In addition, the broker-dealers’ commissions,
discounts or concession may qualify as underwriters’ compensation under the
Securities Act. If a selling stockholder qualifies as an “underwriter,” it will
be subject to the prospectus delivery requirements of Section 5(b)(2) of
the
Securities Act.
The
selling stockholders should be aware that the anti-manipulation provisions
of
Regulation M under the Exchange Act will apply to purchases and sales of
shares
of common stock by the selling stockholders, and that there are restrictions
on
market-making activities by persons engaged in the distribution of the shares.
Under Regulation M, the selling stockholders or their agents may not bid
for,
purchase, or attempt to induce any person to bid for or purchase, shares
of
Energy Merger common stock while such selling stockholders are distributing
shares pursuant to this prospectus. The selling stockholders are advised
that,
if a particular offer of common stock is to be made on terms constituting
a
material change from the information set forth above with respect to the
Plan of
Distribution, then, to the extent required, a post-effective amendment to
the
registration statement must be filed with the SEC.
From
time
to time this prospectus will be supplemented and amended as required by the
Securities Act. During any time when a supplement or amendment is so required,
the selling stockholders are to cease sales until the prospectus has been
supplemented or amended.
In
addition to selling their shares under this joint proxy statement/prospectus,
the selling stockholders may:
|
·
|
agree
to indemnify any broker-dealer or agent against certain liabilities
related to the selling of the shares, including liabilities arising
under
the Securities Act;
|
|
·
|
transfer
their shares in other ways not involving market makers or established
trading markets, including directly by gift, distribution, privately
negotiated transaction or other
transfer;
|
|
·
|
sell
their shares pursuant to Rule 144 under the Securities Act rather
than
pursuant to this prospectus, if the shares are eligible for such
sale and
the transaction meets the requirements of Rule 144;
or
|
|
·
|
any
combination of any of the foregoing methods of
sale.
|
In
connection with the Business Combination, pursuant to the Share Purchase
Agreement, Vanship has agreed that it will not directly or indirectly, offer,
sell, agree to offer or sell, solicit offers to purchase, grant any call
option
or purchase any put option with respect to, pledge, borrow or otherwise dispose
of any of the registrable securities under the Share Purchase Agreement,
or
otherwise enter into any swap, derivative or other transaction or arrangement
that transfers to another, any economic consequence of ownership of any of
the
registrable securities for a period of
(1)
180
days with respect to one-half of such shares; and (2) 365 days with respect
to
the remaining shares, in each case commencing upon the issuance of such
registrable securities.
Notwithstanding
the foregoing, Vanship and its vessel owning subsidiaries are permitted to
transfer all or any portion of the stock consideration among themselves or
any
of its affiliates provided that such transfer would not require registration
under the Securities Act.
Mr.
Sagredos (and any permitted assignee and/or transferee as permitted by the
Share
Purchase Agreement) will be subject to similar restrictions with respect
to the
1,000,000 units issued to Mr. Sagredos in connection with the Business
Combination for a period of 180 days commencing upon the closing of the Business
Combination.
EXPERTS
The
financial statements of Energy Infrastructure Acquisition Corp. included
in this
joint proxy statement/prospectus have been audited by Goldstein Golub Kessler
LLP, an independent registered public accounting firm, to the extent and
for the
period set forth in their report appearing elsewhere in this joint proxy
statement/prospectus (which contains an explanatory paragraph describing
conditions that raise substantial doubt about Energy Infrastructure’s ability to
continue as a going concern as discussed in Note 1 to the financial statements).
The financial statements and the report of Goldstein Golub Kessler LLP
are
included in reliance upon their report given upon their authority as experts
in
auditing and accounting.
The
financial statements of Shinyo Alliance Limited as of December 31, 2005
and
2006, and for each of the years in the three-year period ended December
31,
2006, the financial statements of Shinyo Loyalty Limited as of December
31, 2005
and 2006, and for each of the years in the three-year period ended December
31,
2006, the financial statements of Shinyo Kannika Limited as of December
31, 2005
and 2006, and for the period from September 27, 2004 to December 31,
2004, and
the years ended December 31, 2005 and 2006, the financial statements
of Shinyo
Navigator Limited as of December 31, 2006, and for the period from September
21,
2006 to December 31, 2006, the financial statements of Shinyo Ocean Limited
as
of December 31, 2006, and for the period from December 28, 2006 to December
31,
2006, the financial statements of Elite Strategic Limited as of December
31,
2005 and 2006, and for each of the years in the three-year period ended
December
31, 2006, the financial statements of Shinyo Julibee Limited as of December
31,
2005 and 2006, and for each of the years in the three-year period ended
December
31, 2006, the financial statements of Shinyo Mariner Limited as of December
31,
2005 and 2006, and for the period from December 22, 2004 to December
31, 2004,
and the years ended December 31, 2005 and 2006, the financials statements
of
Shinyo Sawako Limited as of December 31, 2006, and for the period from
March 2,
2006 to December 31, 2006, have been included in this joint proxy
statement/registration statement in reliance on the reports of KPMG, an
independent registered public accounting firm, appearing elsewhere in
this joint
proxy statement/registration statement upon the authority of the said
firm as
experts in accounting and auditing.
The
offices of KPMG are located at 8/F, Prince’s Building, 10 Chater Road, Central,
Hong Kong.
LEGAL
MATTERS
Certain
matters relating to Marshall Islands law will be passed upon for us by
Reeder
& Simpson P. C., Athens, Greece.
STOCKHOLDER
PROPOSALS AND OTHER MATTERS
Management
of Energy Infrastructure knows of no other matters which may be brought before
the Energy Infrastructure Special Meeting. If any matter other than the proposed
merger or related matters should properly come before the Special Meeting,
however, the persons named in the enclosed proxies will vote proxies in
accordance with their judgment on those matters.
Under
Delaware law, only business stated in the notice of Special Meeting may be
transacted at the Special Meeting.
INDUSTRY
AND MARKET DATA
The information
and data used in this joint proxy statement/prospectus relating
to the international maritime transportation industry have been provided
by
Clarkson Research Services Ltd., or CRS, a UK-based company providing
research
and statistics to the shipping industry. CRS based its analysis on information
drawn from published and private industry sectors. These include CRS’ databases,
the BP Statistical Review of World Energy, IEA Monthly Oil Market
Reports, Shipping Intelligence Network and the Oil & Tanker Trades
Outlook. Data is taken from the most published sources on the dates
indicated and these sources do revise figures and forecasts over
time.
CRS
has
advised us that (1) some industry data included in this discussion is
based on
estimates or subjective judgments in circumstances where data for actual
market
transactions either does not exist or is not publicly available, (2)
the
published information of other maritime data collection experts may differ
from
this data, and (3) while CRS has taken reasonable care in the compilation
of the
industry statistical data and believe them to be correct, data collection
is
subject to limited audit and validation procedures.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
Energy
Merger has filed a registration statement on Form F- 1/F-4 to register the
offering and sale of Energy Merger shares to be issued in exchange for shares
of
Energy Infrastructure pursuant to the Redomiciliation Merger and to Vanship
pursuant to the Share Purchase Agreement. This joint proxy statement/prospectus
is a part of that registration statement and constitutes a prospectus of
Energy
Merger in addition to a proxy statement of Energy Infrastructure for the
Energy
Infrastructure Special Meeting. As allowed by SEC rules, this joint proxy
statement/prospectus does not contain all of the information that you can
find
in the registration statement or the exhibits to the registration statement.
You
should refer to the registration statement and its exhibits for additional
information that is not contained in this joint proxy
statement/prospectus.
Energy
Infrastructure is subject to the informational requirements of the Securities
Exchange Act, and is required to file reports, any proxy statements and other
information with the SEC. Any reports, statements or other information that
Energy Infrastructure files with the SEC, including this joint proxy
statement/prospectus may be inspected and copied at the public reference
facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington,
D.C. 20549. Copies of this material can also be obtained upon written request
from the Public Reference Section of the SEC at its principal office in
Washington, D.C. 20549, at prescribed rates or from the SEC’s website on the
internet at
http://www.sec.gov
,
free of
charge. Please call the SEC at 1-800-SEC-0330 for further information on
public
reference rooms.
Neither
Energy Infrastructure nor Energy Merger has authorized anyone to provide
you
with information that differs from that contained in this joint proxy
statement/prospectus. You should not assume that the information contained
in
this joint proxy statement/prospectus is accurate as on any date other than
the
date of the joint proxy statement/prospectus, and neither the mailing of
this
joint proxy statement/prospectus to Energy Infrastructure stockholders nor
the
issuance of shares of Energy Merger in the merger shall create any implication
to the contrary.
This
joint proxy statement/prospectus does not constitute an offer to sell, or
a
solicitation of an offer to buy, any securities, or the solicitation of a
proxy,
in any jurisdiction to or from any person to whom it is not lawful to make
any
such offer or solicitation in such jurisdiction.
ENFORCEABILITY
OF CIVIL LIABILITIES
Energy
Merger is a Marshall Islands company and its executive offices are located
outside of the U.S. in Athens, Greece. A majority of Energy Merger’s directors,
officers and experts named in this joint proxy/statement prospectus reside
outside the U.S. In addition, a substantial portion of Energy Merger assets
and
the assets of its directors, officers and experts are located outside of
the
U.S. As a result, you may have difficulty serving legal process within the
U.S.
upon Energy Merger or any of these persons. You may also have difficulty
enforcing, both in and outside the U.S., judgments you may obtain in U.S.
courts
against Energy Merger or these persons in any action, including actions based
upon the civil liability provisions of U.S. federal or state securities laws.
See “Risk Factors – Risks Related to the Redomiciliation Merger —
Energy Merger is incorporated under the laws of the Marshall Islands and
its
directors and officers are non-U.S. residents, and although you may bring
an
original action in the courts of the Marshall Islands or obtain a judgment
against Energy Merger, its directors or its management based on U.S. laws
in the
event you believe your rights as a stockholder have been infringed, it may
be
difficult to enforce judgments against Energy Merger, its directors or its
management.”
Furthermore,
there is substantial doubt that the courts of the Marshall Islands or Greece
would enter judgments in original actions brought in those courts predicated
on
U.S. federal or state securities laws.
GLOSSARY
OF SHIPPING TERMS
The
following are definitions of certain terms that are commonly used in the
shipping industry and in this joint proxy statement/prospectus.
Annual
survey.
The
inspection of a vessel pursuant to international conventions, by a
classification society surveyor, on behalf of the flag state, that takes
place
every year.
Bareboat
charter.
A
charter of a vessel under which the shipowner is usually paid a fixed amount
of
charterhire for a certain period of time during which the charterer is
responsible for the vessel operating expenses and voyage expenses of the
vessel
and for the management of the vessel, including crewing. A bareboat charter
is
also known as a “demise charter” or a “time charter by demise.”
Bunkers.
Heavy
fuel and diesel oil used to power a vessel’s engines.
Capesize.
A vessel
with capacity of more than 100,000 dwt.
Charter.
The hire
of a vessel for a specified period of time or to carry a cargo from a loading
port to a discharging port. The contract for a charter is commonly called
a
charter party.
Charterer.
The
party that hires a vessel for a period of time or for a voyage.
Charterhire.
A sum of
money paid to the shipowner by a charterer for the use of a vessel. Charterhire
paid under a voyage charter is also known as “freight.”
Classification
society.
An
independent society that certifies that a vessel has been built and maintained
according to the society’s rules for that type of vessel and complies with the
applicable rules and regulations of the country of the vessel’s registry and the
international conventions of which that country is a member. A vessel that
receives its certification is referred to as being “in-class.”
Consecutive
Voyage Charter
.
A
contract for hire of a ship under which a shipowner is paid freight (normally
per ton of cargo) on the basis of moving cargo from a loading port to a
discharge port for more than one voyage over period of time. The shipowner
is
responsible for paying both operating costs and voyage costs. The charterer
is
typically responsible for any delay at the loading or discharging
ports.
Contract
of afreightment.
A
contract of affreightment, or COA, relates to the carriage of multiple cargoes
over the same route and enables the COA holder to nominate different ships
to
perform the individual sailings. Essentially it constitutes a number of voyage
charters to carry a specified amount of cargo during the term of the COA,
which
usually spans a number of years. All of the ship’s operating, voyage and capital
costs are borne by the ship owner.
Drydocking.
The
removal of a vessel from the water for inspection and repair of those parts
of a
vessel which are below the water line. During drydockings, which are required
to
be carried out periodically, certain mandatory classification society
inspections are carried out and relevant certifications are issued. Drydockings
are generally required once every 30 months or twice every five years, one
of
which must be a Special Survey.
Dwt.
Deadweight ton, which is a unit of a vessel’s capacity for cargo, fuel, oil,
stores and crew measured in metric tons of 1,000 kilograms.
Freight.
A sum of
money paid to the shipowner by the charterer under a voyage charter, usually
calculated either per ton loaded or as a lump sum amount.
Gross
ton.
A unit
of measurement for the total enclosed space within a vessel equal to 100
cubic
feet or 2.831 cubic meters.
Handymax.
A vessel
with a carrying capacity of between 30,000 and 60,000 dwt. Handysize. A vessel
with capacity of up to 30,000 dwt.
Hull.
Shell or
body of a ship.
IMO.
International Maritime Organization, a United Nations agency that issues
international standards for shipping.
Intermediate
survey.
The
inspection of a vessel by a classification society surveyor that takes place
24
to 36 months after each Special Survey.
New
building.
A new
vessel under construction or just completed.
Off-hire.
The
period in which a vessel is unable to perform the services for which it is
immediately required under a time charter. Off-hire periods can include days
spent on repairs, drydocking and surveys, whether or not scheduled.
OPA.
The
United States Oil Pollution Act of 1990.
Panamax.
A vessel
with a carrying capacity of between 60,000 and 100,000 dwt.
Period
time charter.
A time
charter or a contract of affreightment.
Protection
and indemnity insurance.
Insurance obtained through a mutual association formed by shipowners to provide
liability indemnification protection from various liabilities to which they
are
exposed in the course of their business, and which spreads the liability
costs
of each member by requiring contribution by all members in the event of a
loss.
Scrapping.
The sale
of a vessel as scrap metal.
Single-hull.
A hull
construction design in which a vessel has only one hull.
Special
survey.
The
inspection of a vessel by a classification society surveyor that takes place
every five years, as part of the recertification of the vessel by a
classification society.
Spot
charter.
A
charter under which a shipowner is paid freight on the basis of moving cargo
from a loading port to a discharging port. The shipowner is responsible for
paying both vessel operating expenses and voyage expenses. Typically, the
charterer is responsible for any delay at the loading or discharging
ports.
Spot
market.
The
market for immediate chartering of a vessel, usually for single
voyages.
Time
charter.
A
charter under which the shipowner is paid charterhire on a per-day basis
for a
specified period of time. Typically, the shipowner is responsible for providing
the crew and paying vessel operating expenses while the charterer is responsible
for paying the voyage expenses and additional voyage insurance.
Vessel
operating expenses.
The
costs of operating a vessel, primarily consisting of crew wages and associated
costs, insurance premiums, management fees, lubricants and spare parts, and
repair and maintenance costs. Vessel operating expenses exclude fuel costs,
port
expenses, agents’ fees, canal dues and extra war risk insurance, as well as
commissions, which are included in “voyage expenses.”
Voyage
expenses.
Expenses
incurred due to a vessel’s traveling from a loading port to a discharging port,
such as fuel (bunkers) costs, port expenses, agents’ fees, canal dues and extra
war risk insurance, as well as commissions.
Worldscale
:
Industry name for the Worldwide Tanker Nominal Freight Scale published annually
by the Worldscale Association as a rate reference for shipping companies,
brokers, and their customers engaged in the bulk shipping of oil in the
international markets. Worldscale is a list of calculated rates for specific
voyage itineraries for a standard vessel, as defined, using defined voyage
cost
assumptions such as vessel speed, fuel consumption, and port costs. Actual
market rates for voyage charters are usually quoted in terms of a percentage
of
Worldscale.
Worldscale
Flat rate
:
Base
rates expressed in U.S. dollars per ton which apply to specific sea
transportation routes, calculated to give the same return as Worldscale
100.
Worldscale
Points
:
The
freight rate negotiated for spot voyages expressed as a percentage of the
Worldscale Flat rate.
INDEX
TO FINANCIAL STATEMENTS OF ENERGY INFRASTRUCTURE ACQUISITION CORP. AND
THE
SPVS
|
|
Page
|
|
Energy
Infrastructure Acquisition Corp.
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-1
|
|
Balance
Sheets as of December 31, 2006 and 2005
|
|
|
F-2
|
|
Statements
of Operations for the year ended December 31, 2006 and the
period from
August 11, 2005 to December 31, 2005
|
|
|
F-3
|
|
Statements
of Stockholders’ Equity for the period from August 11, 2005 to December
31, 2006
|
|
|
F-4
|
|
Statements
of Cash Flow for the year ended December 31, 2006 and the
period from
August 11, 2005 to December 31, 2005
|
|
|
F-5
|
|
Notes
to Financial Statements December 31, 2006 and 2005
|
|
|
F-6
- F14
|
|
Condensed
Balance Sheet as of September 30, 2007 and December 31,
2006
|
|
|
F-15
|
|
Condensed
Statements of Operation for the three months ended September
30, 2007 and
2006 and the nine month periods ended September 30, 2007
and
2006
|
|
|
F-16
|
|
Condensed
Statements of Stockholders’ Equity for the period from August 11, 2005 to
December 31, 2006
|
|
|
F-17
|
|
Condensed
Statements of Cash Flows for the nine month periods ended
September 30,
2007 and 2006
|
|
|
F-18
|
|
Notes
to Unaudited Condensed Financial Statements for the nine
months ended
September 30, 2007
|
|
|
F-19
- F-28
|
|
|
|
|
|
|
Shinyo
Alliance Limited Financial Statements
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-29
|
|
Balance
Sheets as of December 31, 2005 and 2006
|
|
|
F-30
|
|
Statements
of Income for the years ended December 31, 2004, 2005 and
2006
|
|
|
F-31
|
|
Statements
of Shareholder’s Equity for the years ended December 31, 2004, 2005 and
2006
|
|
|
F-32
|
|
Statements
of Cash Flows for the years ended December 31, 2004, 2005
and
2006
|
|
|
F-33
|
|
Notes
to the Financial Statements for the years ended December
31, 2004, 2005
and 2006
|
|
|
F-34
- F-47
|
|
Unaudited
Condensed Balance Sheets as of December 31, 2006 and September
30,
2007
|
|
|
F-48
|
|
Unaudited
Condensed Statements of Income for the nine-month periods
ended September
30, 2006 and 2007
|
|
|
F-49
|
|
Unaudited
Condensed Statements of Shareholder’s Equity for the nine-month periods
ended September 30, 2006 and 2007
|
|
|
F-50
|
|
Unaudited
Condensed Statements of Cash Flows for the nine-month periods
ended
September 30, 2006 and 2007
|
|
|
F-51
|
|
Notes
to the Unaudited Condensed Financial Statements for the nine-month
periods
ended September 30, 2006 and 2007
|
|
|
F-52
- F-60
|
|
|
|
|
|
|
Shinyo
Loyalty Limited Financial Statements
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-61
|
|
Balance
Sheets as of December 31, 2005 and 2006
|
|
|
F-62
|
|
Statements
of Income for the years ended December 31, 2004, 2005 and
2006
|
|
|
F-63
|
|
Statements
of Shareholder’s Equity for the years ended December 31, 2004, 2005 and
2006
|
|
|
F-64
|
|
Statements
of Cash Flows for the years ended December 31, 2004, 2005
and
2006
|
|
|
F-65
|
|
Notes
to the Financial Statements for the years ended December
31, 2004, 2005
and 2006
|
|
|
F-66
- F-78
|
|
Unaudited
Condensed Balance Sheets as of December 31, 2006 and September
30,
2007
|
|
|
F-79
|
|
Unaudited
Condensed Statements of Operations for the nine-month periods
ended
September 30, 2006 and 2007
|
|
|
F-80
|
|
Unaudited
Condensed Statements of Shareholder’s Equity/(Deficit) for the nine-month
periods ended September 30, 2006 and 2007
|
|
|
F-81
|
|
Unaudited
Condensed Statements of Cash Flows for the nine-month periods
ended
September 30, 2006 and 2007
|
|
|
F-82
|
|
Notes
to the Unaudited Condensed Financial Statements for the nine-month
periods
ended September 30, 2006 and 2007
|
|
|
F-83
- F-92
|
|
|
|
|
|
|
Shinyo
Kannika Limited Financial Statements
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-93
|
|
Balance
Sheets as of December 31, 2005 and 2006
|
|
|
F-94
|
|
Statements
of Income for the period from September 27, 2004 (date of
incorporation)
to December 31, 2004, and the years ended December 31, 2005
and
2006
|
|
|
F-95
|
|
Statements
of Shareholder’s Equity for the period from September 27, 2004 (date of
incorporation) to December 31, 2004, and the years ended
December 31, 2005
and 2006
|
|
|
F-96
|
|
Statements
of Cash Flows for the period from September 27, 2004 (date
of
incorporation) to December 31, 2004, and the years ended
December 31, 2005
and 2006
|
|
|
F-97
|
|
Notes
to Financial Statements for the period from September 27,
2004 (date of
incorporation) to December 31, 2004, and the years ended
December 31, 2005
and 2006
|
|
|
F-98
- F-111
|
|
Unaudited
Condensed Balance Sheets as of December 31, 2006 and September
30,
2007
|
|
|
F-112
|
|
Unaudited
Condensed Statements of Income for the nine-month periods
ended September
30, 2006 and 2007
|
|
|
F-113
|
|
Unaudited
Condensed Statements of Shareholder’s Equity for the nine-month periods
ended September 30, 2006 and 2007
|
|
|
F-114
|
|
Unaudited
Condensed Statements of Cash Flows for the nine-month periods
ended
September 30, 2006 and 2007
|
|
|
F-115
|
|
Notes
to the Unaudited Condensed Financial Statements for the nine-month
periods
ended September 30, 2006 and 2007
|
|
|
F-116
- F-125
|
|
|
|
|
|
|
Shinyo
Navigator Limited Financial Statements
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-126
|
|
Balance
Sheet as of December 31, 2006
|
|
|
F-127
|
|
Statement
of Operations for the period from September 21, 2006 (date
of
incorporation) to December 31, 2006
|
|
|
F-128
|
|
Statement
of Shareholder’s Deficit for the period from September 21, 2006 (date
of incorporation) to December 31, 2006
|
|
|
F-129
|
|
Statement
of Cash Flows for the period from September 21, 2006 (date
of
incorporation) to December 31, 2006
|
|
|
F-130
|
|
Notes
to the Financial Statements for the period from September
21, 2006 (date
of incorporation) to December 31, 2006
|
|
|
F-131
- F-140
|
|
Unaudited
Condensed Balance Sheets as of December 31, 2006 and September
30,
2007
|
|
|
F-141
|
|
Unaudited
Condensed Statements of Operations for the period from September
21, 2006
(date of incorporation) to September 30, 2006 and nine-month
period ended
September 30, 2007
|
|
|
F-142
|
|
Unaudited
Condensed Statements of Shareholder’s (Deficit)/Equity for the period from
September 21, 2006 (date of incorporation) to September 30,
2006 and
nine-month period ended September 30, 2007
|
|
|
F-143
|
|
Unaudited
Condensed Statements of Cash Flows for the period from September
21, 2006
(date of incorporation) to September 30, 2006 and nine-month
period ended
September 30, 2007
|
|
|
F-144
|
|
Notes
to the Unaudited Condensed Financial Statements for the period
from
September 21, 2006 (date of incorporation) to September 30,
2006 and
nine-month period ended September 30, 2007
|
|
|
F-145
- F-153
|
|
|
|
|
|
|
Shinyo
Ocean Limited Financial Statements
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-154
|
|
Balance
Sheet as of December 31, 2006
|
|
|
F-155
|
|
Statement
of Operations for the period from December 28, 2006 (date
of
incorporation) to December 31, 2006
|
|
|
F-156
|
|
Statement
of Shareholder’s Deficit for the period from December 28, 2006 (date of
incorporation) to December 31, 2006
|
|
|
F-157
|
|
Statement
of Cash Flows for the period from December 28, 2006 (date
of
incorporation) to December 31, 2006
|
|
|
F-158
|
|
Notes
to the Financial Statements for the period from December
28, 2006 (date of
incorporation) to December 31, 2006
|
|
|
F-159
- F-164
|
|
Unaudited
Condensed Balance Sheets as of December 31, 2006 and September
30,
2007
|
|
|
F-165
|
|
Unaudited
Condensed Statement of Operations for the nine-month period
ended
September 30, 2007
|
|
|
F-166
|
|
Unaudited
Condensed Statement of Shareholder’s Deficit for the nine-month period
ended September 30, 2007
|
|
|
F-167
|
|
Unaudited
Condensed Statement of Cash Flows for the nine-month period
ended
September 30, 2007
|
|
|
F-168
|
|
Notes
to the Unaudited Condensed Financial Statements for the nine-month
period
ended September 30, 2007
|
|
|
F-169
- F-179
|
|
|
|
|
|
|
Elite
Strategic Limited Financial Statements
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-180
|
|
Balance
Sheets as of December 31, 2005 and 2006
|
|
|
F-181
|
|
Statements
of Income for the years ended December 31, 2004, 2005 and
2006
|
|
|
F-182
|
|
Statements
of Shareholders' Equity for the years ended December 31,
2004, 2005 and
2006
|
|
|
F-183
|
|
Statements
of Cash Flows for the years ended December 31, 2004, 2005
and
2006
|
|
|
F-184
|
|
Notes
to Financial Statements for the years ended December 31,
2004, 2005 and
2006
|
|
|
F-185
- F-196
|
|
Unaudited
Condensed Balance Sheets as of December 31, 2006 and September
6,
2007
|
|
|
F-197
|
|
Unaudited
Condensed Statements of Income for the nine-month period
ended September
30, 2006 and the period from January 1, 2007 to September
6,
2007
|
|
|
F-198
|
|
Unaudited
Condensed Statements of Shareholder's Equity for the nine-month
period
ended September 30, 2006 and the period from January 1, 2007
to September
6, 2007
|
|
|
F-199
|
|
Unaudited
Condensed Statements of Cash Flows for the nine-month period
ended
September 30, 2006 and the period from January 1, 2007 to
September 6,
2007
|
|
|
F-200
|
|
Notes
to the Unaudited Condensed Financial Statements for the nine-month
period
ended September 30, 2006 and the period from January 1, 2007
to September
6, 2007
|
|
|
F-201
- F-209
|
|
|
|
|
|
|
Shinyo
Dream Limited Financial Statements
|
|
|
|
|
Unaudited
Balance Sheet as of September 30, 2007
|
|
|
F-210
|
|
Unaudited
Statement of Operations for the period from July 20, 2007
(date of
incorporation) to September 30, 2007
|
|
|
F-211
|
|
Unaudited
Statement of Shareholder’s Deficit for the period from July 20, 2007 (date
of incorporation) to September 30, 2007
|
|
|
F-212
|
|
Unaudited
Statement of Cash Flows for the period from July 20, 2007
(date of
incorporation) to September 30, 2007
|
|
|
F-213
|
|
Notes
to the Unaudited Financial Statements for the period from
July 20, 2007
(date of incorporation) to September 30, 2007
|
|
|
F-214
- F-224
|
|
|
|
|
|
|
Shinyo
Jubilee Limited Financial Statements
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-225
|
|
Balance
Sheets as of December 31, 2005 and 2006
|
|
|
F-226
|
|
Statements
of Operations for the years ended December 31, 2004, 2005
and
2006
|
|
|
F-227
|
|
Statements
of Shareholder’s (Deficit)/Equity for the years ended December 31, 2004,
2005 and 2006
|
|
|
F-228
|
|
Statements
of Cash Flows for the years ended December 31, 2004, 2005
and
2006
|
|
|
F-229
|
|
Notes
to Financial Statements for the years ended December 31,
2004, 2005 and
2006
|
|
|
F-230
- F-242
|
|
Unaudited
Condensed Balance Sheets as of December 31, 2006 and September
30,
2007
|
|
|
F-243
|
|
Unaudited
Condensed Statements of Income for the nine-month periods
ended September
30, 2006 and 2007
|
|
|
F-244
|
|
Unaudited
Condensed Statements of Shareholder’s Equity for the nine-month periods
ended September 30, 2006 and 2007
|
|
|
F-245
|
|
Unaudited
Condensed Statements of Cash Flows for the nine-month periods
ended
September 30, 2006 and 2007
|
|
|
F-246
|
|
Notes
to the Unaudited Condensed Financial Statements for the nine-month
periods
ended September 30, 2006 and 2007
|
|
|
F-247
- F-255
|
|
|
|
|
|
|
Shinyo
Mariner Limited Financial Statements
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-256
|
|
Balance
Sheets as of December 31, 2005 and 2006
|
|
|
F-257
|
|
Statements
of Operations for the period from December 22, 2004 (date
of
incorporation) to December 31, 2004, and the years ended
December 31, 2005
and 2006
|
|
|
F-258
|
|
Statements
of Shareholder’s (Deficit)/Equity for the period from December 22, 2004
(date of incorporation) to December 31, 2004, and the years
ended December
31, 2005 and 2006
|
|
|
F-259
|
|
Statements
of Cash Flows for the period from December 22, 2004 (date
of
incorporation) to December 31, 2004, and the years ended
December 31, 2005
and 2006
|
|
|
F-260
|
|
Notes
to the Financial Statements for the period from December
22, 2004 (date of
incorporation) to December 31, 2004, and the years ended
December 31, 2005
and 2006
|
|
|
F-261
- F-273
|
|
Unaudited
Condensed Balance Sheets as of December 31, 2006 and September
30,
2007
|
|
|
F-274
|
|
Unaudited
Condensed Statements of Income for the nine-month periods
ended September
30, 2006 and 2007
|
|
|
F-275
|
|
Unaudited
Condensed Statements of Shareholder’s Equity for the nine-month periods
ended September 30, 2006 and 2007
|
|
|
F-276
|
|
Unaudited
Condensed Statements of Cash Flows for the nine-month periods
ended
September 30, 2006 and 2007
|
|
|
F-277
|
|
Notes
to the Unaudited Condensed Financial Statements for the nine-month
periods
ended September 30, 2006 and 2007
|
|
|
F-278
- 286
|
|
|
|
|
|
|
Shinyo
Sawako Limited Financial Statements
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-287
|
|
Balance
Sheet as of December 31, 2006
|
|
|
F-288
|
|
Statement
of Income for the period from March 2, 2006 (date of incorporation)
to
December 31, 2006
|
|
|
F-289
|
|
Statement
of Shareholder’s Equity for the period from March 2, 2006 (date of
incorporation) to December 31, 2006
|
|
|
F-290
|
|
Statement
of Cash Flows for the period from March 2, 2006 (date of
incorporation) to
December 31, 2006
|
|
|
F-291
|
|
Notes
to the Financial Statements for the period from March 2,
2006 (date of
incorporation) to December 31, 2006
|
|
|
F-292
- F-303
|
|
Unaudited
Condensed Balance Sheets as of December 31, 2006 and September
30,
2007
|
|
|
F-304
|
|
Unaudited
Condensed Statements of Income for the period from March
2, 2006 (date of
incorporation) to September 30, 2006 and nine-month period
ended September
30, 2007
|
|
|
F-305
|
|
Unaudited
Condensed Statements of Shareholder’s Equity for the period from March 2,
2006 (date of incorporation) to September 30, 2006 and nine-month
period
ended September 30, 2007
|
|
|
F-306
|
|
Unaudited
Condensed Statements of Cash Flows for the period from March
2, 2006 (date
of incorporation) to September 30, 2006 and nine-month period
ended
September 30, 2007
|
|
|
F-307
|
|
Notes
to the Unaudited Condensed Financial Statements for the period
from March
2, 2006 (date of incorporation) to September 30, 2006 and
nine-month
period ended September 30, 2007
|
|
|
F-308
- F-316
|
|
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Stockholders of
Energy
Infrastructure Acquisition Corp.
We
have
audited the accompanying balance sheets of Energy Infrastructure Acquisition
Corp. (a corporation in the development stage) as of December 31, 2006
and 2005,
and the related statements of operations, stockholders’ equity and cash flows
for the year ended December 31, 2006 and for the periods from August
11, 2005
(inception) to December 31, 2005 and August 11, 2005 (inception) to
December 31,
2006 (cumulative). These financial statements are the responsibility
of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public
Company
Accounting Oversight Board (United States). Those standards require
that we plan
and perform the audit to obtain reasonable assurance about whether
the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the
financial
statements. An audit also includes assessing the accounting principles
used and
significant estimates made by management, as well as evaluating the
overall
financial statement presentation. We believe that our audits provide
a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly,
in all
material respects, the financial position of Energy Infrastructure
Acquisition
Corp. as of December 31, 2006 and 2005 and the results of its operations
and its
cash flows for the year ended December 31, 2006 and for the periods
from August
11, 2005 (inception) to December 31, 2005 and August 11, 2005 (inception)
to
December 31, 2006 (cumulative), in conformity with United States generally
accepted accounting principles.
/s/
GOLDSTEIN GOLUB KESSLER
LLP
GOLDSTEIN
GOLUB KESSLER LLP
New
York,
New York
March
28,
2007
ENERGY
INFRASTRUCTURE ACQUISITION CORP.
(a
corporation in the development stage)
BALANCE
SHEETS
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
553,716
|
|
$
|
201,781
|
|
Money
market funds - held in trust
|
|
|
211,414,806
|
|
|
---
|
|
Prepaid
expenses
|
|
|
113,960
|
|
|
---
|
|
Attorney
trust account
|
|
|
---
|
|
|
25,000
|
|
Total
current assets
|
|
|
212,082,482
|
|
|
226,781
|
|
Deferred
offering costs
|
|
|
---
|
|
|
148,295
|
|
Total
assets
|
|
$
|
212,082,482
|
|
$
|
375,076
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
202,185
|
|
$
|
49,205
|
|
Accrued
offering costs and placement fees
|
|
|
2,722,739
|
|
|
---
|
|
Deferred
interest on funds held in trust
|
|
|
991,194
|
|
|
---
|
|
Accrued
interest payable to stockholder
|
|
|
58,649
|
|
|
2,750
|
|
Due
to stockholder
|
|
|
193,188
|
|
|
---
|
|
Note
payable to stockholder
|
|
|
---
|
|
|
300,000
|
|
Term
loan payable to stockholder
|
|
|
475,000
|
|
|
---
|
|
Convertible
loans payable to stockholder
|
|
|
2,685,000
|
|
|
---
|
|
Total
liabilities
|
|
|
7,327,955
|
|
|
351,955
|
|
|
|
|
|
|
|
|
|
Common
stock subject to possible redemption - 6,522,945 shares at
redemption
value
|
|
|
64,597,399
|
|
|
---
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Preferred
stock, $0.0001 par value; authorized - 1,000,000 shares;
issued -
none
|
|
|
---
|
|
|
---
|
|
Common
stock, $0.0001 par value; authorized - 89,000,000 shares;
issued and
outstanding - 27,221,747 shares, inclusive of 6,522,945 shares
subject to
possible redemption, at December 31, 2006, and 5,831,349
shares at
December 31, 2005
|
|
|
2,722
|
|
|
583
|
|
Paid-in
capital in excess of par
|
|
|
143,954,333
|
|
|
24,417
|
|
Deficit
accumulated during the development stage
|
|
|
(3,799,927
|
)
|
|
(1,879
|
)
|
Total
stockholders’ equity
|
|
|
140,157,128
|
|
|
23,121
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
212,082,482
|
|
$
|
375,076
|
|
See
accompanying notes to financial statements.
ENERGY
INFRASTRUCTURE ACQUISITION CORP.
(a
corporation in the development stage)
STATEMENTS
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
Year
Ended
December 31, 2006
|
|
Period
from
August
11, 2005
(Inception)
to
December
31,
2005
|
|
Period from
August 11,
2005
(Inception)
to
December 31,
2006 (Cumulative)
|
|
|
|
|
|
|
|
|
|
Operating
expenses, including stock-based compensation to management
of $5,334,679
for the year ended December 31, 2006, $-0- for the period
from August 11,
2005 (Inception) to December 31, 2005, and $5,334,679 for
the period from
August 11, 2005 (Inception) to December 31, 2006
(cumulative)
|
|
$
|
(5,924,945
|
)
|
$
|
(910
|
)
|
$
|
(5,925,855
|
)
|
Interest
income
|
|
|
2,182,796
|
|
|
1,781
|
|
|
2,184,577
|
|
Interest
expense - stockholder
|
|
|
(55,899
|
)
|
|
(2,750
|
)
|
|
(58,649
|
)
|
Net
loss
|
|
$
|
(3,798,048
|
)
|
$
|
(1,879
|
)
|
$
|
(3,799,927
|
)
|
Net
loss per common share - basic and diluted
|
|
$
|
(0.25
|
)
|
$
|
(0.00
|
)
|
$
|
(0.30
|
)
|
Weighted
average number of common shares outstanding - basic and
diluted
|
|
|
15,366,555
|
|
|
5,831,349
|
|
|
12,682,432
|
|
See
accompanying notes to financial statements.
ENERGY
INFRASTRUCTURE ACQUISITION CORP.
(a
corporation in the development stage)
STATEMENT
OF STOCKHOLDERS’ EQUITY
|
|
Common
Stock
|
|
Paid-in
Capital
in
Excess
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
of
Par
|
|
Stage
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
August 11, 2005 (Inception)
|
|
|
---
|
|
$
|
---
|
|
$
|
---
|
|
$
|
---
|
|
$
|
---
|
|
Sale
of shares to founding stockholders at $0.0043 per share
|
|
|
5,831,349
|
|
|
583
|
|
|
24,417
|
|
|
---
|
|
|
25,000
|
|
Net
loss for the period ended December 31, 2005
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
(1,879
|
)
|
|
(1,879
|
)
|
Balance,
December 31, 2005
|
|
|
5,831,349
|
|
|
583
|
|
|
24,417
|
|
|
(1,879
|
)
|
|
23,121
|
|
Shares
surrendered and cancelled
|
|
|
(562,500
|
)
|
|
(56
|
)
|
|
56
|
|
|
---
|
|
|
---
|
|
Shares
issued in private placement and public offering, net of offering
costs
|
|
|
21,750,398
|
|
|
2,175
|
|
|
203,192,600
|
|
|
---
|
|
|
203,194,775
|
|
Shares
issued to underwriter
|
|
|
202,500
|
|
|
20
|
|
|
(20
|
)
|
|
---
|
|
|
---
|
|
Shares
reclassified to “Common stock subject to possible
redemption”
|
|
|
---
|
|
|
---
|
|
|
(64,597,399
|
)
|
|
---
|
|
|
(64,597,399
|
)
|
Stock-based
compensation
|
|
|
---
|
|
|
---
|
|
|
5,334,679
|
|
|
---
|
|
|
5,334,679
|
|
Net
loss for the year
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
(3,798,048
|
)
|
|
(3,798,048
|
)
|
Balance,
December 31, 2006
|
|
|
27,221,747
|
|
$
|
2,722
|
|
$
|
143,954,333
|
|
$
|
(3,799,927
|
)
|
$
|
140,157,128
|
|
See
accompanying notes to financial statements
.
ENERGY
INFRASTRUCTURE ACQUISITION CORP.
(a
corporation in the development stage)
STATEMENTS
OF CASH FLOWS
|
|
Year
Ended
December
31, 2006
|
|
Period
from
August 11, 2005 (Inception) to
December 31,
2005
|
|
Period from
August 11,
2005 (Inception) to
December 31, 2006
(Cumulative)
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,798,048
|
)
|
$
|
(1,879
|
)
|
$
|
(3,799,927
|
)
|
Adjustments
to reconcile net loss to net cash provided by (used in)
operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
5,334,679
|
|
|
---
|
|
|
5,334,679
|
|
Interest
earned on funds held in trust
|
|
|
(3,164,806
|
)
|
|
---
|
|
|
(3,164,806
|
)
|
Increase
in -
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
(113,960
|
)
|
|
---
|
|
|
(113,960
|
)
|
Accounts
payable and accrued expenses
|
|
|
201,275
|
|
|
910
|
|
|
202,185
|
|
Deferred
interest on funds held in trust
|
|
|
991,194
|
|
|
---
|
|
|
991,194
|
|
Accrued
interest payable to stockholder
|
|
|
55,899
|
|
|
2,750
|
|
|
58,649
|
|
Net
cash provided by (used in) operating activities
|
|
|
(493,767
|
)
|
|
1,781
|
|
|
(491,986
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Payments
to trust account
|
|
|
(209,250,000
|
)
|
|
---
|
|
|
(209,250,000
|
)
|
Withdrawals
from trust account
|
|
|
1,000,000
|
|
|
---
|
|
|
1,000,000
|
|
Net
cash used in investing activities
|
|
|
(208,250,000
|
)
|
|
---
|
|
|
(208,250,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from initial sale of common stock
|
|
|
---
|
|
|
25,000
|
|
|
25,000
|
|
Gross
proceeds from private placement
|
|
|
8,253,980
|
|
|
---
|
|
|
8,253,980
|
|
Gross
proceeds from public offering
|
|
|
209,050,000
|
|
|
---
|
|
|
209,050,000
|
|
Payments
of offering costs
|
|
|
(11,286,466
|
)
|
|
(100,000
|
)
|
|
(11,386,466
|
)
|
Proceeds
from stockholder loans
|
|
|
3,160,000
|
|
|
300,000
|
|
|
3,460,000
|
|
Repayment
of stockholder loans
|
|
|
(300,000
|
)
|
|
---
|
|
|
(300,000
|
)
|
(Increase)
decrease in attorney trust account
|
|
|
25,000
|
|
|
(25,000
|
)
|
|
---
|
|
Advances
from stockholder, net
|
|
|
193,188
|
|
|
---
|
|
|
193,188
|
|
Net
cash provided by financing activities
|
|
|
209,095,702
|
|
|
200,000
|
|
|
209,295,702
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
351,935
|
|
|
201,781
|
|
|
553,716
|
|
Cash
at beginning of period
|
|
|
201,781
|
|
|
---
|
|
|
---
|
|
Cash
at end of period
|
|
$
|
553,716
|
|
$
|
201,781
|
|
$
|
553,716
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Non-cash
financing activity:
|
|
|
|
|
|
|
|
|
|
|
Increase
in accrued offering costs and placement fees, net
|
|
$
|
2,674,444
|
|
$
|
48,295
|
|
$
|
2,722,739
|
|
Cash
paid during the periods for:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
---
|
|
$
|
---
|
|
$
|
---
|
|
Income
taxes
|
|
$
|
---
|
|
$
|
---
|
|
$
|
---
|
|
See
accompanying notes to financial statements.
ENERGY
INFRASTRUCTURE ACQUISITION CORP.
(a
corporation in the development stage)
NOTES
TO
FINANCIAL STATEMENTS
December
31, 2006 and 2005
1.
Organization, Proposed Business Operations and Summary of Significant
Accounting Policies
Nature
of Operations
Energy
Infrastructure Acquisition Corp. (the “Company”) was incorporated in Delaware on
August 11, 2005 as a blank check company formed to acquire, through a
merger, capital stock exchange, asset acquisition or other similar
business
combination, one or more businesses in the energy or energy-related
industries.
At
December 31, 2006, the Company had not yet commenced any business
operations and is therefore considered a “corporation in the development stage”.
All activity through December 31, 2006 relates to the Company’s formation
and the public offering, as described below. The Company has selected
December 31 as its fiscal year-end.
The
Company’s ability to commence operations was contingent upon obtaining adequate
financial resources through a private placement in accordance with
Regulation S under the Securities Act of 1933, as amended (the “Private
Placement”), a public offering (the “Public Offering”, and together with the
Private Placement, the “Offerings”) and a loan from an off-shore company
controlled by the Company’s President and Chief Operating Officer, all of which
were completed by August 31, 2006. The Company’s management has broad discretion
with respect to the specific application of the net proceeds of the
Offerings,
although substantially all of the net proceeds of the Offerings are
intended to
be generally applied toward consummating a business combination with
an
operating company. As used herein, a “target business” shall include one or more
operating businesses that supports the process of bringing energy,
in the form
of crude oil, natural and liquefied petroleum gas, and refined and
specialized
products (such as petrochemicals), from production to final consumption
throughout the world, and a “business combination” shall mean the acquisition by
the Company of such a target business. There can be no assurances that
the
Company will be able to successfully effect a business combination.
On
July
21, 2006, the closing date of the Public Offering, $202,500,000 was
placed in a
trust account at Lehman Brothers’ Inc. maintained by Continental Stock Transfer
& Trust Company, New York, New York, as trustee (“Trust Account”). This
amount includes the net proceeds of the Offerings, a convertible loan
in the
principal amount of $2,550,000 made prior to the consummation of the
Public
Offering by Robert Ventures Limited, an off-shore company controlled
by the
Company’s President and Chief Operating Officer, a term loan in the principal
amount of $475,000 made prior to the consummation of the Public Offering
by the
Company’s President and Chief Operating Officer, $2,107,540 of contingent
underwriting compensation and placement fees (the “Discount”), to be paid to the
underwriters and Maxim Group LLC (“Maxim”), respectively, if and only if, a
business combination is consummated. The funds in the Trust Account
will be
invested until the earlier of (i) the consummation of the Company’s first
business combination or (ii) the liquidation of the Trust Account as
part of a
plan of dissolution and liquidation approved by the Company’s
stockholders.
In
addition to the contingent and/or deferred underwriting compensation
and
placement fees of $2,107,540 held in trust and described above, the
Company was
obligated to pay $412,699 in deferred placement fees to Maxim in connection
with
the Regulation S private placement and an additional underwriting fee of
$500,000 deferred until the consummation of a business combination.
Pursuant to
amendments to the Underwriting Agreement, the underwriters subsequently
agreed
to waive the Company’s obligation to pay the underwriters such additional
deferred compensation.
On
August
31, 2006, the underwriters of the Company’s public offering exercised their
option to purchase an additional 675,000 units to cover over-allotments.
An
additional $6,750,000 was placed in the Trust Account, bringing the
total amount
placed into the Trust Account to $209,250,000. This additional amount
includes
representing the net proceeds of the over-allotment of $6,615,000,
and an
additional convertible loan made to the Company by Robert Ventures
Limited of
$135,000. The Company incurred an underwriting fee of $337,500 relating
to this
exercise, of which $202,500 is deferred and contingent upon the consummation
of
a business combination.
During
the year ended December 31, 2006, the Company reimbursed certain of
its officers
and directors for travel and other expenses aggregating $286,102, which
were
recorded as offering costs.
The
Company will use substantially all of the net proceeds of this offering
to
acquire a target business, including identifying and evaluating prospective
acquisition candidates, selecting the target business, and structuring,
negotiating and consummating the business combination. To the extent
that the
Company’s capital stock is used in whole or in part as consideration to effect
a
business combination, the proceeds held in the Trust Account, as well
as any
other net proceeds not expended, will be used to finance the operations
of the
target business. Pursuant to an agreement with Maxim, the representative
of the
underwriters, approximately $3,430,000 of the interest earned on the
proceeds
being held in the Trust Account for the Company’s benefit (net of taxes payable)
will be released to the Company upon request, and in such intervals
and in such
amounts as desired and are available to fund the Company’s working capital.
Management believes that the working capital available, in addition
to the funds
available outside of the trust account will be sufficient to allow
the Company
to operate for at least the next 24 months, assuming that a business
combination
is not consummated during that time. Interest earned on the proceeds
held in
trust will also be allocated (i) to make quarterly interest payments
aggregating
approximately $215,000 on the $2,550,000 convertible loan and the $135,000
convertible loan and (ii) to repay the $475,000 term loan. Accrued
interest
shall also be applied to repay the principal of the convertible loan
on the
earlier of the Company’s dissolution and liquidation or a business combination
to the extent such loan has not been converted.
The
Company, after signing a definitive agreement for the acquisition of
a target
business, will submit such transaction for stockholder approval. In
the event
that public stockholders owning 30% or more of the outstanding stock
sold in the
Offerings vote against the business combination and elect to have the
Company
redeem their shares for cash, the business combination will not be
consummated.
All of the Company’s stockholders prior to the Offerings, including all of the
officers and directors of the Company (the “Initial Stockholders”), have agreed
to vote their 5,268,849 founding shares of common stock in accordance
with the
vote of the majority of shares purchased in the Offerings with respect
to any
business combination and to vote any shares they acquire in the Offerings,
or in
the aftermarket, in favor of the business combination. After consummation
of the
Company’s first business combination, all of these voting safeguards will no
longer be applicable.
With
respect to the first business combination that is approved and consummated,
any
holder of shares sold in the Public Offering (the “Public Stockholders”) who
votes against the business combination, may demand that the Company
redeem their
shares. The per share redemption price will equal $10.00 per share
(inclusive of
a pro rata portion of the Discount ($0.10 per share)) and interest
earned
thereon, subject to certain reductions. Accordingly, Public Stockholders
holding
29.99% of the aggregate number of shares sold in the Offerings may
seek
redemption of their shares in the event of a business combination.
The
Company’s Amended and Restated Certificate of Incorporation provides for
mandatory liquidation of the Company, without stockholder approval,
in the event
that the Company does not consummate a business combination within
18 months
from the date of the consummation of the Public Offering, or 24 months
from the
consummation of the Public Offering if certain extension criteria have
been
satisfied. An off-shore company controlled by the Company’s President and Chief
Operating Officer purchased an aggregate of 825,398 units in the Private
Placement, but has waived its right to liquidation distributions with
respect to
the shares of common stock included in such units. Accordingly, in
the event of
such a liquidation, the amount in the Trust Account will be distributed
to the
holders of the shares sold in the Public Offering.
Cash
Equivalents and Concentrations
The
Company considers all highly liquid investments with an original maturity
of
three months or less when purchased to be cash equivalents. Such cash
and cash
equivalents, at times, may exceed federally insured limits. The Company
maintains its accounts with financial institutions with high credit
ratings.
Income
Taxes
The
Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes”, which requires the
recognition of deferred tax assets and liabilities for the expected
impact of
differences between the financial statements and the tax basis of assets
and
liabilities.
For
federal income tax purposes, substantially all expenses, except for
interest and
taxes are deemed start-up and organization costs and must be deferred
until the
Company commences business operations at which time they may be written
off over
a 60-month period.
The
Company records a valuation allowance to reduce its deferred tax assets
to the
amount that is more likely than not to be realized. In the event the
Company was
to determine that it would be able to realize its deferred tax assets
in the
future in excess of its recorded amount, an adjustment to the deferred
tax
assets would be credited to operations in the period such determination
was
made. Likewise, should the Company determine that it would not be able
to
realize all or part of its deferred tax assets in the future, an adjustment
to
the deferred tax assets would be charged to operations in the period
such
determination was made.
For
federal income tax purposes, net operating losses can be carried forward
for a
period of 20 years until they are either utilized or until they
expire.
Stock-Based
Payments
In
December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No.
123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R"), a revision
to SFAS
No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123R superseded
APB
No. 25 and amended SFAS No. 95, "Statement of Cash Flows". Effective
January 1,
2006, SFAS No. 123R requires that the Company measure the cost of employee
services received in exchange for equity awards based on the grant
date fair
value of the awards, with the cost to be recognized as compensation
expense in
the Company’s financial statements over the vesting period of the
awards.
The
Company adopted SFAS No. 123R effective January 1, 2006, and is using
the
modified prospective method in which compensation cost is recognized
beginning
with the effective date (a) based on the requirements of SFAS No. 123R
for all
share-based payments granted after the effective date and (b) based
on the
requirements of SFAS No. 123R for all awards granted to employees prior
to the
effective date of SFAS No. 123R that remain unvested on the effective
date.
Accordingly,
the Company recognizes compensation cost for equity-based compensation
for all
new or modified grants issued after December 31, 2005. The Company
did not have
any modified grants during the year ended December 31, 2006.
In
addition, commencing January 1, 2006, the Company is required to recognize
the
unvested portion of the grant date fair value of awards issued prior
to the
adoption of SFAS No. 123R based on the fair values previously calculated
for
disclosure purposes over the remaining vesting period of the outstanding
stock
options and warrants. The Company did not have any unvested outstanding
stock
options and warrants at December 31, 2005.
Pro
forma
information regarding net income (loss) per share is required by SFAS
No. 123 as
if the Company had accounted for its employee stock options and warrants
under
the fair value method of such statement. However, during the period from
August 11 (Inception) to December 31, 2005, the Company had no stock
options or
warrants outstanding. Accordingly, no pro forma financial disclosure
has been
presented for the period from August 11, 2005 (Inception) to December
31,
2005.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157, “Fair Value Measurements” (“SFAS No. 157”), which establishes a formal
framework for measuring fair value under generally accepted accounting
principles. SFAS No. 157 defines and codifies the many definitions
of fair value
included among various other authoritative literature, clarifies and,
in some
instances, expands on the guidance for implementing fair value measurements,
and
increases the level of disclosure required for fair value measurements.
Although
SFAS No. 157 applies to and amends the provisions of existing FASB
and AICPA
pronouncements, it does not, of itself, require any new fair value
measurements,
nor does it establish valuation standards. SFAS No. 157 applies to
all other
accounting pronouncements requiring or permitting fair value measurements,
except for: SFAS No. 123R, share-based payment and related pronouncements,
the
practicability exceptions to fair value determinations allowed by various
other
authoritative pronouncements, and AICPA Statements of Position 97-2
and 98-9
that deal with software revenue recognition. SFAS No. 157 is effective
for
financial statements issued for fiscal years beginning after November
15, 2007,
and interim periods within those fiscal years. The Company is currently
assessing the potential effect of SFAS No. 157 on its financial
statements.
In
February 2007, the FASB issued Statement of Financial Accounting Standards
No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(“SFAS No. 159”), which provides companies with an option to report selected
financial assets and liabilities at fair value. SFAS No. 159’s objective
is to reduce both complexity in accounting for financial instruments
and the
volatility in earnings caused by measuring related assets and liabilities
differently. Generally accepted accounting principles have required
different
measurement attributes for different assets and liabilities that can
create
artificial volatility in earnings. SFAS No. 159 helps to mitigate this
type of
accounting-induced volatility by enabling companies to report related
assets and
liabilities at fair value, which would likely reduce the need for companies
to
comply with detailed rules for hedge accounting. SFAS No. 159 also
establishes
presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for
similar types
of assets and liabilities. SFAS No. 159 requires companies to provide
additional
information that will help investors and other users of financial statements
to
more easily understand the effect of the company’s choice to use fair value on
its earnings. SFAS No. 159 also requires companies to display the fair
value of
those assets and liabilities for which the company has chosen to use
fair value
on the face of the balance sheet. SFAS No. 159 does not eliminate
disclosure requirements included in other accounting standards, including
requirements for disclosures about fair value measurements included
in SFAS No.
157 and SFAS No. 107. SFAS No. 159 is effective as of the beginning
of a
company’s first fiscal year beginning after November 15, 2007. Early
adoption is permitted as of the beginning of the previous fiscal year
provided
that the company makes that choice in the first 120 days of that fiscal
year and
also elects to apply the provisions of SFAS No. 157. The Company is
currently
assessing the potential effect of SFAS No. 159 on its financial
statements.
Management
does not believe that any other recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect
on the
Company's financial statements.
Loss
per Common Share
Loss
per
common share is computed by dividing net loss by the weighted average
number of
shares of common stock outstanding during the respective periods. Basic
and
diluted loss per common share are the same for all periods presented
because all
warrants, stock options and convertible loans outstanding are
anti-dilutive.
Securities
entitling the holder thereof to
acquire
shares
of common stock that have been excluded from the calculation of diluted
loss per
share due to their anti-dilutive effect are as follows at December
31,
2006:
Warrants
|
|
|
21,750,398
|
|
Stock
options
|
|
|
3,585,000
|
|
Convertible
loans
|
|
|
537,000
|
|
Total
|
|
|
25,872,398
|
|
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management
to make
estimates and assumptions that affect the reported amounts of assets
and
liabilities at the date of the financial statements and the reported
amounts of
expenses during the reporting period. Actual results could differ from
those
estimates.
Fair
Value of Financial Instruments
The
carrying amounts of cash, money market funds, prepaid expenses, accounts
payable, accrued expenses, notes, loans and amounts due to
stockholder approximate their respective fair values due to the short-term
nature of these items and/or the current interest rates payable in
relation to
current market conditions.
2.
Private Placement and Public Offering
Private
Placement
On
January 2, 2006, George Sagredos, the Company’s President and Chief Operating
Officer, entered into a binding firm commitment subscription agreement
to
purchase 825,398 units of the Company at $10.00 per unit pursuant to
Regulation
S under the Securities Act of 1933, as amended. In June 2006, Mr. Sagredos
assigned such subscription agreement to Energy Corp., an off-shore
Company that
he controls, to purchase such securities on the same terms. On July
17, 2006,
the subscription of $8,253,980 was funded.
Public
Offering
On
July
21, 2006, the Company, pursuant to its Public Offering, sold 20,250,000
units at
a price of $10.00 per unit. Each unit consists of one share of the
Company’s
common stock, $0.0001 par value, and one redeemable common stock purchase
warrant (“warrant”). Each warrant entitles the holder to purchase from the
Company one share of common stock at an exercise price of $8.00 commencing
on
the later of the completion of a business combination with a target
business or
July 17, 2007, one year from the effective date of the Public Offering,
and
expires on July 17, 2010, four years from the date of the prospectus.
The
warrants will be redeemable at a price of $0.01 per warrant upon 30
days’ notice
after the warrants become exercisable, only in the event that the last
sale
price of the common stock is at least $14.25 per share for any 20 trading
days
within a 30 trading day period ending on the third day prior to the
date on
which a notice of redemption is given.
On
August
31, 2006, the underwriters of the Public Offering exercised their option
to
purchase an additional 675,000 units to cover over-allotments.
The
common stock and warrants included in the units began to trade separately
on
October 4, 2006, and trading in the units ceased on such date.
The
Company will use its best efforts to cause a registration statement
to become
effective on or prior to the commencement of the warrant exercise period
and to
maintain the effectiveness of such registration statement until the
expiration
of the warrants. If the Company is unable to maintain the effectiveness
of such
registration statement until the expiration of the warrants, and therefore
is
unable to deliver registered shares, the warrants may become
worthless.
3.
Money Market Funds - Held in Trust
Money
market funds - held in trust at December 31, 2006 consist of Lehman
Brothers
Municipal Money Fund Tax Free Money Fund of $70,671,722, including
accrued
interest of $206,244, and Money Market Obligations Trust Tax Free Obligations
of
$140,743,084, including accrued interest of $410,958, with coupon rates
of
3.675% and 3.679%, respectively, at December 31, 2006.
4.
Notes and Advances Payable to Stockholder
On
October 6, 2005, the Company issued an unsecured promissory note for
$300,000 to
George Sagredos, the Company’s President and Chief Operating Officer. The note
bore interest at the rate of 4% per annum and was payable on the earlier
of the
consummation of the Public Offering or October 6, 2006. The principal
balance of
the note was repaid on July 21, 2006 from the proceeds of the Private
Placement
and Public Offering.
On
July
17, 2006, Robert Ventures Limited, an off-shore company controlled
by
Mr. Sagredos, loaned $2,550,000 to the Company in the form of a convertible
note. Such loan bears interest at a per annum rate equivalent to the
per annum
interest rate applied to funds held in the Trust Account during the
quarterly
period covered by such interest payment (average 3.445% during the
year ended
December 31, 2006). The Company is obligated to make quarterly interest
payments
on such loan following the expiration of the first full quarter after
the date
that it has drawn down at least $1,000,000 from accrued interest on
the Trust
Account to fund its working capital requirements. During the quarter
ended
December 31, 2006, the Company had met this requirement. Accordingly,
the
Company will commence making quarterly interest payments effective
April 1,
2007. Principal on the loan is due the earlier of the Company’s liquidation or
the consummation of a business combination. The holder of the loan
has the
option to convert all of the principal of such indebtedness into units
that are
identical to the units offered in the Public Offering, at a conversion
price of
$10.00 a unit, commencing 2 days following the date the Company files
a
preliminary proxy statement with respect to a proposed business combination.
In
the event that the holder of the convertible loan elects to convert
the full
amount of the loan, it will receive 255,000 units which, upon separation
of the
units would result in the holder having an additional 255,000 shares
of common
stock and 255,000 warrants.
On
August
31, 2006, in connection with the underwriters' exercise of their option
to
purchase an additional 675,000 units to cover over-allotments, Roberts
Ventures
Limited loaned an additional $135,000 to the Company in the form of
a
convertible loan under the same terms and conditions as described above.
In the
event that the holder of the additional convertible loan elects to
convert the
full amount of the loan, it will receive an additional 13,500 units
which, upon
separation of the units would result in the holder having an additional
13,500
shares of common stock and 13,500 warrants.
On
July
17, 2006, Mr. Sagredos also loaned $475,000 to the Company. Such loan bears
interest at a per annum interest rate equivalent to the per annum interest
rate
applied to the funds held in the Trust Account during the same period
that such
loan is outstanding (average 3.445% during the year ended December
31, 2006).
The Company is obligated to repay the principal and accrued interest
on such
loan following the earlier of (i) the expiration of the second full
quarter
after the date that it has drawn down at least $1,000,000 from accrued
interest
on the Trust Account to fund its working capital requirements, (ii)
the
consummation of a business combination by the Company, or (iii) the
Company’s
dissolution and liquidation. . During the quarter ended December 31,
2006, the
Company had met this requirement. Accordingly, the Company will be
required to
repay the principal and accrued interest of this loan on July 1,
2007.
In
addition to the above, the Company is also indebted to Mr. Sagredos
for
non-interest bearing advances totaling $193,188 as of December 31,
2006.
5.
Common Stock
The
Company is authorized to issue 89,000,000 shares of common stock. On
December
30, 2005, the Company issued 3,956,349 shares of common stock to its
founders.
As of April 21, 2006, the Company effected a 0.4739219-for-1 stock
dividend,
which resulted in the issuance of an additional 1,875,000 shares to
its
founders. The Company’s financial statements give retroactive effect to such
stock dividend.
On
July
18, 2006, certain of the Company’s stockholders surrendered for cancellation an
aggregate 562,500 shares of common stock in order to maintain the percentage
ownership of its stockholders prior to the Public Offering.
On
July
18, 2006, the Company agreed to issue to Maxim, as representative of
the
underwriters, 202,500 shares of its common stock to be deposited into
escrow,
subject to forfeiture, and released to the representative only upon
consummation
of a business combination.
On
July
18, 2006, the founders agreed to surrender, without consideration,
up to an
aggregate of 270,000 of their shares of common stock to the Company
for
cancellation upon consummation of a business combination in the event
Public
Stockholders exercise their right to have the Company redeem their
shares for
cash. Accordingly, for every 23 shares redeemed by Public Stockholders,
the
founders have agreed to surrender one share for cancellation.
6.
Preferred Stock
The
Company is authorized to issue 1,000,000 shares of preferred stock
with such
designations, voting and other rights and preferences, as may be determined
from
time to time by the Board of Directors.
7.
Stock Options
On
July
18, 2006, the Company rescinded all prior agreements to grant stock
options to
each of Messrs. Sagredos and Theotokis. Such agreements were to be
effective on
the closing date of the Public Offering (see Note 2). Also on July
18, 2006, the
Company authorized the grant to Mr. Sagredos on the closing date of
the Public
Offering, of an option to purchase an aggregate of 2,688,750 shares
of common
stock, at an exercise price of $0.01 per share, with the option exercisable
in
four quarterly installments of 672,187 options on each of the first
three
quarterly installment dates and 672,189 options on the fourth quarterly
installment date, with the first installment vesting on the date of
expiration
of the three-month period immediately following the consummation of
a business
combination, and with the vesting of such options contingent upon Mr.
Sagredos
being an officer of the Company on each respective vesting date. The
Company
also approved the grant to Mr. Theotokis on the closing date of the
Public
Offering, an option to purchase an aggregate of 896,250 shares of Common
Stock,
at an exercise price of $0.01 per share, with such option exercisable
in four
quarterly installments of 224,062 options on each of the first three
quarterly
installment dates and 224,064 options on the fourth quarterly installment
date,
with the first installment vesting on the date of expiration of the
three-month
period immediately following the consummation of a business combination,
subject
to Mr. Theotokis being an officer the Company on each respective vesting
date.
The options granted to Messrs. Sagredos and Theotokis are exerciseable
for a
term of five years after the vesting date.
Because
the grant of the options is deemed to be stock-based compensation,
commencing on
the date of grant (which occurred at the closing of the Public Offering),
pursuant to SFAS No. 123R, the Company is required to record a charge
to
earnings in an amount equal to the fair value of such options, which
the Company
has estimated using the Black-Scholes option-pricing model, to be an
aggregate
of approximately $34,920,000. In valuing the options, the Company did
not
consider it necessary to evaluate possible variations in volatility,
since, due
to the large spread between the strike price and the fair value of
the
underlying stock, the Black-Scholes formula yields a value capped at
the fair
value of the underlying share. In accounting for the options, the Company
considers the consummation of a business combination to be a performance
condition that is expected to be met. As a result of including the
two-year
period that the Company has to effect a business combination and the
one-year
vesting period of the options, the Company expects that the charge
to earnings
with respect to each quarterly installment will be amortized over a
maximum
period of 36 months, which is the implicit service period. Accordingly,
on an
aggregate basis, assuming the 36 month amortization period following
the closing
of the Public Offering, as a result of the grant of such options, the
Company
will charge approximately $2,910,000 to earnings during each fiscal
quarter as
follows:
Years
Ended
December
31,
|
|
Amount
|
|
|
|
|
|
2007
|
|
$
|
11,640,000
|
|
2008
|
|
|
11,640,000
|
|
2009
|
|
|
6,310,000
|
|
|
|
$
|
29,590,000
|
|
In
the
event that the Company consummates a business combination in less than
two years
from the closing date of the Public Offering, the above amortization
schedule
would be accelerated and the Company therefore would record an increased
charge
to operations through such date based on the revised estimate of the
implicit
service period.
A
summary
of stock option activity for the year ended December 31, 2006 is shown
below.
|
|
Number
of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
|
|
|
|
|
|
|
|
Options
outstanding at December 31, 2005
|
|
|
---
|
|
$
|
---
|
|
|
---
|
|
Granted
|
|
|
3,585,000
|
|
|
0.01
|
|
|
---
|
|
Exercised
|
|
|
---
|
|
|
---
|
|
|
---
|
|
Cancelled
|
|
|
---
|
|
|
---
|
|
|
---
|
|
Options
outstanding at December 31, 2006
|
|
|
3,585,000
|
|
$
|
0.01
|
|
|
4.96
|
|
Options
exercisable at December 31, 2006
|
|
|
---
|
|
$
|
---
|
|
|
---
|
|
The
aggregate intrinsic value of stock options outstanding at December
31, 2006 was
$33,842,400.
8.
Income Taxes
Deferred
income taxes reflect the net tax effects of temporary differences between
the
carrying amounts of assets and liabilities for financial reporting
purposes and
the amounts used for income tax purposes. Significant components of
the
Company's deferred tax assets as of December 31, 2006 and 2005 are as
follows:
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Start-up
and organization costs
|
|
$
|
144,000
|
|
$
|
---
|
|
Interest
expense to related party
|
|
|
20,000
|
|
|
---
|
|
Net
operating loss carryforwards
|
|
|
54,000
|
|
|
1,000
|
|
Total
deferred tax assets
|
|
|
218,000
|
|
|
1,000
|
|
Valuation
allowance
|
|
|
(218,000
|
)
|
|
(1,000
|
)
|
Net
deferred tax assets
|
|
$
|
---
|
|
$
|
---
|
|
No
federal tax provision has been provided for the periods ended December 31,
2006 and 2005 due to the losses incurred to date. The reconciliation
between the
income tax rate computed by applying the U.S. federal statutory rate
and the
effective rate for the periods ended December 31, 2006 and 2005 is
as
follows:
|
|
Periods
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
U.S.
federal statutory tax rate
|
|
|
(34.0
|
%)
|
|
(34.0
|
%)
|
Tax-exempt
interest income
|
|
|
(19.5
|
%)
|
|
---
|
|
Non-deductible
stock-based compensation
|
|
|
47.8
|
%
|
|
---
|
|
Change
in valuation allowance
|
|
|
5.7
|
%
|
|
34.0
|
%
|
Effective
tax rate
|
|
|
0.0
|
%
|
|
0.0
|
%
|
At
December 31, 2006, the Company has available net operating loss carryforwards
for federal income tax purposes of approximately $158,000 which, if
not utilized
earlier, expire beginning in 2026.
9.
Commitments and Contingencies
The
Company will not proceed with a business combination if Public Stockholders
owning 30% or more of the shares sold in the Private Placement and
Public
Offering vote against the business combination and exercise their redemption
rights. Accordingly, the Company may effect a business combination
if Public
Stockholders owning up to approximately 29.99% of the aggregate shares
sold in
the Private Placement and Public Offering exercise their redemption
rights. If
this occurred, the Company would be required to redeem for cash up
to
approximately 29.99% of the 21,750,398 shares of common stock included
in the
units, or 6,522,945 shares of common stock, at an expected initial
per-share
redemption price of $10.00, plus a pro rata share of the accrued interest
earned
on the trust account (net of (i) taxes payable on interest earned,
(ii) up to
$3,430,111 of interest income released to the Company to fund its working
capital, (iii) payment of quarterly interest payments on the convertible
loan
and repayment of the convertible loan upon the earlier to occur of
the Company’s
dissolution and liquidation or a business combination, if not converted,
and
(iv) repayment of the term loan, plus accrued interest), including
a pro rata
share of the accrued interest earned on the underwriters’ contingent
compensation. However, the ability of stockholders to receive $10.00
per unit is
subject to any valid claims by the Company’s creditors which are not covered by
amounts held in the trust account or the indemnities provided by the
Company’s
officers and directors. The expected redemption price per share is
greater than
each stockholder’s initial pro rata share of the trust account of approximately
$9.90. Of the excess redemption price, approximately $0.10 per share
represents
a portion of the underwriters’ contingent fee, which they have agreed to forego
for each share that is redeemed. Accordingly, the total contingent
underwriting
compensation payable to the underwriters in the event of a business
combination
will be reduced by approximately $0.10 for each share that is redeemed.
The
balance will be paid from proceeds held in the trust account, which
are payable
to the Company upon consummation of a business combination. In order
to
partially offset the resulting dilution to non-redeeming stockholders,
management has agreed to surrender shares to the Company (at an assumed
value of
$10.00 per share) for cancellation, up to a maximum of 270,000 shares.
Even if
less than 30% of the stockholders exercise their redemption rights,
the Company
may be unable to consummate a business combination if such redemption
leaves the
Company with funds representing less than a fair market value at least
equal to
80% of the amount in the trust account (excluding any funds held for
the benefit
of the underwriters and Maxim ) at the time of such acquisition, which
amount is
required as a condition to the consummation of the Company’s initial business
combination, and the Company may be forced to find additional financing
to
consummate such a business combination, consummate a different business
combination or liquidate.
On
July
24, 2006, the Company entered into a two-year agreement for investor
relations
and financial media support services for a minimum monthly fee of $3,500
before
a business combination, or $6,500 after a business combination.
The
Company has engaged Maxim, the representative of the underwriters of
its Public
Offering, on a non-exclusive basis, as its agent for the solicitation
of the
exercise of the warrants. To the extent not inconsistent with the guidelines
of
the NASD and the rules and regulations of the Securities and Exchange
Commission, the Company has agreed to pay the representative for bona
fide
services rendered a commission equal to 5% of the exercise price for
each
warrant exercised more than one year after the date of the prospectus
if the
exercise was solicited by the underwriters. In addition to soliciting,
either
orally or in writing, the exercise of the warrants, the representative’s
services may also include disseminating information, either orally
or in
writing, to warrant holders about the Company or the market for the
Company’s
securities, and assisting in the processing of the exercise of the
warrants. No
compensation will be paid to the representative upon the exercise of
the
warrants if:
---
the
market price of the underlying shares of common stock is lower than
the exercise
price;
---
the
holder of the warrants has not confirmed in writing that the representative
solicited the exercise;
---
the
warrants are held in a discretionary account;
---
the
warrants are exercised in an unsolicited transaction; or
---
the
arrangement to pay the commission is not disclosed in the prospectus
provided to
warrant holders at the time of exercise.
As
of
October 1, 2006, the Company terminated its Administrative Services
Agreement
with an unaffiliated third party, in connection with which the Company
paid
$7,500 per month commencing July 21, 2006, the closing date of the
Public
Offering, for office space and general and administrative expenses,
and entered
into a Consulting Agreement with the same party providing for the same
monthly
fee of $7,500, for a term concluding on the consummation of a business
combination.
In
October 2006, the Company contracted for the use of administrative
services,
including shared facilities and personnel, for a term of one year at
a minimum
annual cost of $10,000.
On
November 17, 2006, the Company entered into an agreement for assistance
in
identifying, assessing and evaluating from all aspects potential targets
leading
to a business combination. The agreement expires on May 31, 2007 and
calls for
four monthly payments, starting December 2006, of $40,000, plus a fifth
and
final payment of $25,000.
On
December 18, 2006, the Company executed an agreement with Maxim for
professional
services to be rendered in connection with the acquisition of a target
company.
The agreement terminates on July 18, 2008 and requires the Company
to pay Maxim
a financial advisor fee equal to 0.75%, not to exceed $2,750,000, of
the total
consideration, as defined in the agreement, paid in such acquisition,
plus a
finder’s fee equal to 0.5% of the consideration for any target introduced
to the
Company.
10.
Quarterly Results of Operations (Unaudited)
The
following table sets forth unaudited quarterly results of operations
for the
years ended December 31, 2006 and 2005. This unaudited quarterly information
has
been derived from the Company’s unaudited financial statements and, in the
Company’s opinion, includes all adjustments, including normal recurring
adjustments, necessary for a fair presentation of the information for
the
periods covered. The operating results for any quarter are not necessarily
indicative of the operating results for any future period.
|
|
Three
Months Ended
|
|
Year
Ended
|
|
|
|
March
31,
2006
|
|
June
30,
2006
|
|
September
30,
2006
|
|
December
31,
2006
|
|
December
31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
$
|
(2,250
|
)
|
$
|
(10,837
|
)
|
$
|
(2,617,413
|
)
|
$
|
(3,294,445
|
)
|
$
|
(5,924,945
|
)
|
Interest
income
|
|
|
1,049
|
|
|
17
|
|
|
934,874
|
|
|
1,246,856
|
|
|
2,182,796
|
|
Interest
expense - stockholder
|
|
|
(2,959
|
)
|
|
(2.992
|
)
|
|
(22,291
|
)
|
|
(27,657
|
)
|
|
(55,899
|
)
|
Net
loss
|
|
$
|
(4,160
|
)
|
$
|
(13,812
|
)
|
$
|
(1,704,830
|
)
|
$
|
(2,075,246
|
)
|
$
|
(3,798,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share - basic and diluted
|
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
(0.08
|
)
|
$
|
(0.08
|
)
|
$
|
(0.25
|
)
|
Weighted
average number of common shares outstanding - basic and
diluted
|
|
|
5,831,349
|
|
|
5,831,349
|
|
|
22,270,845
|
|
|
27,221,747
|
|
|
15,366,555
|
|
|
|
Period
from
August
11, 2005
(inception)
to September 30,
2005
|
|
Three
Months
Ended
December
31,
2005
|
|
Period
from
August
11, 2005
(inception)
to December 31,
2005
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
$
|
(910
|
)
|
$
|
---
|
|
$
|
(910
|
)
|
Interest
income
|
|
|
---
|
|
|
1,781
|
|
|
1,781
|
|
Interest
expense - stockholder
|
|
|
---
|
|
|
(2,750
|
)
|
|
(2,750
|
)
|
Net
loss
|
|
$
|
(910
|
)
|
$
|
(969
|
)
|
$
|
(1,879
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share - basic and diluted
|
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
Weighted
average number of common shares outstanding - basic and
diluted
|
|
|
5,831,349
|
|
|
5,831,349
|
|
|
5,831,349
|
|
ENERGY
INFRASTRUCTURE ACQUISITION CORP.
(a
corporation in the development stage)
CONDENSED
BALANCE SHEETS
|
|
September
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
|
|
$
|
59,201
|
|
$
|
553,716
|
|
Money
market funds - held in trust
|
|
|
215,529,086
|
|
|
211,414,806
|
|
Prepaid
expenses
|
|
|
122,667
|
|
|
113,960
|
|
Total
assets
|
|
$
|
215,710,954
|
|
$
|
212,082,482
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
486,378
|
|
$
|
202,185
|
|
Accrued
offering costs and placement fees
|
|
|
2,413,215
|
|
|
2,722,739
|
|
Deferred
interest on funds held in trust
|
|
|
592,918
|
|
|
991,194
|
|
Accrued
interest payable to stockholder
|
|
|
17,583
|
|
|
58,649
|
|
Due
to stockholder
|
|
|
—
|
|
|
193,188
|
|
Term
loan payable to stockholder
|
|
|
—
|
|
|
475,000
|
|
Convertible
loans payable to stockholder
|
|
|
2,685,000
|
|
|
2,685,000
|
|
Total
liabilities
|
|
|
6,195,094
|
|
|
7,327,955
|
|
|
|
|
|
|
|
|
|
Common
stock subject to possible redemption - 6,522,945
shares at redemption
value
|
|
|
64,597,399
|
|
|
64,597,399
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Preferred
stock, $0.0001 par value; authorized - 1,000,000
shares; issued -
none
|
|
|
—
|
|
|
—
|
|
Common
stock, $0.0001 par value; authorized - 89,000,000
shares; issued and
outstanding - 27,221,747 shares, inclusive of
6,522,945 shares subject to
possible redemption
|
|
|
2,722
|
|
|
2,722
|
|
Paid-in
capital in excess of par
|
|
|
152,683,808
|
|
|
143,954,333
|
|
Deficit
accumulated during the development stage
|
|
|
(7,768,069
|
)
|
|
(3,799,927
|
)
|
Total
stockholders’ equity
|
|
|
144,918,461
|
|
|
140,157,128
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
215,710,954
|
|
$
|
212,082,482
|
|
See
accompanying notes to condensed financial statements.
ENERGY
INFRASTRUCTURE ACQUISITION CORP.
(a
corporation in the development stage)
CONDENSED
STATEMENTS OF OPERATIONS (Unaudited)
|
|
Three
Months Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
Period from
August 11,
2005
(Inception)
to
September
30,
2007
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
(Cumulative)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses, including stock-based compensation
to management of $2,909,825
and $2,424,854 for the three months ended September
30, 2007 and 2006,
$8,729,475 and $2,424,854 for the nine months
ended September 30, 2007 and
2006, respectively, and $14,064,154 for the period
from August 11, 2005
(inception) to September 30, 2007 (cumulative)
|
|
$
|
(3,257,857
|
)
|
$
|
(2,617,413
|
)
|
$
|
(9,903,261
|
)
|
$
|
(2,630,499
|
)
|
$
|
(15,829,116
|
)
|
Interest
income
|
|
|
1,338,928
|
|
|
934,874
|
|
|
3,914,062
|
|
|
935,940
|
|
|
6,098,639
|
|
Interest
expense - stockholder
|
|
|
(24,736
|
)
|
|
(22,291
|
)
|
|
(78,856
|
)
|
|
(28,243
|
)
|
|
(137,505
|
)
|
Net
loss before adjustment to deferred interest on
funds
held in trust
|
|
|
(1,943,665
|
)
|
|
(1,701,830
|
)
|
|
(6,068,055
|
)
|
|
(1,722,802
|
)
|
|
(9,867,982
|
)
|
Adjustment
to deferred interest on funds held in trust
(Note
10)
|
|
|
2,099,913
|
|
|
—
|
|
|
2,099,913
|
|
|
—
|
|
|
2,099,913
|
|
Net
income (loss)
|
|
$
|
156,248
|
|
$
|
(1,704,830
|
)
|
$
|
(3,968,142
|
)
|
$
|
(1,722,802
|
)
|
$
|
(7,768,069
|
)
|
Net
income (loss) per common share - basic and diluted
|
|
$
|
0.00
|
|
$
|
(0.08
|
)
|
$
|
(0.15
|
)
|
$
|
(0.15
|
)
|
$
|
(0.44
|
)
|
Weighted
average number of common shares outstanding -
basic and
diluted
|
|
|
27,221,747
|
|
|
22,270,845
|
|
|
27,221,747
|
|
|
11,371,399
|
|
|
17,764,677
|
|
See
accompanying notes to condensed financial statements.
ENERGY
INFRASTRUCTURE ACQUISITION CORP.
(a
corporation in the development stage)
CONDENSED
STATEMENT OF STOCKHOLDERS’ EQUITY
|
|
Common
Stock
|
|
Paid-in
Capital
in
Excess
|
|
Deficit
Accumulated
During
the
Development
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
Amount
|
|
of
Par
|
|
Stage
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
August 11, 2005 (Inception)
|
|
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Sale
of shares to founding stockholders at $0.0043 per
share
|
|
|
5,831,349
|
|
|
583
|
|
|
24,417
|
|
|
—
|
|
|
25,000
|
|
Net
loss for the period ended December 31, 2005
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,879
|
)
|
|
(1,879
|
)
|
Balance,
December 31, 2005
|
|
|
5,831,349
|
|
|
583
|
|
|
24,417
|
|
|
(1,879
|
)
|
|
23,121
|
|
Shares
surrendered and cancelled
|
|
|
(562,500
|
)
|
|
(56
|
)
|
|
56
|
|
|
—
|
|
|
—
|
|
Shares
issued in private placement and public offering,
net of offering
costs
|
|
|
21,750,398
|
|
|
2,175
|
|
|
203,192,600
|
|
|
—
|
|
|
203,194,775
|
|
Shares
issued to underwriter
|
|
|
202,500
|
|
|
20
|
|
|
(20
|
)
|
|
—
|
|
|
—
|
|
Shares
reclassified to “Common stock subject to possible
redemption”
|
|
|
—
|
|
|
—
|
|
|
(64,597,399
|
)
|
|
—
|
|
|
(64,597,399
|
)
|
Stock-based
compensation
|
|
|
—
|
|
|
—
|
|
|
5,334,679
|
|
|
—
|
|
|
5,334,679
|
|
Net
loss for the year
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,798,048
|
)
|
|
(3,798,048
|
)
|
Balance,
December 31, 2006
|
|
|
27,221,747
|
|
|
2,722
|
|
|
143,954,333
|
|
|
(3,799,927
|
)
|
|
140,157,128
|
|
Unaudited:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
—
|
|
|
—
|
|
|
8,729,475
|
|
|
—
|
|
|
8,729,475
|
|
Net
loss for the nine months ended September 30, 2007
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,968,142
|
)
|
|
(3,968,142
|
)
|
Balance,
September 30, 2007
|
|
|
27,221,747
|
|
$
|
2,722
|
|
$
|
152,683,808
|
|
$
|
(7,768,069
|
)
|
$
|
144,918,461
|
|
See
accompanying notes to condensed financial statements
.
ENERGY
INFRASTRUCTURE ACQUISITION CORP.
(a
corporation in the development stage)
CONDENSED
STATEMENTS OF CASH FLOWS (Unaudited)
|
|
Nine
Months Ended
September
30,
|
|
Period from
August 11,
2005 (Inception) to
September
30,
2007
|
|
|
|
2007
|
|
2006
|
|
(Cumulative)
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,968,142
|
)
|
$
|
(1,722,802
|
)
|
$
|
(7,768,069
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
8,729,475
|
|
|
2,424,854
|
|
|
14,064,154
|
|
Interest
earned on funds held in trust
|
|
|
(5,614,280
|
)
|
|
(1,361,667
|
)
|
|
(8,779,086
|
)
|
Adjustment
to deferred interest on funds held in trust
|
|
|
(2,099,913
|
)
|
|
—
|
|
|
(2,099,913
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
(Increase)
decrease in -
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
(8,707
|
)
|
|
(154,953
|
)
|
|
(122,667
|
)
|
Increase
(decrease) in -
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
284,193
|
|
|
151,186
|
|
|
486,378
|
|
Deferred
interest on funds held in trust
|
|
|
1,701,637
|
|
|
432,972
|
|
|
2,692,831
|
|
Accrued
interest payable to stockholder
|
|
|
(41,066
|
)
|
|
28,243
|
|
|
17,583
|
|
Net
cash used in operating activities
|
|
|
(1,016,803
|
)
|
|
(202,137
|
)
|
|
(1,508,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Payments
to trust account
|
|
|
—
|
|
|
(209,250,000
|
)
|
|
(209,250,000
|
)
|
Withdrawals
from trust account
|
|
|
1,500,000
|
|
|
400,000
|
|
|
2,500,000
|
|
Net
cash provided by (used in) investing activities
|
|
|
1,500,000
|
|
|
(208,850,000
|
)
|
|
(206,750,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from initial sale of common stock
|
|
|
—
|
|
|
—
|
|
|
25,000
|
|
Gross
proceeds from private placement
|
|
|
—
|
|
|
8,253,980
|
|
|
8,253,980
|
|
Gross
proceeds from public offering
|
|
|
—
|
|
|
209,050,000
|
|
|
209,050,000
|
|
Payments
of offering costs
|
|
|
(309,524
|
)
|
|
(11,263,804
|
)
|
|
(11,695,990
|
)
|
Proceeds
from stockholder loans
|
|
|
—
|
|
|
3,160,000
|
|
|
3,460,000
|
|
Repayment
of stockholder loans
|
|
|
(475,000
|
)
|
|
(300,000
|
)
|
|
(775,000
|
)
|
Advances
from stockholder, net
|
|
|
(193,188
|
)
|
|
218,188
|
|
|
—
|
|
Net
cash provided by (used in) financing activities
|
|
|
(977,712
|
)
|
|
209,118,364
|
|
|
208,317,990
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
(494,515
|
)
|
|
66,227
|
|
|
59,201
|
|
Cash
at beginning of period
|
|
|
553,716
|
|
|
201,781
|
|
|
—
|
|
Cash
at end of period
|
|
$
|
59,201
|
|
$
|
268,008
|
|
$
|
59,201
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Non-cash
financing activity:
|
|
|
|
|
|
|
|
|
|
|
Increase
in accrued offering costs and placement fees, net
|
|
$
|
—
|
|
$
|
2,770,239
|
|
$
|
2,516,390
|
|
Cash
paid during the periods for:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
119,922
|
|
$
|
—
|
|
$
|
119,922
|
|
Income
taxes
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
See
accompanying notes to condensed financial statements.
ENERGY
INFRASTRUCTURE ACQUISITION CORP.
(a
corporation in the development stage)
NOTES
TO
CONDENSED FINANCIAL STATEMENTS (Unaudited)
September
30, 2007
1.
Basis of Presentation
The
financial statements of Energy Infrastructure Acquisition Corp.
(the “Company”)
at September 30, 2007, for the three months and nine months ended
September 30,
2007 and 2006, and for the period from August 11, 2005 (inception)
to September
30, 2007 (cumulative), are unaudited. In the opinion of management,
all
adjustments (including normal recurring adjustments) have been
made that are
necessary to present fairly the financial position of the Company
as of
September 30, 2007, the results of its operations for the three
months and nine
months ended September 30, 2007 and 2006, and for the period
from August 11,
2005 (inception) to September 30, 2007 (cumulative), and its
cash flows for the
nine months ended September 30, 2007 and 2006, and for the period
from August
11, 2005 (inception) to September 30, 2007 (cumulative). Operating
results for
the interim periods presented are not necessarily indicative
of the results to
be expected for a full fiscal year. The condensed balance sheet
at December 31,
2006 has been derived from the audited financial statements.
The
statements and related notes have been prepared pursuant to the
rules and
regulations of the Securities and Exchange Commission. Accordingly,
certain
information and footnote disclosures normally included in financial
statements
prepared in accordance with generally accepted accounting principles
have been
omitted pursuant to such rules and regulations. These financial
statements
should be read in conjunction with the financial statements and
other
information included in the Company’s Annual Report on Form 10-K, as filed with
Securities and Exchange Commission on March 30, 2007.
2.
Organization and Proposed Business Operations
The
Company was incorporated in Delaware on August 11, 2005 as a
blank check company
formed to acquire, through a merger, capital stock exchange,
asset acquisition
or other similar business combination, one or more businesses
in the energy or
energy-related industries.
At
September 30, 2007, the Company had not yet commenced any business
operations
and is therefore considered a “corporation in the development stage”. All
activity through September 30, 2007 relates to the Company’s formation and the
public offering, as described below. The Company has selected
December 31 as its
fiscal year-end.
The
Company’s ability to commence operations was contingent upon obtaining
adequate
financial resources through a private placement in accordance
with Regulation S
under the Securities Act of 1933, as amended (the “Private Placement”), a public
offering (the “Public Offering”, and together with the Private Placement, the
“Offerings”) and a loan from an off-shore company controlled by the Company’s
President and Chief Operating Officer, all of which were completed
by August 31,
2006. The Company’s management has broad discretion with respect to the specific
application of the net proceeds of the Offerings, although substantially
all of
the net proceeds of the Offerings are intended to be generally
applied toward
consummating a business combination with an operating company.
As used herein, a
“target business” shall include one or more operating businesses that supports
the process of bringing energy, in the form of crude oil, natural
and liquefied
petroleum gas, and refined and specialized products (such as
petrochemicals),
from production to final consumption throughout the world, and
a “business
combination” shall mean the acquisition by the Company of such a target
business. There can be no assurances that the Company will be
able to
successfully effect a business combination.
On
July
21, 2006, the closing date of the Public Offering, $202,500,000
was placed in a
trust account at Lehman Brothers Inc. maintained by Continental
Stock Transfer
& Trust Company, New York, New York, as trustee (“Trust Account”). This
amount includes the net proceeds of the Offerings, a convertible
loan in the
principal amount of $2,550,000 made prior to the consummation
of the Public
Offering by Robert Ventures Limited, an off-shore company controlled
by the
Company’s President and Chief Operating Officer, a term loan in the principal
amount of $475,000 made prior to the consummation of the Public
Offering by the
Company’s President and Chief Operating Officer, $2,107,540 of contingent
underwriting compensation and placement fees (the “Discount”), to be paid to the
underwriters and Maxim Group LLC (“Maxim”), respectively, if and only if, a
business combination is consummated. The funds in the Trust Account
will be
invested until the earlier of (i) the consummation of the Company’s first
business combination or (ii) the liquidation of the Trust Account
as part of a
plan of dissolution and liquidation approved by the Company’s
stockholders.
In
addition to the contingent and/or deferred underwriting compensation
and
placement fees of $2,107,540 held in trust as described above,
the Company was
obligated to pay $412,699 in deferred placement fees to Maxim
in connection with
the Regulation S private placement and an additional underwriting
fee of
$500,000 deferred until the consummation of a business combination.
Pursuant to
amendments to the Underwriting Agreement, the underwriters subsequently
agreed
to waive the Company’s obligation to pay the underwriters such additional
deferred underwriting fees of $500,000. On February 28, 2007,
June 4, 2007 and
September 5, 2007, the Company paid the first three of four quarterly
installments of $103,175 due on the deferred placement fees of
$412,699. At
September 30, 2007, the fourth and final installment of $103,174
was included in
accrued offering costs and placement fees.
On
August
31, 2006, the underwriters of the Company’s public offering exercised their
option to purchase an additional 675,000 units to cover over-allotments.
An
additional $6,750,000 was placed in the Trust Account, bringing
the total amount
placed into the Trust Account to $209,250,000. This additional
amount includes
the net proceeds of the over-allotment of $6,615,000, and an
additional
convertible loan made to the Company by Robert Ventures Limited
of $135,000. The
Company incurred an underwriting fee of $337,500 relating to
this exercise, of
which $202,500 is deferred and contingent upon the consummation
of a business
combination.
During
the year ended December 31, 2006, the Company reimbursed certain
of its officers
and directors for travel and other expenses aggregating $286,102,
which were
recorded as offering costs.
The
Company will use substantially all of the net proceeds to acquire
a target
business, including identifying and evaluating prospective acquisition
candidates, selecting the target business, and structuring, negotiating
and
consummating the business combination. To the extent that the
Company’s capital
stock is used in whole or in part as consideration to effect
a business
combination, the proceeds held in the Trust Account, as well
as any other net
proceeds not expended, will be used to finance the operations
of the target
business. Management believes that the working capital available,
in addition to
the funds available outside of the trust account, will be sufficient
to allow
the Company to either complete a business combination or to liquidate.
The
Company, after signing a definitive agreement for the acquisition
of a target
business, will submit such transaction for stockholder approval.
In the event
that public stockholders owning 30% or more of the outstanding
stock sold in the
Offerings vote against the business combination and elect to
have the Company
redeem their shares for cash, the business combination will not
be consummated.
All of the Company’s stockholders prior to the Offerings, including all of the
officers and directors of the Company (the “Initial Stockholders”), have agreed
to vote their 5,268,849 founding shares of common stock in accordance
with the
vote of the majority of shares purchased in the Offerings with
respect to any
business combination and to vote any shares they acquire in the
Offerings, or in
the aftermarket, in favor of the business combination. After
consummation of the
Company’s first business combination, all of these voting safeguards
will no
longer be applicable.
With
respect to the first business combination that is approved and
consummated, any
holder of shares sold in the Public Offering (the “Public Stockholders”) who
votes against the business combination, may demand that the Company
redeem their
shares. The per share redemption price will equal $10.00 per
share (inclusive of
a pro rata portion of the Discount ($0.10 per share)) and interest
earned
thereon, subject to certain reductions. Accordingly, Public Stockholders
holding
29.99% of the aggregate number of shares sold in the Offerings
may seek
redemption of their shares in the event of a business combination.
The
Company’s Amended and Restated Certificate of Incorporation provides
for
mandatory liquidation of the Company, without stockholder approval,
in the event
that the Company does not consummate a business combination within
18 months
from the date of the consummation of the Public Offering, or
24 months from the
consummation of the Public Offering if certain extension criteria
have been
satisfied. An off-shore company controlled by the Company’s President and Chief
Operating Officer purchased an aggregate of 825,398 units in
the Private
Placement, but has waived its right to liquidation distributions
with respect to
the shares of common stock included in such units. Accordingly,
in the event of
such a liquidation, the amount in the Trust Account will be distributed
to the
holders of the shares sold in the Public Offering.
3.
Summary of Significant Accounting Policies
Cash
Equivalents and Concentrations
The
Company considers all highly liquid investments with an original
maturity of
three months or less when purchased to be cash equivalents. Such
cash and cash
equivalents, at times, may exceed federally insured limits. The
Company
maintains its accounts with financial institutions with high
credit
ratings.
Income
Taxes
The
Company accounts for income taxes under Statement of Financial
Accounting
Standards No. 109, “Accounting for Income Taxes”, which requires the recognition
of deferred tax assets and liabilities for the expected impact
of differences
between the financial statements and the tax basis of assets
and
liabilities.
For
federal income tax purposes, substantially all expenses, except
for interest and
taxes, are deemed start-up and organization costs and must be
deferred until the
Company commences business operations, at which time they may
be written off
over a 60-month period.
The
Company records a valuation allowance to reduce its deferred
tax assets to the
amount that is more likely than not to be realized. In the event
the Company was
to determine that it would be able to realize its deferred tax
assets in the
future in excess of its recorded amount, an adjustment to the
deferred tax
assets would be credited to operations in the period such determination
was
made. Likewise, should the Company determine that it would not
be able to
realize all or part of its deferred tax assets in the future,
an adjustment to
the deferred tax assets would be charged to operations in the
period such
determination was made.
For
federal income tax purposes, net operating losses can be carried
forward for a
period of 20 years until they are either utilized or until they
expire.
Stock-Based
Compensation
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), a revision to SFAS
No. 123, “Accounting for Stock-Based Compensation”. SFAS No. 123R superseded APB
No. 25 and amended SFAS No. 95, “Statement of Cash Flows”. SFAS No. 123R
requires companies to measure the cost of employee services received
in exchange
for equity awards based on the grant date fair value of the awards,
with the
cost to be recognized as compensation expense in a company’s financial
statements over the period of benefit, which is generally the
vesting period of
the awards.
The
Company adopted SFAS No. 123R effective January 1, 2006, and
is using the
modified prospective method in which compensation cost is recognized
beginning
with the effective date (a) based on the requirements of SFAS
No. 123R for all
share-based payments granted after the effective date and (b)
based on the
requirements of SFAS No. 123R for all awards granted to employees
prior to the
effective date of SFAS No. 123R that remained unvested on the
effective
date.
Accordingly,
the Company recognizes compensation cost for equity-based compensation
for all
new or modified grants issued after December 31, 2005. The Company
did not have
any modified grants during 2006 or 2007.
In
addition, commencing January 1, 2006, the Company was required
to recognize the
unvested portion of the grant date fair value of awards issued
prior to the
adoption of SFAS No. 123R based on the fair values previously
calculated for
disclosure purposes over the remaining vesting period of the
outstanding stock
options and warrants. The Company did not have any unvested outstanding
stock
options and warrants at December 31, 2005.
Recent
Accounting Pronouncements
In
June
2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes—an
interpretation of FASB Statement No. 109” (“FIN 48”), which seeks to reduce the
diversity in practice associated with the accounting and reporting
for
uncertainty in income tax positions. FIN 48 prescribes a comprehensive
model for
the financial statement recognition, measurement, presentation
and disclosure of
uncertain tax positions taken or expected to be taken in an income
tax return.
FIN 48 presents a two-step process for evaluating a tax position.
The first step
is to determine whether it is more-likely-than-not that a tax
position will be
sustained upon examination, based on the technical merits of
the position. The
second step is to measure the benefit to be recorded from tax
positions that
meet the more-likely-than-not recognition threshold, by determining
the largest
amount of tax benefit that is greater than 50 percent likely
of being realized
upon ultimate settlement, and recognizing that amount in the
financial
statements. The Company adopted FIN 48 effective January 1, 2007.
The adoption
of FIN 48 did not have any impact on the Company’s financial statements. The
Company recognizes interest and penalties related to uncertain
tax positions in
income tax expense. The tax years 2005 and 2006 remain open to
examination by
the major taxing jurisdictions to which it is subject.
In
September 2006, the FASB issued Statement of Financial Accounting
Standards No.
157, “Fair Value Measurements” (“SFAS No. 157”), which establishes a formal
framework for measuring fair value under generally accepted accounting
principles. SFAS No. 157 defines and codifies the many definitions
of fair value
included among various other authoritative literature, clarifies
and, in some
instances, expands on the guidance for implementing fair value
measurements, and
increases the level of disclosure required for fair value measurements.
Although
SFAS No. 157 applies to and amends the provisions of existing
FASB and AICPA
pronouncements, it does not, of itself, require any new fair
value measurements,
nor does it establish valuation standards. SFAS No. 157 applies
to all other
accounting pronouncements requiring or permitting fair value
measurements,
except for: SFAS No. 123R, share-based payment and related pronouncements,
the
practicability exceptions to fair value determinations allowed
by various other
authoritative pronouncements, and AICPA Statements of Position
97-2 and 98-9
that deal with software revenue recognition. SFAS No. 157 is
effective for
financial statements issued for fiscal years beginning after
November 15, 2007,
and interim periods within those fiscal years. The Company is
currently
assessing the potential effect of SFAS No. 157 on its financial
statements.
In
February 2007, the FASB issued Statement of Financial Accounting
Standards No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(“SFAS No. 159”), which provides companies with an option to report selected
financial assets and liabilities at fair value. SFAS No. 159’s objective is to
reduce both complexity in accounting for financial instruments
and the
volatility in earnings caused by measuring related assets and
liabilities
differently. Generally accepted accounting principles have required
different
measurement attributes for different assets and liabilities that
can create
artificial volatility in earnings. SFAS No. 159 helps to mitigate
this type of
accounting-induced volatility by enabling companies to report
related assets and
liabilities at fair value, which would likely reduce the need
for companies to
comply with detailed rules for hedge accounting. SFAS No. 159
also establishes
presentation and disclosure requirements designed to facilitate
comparisons
between companies that choose different measurement attributes
for similar types
of assets and liabilities. SFAS No. 159 requires companies to
provide additional
information that will help investors and other users of financial
statements to
more easily understand the effect of the company’s choice to use fair value on
its earnings. SFAS No. 159 also requires companies to display
the fair value of
those assets and liabilities for which the company has chosen
to use fair value
on the face of the balance sheet. SFAS No. 159 does not eliminate
disclosure
requirements included in other accounting standards, including
requirements for
disclosures about fair value measurements included in SFAS No.
157 and SFAS No.
107. SFAS No. 159 is effective as of the beginning of a company’s first fiscal
year beginning after November 15, 2007. Early adoption is permitted
as of the
beginning of the previous fiscal year provided that the company
makes that
choice in the first 120 days of that fiscal year and also elects
to apply the
provisions of SFAS No. 157. The Company is currently assessing
the potential
effect of SFAS No. 159 on its financial statements.
Excluding
the foregoing, management does not believe that any other recently
issued, but
not yet effective, accounting standards, if currently adopted,
would have a
material effect on the Company’s financial statements.
Income
(Loss) per Common Share
Income
(loss) per common share (basic and diluted) is computed by dividing
net income
(loss) by the weighted average number of shares of common stock
outstanding
during the respective periods. The effect of outstanding warrants,
stock options
and convertible loans was either immaterial or anti-dilutive.
At
September 30, 2007 and December 31, 2006, the Company had the
following
securities entitling the holder thereof to acquire shares of
common stock as
follows:
Warrants
|
|
|
21,750,398
|
|
Stock
options
|
|
|
3,585,000
|
|
Convertible
loans
|
|
|
537,000
|
|
Total
|
|
|
25,872,398
|
|
Use
of Estimates
The
preparation of financial statements in conformity with accounting
principles
generally accepted in the United States of America requires management
to make
estimates and assumptions that affect the reported amounts of
assets and
liabilities at the date of the financial statements and the reported
amounts of
expenses during the reporting period. Actual results could differ
from those
estimates.
Fair
Value of Financial Instruments
The
carrying amounts of cash, money market funds, prepaid expenses,
accounts
payable, accrued expenses, notes, loans and amounts due to stockholder
approximate their respective fair values due to the short-term
nature of these
items and/or the current interest rates payable in relation to
current market
conditions.
4.
Private Placement and Public Offering
Private
Placement
On
January 2, 2006, George Sagredos, the Company’s President and Chief Operating
Officer, entered into a binding firm commitment subscription
agreement to
purchase 825,398 units of the Company at $10.00 per unit pursuant
to Regulation
S under the Securities Act of 1933, as amended. In June 2006,
Mr. Sagredos
assigned such subscription agreement to Energy Corp., an off-shore
Company that
he controls, to purchase such securities on the same terms. On
July 17, 2006,
the subscription of $8,253,980 was funded.
Public
Offering
On
July
21, 2006, the Company, pursuant to its Public Offering, sold
20,250,000 units at
a price of $10.00 per unit. Each unit consists of one share of
the Company’s
common stock, $0.0001 par value, and one redeemable common stock
purchase
warrant (“warrant”). Each warrant entitles the holder to purchase from the
Company one share of common stock at an exercise price of $8.00
commencing on
the later of the completion of a business combination with a
target business or
July 17, 2007, one year from the effective date of the Public
Offering, and
expires on July 17, 2010, four years from the date of the prospectus.
The
warrants will be redeemable at a price of $0.01 per warrant upon
30 days notice
after the warrants become exercisable, only in the event that
the last sale
price of the common stock is at least $14.25 per share for any
20 trading days
within a 30 trading day period ending on the third day prior
to the date on
which a notice of redemption is given.
On
August
31, 2006, the underwriters of the Public Offering exercised their
option to
purchase an additional 675,000 units to cover over-allotments.
The
common stock and warrants included in the units began to trade
separately on
October 4, 2006, and trading in the units ceased on such date.
The
Company will use its best efforts to cause a registration statement
to become
effective on or prior to the commencement of the warrant exercise
period and to
maintain the effectiveness of such registration statement until
the expiration
of the warrants. If the Company is unable to maintain the effectiveness
of such
registration statement until the expiration of the warrants,
and therefore is
unable to deliver registered shares, the warrants may become
worthless.
5.
Notes and Advances Payable to Stockholder
On
July
17, 2006, Robert Ventures Limited, an off-shore company controlled
by Mr.
Sagredos, loaned $2,550,000 to the Company in the form of a convertible
note.
Such loan bears interest at a per annum rate equivalent to the
per annum
interest rate applied to funds held in the Trust Account during
the quarterly
period covered by such interest payment (average 3.526% from
inception to
September 30, 2007). The Company is obligated to make quarterly
interest
payments on such loan following the expiration of the first full
quarter after
the date that it has drawn down at least $1,000,000 from accrued
interest on the
Trust Account to fund its working capital requirements. During
the quarter ended
December 31, 2006, the Company had met this requirement. Accordingly,
on March
12, 2007, the Company made its first quarterly interest payment
of interest
accrued on this loan through February 28, 2007. Principal on
the loan is due the
earlier of the Company’s liquidation or the consummation of a business
combination. The holder of the loan has the option to convert
all of the
principal of such indebtedness into units that are identical
to the units
offered in the Public Offering, at a conversion price of $10.00
a unit,
commencing two days following the date the Company files a preliminary
proxy
statement with respect to a proposed business combination. In
the event that the
holder of the convertible loan elects to convert the full amount
of the loan, it
will receive 255,000 units which, upon separation of the units
would result in
the holder having an additional 255,000 shares of common stock
and 255,000
warrants.
On
August
31, 2006, in connection with the underwriters’ exercise of their option to
purchase an additional 675,000 units to cover over-allotments,
Roberts Ventures
Limited loaned an additional $135,000 to the Company in the
form of a
convertible loan under the same terms and conditions as described
above. On
March 12, 2007, the Company made its first quarterly interest
payment of
interest accrued on this loan through February 28, 2007. In
the event that the
holder of the additional convertible loan elects to convert
the full amount of
the loan, it will receive an additional 13,500 units which,
upon separation of
the units, would result in the holder having an additional
13,500 shares of
common stock and 13,500 warrants.
On
July
17, 2006, Mr. Sagredos also loaned $475,000 to the Company.
Such loan bears
interest at a per annum interest rate equivalent to the per
annum interest rate
applied to the funds held in the Trust Account during the same
period that such
loan is outstanding (average 3.526% from inception to September
30, 2007). The
Company is obligated to repay the principal and accrued interest
on such loan
following the earlier of (i) the expiration of the second full
quarter after the
date that it has drawn down at least $1,000,000 from accrued
interest on the
Trust Account to fund its working capital requirements, (ii)
the consummation of
a business combination by the Company, or (iii) the Company’s dissolution and
liquidation. During the quarter ended December 31, 2006, the
Company had met
this requirement. Accordingly, the Company repaid the principal
of $475,000 and
accrued interest of $14,437 on this loan on June 4, 2007.
In
addition to the above, the Company was indebted to Mr. Sagredos
for non-interest
bearing advances totaling $193,188 as of December 31, 2006.
On May 7, 2007, such
non-interest bearing advances were repaid in full.
6.
Common Stock
The
Company is authorized to issue 89,000,000 shares of common
stock. On December
30, 2005, the Company issued 3,956,349 shares of common stock
to its founders.
As of April 21, 2006, the Company effected a 0.4739219-for-1
stock dividend,
which resulted in the issuance of an additional 1,875,000 shares
to its
founders. The Company’s financial statements give retroactive effect to such
stock dividend.
On
July
18, 2006, certain of the Company’s stockholders surrendered for cancellation an
aggregate 562,500 shares of common stock in order to maintain
the percentage
ownership of its stockholders prior to the Public Offering.
On
July
18, 2006, the Company agreed to issue to Maxim, as representative
of the
underwriters, 202,500 shares of its common stock to be deposited
into escrow,
subject to forfeiture, and released to the representative only
upon consummation
of a business combination.
On
July
18, 2006, the founders agreed to surrender, without consideration,
up to an
aggregate of 270,000 of their shares of common stock to the
Company for
cancellation upon consummation of a business combination in
the event Public
Stockholders exercise their right to have the Company redeem
their shares for
cash. Accordingly, for every 23 shares redeemed by Public Stockholders,
the
founders have agreed to surrender one share for cancellation.
7.
Preferred Stock
The
Company is authorized to issue 1,000,000 shares of preferred
stock with such
designations, voting and other rights and preferences, as may
be determined from
time to time by the Board of Directors.
8.
Stock Options
On
July
18, 2006, the Company rescinded all prior agreements to grant
stock options to
Mr. Sagredos and to Mr. Theotokis. Such agreements were to be
effective on the
closing date of the Public Offering. Also on July 18, 2006, the
Company
authorized the grant to Mr. Sagredos on the closing date of the
Public Offering
of an option to purchase an aggregate of 2,688,750 shares of
common stock at an
exercise price of $0.01 per share, with the option exercisable
in four quarterly
installments of 672,187 options on each of the first three quarterly
installment
dates and 672,189 options on the fourth quarterly installment
date, with the
first installment vesting on the date of expiration of the three-month
period
immediately following the consummation of a business combination,
and with the
vesting of such options contingent upon Mr. Sagredos being an
officer of the
Company on each respective vesting date. The Company also approved
the grant to
Mr. Theotokis on the closing date of the Public Offering of an
option to
purchase an aggregate of 896,250 shares of Common Stock at an
exercise price of
$0.01 per share, with such option exercisable in four quarterly
installments of
224,062 options on each of the first three quarterly installment
dates and
224,064 options on the fourth quarterly installment date, with
the first
installment vesting on the date of expiration of the three-month
period
immediately following the consummation of a business combination,
subject to Mr.
Theotokis being an officer the Company on each respective vesting
date. The
options granted to Mr. Sagredos and to Mr. Theotokis are exercisable
for a term
of five years after the vesting date.
Because
the grant of the options is deemed to be stock-based compensation,
commencing on
the date of grant (which occurred at the closing of the Public
Offering),
pursuant to SFAS No. 123R, the Company is required to record
a charge to
operations in an amount equal to the fair value of such options,
which the
Company has estimated using the Black-Scholes option-pricing
model, to be an
aggregate of approximately $34,920,000. In valuing the options,
the Company did
not consider it necessary to evaluate possible variations in
volatility, since,
due to the large spread between the strike price and the fair
value of the
underlying stock, the Black-Scholes formula yields a value capped
at the fair
value of the underlying common share. In accounting for the options,
the Company
considers the consummation of a business combination to be a
performance
condition that is expected to be met. As a result of including
the two-year
period that the Company has to effect a business combination
and the one-year
vesting period of the options, the Company expects that the charge
to earnings
with respect to each quarterly installment will be amortized
over a maximum
period of 36 months, which is the implicit service period. Accordingly,
on an
aggregate basis, as a result of the grant of such options, the
Company will
recognize the remaining costs as follows, assuming the 36 month
amortization
period following the closing of the Public Offering:
Years
Ending December 31,
|
|
Amount
|
|
2007
(three months)
|
|
$
|
2,910,000
|
|
2008
|
|
|
11,640,000
|
|
2009
|
|
|
6,310,000
|
|
|
|
$
|
20,860,000
|
|
In
the
event that the Company consummates a business combination in
less than two years
from the closing date of the Public Offering, the above amortization
schedule
would be accelerated and the Company therefore would record an
increased charge
to operations through such date based on the revised estimate
of the implicit
service period.
The
aggregate intrinsic value of stock options outstanding at June
30, 2007 was
$35,204,700.
9.
Commitments and Contingencies
The
Company will not proceed with a business combination if Public
Stockholders
owning 30% or more of the shares sold in the Private Placement
and Public
Offering vote against the business combination and exercise
their redemption
rights. Accordingly, the Company may effect a business combination
if Public
Stockholders owning up to approximately 29.99% of the aggregate
shares sold in
the Private Placement and Public Offering exercise their redemption
rights. If
this occurred, the Company would be required to redeem for
cash up to
approximately 29.99% of the 21,750,398 shares of common stock
included in the
units, or 6,522,945 shares of common stock, at an expected
initial per-share
redemption price of $10.00, plus a pro rata share of the accrued
interest earned
on the trust account (net of (i) taxes payable on interest
earned, (ii) up to
$3,430,111 of interest income released to the Company to fund
its working
capital, (iii) payment of quarterly interest payments on the
convertible loan
and repayment of the convertible loan upon the earlier to occur
of the Company’s
dissolution and liquidation or a business combination, if not
converted, and
(iv) repayment of the term loan, plus accrued interest), including
a pro rata
share of the accrued interest earned on the underwriters’ contingent
compensation. However, the ability of stockholders to receive
$10.00 per unit is
subject to any valid claims by the Company’s creditors which are not covered by
amounts held in the trust account or the indemnities provided
by the Company’s
officers and directors. The expected redemption price per share
is greater than
each stockholder’s initial pro rata share of the trust account of approximately
$9.90. Of the excess redemption price, approximately $0.10
per share represents
a portion of the underwriters’ contingent fee, which they have agreed to forego
for each share that is redeemed. Accordingly, the total contingent
underwriting
compensation payable to the underwriters in the event of a
business combination
will be reduced by approximately $0.10 for each share that
is redeemed. The
balance will be paid from proceeds held in the trust account,
which are payable
to the Company upon consummation of a business combination.
In order to
partially offset the resulting dilution to non-redeeming stockholders,
management has agreed to surrender shares to the Company (at
an assumed value of
$10.00 per share) for cancellation, up to a maximum of 270,000
shares. Even if
less than 30% of the stockholders exercise their redemption
rights, the Company
may be unable to consummate a business combination if such
redemption leaves the
Company with funds representing less than a fair market value
at least equal to
80% of the amount in the trust account (excluding any funds
held for the benefit
of the underwriters and Maxim ) at the time of such acquisition,
which amount is
required as a condition to the consummation of the Company’s initial business
combination, and the Company may be forced to find additional
financing to
consummate such a business combination, consummate a different
business
combination or liquidate.
On
July
24, 2006, the Company entered into a two-year agreement for
investor relations
and financial media support services for a minimum monthly
fee of $3,500 before
a business combination, or $6,500 after a business combination.
The
Company has engaged Maxim, the representative of the underwriters
of its Public
Offering, on a non-exclusive basis, as its agent for the solicitation
of the
exercise of the warrants. To the extent not inconsistent with
the guidelines of
the NASD and the rules and regulations of the Securities and
Exchange
Commission, the Company has agreed to pay the representative
for bona fide
services rendered a commission equal to 5% of the exercise
price for each
warrant exercised more than one year after the date of the
prospectus if the
exercise was solicited by the underwriters. In addition to
soliciting, either
orally or in writing, the exercise of the warrants, the representative’s
services may also include disseminating information, either
orally or in
writing, to warrant holders about the Company or the market
for the Company’s
securities, and assisting in the processing of the exercise
of the warrants. No
compensation will be paid to the representative upon the exercise
of the
warrants if:
|
—
|
the
market price of the underlying shares of common stock
is lower than the
exercise price;
|
|
—
|
the
holder of the warrants has not confirmed in writing
that the
representative solicited the
exercise;
|
|
—
|
the
warrants are held in a discretionary
account;
|
|
—
|
the
warrants are exercised in an unsolicited transaction;
or
|
|
—
|
the
arrangement to pay the commission is not disclosed
in the prospectus
provided to warrant holders at the time of
exercise.
|
As
of
October 1, 2006, the Company terminated its Administrative
Services Agreement
with an unaffiliated third party, in connection with which
the Company paid
$7,500 per month commencing July 21, 2006, the closing date
of the Public
Offering, for office space and general and administrative expenses,
and entered
into a Consulting Agreement with the same party providing for
the same monthly
fee of $7,500, for a term concluding on the consummation of
a business
combination.
In
October 2006, the Company contracted with an unrelated party
for the use of
administrative services, including shared facilities and personnel,
for a term
of one year at a minimum cost of $10,000. This agreement automatically
renewed
in October 2007.
On
December 18, 2006, the Company entered into an agreement with
Maxim for
professional services to be rendered in connection with the
acquisition of a
target company. The agreement terminates on July 18, 2008 and
requires the
Company to pay Maxim a financial advisor fee equal to 0.75%,
not to exceed
$2,750,000, of the total consideration, as defined in the agreement,
paid in
such acquisition, plus a finder’s fee equal to 0.5% of the consideration for any
target introduced to the Company.
During
2007, the Company entered into various agreements for assistance
in identifying,
evaluating, negotiating and arranging funding for potential
acquisition
opportunities. Generally, the agreements are terminable upon
short notice by
either party and provide for a success fee of 1% of the transaction
value in the
event the adviser’s efforts lead to a successful business
combination.
10.
Adjustment
to Deferred Interest on Funds Held In Trust
During
the three months ended September 30, 2007, the Company determined
that interest
potentially distributable to redeeming stockholders for the
period from July 21,
2006 through June 30, 2007 was incorrectly calculated. The
Company had recorded
$2,119,280 of deferred interest on funds held in trust as a
liability payable to
stockholders who vote against a business combination. Based
on the Company’s
revised calculations, the deferred interest on funds held in
trust should have
been $19,367 at June 30, 2007. Accordingly, the Company recorded
a non-recurring
gain of $2,099,913 during the three months and nine months
ended September 30,
2007. At no time did this matter affect the funds held in the
trust account or
the rights of the Public Stockholders with respect to their
redemption
rights.
Report
of Independent Registered Public Accounting
Firm
The
Board
of Directors and Shareholder of
Shinyo
Alliance Limited:
We
have
audited the accompanying balance sheets of Shinyo Alliance Limited
(the
“Company”) as of December 31, 2005 and 2006, and the related statements of
income, shareholder’s equity, and cash flows for each of the years in the
three-year period ended December 31, 2006. These financial statements
are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public
Company
Accounting Oversight Board (United States). Those standards require
that we plan
and perform the audit to obtain reasonable assurance about whether
the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the
financial
statements. An audit also includes assessing the accounting principles
used and
significant estimates made by management, as well as evaluating the
overall
financial statement presentation. We believe that our audits provide
a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly,
in all
material respects, the financial position of Shinyo Alliance Limited
as of
December 31, 2005 and 2006, and the results of its operations and its
cash flows
for each of the years in the three-year period ended December 31, 2006,
in
conformity with U.S. generally accepted accounting principles.
/s/
KPMG
Hong
Kong, China
February
11, 2008
Balance
Sheets
as
of
December 31, 2005 and 2006
(expressed
in US$)
|
|
|
|
2005
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
938,873
|
|
|
2,886,785
|
|
Restricted
cash
|
|
|
|
|
|
447,636
|
|
|
483,594
|
|
Trade
accounts receivable
|
|
|
|
|
|
22,236
|
|
|
|
|
Prepayments
and other receivables
|
|
|
|
|
|
51,435
|
|
|
31,045
|
|
Supplies
|
|
|
|
|
|
14,072
|
|
|
88,842
|
|
Amounts
due from related parties
|
|
|
8(b)
|
|
|
1,111,250
|
|
|
1,077,814
|
|
Total
current assets
|
|
|
|
|
|
2,585,502
|
|
|
4,568,080
|
|
Restricted
cash
|
|
|
|
|
|
1,000,000
|
|
|
1,000,000
|
|
Loans
to related parties
|
|
|
8(b)
|
|
|
29,667,467
|
|
|
23,617,467
|
|
Deferred
loan costs
|
|
|
|
|
|
146,261
|
|
|
112,147
|
|
Vessel,
net
|
|
|
2
|
|
|
19,433,859
|
|
|
22,037,517
|
|
Total
assets
|
|
|
|
|
|
52,833,089
|
|
|
51,335,211
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term bank loans
|
|
|
3
|
|
|
5,500,000
|
|
|
6,000,000
|
|
Current
portion of loans from related parties
|
|
|
4,
8(b)
|
|
|
13,117,467
|
|
|
|
|
Amount
due to related party
|
|
|
8(b)
|
|
|
1,335,624
|
|
|
|
|
Accrued
liabilities and other payables
|
|
|
5
|
|
|
806,147
|
|
|
3,359,707
|
|
Total
current liabilities
|
|
|
|
|
|
20,759,238
|
|
|
9,359,707
|
|
Loans
from related parties
|
|
|
4,
8(b)
|
|
|
-
|
|
|
13,117,467
|
|
Long-term
bank loans
|
|
|
3
|
|
|
24,600,000
|
|
|
18,600,000
|
|
Total
liabilities
|
|
|
|
|
|
45,359,238
|
|
|
41,077,174
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s
equity
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares HK$1 par value per share 10,000 shares authorized;
100 shares
issued and fully paid as of December 31
|
|
|
|
|
|
13
|
|
|
13
|
|
Retained
earnings
|
|
|
|
|
|
7,473,838
|
|
|
10,258,024
|
|
Total
shareholder’s equity
|
|
|
|
|
|
7,473,851
|
|
|
10,258,037
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholder’s equity
|
|
|
|
|
|
52,833,089
|
|
|
51,335,211
|
|
See
accompanying notes to the financial statements.
Shinyo
Alliance Limited
Statements
of Income
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
|
|
Operating
revenue
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
6
|
|
|
6,634,775
|
|
|
9,399,061
|
|
|
7,579,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
7
|
|
|
1,760,741
|
|
|
1,840,584
|
|
|
2,204,854
|
|
Voyage
expenses
|
|
|
|
|
|
|
|
|
814,939
|
|
|
|
|
Depreciation
expenses
|
|
|
|
|
|
1,481,344
|
|
|
1,539,184
|
|
|
1,665,800
|
|
Write-off
of drydocking costs
|
|
|
|
|
|
|
|
|
|
|
|
24,789
|
|
Management
fee
|
|
|
8(a)
|
|
|
114,000
|
|
|
114,000
|
|
|
114,000
|
|
Commissions
|
|
|
|
|
|
165,869
|
|
|
211,202
|
|
|
25,194
|
|
Administrative
expenses
|
|
|
|
|
|
37,456
|
|
|
70,839
|
|
|
45,561
|
|
Total
operating expenses
|
|
|
|
|
|
3,559,410
|
|
|
4,590,748
|
|
|
4,080,198
|
|
Operating
income
|
|
|
|
|
|
3,075,365
|
|
|
4,808,313
|
|
|
3,499,344
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
99,256
|
|
|
1,047,621
|
|
|
2,030,299
|
|
Interest
expense
|
|
|
|
|
|
(1,030,709
|
)
|
|
(2,059,982
|
)
|
|
(2,742,532
|
)
|
Other,
net
|
|
|
|
|
|
(9,978
|
)
|
|
(1,982
|
)
|
|
(2,925
|
)
|
Total
other expense
|
|
|
|
|
|
(941,431
|
)
|
|
(1,014,343
|
)
|
|
(715,158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
|
|
|
2,133,934
|
|
|
3,793,970
|
|
|
2,784,186
|
|
Income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
2,133,934
|
|
|
3,793,970
|
|
|
2,784,186
|
|
(a)
Includes the following income/(expenses) resulting from
transactions with
related parties (see note 8(a)):
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
Vessel
operating expenses
|
|
|
|
|
|
|
|
|
|
-
Agency fee
|
|
(106,726
|
)
|
|
(115,880
|
)
|
|
(120,000
|
)
|
Management
fee
|
|
(114,000
|
)
|
|
(114,000
|
)
|
|
(114,000
|
)
|
Interest
income
|
|
70,549
|
|
|
989,167
|
|
|
1,877,177
|
|
Interest
expense
|
|
(664,598
|
)
|
|
(915,364
|
)
|
|
(1,039,469
|
)
|
See
accompanying notes to the financial statements.
Shinyo
Alliance Limited
Statements
of Shareholder’s Equity
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
|
|
Ordinary
shares
|
|
|
|
|
|
|
|
Number
of
shares
|
|
Amount
|
|
Retained
earnings
|
|
Total
shareholder’s
equity
|
|
Balance
as of January 1, 2004
|
|
|
100
|
|
|
13
|
|
|
1,545,934
|
|
|
1,545,947
|
|
Net
income
|
|
|
|
|
|
|
|
|
2,133,934
|
|
|
2,133,934
|
|
Balance
as of December 31, 2004
|
|
|
100
|
|
|
13
|
|
|
3,679,868
|
|
|
3,679,881
|
|
Net
income
|
|
|
|
|
|
|
|
|
3,793,970
|
|
|
3,793,970
|
|
Balance
as of December 31, 2005
|
|
|
100
|
|
|
13
|
|
|
7,473,838
|
|
|
7,473,851
|
|
Net
income
|
|
|
|
|
|
|
|
|
2,784,186
|
|
|
2,784,186
|
|
Balance
as of December 31, 2006
|
|
|
100
|
|
|
13
|
|
|
10,258,024
|
|
|
10,258,037
|
|
See
accompanying notes to the financial statements.
Shinyo
Alliance
Limited
Statements
of Cash Flows
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
|
|
2004
|
|
2005
|
|
2006
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
income
|
|
|
2,133,934
|
|
|
3,793,970
|
|
|
2,784,186
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expenses
|
|
|
1,481,344
|
|
|
1,539,184
|
|
|
1,665,800
|
|
Write-off
of drydocking costs
|
|
|
|
|
|
|
|
|
24,789
|
|
Amortization
of deferred loan costs
|
|
|
22,354
|
|
|
34,703
|
|
|
34,114
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
|
|
|
(22,236
|
)
|
|
22,236
|
|
Prepayments
and other receivables
|
|
|
16,281
|
|
|
16,194
|
|
|
20,390
|
|
Supplies
|
|
|
32,518
|
|
|
3,973
|
|
|
(74,770
|
)
|
Amounts
due from related parties
|
|
|
(29,506
|
)
|
|
(925,622
|
)
|
|
33,436
|
|
Amounts
due to related party
|
|
|
|
|
|
915,364
|
|
|
(1,335,624
|
)
|
Accrued
liabilities and other payables
|
|
|
(373,587
|
)
|
|
345,755
|
|
|
82,723
|
|
Net
cash provided by operating activities
|
|
|
3,283,338
|
|
|
5,701,285
|
|
|
3,257,280
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditure on drydocking
|
|
|
(247,888
|
)
|
|
|
|
|
(1,823,410
|
)
|
Loans
made to related parties
|
|
|
(13,117,467
|
)
|
|
(16,550,000
|
)
|
|
(13,117,467
|
)
|
Collections
on loans made to related parties
|
|
|
|
|
|
|
|
|
19,167,467
|
|
Increase
in restricted cash
|
|
|
(520,721
|
)
|
|
(243,582
|
)
|
|
(35,958
|
)
|
Net
cash (used in)/provided by investing activities
|
|
|
(13,886,076
|
)
|
|
(16,793,582
|
)
|
|
4,190,632
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from long-term bank loans
|
|
|
19,000,000
|
|
|
32,700,000
|
|
|
-
|
|
Repayment
of long-term bank loans
|
|
|
(9,525,000
|
)
|
|
(21,050,000
|
)
|
|
(5,500,000
|
)
|
Payment
of loan costs
|
|
|
(65,000
|
)
|
|
(79,500
|
)
|
|
-
|
|
Net
cash provided by/(used in) financing activities
|
|
|
9,410,000
|
|
|
11,570,500
|
|
|
(5,500,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease)/increase in cash
|
|
|
(1,192,738
|
)
|
|
478,203
|
|
|
1,947,912
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
At
beginning of year
|
|
|
1,653,408
|
|
|
460,670
|
|
|
938,873
|
|
At
end of year
|
|
|
460,670
|
|
|
938,873
|
|
|
2,886,785
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
2004
|
|
2005
|
|
2006
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
Interest
|
|
|
854,112
|
|
|
1,097,201
|
|
|
4,062,129
|
|
Supplemental
Disclosure of Non-Cash Flow Financing Activities:
|
|
2004
|
|
2005
|
|
2006
|
|
Refinancing
of loans from related parties
|
|
|
–
|
|
|
|
|
|
13,117,467
|
|
See
accompanying notes to the financial statements.
Shinyo
Alliance
Limited
Notes
to
the Financial Statements
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting
Policies
|
|
(a)
|
Description
of Business
|
Shinyo
Alliance Limited (the “Company”), a company engaged in the business of ocean
transportation of crude oil worldwide, was established in Hong
Kong on August 3,
2001. The principal activity of Shinyo Alliance is the ownership
and chartering
of vessel “Shinyo Alliance”. Shinyo Alliance was delivered in 1991 and was a
second hand vessel acquired by the Company in May 2002. It is a
single-hulled
very large crude oil carrier with capacity of 248,034 deadweight
tonnage.
The
Company has outsourced substantially all its day-to-day operations
to its
related party, Belindtha Marine Limited (“Belindtha”), a company controlled by a
person related to a director of the Company. Belindtha then sub-contracted
its
obligations under the outsourcing arrangement to Univan Ship Management
Limited
(“Univan”) which assists Belindtha in providing technical management services
to
the Company. Univan is controlled by Captain Charles Arthur Joseph
Vanderperre,
a director of the Company. All expenses incurred by Univan on behalf
of the
Company are charged to the Company based on the actual expenditures
incurred on
its behalf. In addition, China Sea Maritime Ltd. (“China Sea”) and Shinyo
Maritime Corporation (“Shinyo Maritime”) provide administrative services to the
Company. China Sea and Shinyo Maritime are controlled by Captain
Charles Arthur
Joseph Vanderperre and Mr Fred Cheng, respectively, each a director
of the
Company.
From
July 28, 2002 to August 30, 2005, the Company
received time charter revenue pursuant to a time charter agreement
with Formosa
Petrochemical Corporation or Formosa, under which the Company was
paid a daily
charter rate of $16,600 between July 2002 and July 2004 and a daily
charger rate
of $21,000 from July 2004 up to August 2005 in both cases. From
August 31, 2005
to October 17, 2005, the vessel Shinyo Alliance operated in the
spot market. The
Company began receiving time charter revenue from October 17, 2005
pursuant to a
time charter agreement with Formosa, under which the Company was
paid a daily
charter rate of $29,800.
As
of
December 31, 2006, the Company had a working capital deficit of $4,791,627.
These financial statements have been prepared assuming that the Company
will
continue as a going concern as Vanship Holdings Limited, the immediate
holding
company, has confirmed its intention to provide continuing financial
support to
the Company so as to enable the Company to meet its liabilities as
and when they
fall due.
|
(c)
|
Basis
of Presentation
|
The
Company’s financial statements have been prepared in accordance with
U.S.
generally accepted accounting principles (“US GAAP”).
The
basis
of accounting differs in certain material respects from that used
in the
preparation of the statutory financial statements of the Company,
which are
prepared in accordance with the accounting principles of the country
of its
domicile. The accompanying financial statements reflect necessary
adjustments to
present them in conformity with US GAAP.
Cash
consists interest-bearing deposits placed with banks. As of December
31, 2005
and 2006, there were no cash equivalents.
Shinyo
Alliance
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
Restricted
cash represents minimum interest-bearing bank deposits which must
be maintained
in accordance with contractual bank loan arrangements over the bank
loan period.
|
(f)
|
Trade
Accounts Receivable
|
The
Company generally requires customers to pay in advance for time charter
hire.
Trade accounts receivable are recorded at the invoiced amount, do
not bear
interest and reflect billings to charterers for hire, freight and
demurrage.
The
Company maintains an allowance for doubtful accounts for estimated
losses
inherent in its trade accounts receivable portfolio. In establishing
the
required allowance, management considers historical losses, current
receivables
aging, and existing industry and national economic data.
The
Company’s customers are in the crude oil industry and are affected by demand
and
supply of crude oil worldwide. The Company has been able to collect
on all of
its receivable balances, and accordingly, the Company did not provide
for any
allowance for doubtful accounts at December 31, 2005 and 2006. The
Company does
not have any off-balance-sheet credit exposure related to its customers.
Supplies
consisting of lubricating oil are stated at cost. Cost is determined
on a
first-in, first-out method (FIFO).
A
vessel
is stated at cost, which consists of the contract price and delivery
costs.
Subsequent expenditures for conversions and major overhauls (“drydocking”) are
also capitalized when they extend the life, increase the earning
capacity or
improve the efficiency or safety of the vessel otherwise these amounts
are
charged to expense as incurred.
Depreciation
on the vessel is calculated based on the straight-line method over
the estimated
useful life of the vessel, after taking into account its estimated
residual
value, from date of acquisition. The vessel’s residual value is equal to the
product of its lightweight tonnage and estimated scrap rate. Management
estimates the useful life of the Company’s vessel to be 14 years from the date
of acquisition. The useful life of the vessel is evaluated on a regular
basis to
account for changes in circumstances, including changes in regulatory
restrictions. If regulations place limitations over the ability of
a vessel to
operate, its useful life is adjusted to end at the date such regulations
become
effective.
Shinyo
Alliance
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(h)
|
Vessel,
net (continued)
|
The
Company follows the deferral method of accounting for drydocking
whereby actual
costs incurred are capitalized and are depreciated on a straight-line
basis over
the period through the date the next drydocking becomes due. The
vessel of the
Company is required to have an intermediate drydocking approximately
every 30
months and a special survey drydocking approximately every 60 months.
Capitalized intermediate drydocking costs and special survey drydocking
costs
are depreciated over a period of 30 months and 60 months, respectively.
If the
anticipated date of drydocking is changed from the scheduled date,
the remaining
undepreciated carrying amount of the drydocking costs is adjusted
to reflect the
revised date.
A
vessel
is reviewed for impairment whenever events or changes in circumstances
indicate
that the carrying amount of a vessel may not be recoverable. Recoverability
of
the vessel is measured by a comparison of the carrying amount of
the vessel,
including capitalized drydocking costs, to the estimated undiscounted
future
cash flows expected to be generated by the vessel. If the carrying
amount of the
vessel exceeds its estimated future undiscounted cash flows, an impairment
charge will be recognized by the amount that the carrying amount
of the vessel
exceeds its estimated fair value.
In
the
normal course of business, the Company is subject to loss contingencies,
such as
legal proceedings and claims arising out of its business. An accrual
for a loss
contingency is recognized when it is probable that a liability will
be incurred
and the amount of the loss can be reasonably estimated.
|
(k)
|
Revenue
Recognition and Related
Expenses
|
The
Company generates its revenues from time and voyage charter agreements.
Revenues
are recognized when the collectibility has been reasonably assured.
Time charter
revenues are recorded over the term of the charter as the service
is provided.
The Company follows EITF 91-9 in accounting for voyage charter revenues
are
recognized based on the percentage of completion at the balance sheet
date. A
voyage is deemed to commence upon the completion of discharge of
the vessel’s
previous cargo and is deemed to end upon the completion of discharge
of the
current cargo. Voyage related and vessel operating costs are expensed
as
incurred.
Brokerage
and charter hire commissions paid to third parties are expensed in
the same
period as revenues are recognized.
Shinyo
Alliance
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
Fees
incurred for obtaining new loans are deferred and amortized to interest
expense
over the life of the related debt using the effective interest method.
The
Company follows EITF 96-19 in accounting for debt modification. A
modification
is considered substantial if the present value of the cash flows
under the terms
of new debt is at least 10 percent different from the present value
of the
remaining cash flows under the terms of the original debt at the
date of
modification. When the loan is repaid or when the loan is substantially
modified, the existing unamortized fees are written-off in the period
debt
repayment or substantial modification takes place. When the modification
is not
considered substantial, the fees associated with the modification
and, along
with the existing unamortized fees, are amortized over the remaining
term of the
modified loan using the effective interest method. There was no write-off
of
deferred loan costs during the years ended December 31, 2004, 2005
and 2006.
|
(n)
|
Foreign
Currency Transactions
|
The
Company’s functional and reporting currency is the United States (“US”) dollar
because the Company’s vessel operates in international shipping markets, where
most transactions are denominated in US dollar. Furthermore, the
Company incurs
bank debt, pays salaries and wages and certain other expenditures
such as fuel
costs, lubricants, insurance costs, all in US dollars.
Transactions
denominated in currencies other than US dollar are translated into
US dollars at
the exchange rates prevailing at the dates of transactions. Monetary
assets and
liabilities denominated in currencies other than US dollar are translated
at the
exchange rates prevailing at the balance sheet dates. During the
years ended
December 31, 2004, 2005 and 2006, substantially all of the Company’s
transactions were denominated in US dollars and the Company did not
have
significant foreign currency transaction gains or losses.
The
preparation of the financial statements requires management of the
Company to
make a number of estimates and assumptions relating to the reported
amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities
at the date of the financial statements and the reported amounts
of revenues and
expenses during the reporting period. Significant items subject to
such
estimates and assumptions include the estimated useful life of the
vessel
(including drydocking costs), residual value and recovery of the
carrying amount
of the vessel. Actual results could differ from those estimates.
|
(p)
|
Income
and Other Taxes
|
Under
the
laws of the countries of the Company’s incorporation and/or vessel’s
registration, the Company is not subject to tax on international
shipping
income. However, it is subject to registration and tonnage taxes,
which are
charged by the country of which the vessel is registered at a fixed
rate based
on the tonnage of the vessel. Registration and tonnage taxes have
been included
in vessel operating expenses in the accompanying statements of income.
Shinyo
Alliance
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(p)
|
Income
and Other Taxes
(continued)
|
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement
109
(FIN
48).
FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in an
enterprise’s financial statements and prescribes a threshold of
more-likely-than-not for recognition of tax benefits of uncertain
tax positions
taken or expected to be taken in a tax return. FIN 48 also provides
related
guidance on measurement, derecognition, classification, interest
and penalties,
and disclosure. The provisions of FIN 48 will be effective for the
fiscal years
beginning after December 15, 2006, with any cumulative effect of
the change in
accounting principle recorded as an adjustment to opening retained
earnings.
Effective from January 1, 2007, the Company adopted the provision
of FIN 48. As
of the date of the adoption of FIN 48, the Company has no material
unrecognized
tax benefit which would favorably affect the effective income tax
rate in future
periods and do not believe there will be any significant increases
or decreases
within the next twelve months. The Company has elected to classify
interest and
penalties related to unrecognized tax benefits, if and when required,
as part of
income tax expenses in the statements of income. No interest or penalties
have
been accrued at the date of adoption.
According
to the Inland Revenue Ordinance of Hong Kong, the statute of
limitations is
seven years (i.e. calendar years 2002 to 2006 for the Company)
if the
underpayment of taxes is due to omission or errors made by either
the taxpayer
or the withholding agent. The statute of limitations will be
extended to ten
years (i.e. calendar years 2002 to 2006 for the Company) in case
of tax evasion.
According
to the Internal Revenue Code of the United States of America,
the statute of
limitations is three years (i.e. calendar years 2004 to 2006
for the Company) if
the underpayment of taxes is due to omission or errors made by
either the
taxpayer or withholding agent. There is no statute of limitations
in the case of
tax evasion.
|
(q)
|
Recently
Issued Accounting
Standards
|
In
September 2006, the FASB issued FASB Statement No. 157,
Fair
Value Measurement
(Statement
157). Statement 157 defines fair value, establishes a framework for
the
measurement of fair value measures already required or permitted
by other
standards for fiscal years beginning after November 15, 2007. The
Company is
required to adopt Statement 157 for the fiscal years beginning on
January 1,
2008. Statement 157 is required to be applied prospectively, except
for certain
financial instruments. Any transition adjustment will be recognized
as an
adjustment to opening retained earnings in the year of adoption.
The Company
does not anticipate that the adoption of Statement 157 will have
a material
impact on its results of operations and financial position.
In
September 2006, the FASB issued FASB Staff Position No. AUG AIR-1,
Accounting
for Planned Major Maintenance Activities
(AUG
AIR-1). This guidance prohibits the use of the accrue-in-advance
method of
accounting for planned major maintenance activities because an obligation
has
not occurred and therefore a liability should not be recognized.
The provisions
of this guidance will be effective for fiscal years beginning after
December 15,
2006. Effective from January 1, 2007, the Company adopted the provision
of AUG
AIR-1. The Company follows the deferral method of accounting for
drydocking. As
of the date of adoption of AUG AIR-1, the Company has no accruals
for planned
drydocking which require to be adjusted retrospectively.
Shinyo
Alliance
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(q)
|
Recently
Issued Accounting Standards
(continued)
|
In
February 2007, the FASB issued FASB Statement No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities
- Including an
Amendment of FASB Statement No. 115
(Statement
159)
.
Statement
159 permits an entity to elect fair value as the initial and subsequent
measurement attribute for many financial assets and liabilities.
Entities
electing the fair value option would be required to recognize changes
in fair
value in earnings. Entities electing the fair value option are
required to
distinguish, on the face of the balance sheet, the fair value of
assets and
liabilities for which the fair value option has been elected and
similar assets
and liabilities measured using another measurement attribute. Statement
159 will
be effective for fiscal years beginning after November 15, 2007.
The adjustment
to reflect the difference between the fair value and the carrying
amount would
be accounted for as a cumulative-effect adjustment to retained
earnings as of
the date of initial adoption. The Company does not anticipate that
the adoption
of the provisions of Statement 159 will have a material impact
on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 160,
Noncontrolling
Interests in Consolidated Financial Statements - an Amendment of
ARB No. 51
(Statement
160). Statement 160 establishes accounting and reporting standards
for the
noncontrolling interest in a subsidiary and for the deconsolidation
of a
subsidiary. Statement 160 will be effective for the fiscal year beginning
after
December 15, 2008. The Company does not anticipate that the adoption
of the
provisions of Statement 160 will have a material impact on its results
of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 141 (Revised),
Business
Combinations
(Statement
141(R)). Statement 141(R) establishes principles and requirements
for how the
acquirer of a business recognizes and measures in its financial statements
the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree. Statement 141(R) also provides guidance
for
recognizing and measuring the goodwill acquired in the business combination
and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. Statement 141(R) will be effective for fiscal years
beginning after
December 15, 2008. The Company does not anticipate the adoption of
the
provisions of Statement 141(R) will have a material impact on its
results of
operations and financial position.
|
|
2005
|
|
2006
|
|
Vessel
|
|
|
|
|
|
Cost
|
|
|
24,797,888
|
|
|
28,844,247
|
|
Accumulated
depreciation
|
|
|
(5,364,029
|
)
|
|
(6,806,730
|
)
|
Vessel,
net
|
|
|
19,433,859
|
|
|
22,037,517
|
|
The
vessel is mortgaged as described in Note 3.
Shinyo
Alliance
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(2)
|
Vessel,
net (continued)
|
Drydocking
costs of $247,888 and $4,294,247 were capitalized for the years ended
December
31, 2004 and 2006, respectively. As of December 31, 2005 and 2006,
undepreciated
carrying amount of the drydocking costs was $107,418 and $4,151,105,
respectively.
For
the
years ended December 31, 2004, 2005 and 2006, $41,315, $99,155 and
$225,771 of
drydocking costs were expensed as depreciation, respectively. The
undepreciated
carrying amount of the drydocking costs incurred in 2004 of $24,789
was written
off during the year ended December 31, 2006 as the drydocking in
2006 was
performed prior to the scheduled date.
Lender/period
|
|
|
|
2005
|
|
2006
|
|
DVB
Group Merchant Bank (Asia) Ltd
|
|
|
|
|
|
|
|
July
14, 2005 to May 15, 2010
|
|
|
LIBOR+1.15
%
|
|
|
|
|
|
|
|
|
|
|
to
|
|
|
|
|
|
|
|
|
|
|
LIBOR+1.50%
|
|
|
30,100,000
|
|
|
24,600,000
|
|
|
|
|
|
|
|
30,100,000
|
|
|
24,600,000
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
|
|
|
5,500,000
|
|
|
6,000,000
|
|
Non-current
portion
|
|
|
|
|
|
24,600,000
|
|
|
18,600,000
|
|
|
|
|
|
|
|
30,100,000
|
|
|
24,600,000
|
|
In
2002,
a loan of $12,275,000 was obtained from DVB Group Merchant Bank (Asia)
Ltd. This
loan carried interest at LIBOR plus 1.50% per annum and was repayable
in
eighteen quarterly installments of $550,000 each and a balloon payment
of
$2,375,000. The interest expense for the year ended December 31,
2004 was
$218,887.
On
November 15, 2004, the Company refinanced the above loan arrangement
and repaid
the existing loan and obtained a new loan of $19,000,000. The loan
is repayable
by a first installment of $550,000 payable on November 15, 2004,
followed by
four quarterly installments of $825,000 each, further eight quarterly
installments of $625,000 each and a balloon payment of $10,150,000.
Interest is
charged at LIBOR plus 1.50% per annum (4.00% as of December 31, 2004).
The
interest expense for the years ended December 31, 2004 and 2005 was
$124,870 and
$500,167, respectively.
On
July
14, 2005, the Company refinanced the loan arrangement of November
15, 2004 and
repaid the existing loan and obtained a new loan of $32,700,000.
The loan is
repayable in four quarterly installments of $1,300,000 each, followed
by four
quarterly installments of $1,450,000 each, another four quarterly
installments
of $1,550,000 each, further four quarterly installments of $1,625,000
each, and
last four quarterly installments of $1,675,000 each and a balloon
payment of
$2,300,000. Interest is charged at LIBOR plus 1.50% per annum and
interest rate
is subsequently changed to LIBOR plus 1.15% per annum since May 1,
2006 (5.64%
and 6.56% as of December 31, 2005 and 2006, respectively). The interest
expense
for the years ended December 31, 2005 and 2006 was $609,748 and $1,668,949,
respectively.
Shinyo
Alliance
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(3)
|
Long-term
Bank Loans (continued)
|
As
of
December 31, 2005 and 2006, bank loans are secured as follows:
|
|
2005
|
|
2006
|
|
Secured
by:
|
|
|
|
|
|
Restricted
cash
|
|
|
1,447,636
|
|
|
1,483,594
|
|
Vessel
|
|
|
19,433,859
|
|
|
22,037,517
|
|
The
bank
loans are also secured by a vessel owned by a related party, Shinyo
Kannika
Limited and guaranteed by its immediate holding company, Vanship
Holdings
Limited, as of December 31, 2005 and 2006.
The
principal repayments for each of the years subsequent to December
31, 2006 are
as follows:
Year
ending December 31,
|
|
|
|
2007
|
|
|
6,000,000
|
|
2008
|
|
|
6,350,000
|
|
2009
|
|
|
6,600,000
|
|
2010
|
|
|
5,650,000
|
|
|
|
|
24,600,000
|
|
(4)
|
Loans
from Related Parties
|
Loans
from related parties represent loans from Vanship Holdings Limited,
immediate
holding company of the Company. The terms of the loans are summarized
as
follows:
Loan
period
|
|
|
|
Note
|
|
2005
|
|
2006
|
|
March
1, 2002 with no fixed repayment schedule
|
|
|
LIBOR+3.98
%
|
|
|
a
|
|
|
10,000,000
|
|
|
|
|
March
2, 2002 to December 31, 2006
|
|
|
LIBOR+2.00
%
|
|
|
b
|
|
|
3,117,467
|
|
|
|
|
December
18, 2006 to December 31,
2012
|
|
|
LIBOR+2.39
%
|
|
|
c
|
|
|
|
|
|
13,117,467
|
|
|
|
|
|
|
|
|
|
|
13,117,467
|
|
|
13,117,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
|
|
|
|
|
|
13,117,467
|
|
|
|
|
Non-current
portion
|
|
|
|
|
|
|
|
|
|
|
|
13,117,467
|
|
|
|
|
|
|
|
|
|
|
13,117,467
|
|
|
13,117,467
|
|
Notes:
|
(a)
|
Interest
is charged at LIBOR plus 3.98% per annum (8.82% as of December
31, 2005).
The interest expense for the years ended December 31, 2004,
2005 and 2006
was $550,460, $743,451 and $794,714, respectively. Interest
is due every
twelve months. Interest of $534,408, $Nil and $1,487,782
were paid for the
years ended December 31, 2004, 2005 and 2006,
respectively.
|
Shinyo
Alliance
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(4)
|
Loans
from Related Parties
|
|
(b)
|
Interest
is charged at six-month LIBOR plus 2.00% per annum (6.70%
as of December
31, 2005). The interest expense for the years ended December
31, 2004,
2005 and 2006 was $114,138, $171,913 and $244,755, respectively.
Interest
is due every six months. Interest of $50,749, $Nil and
$353,097 was paid
for the years ended December 31, 2004, 2005 and 2006,
respectively.
|
|
(c)
|
On
December 18, 2006, a supplemental loan agreement was signed
between the
Company and Vanship Holdings Limited (“the Agreement”). Under the
Agreement, Vanship Holdings Limited agreed to change the
interest rates
charged on the above loans to six-month LIBOR plus 2.39%
per annum (7.75%
as of December 31, 2006) and extend the repayment date
of the above loans
to December 31, 2012.
|
|
(d)
|
In
accordance with the contractual bank loan arrangements,
the loan from
Vanship Holdings Limited shall not be repaid before the
bank loans are
repaid in full.
|
(5)
|
Accrued
Liabilities and Other
Payables
|
Accrued
liabilities and other payables at December 31, 2005 and 2006 consist
of the
following:
|
|
2005
|
|
2006
|
|
Accrued
audit fee
|
|
|
1,500
|
|
|
1,600
|
|
Accrued
vessel operating expenses
|
|
|
148,360
|
|
|
264,588
|
|
Accrued
drydocking costs
|
|
|
|
|
|
2,470,837
|
|
Bank
loan interest payable
|
|
|
98,799
|
|
|
80,712
|
|
Commission
payable
|
|
|
27,283
|
|
|
7,182
|
|
Receipts
in advance
|
|
|
485,492
|
|
|
485,492
|
|
Wages
payable
|
|
|
44,713
|
|
|
49,296
|
|
|
|
|
806,147
|
|
|
3,359,707
|
|
The
Company generates its revenues from time and voyage charter agreements.
The
Company’s revenue can be analyzed as follows:
|
|
2004
|
|
2005
|
|
2006
|
|
Time
charter
|
|
|
6,634,775
|
|
|
7,394,448
|
|
|
7,579,542
|
|
Voyage
charter
|
|
|
|
|
|
2,004,613
|
|
|
|
|
|
|
|
6,634,775
|
|
|
9,399,061
|
|
|
7,579,542
|
|
Shinyo
Alliance
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(7)
|
Vessel
Operating Expenses
|
Vessel
operating expenses for the years ended December 31, 2004, 2005 and
2006 consist
of the following:
|
|
2004
|
|
2005
|
|
2006
|
|
Bunker
consumption
|
|
|
18,563
|
|
|
|
|
|
390,335
|
|
Crew
expenses
|
|
|
110,164
|
|
|
96,881
|
|
|
114,012
|
|
Crew
wages and allowances
|
|
|
530,558
|
|
|
554,331
|
|
|
623,868
|
|
Insurance
|
|
|
355,675
|
|
|
406,386
|
|
|
412,540
|
|
Lubricating
oil expenses
|
|
|
238,907
|
|
|
255,434
|
|
|
260,111
|
|
Repair
and maintenance
|
|
|
136,952
|
|
|
162,973
|
|
|
83,089
|
|
Spare
parts expenses
|
|
|
127,935
|
|
|
136,454
|
|
|
91,697
|
|
Others
|
|
|
241,987
|
|
|
228,125
|
|
|
229,202
|
|
|
|
|
1,760,741
|
|
|
1,840,584
|
|
|
2,204,854
|
|
(8)
|
Related
Party Transactions
|
Name
of party
|
|
Relationship
|
|
|
|
Belindtha
Marine Limited (“Belindtha”)
|
|
A
company controlled by a person related to a director of
the
Company
|
|
|
|
China
Sea Maritime Ltd. (“China Sea”)
|
|
A
company controlled by a director, Captain Charles Arthur
Joseph
Vanderperre, of the Company
|
|
|
|
Shinyo
Maritime Corporation (“Shinyo Maritime”)
|
|
A
company controlled by a director, Mr Fred Cheng, of the
Company
|
|
|
|
Shinyo
Kannika Limited (“Shinyo Kannika”)
|
|
A
fellow subsidiary of the Company
|
|
|
|
Shinyo
Alliance II Limited (“Shinyo Alliance II”)
|
|
A
fellow subsidiary of the Company
|
|
|
|
Univan
Ship Management Limited (“Univan”)
|
|
A
company controlled by a director, Captain Charles Arthur
Joseph
Vanderperre, of the Company
|
|
|
|
Vanship
Holdings Limited (“Vanship”)
|
|
Immediate
holding company of the Company
|
Shinyo
Alliance
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(8)
|
Related
Party Transactions
(continued)
|
(a)
|
The
principal related party transactions during the years ended
December 31,
2004, 2005 and 2006 are as follows:
|
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
|
|
Service
fee to Belindtha
|
|
|
(i)
|
|
|
114,000
|
|
|
114,000
|
|
|
114,000
|
|
Agency
fee to China Sea
|
|
|
(ii)
|
|
|
53,363
|
|
|
57,940
|
|
|
60,000
|
|
Agency
fee to Shinyo Maritime
|
|
|
(ii)
|
|
|
53,363
|
|
|
57,940
|
|
|
60,000
|
|
Loan
interest income from Shinyo Kannika
|
|
|
(iii)
|
|
|
70,549
|
|
|
598,439
|
|
|
379,832
|
|
Loan
interest income from Shinyo Alliance II
|
|
|
(iv)
|
|
|
|
|
|
390,728
|
|
|
963,132
|
|
Loan
interest expense to Vanship
|
|
|
(v)
|
|
|
664,598
|
|
|
915,364
|
|
|
1,039,469
|
|
Loan
interest income from Vanship
|
|
|
(vi)
|
|
|
|
|
|
|
|
|
534,213
|
|
Notes:
|
(i)
|
The
Company has outsourced substantially all its day-to-day
operations to
Belindtha. The service fee is payable to Belindtha at a
pre-determined
amount in accordance with the terms mutually agreed by
Belindtha and the
Company.
|
|
(ii)
|
China
Sea and Shinyo Maritime provided agency services to the
Company. The
agency fee is payable to China Sea and Shinyo Maritime
based on
contractual agreements with the Company.
|
|
(iii)
|
The
balance represents interest income on a loan to Shinyo
Kannika. Terms of
the loan details are set out in Note
8(b)(v).
|
|
(iv)
|
The
balance represents interest income on a loan to Shinyo
Alliance II. Terms
of the loan details are set out in Note 8(b)(vi)
below.
|
|
(v)
|
The
balance represents interest expense on loans from Vanship.
Terms of loan
details are set out in Note 4.
|
|
(vi)
|
The
balance represents interest income on a loan to Vanship
by the Company.
Terms of loan details are set out in Note 8(b)(vii) below.
|
Shinyo
Alliance
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(8)
|
Related
Party Transactions
(continued)
|
(b)
|
Amounts
due from and due to related parties as of December 31,
2005 and 2006 are
as follows:
|
|
|
|
|
2005
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
Amounts
due from related parties:
|
|
|
|
|
|
|
|
Amount
due from Vanship
|
|
|
(i)
|
|
|
1,662
|
|
|
13
|
|
Amounts
due from Shinyo Kannika
|
|
|
(ii)
|
|
|
668,988
|
|
|
|
|
Amounts
due from Shinyo Alliance II
|
|
|
(iii)
|
|
|
390,728
|
|
|
963,132
|
|
Amount
due from Univan
|
|
|
(iv)
|
|
|
49,872
|
|
|
114,669
|
|
|
|
|
|
|
|
1,111,250
|
|
|
1,077,814
|
|
Loans
to related parties:
|
|
|
|
|
|
|
|
|
|
|
Shinyo
Kannika
|
|
|
(v)
|
|
|
13,117,467
|
|
|
|
|
Shinyo
Alliance II
|
|
|
(vi)
|
|
|
16,550,000
|
|
|
10,500,000
|
|
Vanship
|
|
|
(vii)
|
|
|
|
|
|
13,117,467
|
|
|
|
|
|
|
|
29,667,467
|
|
|
23,617,467
|
|
Amount
due to related party:
|
|
|
|
|
|
|
|
|
|
|
Amount
due to Vanship
|
|
|
(viii)
|
|
|
1,335,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
from related parties:
|
|
|
|
|
|
|
|
|
|
|
Vanship
|
|
|
|
|
|
|
|
|
|
|
-
current portion
|
|
|
(ix)
|
|
|
13,117,467
|
|
|
-
|
|
-
non-current portion
|
|
|
(ix)
|
|
|
|
|
|
13,117,467
|
|
|
|
|
|
|
|
13,117,467
|
|
|
13,117,467
|
|
Notes:
|
(i)
|
The
balance represents current account with Vanship and interest
receivable
from Vanship on loan set out in (vii) below. The current
account with
Vanship is unsecured, non-interest bearing and with no
fixed terms of
repayment.
|
|
(ii)
|
The
balance represents interest receivable from Shinyo Kannika
on an advanced
loan set out in (v) below.
|
|
(iii)
|
The
balance represents interest receivable from Shinyo Alliance
II on a loan
set out in (vi) below.
|
|
(iv)
|
The
balance represents advance payments for expenses to be
paid by Univan on
behalf of the Company. The balance is unsecured, non-interest
bearing and
with no fixed terms of repayment.
|
|
(v)
|
The
balance represents a loan to Shinyo Kannika, which carried
interest at
LIBOR plus 1.50% per annum and interest rate was subsequently
changed to
LIBOR plus 1.15% per annum since May 1, 2006. The balance
was fully
recovered on July 4, 2006.
|
|
(vi)
|
The
balance represents a loan to Shinyo Alliance II, which
carried interest at
LIBOR plus 1.50% per annum with final maturity on December
31,
2012.
|
Shinyo
Alliance
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(8)
|
Related
Party Transactions
(continued)
|
(b)
|
Amounts
due from and due to related parties as of December 31,
2005 and 2006 are
as follows (continued):
|
|
(vii)
|
The
balance represents a loan to Vanship, which carried interest
at LIBOR plus
2.39% per annum with final maturity on December 31,
2012.
|
|
(viii)
|
The
balance represents interest payable on loans from Vanship.
Terms of the
loans are set out in Note 4.
|
|
(ix)
|
The
balances represent loans from Vanship. Terms of the loans
are set out in
Note 4.
|
(c)
|
Vanship
has provided a letter of support to the Company to confirm
its intention
to provide continuing financial support to the Company
so as to enable the
Company to meet its liabilities when they fall due.
|
(d)
|
As
of December 31, 2005 and 2006, long-term bank loan of $30,100,000
and
$24,600,000, respectively, was guaranteed by Vanship.
|
(e)
|
As
of December 31, 2005 and 2006, long-term bank loan of $30,100,000
and
$24,600,000, respectively, was secured by a vessel of Shinyo
Kannika.
|
(9)
|
Commitments
and Contingencies
|
Various
claims, suits, and complaints, including those involving government
regulations
and product liability, arise in the ordinary course of the shipping
business. In
addition, losses may arise from disputes with charterers, agents,
insurance and
other claims with suppliers relating to the operations of the Company’s vessel.
Currently, management is not aware of any such claims or contingent
liabilities,
which should be disclosed, or for which a provision should be established
in the
accompanying financial statements.
(10)
|
Fair
Value of Financial Instruments
|
The
carrying amounts of cash, trade accounts receivable and amounts due
from/to
related parties, approximate their fair values because of the short
maturity of
these instruments.
The
carrying values of long-term bank loans and loans from related parties
approximate their fair values based on the borrowing rates currently
available
to the Company for bank loans with similar terms and average maturities.
Shinyo
Alliance
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(11)
|
Business
and Credit Concentrations
|
The
Company operates in the shipping industry which historically has
been cyclical
with corresponding volatility in profitability. All the Company’s revenues are
derived from vessel charters. The Company seeks to mitigate volatilities
in its
business by obtaining long-term charter contracts. The Company has
obtained a
long-term time charter contract which will expire in October 2010.
The
Company outsourced the technical management services to Belindtha
which is
controlled by a person related to a director of the Company. Belindtha
then
sub-contracted its obligations under the outsourcing arrangement
to Univan which
assists Belindtha in providing technical management services to the
Company.
Univan is controlled by Captain Charles Arthur Joseph Vanderperre,
a director of
the Company. All expenses incurred by Univan on behalf of the Company
are
charged to the Company based on the actual expenditures incurred
on its behalf.
During the years ended December 31, 2004, 2005 and 2006, the Company
paid
service fee of $114,000 each year to Belindtha.
The
Company is engaged in the business of ocean transportation of crude
oil industry
which is extremely competitive and dependent on the world’s demand for crude
oil. Competition depends on price, location, size, age, condition
and the
acceptability of the vessel to the charterers. The increase in competition
and
the changes in demand for crude oil could result in lower revenue
achieved for
the vessel.
The
following are revenue from customers that individually comprise
10% or more of
gross revenue:
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Formosa
Petrochemical Corporation
|
|
|
6,634,775
|
|
|
100
|
|
|
7,394,448
|
|
|
79
|
|
|
7,579,542
|
|
|
100
|
|
S-Oil
Corporation
|
|
|
|
|
|
|
|
|
2,004,613
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
6,634,775
|
|
|
100
|
|
|
9,399,061
|
|
|
100
|
|
|
7,579,542
|
|
|
100
|
|
The
gross
accounts receivable due from a customer that individually representing
more than
10% of the outstanding accounts receivable were as follows:
|
|
2005
|
|
2006
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
S-Oil
Corporation
|
|
|
22,236
|
|
|
100
|
|
|
|
|
|
|
|
Pursuant
to a definitive agreement entered into between Vanship and Energy
Infrastructure
Acquisition Corp. (“EIAC”), a company listed on the American Stock Exchange, on
December 3, 2007 (the “Agreement”), Vanship agreed to sell all of its equity
interests in the Company and other eight related companies to Energy
Infrastructure Merger Corporation (“EIMC”) (the “Business Combination”), a
wholly-owned subsidiary of EIAC, for an aggregate consideration of
$778,000,000,
consisting of $643,000,000 in cash (subject to closing adjustments)
and
13,500,000 shares of common stock of EIMC (valued at $10 per share
of common
stock). Vanship is entitled to an additional 3,000,000 shares of
common stock of
EIMC on each of the first and second anniversaries of the completion
of the
Business Combination, subject to certain earning criteria.
Approval
of the Business Combination requires the affirmative vote of the
holders of a
majority of the shares of common stock voted at EIAC’s special meeting of
stockholders, provided that there is a quorum. In addition, if the
EIAC
stockholders approve the Business Combination, the Business Combination
will
only proceed if holders of shares purchased in EIAC’s initial public offering,
representing less than 30% of the shares sold in EIAC’s initial public offering
and EIAC’s private placement that occurred immediately prior to the initial
public offering, exercise their redemption rights at the time of
casting a vote
against the Business Combination.
Pursuant
to the Agreement, Vanship has agreed to purchase up to 5,000,000
units from EIMC
at a purchase price of $10.00 per unit, but only to the extent necessary
for
EIMC to secure financing for the Business Combination. Each unit
will consist of
one share of EIMC’s common stock and one warrant to purchase one share of EIMC’s
common stock at an exercise price of $8.00 per warrant.
Shinyo
Alliance Limited
Unaudited
Condensed Balance Sheets
as
of
December 31, 2006 and September 30, 2007
(expressed
in US$)
|
|
|
|
December
31, 2006
|
|
September
30, 2007
|
|
|
|
Note
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
2,886,785
|
|
|
2,337,289
|
|
Restricted
cash
|
|
|
|
|
|
483,594
|
|
|
534,587
|
|
Prepayments
and other receivables
|
|
|
|
|
|
31,045
|
|
|
140,508
|
|
Supplies
|
|
|
|
|
|
88,842
|
|
|
23,799
|
|
Amounts
due from related parties
|
|
|
6(b
)
|
|
|
1,077,814
|
|
|
449,044
|
|
Total
current assets
|
|
|
|
|
|
4,568,080
|
|
|
3,485,227
|
|
Restricted
cash
|
|
|
|
|
|
1,000,000
|
|
|
1,000,000
|
|
Loans
to related parties
|
|
|
6(b)
|
|
|
23,617,467
|
|
|
23,617,467
|
|
Deferred
loan costs
|
|
|
|
|
|
112,147
|
|
|
86,562
|
|
Vessel,
net
|
|
|
2
|
|
|
22,037,517
|
|
|
20,313,358
|
|
Total
assets
|
|
|
|
|
|
51,335,211
|
|
|
48,502,614
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term bank loan
|
|
|
3
|
|
|
6,000,000
|
|
|
6,275,000
|
|
Accrued
liabilities and other payables
|
|
|
|
|
|
3,359,707
|
|
|
1,031,668
|
|
Total
current liabilities
|
|
|
|
|
|
9,359,707
|
|
|
7,306,668
|
|
Long-term
bank loan
|
|
|
3
|
|
|
18,600,000
|
|
|
13,875,000
|
|
Loan
from related party
|
|
|
6(b)
|
|
|
13,117,467
|
|
|
13,117,467
|
|
Total
liabilities
|
|
|
|
|
|
41,077,174
|
|
|
34,299,135
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s
equity
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares HK$1 par value per share
10,000
shares authorized; 100 shares issued and fully paid
as of December 31,
2006/September 30, 2007
|
|
|
|
|
|
13
|
|
|
13
|
|
Retained
earnings
|
|
|
|
|
|
10,258,024
|
|
|
14,203,466
|
|
Total
shareholder’s equity
|
|
|
|
|
|
10,258,037
|
|
|
14,203,479
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholder’s equity
|
|
|
|
|
|
51,335,211
|
|
|
48,502,614
|
|
See
accompanying notes to the unaudited condensed financial
statements.
Shinyo
Alliance Limited
Unaudited
Condensed Statements of Income
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
|
|
|
|
2006
|
|
2007
|
|
|
|
Note
|
|
|
|
|
|
Operating
revenue
|
|
|
|
|
|
|
|
Revenue
|
|
|
4
|
|
|
5,496,025
|
|
|
8,135,400
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
|
|
|
1,288,985
|
|
|
1,820,347
|
|
Depreciation
expenses
|
|
|
|
|
|
1,154,389
|
|
|
1,724,159
|
|
Management
fee
|
|
|
6(a)
|
|
|
85,500
|
|
|
85,500
|
|
Commission
|
|
|
|
|
|
18,203
|
|
|
27,300
|
|
Administrative
expenses
|
|
|
|
|
|
32,110
|
|
|
25,284
|
|
Total
operating expenses
|
|
|
|
|
|
2,579,187
|
|
|
3,682,590
|
|
Operating
income
|
|
|
|
|
|
2,916,838
|
|
|
4,452,810
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
1,508,259
|
|
|
1,390,279
|
|
Interest
expense
|
|
|
|
|
|
(2,066,723
|
)
|
|
(1,895,987
|
)
|
Other,
net
|
|
|
|
|
|
(2,304
|
)
|
|
(1,660
|
)
|
Total
other expense
|
|
|
|
|
|
(560,768
|
)
|
|
(507,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
|
|
|
2,356,070
|
|
|
3,945,442
|
|
Income
taxes
|
|
|
5
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
2,356,070
|
|
|
3,945,442
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Includes the following income/(expenses) resulting from
transactions with
related parties (see note 6(a)):
|
|
|
2006
|
|
2007
|
|
Vessel
operating expenses
|
|
|
|
|
|
-
Agency fee
|
|
|
(90,000
|
)
|
|
(90,000
|
)
|
Management
fee
|
|
|
(85,500
|
)
|
|
(85,500
|
)
|
Interest
income
|
|
|
1,402,910
|
|
|
1,179,000
|
|
Interest
expense
|
|
|
(772,363
|
)
|
|
(772,056
|
)
|
See
accompanying notes to the unaudited condensed financial
statements.
Shinyo
Alliance Limited
Unaudited
Condensed Statements of Shareholder’s Equity
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
|
|
Ordinary
shares
|
|
|
|
|
|
|
|
Number
of shares
|
|
Amount
|
|
Retained
earnings
|
|
Total
shareholder’s
equity
|
|
Balance
as of January 1, 2006
|
|
|
100
|
|
|
13
|
|
|
7,473,838
|
|
|
7,473,851
|
|
Net
income
|
|
|
|
|
|
|
|
|
2,356,070
|
|
|
2,356,070
|
|
Balance
as of September 30, 2006
|
|
|
100
|
|
|
13
|
|
|
9,829,908
|
|
|
9,829,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
|
100
|
|
|
13
|
|
|
10,258,024
|
|
|
10,258,037
|
|
Net
income
|
|
|
|
|
|
|
|
|
3,945,442
|
|
|
3,945,442
|
|
Balance
as of September 30, 2007
|
|
|
100
|
|
|
13
|
|
|
14,203,466
|
|
|
14,203,479
|
|
See
accompanying notes to the unaudited condensed financial
statements.
Shinyo
Alliance
Limited
Unaudited
Condensed Statements of Cash Flows
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
|
|
2006
|
|
2007
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
income
|
|
|
2,356,070
|
|
|
3,945,442
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
expenses
|
|
|
1,154,389
|
|
|
1,724,159
|
|
Amortization
of deferred loan costs
|
|
|
25,585
|
|
|
25,585
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
22,236
|
|
|
-
|
|
Prepayments
and other receivables
|
|
|
(326,228
|
)
|
|
(109,463
|
)
|
Supplies
|
|
|
(153,484
|
)
|
|
65,043
|
|
Amounts
due from related parties
|
|
|
94,872
|
|
|
628,770
|
|
Amounts
due to related parties
|
|
|
(1,335,624
|
)
|
|
-
|
|
Accrued
liabilities and other payables
|
|
|
391,291
|
|
|
142,798
|
|
Net
cash provided by operating activities
|
|
|
2,229,107
|
|
|
6,422,334
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Capital
expenditure on drydokcing
|
|
|
-
|
|
|
(2,470,837
|
)
|
Collections
on loans made to related parties
|
|
|
13,767,467
|
|
|
10,500,000
|
|
Loans
made to related parties
|
|
|
(13,117,467
|
)
|
|
(10,500,000
|
)
|
Increase/(decrease)
in restricted cash
|
|
|
447,636
|
|
|
(50,993
|
)
|
Net
cash provided by/(used in) investing activities
|
|
|
1,097,636
|
|
|
(2,521,830
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Repayment
of long-term bank loan
|
|
|
(4,050,000
|
)
|
|
(4,450,000
|
)
|
Net
cash used in financing activities
|
|
|
(4,050,000
|
)
|
|
(4,450,000
|
)
|
|
|
|
|
|
|
|
|
Net
decrease in cash
|
|
|
(723,257
|
)
|
|
(549,496
|
)
|
Cash:
|
|
|
|
|
|
|
|
At
beginning of period
|
|
|
938,873
|
|
|
2,886,785
|
|
At
end of period
|
|
|
215,616
|
|
|
2,337,289
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
2006
|
|
2007
|
|
Cash
paid during the period for:
|
|
|
|
|
|
Interest
|
|
|
3,377,846
|
|
|
1,871,667
|
|
Supplemental
Disclosure of Non-Cash Flow Financing Activities:
|
|
2006
|
|
2007
|
|
Refinancing
of loans from related parties
|
|
|
13,117,467
|
|
|
-
|
|
See
accompanying notes to the unaudited condensed financial
statements.
Shinyo
Alliance Limited
Notes
to
the Unaudited Condensed Financial Statements
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting
Policies
|
|
(a)
|
Description
of Business
|
Shinyo
Alliance Limited (the “Company”), a company engaged in the business of ocean
transportation of crude oil worldwide, was established in Hong
Kong on August 3,
2001. The principal activity of Shinyo Alliance is the ownership
and chartering
of vessel “Shinyo Alliance”. Shinyo Alliance was delivered in 1991 and was a
second hand vessel acquired by the Company in May 2002. It is a
single-hulled
very large crude oil carrier with capacity of 248,034 deadweight
tonnage.
The
Company has outsourced substantially all its day-to-day operations
to its
related party, Belindtha Marine Limited (“Belindtha”), a company controlled by a
person related to a director of the Company. Belindtha then sub-contracted
its
obligations under the outsourcing arrangement to Univan Ship Management
Limited
(“Univan”) which assists Belindtha in providing technical management services
to
the Company. Univan is controlled by Captain Charles Arthur Joseph
Vanderperre,
a director of the Company. All expenses incurred by Univan on behalf
of the
Company are charged to the Company based on the actual expenditures
incurred on
its behalf. In addition, China Sea Maritime Ltd. (“China Sea”) and Shinyo
Maritime Corporation (“Shinyo Maritime”) provide administrative services to the
Company. China Sea and Shinyo Maritime are controlled by Captain
Charles Arthur
Joseph Vanderperre and Mr Fred Cheng, respectively, each a director
of the
Company.
The
Company began receiving time charter revenue from
October 17, 2005 pursuant to a time charter agreement with Formosa,
under which
the Company was paid a daily charter rate of $29,800.
As
of
September 30, 2007, the Company had a working capital deficit of
$3,821,441.
These financial statements have been prepared assuming that the
Company will
continue as a going concern as Vanship Holdings Limited, the immediate
holding
company, has confirmed its intention to provide continuing financial
support to
the Company so as to enable the Company to meet its liabilities
as and when they
fall due.
|
(c)
|
Basis
of Presentation
|
The
accompanying unaudited condensed financial statements as of September
30, 2007
and for the nine-month period ended September 30, 2006 and 2007
have been
prepared in accordance with
U.S.
generally accepted accounting principles (“US GAAP”). Certain information and
footnote disclosures normally included in financial statements
prepared in
accordance with US GAAP have been condensed or omitted as permitted
by rules and
regulations of the U.S. Securities and Exchange Commission. Disclosures
have
been made to these unaudited condensed financial statements where
events
subsequent to year ended December 31, 2006 have occurred which
have a material
impact on the Company. The accompanying unaudited condensed financial
statements
should be read in conjunction with the financial statements and
the notes
thereto, for the fiscal year ended December 31, 2006. The December
31, 2006
balance sheet was derived from the audited financial statements
of the Company.
Shinyo
Alliance Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(c)
|
Basis
of Presentation
(continued)
|
In
the
opinion of the management, all adjustments (which include normal
accruals)
necessary to present a fair statement of the financial position
of the Company
as of September 30, 2007, and the results of its operations and
cash flows for
the nine-month periods ended September 30, 2006 and 2007, in conformity
with US
GAAP, have been made. The unaudited condensed statements of income
for the
nine-month periods ended September 30, 2006 and 2007 are not necessarily
indicative of the operating results to be expected for the full
fiscal year or
any future periods.
The
basis
of accounting differs in certain material respects from that used
in the
preparation of the books of account of the Company, which are prepared
in
accordance with the accounting principles of the country of its
domicile. The
accompanying unaudited condensed financial statements reflect necessary
adjustments to present them in conformity with US GAAP.
The
preparation of the financial statements requires management of
the Company to
make a number of estimates and assumptions relating to the reported
amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities
at the date of the financial statements and the reported amounts
of revenues and
expenses during the reporting period. Significant items subject
to such
estimates and assumptions include the estimated useful life of
the vessel
(including drydocking costs), residual value and recovery of the
carrying amount
of the vessel. Actual results could differ from those estimates.
In
the
normal course of business, the Company is subject to loss contingencies,
such as
legal proceedings and claims arising out of its business, that
cover a wide
range of matters, including among others, government investigations,
shareholder
lawsuits and tax matters. An accrual for a loss contingency is
recognized when
it is probable that a liability will be incurred and amount of
loss can be
reasonably estimated.
|
(f)
|
Recently
Issued Accounting
Standards
|
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Statement No. 157,
Fair
Value Measurement
(Statement 157). Statement 157 defines fair value, establishes
a framework for
the measurement of fair value measures already required or permitted
by other
standards for fiscal years beginning after November 15, 2007. The
Company is
required to adopt Statement 157 for the fiscal years beginning
on January 1,
2008. Statement 157 is required to be applied prospectively, except
for certain
financial instruments. Any transition adjustment will be recognized
as an
adjustment to opening retained earnings in the year of adoption.
The Company
does not anticipate that the adoption of Statement 157 will have
a material
impact on its results of operations and financial position.
Shinyo
Alliance Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(f)
|
Recently
Issued Accounting Standards
(continued)
|
In
February 2007, the FASB issued FASB Statement No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities
- Including an
Amendment of FASB Statement No. 115
(Statement
159)
.
Statement
159 permits an entity to elect fair value as the initial and subsequent
measurement attribute for many financial assets and liabilities.
Entities
electing the fair value option would be required to recognize changes
in fair
value in earnings. Entities electing the fair value option are
required to
distinguish, on the face of the balance sheet, the fair value of
assets and
liabilities for which the fair value option has been elected and
similar assets
and liabilities measured using another measurement attribute. Statement
159 will
be effective for fiscal years beginning after November 15, 2007.
The adjustment
to reflect the difference between the fair value and the carrying
amount would
be accounted for as a cumulative-effect adjustment to retained
earnings as of
the date of initial adoption. The Company does not anticipate that
the adoption
of the provisions of Statement 159 will have a material impact
on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 160,
Noncontrolling
Interests in Consolidated Financial Statements - an Amendment of
ARB No. 51
(Statement
160). Statement 160 establishes accounting and reporting standards
for the
noncontrolling interest in a subsidiary and for the deconsolidation
of a
subsidiary. Statement 160 will be effective for the fiscal year
beginning after
December 15, 2008. The Company does not anticipate that the adoption
of the
provisions of Statement 160 will have a material impact on its
results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 141 (Revised),
Business
Combinations
(Statement 141(R)). Statement 141(R) establishes principles and
requirements for
how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed,
and any
noncontrolling interest in the acquiree. Statement 141(R) also
provides guidance
for recognizing and measuring the goodwill acquired in the business
combination
and determines what information to disclose to enable users of
the financial
statements to evaluate the nature and financial effects of the
business
combination. Statement 141(R) will be effective for fiscal years
beginning after
December 15, 2008. The Company does not anticipate the adoption
of the
provisions of Statement 141(R) will have a material impact on its
results of
operations and financial position.
Shinyo
Alliance Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
|
|
December
31, 2006
|
|
September
30, 2007
|
|
Vessel
|
|
|
|
|
|
Cost
|
|
|
29,085,802
|
|
|
29,085,802
|
|
Accumulated
depreciation
|
|
|
(7,048,285
|
)
|
|
(8,772,444
|
)
|
Vessel,
net
|
|
|
22,037,517
|
|
|
20,313,358
|
|
The
vessel is mortgaged as described in Note 3.
Drydocking
costs of $4,294,247 were capitalized for the year ended December
31, 2006. As of
December 31, 2006 and September 30, 2007, undepreciated carrying
amount of the
drydocking costs was $4,151,105 and $3,506,968, respectively.
For
the
periods ended September 30, 2006 and 2007, $74,367 and $644,137
of drydocking
costs were expensed as depreciation, respectively.
Lender/period
|
|
December
31, 2006
|
|
September
30, 2007
|
|
DVB
Group Merchant Bank (Asia) Ltd
|
|
|
|
|
|
|
|
|
|
|
|
July
14, 2005 to May 15, 2010
|
|
|
24,600,000
|
|
|
20,150,000
|
|
|
|
|
|
|
|
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
6,000,000
|
|
|
6,275,000
|
|
Non-current
portion
|
|
|
18,600,000
|
|
|
13,875,000
|
|
|
|
|
24,600,000
|
|
|
20,150,000
|
|
The
loan
carried interest at LIBOR plus 1.50% per annum and interest rate
was
subsequently changed to LIBOR plus 1.15% per annum since May 15,
2006 (6.56% and
6.46% as of December 31, 2006 and September 30, 2007, respectively).
The
interest expense for the periods ended September 30, 2006 and 2007
was
$1,268,775 and $1,098,346, respectively.
As
of
December 31, 2006 and September 30, 2007, bank loan is secured
as
follows:
|
|
December
31,
2006
|
|
September
30,
2007
|
|
Secured
by:
|
|
|
|
|
|
Restricted
cash
|
|
|
1,483,594
|
|
|
1,534,587
|
|
Vessel
|
|
|
22,037,517
|
|
|
20,313,358
|
|
The
bank
loan is also secured by a vessel owned by a related party, Shinyo
Kannika
Limited and guaranteed by its immediate holding company, Vanship
Holdings
Limited as of December 31, 2006 and September 30, 2007.
Shinyo
Alliance Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
The
Company’s revenue for the nine-month periods ended September 30, 2006 and
2007
represents revenue generated from time charter agreement.
Under
the
laws of the countries of the Company’s incorporation and/or vessel’s
registration, the Company is not subject to tax on international
shipping
income. However, it is subject to registration and tonnage taxes,
which are
charged by the country of which the vessel is registered at a fixed
rate based
on the tonnage of the vessel. Registration and tonnage taxes have
been included
in vessel operating expenses in the accompanying statements of
income.
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement
109
(FIN
48). FIN 48 clarifies the accounting for uncertainty in income
taxes recognized
in an enterprise’s financial statements and prescribes a threshold of
more-likely-than-not for recognition of tax benefits of uncertain
tax positions
taken or expected to be taken in a tax return. FIN 48 also provides
related
guidance on measurement, derecognition, classification, interest
and penalties,
and disclosure. The provisions of FIN 48 will be effective for
the fiscal years
beginning after December 15, 2006, with any cumulative effect of
the change in
accounting principle recorded as an adjustment to opening retained
earnings.
Effective from January 1, 2007, the Company adopted the provision
of FIN 48. As
of the date of the adoption of FIN 48, the Company has no material
unrecognized
tax benefit which would favorably affect the effective income tax
rate in future
periods and do not believe there will be any significant increases
or decreases
within the next twelve months. The Company has elected to classify
interest and
penalties related to unrecognized tax benefits, if and when required,
as part of
interest expense and administrative expense in the statements of
income. No
interest or penalties in respect of unrecognized tax benefits have
been accrued
at the date of adoption.
According
to the Inland Revenue Ordinance of Hong Kong, the statute of
limitations is
seven years (i.e. calendar years 2002 to 2007 for the Company)
if the
underpayment of taxes is due to omission or errors made by
either the taxpayer
or the withholding agent. The statute of limitations will be
extended to ten
years (i.e. calendar years 2002 to 2007 for the Company) in
case of tax evasion.
According
to the Internal Revenue Code of the United States of America,
the statute of
limitations is three years (i.e. calendar years 2005 to 2007
for the Company) if
the underpayment of taxes is due to omission or errors made
by either the
taxpayer or withholding agent. There is no statute of limitations
in the case of
tax evasion.
(6)
|
Related
Party Transactions
|
Name
of party
|
|
Relationship
|
Belindtha
Marine Limited (“Belindtha”)
|
|
A
company controlled by a person related to a director
of the
Company
|
|
|
|
China
Sea Maritime Ltd. (“China Sea”)
|
|
A
company controlled by a director, Captain Charles Arthur
Joseph
Vanderperre, of the Company
|
|
|
|
Shinyo
Maritime Corporation (“Shinyo Maritime”)
|
|
A
company controlled by a director, Mr Fred Cheng, of the
Company
|
|
|
|
Shinyo
Kannika Limited (“Shinyo Kannika”)
|
|
A
fellow subsidiary of the Company
|
|
|
|
Shinyo
Alliance II Limited (“Shinyo Alliance II”)
|
|
A
fellow subsidiary of the Company
|
|
|
|
Univan
Ship Management Limited (“Univan”)
|
|
A
company controlled by a director, Captain Charles Arthur
Joseph
Vanderperre, of the Company
|
|
|
|
Vanship
Holdings Limited (“Vanship”)
|
|
Immediate
holding company of the Company
|
Shinyo
Alliance Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(6)
|
Related
Party Transactions
(continued)
|
(a)
|
The
principal related party transactions during the nine-month
periods ended
September 30, 2006 and 2007 are as follows:
|
|
|
|
|
Nine-Month
Periods Ended September 30,
|
|
|
|
|
|
2006
|
|
2007
|
|
|
|
Note
|
|
|
|
|
|
Service
fee to Belindtha
|
|
|
(i)
|
|
|
85,500
|
|
|
85,500
|
|
Agency
fee to China Sea
|
|
|
(ii)
|
|
|
45,000
|
|
|
45,000
|
|
Agency
fee to Shinyo Maritime
|
|
|
(ii)
|
|
|
45,000
|
|
|
45,000
|
|
Loan
interest income from Shinyo Kannika
|
|
|
(iii)
|
|
|
379,832
|
|
|
|
|
Loan
interest income from Shinyo Alliance II
|
|
|
(iv)
|
|
|
755,971
|
|
|
107,473
|
|
Loan
interest expense to Vanship
|
|
|
(v)
|
|
|
772,363
|
|
|
772,056
|
|
Loan
interest income from Vanship
|
|
|
(vi)
|
|
|
267,107
|
|
|
1,071,527
|
|
Notes:
|
(i)
|
The
Company has outsourced substantially all its day-to-day
operations to
Belindtha. The service fee is payable to Belindtha at
a pre-determined
amount in accordance with the terms mutually agreed by
Belindtha and the
Company.
|
|
(ii)
|
China
Sea and Shinyo Maritime provided agency services to the
Company. The
agency fee is payable to China Sea and Shinyo Maritime
based on
contractual agreements with the Company.
|
|
(iii)
|
The
balance represents interest income on a loan to Shinyo
Kannika of
$13,117,467. Interest is charged by the Company at LIBOR
plus 1.50% per
annum and subsequently changed to LIBOR plus 1.15% per
annum since May 1,
2006. The loan was fully recovered on July 4,
2006.
|
|
(iv)
|
The
balance represents interest income on a loan to Shinyo
Alliance II. Terms
of the loan details are set out in Note 6(b)(iv) below.
|
|
(v)
|
The
balance represents interest expense on loan from Vanship.
Terms of loan
details are set out in Note 6(b)(vi) below.
|
|
(vi)
|
The
balance represents interest income on a loan to Vanship
by the Company.
Terms of loan details are set out in Note 6(b)(v) below.
|
Shinyo
Alliance Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(6)
|
Related
Party Transactions
(continued)
|
(b)
|
Amounts
due from and due to related parties as of December 31,
2006 and September
30, 2007 are as follows:
|
|
|
|
|
December
31, 2006
|
|
September
30,
2007
|
|
|
|
Note
|
|
|
|
|
|
Amount
due from related parties:
|
|
|
|
|
|
|
|
Amount
due from Vanship
|
|
|
(i
|
)
|
|
13
|
|
|
299,472
|
|
Amount
due from Shinyo Kannika
|
|
|
(ii
|
)
|
|
963,132
|
|
|
-
|
|
Amount
due from Univan
|
|
|
(iii
|
)
|
|
114,669
|
|
|
149,572
|
|
|
|
|
|
|
|
1,077,814
|
|
|
449,044
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
to related parties:
|
|
|
|
|
|
|
|
|
|
|
Shinyo
Alliance II
|
|
|
(iv
|
)
|
|
10,500,000
|
|
|
-
|
|
Vanship
|
|
|
(v
|
)
|
|
13,117,467
|
|
|
23,617,467
|
|
|
|
|
|
|
|
23,617,467
|
|
|
23,617,467
|
|
Loan
from related party:
|
|
|
|
|
|
|
|
|
|
|
Vanship
|
|
|
(vi
|
)
|
|
13,117,467
|
|
|
13,117,467
|
|
Notes:
|
(i)
|
The
balance represents current account with Vanship and interest
receivable
from Vanship on loans set out in (v) below. The current
account with
Vanship is unsecured, non-interest bearing and with no
fixed terms of
repayment.
|
|
(ii)
|
The
balance represents interest receivable from Shinyo Kannika
on loan
amounted to $13,117,467. Interest is charged by the Company
at LIBOR plus
1.15% per annum. The balance was fully settled on July
4, 2006.
|
|
(iii)
|
The
balance represents advance payments for expenses to be
paid by Univan on
behalf of the Company. The balance is unsecured, non-interest
bearing and
with no fixed terms of repayment.
|
|
(iv)
|
The
balance represents a loan to Shinyo Alliance II, which
carried interest at
LIBOR plus 1.50% per annum. The balance was fully recovered
on February
26, 2007.
|
|
(v)
|
The
balance represents loans to Vanship, which carried interest
rates ranging
from LIBOR plus 1.15% to LIBOR plus 2.39% per annum with
final maturity on
December 31, 2012.
|
|
(vi)
|
The
balance represents a loan from Vanship. The loan period
is from December
18, 2006 to December 31, 2012. Interest is charged at
six-month LIBOR plus
2.39% per annum (7.75% and 7.52% as of December 31, 2006
and September 30,
2007 respectively). The interest expense for the nine-month
periods ended
September 30, 2006 and 2007 was $772,363 and $772,056
respectively.
Interest of $2,107,987 and $772,056 was paid for the
nine-month periods
ended September 30, 2006 and 2007 respectively.
|
In
accordance with the contractual bank loan arrangement, the loan
from Vanship
shall not be repaid before the bank loan is repaid in full.
Shinyo
Alliance Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(6)
|
Related
Party Transactions
(continued)
|
(c)
|
Vanship
has provided a letter of support to the Company to confirm
its intention
to provide continuing financial support to the Company
so as to enable the
Company to meet its liabilities when they fall due.
|
(d)
|
As
of December 31, 2006 and September 30, 2007, long-term
bank loan of
$24,600,000 and $20,150,000, respectively, was guaranteed
by Vanship.
|
(e)
|
As
of December 31, 2006 and September 30, 2007, long-term
bank loan of
$24,600,000 and $20,150,000, respectively, was secured
by a vessel of
Shinyo Kannika.
|
(7)
|
Commitments
and Contingencies
|
Various
claims, suits, and complaints, including those involving government
regulations
and product liability, arise in the ordinary course of the shipping
business. In
addition, losses may arise from disputes with charterers, agents,
insurance and
other claims with suppliers relating to the operations of the Company’s vessel.
Currently, management is not aware of any such claims or contingent
liabilities,
which should be disclosed, or for which a provision should be established
in the
accompanying financial statements.
(8)
|
Fair
Value of Financial Instruments
|
The
carrying amounts of cash and amounts due from/to related parties,
approximate
their fair values because of the short maturity of these instruments.
The
carrying values of long-term bank loans and loans from/to related
parties
approximate their fair values based on the borrowing rates currently
available
to the Company for bank loans with similar terms and average maturities.
(9)
|
Business
and Credit Concentrations
|
The
Company operates in the shipping industry which historically has
been cyclical
with corresponding volatility in profitability. All the Company’s revenues are
derived from vessel charters. The Company seeks to mitigate volatilities
in its
business by obtaining long-term charter contracts. The Company
has obtained a
long-term time charter contract which will expire in October 2010.
The
Company outsourced the technical management services to Belindtha
which is
controlled by a person related to a director of the Company. Belindtha
then
sub-contracted its obligations under the outsourcing arrangement
to Univan which
assists Belindtha in providing technical management services to
the Company.
Univan is controlled by Captain Charles Arthur Joseph Vanderperre,
a director of
the Company. All expenses incurred by Univan on behalf of the Company
are
charged to the Company based on the actual expenditures incurred
on its behalf.
During the nine-month periods ended September 30, 2006 and 2007,
the Company
paid service fee of $85,500 each period to Belindtha.
The
Company is engaged in the business of ocean transportation of crude
oil industry
which is extremely competitive and dependent on the world’s demand for crude
oil. Competition depends on price, location, size, age, condition
and the
acceptability of the vessel to the charterers. The increase in
competition and
the changes in demand for crude oil could result in lower revenue
achieved for
the vessel.
The
following are revenue from a customer that individually comprises
10% or more of
gross revenue:
|
|
Nine-month
Period Ended September 30,
|
|
|
|
2006
|
|
2007
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Formosa
Petrochemical Corporation
|
|
|
5,496,025
|
|
|
100
|
|
|
8,135,400
|
|
|
100
|
|
Shinyo
Alliance Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
Pursuant
to a definitive agreement entered into between Vanship and Energy
Infrastructure
Acquisition Corp. (“EIAC”), a company listed on the American Stock Exchange, on
December 3, 2007 (the “Agreement”), Vanship agreed to sell all of its equity
interests in the Company and other eight related companies to Energy
Infrastructure Merger Corporation (“EIMC”) (the “Business Combination”), a
wholly-owned subsidiary of EIAC, for an aggregate consideration
of $778,000,000,
consisting of $643,000,000 in cash (subject to closing adjustments)
and
13,500,000 shares of common stock of EIMC (valued at $10 per share
of common
stock). Vanship is entitled to an additional 3,000,000 shares of
common stock of
EIMC on each of the first and second anniversaries of the completion
of the
Business Combination, subject to certain earning criteria.
Approval
of the Business Combination requires the affirmative vote of the
holders of a
majority of the shares of common stock voted at EIAC’s special meeting of
stockholders, provided that there is a quorum. In addition, if
the EIAC
stockholders approve the Business Combination, the Business Combination
will
only proceed if holders of shares purchased in EIAC’s initial public offering,
representing less than 30% of the shares sold in EIAC’s initial public offering
and EIAC’s private placement that occurred immediately prior to the initial
public offering, exercise their redemption rights at the time of
casting a vote
against the Business Combination.
Pursuant
to the Agreement, Vanship has agreed to purchase up to 5,000,000
units from EIMC
at a purchase price of $10.00 per unit, but only to the extent
necessary for
EIMC to secure financing for the Business Combination. Each unit
will consist of
one share of EIMC’s common stock and one warrant to purchase one share of EIMC’s
common stock at an exercise price of $8.00 per warrant.
Report
of Independent Registered Public Accounting Firm
The
Board
of Directors and Shareholder of
Shinyo
Loyalty Limited:
We
have
audited the accompanying balance sheets of Shinyo Loyalty Limited
(the
“Company”) as of December 31, 2005 and 2006, and the related statements
of
income, shareholder’s equity, and cash flows for each of the years in the
three-year period ended December 31, 2006. These financial statements
are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with standards of the Public
Company
Accounting Oversight Board (United States). Those standards require
that we plan
and perform the audit to obtain reasonable assurance about whether
the financial
statements are free of material misstatement. An audit includes
examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial
statements. An audit also includes assessing the accounting principles
used and
significant estimates made by management, as well as evaluating
the overall
financial statement presentation. We believe that our audits
provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly,
in all
material respects, the financial position of Shinyo Loyalty Limited
as of
December 31, 2005 and 2006, and the results of its operations
and its cash flows
for each of the years in the three-year period ended December
31, 2006, in
conformity with U.S. generally accepted accounting principles.
/s/
KPMG
Hong
Kong, China
February
11, 2008
Shinyo
Loyalty Limited
Balance
Sheets
as
of
December 31, 2005 and 2006
(expressed
in US$)
|
|
|
|
2005
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
1,545,741
|
|
|
2,128,106
|
|
Restricted
cash
|
|
|
|
|
|
1,193,010
|
|
|
1,170,580
|
|
Trade
accounts receivable
|
|
|
|
|
|
1,639,110
|
|
|
1,908,289
|
|
Prepayments
and other receivables
|
|
|
|
|
|
57,080
|
|
|
57,587
|
|
Supplies
|
|
|
|
|
|
176,372
|
|
|
166,520
|
|
Amount
due from related party
|
|
|
8(b)
|
|
|
203,436
|
|
|
61,273
|
|
Total
current assets
|
|
|
|
|
|
4,814,749
|
|
|
5,492,355
|
|
Restricted
cash
|
|
|
|
|
|
360,000
|
|
|
360,000
|
|
Deferred
loan costs
|
|
|
|
|
|
305,681
|
|
|
262,348
|
|
Vessel,
net
|
|
|
2
|
|
|
48,919,304
|
|
|
46,077,489
|
|
Total
assets
|
|
|
|
|
|
54,399,734
|
|
|
52,192,192
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term bank loan
|
|
|
3
|
|
|
5,350,000
|
|
|
4,725,000
|
|
Amount
due to related party
|
|
|
8(b)
|
|
|
594,005
|
|
|
76,837
|
|
Accrued
liabilities and other payables
|
|
|
4
|
|
|
1,508,116
|
|
|
1,827,331
|
|
Income
taxes payable
|
|
|
7
|
|
|
109,768
|
|
|
109,768
|
|
Total
current liabilities
|
|
|
|
|
|
7,561,889
|
|
|
6,738,936
|
|
Loan
from related party
|
|
|
8(b)
|
|
|
3,000,000
|
|
|
3,000,000
|
|
Long-term
bank loan
|
|
|
3
|
|
|
35,250,000
|
|
|
30,525,000
|
|
Total
liabilities
|
|
|
|
|
|
45,811,889
|
|
|
40,263,936
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s
equity
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares HK$1 par value per share
10,000
authorized; 100 shares issued and fully paid as of
December
31
|
|
|
|
|
|
13
|
|
|
13
|
|
Retained
earnings
|
|
|
|
|
|
8,587,832
|
|
|
11,928,243
|
|
Total
shareholder’s equity
|
|
|
|
|
|
8,587,845
|
|
|
11,928,256
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholder’s equity
|
|
|
|
|
|
54,399,734
|
|
|
52,192,192
|
|
See
accompanying notes to the financial statements.
Shinyo
Loyalty Limited
Statements
of Income
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
|
|
Operating
revenue
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
5
|
|
|
11,959,765
|
|
|
11,581,539
|
|
|
11,811,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
6
|
|
|
1,818,723
|
|
|
1,877,874
|
|
|
2,338,872
|
|
Depreciation
expenses
|
|
|
|
|
|
2,946,140
|
|
|
3,134,556
|
|
|
3,179,593
|
|
Management
fee
|
|
|
8(a)
|
|
|
107,258
|
|
|
114,000
|
|
|
114,000
|
|
Commission
|
|
|
|
|
|
93,625
|
|
|
99,424
|
|
|
99,029
|
|
Administrative
expenses
|
|
|
|
|
|
65,939
|
|
|
48,081
|
|
|
59,289
|
|
Total
operating expenses
|
|
|
|
|
|
5,031,685
|
|
|
5,273,935
|
|
|
5,790,783
|
|
Operating
income
|
|
|
|
|
|
6,928,080
|
|
|
6,307,604
|
|
|
6,020,401
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
21,003
|
|
|
88,075
|
|
|
137,590
|
|
Interest
expense
|
|
|
|
|
|
(2,332,657
|
)
|
|
(2,321,192
|
)
|
|
(1,993,667
|
)
|
Other,
net
|
|
|
|
|
|
10,899
|
|
|
(4,212
|
)
|
|
(4,413
|
)
|
Total
other expense
|
|
|
|
|
|
(2,300,755
|
)
|
|
(2,237,329
|
)
|
|
(1,860,490
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
|
|
|
4,627,325
|
|
|
4,070,275
|
|
|
4,159,911
|
|
Income
taxes
|
|
|
7
|
|
|
(34,884
|
)
|
|
(74,884
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
4,592,441
|
|
|
3,995,391
|
|
|
4,159,911
|
|
(a)
Includes the following expenses resulting from transactions
with related parties
(see note 8(a)):
|
|
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
Vessel
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Agency fee
|
|
|
|
|
|
(98,836
|
)
|
|
(111,234
|
)
|
|
(120,000
|
)
|
Management
fee
|
|
|
|
|
|
(107,258
|
)
|
|
(114,000
|
)
|
|
(114,000
|
)
|
Interest
expense
|
|
|
|
|
|
(105,060
|
)
|
|
(198,873
|
)
|
|
(154,421
|
)
|
See
accompanying notes to the financial statements.
Shinyo
Loyalty Limited
Statements
of Shareholder’s Equity
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
|
|
Ordinary
shares
|
|
|
|
|
|
|
|
Number
of shares
|
|
Amount
|
|
Retained
earnings
|
|
Total
shareholder’s equity
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2004
|
|
|
100
|
|
|
13
|
|
|
-
|
|
|
13
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
4,592,441
|
|
|
4,592,441
|
|
Balance
as of December 31, 2004
|
|
|
100
|
|
|
13
|
|
|
4,592,441
|
|
|
4,592,454
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
3,995,391
|
|
|
3,995,391
|
|
Balance
as of December 31, 2005
|
|
|
100
|
|
|
13
|
|
|
8,587,832
|
|
|
8,587,845
|
|
Dividend
paid
|
|
|
-
|
|
|
-
|
|
|
(819,500
|
)
|
|
(819,500
|
)
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
4,159,911
|
|
|
4,159,911
|
|
Balance
as of December 31, 2006
|
|
|
100
|
|
|
13
|
|
|
11,928,243
|
|
|
11,928,256
|
|
See
accompanying notes to the financial statements.
Shinyo
Loyalty
Limited
Statements
of Cash Flows
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
|
|
2004
|
|
2005
|
|
2006
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
income
|
|
|
4,592,441
|
|
|
3,995,391
|
|
|
4,159,911
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expenses
|
|
|
2,946,140
|
|
|
3,134,556
|
|
|
3,179,593
|
|
Amortization
of deferred loan costs
|
|
|
40,986
|
|
|
43,333
|
|
|
43,333
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
(2,597,308
|
)
|
|
958,198
|
|
|
(269,179
|
)
|
Prepayments
and other receivables
|
|
|
(72,867
|
)
|
|
15,787
|
|
|
(507
|
)
|
Supplies
|
|
|
(27,072
|
)
|
|
(149,300
|
)
|
|
9,852
|
|
Amount
due from related party
|
|
|
(123,658
|
)
|
|
(79,778
|
)
|
|
142,163
|
|
Amount
due to related party
|
|
|
456,089
|
|
|
137,929
|
|
|
(517,168
|
)
|
Accrued
liabilities and other payables
|
|
|
773,256
|
|
|
734,860
|
|
|
170,253
|
|
Income
taxes payable
|
|
|
34,884
|
|
|
74,884
|
|
|
-
|
|
Net
cash provided by operating activities
|
|
|
6,022,891
|
|
|
8,865,860
|
|
|
6,918,251
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Purchase
of vessel
|
|
|
(55,000,000
|
)
|
|
-
|
|
|
-
|
|
Capital
expenditure on drydocking
|
|
|
-
|
|
|
-
|
|
|
(188,816
|
)
|
(Increase)/decrease
in restricted cash
|
|
|
(1,585,286
|
)
|
|
32,276
|
|
|
22,430
|
|
Net
cash (used in)/provided by investing activities
|
|
|
(56,585,286
|
)
|
|
32,276
|
|
|
(166,386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from long-term bank loan
|
|
|
52,000,000
|
|
|
-
|
|
|
-
|
|
Repayment
of long-term bank loan
|
|
|
(3,750,000
|
)
|
|
(7,650,000
|
)
|
|
(5,350,000
|
)
|
Payment
of loan costs
|
|
|
(390,000
|
)
|
|
-
|
|
|
-
|
|
Dividend
paid
|
|
|
-
|
|
|
-
|
|
|
(819,500
|
)
|
Proceeds
from loan from related party
|
|
|
3,000,000
|
|
|
-
|
|
|
-
|
|
Net
cash provided by/(used in) financing activities
|
|
|
50,860,000
|
|
|
(7,650,000
|
)
|
|
(6,169,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
297,605
|
|
|
1,248,136
|
|
|
582,365
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
At
beginning of year
|
|
|
-
|
|
|
297,605
|
|
|
1,545,741
|
|
At
end of year
|
|
|
297,605
|
|
|
1,545,741
|
|
|
2,128,106
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
2004
|
|
2005
|
|
2006
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
1,785,138
|
|
|
2,201,187
|
|
|
2,075,798
|
|
See
accompanying notes to the financial statements.
Shinyo
Loyalty
Limited
Notes
to
the Financial Statements
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting
Policies
|
|
(a)
|
Description
of Business
|
Shinyo
Loyalty Limited (the “Company”), a company engaged in the business of ocean
transportation of crude oil worldwide, was established in Hong
Kong on September
8, 2003. The principal activity of the Company is the ownership
and chartering
of vessel “Shinyo Splendor”, previously known as “Shinyo Landes”. Shinyo
Splendor was delivered in 1993 and was a second hand vessel acquired
by the
Company in Janaury 2004. It is double-hulled very large crude
oil carrier with
capacity of 306,474 deadweight tonnage.
The
Company has outsourced substantially all its day to day operations
to its
related party, Belindtha Marine Limited (“Belindtha”), a company controlled by a
person related to a director of the Company. Belindtha then sub-contracted
its
obligations under the outsourcing arrangement to Univan Ship Management
Limited
(“Univan”) which assists Belindtha in providing technical management services
to
the Company. Univan is a company controlled by Captain Charles
Arthur Joseph
Vanderperre, a director of the Company. All expenses incurred by
Univan on
behalf of the Company are charged to the Company based on the actual
expenditures incurred on their behalf. In addition, China Sea Maritime
Ltd.
(“China Sea”) and Shinyo Maritime Corporation (“Shinyo Maritime”) provide
administrative services to the Company. China Sea and Shinyo Maritime
are
controlled by Captain Charles Arthur Joseph Vanderperre and Mr
Fred Cheng,
respectively, each a director of the Company.
The
Company began receiving time charter revenue from
January 23, 2004 to March 23, 2007, pursuant to a time charter
agreement dated
January 14, 2004 with Euronav N.V. Under the charter agreement
with Euronav
N.V., the Company was paid a daily charter rate of $27,250. Under
a charter
agreement dated March 28, 2007 with Sinochem International Oil
(London) Co,
Ltd., the Company is paid a daily charter rate of $39,500.
As
of
December 31, 2006, the Company had a working capital deficit of
$1,246,581.
These financial statements have been prepared assuming that the
Company will
continue as a going concern as Vanship Holdings Limited, the immediate
holding
company, has confirmed its intention to provide continuing financial
support to
the Company so as to enable the Company to meet its liabilities
as and when they
fall due.
|
(c)
|
Basis
of Presentation
|
The
Company’s financial statements have been prepared in accordance with U.S.
generally accepted accounting principles (“US GAAP”).
The
basis
of accounting differs in certain material respects from that used
in the
preparation of the statutory financial statements of the Company,
which are
prepared in accordance with the accounting principles of the country
of its
domicile. The accompanying financial statements reflect necessary
adjustments to
present them in conformity with US GAAP.
Cash
consists interest-bearing deposits placed with banks. As of December
31, 2005
and 2006, there were no cash equivalents.
Shinyo
Loyalty
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
Restricted
cash represents minimum interest-bearing bank deposits which must
be maintained
in accordance with contractual bank loan arrangements over the
bank loan period.
|
(f)
|
Trade
Accounts
Receivable
|
The
Company generally requires customers to pay in advance for time
charter hire.
Trade accounts receivable are recorded at the invoiced amount,
do not bear
interest and reflect billings to charterers for hire, freight and
demurrage. The
Company maintains an allowance for doubtful accounts for estimated
losses
inherent in its trade accounts receivable portfolio. In establishing
the
required allowance, management considers historical losses, current
receivables
aging, and existing industry and national economic data. The Company’s customers
are in the crude oil industry and are affected by demand and supply
of crude oil
worldwide. The Company has been able to collect on all of its receivable
balances, and accordingly, the Company did not provide for any
allowance for
doubtful accounts at December 31, 2005 and 2006. The Company does
not have any
off-balance-sheet credit exposure related to its customers.
Supplies
consisting of lubricating oils are stated at cost. Cost is determined
on a
first-in, first-out method (FIFO).
A
vessel
is stated at cost, which consists of the contract price and delivery
costs.
Subsequent expenditures for conversions and major overhauls (“drydocking”) are
also capitalized when they appreciably extend the life, increase
the earning
capacity or improve the efficiency or safety of the vessel otherwise
these
amounts are charged to expense as incurred.
Depreciation
on the vessel is calculated based on the straight-line method over
the estimated
useful life of the vessel, after taking into account its estimated
residual
value, from date of acquisition. The vessel’s residual value is equal to the
product of its lightweight tonnage and estimated scrap rate. Management
estimates the useful life of the Company’s vessel to be 14 years from the date
of acquisition. The useful life of the vessel is evaluated on a
regular basis to
account for changes in circumstances, including changes in regulatory
restrictions. If regulations place limitations over the ability
of a vessel to
operate, its useful life is adjusted to end at the date such regulations
become
effective.
Shinyo
Loyalty
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(h)
|
Vessel,
net
(continued)
|
The
Company follows the deferred method of accounting for drydocking
whereby actual
costs incurred are capitalized and are depreciated on a straight-line
basis over
the period through the date the next drydocking becomes due. The
vessel of the
Company is required to have an intermediate drydocking approximately
every 30
months and a special survey drydocking approximately every 60 months.
Capitalized intermediate drydocking costs and special survey drydocking
costs
are depreciated over a period of 30 months and 60 months, respectively.
If the
anticipated date of drydocking is changed from the scheduled date,
the remaining
undepreciated carrying amount of the drydocking costs is adjusted
to reflect the
revised date.
A
vessel
is reviewed for impairment whenever events or changes in circumstances
indicate
that the carrying amount of a vessel may not be recoverable. Recoverability
of
the vessel to be held and used is measured by a comparison of the
carrying
amount of the vessel, including capitalized drydocking costs, to
the estimated
undiscounted future cash flows expected to be generated by the
vessel. If the
carrying amount of the vessel exceeds its estimated future undiscounted
cash
flows, an impairment charge will be recognized by the amount that
the carrying
amount of the vessel exceeds its estimated fair value.
In
the
normal course of business, the Company is subject to loss contingencies,
such as
legal proceedings and claims arising out of its business. An accrual
for a loss
contingency is recognized when it is probable that a liability
will be incurred
and the amount of the loss can be reasonably estimated.
|
(k)
|
Revenue
Recognition and Related
Expenses
|
The
Company generates its revenues from time charter agreements.
Revenues are
recognized when the collectibility has been reasonably assured.
Time charter
revenues are recorded over the term of the charter as the service
is
provided. In addition, under the time charter agreement the Company
is entitled to share profits generated from any sub-charter entered
into by the
charterer. Profit-sharing revenues are calculated at an agreed
percentage of the
excess of sub-charter rates over an agreed amount and recorded over
the term of the sub-charter agreement. Vessel operating costs
are expensed as
unsecured.
Brokerage
and charter hire commissions paid to third parties are expensed
in the same
period as revenues are recognized.
Shinyo
Loyalty
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
Fees
incurred for obtaining new loans are deferred and amortized to
interest expense
over the life of the related debt using the effective interest
method. The
Company follows EITF 96-19 in accounting for debt modification.
A modification
is considered substantial if the present value of the cash flows
under the terms
of new debt is at least 10 percent different from the present value
of the
remaining cash flows under the terms of the original debt at the
date of
modification. When the loan is repaid or when the loan is substantially
modified, the existing unamortized fees are written-off in the
period debt
repayment or substantial modification takes place. When the modification
is not
considered substantial, the fees associated with the modification
and, along
with the existing unamortized fees, are amortized over the remaining
term of the
modified loan using the effective interest method. There is no
write-off of
deferred loan costs during the years ended December 31, 2004, 2005
and 2006.
|
(n)
|
Foreign
Currency
Transactions
|
The
Company’s functional and reporting currency is United States (“US”) dollar
because the Company’s vessel operates in international shipping markets, which
utilize the US dollar. Furthermore, the Company incurs bank debt,
pays salaries
and wages and certain other expenditures such as fuel costs, lubricants,
insurance costs, all in US dollars.
Transactions
denominated in currencies other than US dollar are translated into
US dollars at
the exchange rates prevailing at the dates of transactions. Monetary
assets and
liabilities denominated in currencies other than US dollar are
translated at the
exchange rates prevailing at the balance sheet dates. During the
years ended
December 31, 2004, 2005 and 2006, substantially all of the Company’s
transactions were denominated in US dollars and the Company did
not have
significant foreign currency transaction gains or losses.
The
preparation of the financial statements requires management of
the Company to
make a number of estimates and assumptions relating to the reported
amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities
at the date of the financial statements and the reported amounts
of revenue and
expenses during the reporting period. Significant items subject
to such
estimates and assumptions include the estimated useful life of
the vessel
(including drydocking costs), residual value and recovery of the
carrying amount
of the vessel. Actual results could differ from those estimates.
|
(p)
|
Recently
Issued Accounting
Standards
|
In
September 2006, the FASB issued FASB Statement No. 157,
Fair
Value Measurement
(Statement
157). Statement 157 defines fair value, establishes a framework
for the
measurement of fair value measures already required or permitted
by other
standards for fiscal years beginning after November 15, 2007. The
Company is
required to adopt Statement 157 for the fiscal years beginning
on January 1,
2008. Statement 157 is required to be applied prospectively, except
for certain
financial instruments. Any transition adjustment will be recognized
as an
adjustment to opening retained earnings in the year of adoption.
The Company
does not anticipate that the adoption of Statement 157 will have
a material
impact on its results of operations and financial position.
Shinyo
Loyalty
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(p)
|
Recently
Issued Accounting Standards
(continued)
|
In
September 2006, the FASB issued FASB Staff Position No. AUG AIR-1,
Accounting
for Planned Major Maintenance Activities
(AUG
AIR-1). This guidance prohibits the use of the accrue-in-advance
method of
accounting for planned major maintenance activities because an
obligation has
not occurred and therefore a liability should not be recognized.
The provisions
of this guidance will be effective for fiscal years beginning after
December 15,
2006. Effective from January 1, 2007, the Company adopted the provision
of AUG
AIR-1. The Company follows the deferral method of accounting for
drydocking. As
of the date of adoption of AUG AIR-1, the Company has no accruals
for planned
drydocking which require to be adjusted retrospectively.
In
February 2007, the FASB issued FASB Statement No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities
- Including an
Amendment of FASB Statement No. 115
(Statement
159)
.
Statement
159 permits an entity to elect fair value as the initial and subsequent
measurement attribute for many financial assets and liabilities.
Entities
electing the fair value option would be required to recognize changes
in fair
value in earnings. Entities electing the fair value option are
required to
distinguish, on the face of the balance sheet, the fair value of
assets and
liabilities for which the fair value option has been elected and
similar assets
and liabilities measured using another measurement attribute. Statement
159 will
be effective for fiscal years beginning after November 15, 2007.
The adjustment
to reflect the difference between the fair value and the carrying
amount would
be accounted for as a cumulative-effect adjustment to retained
earnings as of
the date of initial adoption. The Company does not anticipate that
the adoption
of the provisions of Statement 159 will have a material impact
on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 160,
Noncontrolling
Interests in Consolidated Financial Statements - an Amendment of
ARB No. 51
(Statement
160). Statement 160 establishes accounting and reporting standards
for the
noncontrolling interest in a subsidiary and for the deconsolidation
of a
subsidiary. Statement 160 will be effective for the fiscal year
beginning after
December 15, 2008. The Company does not anticipate that the adoption
of the
provisions of Statement 160 will have a material impact on its
results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 141 (Revised),
Business
Combinations
(Statement
141(R)). Statement 141(R) establishes principles and requirements
for how the
acquirer of a business recognizes and measures in its financial
statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling
interest in the acquiree. Statement 141(R) also provides guidance
for
recognizing and measuring the goodwill acquired in the business
combination and
determines what information to disclose to enable users of the
financial
statements to evaluate the nature and financial effects of the
business
combination. Statement 141(R) will be effective for fiscal years
beginning after
December 15, 2008. The Company does not anticipate the adoption
of the
provisions of Statement 141(R) will have a material impact on its
results of
operations and financial position.
Shinyo
Loyalty
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
|
|
2005
|
|
2006
|
|
Vessel
|
|
|
|
|
|
Cost
|
|
|
55,000,000
|
|
|
55,337,778
|
|
Accumulated
depreciation
|
|
|
(6,080,696
|
)
|
|
(9,260,289
|
)
|
Vessel,
net
|
|
|
48,919,304
|
|
|
46,077,489
|
|
The
vessel is mortgaged as described in Note 3.
Drydocking
costs of $337,778 were capitalized for the year ended December
31, 2006. As of
December 31, 2005 and 2006, undepreciated carrying amount of the
drydocking
costs was $Nil and $292,741, respectively.
For
the
years ended December 31, 2004, 2005 and 2006, $Nil, $Nil and $45,037
of
drydocking costs was expensed as depreciation, respectively.
|
|
Interest
|
|
|
|
|
|
|
|
rate
per
|
|
|
|
|
|
Lender/period
|
|
annum
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
DVB
Group Merchant Bank (Asia) Ltd, Deutsche Schiffsbank
and
Aktiengesellschaft
|
|
|
|
|
|
|
|
January
21, 2004 to January 20, 2013
|
|
|
LIBOR+1.44%
to
LIBOR+1.38%
|
|
|
40,600,000
|
|
|
35,250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
|
|
|
5,350,000
|
|
|
4,725,000
|
|
Non-current
portion
|
|
|
|
|
|
35,250,000
|
|
|
30,525,000
|
|
|
|
|
|
|
|
40,600,000
|
|
|
35,250,000
|
|
On
January 21, 2004, a loan of $52,000,000 was obtained.
The
loan
was repayable by four quarterly installments of $1,250,000 each,
followed by
four quarterly installments of $1,300,000 each, four quarterly
installments of
$1,350,000 each, four quarterly installments of $1,125,000 each,
four quarterly
installments of $1,150,000 each, four quarterly installments
of $1,250,000 each,
four quarterly installments of $1,400,000 each, four quarterly
installments of
$1,500,000 each, a four quarterly installments of $1,125,000
each and a balloon
payment $6,200,000. The interest expense for the years ended
December 31, 2004,
2005 and 2006 was $2,186,611, $2,069,595 and $1,736,620.
On
July
21, 2005, apart from regular repayments in accordance with the
above repayment
schedule, the Company made an additional payment of $2,500,000
to the
bank.
The
loan
carried interest at LIBOR plus 1.44% per annum and interest rate
is subsequently
changed to LIBOR plus 1.38% per annum since January 22, 2006 (4.62%
and 4.56% as
of December 31, 2005 and 2006, respectively).
Shinyo
Loyalty
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(3)
|
Long-term
Bank Loan
(continued)
|
As
of
December 31, 2005 and 2006, bank loan is secured as follows:
|
|
2005
|
|
2006
|
|
Secured
by:
|
|
|
|
|
|
Restricted
cash
|
|
|
1,553,010
|
|
|
1,530,580
|
|
Vessel
|
|
|
48,919,304
|
|
|
46,077,489
|
|
The
bank
loan is also guaranteed by the immediate holding company, Vanship
Holdings
Limited and Shinyo Guardian Limited, a fellow subsidiary of the
Company, as of
December 31, 2005 and 2006.
The
principal repayments for each of the years subsequent to December
31, 2006 are
as follows:
Year
ending December 31,
|
|
|
|
|
|
|
|
2007
|
|
|
4,725,000
|
|
2008
|
|
|
4,575,000
|
|
2009
|
|
|
4,900,000
|
|
2010
|
|
|
5,450,000
|
|
2011
and later
|
|
|
15,600,000
|
|
|
|
|
35,250,000
|
|
(
4)
|
Accrued
Liabilities and Other
Payables
|
Accrued
liabilities and other payables at December 31, 2005 and 2006 consist
of the
following:
|
|
2005
|
|
2006
|
|
Accrued
audit fee
|
|
|
1,500
|
|
|
1,600
|
|
Accrued
vessel operating expenses
|
|
|
214,376
|
|
|
347,603
|
|
Accrued
drydocking expenses
|
|
|
-
|
|
|
148,962
|
|
Bank
loan interest payable
|
|
|
374,941
|
|
|
312,207
|
|
Commission
payable
|
|
|
8,446
|
|
|
24,637
|
|
Receipts
in advance
|
|
|
844,750
|
|
|
844,750
|
|
Wages
payable
|
|
|
44,770
|
|
|
45,511
|
|
Other
payables
|
|
|
19,333
|
|
|
102,061
|
|
|
|
|
1,508,116
|
|
|
1,827,331
|
|
The
Company generates its revenues from time and profit-sharing charter
agreements.
The Company’s revenue can be analyzed as follows:
|
|
2004
|
|
2005
|
|
2006
|
|
Time
charter
|
|
|
9,362,457
|
|
|
9,942,429
|
|
|
9,902,895
|
|
Profit-sharing
|
|
|
2,597,308
|
|
|
1,639,110
|
|
|
1,908,289
|
|
|
|
|
11,959,765
|
|
|
11,581,539
|
|
|
11,811,184
|
|
Shinyo
Loyalty
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(6)
|
Vessel
Operating Expenses
|
Vessel
operating expenses for the years ended December 31, 2004, 2005
and 2006 consist
of the following:
|
|
2004
|
|
2005
|
|
2006
|
|
Bunker
consumption
|
|
|
2,783
|
|
|
1,153
|
|
|
17,122
|
|
Crew
wages and allowances
|
|
|
498,328
|
|
|
553,305
|
|
|
614,023
|
|
Crew
expenses
|
|
|
93,169
|
|
|
109,348
|
|
|
136,763
|
|
Insurance
|
|
|
480,098
|
|
|
483,783
|
|
|
489,738
|
|
Lubricating
oil expenses
|
|
|
206,686
|
|
|
204,869
|
|
|
381,671
|
|
Repair
and maintenance
|
|
|
168,480
|
|
|
139,169
|
|
|
175,607
|
|
Spare
parts expenses
|
|
|
161,857
|
|
|
127,476
|
|
|
236,834
|
|
Store
expenses
|
|
|
67,894
|
|
|
107,112
|
|
|
125,043
|
|
Others
|
|
|
139,428
|
|
|
151,659
|
|
|
162,071
|
|
|
|
|
1,818,723
|
|
|
1,877,874
|
|
|
2,338,872
|
|
Under
the
laws of the countries of the Company’s incorporation and/or vessel’s
registration, the Company is not subject to tax on international
shipping
income. However, it is subject to registration and tonnage taxes,
which are
charged by the country of which the vessel is registered at a fixed
rate based
on the tonnage of the vessel. Registration and tonnage taxes have
been included
in vessel operating expenses in the accompanying statements of
income.
In
addition, during the years ended 31 December 2004 and 2005, the
vessel of the
Company operated in certain ports of the US. Accordingly, the Company
is subject
to the US Transportation Taxes which are calculated at 2% - 4%
on relevant
charter hire revenue.
Income
taxes represent US Transportation taxes as follows:
|
|
2004
|
|
2005
|
|
2006
|
|
Current
taxes
|
|
|
34,884
|
|
|
74,884
|
|
|
-
|
|
Deferred
taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
income taxes
|
|
|
34,884
|
|
|
74,884
|
|
|
-
|
|
Shinyo
Loyalty
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
Income
taxes reported in the statements of income differ from the amount
computed by
applying the Hong Kong Profits Tax rate of 17.5% (the statutory
tax rate of the
Company) for the following reasons:
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
4,627,325
|
|
|
4,070,275
|
|
|
4,159,911
|
|
|
|
|
|
|
|
|
|
|
|
|
Computed
“expected” tax expense
|
|
|
(809,782
|
)
|
|
(712,298
|
)
|
|
(727,984
|
)
|
Non-deductible
vessel operating expenses
|
|
|
(318,277
|
)
|
|
(328,628
|
)
|
|
(409,303
|
)
|
Non-deductible
depreciation expenses
|
|
|
(515,575
|
)
|
|
(548,547
|
)
|
|
(556,429
|
)
|
Non-deductible
interest expense
|
|
|
(408,215
|
)
|
|
(406,209
|
)
|
|
(348,892
|
)
|
Other
non-deductible expenses
|
|
|
(46,692
|
)
|
|
(46,501
|
)
|
|
(48,428
|
)
|
Non-taxable
income
|
|
|
2,098,541
|
|
|
2,042,183
|
|
|
2,091,036
|
|
US
Transportation Taxes
|
|
|
(34,884
|
)
|
|
(74,884
|
)
|
|
-
|
|
Actual
income tax expense
|
|
|
(34,884
|
)
|
|
(74,884
|
)
|
|
-
|
|
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement
109
(FIN
48). FIN 48 clarifies the accounting for uncertainty in income
taxes recognized
in an enterprise’s financial statements and prescribes a threshold of
more-likely-than-not for recognition of tax benefits of uncertain
tax positions
taken or expected to be taken in a tax return. FIN 48 also provides
related
guidance on measurement, derecognition, classification, interest
and penalties,
and disclosure. The provisions of FIN 48 will be effective for
the fiscal years
beginning after December 15, 2006, with any cumulative effect
of the change in
accounting principle recorded as an adjustment to opening retained
earnings.
Effective from January 1, 2007, the Company adopted the provision
of FIN 48. As
of the date of the adoption of FIN 48, the Company has no material
unrecognized
tax benefit which would favorably affect the effective income
tax rate in future
periods. The Company has elected to classify interest and penalties
related to
unrecognized tax benefits, if and when required, as part of interest
expense and
administrative expense, respectively, in the statements of income.
Interest and
penalties of $68,684 and $33,377, respectively have been accrued
at the date of
adoption.
According
to the Inland Revenue Ordinance of Hong Kong, the statute of
limitations is
seven years (i.e. calendar years 2003 to 2006 for the Company)
if the
underpayment of taxes is due to omission or errors made by
either the taxpayer
or the withholding agent. The statute of limitations will be
extended to ten
years (i.e. calendar years 2003 to 2006 for the Company) in
case of tax evasion.
According
to the Internal Revenue Code of the United States of America,
the statute of
limitations is three years (i.e. calendar years 2003 to 2006
for the Company) if
the underpayment of taxes is due to omission or errors made
by either the
taxpayer or withholding agent. There is no statute of limitations
in the case of
tax evasion.
Shinyo
Loyalty Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(8)
|
Related
Party
Transactions
|
Name
of party
|
|
Relationship
|
|
|
|
Belindtha
Marine Limited (“Belindtha”)
|
|
A
company controlled by a person related to a director
of the
Company
|
|
|
|
China
Sea Maritime Ltd. (“China Sea”)
|
|
A
company controlled by a director, Captain Charles Arthur
Joseph
Vanderperre, of the Company
|
|
|
|
Shinyo
Maritime Corporation (“Shinyo Maritime”)
|
|
A
company controlled by a director, Mr Fred Cheng, of
the
Company
|
|
|
|
Shinyo
Guardian Limited (“Shinyo Guardian”)
|
|
A
fellow subsidiary of the Company
|
|
|
|
Univan
Ship Management Limited (“Univan”)
|
|
A
company controlled by a director, Captain Charles Arthur
Joseph
Vanderperre, of the Company
|
|
|
|
Vanship
Holdings Limited (“Vanship”)
|
|
Immediate
holding company of the
Company
|
(a)
The
principal related party transactions during the years ended December
31, 2004,
2005 and 2006 are as follows:
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
|
|
Service
fee to Belindtha
|
|
|
(i)
|
|
|
107,258
|
|
|
114,000
|
|
|
114,000
|
|
Agency
fee to China Sea
|
|
|
(ii)
|
|
|
49,418
|
|
|
55,617
|
|
|
60,000
|
|
Agency
fee to Shinyo Maritime
|
|
|
(ii)
|
|
|
49,418
|
|
|
55,617
|
|
|
60,000
|
|
Loan
interest expense to Vanship
|
|
|
(iii)
|
|
|
105,060
|
|
|
198,873
|
|
|
154,421
|
|
Notes:
|
(i)
|
The
Company has outsourced substantially all its day to day
operations to
Belindtha. The service fee is payable to Belindtha at
a pre-determined
amount in accordance with the terms mutually agreed by
Belindtha and the
Company.
|
|
(ii)
|
China
Sea and Shinyo Maritime have provided agency services
to the Company. The
agency fee is payable to China Sea and Shinyo Maritime
based on
contractual agreements with the
Company.
|
|
(iii)
|
The
balance represents interest expense on a loan from Vanship.
Terms of loan
details are set out in Note 8(b)(iii)
below.
|
Shinyo
Loyalty
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(8)
|
Related
Party Transactions
(continued)
|
(b)
Amounts
due from and due to related parties as of December 31, 2005 and
2006 are as
follows:
|
|
|
|
2005
|
|
2006
|
|
Amount
due from related party:
|
|
Note
|
|
|
|
|
|
Amount
due from Univan
|
|
|
(i)
|
|
|
203,436
|
|
|
61,273
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
due to related party:
|
|
|
|
|
|
|
|
|
|
|
Amount
due to Vanship
|
|
|
(ii)
|
|
|
594,005
|
|
|
76,837
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
from related party:
|
|
|
|
|
|
|
|
|
|
|
Vanship
|
|
|
(iii)
|
|
|
3,000,000
|
|
|
3,000,000
|
|
Notes:
|
(i)
|
The
balance represents advance payments for expenses to be
paid by Univan on
behalf of the Company. The balance is unsecured, non-interest
bearing and
with no fixed terms of repayment.
|
|
(ii)
|
The
balance represents current account with Vanship and interest
payable to
Vanship on loan set out in (iii) below. The current account
with Vanship
is unsecured, non-interest bearing and with no fixed
terms of repayment.
|
|
(iii)
|
The
balance represents a loan from Vanship. The loan period
is from January
14, 2004 to January 13, 2012. Interest is charged at
5% per annum and is
due every six months. The interest expense for the years
ended December
31, 2004, 2005 and 2006 was $105,060, $198,873 and $154,421,
respectively.
Interest of $44,116, $60,944 and $276,444 was paid for
the years ended
December 31, 2004, 2005 and 2006, respectively.
|
In
accordance with the contractual bank loan arrangement, the loan
from Vanship
shall not be repaid before the bank loan is repaid in full.
(c)
|
Vanship
has provided a letter of support to the Company to confirm
its intention
to provide continuing financial support to the Company
so as to enable the
Company to meet its liabilities when they fall due.
|
(d)
|
As
of December 31, 2005 and 2006, long-term bank loan of
$20,300,000 and
$17,625,000, respectively, was guaranteed by Shinyo
Guardian.
|
(e)
|
As
of December 31, 2005 and 2006, long-term bank loan of
$20,300,000 and
$17,625,000, respectively, was guaranteed by
Vanship.
|
Shinyo
Loyalty
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(9)
|
Commitments
and
Contingencies
|
Various
claims, suits, and complaints, including those involving government
regulations
and product liability, arise in the ordinary course of the shipping
business. In
addition, losses may arise from disputes with charterers, agents,
insurance and
other claims with suppliers relating to the operations of the Company’s vessel.
Currently, management is not aware of any such claims or contingent
liabilities,
which should be disclosed, or for which a provision should be established
in the
accompanying financial statements.
(10)
|
Fair
Value of Financial Instruments
|
The
carrying amounts of cash, trade accounts receivable and amounts
due from/to
related parties, approximates their fair values because of the
short maturity of
these instruments.
The
carrying values of long-term bank loan and loan from related party
approximate
their fair values based on the borrowing rates currently available
to the
Company for bank loans with similar terms and average maturities.
(11)
|
Business
and Credit Concentrations
|
The
Company operates in the shipping industry which historically has
been cyclical
with corresponding volatility in profitability. All the Company’s revenues are
derived from vessel charters. The Company seeks to mitigate volatilities
in its
business by obtaining long-term charter contracts. The Company
has obtained a
long-term time charter contract which will expire in May 2014.
The
Company outsourced the technical management services to Belindtha
which is
controlled by a person related to a director of the Company. Belindtha
then
sub-contracted its obligations under the outsourcing arranagement
to Univan
which assists Belindtha in providing technical management services
to the
Company. Univna is controlled by Captain Charles Arthur Joseph
Vanderperre, a
director of the Company. All expenses incurred by Univan on behalf
of the
Company are charged to the Company based on actual expenditures
incurred on its
behalf. During the years ended December 31, 2004, 2005 and 2006,
the Company
paid service fee of $107,258, $114,000, $114,000, respectively,
to Belindtha.
The
Company is engaged in the business of ocean transportation of crude
oil industry
which is extremely competitive and dependent on the world’s demand for crude
oil. Competition depends on price, location, size, age, condition
and the
acceptability of the vessel to the charterers. The increase in
competition and
the changes in demand for crude oil could result in lower revenue
achieved for
the vessel.
The
following are revenue from a customer that individually comprises
10% or more of
gross revenue:
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euronav
Luxembourg S.A.
|
|
|
11,959,765
|
|
|
100
|
|
|
11,581,539
|
|
|
100
|
|
|
11,811,184
|
|
|
100
|
|
The
gross
accounts receivable due from a customer that individually representing
more than
10% of the outstanding accounts receivable were as follows:
|
|
2005
|
|
2006
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Euronav
Luxembourg S.A.
|
|
|
1,639,110
|
|
|
100
|
|
|
1,908,289
|
|
|
100
|
|
Shinyo
Loyalty
Limited
Notes
to
the Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
Pursuant
to a definitive agreement entered into between Vanship and Energy
Infrastructure
Acquisition Corp. (“EIAC”), a company listed on the American Stock Exchange, on
December 3, 2007 (the “Agreement”), Vanship agreed to sell all of its equity
interests in the Company and other eight related companies to Energy
Infrastructure Merger Corporation (“EIMC”) (the “Business Combination”), a
wholly-owned subsidiary of EIAC, for an aggregate consideration
of $778,000,000,
consisting of $643,000,000 in cash (subject to closing adjustments)
and
13,500,000 shares of common stock of EIMC (valued at $10 per share
of common
stock). Vanship is entitled to an additional 3,000,000 shares of
common stock of
EIMC on each of the first and second anniversaries of the completion
of the
Business Combination, subject to certain earning criteria.
Approval
of the Business Combination requires the affirmative vote of the
holders of a
majority of the shares of common stock voted at EIAC’s special meeting of
stockholders, provided that there is a quorum. In addition, if
the EIAC
stockholders approve the Business Combination, the Business Combination
will
only proceed if holders of shares purchased in EIAC’s initial public offering,
representing less than 30% of the shares sold in EIAC’s initial public offering
and EIAC’s private placement that occurred immediately prior to the initial
public offering, exercise their redemption rights at the time of
casting a vote
against the Business Combination.
Pursuant
to the Agreement, Vanship has agreed to purchase up to 5,000,000
units from EIMC
at a purchase price of $10.00 per unit, but only to the extent
necessary for
EIMC to secure financing for the Business Combination. Each unit
will consist of
one share of EIMC’s common stock and one warrant to purchase one share of EIMC’s
common stock at an exercise price of $8.00 per warrant.
Unaudited
Condensed Balance Sheets
as
of
December 31, 2006 and September 30, 2007
(expressed
in US$)
|
|
|
|
December
31,
2006
|
|
September
30,
2007
|
|
|
|
Note
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
2,128,106
|
|
|
3,353,844
|
|
Restricted
cash
|
|
|
|
|
|
1,170,580
|
|
|
894,213
|
|
Trade
accounts receivable
|
|
|
|
|
|
1,908,289
|
|
|
-
|
|
Prepayments
and other receivables
|
|
|
|
|
|
57,587
|
|
|
126,595
|
|
Supplies
|
|
|
|
|
|
166,520
|
|
|
182,401
|
|
Amount
due from related party
|
|
|
7(b
)
|
|
|
61,273
|
|
|
173,174
|
|
Total
current assets
|
|
|
|
|
|
5,492,355
|
|
|
4,730,227
|
|
Restricted
cash
|
|
|
|
|
|
360,000
|
|
|
1,500,000
|
|
Deferred
loan costs
|
|
|
|
|
|
262,348
|
|
|
-
|
|
Vessel,
net
|
|
|
2
|
|
|
46,077,489
|
|
|
43,625,238
|
|
Total
assets
|
|
|
|
|
|
52,192,192
|
|
|
49,855,465
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term bank loans
|
|
|
3
|
|
|
4,725,000
|
|
|
4,575,000
|
|
Amount
due to related party
|
|
|
7(b)
|
|
|
76,837
|
|
|
115,330
|
|
Accrued
liabilities and other payables
|
|
|
|
|
|
1,827,331
|
|
|
2,056,087
|
|
Income
taxes payable
|
|
|
6
|
|
|
109,768
|
|
|
143,703
|
|
Total
current liabilities
|
|
|
|
|
|
6,738,936
|
|
|
6,890,120
|
|
Loan
from related party
|
|
|
7(b)
|
|
|
3,000,000
|
|
|
3,000,000
|
|
Long-term
bank loans
|
|
|
3
|
|
|
30,525,000
|
|
|
55,675,000
|
|
Deferred
loan income
|
|
|
|
|
|
-
|
|
|
357,442
|
|
Total
liabilities
|
|
|
|
|
|
40,263,936
|
|
|
65,922,562
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s
equity/(deficit)
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares HK$1 par value per share
10,000
shares authorized; 100 shares issued and fully paid
as of December 31,
2006/September 30, 2007
|
|
|
|
|
|
13
|
|
|
13
|
|
Retained
earning/(accumulated loss)
|
|
|
|
|
|
11,928,243
|
|
|
(16,067,110
|
)
|
Total
shareholder’s equity/(deficit)
|
|
|
|
|
|
11,928,256
|
|
|
(16,067,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholder’s equity/(deficit)
|
|
|
|
|
|
52,192,192
|
|
|
49,855,465
|
|
See
accompanying notes to the unaudited condensed financial statements.
Shinyo
Loyalty Limited
Unaudited
Condensed Statements of Operations
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
|
|
|
|
2006
|
|
2007
|
|
|
|
Note
|
|
|
|
|
|
Operating
revenue
|
|
|
|
|
|
|
|
Revenue
|
|
|
4
|
|
|
8,823,191
|
|
|
9,544,247
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
|
|
|
1,936,481
|
|
|
2,076,752
|
|
Depreciation
expenses
|
|
|
|
|
|
2,362,177
|
|
|
2,452,251
|
|
Management
fee
|
|
|
7(a)
|
|
|
85,500
|
|
|
85,500
|
|
Commission
|
|
|
|
|
|
73,959
|
|
|
236,893
|
|
Administrative
expenses
|
|
|
|
|
|
49,701
|
|
|
69,637
|
|
Termination
charge
|
|
|
5
|
|
|
-
|
|
|
20,783,562
|
|
Total
operating expenses
|
|
|
|
|
|
4,507,818
|
|
|
25,704,595
|
|
Operating
income/(loss)
|
|
|
|
|
|
4,315,373
|
|
|
(16,160,348
|
)
|
Other
income/(expense)
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
102,093
|
|
|
157,571
|
|
Interest
expense
|
|
|
|
|
|
(1,507,204
|
)
|
|
(2,208,503
|
)
|
Write-off
of deferred loan costs
|
|
|
|
|
|
-
|
|
|
(245,376
|
)
|
Other,
net
|
|
|
|
|
|
(4,222
|
)
|
|
(4,762
|
)
|
Total
other expense
|
|
|
|
|
|
(1,409,333
|
)
|
|
(2,301,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
before income taxes
|
|
|
|
|
|
2,906,040
|
|
|
(18,461,418
|
)
|
Income
taxes
|
|
|
6
|
|
|
-
|
|
|
(33,935
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
|
|
|
|
2,906,040
|
|
|
(18,495,353
|
)
|
(a)
Includes the following expenses resulting from transactions
with related
parties (see note 7(a)):
|
|
|
2006
|
|
2007
|
|
Vessel
operating expenses
|
|
|
|
|
|
-
Agency fee
|
|
|
(90,000
|
)
|
|
(90,000
|
)
|
Management
fee
|
|
|
(85,500
|
)
|
|
(85,500
|
)
|
Interest
expense
|
|
|
(116,088
|
)
|
|
(115,330
|
)
|
See
accompanying notes to the unaudited condensed financial statements.
Shinyo
Loyalty Limited
Unaudited
Condensed Statements of Shareholder’s Equity/(Deficit)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
|
|
Ordinary
shares
|
|
|
|
|
|
|
|
Number
of
shares
|
|
Amount
|
|
Retained
earning/
(accumulated
loss)
|
|
Total
shareholder’s
equity/(deficit)
|
|
Balance
as of January 1, 2006
|
|
|
100
|
|
|
13
|
|
|
8,587,832
|
|
|
8,587,845
|
|
Dividend
paid
|
|
|
-
|
|
|
-
|
|
|
(819,500
|
)
|
|
(819,500
|
)
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
2,906,040
|
|
|
2,906,040
|
|
Balance
as of September 30, 2006
|
|
|
100
|
|
|
13
|
|
|
10,674,372
|
|
|
10,674,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
|
100
|
|
|
13
|
|
|
11,928,243
|
|
|
11,928,256
|
|
Dividend
paid
|
|
|
-
|
|
|
-
|
|
|
(9,500,000
|
)
|
|
(9,500,000
|
)
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
(18,495,353
|
)
|
|
(18,495,353
|
)
|
Balance
as of September 30, 2007
|
|
|
100
|
|
|
13
|
|
|
(16,067,110
|
)
|
|
(16,067,097
|
)
|
See
accompanying notes to the unaudited condensed financial statements.
Shinyo
Loyalty Limited
Unaudited
Condensed Statements of Cash Flows
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
|
|
2006
|
|
2007
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
income/(loss)
|
|
|
2,906,040
|
|
|
(18,495,353
|
)
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
expenses
|
|
|
2,362,177
|
|
|
2,452,251
|
|
Amortization
deferred loan costs/(income)
|
|
|
32,500
|
|
|
(9,419
|
)
|
Write-off
of deferred loan costs
|
|
|
-
|
|
|
245,376
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
211,814
|
|
|
1,908,289
|
|
Prepayments
and other receivables
|
|
|
(61,716
|
)
|
|
(69,008
|
)
|
Supplies
|
|
|
47,839
|
|
|
(15,881
|
)
|
Amount
due from related party
|
|
|
118,647
|
|
|
(111,901
|
)
|
Amount
due to related party
|
|
|
(555,489
|
)
|
|
38,493
|
|
Accrued
liabilities and other payables
|
|
|
544,495
|
|
|
228,756
|
|
Income
taxes payable
|
|
|
-
|
|
|
33,935
|
|
Net
cash provided by/(used in) operating activities
|
|
|
5,606,307
|
|
|
(13,794,462
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Capital
expenditure on drydocking
|
|
|
(337,778
|
)
|
|
-
|
|
Increase/(decrease)
in restricted cash
|
|
|
2,806
|
|
|
(863,633
|
)
|
Net
cash used in investing activities
|
|
|
(334,972
|
)
|
|
(863,633
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Proceeds
from long-term bank loans
|
|
|
-
|
|
|
62,000,000
|
|
Repayment
of long-term bank loans
|
|
|
(4,000,000
|
)
|
|
(37,000,000
|
)
|
Rebates
received upon refinancing of bank loan
|
|
|
-
|
|
|
383,833
|
|
Dividend
paid
|
|
|
(819,500
|
)
|
|
(9,500,000
|
)
|
Net
cash (used in)/provided by financing activities
|
|
|
(4,819,500
|
)
|
|
15,883,833
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
451,835
|
|
|
1,225,738
|
|
Cash:
|
|
|
|
|
|
|
|
At
beginning of period
|
|
|
1,545,741
|
|
|
2,128,106
|
|
At
end of period
|
|
|
1,997,576
|
|
|
3,353,844
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
2006
|
|
2007
|
|
Cash
paid during the period for:
|
|
|
|
|
|
Interest
|
|
|
1,530,420
|
|
|
1,712,207
|
|
See
accompanying notes to the unaudited condensed financial statements.
Shinyo
Loyalty Limited
Notes
to
the Unaudited Condensed Financial Statements
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting
Policies
|
|
(a)
|
Description
of Business
|
Shinyo
Loyalty Limited (the “Company”), a company engaged in the business of ocean
transportation of crude oil worldwide, was established in Hong
Kong on September
8, 2003. The principal activity of the Company is the ownership
and chartering
of vessel “Shinyo Splendor”, previously known as “Shinyo Landes”. Shinyo
Splendor was delivered in 1993 and was a second hand vessel
acquired by the
Company in January 2004. It is double-hulled very large crude
oil carrier with
capacity of 306,474 deadweight tonnage.
The
Company has outsourced substantially all its day-to-day operations
to its
related party, Belindtha Marine Limited (“Belindtha”), a company controlled by a
person related to a director of the Company. Belindtha then sub-contracted
its
obligations under the outsourcing arrangement to Univan Ship
Management Limited
(“Univan”) which assists Belindtha in providing technical management services
to
the Company. Univan is controlled by Captain Charles Arthur Joseph
Vanderperre,
a director of the Company. All expenses incurred by Univan on
behalf of the
Company are charged to the Company based on the actual expenditures
incurred on
their behalf. In addition, China Sea Maritime Ltd. (“China Sea”) and Shinyo
Maritime Corporation (“Shinyo Maritime”) provide administrative services to the
Company. China Sea and Shinyo Maritime are controlled by Captain
Charles Arthur
Joseph Vanderperre and Mr Fred Cheng, respectively, each a director
of the
Company.
The
Company began receiving time charter revenue from
January 23, 2004 to March 23, 2007, pursuant to a time charter
agreement dated
January 14, 2004 with Euronav N.V. Under the charter agreement
with Euronav
N.V., the Company was paid a daily charter rate of $27,250.
Under a charter
agreement dated March 28, 2007 with Sinochem International
Oil (London) Co,
Ltd., the Company is paid a daily charter rate of $39,500.
As
of
September 30, 2007, the Company had working capital deficit of
$2,159,893. These financial statements have been prepared assuming
that the
Company will continue as a going concern as Vanship Holdings
Limited, the
immediate holding company, has confirmed its intention to provide
continuing
financial support to the Company so as to enable the Company
to meet its
liabilities as and when they fall due.
|
(c)
|
Basis
of Presentation
|
The
accompanying unaudited condensed financial statements as of September
30, 2007
and for the nine-month periods ended September 30, 2006 and 2007
have been
prepared in accordance with U.S. generally accepted accounting
principles (“US
GAAP”). Certain information and footnote disclosures normally included
in
financial statements prepared in accordance with US GAAP have
been condensed or
omitted as permitted by rules and regulations of the U.S. Securities
and
Exchange Commission. Disclosures have been made to these unaudited
condensed
financial statements where events subsequent to year ended December
31, 2006
have occurred which have a material impact on the Company. The
accompanying
unaudited condensed financial statements should be read in conjunction
with the
financial statements and the notes thereto, for the fiscal year
ended December
31, 2006. The December 31, 2006 balance sheet was derived from
the audited
financial statements of the Company.
Shinyo
Loyalty Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(c)
|
Basis
of Presentation
(continued)
|
In
the
opinion of the management, all adjustments (which include normal
accruals)
necessary to present a fair statement of the financial position
of the Company
as of September 30, 2007, and the results of its operations and
cash flows for
the nine-month periods ended September 30, 2006 and 2007, in
conformity with US
GAAP, have been made. The unaudited condensed statements of operations
for the
nine-month periods ended September 30, 2006 and 2007 are not
necessarily
indicative of the operating results to be expected for the full
fiscal year or
any future periods.
The
basis
of accounting differs in certain material respects from that
used in the
preparation of the books of account of the Company, which are
prepared in
accordance with the accounting principles of the country of its
domicile. The
accompanying unaudited condensed financial statements reflect
necessary
adjustments not recorded in the books of the Company to present
them in
conformity with US GAAP.
The
preparation of the financial statements requires management of
the Company to
make a number of estimates and assumptions relating to the reported
amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities
at the date of the financial statements and the reported amounts
of revenues and
expenses during the reporting period. Significant items subject
to such
estimates and assumptions include the estimated useful life of
the vessel
(including drydocking expenses), residual value and recovery
of the carrying
amount of the vessel. Actual results could differ from those
estimates.
In
the
normal course of business, the Company is subject to loss contingencies,
such as
legal proceedings and claims arising out of its business. An
accrual for a loss
contingency is recognized when it is probable that a liability
will be incurred
and the amount of the loss can be reasonably estimated.
|
(f)
|
Recently
Issued Accounting
Standards
|
In
September 2006,
the
Financial Accounting Standards Board (“FASB”)
issued
FASB Statement No. 157,
Fair
Value Measurement
(Statement
157). SFAS 157 defines fair value, establishes a framework for
the measurement
of fair value measures already required or permitted by other
standards for
fiscal years beginning after November 15, 2007. The Company is
required to adopt
Statement 157 for the fiscal years beginning on January 1, 2008.
Statement 157
is required to be applied prospectively, except for certain financial
instruments. Any transition adjustment will be recognized as
an adjustment to
opening retained earnings in the year of adoption.
The
Company does not anticipate that the adoption of Statement 157
will have a
material impact on its results of operations and financial
position.
Shinyo
Loyalty Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(f)
|
Recently
Issued Accounting Standards
(continued)
|
In
February 2007, the FASB issued FASB Statement No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities
- Including an
Amendment of FASB Statement No. 115
(Statement
159)
.
Statement
159 permits an entity to elect fair value as the initial and
subsequent
measurement attribute for many financial assets and liabilities.
Entities
electing the fair value option would be required to recognize
changes in fair
value in earnings. Entities electing the fair value option are
required to
distinguish, on the face of the balance sheet, the fair value
of assets and
liabilities for which the fair value option has been elected
and similar assets
and liabilities measured using another measurement attribute.
Statement 159 will
be effective for fiscal years beginning after November 15, 2007.
The adjustment
to reflect the difference between the fair value and the carrying
amount would
be accounted for as a cumulative-effect adjustment to retained
earnings as of
the date of initial adoption. The Company does not anticipate
that the adoption
of the provisions of Statement 159 will have a material impact
on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 160,
Noncontrolling
Interests in Consolidated Financial Statements - an Amendment
of ARB No. 51
(Statement
160). Statement 160 establishes accounting and reporting standards
for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. Statement 160 will be effective for the fiscal year
beginning after
December 15, 2008. The Company does not anticipate that the adoption
of the
provisions of Statement 160 will have a material impact on its
results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 141 (Revised),
Business
Combinations
(Statement 141(R)). Statement 141(R) establishes principles and
requirements for
how the acquirer of a business recognizes and measures in its
financial
statements the identifiable assets acquired, the liabilities
assumed, and any
noncontrolling interest in the acquiree. Statement 141(R) also
provides guidance
for recognizing and measuring the goodwill acquired in the business
combination
and determines what information to disclose to enable users of
the financial
statements to evaluate the nature and financial effects of the
business
combination. Statement 141(R) will be effective for fiscal years
beginning after
December 15, 2008. The Company does not anticipate the adoption
of the
provisions of Statement 141(R) will have a material impact on
its results of
operations and financial position.
Shinyo
Loyalty Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
|
|
December
31,
2006
|
|
September
30,
2007
|
|
Vessel
|
|
|
|
|
|
Cost
|
|
|
55,337,778
|
|
|
55,337,778
|
|
Accumulated
depreciation
|
|
|
(9,260,289
|
)
|
|
(11,712,540
|
)
|
Vessel,
net
|
|
|
46,077,489
|
|
|
43,625,238
|
|
The
vessel is mortgaged as described in Note 3.
Drydocking
costs of $337,778 were capitalized for the year ended December
31, 2006. As of
December 31, 2006 and September 30, 2007, undepreciated carrying
amount of the
drydocking costs was $292,741 and $191,407, respectively.
For
the
periods ended September 30, 2006 and 2007, $11,260 and $101,334
of drydocking
costs were expensed as depreciation, respectively.
Lender/period
|
|
Note
|
|
December
31,
2006
|
|
September
30,
2007
|
|
DVB
Group Merchant Bank (Asia) Ltd,
Deutsche
Schiffsbank and Aktiengesellschaft
|
|
|
|
|
|
|
|
January
21, 2004 to January 20, 2013
|
|
|
(a
|
)
|
|
35,250,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
DVB
Group Merchant Bank (Asia) Ltd,
Credit
Suisse and Deutsche Schiffsbank Aktiengesellschaft
|
|
|
|
|
|
|
|
|
|
|
May
21, 2007 to May 20, 2014
|
|
|
(b
|
)
|
|
-
|
|
|
60,250,000
|
|
|
|
|
|
|
|
35,250,000
|
|
|
60,250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
|
|
|
4,725,000
|
|
|
4,575,000
|
|
Non-current
portion
|
|
|
|
|
|
30,525,000
|
|
|
55,675,000
|
|
|
|
|
|
|
|
35,250,000
|
|
|
60,250,000
|
|
Notes:
|
(a)
|
The
loan carried interest at LIBOR plus 1.44% per annum
and interest rate
subsequently changed to LIBOR plus 1.38% per annum
since January 22, 2006
(4.56% as of December 31, 2006). The interest expense
for the periods
ended September 30, 2006 and 2007 was $1,322,532
and $600,102,
respectively. The loan was fully repaid on May
21,
2007.
|
Shinyo
Loyalty Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(3)
|
Long-term
Bank Loans (continued)
|
|
(b)
|
On
May 21, 2007, a loan of $62,000,000 was obtained.
The loan is repayable in
seven quarterly installments of $1,750,000 each,
followed by four
quarterly installments of $1,825,000 each, four
quarterly installments of
$1,925,000 each, four quarterly installments
of $2,075,000 each, four
quarterly installments of $2,200,000 each, three
quarterly installments of
$2,350,000 each and a balloon payment $8,850,000.
|
Interest
is charged at LIBOR plus 0.80% to LIBOR plus 1.62% per annum
(6.06% as of
September 30, 2007). The interest expense for the period ended
September 30,
2007 was $1,410,672.
As
of
December 31, 2006 and September 30, 2007, bank loans are secured
as
follows:
|
|
December
31,
2006
|
|
September
30,
2007
|
|
Secured
by:
|
|
|
|
|
|
Restricted
cash
|
|
|
1,530,580
|
|
|
2,394,213
|
|
Vessel
|
|
|
46,077,489
|
|
|
43,625,238
|
|
The
above
bank loan is guaranteed by Vanship Holdings Limited, the immediate
holding
company of the Company as of December 31, 2006 and September
30, 2007.
The
principal repayments for each of the years subsequent to
September 30, 2007 are
as follows:
Year
ending September 30
|
|
|
|
|
2008
|
|
|
7,000,000
|
|
2009
|
|
|
7,075,000
|
|
2010
|
|
|
7,400,000
|
|
2011
|
|
|
7,850,000
|
|
2012
and later
|
|
|
30,925,000
|
|
|
|
|
60,250,000
|
|
The
Company generates its revenues from time charter agreements.
The Company’s
revenue can be analyzed as follows:
|
|
Nine-Month
Periods Ended
September
30,
|
|
|
|
2006
|
|
2007
|
|
Time
charter
|
|
|
7,395,895
|
|
|
9,061,761
|
|
Profit-sharing
arising from sub-chartering
|
|
|
1,427,296
|
|
|
482,486
|
|
|
|
|
8,823,191
|
|
|
9,544,247
|
|
In
March
2007, the Company terminated the former time charter agreement early and
entered into a new time charter agreement with another charterer
in order to
benefit from a higher fixed daily charter rate. As a result
of the early
termination, an early termination charge of $20,783,562 as
agreed between the
former charterer and the Company was paid by the Company to
the former charterer
during the period ended September 30, 2007.
Shinyo
Loyalty Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
Under
the
laws of the countries of the Company’s incorporation and/or vessel’s
registration, the Company is not subject to tax on international
shipping
income. However, it is subject to registration and tonnage
taxes, which are
charged by the country of which the vessel is registered at
a fixed rate based
on the tonnage of the vessel. Registration and tonnage taxes
have been included
in vessel operating expenses in the accompanying statements
of operations.
In
addition, during the period ended September 30, 2007, the vessel
of the Company
operated in certain ports of the US. Accordingly, the Company
is subject to the
US Transportation Taxes which are calculated at 2% - 4% on relevant
charter hire
revenue.
Income
taxes represent US Transportation taxes as follows:
|
|
Nine-Month
Periods Ended
September
30,
|
|
|
|
2006
|
|
2007
|
|
Current
tax
|
|
|
-
|
|
|
33,935
|
|
Deferred
tax
|
|
|
-
|
|
|
-
|
|
Total
income taxes
|
|
|
-
|
|
|
33,935
|
|
Income
taxes reported in the statements of operations differ from the
amount computed
by applying the Hong Kong Profits Tax rate of 17.5% (the statutory
tax rate of
the Company) for the following reasons:
|
|
Nine-Month
Periods Ended
September 30,
|
|
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
Income/(loss)
before income taxes
|
|
|
2,906,040
|
|
|
(18,461,418
|
)
|
|
|
|
|
|
|
|
|
Computed
“expected” tax (expense)/benefit
|
|
|
(508,557
|
)
|
|
3,230,748
|
|
Non-deductible
vessel operating expenses
|
|
|
(338,884
|
)
|
|
(363,432
|
)
|
Non-deductible
depreciation expenses
|
|
|
(413,381
|
)
|
|
(429,144
|
)
|
Non-deductible
termination charge
|
|
|
-
|
|
|
(3,637,123
|
)
|
Non-deductible
interest expense
|
|
|
(263,761
|
)
|
|
(386,488
|
)
|
Other
non-deductible expenses
|
|
|
(37,342
|
)
|
|
(112,379
|
)
|
Non-taxable
income
|
|
|
1,561,925
|
|
|
1,697,818
|
|
US
Transportation Taxes
|
|
|
-
|
|
|
(33,935
|
)
|
Actual
income tax expense
|
|
|
-
|
|
|
(33,935
|
)
|
Shinyo
Loyalty Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(6)
|
Income
Taxes (continued)
|
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation of FASB
Statement
109
(FIN
48). FIN 48 clarifies the accounting for uncertainty in income
taxes recognized
in an enterprise’s financial statements and prescribes a threshold of
more-likely-than-not for recognition of tax benefits of uncertain
tax positions
taken or expected to be taken in a tax return. FIN 48 also
provides related
guidance on measurement, derecognition, classification, interest
and penalties,
and disclosure. The provisions of FIN 48 will be effective
for the fiscal years
beginning after December 15, 2006, with any cumulative effect
of the change in
accounting principle recorded as an adjustment to opening retained
earnings.
Effective from January 1, 2007, the Company adopted the provision
of FIN 48. As
of the date of the adoption of FIN 48, the Company has no material
unrecognized
tax benefit which would favorably affect the effective income
tax rate in future
periods and do not believe there will be any significant increases
or decreases
within the next twelve months. The Company has elected to classify
interest and
penalties related to unrecognized tax benefits, if and when
required, as part of
interest expense and administrative expense in the statements
of operations.
Interest
and penalties $68,684 and $33,377, respectively have been accrued
at the date of
adoption.
According
to the Inland Revenue Ordinance of Hong Kong, the statute
of limitations is
seven years (i.e. calendar years 2003 to 2007 for the Company)
if the
underpayment of taxes is due to omission or errors made by
either the taxpayer
or the withholding agent. The statute of limitations will
be extended to ten
years (i.e. calendar years 2003 to 2007 for the Company)
in case of tax evasion.
According
to the Internal Revenue Code of the United States of America,
the statute of
limitations is three years (i.e. calendar years 2005 to 2007
for the Company) if
the underpayment of taxes is due to omission or errors made
by either the
taxpayer or withholding agent. There is no statute of limitations
in the case of
tax evasion.
(7)
|
Related
Party Transactions
|
Name
of party
|
|
Relationship
|
|
|
|
Belindtha
Marine Limited (“Belindtha”)
|
|
A
company controlled by a person related to a director
of the
Company
|
|
|
|
China
Sea Maritime Ltd. (“China Sea”)
|
|
A
company controlled by a director, Captain Charles
Arthur Joseph
Vanderperre, of the Company
|
|
|
|
Shinyo
Maritime Corporation (“Shinyo Maritime”)
|
|
A
company controlled by a director, Mr Fred Cheng,
of the
Company
|
|
|
|
Univan
Ship Management Limited (“Univan”)
|
|
A
company controlled by a director, Captain Charles
Arthur Joseph
Vanderperre, of the Company
|
|
|
|
Vanship
Holdings Limited (“Vanship”)
|
|
Immediate
holding company of the Company
|
(a)
|
The
principal related party transactions during the periods
ended September
30, 2006 and 2007 are as follows:
|
|
|
|
|
Nine-Month
Periods Ended
September
30,
|
|
|
|
|
|
2006
|
|
2007
|
|
|
|
Note
|
|
|
|
|
|
Service
fee to Belindtha
|
|
|
(i)
|
|
|
85,500
|
|
|
85,500
|
|
Agency
fee to China Sea
|
|
|
(ii)
|
|
|
45,000
|
|
|
45,000
|
|
Agency
fee to Shinyo Maritime
|
|
|
(ii)
|
|
|
45,000
|
|
|
45,000
|
|
Loan
interest expense to Vanship
|
|
|
(iii)
|
|
|
116,088
|
|
|
115,330
|
|
Shinyo
Loyalty Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(7)
|
Related
Party Transactions
(continued)
|
(a)
|
The
principal related party transactions during the periods
ended September
30, 2006 and 2007 are as follows (continued):
|
Notes:
|
(i)
|
The
Company has outsourced substantially all its day-to-day
operations to
Belindtha. The service fee is payable to Belindtha
at a pre-determined
amount in accordance with the terms mutually agreed
by Belindtha and the
Company.
|
|
(ii)
|
China
Sea and Shinyo Maritime have provided agency services
to the Company. The
agency fee is payable to China Sea and Shinyo Maritime
based on
contractual agreements with the
Company.
|
|
(iii)
|
The
balance represents interest expense on loan from
Vanship. Terms of loan
details are set out in Note 6(b)(iii)
below.
|
(b)
|
Amounts
due from and due to related parties as of December
31, 2006 and September
30, 2007 are as follows:
|
|
|
|
|
December
31,
2006
|
|
September
30,
2007
|
|
|
|
Note
|
|
|
|
|
|
Amount
due from related party:
|
|
|
|
|
|
|
|
|
|
|
Amount
due from Univan
|
|
|
(i
)
|
|
|
61,273
|
|
|
173,174
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
due to related party:
|
|
|
|
|
|
|
|
|
|
|
Amount
due to Vanship
|
|
|
(ii
)
|
|
|
76,837
|
|
|
115,330
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
from related party:
|
|
|
|
|
|
|
|
|
|
|
Vanship
|
|
|
(iii
)
|
|
|
3,000,000
|
|
|
3,000,000
|
|
Notes:
|
(i)
|
The
balance represents advance payments for expenses
to be paid by Univan on
behalf of the Company. The balance is unsecured,
non-interest bearing and
with no fixed terms of repayment.
|
|
(ii)
|
The
balance represents interest payable on loan from
Vanship. Terms of loan
are set out in (iii) below.
|
|
(iii)
|
The
balance represents loan from Vanship. The loan period
is from January 16,
2004 to January 15, 2012. Interest is charged at
5% per annum and is due
every six months. The interest expense for the nine-month
periods ended
September 30, 2006 and 2007 was $116,088 and $115,330,
respectively.
Interest of $198,873 and $76,850 was paid for the
periods ended September
30, 2006 and 2007.
|
In
accordance with the contractual bank loan arrangement, the
loan from Vanship
shall not be repaid before the bank loans are repaid in full.
Shinyo
Loyalty Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(7)
|
Related
Party Transactions
(continued)
|
(c)
|
Vanship
has provided a letter of support to the Company to
confirm its intention
to provide continuing financial support to the Company
so as to enable the
Company to meet its liabilities when they fall due.
|
(d)
|
As
of December 31, 2006 and September 30, 2007, long-term
bank loan of
$35,250,000 and $60,250,000, respectively, was guaranteed
by Vanship.
|
(8)
|
Commitments
and Contingencies
|
Various
claims, suits, and complaints, including those involving government
regulations
and product liability, arise in the ordinary course of the
shipping business. In
addition, losses may arise from disputes with charterers, agents,
insurance and
other claims with suppliers relating to the operations of the
Company’s vessel.
Currently, management is not aware of any such claims or contingent
liabilities,
which should be disclosed, or for which a provision should
be established in the
accompanying financial statements.
(9)
|
Fair
Value of Financial Instruments
|
The
carrying amounts of cash, trade accounts receivable, amounts
due from/to related
parties, approximate their fair values because of the short
maturity of these
instruments.
The
carrying values of long-term bank loans and loan from related
party approximate
their fair values based on the borrowing rates currently available
to the
Company for bank loans with similar terms and average maturities.
(10)
|
Business
and Credit Concentrations
|
The
Company operates in the shipping industry which historically
has been cyclical
with corresponding volatility in profitability. All the Company’s revenues are
derived from vessel charters. The Company seeks to mitigate
volatilities in its
business by obtaining long-term charter contracts. The Company
has obtained a
long-term time charter contract which will expire in May 2014.
The
Company outsourced the technical management services to Belindtha
which is
controlled by a person related to a director of the Company.
Belindtha then
sub-contracted its obligations under the outsourcing arrangement
to Univan which
assists Belindtha in providing technical management services
to the Company.
Univan is controlled by Captain Charles Arthur Joseph Vanderperre,
a director of
the Company. All expenses incurred by Univan on behalf of the
Company are
charged to the Company based on the actual expenditures incurred
on its behalf.
During the periods ended September 30, 2006 and 2007, the Company
paid service
fee of $85,500 each period to Belindtha.
The
Company is engaged in the business of ocean transportation
of crude oil industry
which is extremely competitive and dependent on the world’s demand for crude
oil. Competition depends on price, location, size, age, condition
and the
acceptability of the vessel to the charterers. The increase
in competition and
the changes in demand for crude oil could result in lower revenue
achieved for
the vessel.
The
following are revenue from a customer that individually
comprises 10% or more of
gross revenue:
|
|
Nine-month
Period Ended September 30,
|
|
|
|
2006
|
|
2007
|
|
|
|
|
|
%
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Euronav
Luxembourg S.A.
|
|
|
8,823,191
|
|
|
100
|
|
|
9,544,247
|
|
|
100
|
|
The
gross
accounts receivable due from a customer that individually
representing more than
10% of the outstanding accounts receivable were as follows:
|
|
December
31,
20
06
|
|
September
30,
2007
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Euronav
Luxembourg S.A.
|
|
|
1,908,289
|
|
|
100
|
|
|
|
|
|
–
|
|
Shinyo
Loyalty Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
Pursuant
to a definitive agreement entered into between Vanship and
Energy Infrastructure
Acquisition Corp. (“EIAC”), a company listed on the American Stock Exchange, on
December 3, 2007 (the “Agreement”), Vanship agreed to sell all of its equity
interests in the Company and other eight related companies
to Energy
Infrastructure Merger Corporation (“EIMC”) (the “Business Combination”), a
wholly-owned subsidiary of EIAC, for an aggregate consideration
of $778,000,000,
consisting of $643,000,000 in cash (subject to closing adjustments)
and
13,500,000 shares of common stock of EIMC (valued at $10 per
share of common
stock). Vanship is entitled to an additional 3,000,000 shares
of common stock of
EIMC on each of the first and second anniversaries of the completion
of the
Business Combination, subject to certain earning criteria.
Approval
of the Business Combination requires the affirmative vote of
the holders of a
majority of the shares of common stock voted at EIAC’s special meeting of
stockholders, provided that there is a quorum. In addition,
if the EIAC
stockholders approve the Business Combination, the Business
Combination will
only proceed if holders of shares purchased in EIAC’s initial public offering,
representing less than 30% of the shares sold in EIAC’s initial public offering
and EIAC’s private placement that occurred immediately prior to the
initial
public offering, exercise their redemption rights at the time
of casting a vote
against the Business Combination.
Pursuant
to the Agreement, Vanship has agreed to purchase up to 5,000,000
units from EIMC
at a purchase price of $10.00 per unit, but only to the extent
necessary for
EIMC to secure financing for the Business Combination. Each
unit will consist of
one share of EIMC’s common stock and one warrant to purchase one share of EIMC’s
common stock at an exercise price of $8.00 per warrant.
Report
of Independent Registered Public Accounting Firm
The
Board
of Directors and Shareholder of
Shinyo
Kannika Limited:
We
have
audited the accompanying balance sheets of Shinyo Kannika
Limited (the
“Company”) as of December 31, 2005 and 2006, and the related statements
of
income, shareholder’s equity, and cash flows for the period from September
27,
2004 (date of incorporation) to December 31, 2004, and
the years ended December
31, 2005 and 2006. These financial statements are the responsibility
of the
Company’s management. Our responsibility is to express an opinion
on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of
the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial
statements are free of material misstatement. An audit
includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. An audit also includes assessing the accounting
principles used and
significant estimates made by management, as well as evaluating
the overall
financial statement presentation. We believe that our audits
provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present
fairly, in all
material respects, the financial position of Shinyo Kannika
Limited as of
December 31, 2005 and 2006, and the results of its operations
and its cash flows
for the period from September 27, 2004 (date of incorporation)
to December 31,
2004 and the years ended December 31, 2005 and 2006, in
conformity with U.S.
generally accepted accounting principles.
/s/
KPMG
Hong
Kong, China
February
11, 2008
Shinyo
Kannika Limited
Balance
Sheets
as
of
December 31, 2005 and 2006
(expressed
in US$)
|
|
|
|
2005
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
1,951,340
|
|
|
7,480,286
|
|
Restricted
cash
|
|
|
|
|
|
959,536
|
|
|
843,992
|
|
Trade
accounts receivable
|
|
|
|
|
|
5,060,465
|
|
|
2,942,576
|
|
Prepayments
and other receivables
|
|
|
|
|
|
61,454
|
|
|
28,648
|
|
Supplies
|
|
|
|
|
|
70,668
|
|
|
157,273
|
|
Amounts
due from related parties
|
|
|
8(b)
|
|
|
128,999
|
|
|
622,589
|
|
Total
current assets
|
|
|
|
|
|
8,232,462
|
|
|
12,075,364
|
|
Restricted
cash
|
|
|
|
|
|
1,000,000
|
|
|
1,000,000
|
|
Loan
to related party
|
|
|
8(b)
|
|
|
-
|
|
|
8,882,533
|
|
Deferred
loan costs
|
|
|
|
|
|
418,945
|
|
|
669,258
|
|
Vessel,
net
|
|
|
2
|
|
|
89,234,276
|
|
|
86,150,534
|
|
Total
assets
|
|
|
|
|
|
98,885,683
|
|
|
108,777,689
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term bank loans
|
|
|
3
|
|
|
3,500,000
|
|
|
5,700,000
|
|
Amounts
due to related parties
|
|
|
8(b)
|
|
|
1,795,241
|
|
|
672,395
|
|
Accrued
liabilities and other payables
|
|
|
4
|
|
|
506,294
|
|
|
618,225
|
|
Income
taxes payable
|
|
|
|
|
|
101,082
|
|
|
101,082
|
|
Total
current liabilities
|
|
|
|
|
|
5,902,617
|
|
|
7,091,702
|
|
Loans
from related parties
|
|
|
8(b)
|
|
|
29,567,467
|
|
|
16,450,000
|
|
Long-term
bank loans
|
|
|
3
|
|
|
44,700,000
|
|
|
57,100,000
|
|
Total
liabilities
|
|
|
|
|
|
80,170,084
|
|
|
80,641,702
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s
equity
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares HK$1 par value per share
10,000
shares authorized; 1 share issued and fully
paid as of December
31
|
|
|
|
|
|
-
|
|
|
-
|
|
Retained
earnings
|
|
|
|
|
|
18,715,599
|
|
|
28,135,987
|
|
Total
shareholder’s equity
|
|
|
|
|
|
18,715,599
|
|
|
28,135,987
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholder’s equity
|
|
|
|
|
|
98,885,683
|
|
|
108,777,689
|
|
See
accompanying notes to the financial statements.
Shinyo
Kannika Limited
Statements
of Income
for
the
period from September 27, 2004 (date of incorporation)
to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
|
|
Operating
revenue
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
5
|
|
|
9,575,460
|
|
|
21,702,699
|
|
|
22,820,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
6
|
|
|
348,886
|
|
|
1,927,607
|
|
|
2,115,593
|
|
Voyage
expenses
|
|
|
|
|
|
582,434
|
|
|
-
|
|
|
-
|
|
Depreciation
expenses
|
|
|
|
|
|
476,270
|
|
|
3,789,454
|
|
|
3,882,662
|
|
Management
fee
|
|
|
8(a)
|
|
|
14,250
|
|
|
114,000
|
|
|
114,000
|
|
Commission
|
|
|
|
|
|
333,397
|
|
|
-
|
|
|
-
|
|
Administrative
expenses
|
|
|
|
|
|
14,366
|
|
|
64,323
|
|
|
95,669
|
|
Total
operating expenses
|
|
|
|
|
|
1,769,603
|
|
|
5,895,384
|
|
|
6,207,924
|
|
Operating
income
|
|
|
|
|
|
7,805,857
|
|
|
15,807,315
|
|
|
16,612,572
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
1,716
|
|
|
129,791
|
|
|
726,085
|
|
Interest
expense
|
|
|
|
|
|
(609,011
|
)
|
|
(4,322,288
|
)
|
|
(4,912,122
|
)
|
Others,
net
|
|
|
|
|
|
9,577
|
|
|
(6,276
|
)
|
|
(6,147
|
)
|
Total
other expense
|
|
|
|
|
|
(597,718
|
)
|
|
(4,198,773
|
)
|
|
(4,192,184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
|
|
|
7,208,139
|
|
|
11,608,542
|
|
|
12,420,388
|
|
Income
taxes
|
|
|
7
|
|
|
-
|
|
|
(101,082
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
7,208,139
|
|
|
11,507,460
|
|
|
12,420,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes
the following income/(expenses) resulting from
transactions with related
parties (see note 8(a)):
|
|
|
2004
|
|
2005
|
|
2006
|
|
Vessel
operating expenses
|
|
|
|
|
|
|
|
-
Agency fee
|
|
|
(14,854
|
)
|
|
(111,234
|
)
|
|
(120,000
|
)
|
Management
fee
|
|
|
(14,250
|
)
|
|
(114,000
|
)
|
|
(114,000
|
)
|
Interest
income
|
|
|
-
|
|
|
-
|
|
|
363,495
|
|
Interest
expense
|
|
|
(251,147
|
)
|
|
(1,544,094
|
)
|
|
(1,670,592
|
)
|
See
accompanying notes to the financial statements.
Shinyo
Kannika Limited
Statements
of Shareholder’s Equity
for
the
period from September 27, 2004 (date of incorporation)
to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
|
|
|
|
Ordinary shares
|
|
|
|
Total
|
|
|
|
|
|
Number of
shares
|
|
Amount
|
|
earnings
|
|
shareholder’s
equity
|
|
|
|
Note
|
|
|
|
|
|
|
|
|
|
Balance
as of September 27, 2004
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Capital
injected upon incorporation
|
|
|
1
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
income
|
|
|
|
|
|
-
|
|
|
-
|
|
|
7,208,139
|
|
|
7,208,139
|
|
Balance
as of December 31, 2004
|
|
|
|
|
|
1
|
|
|
-
|
|
|
7,208,139
|
|
|
7,208,139
|
|
Net
income
|
|
|
|
|
|
-
|
|
|
-
|
|
|
11,507,460
|
|
|
11,507,460
|
|
Balance
as of December 31, 2005
|
|
|
|
|
|
1
|
|
|
-
|
|
|
18,715,599
|
|
|
18,715,599
|
|
Dividend
paid
|
|
|
|
|
|
-
|
|
|
-
|
|
|
(3,000,000
|
)
|
|
(3,000,000
|
)
|
Net
income
|
|
|
|
|
|
-
|
|
|
-
|
|
|
12,420,388
|
|
|
12,420,388
|
|
Balance
as of December 31, 2006
|
|
|
|
|
|
1
|
|
|
-
|
|
|
28,135,987
|
|
|
28,135,987
|
|
See
accompanying notes to the financial statements.
for
the
period from September 27, 2004 (date of incorporation)
to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
|
|
2004
|
|
2005
|
|
2006
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
income
|
|
|
7,208,139
|
|
|
11,507,460
|
|
|
12,420,388
|
|
Adjustments
to reconcile net income to net cash provided
by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expenses
|
|
|
476,270
|
|
|
3,789,454
|
|
|
3,882,662
|
|
Amortization
of deferred loan costs
|
|
|
7,617
|
|
|
60,938
|
|
|
64,687
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
(9,575,460
|
)
|
|
4,514,995
|
|
|
2,117,889
|
|
Prepayments
and other receivables
|
|
|
(464,182
|
)
|
|
402,728
|
|
|
32,806
|
|
Supplies
|
|
|
(34,601
|
)
|
|
(36,067
|
)
|
|
(86,605
|
)
|
Amounts
due from related parties
|
|
|
-
|
|
|
(128,999
|
)
|
|
(493,590
|
)
|
Amounts
due to related parties
|
|
|
1,072,280
|
|
|
722,961
|
|
|
(1,122,846
|
)
|
Accrued
liabilities and other payables
|
|
|
748,689
|
|
|
(242,395
|
)
|
|
111,931
|
|
Income
taxes payable
|
|
|
-
|
|
|
101,082
|
|
|
-
|
|
Net
cash (used in)/provided by operating activities
|
|
|
(561,248
|
)
|
|
20,692,157
|
|
|
16,927,322
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Purchase
of vessel
|
|
|
(93,500,000
|
)
|
|
-
|
|
|
-
|
|
Capital
expenditure on drydocking
|
|
|
-
|
|
|
-
|
|
|
(798,920
|
)
|
Loan
made to related party
|
|
|
-
|
|
|
-
|
|
|
(8,882,533
|
)
|
(Increase)/decrease
in restricted cash
|
|
|
-
|
|
|
(1,959,536
|
)
|
|
115,544
|
|
Net
cash used in investing activities
|
|
|
(93,500,000
|
)
|
|
(1,959,536
|
)
|
|
(9,565,909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from long-term bank loans
|
|
|
65,000,000
|
|
|
-
|
|
|
22,000,000
|
|
Repayment
of long-term bank loans
|
|
|
-
|
|
|
(16,800,000
|
)
|
|
(7,400,000
|
)
|
Payment
of loan costs
|
|
|
(487,500
|
)
|
|
-
|
|
|
(315,000
|
)
|
Proceeds
from loans from related parties
|
|
|
29,567,467
|
|
|
-
|
|
|
-
|
|
Repayment
of loans from related parties
|
|
|
-
|
|
|
-
|
|
|
(13,117,467
|
)
|
Dividend
paid
|
|
|
-
|
|
|
-
|
|
|
(3,000,000
|
)
|
Net
cash provided by/(used in) financing activities
|
|
|
94,079,967
|
|
|
(16,800,000
|
)
|
|
(1,832,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
18,719
|
|
|
1,932,621
|
|
|
5,528,946
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
At
beginning of period/year
|
|
|
-
|
|
|
18,719
|
|
|
1,951,340
|
|
At
end of year
|
|
|
18,719
|
|
|
1,951,340
|
|
|
7,480,286
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
2004
|
|
2005
|
|
2006
|
|
Cash
paid during the period/year for:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
153,785
|
|
|
2,640,632
|
|
|
6,023,924
|
|
See
accompanying notes to the financial statements.
Shinyo
Kannika
Limited
Notes
to
Financial Statements
for
the
period from September 27, 2004 (date of incorporation)
to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting
Policies
|
|
(a)
|
Description
of Business
|
Shinyo
Kannika Limited (the “Company”), a company engaged in the business of ocean
transportation of crude oil worldwide, was established
in Hong Kong on September
27, 2004. The principal activity of the Company is the
ownership and chartering
of the vessel “Shinyo Kannika”. Shinyo Kannika was delivered in 2001 and was a
second hand vessel acquired by the Company in November
2004. It is a
double-hulled very large crude oil carrier with capacity
of 289,175 deadweight
tonnage.
On
September 27, 2004, Vanship Holdings Limited established
the Company in Hong
Kong as limited liability company with authorized share
capital of 10,000
ordinary shares of HK$1 each. On date of incorporation,
1 subscriber share of
HK$1 each was issued.
The
Company has outsourced substantially all its day to day
operations to its
related party, Belindtha Marine Limited (“Belindtha”), a company controlled by a
person related to a director of the Company. Belindtha
then sub-contracted its
obligations under the outsourcing arrangement to Univan
Ship Management Limited
(“Univan”) which assists Belindtha in providing technical management
services to
the Company. Univan is controlled by Captain Charles Arthur
Joseph Vanderperre,
a director of the Company. All expenses incurred by Univan
on behalf of the
Company are charged to the Company based on the actual
expenditures incurred on
its behalf. In addition, China Sea Maritime Ltd. (“China Sea”) and Shinyo
Maritime Corporation (“Shinyo Maritime”) provide administrative services to the
Company. China Sea and Shinyo Maritime are controlled by
Captain Charles Arthur
Joseph Vanderperre and Mr Fred Cheng, respectively, each
a director of the
Company.
From
November 16, 2004 to December 27, 2004, Shinyo
Kannika operated in the spot market. Under a pool trade
charter agreement with
Tanker International L.L.C., the Company began receiving
time charter revenue
from December 27, 2004 until February 17, 2007. On August
28, 2006, the Company
entered into a time charter agreement with Dalian Ocean
Shipping Company
(“Dalian”) pursuant to which the Company is paid a daily charter
rate of $39,000
starting from delivery of the vessel on February 17,
2007, subject to a profit
sharing arrangement in which income in excess of $44,000
is split equally the
Company and Dalian.
|
(b)
|
Basis
of Presentation
|
The
Company’s financial statements are presented in accordance with
U.S. generally
accepted accounting principles (“US GAAP”).
The
basis
of accounting differs in certain material respects from
that used in the
preparation of the statutory financial statements of the
Company, which are
prepared in accordance with the accounting principles of
the country of its
domicile. The accompanying financial statements reflect
necessary adjustments to
present them in conformity with US GAAP.
Cash
consists interest-bearing deposits placed with banks. As
of December 31, 2005
and 2006, there were no cash equivalents.
Restricted
cash represents minimum interest-bearing bank deposits
which must be maintained
in accordance with contractual bank loan arrangements over
the bank loan period.
Shinyo
Kannika
Limited
Notes
to
Financial Statements (continued)
for
the
period from September 27, 2004 (date of incorporation)
to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(e)
|
Trade
Accounts Receivable
|
Trade
accounts receivable are recorded at the invoiced amount,
do not bear interest
and reflect billings to charterers for hire, freight and
demurrage. The Company
maintains an allowance for doubtful accounts for estimated
losses inherent in
its trade accounts receivable portfolio. In establishing
the required allowance,
management considers historical losses, current receivables
aging, and existing
industry and national economic data. The Company’s customers are in the crude
oil industry and are affected by demand and supply of crude
oil worldwide. The
Company has been able to collect on all of its receivable
balances, and
accordingly, the Company did not provide for any allowance
for doubtful accounts
at December 31, 2005 and 2006. The Company does not have
any off-balance-sheet
credit exposure related to its customers.
Supplies
consisting of lubricating oil are stated at cost. Cost
is determined on a
first-in, first-out method (FIFO).
A
vessel
is stated at cost, which consists of the contract price
and delivery costs.
Subsequent expenditures for conversions and major overhauls
(“drydocking”) are
also capitalized when they extend the life, increase the
earning capacity or
improve the efficiency or safety of the vessel otherwise
these amounts are
charged to expense as incurred.
Depreciation
on the vessel is calculated based on the straight-line
method over the estimated
useful life of the vessel, after taking into account its
estimated residual
value, from date of acquisition. The vessel’s residual value is equal to the
product of its lightweight tonnage and estimated scrap
rate. Management
estimates the useful life of the Company’s vessel to be 21 years from the date
of acquisition. The useful life of the vessel is evaluated
on a regular basis to
account for changes in circumstances, including changes
in regulatory
restrictions. If regulations place limitations over the
ability of a vessel to
trade on a worldwide basis, its useful life is adjusted
to end at the date such
regulations become effective.
The
Company follows the deferral method of accounting for drydocking
whereby actual
costs incurred are capitalized and are depreciated on a
straight-line basis over
the period through the date the next drydocking becomes
due. The vessel of the
Company is required to have an intermediate drydocking
approximately every 30
months and a special survey drydocking approximately every
60 months.
Capitalized intermediate drydocking costs and special survey
drydocking costs
are depreciated over a period of 30 months and 60 months,
respectively. If the
anticipated date of drydocking is changed from the scheduled
date, the remaining
undepreciated carrying amount of the drydocking costs is
adjusted to reflect the
revised date.
Shinyo
Kannika
Limited
Notes
to
Financial Statements (continued)
for
the
period from September 27, 2004 (date of incorporation)
to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
A
vessel
is reviewed for impairment whenever events or changes in
circumstances indicate
that the carrying amount of a vessel may not be recoverable.
Recoverability of
the vessel is measured by a comparison of the carrying
amount of the vessel,
including capitalized drydocking costs, to the estimated
undiscounted future
cash flows expected to be generated by the vessel. If the
carrying amount of the
vessel exceeds its estimated future undiscounted cash flows,
an impairment
charge will be recognized by the amount that the carrying
amount of the vessel
exceeds its estimated fair value.
In
the
normal course of business, the Company is subject to loss
contingencies, such as
legal proceedings and claims arising out of its business.
An accrual for a loss
contingency is recognized when it is probable that a liability
will be incurred
and the amount of the loss can be reasonably estimated.
|
(j)
|
Revenue
Recognition and Related
Expenses
|
The
Company generates its revenues from voyage and pool trade
charter agreements.
Revenues are recognized when the collectibility has been
reasonably assured. The
Company follows EITF 91-9 in accounting for voyage charter
revenues. Voyage
charter revenues are recognized based on the percentage
of completion at the
balance sheet date. A voyage is deemed to commence upon
the completion of
discharge of the vessel’s previous cargo and is deemed to end upon the
completion of discharge of the current cargo. Revenues
from a pool trade
arrangement are accounted for on an accruals basis. The
net income of a pool
trade arrangement is shared among all participants based
on the points awarded
to each participant which are dependent on the age, design
and other performance
characteristics of the vessel of each participant. Voyage
related and vessel
operating costs are expensed as incurred.
Brokerage
and charter hire commissions paid to third parties are
expensed in the same
period as revenues are recognized.
Shinyo
Kannika
Limited
Notes
to
Financial Statements (continued)
for
the
period from September 27, 2004 (date of incorporation)
to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
Fees
incurred for obtaining new loans are deferred and amortized
to interest expense
over the life of the related debt using the effective interest
method. The
Company follows EITF 96-19 in accounting for debt modification.
A modification
is considered substantial if the present value of the cash
flows under the terms
of new debt is at least 10 percent different from the present
value of the
remaining cash flows under the terms of the original debt
at the date of
modification. When the loan is repaid or when the loan
is substantially
modified, the existing unamortized fees are written-off
in the period debt
repayment or substantial modification takes place. When
the modification is not
considered substantial, the fees associated with the modification
and, along
with the existing unamortized fees, are amortized over
the remaining term of the
modified loan using the effective interest method. There
was no write-off of
deferred loan costs during the period/years ended December
31, 2004, 2005 and
2006.
|
(m)
|
Foreign
Currency Transactions
|
The
Company’s functional and reporting currency is the United States
(“US”) dollar
because the Company’s vessel operates in international shipping markets, where
most transactions are denominated in US dollar. Furthermore,
the Company incurs
bank debt, pays salaries and wages and certain other expenditures
such as fuel
costs, lubricants, insurance costs, all in US dollars.
Transactions
denominated in currencies other than US dollar are translated
into US dollars at
the exchange rates prevailing at the dates of transactions.
Monetary assets and
liabilities denominated in currencies other than US dollar
are translated at the
exchange rates prevailing at the balance sheet dates. During
the period/years
ended December 31, 2004, 2005 and 2006, substantially all
of the Company’s
transactions were denominated in US dollars and the Company
did not have
significant foreign currency transaction gains or losses.
The
preparation of the financial statements requires management
of the Company to
make a number of estimates and assumptions relating to
the reported amounts of
assets and liabilities and the disclosure of contingent
assets and liabilities
at the date of the financial statements and the reported
amounts of revenues and
expenses during the reporting period. Significant items
subject to such
estimates and assumptions include the estimated useful
life of the vessel
(including drydocking costs), residual value and recovery
of the carrying amount
of the vessel. Actual results could differ from those estimates.
Shinyo
Kannika
Limited
Notes
to
Financial Statements (continued)
for
the
period from September 27, 2004 (date of incorporation)
to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(p)
|
Recently
Issued Accounting
Standards
|
In
September 2006, the FASB issued FASB Statement No. 157,
Fair
Value Measurement
(Statement
157). Statement 157 defines fair value, establishes a framework
for the
measurement of fair value measures already required or
permitted by other
standards for fiscal years beginning after November 15,
2007. The Company is
required to adopt Statement 157 for the fiscal years beginning
on January 1,
2008. Statement 157 is required to be applied prospectively,
except for certain
financial instruments. Any transition adjustment will be
recognized as an
adjustment to opening retained earnings in the year of
adoption. The Company
does not anticipate that the adoption of Statement 157
will have a material
impact on its results of operations and financial position.
In
September 2006, the FASB issued FASB Staff Position No.
AUG AIR-1, A
ccounting
for Planned Major Maintenance Activities
(AUG
AIR-1). This guidance prohibits the use of the accrue-in-advance
method of
accounting for planned major maintenance activities because
an obligation has
not occurred and therefore a liability should not be recognized.
The provisions
of this guidance will be effective for fiscal years beginning
after December 15,
2006. Effective from January 1, 2007, the Company adopted
the provision of AUG
AIR-1. The Company follows the deferral method of accounting
for drydocking. As
of the date of adoption of AUG AIR-1, the Company has no
accruals for planned
drydocking which require to be adjusted retrospectively.
In
February 2007, the FASB issued FASB Statement No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities
- Including an
Amendment of FASB Statement No. 115
(Statement
159)
.
Statement
159 permits an entity to elect fair value as the initial
and subsequent
measurement attribute for many financial assets and liabilities.
Entities
electing the fair value option would be required to recognize
changes in fair
value in earnings. Entities electing the fair value option
are required to
distinguish, on the face of the balance sheet, the fair
value of assets and
liabilities for which the fair value option has been elected
and similar assets
and liabilities measured using another measurement attribute.
Statement 159 will
be effective for fiscal years beginning after November
15, 2007. The adjustment
to reflect the difference between the fair value and the
carrying amount would
be accounted for as a cumulative-effect adjustment to retained
earnings as of
the date of initial adoption. The Company does not anticipate
that the adoption
of the provisions of Statement 159 will have a material
impact on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 160,
Noncontrolling
Interests in Consolidated Financial Statements - an Amendment
of ARB No. 51
(Statement
160). Statement 160 establishes accounting and reporting
standards for the
noncontrolling interest in a subsidiary and for the deconsolidation
of a
subsidiary. Statement 160 will be effective for the fiscal
year beginning after
December 15, 2008. The Company does not anticipate that
the adoption of the
provisions of Statement 160 will have a material impact
on its results of
operations and financial position.
Shinyo
Kannika
Limited
Notes
to
Financial Statements (continued)
for
the
period from September 27, 2004 (date of incorporation)
to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(p)
|
Recently
Issued Accounting Standards
(continued)
|
In
December 2007, the FASB issued FASB Statement No. 141 (Revised),
Business
Combinations
(Statement
141(R)). Statement 141(R) establishes principles and requirements
for how the
acquirer of a business recognizes and measures in its financial
statements the
identifiable assets acquired, the liabilities assumed,
and any noncontrolling
interest in the acquiree. Statement 141(R) also provides
guidance for
recognizing and measuring the goodwill acquired in the
business combination and
determines what information to disclose to enable users
of the financial
statements to evaluate the nature and financial effects
of the business
combination. Statement 141(R) will be effective for fiscal
years beginning after
December 15, 2008. The Company does not anticipate the
adoption of the
provisions of Statement 141(R) will have a material impact
on its results of
operations and financial position.
|
|
2005
|
|
2006
|
|
Vessel
|
|
|
|
|
|
|
|
Cost
|
|
|
93,500,000
|
|
|
94,298,920
|
|
Accumulated
depreciation
|
|
|
(4,265,724
|
)
|
|
(8,148,386
|
)
|
Vessel,
net
|
|
|
89,234,276
|
|
|
86,150,534
|
|
The
vessel is mortgaged as described in Note 3.
Drydocking
costs of $798,920 were capitalized for the year ended December
31, 2006. As of
December 31, 2005 and 2006, undepreciated carrying amount
of the drydocking
costs was $Nil and $705,712, respectively.
For
the
period/years ended December 31, 2004, 2005 and 2006, $Nil,
$Nil and $93,208 of
drydocking costs were expensed as depreciation, respectively.
|
|
Interest
|
|
|
|
|
|
|
|
|
|
rate
per
|
|
|
|
|
|
|
|
Lender/period
|
|
annum
|
|
Note
|
|
2005
|
|
2006
|
|
DVB
Group Merchant Bank (Asia) Ltd, Credit Suisse,
Deutsche Schiffsbank and
Aktiengesellschaft
|
|
|
|
|
|
|
|
|
|
November
15, 2004 to November
14,
2012
|
|
|
LIBOR+1.15%
to
LIBOR+1.50%
|
|
|
a
|
|
|
48,200,000
|
|
|
41,900,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DVB
Group Merchant Bank (Asia) Ltd
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2006 to June 29, 2016
|
|
|
LIBOR+1.35%
|
|
|
b
|
|
|
-
|
|
|
20,900,000
|
|
|
|
|
|
|
|
|
|
|
48,200,000
|
|
|
62,800,000
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
|
|
|
|
|
|
3,500,000
|
|
|
5,700,000
|
|
Non-current
portion
|
|
|
|
|
|
|
|
|
44,700,000
|
|
|
57,100,000
|
|
|
|
|
|
|
|
|
|
|
48,200,000
|
|
|
62,800,000
|
|
Shinyo
Kannika
Limited
Notes
to
Financial Statements (continued)
for
the
period from September 27, 2004 (date of incorporation)
to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(3)
|
Long-term
Bank Loans (continued)
|
Notes:
|
(a)
|
On
November 15, 2004, a loan of $65,000,000 was obtained. The
loan is
repayable by four quarterly installments of
$2,450,000 each, followed by
eight quarterly installments of $875,000 each,
four quarterly installments
of $725,000 each, four quarterly installments
of $625,000 each, four
quarterly installments of $550,000 each, four
quarterly installments of
$575,000 each, four quarterly installments
of $625,000 each and a balloon
payment $35,800,000.
|
Apart
from regular repayments in accordance with the above repayment
schedule, the
Company made an additional payment of $7,000,000 and $2,800,000
to the bank
during 2005 and 2006, respectively.
Interest
is charged at LIBOR plus 1.50% per annum and interest rate
subsequently changed
to LIBOR plus 1.15% per annum since May 1, 2006 (5.35%
and 5.31% as of December
31, 2005 and 2006, respectively). The interest expense
for the period/years
ended December 31, 2004, 2005 and 2006 was $350,247, $2,717,256
and $2,383,563,
respectively.
|
(b)
|
On
June 30, 2006, a loan of $22,000,000 was obtained.
The loan is repayable
by forty quarterly installments of $550,000
each. Interest is charged at
LIBOR plus 1.35% per annum (6.72% as of December
31, 2006). The interest
expense for the year ended December 31, 2006
was $756,754.
|
As
of
December 31, 2005 and 2006, bank loans are secured as follows:
|
|
2005
|
|
2006
|
|
Secured
by:
|
|
|
|
|
|
Restricted
cash
|
|
|
1,959,536
|
|
|
1,843,992
|
|
Vessel
|
|
|
89,234,276
|
|
|
86,150,534
|
|
The
bank
loans are also guaranteed by immediate holding company,
Vanship Holdings
Limited, as of December 31, 2005 and 2006.
The
principal repayments for each of the years subsequent to
December 31, 2006 are
as follows:
Year
ending December 31,
|
|
|
|
2007
|
|
|
5,700,000
|
|
2008
|
|
|
5,100,000
|
|
2009
|
|
|
4,700,000
|
|
2010
|
|
|
4,400,000
|
|
2011
and later
|
|
|
42,900,000
|
|
|
|
|
62,800,000
|
|
Shinyo
Kannika
Limited
Notes
to
Financial Statements (continued)
for
the
period from September 27, 2004 (date of incorporation)
to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(4)
|
Accrued
Liabilities and Other
Payables
|
Accrued
liabilities and other payables at December 31, 2005 and
2006 consist of the
following:
|
|
2005
|
|
2006
|
|
Accrued
audit fee
|
|
|
1,500
|
|
|
1,600
|
|
Accrued
vessel operating expenses
|
|
|
194,853
|
|
|
295,448
|
|
Bank
loan interest payable
|
|
|
273,086
|
|
|
182,917
|
|
Wages
payable
|
|
|
36,855
|
|
|
72,925
|
|
Other
payables
|
|
|
-
|
|
|
65,335
|
|
|
|
|
506,294
|
|
|
618,225
|
|
The
Company generates its revenues from voyage and pool trade
charter agreements.
The Company’s revenue can be analyzed as follows:
|
|
2004
|
|
2005
|
|
2006
|
|
Voyage
charter
|
|
|
8,890,587
|
|
|
-
|
|
|
-
|
|
Pool
trade
|
|
|
684,873
|
|
|
21,702,699
|
|
|
22,820,496
|
|
|
|
|
9,575,460
|
|
|
21,702,699
|
|
|
22,820,496
|
|
(6)
|
Vessel
Operating Expenses
|
Vessel
operating expenses for the period/years ended December
31, 2004, 2005 and 2006
consist of the following:
|
|
2004
|
|
2005
|
|
2006
|
|
Crew
wages and allowances
|
|
|
77,917
|
|
|
542,581
|
|
|
616,144
|
|
Crew
expenses
|
|
|
24,753
|
|
|
116,780
|
|
|
109,631
|
|
Insurance
expenses
|
|
|
50,763
|
|
|
497,571
|
|
|
475,949
|
|
Lubricating
oil expenses
|
|
|
68,390
|
|
|
223,522
|
|
|
280,969
|
|
Repair
and maintenance
|
|
|
64,022
|
|
|
113,090
|
|
|
233,844
|
|
Stores
expenses
|
|
|
33,399
|
|
|
92,173
|
|
|
119,786
|
|
Spare
parts expenses
|
|
|
8,954
|
|
|
99,998
|
|
|
123,966
|
|
Other
operating expenses
|
|
|
20,688
|
|
|
241,892
|
|
|
155,304
|
|
|
|
|
348,886
|
|
|
1,927,607
|
|
|
2,115,593
|
|
Shinyo
Kannika
Limited
Notes
to
Financial Statements (continued)
for
the
period from September 27, 2004 (date of incorporation)
to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
Under
the
laws of the countries of the Company’s incorporation and/or vessel’s
registration, the Company is not subject to tax on international
shipping
income. However, it is subject to registration and tonnage
taxes, which are
charged by the country of which the vessel is registered
at a fixed rate based
on the tonnage of the vessel. Registration and tonnage
taxes have been included
in vessel operating expenses in the accompanying statements
of income.
In
addition, during the year ended December 31, 2005, the
vessel of the Company
operated in certain ports of the US. Accordingly, the Company
is subject to the
US Transportation Taxes which are calculated at 2% - 4%
on relevant charter hire
revenue.
Income
taxes represent US Transportation taxes as follows:
|
|
2004
|
|
2005
|
|
2006
|
|
Current
taxes
|
|
|
-
|
|
|
101,082
|
|
|
-
|
|
Deferred
taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
income taxes
|
|
|
-
|
|
|
101,082
|
|
|
-
|
|
Income
taxes reported in the statements of income differ from
the amount computed by
applying the Hong Kong Profits Tax rate of 17.5% (the statutory
tax rate of the
Company) for the following reasons:
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
7,208,139
|
|
|
11,608,542
|
|
|
12,420,388
|
|
|
|
|
|
|
|
|
|
|
|
|
Computed
“expected” tax expense
|
|
|
(1,261,424
|
)
|
|
(2,031,495
|
)
|
|
(2,173,568
|
)
|
Non-deductible
vessel operating expenses
|
|
|
(61,055
|
)
|
|
(337,331
|
)
|
|
(370,229
|
)
|
Non-deductible
voyage expenses
|
|
|
(101,926
|
)
|
|
-
|
|
|
-
|
|
Non-deductible
depreciation expenses
|
|
|
(83,347
|
)
|
|
(663,154
|
)
|
|
(679,466
|
)
|
Non-deductible
interest expense
|
|
|
(106,577
|
)
|
|
(756,400
|
)
|
|
(859,621
|
)
|
Other
non-deductible expenses
|
|
|
(63,352
|
)
|
|
(32,306
|
)
|
|
(37,768
|
)
|
Non-taxable
income
|
|
|
1,677,681
|
|
|
3,820,686
|
|
|
4,120,652
|
|
US
Transportation Taxes
|
|
|
-
|
|
|
(101,082
|
)
|
|
-
|
|
Actual
income tax expense
|
|
|
-
|
|
|
(101,082
|
)
|
|
-
|
|
Shinyo
Kannika
Limited
Notes
to
Financial Statements (continued)
for
the
period from September 27, 2004 (date of incorporation)
to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(7)
|
Income
Taxes (continued)
|
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation of
FASB Statement
109
(FIN
48). FIN 48 clarifies the accounting for uncertainty
in income taxes recognized
in an enterprise’s financial statements and prescribes a threshold of
more-likely-than-not for recognition of tax benefits
of uncertain tax positions
taken or expected to be taken in a tax return. FIN 48
also provides related
guidance on measurement, derecognition, classification,
interest and penalties,
and disclosure. The provisions of FIN 48 will be effective
for the fiscal years
beginning after December 15, 2006, with any cumulative
effect of the change in
accounting principle recorded as an adjustment to opening
retained earnings.
Effective from January 1, 2007, the Company adopted the
provision of FIN 48. As
of the date of the adoption of FIN 48, the Company has
no material unrecognized
tax benefit which would favorably affect the effective
income tax rate in future
periods. The Company has elected to classify interest
and penalties related to
unrecognized tax benefits, if and when required, as part
of interest expenses
and administrative expenses in the statements of income,
respectively. Interest
and penalties of $36,526 and $28,809, respectively have
been accrued at the date
of adoption.
According
to the Inland Revenue Ordinance of Hong Kong, the statute
of limitations is
seven years (i.e. calendar years 2004 to 2006 for the
Company) if the
underpayment of taxes is due to omission or errors
made by either the taxpayer
or the withholding agent. The statute of limitations
will be extended to ten
years (i.e. calendar years 2004 to 2006 for the Company)
in case of tax evasion.
According
to the Internal Revenue Code of the United States of
America, the statute of
limitations is three years (i.e. calendar years 2004
to 2006 for the Company) if
the underpayment of taxes is due to omission or errors
made by either the
taxpayer or withholding agent. There is no statute
of limitations in the case of
tax evasion.
(8)
Related
Party Transactions
Name
of party
|
|
Relationship
|
Belindtha
Marine Limited (“Belindtha”)
|
|
A
company controlled by a person related to a director
of the
Company
|
|
|
|
China
Sea Maritime Ltd. (“China Sea”)
|
|
A
company controlled by a director, Captain Charles
Arthur Joseph
Vanderperre, of the Company
|
|
|
|
Shinyo
Maritime Corporation (“Shinyo Maritime”)
|
|
A
company controlled by a director, Mr Fred Cheng,
of the
Company
|
|
|
|
Shinyo
Alliance Limited (“Shinyo Alliance”)
|
|
A
fellow subsidiary of the Company
|
|
|
|
Shinyo
Ocean Limited (“Shinyo Ocean”)
|
|
A
fellow subsidiary of the Company
|
|
|
|
Univan
Ship Management Limited (“Univan”)
|
|
A
company controlled by a director, Captain Charles
Arthur Joseph
Vanderperre, of the Company
|
|
|
|
Vanship
Holdings Limited (“Vanship”)
|
|
Immediate
holding company of the Company
|
Shinyo
Kannika
Limited
Notes
to
Financial Statements (continued)
for
the
period from September 27, 2004 (date of incorporation)
to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(8)
|
Related
Party Transactions
(continued)
|
(a)
|
The
principal related party transactions during the
period/years ended
December 31, 2004, 2005 and 2006 are as follows:
|
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
|
|
Service
fee to Belindtha
|
|
|
(i)
|
|
|
14,250
|
|
|
114,000
|
|
|
114,000
|
|
Agency
fee to China Sea
|
|
|
(ii)
|
|
|
7,427
|
|
|
55,617
|
|
|
60,000
|
|
Agency
fee to Shinyo Maritime
|
|
|
(ii)
|
|
|
7,427
|
|
|
55,617
|
|
|
60,000
|
|
Loan
interest income from Vanship
|
|
|
(iii)
|
|
|
-
|
|
|
-
|
|
|
363,495
|
|
Loan
interest expense to Vanship
|
|
|
(iv)
|
|
|
180,598
|
|
|
945,655
|
|
|
1,290,760
|
|
Loan
interest expense to Shinyo Alliance
|
|
|
(v)
|
|
|
70,549
|
|
|
598,439
|
|
|
379,832
|
|
Notes:
|
(i)
|
The
Company has outsourced substantially all its
day-to-day operations to
Belindtha. The service fee is payable to Belindtha
at a pre-determined
amount in accordance with the terms mutually
agreed by Belindtha and the
Company.
|
|
(ii)
|
China
Sea and Shinyo Maritime have provided agency
services to the Company. The
agency fee is payable to China Sea and Shinyo
Maritime based on
contractual agreements with the
Company.
|
|
(iii)
|
The
balance represents interest income on a loan
to Vanship by the Company.
Terms of loan details are set out in Note 8(b)(iv)
below.
|
|
(iv)
|
The
balance represents interest expense on loans
from Vanship. Terms of loan
details are set out in Note 8(b)(vii)
below.
|
|
(v)
|
The
balance represents interest expense on a loan
from Shinyo Alliance. Terms
of loan details are set out in Note 8(b)(viii)
below.
|
Shinyo
Kannika
Limited
Notes
to
Financial Statements (continued)
for
the
period from September 27, 2004 (date of incorporation)
to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(8)
|
Related
Party Transactions
(continued)
|
(b)
|
Amounts
due from and due to related parties as of December
31, 2005 and 2006 are
as follows:
|
|
|
|
|
2005
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
Amounts
due from related parties:
|
|
|
|
|
|
|
|
Amount
due from Vanship
|
|
|
(i)
|
|
|
-
|
|
|
363,495
|
|
Amount
due from Shinyo Ocean
|
|
|
(ii)
|
|
|
-
|
|
|
240,000
|
|
Amount
due from Univan
|
|
|
(iii)
|
|
|
128,999
|
|
|
19,094
|
|
|
|
|
|
|
|
128,999
|
|
|
622,589
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
to related party:
|
|
|
|
|
|
|
|
|
|
|
Vanship
|
|
|
(iv)
|
|
|
-
|
|
|
8,882,533
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
due to related parties:
|
|
|
|
|
|
|
|
|
|
|
Amount
due to Vanship
|
|
|
(v)
|
|
|
1,126,253
|
|
|
672,395
|
|
Amount
due to Shinyo Alliance
|
|
|
(vi)
|
|
|
668,988
|
|
|
-
|
|
|
|
|
|
|
|
1,795,241
|
|
|
672,395
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
from related parties:
|
|
|
|
|
|
|
|
|
|
|
Vanship
|
|
|
(vii)
|
|
|
16,450,000
|
|
|
16,450,000
|
|
Shinyo
Alliance
|
|
|
(viii)
|
|
|
13,117,467
|
|
|
-
|
|
|
|
|
|
|
|
29,567,467
|
|
|
16,450,000
|
|
Notes:
|
(i)
|
The
balance represents interest receivable from Vanship
on loan set out in
(iv) below.
|
|
(ii)
|
The
balance represents receivables for expenses paid
on behalf for Shinyo
Ocean. The balance is unsecured, non-interest
bearing and with no fixed
terms of repayment.
|
|
(iii)
|
The
balance represents advance payments for expenses
to be paid by Univan on
behalf of the Company. The balance is unsecured,
non-interest bearing and
with no fixed terms of
repayment.
|
|
(iv)
|
The
balance represents a loan to Vanship, which carried
interest at LIBOR plus
1.35% per annum with final maturity on October
1,
2019.
|
|
(v)
|
The
balance represents interest payable on loan
from Vanship. Terms of the
loan are set out in (vii)
below.
|
|
(vi)
|
The
balance represents interest payable on loan
from Shinyo Alliance. Terms of
the loan are set out in (viii)
below.
|
Shinyo
Kannika
Limited
Notes
to
Financial Statements (continued)
for
the
period from September 27, 2004 (date of incorporation)
to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(8)
|
Related
Party Transactions
(continued)
|
(b)
|
Amounts
due from and due to related parties as of December
31, 2005 and 2006 are
as follows (continued):
|
|
(vii)
|
The
balance represents a loan from Vanship. The loan
period is from September
27, 2004 to December 31, 2012 with no fixed repayment
schedule. Interest
is charged at six-month LIBOR plus 2.00% - 3.98%
per annum and interest
rate was subsequently changed to LIBOR plus 2.39%
per annum since May 1,
2006 (7.83% and 7.76 % as of December 31, 2005
and 2006, respectively).
The interest expense for the period/years ended
December 31, 2004, 2005
and 2006 was $180,598, $945,655 and $1,290,760,
respectively. Interest is
due every six months. Interest of $Nil, $Nil
and $1,744,618 was paid for
the period/ years ended December 31, 2004, 2005
and 2006,
respectively.
|
|
|
In
accordance with the contractual bank loan arrangements,
the loan from
Vanship shall not be repaid before the bank loans
are repaid in
full.
|
|
(viii)
|
The
balance represents a loan from Shinyo Alliance.
The loan period is from
November 15, 2004 to December 31, 2015 with no
fixed repayment schedule.
Interest is charged at LIBOR plus 1.50% per annum
and interest rate was
subsequently changed to LIBOR plus 1.15% per
annum since May 1, 2006
(6.20% as of December 31, 2005). The interest
expense for the period/years
ended December 31, 2004, 2005 and 2006 was $70,549,
$598,439, $379,832,
respectively. Interest is due every six months.
Interest of $Nil, $Nil and
$1,048,820 was paid for the period/years ended
December 31, 2004, 2005 and
2006, respectively. The loan was fully settled
on June 30,
2006.
|
(c)
|
As
of December 31, 2005 and 2006, long-term bank
loan of $48,200,000 and
$62,800,000, respectively, was guaranteed by
Vanship.
|
(9)
|
Commitments
and Contingencies
|
Various
claims, suits, and complaints, including those involving
government regulations
and product liability, arise in the ordinary course of
the shipping business. In
addition, losses may arise from disputes with charterers,
agents, insurance and
other claims with suppliers relating to the operations
of the Company’s vessel.
Currently, management is not aware of any such claims or
contingent liabilities,
which should be disclosed, or for which a provision should
be established in the
accompanying financial statements.
(10)
|
Fair
Value of Financial Instruments
|
The
carrying amounts of cash, trade accounts receivable and
amounts due from/to
related parties, approximate their fair values because
of the short maturity of
these instruments.
The
carrying values of long-term bank loans and loans from/to
related parties
approximate their fair values based on the borrowing rates
currently available
to the Company for bank loans with similar terms and average
maturities.
Shinyo
Kannika
Limited
Notes
to
Financial Statements (continued)
for
the
period from September 27, 2004 (date of incorporation)
to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(11)
|
Business
and Credit Concentrations
|
The
Company operates in the shipping industry which historically
has been cyclical
with corresponding volatility in profitability. All the
Company’s revenues are
derived from vessel charters. The Company seeks to mitigate
volatilities in its
business by obtaining long-term charter contracts. The
Company has obtained a
long-term time charter contract which will expire in February
2017.
The
Company outsourced the technical management services to
Belindtha which is
controlled by a person related to a director of the Company.
Belindtha then
sub-contracted its obligations under the outsourcing arrangement
to Univan which
assists Belindtha in providing technical management services
to the Company.
Univan is controlled by Captain Charles Arthur Joseph Vanderperre,
a director of
the Company. All expenses incurred by Univan on behalf
of the Company are
charged to the Company based on actual expenditures incurred
on its behalf.
During the period/years ended December 31, 2004, 2005 and
2006, the Company paid
service fee of $14,250, $114,000, $114,000, respectively,
to Belindtha.
The
Company is engaged in the business of ocean transportation
of crude oil industry
which is extremely competitive and dependent on the world’s demand for crude
oil. Competition depends on price, location, size, age,
condition and the
acceptability of the vessel to the charterers. The increase
in competition and
the changes in demand for crude oil could result in lower
revenue achieved for
the vessel.
The
following are revenue from customers that individually
comprise 10% or more of
gross revenue:
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tankers
International L.L.C.
|
|
|
684,873
|
|
|
7
|
|
|
21,702,699
|
|
|
100
|
|
|
22,820,496
|
|
|
100
|
|
S-Oil
Corporation
|
|
|
8,890,587
|
|
|
93
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
9,575,460
|
|
|
100
|
|
|
21,702,699
|
|
|
100
|
|
|
22,820,496
|
|
|
100
|
|
The
gross
accounts receivable due from a customer that individually
representing more than
10% of the outstanding accounts receivable were as
follows:
|
|
2005
|
|
2006
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Tankers
International L.L.C.
|
|
|
5,060,465
|
|
|
100
|
|
|
2,942,576
|
|
|
100
|
|
Pursuant
to a definitive agreement entered into between Vanship
and Energy Infrastructure
Acquisition Corp. (“EIAC”), a company listed on the American Stock Exchange, on
December 3, 2007 (the “Agreement”), Vanship agreed to sell all of its equity
interests in the Company and other eight related companies
to Energy
Infrastructure Merger Corporation (“EIMC”) (the “Business Combination”), a
wholly-owned subsidiary of EIAC, for an aggregate consideration
of $778,000,000,
consisting of $643,000,000 in cash (subject to closing
adjustments) and
13,500,000 shares of common stock of EIMC (valued at $10
per share of common
stock). Vanship is entitled to an additional 3,000,000
shares of common stock of
EIMC on each of the first and second anniversaries of the
completion of the
Business Combination, subject to certain earning criteria.
Approval
of the Business Combination requires the affirmative vote
of the holders of a
majority of the shares of common stock voted at EIAC’s special meeting of
stockholders, provided that there is a quorum. In addition,
if the EIAC
stockholders approve the Business Combination, the Business
Combination will
only proceed if holders of shares purchased in EIAC’s initial public offering,
representing less than 30% of the shares sold in EIAC’s initial public offering
and EIAC’s private placement that occurred immediately prior to
the initial
public offering, exercise their redemption rights at the
time of casting a vote
against the Business Combination.
Pursuant
to the Agreement, Vanship has agreed to purchase up to
5,000,000 units from EIMC
at a purchase price of $10.00 per unit, but only to the
extent necessary for
EIMC to secure financing for the Business Combination.
Each unit will consist of
one share of EIMC’s common stock and one warrant to purchase one share of
EIMC’s
common stock at an exercise price of $8.00 per warrant.
Unaudited
Condensed Balance Sheets
as
of
December 31, 2006 and September 30, 2007
(expressed
in US$)
|
|
|
|
December
31, 2006
|
|
September
30, 2007
|
|
|
|
Note
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
7,480,286
|
|
|
10,693,189
|
|
Restricted
cash
|
|
|
|
|
|
843,992
|
|
|
933,297
|
|
Trade
accounts receivable
|
|
|
|
|
|
2,942,576
|
|
|
270,489
|
|
Prepayments
and other receivables
|
|
|
|
|
|
28,648
|
|
|
124,636
|
|
Supplies
|
|
|
|
|
|
157,273
|
|
|
111,136
|
|
Amounts
due from related parties
|
|
|
6(b)
|
|
|
622,589
|
|
|
1,834,043
|
|
Total
current assets
|
|
|
|
|
|
12,075,364
|
|
|
13,966,790
|
|
Restricted
cash
|
|
|
|
|
|
1,000,000
|
|
|
1,000,000
|
|
Loans
to related parties
|
|
|
6(b)
|
|
|
8,882,533
|
|
|
34,082,533
|
|
Deferred
loan costs
|
|
|
|
|
|
669,258
|
|
|
222,000
|
|
Vessel,
net
|
|
|
2
|
|
|
86,150,534
|
|
|
83,188,606
|
|
Total
assets
|
|
|
|
|
|
108,777,689
|
|
|
132,459,929
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term bank loans
|
|
|
3
|
|
|
5,700,000
|
|
|
6,425,000
|
|
Amount
due to related party
|
|
|
6(b)
|
|
|
672,395
|
|
|
989,359
|
|
Accrued
liabilities and other payables
|
|
|
|
|
|
618,225
|
|
|
1,500,563
|
|
Income
taxes payable
|
|
|
5
|
|
|
101,082
|
|
|
101,082
|
|
Total
current liabilities
|
|
|
|
|
|
7,091,702
|
|
|
9,016,004
|
|
Loan
from related party
|
|
|
6(b)
|
|
|
16,450,000
|
|
|
16,450,000
|
|
Long-term
bank loans
|
|
|
3
|
|
|
57,100,000
|
|
|
75,725,000
|
|
Total
liabilities
|
|
|
|
|
|
80,641,702
|
|
|
101,191,004
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s
equity
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares HK$1 par value per share
10,000
shares authorized; 1 share issued and fully
paid as of December 31,
2006/September 30, 2007
|
|
|
|
|
|
-
|
|
|
-
|
|
Retained
earnings
|
|
|
|
|
|
28,135,987
|
|
|
31,268,925
|
|
Total
shareholder’s equity
|
|
|
|
|
|
28,135,987
|
|
|
31,268,925
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholder’s equity
|
|
|
|
|
|
108,777,689
|
|
|
132,459,929
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the unaudited condensed financial
statements.
Shinyo
Kannika Limited
Unaudited
Condensed Statements of Income
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
|
|
|
|
2006
|
|
2007
|
|
|
|
Note
|
|
|
|
|
|
Operating
revenue
|
|
|
|
|
|
|
|
Revenue
|
|
|
4
|
|
|
17,369,004
|
|
|
11,230,306
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
|
|
|
1,446,240
|
|
|
1,611,608
|
|
Depreciation
expenses
|
|
|
|
|
|
2,895,351
|
|
|
2,961,928
|
|
Management
fee
|
|
|
6(a)
|
|
|
85,500
|
|
|
85,500
|
|
Commission
|
|
|
|
|
|
-
|
|
|
196,329
|
|
Administrative
expenses
|
|
|
|
|
|
77,086
|
|
|
70,122
|
|
Total
operating expenses
|
|
|
|
|
|
4,504,177
|
|
|
4,925,487
|
|
Operating
income
|
|
|
|
|
|
12,864,827
|
|
|
6,304,819
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
440,843
|
|
|
2,072,720
|
|
Interest
expense
|
|
|
|
|
|
(3,600,694
|
)
|
|
(4,813,088
|
)
|
Write-off
of deferred loan costs
|
|
|
|
|
|
-
|
|
|
(427,736
|
)
|
Other,
net
|
|
|
|
|
|
(1,113
|
)
|
|
(3,777
|
)
|
Total
other expense
|
|
|
|
|
|
(3,160,964
|
)
|
|
(3,171,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
|
|
|
9,703,863
|
|
|
3,132,938
|
|
Income
taxes
|
|
|
5
|
|
|
-
|
|
|
-
|
|
Net
income
|
|
|
|
|
|
9,703,863
|
|
|
3,132,938
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Includes the following income/(expenses)
resulting from transactions with
related parties (see note 6(a)):
|
Vessel
operating expenses
|
|
2006
|
|
2007
|
|
-
Agency fee
|
|
|
(90,000
|
)
|
|
(90,000
|
)
|
Management
fee
|
|
|
(85,500
|
)
|
|
(85,500
|
)
|
Interest
income
|
|
|
182,623
|
|
|
1,700,760
|
|
Interest
expense
|
|
|
(1,335,626
|
)
|
|
(989,359
|
)
|
See
accompanying notes to the unaudited condensed financial
statements.
Shinyo
Kannika Limited
Unaudited
Condensed Statements of Shareholder’s Equity
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
|
|
Ordinary
shares
|
|
|
|
|
|
|
|
Number
of shares
|
|
Amount
|
|
Retained
earnings
|
|
Total
shareholder’s
equity
|
|
Balance
as of January 1, 2006
|
|
|
1
|
|
|
-
|
|
|
18,715,599
|
|
|
18,715,599
|
|
Dividend
paid
|
|
|
-
|
|
|
-
|
|
|
(3,000,000
|
)
|
|
(3,000,000
|
)
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
9,703,863
|
|
|
9,703,863
|
|
Balance
as of September 30, 2006
|
|
|
1
|
|
|
-
|
|
|
25,419,462
|
|
|
25,419,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
|
1
|
|
|
-
|
|
|
28,135,987
|
|
|
28,135,987
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
3,132,938
|
|
|
3,132,938
|
|
Balance
as of September 30, 2007
|
|
|
1
|
|
|
-
|
|
|
31,268,925
|
|
|
31,268,925
|
|
See
accompanying notes to the unaudited condensed financial
statements.
Shinyo
Kannika
Limited
Unaudited
Condensed Statements of Cash Flows
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
|
|
2006
|
|
2007
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
income
|
|
|
9,703,863
|
|
|
3,132,938
|
|
Adjustments
to reconcile net income to net cash provided
by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
expenses
|
|
|
2,895,351
|
|
|
2,961,928
|
|
Amortization
of deferred loan costs
|
|
|
47,578
|
|
|
19,522
|
|
Write-off
of deferred loan costs
|
|
|
-
|
|
|
427,736
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
924,622
|
|
|
2,672,087
|
|
Prepayments
and other receivables
|
|
|
(215,247
|
)
|
|
(95,988
|
)
|
Supplies
|
|
|
(84,409
|
)
|
|
46,137
|
|
Amounts
due from related parties
|
|
|
(84,089
|
)
|
|
(1,211,454
|
)
|
Amount
due to related party
|
|
|
(1,457,812
|
)
|
|
316,964
|
|
Accrued
liabilities and other payables
|
|
|
305,007
|
|
|
882,338
|
|
Net
cash provided by operating activities
|
|
|
12,034,864
|
|
|
9,152,208
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Loans
made to related parties
|
|
|
(8,882,533
|
)
|
|
(25,200,000
|
)
|
Capital
expenditure on drydocking
|
|
|
(798,920
|
)
|
|
-
|
|
Decrease/(increase)
in restricted cash
|
|
|
48,017
|
|
|
(89,305
|
)
|
Net
cash used in investing activities
|
|
|
(9,633,436
|
)
|
|
(25,289,305
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Proceeds
from long-term bank loans
|
|
|
22,000,000
|
|
|
86,800,000
|
|
Repayment
of long-term bank loans
|
|
|
(5,975,000
|
)
|
|
(67,450,000
|
)
|
Repayment
of loan from related party
|
|
|
(13,117,467
|
)
|
|
-
|
|
Payment
of loan costs
|
|
|
(75,000
|
)
|
|
-
|
|
Dividend
paid
|
|
|
(3,000,000
|
)
|
|
-
|
|
Net
cash (used in)/provided by financing activities
|
|
|
(167,467
|
)
|
|
19,350,000
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
2,233,961
|
|
|
3,212,903
|
|
Cash:
|
|
|
|
|
|
|
|
At
beginning of period
|
|
|
1,951,340
|
|
|
7,480,286
|
|
At
end of period
|
|
|
4,185,301
|
|
|
10,693,189
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
2006
|
|
2007
|
|
Cash
paid during the period for:
|
|
|
|
|
|
Interest
|
|
|
5,022,851
|
|
|
3,954,116
|
|
See
accompanying notes to the unaudited condensed financial
statements.
Shinyo
Kannika Limited
Notes
to
the Unaudited Condensed Financial Statements
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting
Policies
|
|
(a)
|
Description
of Business
|
Shinyo
Kannika Limited (the “Company”), a company engaged in the business of ocean
transportation of crude oil worldwide, was established
in Hong Kong on September
27, 2004. The principal activity of the Company is
the ownership and chartering
of the vessel “Shinyo Kannika”. Shinyo Kannika was delivered in 2001 and was a
second hand vessel acquired by the Company in November
2004. It is a
double-hulled very large crude oil carrier with capacity
of 289,175 deadweight
tonnage.
The
Company has outsourced substantially all its day-to-day
operations to its
related party, Belindtha Marine Limited (“Belindtha”), a company controlled by a
person related to a director of the Company. Belindtha
then sub-contracted its
obligations under the outsourcing arrangement to Univan
Ship Management Limited
(“Univan”) which assists Belindtha in providing technical management
services to
the Company. Univan is controlled by Captain Charles
Arthur Joseph Vanderperre,
a director of the Company. All expenses incurred by
Univan on behalf of the
Company are charged to the Company based on the actual
expenditures incurred on
its behalf. In addition, China Sea Maritime Ltd. (“China Sea”) and Shinyo
Maritime Corporation (“Shinyo Maritime”) provide administrative services to the
Company. China Sea and Shinyo Maritime are controlled
by Captain Charles Arthur
Joseph Vanderperre and Mr Fred Cheng, respectively,
each a director of the
Company.
Under
a pool trade charter agreement with Tanker
International L.L.C., the Company began receiving
time charter revenue from
December 27, 2004 until February 17, 2007. On August
28, 2006, the Company
entered into a time charter agreement with Dalian
Ocean Shipping Company
(“Dalian”) pursuant to which the Company is paid a daily charter
rate of $39,000
starting from delivery of the vessel on February
17, 2007, subject to a profit
sharing arrangement in which income in excess of
$44,000 is split equally the
Company and Dalian.
|
(b)
|
Basis
of Presentation
|
The
accompanying unaudited condensed financial statements
as of September 30, 2007
and for the nine-month periods ended September 30,
2006 and 2007 have been
prepared in accordance with U.S. generally accepted
accounting principles (“US
GAAP”). Certain information and footnote disclosures normally
included in
financial statements prepared in accordance with US
GAAP have been condensed or
omitted as permitted by rules and regulations of the
U.S. Securities and
Exchange Commission. Disclosures have been made to
these unaudited condensed
financial statements where events subsequent to year
ended December 31, 2006
have occurred which have a material impact on the Company.
The accompanying
unaudited condensed financial statements should be
read in conjunction with the
financial statements and the notes thereto, for the
fiscal year ended December
31, 2006. The December 31, 2006 balance sheet was derived
from the audited
financial statements of the Company.
In
the
opinion of the management, all adjustments (which include
normal accruals)
necessary to present a fair statement of the financial
position of the Company
as of September 30, 2007, and the results of its operations
and cash flows for
the nine-month periods ended September 30, 2006 and
2007, in conformity with US
GAAP, have been made. The unaudited condensed statements
of income for the
nine-month periods ended September 30, 2006 and 2007
are not necessarily
indicative of the operating results to be expected
for the full fiscal year or
any future periods.
Shinyo
Kannika Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(b)
|
Basis
of Presentation
(continued)
|
The
basis
of accounting differs in certain material respects
from that used in the
preparation of the books of account of the Company,
which are prepared in
accordance with the accounting principles of the country
of its domicile. The
accompanying unaudited condensed financial statements
reflect necessary
adjustments not recorded in the books of the Company
to present them in
conformity with US GAAP.
|
(c)
|
Revenue
Recognition and Related
Expenses
|
The
Company generates its revenues from time and pool
trade charter agreements.
Revenues are recognized when the collectibility
has been reasonably assured.
Time charter revenues are recorded over the term
of the charter as the service
is provided. In addition, under the time charter
agreement the Company is
entitled to share profits generated from any sub-charter
entered into by the
charterer. Profit-sharing revenues are calculated
at an agreed percentage of the
excess of sub-charter rates over an agreed amount
and recorded over the term of
the sub-charter agreement. Revenues from a pool
trade arrangement are accounted
for on an accruals basis. The net income of a pool
trade arrangement is shared
among all participants based on the points awarded
to each participant which are
dependent on the age, design and other performance
characteristics of the vessel
of each participant. Vessel operating costs are
expensed as incurred.
The
preparation of the financial statements requires management
of the Company to
make a number of estimates and assumptions relating
to the reported amounts of
assets and liabilities and the disclosure of contingent
assets and liabilities
at the date of the financial statements and the reported
amounts of revenues and
expenses during the reporting period. Significant items
subject to such
estimates and assumptions include the estimated useful
life of the vessel
(including drydocking costs), residual value and recovery
of the carrying amount
of the vessel. Actual results could differ from those
estimates.
In
the
normal course of business, the Company is subject to
loss contingencies, such as
legal proceedings and claims arising out of its business.
An accrual for a loss
contingency is recognized when it is probable that
a liability will be incurred
and the amount of the loss can be reasonably estimated.
|
(f)
|
Recently
Issued Accounting
Standards
|
In
September 2006,
the
Financial Accounting Standards Board (“FASB”)
issued
FASB Statement No. 157,
Fair
Value Measurement
(Statement
157). Statement 157 defines fair value, establishes
a framework for the
measurement of fair value measures already required
or permitted by other
standards for fiscal years beginning after November
15, 2007. The Company is
required to adopt Statement 157 for the fiscal years
beginning on January 1,
2008. Statement 157 is required to be applied prospectively,
except for certain
financial instruments. Any transition adjustment will
be recognized as an
adjustment to opening retained earnings in the year
of adoption.
The
Company does not anticipate that the adoption of Statement
157 will have a
material impact on its results of operations and financial
position.
Shinyo
Kannika Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(f)
|
Recently
Issued Accounting Standards
(continued)
|
In
February 2007, the FASB issued FASB Statement No. 159,
The
Fair Value Option for Financial Assets and Financial
Liabilities - Including an
Amendment of FASB Statement No. 115
(Statement
159)
.
Statement
159 permits an entity to elect fair value as the initial
and subsequent
measurement attribute for many financial assets and
liabilities. Entities
electing the fair value option would be required to
recognize changes in fair
value in earnings. Entities electing the fair value
option are required to
distinguish, on the face of the balance sheet, the
fair value of assets and
liabilities for which the fair value option has been
elected and similar assets
and liabilities measured using another measurement
attribute. Statement 159 will
be effective for fiscal years beginning after November
15, 2007. The adjustment
to reflect the difference between the fair value and
the carrying amount would
be accounted for as a cumulative-effect adjustment
to retained earnings as of
the date of initial adoption. The Company does not
anticipate that the adoption
of the provisions of Statement 159 will have a material
impact on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 160,
Noncontrolling
Interests in Consolidated Financial Statements - an
Amendment of ARB No. 51
(Statement
160). Statement 160 establishes accounting and reporting
standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a
subsidiary. Statement 160 will be effective for the
fiscal year beginning after
December 15, 2008. The Company does not anticipate
that the adoption of the
provisions of Statement 160 will have a material impact
on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 141
(Revised),
Business
Combinations
(Statement 141(R)). Statement 141(R) establishes principles
and requirements for
how the acquirer of a business recognizes and measures
in its financial
statements the identifiable assets acquired, the liabilities
assumed, and any
noncontrolling interest in the acquiree. Statement
141(R) also provides guidance
for recognizing and measuring the goodwill acquired
in the business combination
and determines what information to disclose to enable
users of the financial
statements to evaluate the nature and financial effects
of the business
combination. Statement 141(R) will be effective for
fiscal years beginning after
December 15, 2008. The Company does not anticipate
the adoption of the
provisions of Statement 141(R) will have a material
impact on its results of
operations and financial position.
Shinyo
Kannika Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
|
|
December
31, 2006
|
|
September
30, 2007
|
|
|
|
|
|
|
|
Vessel
|
|
|
|
|
|
Cost
|
|
|
94,298,920
|
|
|
94,298,920
|
|
Accumulated
depreciation
|
|
|
(8,148,386
|
)
|
|
(11,110,314
|
)
|
Vessel,
net
|
|
|
86,150,534
|
|
|
83,188,606
|
|
The
vessel is mortgaged as described in Note 3.
Drydocking
costs of $798,920 were capitalized for the year ended
December 31, 2006. As of
December 31, 2006 and September 30, 2007, undepreciated
carrying amount of the
drydocking costs was $705,712 and $585,874, respectively.
For
the
periods ended September 30, 2006 and 2007, $53,261
and $119,838 of drydocking
costs were expensed as depreciation, respectively.
Lender/period
|
|
Note
|
|
December
31, 2006
|
|
September30,
2007
|
|
|
|
|
|
|
|
|
|
DVB
Group Merchant Bank (Asia) Ltd, Credit Suisse,
Deutsche Schiffsbank and
Aktiengesellschaft
|
|
|
|
|
|
|
|
November
15, 2004 to November 14, 2012
|
|
|
a
|
|
|
41,900,000
|
|
|
-
|
|
January
8, 2007 to January 7, 2017
|
|
|
c
|
|
|
-
|
|
|
82,150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
DVB
Group Merchant Bank (Asia) Ltd
|
|
|
|
|
|
|
|
|
|
|
June
30, 2006 to June 29, 2016
|
|
|
b
|
|
|
20,900,000
|
|
|
-
|
|
|
|
|
|
|
|
62,800,000
|
|
|
82,150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
|
|
|
5,700,000
|
|
|
6,425,000
|
|
Non-current
portion
|
|
|
|
|
|
57,100,000
|
|
|
75,725,000
|
|
|
|
|
|
|
|
62,800,000
|
|
|
82,150,000
|
|
Notes:
|
(a)
|
The
loan carried interest at LIBOR plus 1.50%
per annum and interest rate was
subsequently changed to LIBOR plus 1.15%
per annum since May 1, 2006
(5.31% as of December 31, 2006). The interest
expense for the periods
ended September 30, 2006 and 2007 was $1,809,990
and $29,327,
respectively. The balance was fully settled
on January 8,
2007.
|
Shinyo
Kannika Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(3)
|
Long-term
Bank Loans (continued)
|
|
(b)
|
The
loan carried interest at LIBOR plus 1.35%
per annum (6.72% as of December
31, 2006). The interest expense for the periods
ended September 30, 2006
and 2007 was $388,871 and $27,189 respectively.
The balance was fully
settled on January 8, 2007.
|
|
(c)
|
On
January 8 2007, the Company refinanced
the loan arrangements in (a) and
(b) above and repaid the existing loans
and a new loan of $86,800,000 was
obtained from DVB Group Merchant Bank (Asia)
Ltd, Credit Suisse, Deutsche
Schiffsbank and Aktiengesellschaft. The
loan is repayable in four
quarterly installments of $1,550,000 each,
followed by four quarterly
installments of $1,625,000 each, four quarterly
installments of $1,700,000
each, four quarterly installments of $1,550,000
each, four quarterly
installments of $1,625,000 each, four quarterly
installments of $1,725,000
each, four quarterly installments of $1,850,000
each, four quarterly
installments of $1,950,000 each, four quarterly
installments of $2,100,000
each, three quarterly installments of $2,200,000
each and a balloon
payment $17,500,000.
|
The
loan
carried interest at LIBOR plus 0.98% per annum (5.22%
as of September 30, 2007).
The interest expense for the period ended September
30, 2007 was
$3,676,887.
As
of
December 31, 2006 and September 30, 2007, bank loans
are secured as
follows:
|
|
December
31,
2006
|
|
September
30,
2007
|
|
Secured
by:
|
|
|
|
|
|
Restricted
cash
|
|
|
1,843,992
|
|
|
1,933,297
|
|
Vessel
|
|
|
86,150,534
|
|
|
83,188,606
|
|
The
bank
loans are also guaranteed by Vanship Holdings Limited,
the immediate holding
company of the Company as of December 31, 2006 and
September 30, 2007.
The
principal repayments for each of the years subsequent
to September 30, 2007 are
as follows:
Year
ending September 30,
|
|
|
|
2008
|
|
|
6,425,000
|
|
2009
|
|
|
6,725,000
|
|
2010
|
|
|
6,350,000
|
|
2011
|
|
|
6,425,000
|
|
2012
and later
|
|
|
56,225,000
|
|
|
|
|
82,150,000
|
|
Shinyo
Kannika Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
The
Company generates its revenues from time and pool trade
charter agreements. The
Company’s revenue can be analyzed as follows:
|
|
Nine-Month
Periods Ended September 30,
|
|
|
|
2006
|
|
2007
|
|
Time
charter
|
|
|
-
|
|
|
6,156,715
|
|
Pool
trade
|
|
|
17,369,004
|
|
|
5,073,591
|
|
|
|
|
17,369,004
|
|
|
11,230,306
|
|
Under
the
laws of the countries of the Company’s incorporation and/or vessel’s
registration, the Company is not subject to tax on
international shipping
income. However, it is subject to registration and
tonnage taxes, which are
charged by the country of which the vessel is registered
at a fixed rate based
on the tonnage of the vessel. Registration and tonnage
taxes have been included
in vessel operating expenses in the accompanying statements
of income.
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation
of FASB Statement
109
(FIN
48). FIN 48 clarifies the accounting for uncertainty
in income taxes recognized
in an enterprise’s financial statements and prescribes a threshold
of
more-likely-than-not for recognition of tax benefits
of uncertain tax positions
taken or expected to be taken in a tax return. FIN
48 also provides related
guidance on measurement, derecognition, classification,
interest and penalties,
and disclosure. The provisions of FIN 48 will be
effective for the fiscal years
beginning after December 15, 2006, with any cumulative
effect of the change in
accounting principle recorded as an adjustment to
opening retained earnings.
Effective from January 1, 2007, the Company adopted
the provision of FIN 48. As
of the date of the adoption of FIN 48, the Company
has no material unrecognized
tax benefit which would favorably affect the effective
income tax rate in future
periods and do not believe there will be any significant
increases or decreases
within the next twelve months. The Company has elected
to classify interest and
penalties related to unrecognized tax benefits, if
and when required, as part of
interest expenses and administrative expenses in
the statements of income,
respectively. Interest and penalties of $36,526 and
$28,809, respectively have
been accrued at the date of adoption.
According
to the Inland Revenue Ordinance of Hong Kong, the
statute of limitations is
seven years (i.e. calendar years 2004 to 2007 for
the Company) if the
underpayment of taxes is due to omission or errors
made by either the taxpayer
or the withholding agent. The statute of limitations
will be extended to ten
years (i.e. calendar years 2004 to 2007 for the
Company) in case of tax evasion.
According
to the Internal Revenue Code of the United States
of America, the statute of
limitations is three years (i.e. calendar years
2005 to 2007 for the Company) if
the underpayment of taxes is due to omission or
errors made by either the
taxpayer or withholding agent. There is no statute
of limitations in the case of
tax evasion.
Shinyo
Kannika Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(6)
|
Related
Party Transactions
|
Name
of party
|
|
Relationship
|
Belindtha
Marine Limited (“Belindtha”)
|
|
A
company controlled by a person related to
a director of the
Company
|
|
|
|
China
Sea Maritime Ltd. (“China Sea”)
|
|
A
company controlled by a director, Captain
Charles Arthur Joseph
Vanderperre, of the Company
|
|
|
|
Shinyo
Maritime Corporation (“Shinyo Maritime”)
|
|
A
company controlled by a director, Mr Fred
Cheng, of the
Company
|
|
|
|
Shinyo
Alliance Limited (“Shinyo Alliance”)
|
|
A
fellow subsidiary of the Company
|
|
|
|
Shinyo
Ocean Limited (“Shinyo Ocean”)
|
|
A
fellow subsidiary of the Company
|
|
|
|
Shinyo
Navigator Limited (“Shinyo Navigator”)
|
|
A
fellow subsidiary of the Company
|
|
|
|
Univan
Ship Management Limited (“Univan”)
|
|
A
company controlled by a director, Captain
Charles Arthur Joseph
Vanderperre, of the Company
|
|
|
|
Vanship
Holdings Limited (“Vanship”)
|
|
Immediate
holding company of the Company
|
(a)
The
principal related party transactions during the periods
ended September 30, 2006
and 2007 are as follows:
|
|
|
|
Nine-Month
Periods Ended September 30,
|
|
|
|
|
|
2006
|
|
2007
|
|
|
|
Note
|
|
|
|
|
|
Service
fee to Belindtha
|
|
|
(i)
|
|
|
85,500
|
|
|
85,500
|
|
Agency
fee to China Sea
|
|
|
(ii)
|
|
|
45,000
|
|
|
45,000
|
|
Agency
fee to Shinyo Maritime
|
|
|
(ii)
|
|
|
45,000
|
|
|
45,000
|
|
Loan
interest income from Vanship
|
|
|
(iii)
|
|
|
182,623
|
|
|
534,231
|
|
Loan
interest income from Shinyo Ocean
|
|
|
(iv)
|
|
|
-
|
|
|
1,166,529
|
|
Loan
interest expense to Shinyo Alliance
|
|
|
(v)
|
|
|
379,832
|
|
|
-
|
|
Loan
interest expense to Vanship
|
|
|
(vi)
|
|
|
955,794
|
|
|
989,359
|
|
Notes:
|
(i)
|
The
Company has outsourced substantially all
its day-to-day operations to
Belindtha. The service fee is payable to
Belindtha at a pre-determined
amount in accordance with the terms mutually
agreed by Belindtha and the
Company.
|
|
(ii)
|
China
Sea and Shinyo Maritime provided agency services
to the Company. The
agency fee is payable to China Sea and Shinyo
Maritime based on
contractual agreements with the
Company.
|
|
(iii)
|
The
balance represents interest income on a loan
to Vanship by the Company.
Terms of loan details are set out in Note
6(b)(v)
below.
|
Shinyo
Kannika Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(6)
|
Related
Party Transactions
(continued)
|
(a)
|
The
principal related party transactions during
the periods ended September
30, 2006 and 2007 are as follows (continued):
|
|
(iv)
|
The
balance represents interest income on a loan
to Shinyo Ocean by the
Company. Terms of loan details are set out
in Note 6(b)(vi)
below.
|
|
(v)
|
The
balance for the period ended September 30,
2006 represented interest
expense on a loan from Shinyo Alliance amounting
to $13,117,467. Interest
is charged at LIBOR plus 1.50% per annum
and interest rate was
subsequently changed to LIBOR plus 1.15%
per annum since May 1, 2006. The
loan was fully settled on June 30,
2006.
|
|
(vi)
|
The
balance represents interest expense on loan
from Vanship. Terms of loan
are set out in Note 6(b)(viii)
below.
|
(b)
|
Amounts
due from and due to related parties as of
December 31, 2006 and September
30, 2007 are as follows:
|
|
|
|
|
December
31, 2006
|
|
September
30, 2007
|
|
|
|
Note
|
|
|
|
|
|
Amounts
due from related parties:
|
|
|
|
|
|
|
|
Amount
due from Vanship
|
|
|
(i)
|
|
|
363,495
|
|
|
534,231
|
|
Amount
due from Shinyo Ocean
|
|
|
(ii)
|
|
|
240,000
|
|
|
1,166,529
|
|
Amount
due from Shinyo Navigator
|
|
|
(iii)
|
|
|
-
|
|
|
75,000
|
|
Amount
due from Univan
|
|
|
(iv)
|
|
|
19,094
|
|
|
58,283
|
|
|
|
|
|
|
|
622,589
|
|
|
1,834,043
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
to related parties:
|
|
|
|
|
|
|
|
|
|
|
Vanship
|
|
|
(v)
|
|
|
8,882,533
|
|
|
8,882,533
|
|
Shinyo
Ocean
|
|
|
(vi)
|
|
|
-
|
|
|
25,200,000
|
|
|
|
|
|
|
|
8,882,533
|
|
|
34,082,533
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
due to related party:
|
|
|
|
|
|
|
|
|
|
|
Amount
due to Vanship
|
|
|
(vii)
|
|
|
672,395
|
|
|
989,359
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
from related party:
|
|
|
|
|
|
|
|
|
|
|
Vanship
|
|
|
(viii)
|
|
|
16,450,000
|
|
|
16,450,000
|
|
Notes:
|
(i)
|
The
balance represents interest receivable on
loan advanced to Vanship as set
out in (v) below.
|
|
(ii)
|
The
balance represents current account with Shinyo
Ocean and interest
receivable on loan advanced to Shinyo Ocean
as set out in (vi) below. The
current account with Shinyo Ocean is unsecured,
non-interest bearing and
with no fixed terms of repayment.
|
|
(iii)
|
The
balance represents current account with Shinyo
Navigator. The balance is
unsecured, non-interest bearing and with
no fixed terms of
repayment.
|
Shinyo
Kannika Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(6)
|
Related
Party Transactions
(continued)
|
(b)
|
Amounts
due from and due to related parties as of
December 31, 2006 and September
30, 2007 are as follows
(continued):
|
|
(iv)
|
The
balance represents advance payments for expenses
to be paid by Univan on
behalf of the Company. The balance is unsecured,
non-interest bearing and
with no fixed terms of repayment.
|
|
(v)
|
The
balance represents a loan to Vanship, which
carried interest at LIBOR plus
1.35% per annum with final maturity on October
1,
2019.
|
|
(vi)
|
The
balance represents a loan to Shinyo Ocean,
which carried interest at LIBOR
plus 0.98% per annum with final maturity
on January 7,
2017.
|
|
(vii)
|
The
balance represents interest payable on
loan from Vanship. Terms of loan
are set out in (viii) below.
|
|
(viii)
|
The
balance represents a loan from Vanship.
The loan period is from September
14, 2004 to December 31, 2012 with no
fixed repayment schedule.
|
Interest
is charged at six-month LIBOR plus 2.00% to LIBOR plus
3.98% per annum and
interest rate subsequently changed to LIBOR plus 2.39%
per annum since May 1,
2006 (7.76 % and 7.52% as of December 31, 2006 and
September 30, 2007
respectively). The interest expense for the periods
ended September 30, 2006 and
2007 was $955,794 and $989,359 respectively. Interest
is due every six months.
Interest of $618,364 and $Nil was paid for the periods
ended September 30, 2006
and 2007, respectively.
In
accordance with the contractual bank loan arrangement,
the loan from Vanship
shall not be repaid before the bank loans are repaid
in full.
(c)
|
As
of December 31, 2006 and September 30, 2007,
long-term bank loan of
$62,800,000 and $82,150,000, respectively,
was guaranteed by
Vanship.
|
(7)
|
Commitments
and Contingencies
|
Various
claims, suits, and complaints, including those involving
government regulations
and product liability, arise in the ordinary course
of the shipping business. In
addition, losses may arise from disputes with charterers,
agents, insurance and
other claims with suppliers relating to the operations
of the Company’s vessel.
Currently, management is not aware of any such claims
or contingent liabilities,
which should be disclosed, or for which a provision
should be established in the
accompanying financial statements.
(8)
|
Fair
Value of Financial Instruments
|
The
carrying amounts of cash, trade accounts receivable
and amounts due from/to
related parties, approximate their fair values because
of the short maturity of
these instruments.
The
carrying values of long-term bank loans and loans from
related parties
approximate their fair values based on the borrowing
rates currently available
to the Company for bank loans with similar terms and
average
maturities.
Shinyo
Kannika Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(9)
|
Business
and Credit Concentrations
|
The
Company operates in the shipping industry which historically
has been cyclical
with corresponding volatility in profitability. All
the Company’s revenues are
derived from vessel charters. The Company seeks to
mitigate volatilities in its
business by obtaining long-term charter contracts.
The Company has obtained a
long-term time charter contract which will expire in
February 2017.
The
Company outsourced the technical management services
to Belindtha which is
controlled by a person related to a director of the
Company. Belindtha then
sub-contracted its obligations under the outsourcing
arrangement to Univan which
assists Belindtha in providing technical management
services to the Company.
Univan is controlled by Captain Charles Arthur Joseph
Vanderperre, a director of
the Company. All expenses incurred by Univan on behalf
of the Company are
charged to the Company based on the actual expenditures
incurred on its behalf.
During the periods ended September 30, 2006 and 2007,
the Company paid service
fee of $85,500 each period to Belindtha.
The
Company is engaged in the business of ocean transportation
of crude oil industry
which is extremely competitive and dependent on the
world’s demand for crude
oil. Competition depends on price, location, size,
age, condition and the
acceptability of the vessel to the charterers. The
increase in competition and
the changes in demand for crude oil could result in
lower revenue achieved for
the vessel.
The
following are revenue from customers that individually
comprise 10% or more of
gross revenue:
|
|
Nine-month
Period Ended September 30,
|
|
|
|
2006
|
|
2007
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Tankers
International L.L.C.
|
|
|
17,369,004
|
|
|
100
|
|
|
5,073,591
|
|
|
45
|
|
Dalian
Ocean Shipping Company
|
|
|
-
|
|
|
-
|
|
|
6,156,715
|
|
|
55
|
|
|
|
|
17,369,004
|
|
|
100
|
|
|
11,230,306
|
|
|
100
|
|
The
gross
accounts receivable due from a customer that individually
representing more than
10% of the outstanding accounts receivable were
as follows:
|
|
December
31,
2006
|
|
September
30,
2007
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Tankers
International L.L.C.
|
|
|
2,942,576
|
|
|
100
|
|
|
270,489
|
|
|
100
|
|
Pursuant
to a definitive agreement entered into between Vanship
and Energy Infrastructure
Acquisition Corp. (“EIAC”), a company listed on the American Stock Exchange,
on
December 3, 2007 (the “Agreement”), Vanship agreed to sell all of its equity
interests in the Company and other eight related companies
to Energy
Infrastructure Merger Corporation (“EIMC”) (the “Business Combination”), a
wholly-owned subsidiary of EIAC, for an aggregate consideration
of $778,000,000,
consisting of $643,000,000 in cash (subject to closing
adjustments) and
13,500,000 shares of common stock of EIMC (valued at
$10 per share of common
stock). Vanship is entitled to an additional 3,000,000
shares of common stock of
EIMC on each of the first and second anniversaries
of the completion of the
Business Combination, subject to certain earning criteria.
Approval
of the Business Combination requires the affirmative
vote of the holders of a
majority of the shares of common stock voted at EIAC’s special meeting of
stockholders, provided that there is a quorum. In addition,
if the EIAC
stockholders approve the Business Combination, the
Business Combination will
only proceed if holders of shares purchased in EIAC’s initial public offering,
representing less than 30% of the shares sold in EIAC’s initial public offering
and EIAC’s private placement that occurred immediately prior
to the initial
public offering, exercise their redemption rights at
the time of casting a vote
against the Business Combination.
Pursuant
to the Agreement, Vanship has agreed to purchase up
to 5,000,000 units from EIMC
at a purchase price of $10.00 per unit, but only to
the extent necessary for
EIMC to secure financing for the Business Combination.
Each unit will consist of
one share of EIMC’s common stock and one warrant to purchase one share
of EIMC’s
common stock at an exercise price of $8.00 per warrant.
Report
of Independent Registered Public Accounting Firm
The
Board
of Directors and Shareholder of
Shinyo
Navigator Limited:
We
have
audited the accompanying balance sheet of Shinyo
Navigator Limited (the
“Company”) as of December 31, 2006, and the related statements
of operations,
shareholder’s deficit, and cash flows for the period from September
21, 2006
(date of incorporation) to December 31, 2006. These
financial statements are the
responsibility of the Company’s management. Our responsibility is to express
an
opinion on these financial statements based on
our audit.
We
conducted our audit in accordance with the standards
of the Public Company
Accounting Oversight Board (United States). Those
standards require that we plan
and perform the audit to obtain reasonable assurance
about whether the financial
statements are free of material misstatement. An
audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial
statements. An audit also includes assessing the
accounting principles used and
significant estimates made by management, as well
as evaluating the overall
financial statement presentation. We believe that
our audit provides a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above
present fairly, in all
material respects, the financial position of Shinyo
Navigator Limited as of
December 31, 2006, and the results of its operations
and its cash flows for the
period from September 21, 2006 (date of incorporation)
to December 31, 2006, in
conformity with U.S. generally accepted accounting
principles.
/s/
KPMG
Hong
Kong, China
February
11, 2008
Shinyo
Navigator Limited
Balance
Sheet
as
of
December 31, 2006
(expressed
in US$)
|
|
|
|
2006
|
|
|
|
Note
|
|
|
|
Assets
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash
|
|
|
|
|
|
435,714
|
|
Trade
accounts receivable
|
|
|
|
|
|
604,744
|
|
Prepayments
and other receivables
|
|
|
|
|
|
177,421
|
|
Supplies
|
|
|
|
|
|
28,938
|
|
Total
current assets
|
|
|
|
|
|
1,246,817
|
|
Deferred
loan costs
|
|
|
|
|
|
412,234
|
|
Vessel,
net
|
|
|
2
|
|
|
97,235,274
|
|
Total
assets
|
|
|
|
|
|
98,894,325
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Current
portion of long-term bank loan
|
|
|
3
|
|
|
7,000,000
|
|
Amounts
due to related parties
|
|
|
7(b
)
|
|
|
265,171
|
|
Accrued
liabilities and other payables
|
|
|
4
|
|
|
966,530
|
|
Total
current liabilities
|
|
|
|
|
|
8,231,701
|
|
Loan
from related party
|
|
|
7(b
)
|
|
|
15,158,279
|
|
Long-term
bank loan
|
|
|
3
|
|
|
75,875,000
|
|
Total
liabilities
|
|
|
|
|
|
99,264,980
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s
deficit
|
|
|
|
|
|
|
|
Ordinary
shares HK$1 par value per share
10,000
shares authorized; 1 share issued
and fully paid
as
of December 31
|
|
|
|
|
|
-
|
|
Accumulated
loss
|
|
|
|
|
|
(370,655
|
)
|
Total
shareholder’s deficit
|
|
|
|
|
|
(370,655
|
)
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholder’s deficit
|
|
|
|
|
|
98,894,325
|
|
See
accompanying notes to the financial statements.
Shinyo
Navigator Limited
Statement
of Operations
For
the
period from September 21, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
|
|
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
|
|
|
|
Revenue
|
|
|
5
|
|
|
604,744
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
6
|
|
|
306,120
|
|
Depreciation
expenses
|
|
|
|
|
|
264,726
|
|
Management
fee
|
|
|
7(a)
|
|
|
5,516
|
|
Commission
|
|
|
|
|
|
15,119
|
|
Administrative
expenses
|
|
|
|
|
|
38,759
|
|
Total
operating expenses
|
|
|
|
|
|
630,240
|
|
Operating
loss
|
|
|
|
|
|
(25,496
|
)
|
Other
income/(expense)
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
146,831
|
|
Interest
expense
|
|
|
|
|
|
(483,534
|
)
|
Other,
net
|
|
|
|
|
|
(8,456
|
)
|
Total
other expense
|
|
|
|
|
|
(345,159
|
)
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
|
|
|
(370,655
|
)
|
Income
taxes
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
(370,655
|
)
|
|
|
|
|
|
|
|
|
(a)
Includes the following expenses resulting
from transactions with related
parties (see note 7(a)):
|
|
|
|
|
|
|
2006
|
|
Vessel
operating expenses
|
|
|
|
|
|
|
|
-
Agency fee
|
|
|
|
|
|
(10,000
|
)
|
Management
fee
|
|
|
|
|
|
(5,516
|
)
|
Interest
expense
|
|
|
|
|
|
(221,143
|
)
|
|
|
|
|
|
|
|
|
See
accompanying notes to the financial statements.
Shinyo
Navigator Limited
Statement
of Shareholder’s Deficit
For
the
period from September 21, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
|
|
|
|
Ordinary
shares
|
|
|
|
|
|
|
|
|
|
Number
of share
|
|
Amount
|
|
Accumulated
loss
|
|
Total
Shareholder’s
deficit
|
|
|
|
Note
|
|
|
|
|
|
|
|
|
|
Balance
as of September 21, 2006
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Capital
injected upon incorporation
|
|
|
1
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
loss
|
|
|
|
|
|
-
|
|
|
-
|
|
|
(370,655
|
)
|
|
(370,655
|
)
|
Balance
as of December 31, 2006
|
|
|
|
|
|
1
|
|
|
-
|
|
|
(370,655
|
)
|
|
(370,655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the financial statements
Shinyo
Navigator
Limited
Statement
of Cash Flows
For
the
period from September 21, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
|
|
2006
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
Net
loss
|
|
|
(370,655
|
)
|
Adjustments
to reconcile net loss to net cash provided
by operating
activities:
|
|
|
|
|
Depreciation
expenses
|
|
|
264,726
|
|
Deferred
loan costs
|
|
|
2,141
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
Trade
accounts receivable
|
|
|
(604,744
|
)
|
Prepayments
and other receivables
|
|
|
(177,421
|
)
|
Supplies
|
|
|
(28,938
|
)
|
Amounts
due to related parties
|
|
|
265,171
|
|
Accrued
liabilities and other payables
|
|
|
966,530
|
|
Net
cash provided by operating activities
|
|
|
316,810
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
Purchase
of vessel
|
|
|
(87,750,000
|
)
|
Net
cash used in investing activities
|
|
|
(87,750,000
|
)
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
Proceeds
from long-term bank loan
|
|
|
82,875,000
|
|
Proceeds
from loan from related party
|
|
|
5,542,136
|
|
Repayment
of loan from related party
|
|
|
(133,857
|
)
|
Payment
of loan costs
|
|
|
(414,375
|
)
|
Net
cash provided by financing activities
|
|
|
87,868,904
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
435,714
|
|
Cash:
|
|
|
|
|
At
beginning of period
|
|
|
-
|
|
At
end of period
|
|
|
435,714
|
|
Supplemental
Disclosure of Non-Cash Flow Investing and Financing
Activities
|
|
2006
|
|
Investing
activities:
|
|
|
|
Payment
of deposits for purchase of vessel
by related party
|
|
|
(9,750,000
|
)
|
Financing
activities
|
|
|
|
|
Loan
from related party
|
|
|
9,750,000
|
|
See
accompanying notes to the financial statements
Shinyo
Navigator
Limited
Notes
to
the Financial Statements
For
the
period from September 21, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting
Policies
|
|
(a)
|
Description
of Business
|
Shinyo
Navigator Limited (the “Company”), a company engaged in the business of ocean
transportation of crude oil worldwide, was established
in Hong Kong on September
21, 2006. The principal activity of the Company
is the ownership and chartering
of the vessel “Shinyo Navigator”. Shinyo Navigator was delivered in 1996 and
was
a second hand vessel acquired by the Company
in December 2006. It is a
double-hulled very large crude oil carrier with
capacity of 300,549 deadweight
tonnage.
On
September 21, 2006, Vanship Holdings Limited
established the Company in Hong
Kong as limited liability company with authorized
share capital of 10,000
ordinary shares of HK$1 each. On date of incorporation,
1 subscriber share of
HK$1 was issued.
The
Company has outsourced substantially all its
day to day operations to its
related party, Belindtha Marine Limited (“Belindtha”), a company controlled by a
person related to a director of the Company.
Belindtha then sub-contracted its
obligations under the outsourcing arrangement
to Univan Ship Management Limited
(“Univan”) which assists Belindtha in providing technical
management services to
the Company. Univan is controlled by Captain
Charles Arthur Joseph Vanderperre,
a director of the Company. All expenses incurred
by Univan on behalf of the
Company are charged to the Company based on
the actual expenditures incurred on
their behalf. In addition, China Sea Maritime
Ltd. (“China Sea”) and Shinyo
Maritime Corporation (“Shinyo Maritime”) provide administrative services to the
Company. China Sea and Shinyo Maritime are
controlled by Captain Charles Arthur
Joseph Vanderperre and Mr. Fred Cheng, respectively,
each a director of the
Company.
The
Company began receiving time charter revenue
on
December 18, 2006 pursuant to a time charter
agreement with Dailian Ocean
Shipping Company under which the Company is
paid a daily charter rate of
$43,800.
As
of
December 31, 2006, the Company had a working
capital deficit of $6,984,884.
These financial statements have been prepared
assuming that the Company will
continue as a going concern as Vanship Holdings
Limited, the immediate holding
company, has confirmed its intention to provide
continuing financial support to
the Company so as to enable the Company to meet
its liabilities as and when they
fall due.
|
(c)
|
Basis
of Presentation
|
The
Company’s financial statements have been prepared in
accordance with U.S.
accounting principles (“US GAAP”).
This
basis of accounting differs in certain material
respects from that used in the
preparation of the statutory financial statements
of the Company, which are
prepared in accordance with the accounting principles
of the country of its
domicile. The accompanying financial statements
reflect necessary adjustments to
present them in conformity with US GAAP.
Cash
consists interest-bearing deposits placed with
banks. As of December 31, 2006,
there were no cash equivalents.
Shinyo
Navigator
Limited
Notes
to
the Financial Statements (continued)
For
the
period from September 21, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(e)
|
Trade
Accounts Receivable
|
The
Company generally requires customers to pay in
advance for time charter hire.
Trade accounts receivable are recorded at the
invoiced amount, do not bear
interest and reflect billings to charterers for
hire, freight and demurrage.
The
Company maintains an allowance for doubtful accounts
for estimated losses
inherent in its trade accounts receivable portfolio.
In establishing the
required allowance, management considers historical
losses, current receivables
aging, and existing industry and national economic
data.
The
Company’s customers are in the crude oil industry and
are affected by demand and
supply of crude oil worldwide. The Company has
been able to collect all of its
receivable balances, and accordingly, the Company
did not provide for any
allowance for doubtful accounts at December 31,
2006. The Company does not have
any off-balance-sheet credit exposure related
to its customers.
Supplies
consisting of lubricating oil are stated at cost.
Cost is determined on a
first-in, first-out method (FIFO).
A
vessel
is stated at cost, which consists of the contract
price and delivery costs.
Subsequent expenditures for conversions and major
overhauls (“drydocking”) are
also capitalized when they extend the life, increase
the earning capacity or
improve the efficiency or safety of the vessel
otherwise these amounts are
charged to expense as incurred.
Depreciation
on the vessel is calculated based on the straight-line
method over the estimated
useful life of the vessel, after taking into
account its estimated residual
value, from date of acquisition. The vessel’s residual value is equal to the
product of its lightweight tonnage and estimated
scrap rate. Management
estimates the useful life of the Company’s vessel to be 15 years from the date
of acquisition. The useful life of the vessel
is evaluated on a regular basis to
account for changes in circumstances, including
changes in regulatory
restrictions. If regulations place limitations
over the ability of a vessel to
operate, its useful life is adjusted to end at
the date such regulations become
effective.
The
Company follows the deferral method of accounting
for drydocking whereby actual
costs incurred are capitalized and are depreciated
on a straight-line basis over
the period through the date the next drydocking
becomes due. The vessel of the
Company is required to have an intermediate drydocking
approximately every 30
months and a special survey drydocking approximately
every 60 months.
Capitalized intermediate drydocking costs and
special survey drydocking costs
are depreciated over a period of 30 months and
60 months, respectively. If the
anticipated date of drydocking is changed from
the scheduled date, the remaining
undepreciated carrying amount of the drydocking
costs is adjusted to reflect the
revised date.
Shinyo
Navigator
Limited
Notes
to
the Financial Statements (continued)
For
the
period from September 21, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
A
vessel
is reviewed for impairment whenever events or
changes in circumstances indicate
that the carrying amount of a vessel may not
be recoverable. Recoverability of
the vessel is measured by a comparison of the
carrying amount of the vessel,
including capitalized drydocking costs, to the
estimated undiscounted future
cash flows expected to be generated by the vessel.
If the carrying amount of the
vessel exceeds its estimated future undiscounted
cash flows, an impairment
charge will be recognized by the amount that
the carrying amount of the vessel
exceeds its estimated fair value.
In
the
normal course of business, the Company is subject
to loss contingencies, such as
legal proceedings and claims arising out of its
business. An accrual for a loss
contingency is recognized when it is probable
that a liability will be incurred
and the amount of the loss can be reasonably
estimated.
|
(j)
|
Revenue
Recognition and Related
Expenses
|
The
Company generates its revenues from time charter
agreements. Revenues are
recognized when the collectibility has been reasonably
assured. Time charter
revenues are recorded over the term of the charter
as the service is provided.
Vessel operating costs are expensed as incurred.
Brokerage
and charter hire commissions paid to third parties
are expensed in the same
period as revenues are recognized.
Fees
incurred for obtaining new loans are deferred
and amortized to interest expense
over the life of the related debt using the effective
interest method. The
Company follows EITF 96-19 in accounting for
debt modification. A modification
is considered substantial if the present value
of the cash flows under the terms
of new debt is at least 10 percent different
from the present value of the
remaining cash flows under the terms of the original
debt at the date of
modification. When the loan is repaid or when
the loan is substantially
modified, the existing unamortized fees are written-off
in the period debt
repayment or substantial modification takes place.
When the modification is not
considered substantial, the fees associated with
the modification and, along
with the existing unamortized fees, are amortized
over the remaining term of the
modified loan using the effective interest method.
There is no write-off of
deferred loan costs during the period ended December
31, 2006.
Shinyo
Navigator
Limited
Notes
to
the Financial Statements (continued)
For
the
period from September 21, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(m)
|
Foreign
Currency Transactions
|
The
Company’s functional and reporting currency is United
States (“US”) dollar
because the Company’s vessel operates in international shipping markets,
where
most transactions are denominated in US dollar.
Furthermore, the Company incurs
bank debt, pays salaries and wages and other
expenditures such as fuel costs,
lubricants, insurance costs, all in US dollars.
Transactions
denominated in currencies other than US dollar
are translated into US dollars at
the exchange rates prevailing at the dates of
transactions. Monetary assets and
liabilities denominated in currencies other than
US dollar are translated at the
exchange rates prevailing at the balance sheet
dates. During the period ended
December 31, 2006, substantially all of the Company’s transactions were
denominated in US dollars and the Company did
not have significant foreign
currency transaction gains or losses.
The
preparation of the financial statements requires
management of the Company to
make a number of estimates and assumptions relating
to the reported amounts of
assets and liabilities and the disclosure of
contingent assets and liabilities
at the date of the financial statements and the
reported amounts of revenues and
expenses during the reporting period. Significant
items subject to such
estimates and assumptions include the estimated
useful life of the vessel
(including drydocking costs, residual value and
recovery of the carrying amount
of the vessel. Actual results could differ from
those estimates.
|
(o)
|
Income
and Other Taxes
|
Under
the
laws of the countries of the Company’s incorporation and/or vessel’s
registration, the Company is not subject to tax
on international shipping
income. However, it is subject to registration
and tonnage taxes, which are
charged by the country of which the vessel is
registered at a fixed rate based
on the tonnage of the vessel. Registration and
tonnage taxes have been included
in vessel operating expenses in the accompanying
statement of operations.
In
June
2006, the Financial Accounting Standards Board
(“FASB”) issued FASB
Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation
of FASB Statement
109
(FIN
48). FIN 48 clarifies the accounting for uncertainty
in income taxes recognized
in an enterprise’s financial statements and prescribes a threshold
of
more-likely-than-not for recognition of tax benefits
of uncertain tax positions
taken or expected to be taken in a tax return.
FIN 48 also provides related
guidance on measurement, derecognition, classification,
interest and penalties,
and disclosure. The provisions of FIN 48 will
be effective for the fiscal years
beginning after December 15, 2006, with any cumulative
effect of the change in
accounting principle recorded as an adjustment
to opening retained earnings.
Effective from January 1, 2007, the Company adopted
the provision of FIN 48. As
of the date of the adoption of FIN 48, the Company
has no material unrecognized
tax benefit which would favorably affect the
effective income tax rate in future
periods and do not believe there will be any
significant increases or decreases
within the next twelve months. The Company has
elected to classify interest and
penalties related to unrecognized tax benefits,
if and when required, as part of
income tax expenses in the statement of operations.
No interest or penalties
have been accrued at the date of adoption.
According
to the Inland Revenue Ordinance of Hong Kong,
the statute of limitations is
seven years (i.e. calendar year 2006 for
the Company) if the underpayment of
taxes is due to omission or errors made by
either the taxpayer or the
withholding agent. The statute of limitations
will be extended to ten years
(i.e. calendar year 2006 for the Company)
in case of tax evasion.
According
to the Internal Revenue Code of the United
States of America, the statute of
limitations is three years (i.e. calendar
year 2006 for the Company) if the
underpayment of taxes is due to omission
or errors made by either the taxpayer
or withholding agent. There is no statute
of limitations in the case of tax
evasion.
Shinyo
Navigator
Limited
Notes
to
the Financial Statements (continued)
For
the
period from September 21, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(p)
|
Recently
Issued Accounting
Standards
|
In
September 2006, the FASB issued FASB Statement
No. 157,
Fair
Value Measurement
(Statement
157). Statement 157 defines fair value, establishes
a framework for the
measurement of fair value measures already required
or permitted by other
standards for fiscal years beginning after November
15, 2007. The Company is
required to adopt Statement 157 for the fiscal
years beginning on January 1,
2008. Statement 157 is required to be applied
prospectively, except for certain
financial instruments. Any transition adjustment
will be recognized as an
adjustment to opening retained earnings in the
year of adoption. Effective from
January 1, 2007, the Company adopted the provision
of AUG AIR-1. The Company
follows the deferral method of accounting for
drydocking. As of the date of
adoption of AUG AIR-1, the Company has no accruals
for planned drydocking which
require to be adjusted retrospectively.
In
September 2006, the FASB issued FASB Staff Position
No. AUG AIR-1,
Accounting
for Planned Major Maintenance Activities
(AUG
AIR-1). This guidance prohibits the use of the
accrue-in-advance method of
accounting for planned major maintenance activities
because an obligation has
not occurred and therefore a liability should
not be recognized. The provisions
of this guidance will be effective for fiscal
years beginning after December 15,
2006. The Company does not anticipate that the
adoption of the provisions of
this guidance will have a material impact on
its results of operations and
financial position.
In
February 2007, the FASB issued FASB Statement
No. 159,
The
Fair Value Option for Financial Assets and
Financial Liabilities - Including an
Amendment of FASB Statement No. 115
(Statement
159)
.
Statement
159 permits an entity to elect fair value as
the initial and subsequent
measurement attribute for many financial assets
and liabilities. Entities
electing the fair value option would be required
to recognize changes in fair
value in earnings. Entities electing the fair
value option are required to
distinguish, on the face of the balance sheet,
the fair value of assets and
liabilities for which the fair value option
has been elected and similar assets
and liabilities measured using another measurement
attribute. Statement 159 will
be effective for fiscal years beginning after
November 15, 2007. The adjustment
to reflect the difference between the fair
value and the carrying amount would
be accounted for as a cumulative-effect adjustment
to retained earnings as of
the date of initial adoption. The Company does
not anticipate that the adoption
of the provisions of Statement 159 will have
a material impact on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement
No. 160,
Noncontrolling
Interests in Consolidated Financial Statements
- an Amendment of ARB No. 51
(Statement
160). Statement 160 establishes accounting and
reporting standards for the
noncontrolling interest in a subsidiary and for
the deconsolidation of a
subsidiary. Statement 160 will be effective for
the fiscal year beginning after
December 15, 2008. The Company does not anticipate
that the adoption of the
provisions of Statement 160 will have a material
impact on its results of
operations and financial position.
Shinyo
Navigator
Limited
Notes
to
the Financial Statements (continued)
For
the
period from September 21, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(p)
|
Recently
Issued Accounting Standards
(continued)
|
In
December 2007, the FASB issued FASB Statement
No. 141 (Revised),
Business
Combinations
(Statement
141(R)). Statement 141(R) establishes principles
and requirements for how the
acquirer of a business recognizes and measures
in its financial statements the
identifiable assets acquired, the liabilities
assumed, and any noncontrolling
interest in the acquiree. Statement 141(R) also
provides guidance for
recognizing and measuring the goodwill acquired
in the business combination and
determines what information to disclose to enable
users of the financial
statements to evaluate the nature and financial
effects of the business
combination. Statement 141(R) will be effective
for fiscal years beginning after
December 15, 2008. The Company does not anticipate
the adoption of the
provisions of Statement 141(R) will have a material
impact on its results of
operations and financial position.
|
|
2006
|
|
|
|
|
|
Vessel
|
|
|
|
Cost
|
|
|
97,500,000
|
|
Accumulated
depreciation
|
|
|
(264,726
|
)
|
Vessel,
net
|
|
|
97,235,274
|
|
The
vessel is mortgaged as described in Note 3.
(3)
Long-term
Bank Loan
Lender/period
|
|
2006
|
|
|
|
|
|
HSH
Nordbank AG
|
|
|
|
December
13, 2006 to December 12, 2016
|
|
|
82,875,000
|
|
|
|
|
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
7,000,000
|
|
Non-current
portion
|
|
|
75,875,000
|
|
|
|
|
82,875,000
|
|
On
December 13, 2006, a loan of $82,875,000 was
obtained. The loan is
repayable by four quarterly installments of
$1,750,000 each, followed by four
quarterly installments of $1,875,000 each,
four quarterly installments of
$2,000,000 each, four quarterly installments
of $2,125,000 each, twelve
quarterly installments of $2,375,000 each,
eight quarterly installments of
$1,750,000 each and four quarterly installments
of $2,343,750
each.
Interest
is charged at LIBOR plus 1.00% per annum (5.95%
as of December 31, 2006). The
interest expense for the period ended December
31, 2006 was $260,250.
As
of
December 31, 2006, the bank loan was secured
by the vessel of the Company with
carrying amount of $97,235,274.
Shinyo
Navigator
Limited
Notes
to
the Financial Statements (continued)
For
the
period from September 21, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(3)
|
Long-term
Bank Loan (continued)
|
The
bank
loan is also guaranteed by its immediate holding
Company, Vanship Holdings
Limited, as of December 31, 2006.
The
principal repayments for each of the years subsequent
to December 31, 2006 are
as follows:
Year
ending December 31,
|
|
|
|
|
|
|
|
2007
|
|
|
7,000,000
|
|
2008
|
|
|
7,500,000
|
|
2009
|
|
|
8,000,000
|
|
2010
|
|
|
8,500,000
|
|
2011
and later
|
|
|
51,875,000
|
|
|
|
|
82,875,000
|
|
(4)
|
Accrued
Liabilities and Other
Payables
|
Accrued
liabilities and other payables at December 31,
2006 consist of the
following:
|
|
2006
|
|
|
|
|
|
Accrued
audit fee
|
|
|
1,600
|
|
Accrued
vessel operating expenses
|
|
|
230,699
|
|
Bank
loan interest payable
|
|
|
260,250
|
|
Commission
payable
|
|
|
15,120
|
|
Other
payable
|
|
|
419,375
|
|
Wages
payable
|
|
|
39,486
|
|
|
|
|
966,530
|
|
The
Company’s revenue for the period ended December 31, 2006
represents revenue
generated from time charter agreements.
(6)
|
Vessel
Operating Expenses
|
Vessel
operating expenses for the period ended December
31, 2006 consist of the
following:
|
|
2006
|
|
|
|
|
|
Crew
wages and allowances
|
|
|
43,135
|
|
Crew
expenses
|
|
|
29,913
|
|
Insurance
|
|
|
24,722
|
|
Lubricating
oil expenses
|
|
|
75,905
|
|
Stores
expenses
|
|
|
30,202
|
|
Repair
and maintenance
|
|
|
38,204
|
|
Spare
parts expenses
|
|
|
35,432
|
|
Other
operating expenses
|
|
|
28,607
|
|
|
|
|
306,120
|
|
Shinyo
Navigator
Limited
Notes
to
the Financial Statements (continued)
For
the
period from September 21, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(7)
|
Related
Party Transactions
|
Name
of party
|
|
Relationship
|
|
|
|
Belindtha
Marine Limited (“Belindtha”)
|
|
A
company controlled by a person related
to a director of the
Company
|
|
|
|
China
Sea Maritime Ltd. (“China Sea”)
|
|
A
company controlled by a director, Captain
Charles Arthur Joseph
Vanderperre, of the Company
|
|
|
|
Shinyo
Maritime Corporation (“Shinyo Maritime”)
|
|
A
company controlled by a director, Mr
Fred Cheng, of the
Company
|
|
|
|
Univan
Ship Management Limited (“Univan”)
|
|
A
company controlled by a director, Captain
Charles Arthur Joseph
Vanderperre, of the Company
|
|
|
|
Vanship
Holdings Limited (“Vanship”)
|
|
Immediate
holding company of the Company
|
(a)
|
The
principal related party transactions
during the period ended December 31,
2006 are as follows:
|
|
|
|
|
2006
|
|
|
|
Note
|
|
|
|
Service
fee to Belindtha
|
|
|
(i
)
|
|
|
5,516
|
|
Agency
fee to China Sea
|
|
|
(ii
)
|
|
|
5,000
|
|
Agency
fee to Shinyo Maritime
|
|
|
(ii)
|
|
|
5,000
|
|
Loan
interest expense to Vanship
|
|
|
(iii)
|
|
|
221,143
|
|
Notes:
(i)
|
The
Company has outsourced substantially
all its day to day operations to
Belindtha. The service fee is payable
to Belindtha at a pre-determined
amount in accordance with the terms
mutually agreed by Belindtha and the
Company.
|
|
(ii)
|
China
Sea and Shinyo Maritime have provided
agency services to the Company. The
agency fee is payable to China Sea
and Shinyo Maritime based on
contractual agreements with the
Company.
|
|
(iii)
|
The
balance represents interest expense
on loan from Vanship. Terms of loan
details are set out in Note 7(b)(iii)
below.
|
(b)
|
Amounts
due from and due to related parties
as of December 31, 2006 are as
follows:
|
|
|
|
|
2006
|
|
|
|
Note
|
|
|
|
Amounts
due to related parties:
|
|
|
|
|
|
|
|
Amount
due to Vanship
|
|
|
(i)
|
|
|
221,143
|
|
Amount
due to Univan
|
|
|
(ii)
|
|
|
44,028
|
|
|
|
|
|
|
|
265,171
|
|
Loan
from related party:
|
|
|
|
|
|
|
|
Vanship
|
|
|
(iii)
|
|
|
15,158,279
|
|
Shinyo
Navigator
Limited
Notes
to
the Financial Statements (continued)
For
the
period from September 21, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(7)
|
Related
Party Transactions
(continued)
|
(b)
|
Amounts
due from and due to related parties
as of December 31, 2006 are as follows
(continued):
|
Notes:
|
(i)
|
The
balance represents interest payable
on loan from Vanship. Terms of loan
are set out in (iii) below.
|
|
(ii)
|
The
balance represents payable to Univan
for expenses paid on behalf of the
Company. The balance is unsecured,
non-interest bearing and with no fixed
terms of repayment.
|
|
(iii)
|
The
balance represents a loan from Vanship.
The loan period is from December
12, 2006 to December 31, 2016 with
no fixed repayment schedule. Interest
is charged at 6.50% per annum. The
interest expense for the period ended
December 31, 2006 was $221,143 which
was outstanding as of December 31,
2006.
|
In
accordance with the contractual bank loan arrangements,
the loan from Vanship
shall not be repaid before the bank loans are
repaid in full.
(c)
|
Vanship
has provided a letter of support to
the Company to confirm its intention
to provide continuing financial support
to the Company so as to enable the
Company to meet its liabilities when
they fall due.
|
(d)
|
As
of December 31, 2006, long-term bank
loan of $82,875,000 was guaranteed
by
Vanship.
|
(8)
|
Commitments
and Contingencies
|
Various
claims, suits, and complaints, including those
involving government regulations
and product liability, arise in the ordinary
course of the shipping business. In
addition, losses may arise from disputes with
charterers, agents, insurance and
other claims with suppliers relating to the operations
of the Company’s vessel.
Currently, management is not aware of any such
claims or contingent liabilities,
which should be disclosed, or for which a provision
should be established in the
accompanying financial statements.
(9)
|
Fair
Value of Financial Instruments
|
The
carrying amounts of cash, trade accounts receivable
and amounts due to related
parties, approximate their fair values because
of the short maturity of these
instruments.
The
carrying values of long-term bank loan and loan
from related party approximate
their fair values based on the borrowing rates
currently available to the
Company for bank loans with similar terms and
average maturities.
Shinyo
Navigator
Limited
Notes
to
the Financial Statements (continued)
For
the
period from September 21, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(10)
|
Business
and Credit Concentrations
|
The
Company operates in the shipping industry which
historically has been cyclical
with corresponding volatility in profitability.
All the Company’s revenues are
derived from vessel charters. The Company seeks
to mitigate volatilities in its
business by obtaining long-term charter contracts.
The Company has obtained a
long-term time charter contract which will expire
in December 2016.
The
Company outsourced the technical management services
to Belindtha which is
controlled by a person related to a director
of the Company. Belindtha then
sub-contracted its obligations under the outsourcing
arrangement to Univan which
assists Belindtha in providing technical management
services to the Company.
Univan is controlled by Captain Charles Arthur
Joseph Vanderperre, a director of
the Company. All expenses incurred by Univan
on behalf of the Company are
charged to the Company based on actual expenditures
incurred on its behalf.
During the period ended December 31, 2006, the
Company paid service fee of
$5,516 to Belindtha.
The
Company is engaged in the business of ocean transportation
of crude oil industry
which is extremely competitive and dependent
on the world’s demand for crude
oil. Competition depends on price, location,
size, age, condition and the
acceptability of the vessel to the charterers.
The increase in competition and
the changes in demand for crude oil could result
in lower revenue achieved for
the vessel.
The
following are revenue from a customer that
individually comprises 10% or more of
gross revenue:
|
|
2006
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
Dalian
Ocean Shipping Company
|
|
|
604,744
|
|
|
100
|
|
The
gross
accounts receivable due from a customer that
individually representing more than
10% of the outstanding accounts receivable
were as follows:
|
|
2006
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
Dalian
Ocean Shipping Company
|
|
|
604,744
|
|
|
100
|
|
Pursuant
to a definitive agreement entered into between
Vanship and Energy Infrastructure
Acquisition Corp. (“EIAC”), a company listed on the American Stock Exchange,
on
December 3, 2007 (the “Agreement”), Vanship agreed to sell all of its equity
interests in the Company and other eight related
companies to Energy
Infrastructure Merger Corporation (“EIMC”) (the “Business Combination”), a
wholly-owned subsidiary of EIAC, for an aggregate
consideration of $778,000,000,
consisting of $643,000,000 in cash (subject to
closing adjustments) and
13,500,000 shares of common stock of EIMC (valued
at $10 per share of common
stock). Vanship is entitled to an additional
3,000,000 shares of common stock of
EIMC on each of the first and second anniversaries
of the completion of the
Business Combination, subject to certain earning
criteria.
Approval
of the Business Combination requires the affirmative
vote of the holders of a
majority of the shares of common stock voted
at EIAC’s special meeting of
stockholders, provided that there is a quorum.
In addition, if the EIAC
stockholders approve the Business Combination,
the Business Combination will
only proceed if holders of shares purchased in
EIAC’s initial public offering,
representing less than 30% of the shares sold
in EIAC’s initial public offering
and EIAC’s private placement that occurred immediately
prior to the initial
public offering, exercise their redemption rights
at the time of casting a vote
against the Business Combination.
Pursuant
to the Agreement, Vanship has agreed to purchase
up to 5,000,000 units from EIMC
at a purchase price of $10.00 per unit, but only
to the extent necessary for
EIMC to secure financing for the Business Combination.
Each unit will consist of
one share of EIMC’s common stock and one warrant to purchase one
share of EIMC’s
common stock at an exercise price of $8.00 per
warrant.
Unaudited
Condensed Balance Sheets
as
of
December 31, 2006 and September 30, 2007
(expressed
in US$)
|
|
|
|
December
31, 2006
|
|
September
30, 2007
|
|
|
|
Note
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
435,714
|
|
|
1,467,017
|
|
Trade
accounts receivable
|
|
|
|
|
|
604,744
|
|
|
-
|
|
Prepayments
and other receivables
|
|
|
|
|
|
177,421
|
|
|
109,250
|
|
Supplies
|
|
|
|
|
|
28,938
|
|
|
91,510
|
|
Derivative
financial instruments
|
|
|
9
|
|
|
-
|
|
|
789,175
|
|
Amount
due from related party
|
|
|
6(b)
|
|
|
-
|
|
|
238,841
|
|
Total
current assets
|
|
|
|
|
|
1,246,817
|
|
|
2,695,793
|
|
Deferred
loan costs
|
|
|
|
|
|
412,234
|
|
|
381,156
|
|
Vessel,
net
|
|
|
2
|
|
|
97,235,274
|
|
|
92,921,660
|
|
Total
assets
|
|
|
|
|
|
98,894,325
|
|
|
95,998,609
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term bank loan
|
|
|
3
|
|
|
7,000,000
|
|
|
7,375,000
|
|
Amounts
due to related parties
|
|
|
6(b)
|
|
|
265,171
|
|
|
822,177
|
|
Accrued
liabilities and other payables
|
|
|
|
|
|
966,530
|
|
|
1,619,530
|
|
Total
current liabilities
|
|
|
|
|
|
8,231,701
|
|
|
9,816,707
|
|
Loan
from related party
|
|
|
6(b)
|
|
|
15,158,279
|
|
|
15,158,279
|
|
Long-term
bank loan
|
|
|
3
|
|
|
75,875,000
|
|
|
70,250,000
|
|
Total
liabilities
|
|
|
|
|
|
99,264,980
|
|
|
95,224,986
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s
(deficit)/equity
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares HK$1 par value per share
10,000
shares authorized; 1 share issued and fully paid
as of December 31,
2006/September 30, 2007
|
|
|
|
|
|
-
|
|
|
-
|
|
Accumulated
losses
|
|
|
|
|
|
(370,655
|
)
|
|
773,623
|
|
Total
shareholder’s (deficit)/equity
|
|
|
|
|
|
(370,655
|
)
|
|
773,623
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholder’s (deficit)/equity
|
|
|
|
|
|
98,894,325
|
|
|
95,998,609
|
|
See
accompanying notes to the unaudited condensed financial statements.
Shinyo
Navigator Limited
Unaudited
Condensed Statements of Operations
for
the
period from September 21, 2006 (date of incorporation) to September
30, 2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
|
|
|
|
2006
|
|
2007
|
|
|
|
Note
|
|
|
|
|
|
Operating
revenue
|
|
|
|
|
|
|
|
Revenue
|
|
|
4
|
|
|
-
|
|
|
11,483,546
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
|
|
|
-
|
|
|
2,002,708
|
|
Depreciation
expenses
|
|
|
|
|
|
-
|
|
|
4,313,614
|
|
Management
fee
|
|
|
6(a)
|
|
|
-
|
|
|
85,500
|
|
Commission
|
|
|
|
|
|
-
|
|
|
288,963
|
|
Administrative
expenses
|
|
|
|
|
|
-
|
|
|
54,512
|
|
Total
operating expenses
|
|
|
|
|
|
-
|
|
|
6,745,297
|
|
Operating
income
|
|
|
|
|
|
-
|
|
|
4,738,249
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
-
|
|
|
91,187
|
|
Interest
expense
|
|
|
|
|
|
(28,167
|
)
|
|
(4,422,196
|
)
|
Changes
in fair value of derivatives
|
|
|
9
|
|
|
-
|
|
|
789,175
|
|
Other,
net
|
|
|
|
|
|
-
|
|
|
(52,137
|
)
|
Total
other expense
|
|
|
|
|
|
(28,167
|
)
|
|
(3,593,971
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/income
before income taxes
|
|
|
|
|
|
(28,167
|
)
|
|
1,144,278
|
|
Income
taxes
|
|
|
5
|
|
|
-
|
|
|
-
|
|
Net
(loss)/income
|
|
|
|
|
|
(28,167
|
)
|
|
1,144,278
|
|
(a)
Includes the following expenses resulting from transactions
with related parties
(see note 6(a)):
|
|
2006
|
|
2007
|
|
Vessel
operating expenses
|
|
|
|
|
|
|
|
-
Agency fee
|
|
|
-
|
|
|
(90,000
|
)
|
Management
fee
|
|
|
-
|
|
|
(85,500
|
)
|
Interest
expense
|
|
|
|
)
|
|
(747,177
|
)
|
See
accompanying notes to the unaudited condensed financial statements.
Shinyo
Navigator Limited
Unaudited
Condensed Statements of Shareholder’s (Deficit)/Equity
for
the
period from September 21, 2006 (date of incorporation) to September
30, 2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
|
|
|
|
Ordinary
shares
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
Amount
|
|
Accumulated
losses
|
|
Total
shareholder’s
(deficit)/equity
|
|
|
|
Note
|
|
|
|
|
|
|
|
|
|
Balance
as of September 21, 2006
|
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Capital
injected upon incorporation
|
|
|
1
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
loss
|
|
|
|
|
|
-
|
|
|
-
|
|
|
(28,167
|
)
|
|
(28,167
|
)
|
Balance
as of September 30, 2006
|
|
|
|
|
|
1
|
|
|
-
|
|
|
(28,167
|
)
|
|
(28,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
|
|
|
|
1
|
|
|
-
|
|
|
(370,655
|
)
|
|
(370,655
|
)
|
Net
income
|
|
|
|
|
|
-
|
|
|
-
|
|
|
1,144,278
|
|
|
1,144,278
|
|
Balance
as of September 30, 2007
|
|
|
|
|
|
1
|
|
|
-
|
|
|
773,623
|
|
|
773,623
|
|
See
accompanying notes to the unaudited condensed financial statements.
Shinyo
Navigator
Limited
Unaudited
Condensed Statements of Cash Flows
for
the
period from September 21, 2006 (date of incorporation) to September
30, 2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
|
|
2006
|
|
2007
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
(loss)/income
|
|
|
(28,167
|
)
|
|
1,144,278
|
|
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
expenses
|
|
|
-
|
|
|
4,313,614
|
|
Amortization
of deferred loan costs
|
|
|
-
|
|
|
31,078
|
|
Changes
in fair value of derivative financial instruments
|
|
|
-
|
|
|
(789,175
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
-
|
|
|
604,744
|
|
Prepayments
and other receivables
|
|
|
-
|
|
|
68,171
|
|
Supplies
|
|
|
-
|
|
|
(62,572
|
)
|
Amount
due from related party
|
|
|
-
|
|
|
(238,841
|
)
|
Amounts
due to related parties
|
|
|
-
|
|
|
557,006
|
|
Accrued
liabilities and other payables
|
|
|
28,167
|
|
|
653,000
|
|
Net
cash provided by operating activities
|
|
|
-
|
|
|
6,281,303
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Repayment
of long-term bank loan
|
|
|
-
|
|
|
(5,250,000
|
)
|
Net
cash used in financing activities
|
|
|
-
|
|
|
(5,250,000
|
)
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
-
|
|
|
1,031,303
|
|
Cash:
|
|
|
|
|
|
|
|
At
beginning of period
|
|
|
-
|
|
|
435,714
|
|
At
end of period
|
|
|
-
|
|
|
1,467,017
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
2006
|
|
2007
|
|
Cash
paid during the period for:
|
|
|
|
|
|
Interest
|
|
|
-
|
|
|
3,883,322
|
|
Supplemental
Disclosure of Non-Cash Flow Operating, Investing and Financing
Activities:
|
|
2006
|
|
2007
|
|
Operating
activities:
|
|
|
|
|
|
Payment
of interest expenses by related parties
|
|
|
28,167
|
|
|
-
|
|
Investing
activities
|
|
|
|
|
|
|
|
Payment
of deposits for purchase of vessel by
|
|
|
|
|
|
|
|
related
party
|
|
|
(9,750,000
|
)
|
|
-
|
|
Financing
activities
|
|
|
|
|
|
|
|
Loan
from related party
|
|
|
9,750,000
|
|
|
-
|
|
See
accompanying notes to the unaudited condensed financial statements.
Shinyo
Navigator Limited
Notes
to
the Unaudited Condensed Financial Statements
for
the
period from September 21, 2006 (date of incorporation) to September
30, 2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting
Policies
|
|
(a)
|
Description
of Business
|
Shinyo
Navigator Limited (the “Company”), a company engaged in the business of ocean
transportation of crude oil worldwide, was established in Hong
Kong on September
21, 2006. The principal activity of the Company is the ownership
and chartering
of the vessel “Shinyo Navigator”. Shinyo Navigator was delivered in 1996 and was
a second hand vessel acquired by the Company in December 2006.
It is a
double-hulled very large crude oil carrier with capacity of 300,549
deadweight
tonnage.
On
September 21, 2006, Vanship Holdings Limited established the
Company in Hong
Kong as limited liability company with authorized share capital
of 10,000
ordinary shares of HK$1 each. On date of incorporation, 1 subscriber
share of
HK$1 was issued.
The
Company has outsourced substantially all its day-to-day operations
to its
related party, Belindtha Marine Limited (“Belindtha”), a company controlled by a
person related to a director of the Company. Belindtha then sub-contracted
its
obligations under the outsourcing arrangement to Univan Ship
Management Limited
(“Univan”) which assists Belindtha in providing technical management services
to
the Company. Univan is controlled by Captain Charles Arthur Joseph
Vanderperre,
a director of the Company. All expenses incurred by Univan on
behalf of the
Company are charged to the Company based on the actual expenditures
incurred on
its behalf. In addition, China Sea Maritime Ltd. (“China Sea”) and Shinyo
Maritime Corporation (“Shinyo Maritime”) provide administrative services to the
Company. China Sea and Shinyo Maritime are controlled by Captain
Charles Arthur
Joseph Vanderperre and Mr Fred Cheng, respectively, each a director
of the
Company.
The
Company begain receiving time charter revenue on
December 18, 2006 pursuant to a time charter agreement with
Dalian Ocean
Shipping Company under which the Company is paid a daily charter
rate of
$43,800.
As
of
September 30, 2007, the Company had a working capital deficit of
$7,120,914. These financial statements have been prepared assuming
that the
Company will continue as a going concern as Vanship Holdings
Limited, the
immediate holding company, has confirmed its intention to provide
continuing
financial support to the Company so as to enable the Company
to meet its
liabilities as and when they fall due.
|
(c)
|
Basis
of Presentation
|
The
accompanying unaudited condensed financial statements as of September
30, 2007
and for the period from September 21, 2006 to September 30, 2006
and nine month
ended September 30, 2007 have been prepared in accordance with
U.S. generally
accepted accounting principles (“US GAAP”). Certain information and footnote
disclosures normally included in financial statements prepared
in accordance
with US GAAP have been condensed or omitted as permitted by rules
and
regulations of the U.S. Securities and Exchange Commission. Disclosures
have
been made to these unaudited condensed financial statements where
events
subsequent to period ended December 31, 2006 have occurred which
have a material
impact on the Company. The accompanying unaudited condensed financial
statements
should be read in conjunction with the financial statements and
the notes
thereto, for the first fiscal period ended December 31, 2006.
The December 31,
2006 balance sheet was derived from the audited financial statements
of the
Company.
Shinyo
Navigator Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
period from September 21, 2006 (date of incorporation) to September
30, 2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(c)
|
Basis
of Presentation
(continued)
|
In
the
opinion of the management, all adjustments (which include normal
accruals)
necessary to present a fair statement of the financial position
of the Company
as of September 30, 2007, and the results of its operations and
cash flows for
the period from September 21, 2006 to September 30, 2006 and
nine-month period
ended September 30, 2007, in conformity with US GAAP, have been
made. The
unaudited condensed statements of operations for the period from
September 21,
2006 to September 30, 2006 and nine-month period ended September
30, 2007 are
not necessarily indicative of the operating results to be expected
for the full
fiscal year or any future periods.
The
basis
of accounting differs in certain material respects from that
used in the
preparation of the books of account of the Company, which are
prepared in
accordance with the accounting principles of the country of its
domicile. The
accompanying unaudited condensed financial statements reflect
necessary
adjustments not recorded in the books of the Company to present
them in
conformity with US GAAP.
The
preparation of the financial statements requires management of
the Company to
make a number of estimates and assumptions relating to the reported
amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities
at the date of the financial statements and the reported amounts
of revenues and
expenses during the reporting period. Significant items subject
to such
estimates and assumptions include the estimated useful life of
the vessel
(including drydocking costs), residual value and recovery of
the carrying amount
of the vessel. Actual results could differ from those estimates.
|
(e)
|
Derivative
Instruments
|
Derivative
financial instruments are recognized on the balance sheet at
their fair values
as either assets or liabilities. Changes in the fair value of
derivatives that
are designated and qualify as cash flow hedges, and that are
highly effective,
are recognized in other comprehensive income. If derivative transactions
do not
meet the criteria to qualify for hedge accounting, any changes
in fair value are
recognized immediately in the condensed statements of operations.
On
January 10, 2007, the Company entered into an interest rate swap
agreement that
did not qualify as cash flow hedges. As such, the fair value
of such agreement
and changes therein are recognized in the condensed balance sheets
and condensed
statements of operations, respectively.
In
the
normal course of business, the Company is subject to loss contingencies,
such as
legal proceedings and claims arising out of its business. An
accrual for a loss
contingency is recognized when it is probable that a liability
will be incurred
and the amount of the loss can be reasonably estimated.
Shinyo
Navigator Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
period from September 21, 2006 (date of incorporation) to September
30, 2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(g)
|
Recently
Issued Accounting
Standards
|
In
September 2006,
the
Financial Accounting Standards Board (“FASB”)
issued
FASB Statement No. 157,
Fair
Value Measurement
(Statement
157). Statement 157 defines fair value, establishes a framework
for the
measurement of fair value measures already required or permitted
by other
standards for fiscal years beginning after November 15, 2007.
The Company is
required to adopt Statement 157 for the fiscal years beginning
on January 1,
2008. Statement 157 is required to be applied prospectively,
except for certain
financial instruments. Any transition adjustment will be recognized
as an
adjustment to opening retained earnings in the year of adoption.
The
Company does not anticipate that the adoption of Statement 157
will have a
material impact on its results of operations and financial
position.
In
February 2007, the FASB issued FASB Statement No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities
- Including an
Amendment of FASB Statement No. 115
(Statement
159)
.
Statement
159 permits an entity to elect fair value as the initial and
subsequent
measurement attribute for many financial assets and liabilities.
Entities
electing the fair value option would be required to recognize
changes in fair
value in earnings. Entities electing the fair value option are
required to
distinguish, on the face of the balance sheet, the fair value
of assets and
liabilities for which the fair value option has been elected
and similar assets
and liabilities measured using another measurement attribute.
Statement 159 will
be effective for fiscal years beginning after November 15, 2007.
The adjustment
to reflect the difference between the fair value and the carrying
amount would
be accounted for as a cumulative-effect adjustment to retained
earnings as of
the date of initial adoption. The Company does not anticipate
that the adoption
of the provisions of Statement 159 will have a material impact
on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 160,
Noncontrolling
Interests in Consolidated Financial Statements - an Amendment
of ARB No. 51
(Statement
160). Statement 160 establishes accounting and reporting standards
for the
noncontrolling interest in a subsidiary and for the deconsolidation
of a
subsidiary. Statement 160 will be effective for the fiscal year
beginning after
December 15, 2008. The Company does not anticipate that the adoption
of the
provisions of Statement 160 will have a material impact on its
results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 141 (Revised),
Business
Combinations
(Statement 141(R)). Statement 141(R) establishes principles and
requirements for
how the acquirer of a business recognizes and measures in its
financial
statements the identifiable assets acquired, the liabilities
assumed, and any
noncontrolling interest in the acquiree. Statement 141(R) also
provides guidance
for recognizing and measuring the goodwill acquired in the business
combination
and determines what information to disclose to enable users of
the financial
statements to evaluate the nature and financial effects of the
business
combination. Statement 141(R) will be effective for fiscal years
beginning after
December 15, 2008. The Company does not anticipate the adoption
of the
provisions of Statement 141(R) will have a material impact on
its results of
operations and financial position.
Shinyo
Navigator Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
period from September 21, 2006 (date of incorporation) to September
30, 2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
|
|
December
31, 2006
|
|
September
30, 2007
|
|
Vessel
|
|
|
|
|
|
Cost
|
|
|
97,500,000
|
|
|
97,500,000
|
|
Accumulated
depreciation
|
|
|
(264,726
|
)
|
|
(4,578,340
|
)
|
Vessel,
net
|
|
|
97,235,274
|
|
|
92,921,660
|
|
The
vessel is mortgaged as described in Note 3.
Lender/period
|
|
December
31, 2006
|
|
September30,
2007
|
|
HSH
Nordbank AG
|
|
|
|
|
|
December
13, 2006 to December 12, 2016
|
|
|
82,875,000
|
|
|
77,625,000
|
|
|
|
|
|
|
|
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
7,000,000
|
|
|
7,375,000
|
|
Non-current
portion
|
|
|
75,875,000
|
|
|
70,250,000
|
|
|
|
|
82,875,000
|
|
|
77,625,000
|
|
The
loan
carried interest at LIBOR plus 1.00% per annum (5.95% and 5.95%
as of December
31, 2006 and September 30, 2007 respectively). The interest expense
for the
period from September 21, 2006 to September 30, 2006 and nine-month
period ended
September 30, 2007 was $Nil and $3,643,941, respectively.
As
of
December 31, 2006 and September 30, 2007, bank loan is secured
by the vessel of
the Company with carrying amount of $97,235,274 and $92,921,660,
respectively.
The
bank
loan is also guaranteed by Vanship Holdings Limited, the immediate
holding
company of the Company, as of December 31, 2006 and September
30, 2007.
The
Company’s revenue for the nine-month period ended September 30, 2007
represents
revenue generated from time charter agreement.
Shinyo
Navigator Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
period from September 21, 2006 (date of incorporation) to September
30, 2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
Under
the
laws of the countries of the Company’s incorporation and/or vessel’s
registration, the Company is not subject to tax on international
shipping
income. However, it is subject to registration and tonnage taxes,
which are
charged by the country of which the vessel is registered at a
fixed rate based
on the tonnage of the vessel. Registration and tonnage taxes
have been included
in vessel operating expenses in the accompanying statements of
operations.
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement
109
(FIN
48). FIN 48 clarifies the accounting for uncertainty in income
taxes recognized
in an enterprise’s financial statements and prescribes a threshold of
more-likely-than-not for recognition of tax benefits of uncertain
tax positions
taken or expected to be taken in a tax return. FIN 48 also provides
related
guidance on measurement, derecognition, classification, interest
and penalties,
and disclosure. The provisions of FIN 48 will be effective for
the fiscal years
beginning after December 15, 2006, with any cumulative effect
of the change in
accounting principle recorded as an adjustment to opening retained
earnings.
Effective from January 1, 2007, the Company adopted the provision
of FIN 48. As
of the date of the adoption of FIN 48, the Company has no material
unrecognized
tax benefit which would favorably affect the effective income
tax rate in future
periods and do not believe there will be any significant increases
or decreases
within the next twelve months. The Company has elected to classify
interest and
penalties related to unrecognized tax benefits, if and when required,
as part of
interest expense and administrative expense in the statements
of operations. No
interest or penalties in respect of unrecognized tax benefits
have been accrued
at the date of adoption.
According
to the Inland Revenue Ordinance of Hong Kong, the statute
of limitations is
seven years (i.e. calendar years 2006 to 2007 for the Company)
if the
underpayment of taxes is due to omission or errors made by
either the taxpayer
or the withholding agent. The statute of limitations will
be extended to ten
years (i.e. calendar years 2006 to 2007 for the Company)
in case of tax evasion.
According
to the Internal Revenue Code of the United States of America,
the statute of
limitations is three years (i.e. calendar years 2006 to 2007
for the Company) if
the underpayment of taxes is due to omission or errors made
by either the
taxpayer or withholding agent. There is no statute of limitations
in the case of
tax evasion.
(6)
|
Related
Party Transactions
|
Name
of party
|
|
Relationship
|
|
|
|
Belindtha
Marine Limited (“Belindtha”)
|
|
A
company controlled by a person related to a director
of the
Company
|
|
|
|
China
Sea Maritime Ltd. (“China Sea”)
|
|
A
company controlled by a director, Captain Charles Arthur
Joseph
Vanderperre, of the Company
|
|
|
|
Shinyo
Maritime Corporation (“Shinyo Maritime”)
|
|
A
company controlled by a director, Mr Fred Cheng, of
the
Company
|
|
|
|
Shinyo
Kannika Limited (“Shinyo Kannika”)
|
|
A
fellow subsidiary of the Company
|
|
|
|
Univan
Ship Management Limited (“Univan”)
|
|
A
company controlled by a director, Captain Charles Arthur
Joseph
Vanderperre, of the Company
|
|
|
|
Vanship
Holdings Limited (“Vanship”)
|
|
Immediate
holding company of the Company
|
Shinyo
Navigator Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
period from September 21, 2006 (date of incorporation) to September
30, 2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
(6)
|
Related
Party Transactions
(continued)
|
(a)
|
The
principal related party transactions during the period
from September 21,
2006 to September 30, 2006 and nine-month period ended
September 30, 2007
are as follows:
|
|
|
|
|
September
21,
|
|
Nine-Month
|
|
|
|
|
|
2006
to
|
|
Period
End
|
|
|
|
|
|
September
30
|
|
September
30,
|
|
|
|
|
|
2006
|
|
2007
|
|
|
|
Note
|
|
|
|
|
|
Service
fee to Belindtha
|
|
|
(i)
|
|
|
-
|
|
|
85,500
|
|
Agency
fee to China Sea
|
|
|
(ii)
|
|
|
-
|
|
|
45,000
|
|
Agency
fee to Shinyo Maritime
|
|
|
(ii)
|
|
|
-
|
|
|
45,000
|
|
Loan
interest expense to Vanship
|
|
|
(iii)
|
|
|
-
|
|
|
747,177
|
|
Notes:
|
(i)
|
The
Company has outsourced substantially all its day to
day operations to
Belindtha. The service fee is payable to Belindtha
at a pre-determined
amount in accordance with the terms mutually agreed
by Belindtha and the
Company.
|
|
(ii)
|
China
Sea and Shinyo Maritime provided agency services to
the Company. The
agency fee is payable to China Sea and Shinyo Maritime
based on
contractual agreements with the Company.
|
|
(iii)
|
The
balance represents interest expense on loans from Vanship.
Terms of loan
details are set out in Note 6(b)(v)
below.
|
(b)
|
Amounts
due from and due to related parties as of December
31, 2006 and September
30, 2007 are as follows:
|
|
|
|
|
December
31,
2006
|
|
September
30,
2007
|
|
|
|
Note
|
|
|
|
|
|
Amount
due from related party:
|
|
|
|
|
|
|
|
Amount
due from Univan
|
|
|
(i)
|
|
|
-
|
|
|
238,841
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
due to related parties:
|
|
|
|
|
|
|
|
|
|
|
Amount
due to Vanship
|
|
|
(ii)
|
|
|
221,143
|
|
|
747,177
|
|
Amount
due to Shinyo Kannika
|
|
|
(iii)
|
|
|
-
|
|
|
75,000
|
|
Amount
due to Univan
|
|
|
(iv)
|
|
|
44,028
|
|
|
-
|
|
|
|
|
|
|
|
265,171
|
|
|
822,177
|
|
Loan
from related party:
|
|
|
|
|
|
|
|
|
|
|
Vanship
|
|
|
(v)
|
|
|
15,158,279
|
|
|
15,158,279
|
|
Shinyo
Navigator Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
period from September 21, 2006 (date of incorporation) to September
30, 2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
(6)
|
Related
Party Transactions
(continued)
|
(b)
|
Amounts
due from and due to related parties as of December
31, 2006 and September
30, 2007 are as follows
(continued):
|
Notes:
|
(i)
|
The
balance represents advance payments for expenses to
be paid by Univan on
behalf of the Company. The balance is unsecured, non-interest
bearing and
with no fixed terms of repayment.
|
|
(ii)
|
The
balance represents interest payable on loan from Vanship.
Terms of the
loan are set out in (v) below.
|
|
(iii)
|
The
balance represents current account with Shinyo Kannika
for expenses paid
on behalf of the Company. The balance is unsecured,
non-interest bearing
and with no fixed terms of
repayment.
|
|
(iv)
|
The
balance represents payable to Univan for expenses paid
on behalf of the
Company. The balance is unsecured, non-interest bearing
and with no fixed
terms of repayment.
|
|
(v)
|
The
balance represents a loan from Vanship. The loan period
is from September
21, 2006 to December 31, 2016. Interest is charged
at 6.5% per annum. The
interest expense for the period from September 21,
2006 to September 30,
2006 and nine-month period ended September 30, 2007
was $28,167 and
$747,177, repsectively. Interest of $Nil and $241,143
was paid for the
period from September 21, 2006 to September 30, 2006
and nine-month period
ended September 30, 2007,
respectively.
|
In
accordance with the contractual bank loan arrangement, the loan
from Vanship
shall not be repaid before the bank loan is repaid in full.
(c)
|
Vanship
has provided a letter of support to the Company to
confirm its intention
to provide continuing financial support to the Company
so as to enable the
Company to meet its liabilities when they fall due.
|
(d)
|
As
of December 31, 2006 and September 30, 2007, long-term
bank loan of
$82,875,000 and $77,625,000, respectively, was guaranteed
by Vanship.
|
(7)
|
Commitments
and Contingencies
|
Various
claims, suits, and complaints, including those involving government
regulations
and product liability, arise in the ordinary course of the shipping
business. In
addition, losses may arise from disputes with charterers, agents,
insurance and
other claims with suppliers relating to the operations of the
Company’s vessel.
Currently, management is not aware of any such claims or contingent
liabilities,
which should be disclosed, or for which a provision should be
established in the
accompanying financial statements.
Shinyo
Navigator Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
period from September 21, 2006 (date of incorporation) to September
30, 2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
(8)
|
Fair
Value of Financial Instruments
|
The
carrying amounts of cash and amounts due from/to related parties,
approximate
their fair values because of the short maturity of these instruments.
The
carrying values of long-term bank loan and loan from related
party approximate
their fair values based on the borrowing rates currently available
to the
Company for bank loans with similar terms and average maturities.
|
Outstanding
swap agreements involve both the risk of a counterparty
not performing
under the terms of the contract and the risk associated
with changes in
market value. The Company monitors its positions, the
credit ratings of
counterparty and the level of contracts it enters into
with any one party.
The counterparty to the contract is a financial institution.
The Company
has a policy of entering into contracts with counterparties
that meet
stringent qualifications, and given the high level
of credit quality of
the counterparties, the Company does not believe it
is necessary to obtain
collateral arrangements.
|
|
On
January 10, 2007, the Company entered into an interest
rate swap
arrangement detailed as follows:
|
Counterparty
|
|
Start
date
|
|
Termination
date
|
|
Notional
Amount at September 30, 2007
|
|
Pay
Fixed rate
|
|
Receive
Floating rate
|
|
Fair
value of swap at September 30, 2007
|
HSH
Nordbank
|
|
January
10, 2007
|
|
June
13, 2015
|
|
82,875,000
|
|
4.95%
per annum
|
|
3-month
LIBOR per annum
|
|
789,175
(asset)
|
The
interest rate swap is used to hedge the interest expense arising
from the
Company’s long-term bank loan detailed in Note 3. The fair value change
of
$789,175 from the interest rate swap arrangement as of September
30, 2007 is
recognized in the condensed statements of income and the related
asset is shown
under derivative financial instruments in the condensed balance
sheets. The fair
value is based upon estimates received from financial institutions.
Shinyo
Navigator Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
period from September 21, 2006 (date of incorporation) to September
30, 2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
(10)
|
Business
and Credit Concentrations
|
The
Company operates in the shipping industry which historically
has been cyclical
with corresponding volatility in profitability. All the Company’s revenues are
derived from vessel charters. The Company seeks to mitigate volatilities
in its
business by obtaining long-term charter contracts. The Company
has obtained a
long-term time charter contract which will expire in December
2016.
The
Company outsourced the technical management services to Belindtha
which is
controlled by a person related to a director of the Company.
Belindtha then
sub-contracted its obligations under the outsourcing arrangement
to Univan which
assists Belindtha in providing technical management services
to the Company.
Univan is controlled by Captain Charles Arthur Joseph Vanderperre,
a director of
the Company. All expenses incurred by Univan on behalf of the
Company are
charged to the Company based on the actual expenditures incurred
on its behalf.
During the period from September 21, 2006 to September 30, 2006
and nine-month
period ended September 30, 2007, the Company paid service fee
of $Nil and
$85,500, respectively, to Belindtha.
The
Company is engaged in the business of ocean transportation of
crude oil industry
which is extremely competitive and dependent on the world’s demand for crude
oil. Competition depends on price, location, size, age, condition
and the
acceptability of the vessel to the charterers. The increase in
competition and
the changes in demand for crude oil could result in lower revenue
achieved for
the vessel.
The
following are revenue from a customer that individually comprises
10% or more of
gross revenue:
|
|
September
21,2006 to
September
30, 2006
|
|
Nine-month
Period Ended
September
30, 2007
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Dalian
Ocean Shipping Company
|
|
|
-
|
|
|
-
|
|
|
11,483,546
|
|
|
100
|
|
The
gross
accounts receivable due from a customer that individually
representing more than
10% of the outstanding accounts receivable were as follows:
|
|
December
31,
2006
|
|
September
30,
2007
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Dalian
Ocean Shipping Company
|
|
|
604,744
|
|
|
100
|
|
|
-
|
|
|
-
|
|
Pursuant
to a definitive agreement entered into between Vanship and Energy
Infrastructure
Acquisition Corp. (“EIAC”), a company listed on the American Stock Exchange, on
December 3, 2007 (the “Agreement”), Vanship agreed to sell all of its equity
interests in the Company and other eight related companies to
Energy
Infrastructure Merger Corporation (“EIMC”) (the “Business Combination”), a
wholly-owned subsidiary of EIAC, for an aggregate consideration
of $778,000,000,
consisting of $643,000,000 in cash (subject to closing adjustments)
and
13,500,000 shares of common stock of EIMC (valued at $10 per
share of common
stock). Vanship is entitled to an additional 3,000,000 shares
of common stock of
EIMC on each of the first and second anniversaries of the completion
of the
Business Combination, subject to certain earning criteria.
Approval
of the Business Combination requires the affirmative vote of
the holders of a
majority of the shares of common stock voted at EIAC’s special meeting of
stockholders, provided that there is a quorum. In addition, if
the EIAC
stockholders approve the Business Combination, the Business Combination
will
only proceed if holders of shares purchased in EIAC’s initial public offering,
representing less than 30% of the shares sold in EIAC’s initial public offering
and EIAC’s private placement that occurred immediately prior to the initial
public offering, exercise their redemption rights at the time
of casting a vote
against the Business Combination.
Pursuant
to the Agreement, Vanship has agreed to purchase up to 5,000,000
units from EIMC
at a purchase price of $10.00 per unit, but only to the extent
necessary for
EIMC to secure financing for the Business Combination. Each unit
will consist of
one share of EIMC’s common stock and one warrant to purchase one share of EIMC’s
common stock at an exercise price of $8.00 per warrant.
Report
of Independent Registered Public Accounting Firm
The
Board
of Directors and Shareholder of
Shinyo
Ocean Limited:
We
have
audited the accompanying balance sheet of Shinyo Ocean
Limited (the “Company”)
as of December 31, 2006, and the related statements of
operations, and
shareholder’s deficit for the period from December 28, 2006 (date of
incorporation) to December 31, 2006. These financial statements
are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of
the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial
statements are free of material misstatement. An audit
includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. An audit also includes assessing the accounting
principles used and
significant estimates made by management, as well as evaluating
the overall
financial statement presentation. We believe that our audit
provides a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present
fairly, in all
material respects, the financial position of Shinyo Ocean
Limited as of December
31, 2006, and the results of its operations for the period
from December 28,
2006 (date of incorporation) to December 31, 2006, in conformity
with U.S.
generally accepted accounting principles.
/s/
KPMG
Hong
Kong, China
February
11
,
2008
Shinyo
Ocean Limited
Balance
Sheet
as
of
December 31, 2006
(expressed
in US$)
|
|
|
|
|
|
|
|
Note
|
|
2006
|
|
Assets
|
|
|
|
|
|
Deferred
loan costs
|
|
|
|
|
|
240,000
|
|
Deposits
for purchase of vessel
|
|
|
|
|
|
11,100,000
|
|
Total
assets
|
|
|
|
|
|
11,340,000
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Amounts
due to related parties
|
|
|
2(b
)
|
|
|
255,439
|
|
Total
current liabilities
|
|
|
|
|
|
255,439
|
|
|
|
|
|
|
|
|
|
Loan
from related party
|
|
|
2(b
)
|
|
|
11,100,000
|
|
Total
liabilities
|
|
|
|
|
|
11,355,439
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s
deficit
|
|
|
|
|
|
|
|
Ordinary
shares HK$1 par value per share
10,000
shares authorized; 1 share issued and fully
paid
as
of December 31
|
|
|
|
|
|
-
|
|
Accumulated
loss
|
|
|
|
|
|
(15,439
|
)
|
Total
shareholder’s deficit
|
|
|
|
|
|
(15,439
|
)
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholder’s deficit
|
|
|
|
|
|
11,340,000
|
|
See
accompanying notes to the financial statements.
Shinyo
Ocean Limited
Statement
of Operations
for
the
period from December 28, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
|
|
2006
|
|
|
|
|
|
Operating
expense
|
|
|
|
Administrative
expense
|
|
|
(1,039
|
)
|
Total
operating expense
|
|
|
(1,039
|
)
|
|
|
|
|
|
Operating
loss
|
|
|
(1,039
|
)
|
|
|
|
|
|
Other
expense
|
|
|
|
|
Interest
expense
|
|
|
(14,400
|
)
|
Total
other expense
|
|
|
(14,400
|
)
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(15,439
|
)
|
Income
taxes
|
|
|
-
|
|
|
|
|
|
|
Net
loss
|
|
|
(15,439
|
)
|
|
|
|
|
|
(a)
Includes the following expenses resulting from
transactions with related
parties (see note 2(a)):
|
|
|
2006
|
|
|
|
|
|
Interest
expense
|
|
|
(14,400
|
)
|
Shinyo
Ocean Limited
Statement
of Shareholder’s Deficit
for
the
period from December 28, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
|
|
|
|
Ordinary
shares
|
|
|
|
|
|
|
|
Note
|
|
Number
of share
|
|
Amount
|
|
Accumulated
loss
|
|
Total
Shareholder’s
deficit
|
|
Balance
as of December 28, 2006
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Capital
injected upon incorporation
|
|
|
1
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
loss
|
|
|
|
|
|
-
|
|
|
-
|
|
|
(15,439
|
)
|
|
(15,439
|
)
|
Balance
as of December 31, 2006
|
|
|
|
|
|
1
|
|
|
-
|
|
|
(15,439
|
)
|
|
(15,439
|
)
|
See
accompanying notes to the financial statements.
Shinyo
Ocean Limited
Statement
of Cash Flows
for
the
period from December 28, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
|
|
2004
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
Net
loss
|
|
|
(15,439
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
Amounts
due to related parties
|
|
|
15,439
|
|
Net
cash provided by operating activities
|
|
|
-
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
-
|
|
Cash:
|
|
|
|
|
At
beginning of year
|
|
|
-
|
|
At
end of year
|
|
|
-
|
|
Supplemental
Disclosure of Non-Cash Flow Operating, Investing and Financing
Activities:
|
|
2004
|
|
Operating
activities:
|
|
|
|
Payment
of operating expenses by related parties
|
|
|
|
-
Administrative expenses
|
|
|
1,039
|
|
-
Interest
|
|
|
14,400
|
|
Investing
activities
|
|
|
|
|
Payment
of deposits for purchase of vessel by
|
|
|
|
|
related
party
|
|
|
(11,100,000
|
)
|
Financing
activities
|
|
|
|
|
Payment
of loan costs by related party
|
|
|
240,000
|
|
Loan
from related party
|
|
|
11,100,000
|
|
Shinyo
Ocean Limited
Notes
to
the Financial Statements
for
the
period from December 28, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting
Policies
|
|
(a)
|
Description
of Business
|
Shinyo
Ocean Limited (the “Company”) was established in Hong Kong on December 28, 2006.
The Company has not commenced business as of December 31,
2006.
On
December 28, 2006, Vanship Holdings Limited established
the Company in Hong Kong
as a limited liability company with authorized share capital
of 10,000 ordinary
shares of HK$ 1 each. On date of incorporation, 1 subscriber
share of HK$1 was
issued.
The
Company has outsourced substantially all its day to day
operations to its
related party, Belindtha Marine Limited (“Belindtha”), a company controlled by a
person related to a director of the Company. Belindtha
then sub-contracted its
obligations under the outsourcing arrangement to Univan
Ship Management Limited
(“Univan”) which assists in providing technical management services
to the
Company. Univan is controlled by Captain Charles Arthur
Joseph Vanderperre, a
director of the Company. All expenses incurred by Univan
on behalf of the
Company are charged to the Company based on the actual
expenditures incurred on
their behalf.
As
of
December 31, 2006, the Company had a working capital deficit
of $255,439. These
financial statements have been prepared assuming that the
Company will continue
as a going concern as Vanship Holdings Limited, the immediate
holding company,
has confirmed its intention to provide continuing financial
support to the
Company so as to enable the Company to meet its liabilities
as and when they
fall due.
|
(c)
|
Basis
of Presentation
|
The
Company’s financial statements have been prepared in accordance
with U.S.
generally accepted accounting (“US GAAP”).
The
basis
of accounting differs in certain material respects from
that used in the
preparation of the statutory financial statements of the
Company, which are
prepared in accordance with the accounting principles of
the country of its
domicile. The accompanying financial statements reflect
necessary adjustments to
present them in conformity with US GAAP.
In
the
normal course of business, the Company is subject to loss
contingencies, such as
legal proceedings and claims arising out of its business.
An accrual for a loss
contingency is recognized when it is probable that a liability
will be incurred
and the amount of the loss can be reasonably estimated.
Shinyo
Ocean Limited
Notes
to
the Financial Statements (continued)
for
the
period from December 28, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(e)
|
Foreign
Currency Transactions
|
The
Company’s functional and reporting currency is United States (“US”) dollar
because the Company will operate in international shipping
markets, which
utilize the US dollar. Furthermore, the Company incurs
debt and certain other
expenditures, all in US dollars.
Transactions
denominated in currencies other than US dollar are translated
into US dollars at
the exchange rates prevailing at the dates of transactions.
Monetary assets and
liabilities denominated in currencies other than US dollar
are translated at the
exchange rates prevailing at the balance sheet dates. During
the period ended
December 31, 2006, substantially all of the Company’s transactions were
denominated in US dollars and the Company did not have
significant foreign
currency transaction gains or losses.
|
(f)
|
Income
and Other Taxes
|
The
Company is not subject to tax in any tax jurisdictions
as the Company has not
commenced business as of December 31, 2006.
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation of FASB
Statement 109
(FIN
48).
FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an
enterprise’s financial statements and prescribes a threshold of
more-likely-than-not for recognition of tax benefits of
uncertain tax positions
taken or expected to be taken in a tax return. FIN 48 also
provides related
guidance on measurement, derecognition, classification,
interest and penalties,
and disclosure. The provisions of FIN 48 will be effective
for the fiscal years
beginning after December 15, 2006, with any cumulative
effect of the change in
accounting principle recorded as an adjustment to opening
retained earnings.
Effective from January 1, 2007, the Company adopted the
provision of FIN 48. As
of the date of the adoption of FIN 48, the Company has
no material unrecognized
tax benefit which would favorably affect the effective
income tax rate in future
periods and do not believe there will be any significant
increases or decreases
within the next twelve months. The Company has elected
to classify interest and
penalties related to unrecognized tax benefits, if and
when required, as part of
income tax expenses in the statement of operations. No
interest or penalties
have been accrued at the date of adoption.
According
to the Inland Revenue Ordinance of Hong Kong, the statute
of limitations is
seven years (i.e. calendar year 2006 for the Company)
if the underpayment of
taxes is due to omission or errors made by either the
taxpayer or the
withholding agent. The statute of limitations will
be extended to ten years
(i.e. calendar year 2006 for the Company) in case of
tax evasion.
According
to the Internal Revenue Code of the United States of
America, the statute of
limitations is three years (i.e. calendar year 2006
for the Company) if the
underpayment of taxes is due to omission or errors
made by either the taxpayer
or withholding agent. There is no statute of limitations
in the case of tax
evasion.
|
(g)
|
Recently
Issued Accounting
Standards
|
In
September 2006, the FASB issued FASB Statement No. 157,
Fair
Value Measurement
(Statement
157). Statement 157 defines fair value, establishes a framework
for the
measurement of fair value measures already required or
permitted by other
standards for fiscal years beginning after November 15,
2007. The Company is
required to adopt Statement 157 for the fiscal years beginning
on January 1,
2008. Statement 157 is required to be applied prospectively,
except for certain
financial instruments. Any transition adjustment will be
recognized as an
adjustment to opening retained earnings in the year of
adoption. The Company
does not anticipate that the adoption of Statement 157
will have a material
impact on its results of operations and financial position.
Shinyo
Ocean Limited
Notes
to
the Financial Statements (continued)
for
the
period from December 28, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(g)
|
Recently
Issued Accounting
Standards
|
In
September 2006, the FASB issued FASB Staff Position No.
AUG AIR-1,
Accounting
for Planned Major Maintenance Activities
(AUG
AIR-1). This guidance prohibits the use of the accrue-in-advance
method of
accounting for planned major maintenance activities because
an obligation has
not occurred and therefore a liability should not be recognized.
The provisions
of this guidance will be effective for fiscal years beginning
after December 15,
2006. On January 9, 2007, the Company acquired a second
hand vessel and adopted
the provision of AUG AIR-1. The Company follows the deferral
method of
accounting for drydocking.
In
February 2007, the FASB issued FASB Statement No. 159,
The
Fair Value Option for Financial Assets and Financial
Liabilities - Including an
Amendment of FASB Statement No. 115
(Statement 159). Statement 159 permits an entity to elect
fair value as the
initial and subsequent measurement attribute for many
financial assets and
liabilities. Entities electing the fair value option
would be required to
recognize changes in fair value in earnings. Entities
electing the fair value
option are required to distinguish, on the face of the
balance sheet, the fair
value of assets and liabilities for which the fair value
option has been elected
and similar assets and liabilities measured using another
measurement attribute.
Statement 159 will be effective for fiscal years beginning
after November 15,
2007. The adjustment to reflect the difference between
the fair value and the
carrying amount would be accounted for as a cumulative-effect
adjustment to
retained earnings as of the date of initial adoption.
The Company does not
anticipate that the adoption of the provisions of Statement
159 will have a
material impact on its results of operations and financial
position.
In
December 2007, the FASB issued FASB Statement No. 160,
Noncontrolling
Interests in Consolidated Financial Statements - an Amendment
of ARB No.
51
(Statement 160). Statement 160 establishes accounting and
reporting standards
for the noncontrolling interest in a subsidiary and for
the deconsolidation of a
subsidiary. Statement 160 will be effective for the fiscal
year beginning after
December 15, 2008. The Company does not anticipate that
the adoption of the
provisions of Statement 160 will have a material impact
on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No.
141 (Revised),
Business Combinations
(Statement 141(R)). Statement
141(R) establishes principles and requirements for how
the acquirer of a
business recognizes and measures in its financial statements
the identifiable
assets acquired, the liabilities assumed, and any noncontrolling
interest in the
acquiree. Statement 141(R) also provides guidance for
recognizing and measuring
the goodwill acquired in the business combination and
determines what
information to disclose to enable users of the financial
statements to evaluate
the nature and financial effects of the business combination.
Statement 141(R)
will be effective for fiscal years beginning after December
15, 2008. The
Company does not anticipate the adoption of the provisions
of Statement 141(R)
will have a material impact on its results of operations
and financial
position.
Shinyo
Ocean Limited
Notes
to
the Financial Statements (continued)
for
the
period ended from December 28, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(2)
|
Related
Party Transactions
|
Name
of party
|
|
Relationship
|
|
|
|
Belindtha
Marine Limited (“Belindtha”)
|
|
A
company controlled by a person related to a director
of the
Company
|
|
|
|
Shinyo
Kannika Limited (“Shinyo Kannika”)
|
|
A
fellow subsidiary of the Company
|
|
|
|
Univan
Ship Management Limited (“Univan”)
|
|
A
company controlled by a director, Captain Charles
Arthur Joseph
Vanderperre, of the Company
|
|
|
|
Vanship
Holdings Limited (“Vanship”)
|
|
Immediate
holding company of the Company
|
(a)
|
During
the period ended December 31, 2006, the Company
paid interest expense of
$14,400 on a loan provided by Vanship. Terms
of loan details are set out
in 2(b)(iv) below.
|
(b)
|
Amounts
due from and due to related parties as of December
31, 2006 are as
follows:
|
|
|
Note
|
|
2006
|
|
|
|
|
|
|
|
Amounts
due to related partie:s
|
|
|
|
|
|
Amount
due to Vanship
|
|
|
(i)
|
|
|
14,400
|
|
Amount
due to Shinyo Kannika
|
|
|
(ii)
|
|
|
240,000
|
|
Amount
due to Univan
|
|
|
(iii)
|
|
|
1,039
|
|
|
|
|
|
|
|
255,439
|
|
Loan
from related party:
|
|
|
|
|
|
|
|
Vanship
|
|
|
(iv)
|
|
|
11,100,000
|
|
Notes:
|
(i)
|
The
balance represents interest payable to Vanship
on loan to the Company as
set out in (iv) below.
|
|
(ii)
|
The
balance represents payable to Shinyo Kannika
on expenses paid on behalf of
the Company. The balance is unsecured, non-interest
bearing and with no
fixed terms of repayment.
|
|
(iii)
|
The
balance represents payable to Univan on expenses
paid on behalf of the
Company. The balance is unsecured, non-interest
bearing and with no fixed
terms of repayment.
|
|
(iv)
|
The
balance represents a loan from Vanship. The loan
carries interest at
six-month LIBOR plus 3.98% per annum (9.34% as
of December 31, 2006) with
final maturity on January 31, 2017. The interest
expense for the period
ended December 31, 2006 was $14,400 which was
outstanding as of December
31, 2006.
|
Shinyo
Ocean Limited
Notes
to
the Financial Statements (continued)
for
the
period ended from December 28, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(2)
|
Related
Party Transactions
(continued)
|
(c)
|
Vanship
has provided a letter of support to the Company
to confirm its intention
to provide continuing financial support to the
Company so as to enable the
Company to meet its liabilities when they fall
due.
|
(3)
|
Commitments
and Contingencies
|
Various
claims, suits, and complaints, including those involving
government regulations
and product liability, arise in the ordinary course of
the shipping business. In
addition, losses may arise from disputes with charterers,
agents, insurance and
other claims with suppliers relating to the operations
of the Company’s vessel.
Currently, management is not aware of any such claims or
contingent liabilities,
which should be disclosed, or for which a provision should
be established in the
accompanying financial statements.
Capital
commitment for purchase of a vessel as of December 31,
2006 was
$99,900,000.
(4)
|
Fair
Value of Financial Instruments
|
The
carrying amount of amounts due to related parties approximates
its fair value
because of the short maturity of these instruments.
The
carrying value of loan from related party approximates
its fair value based on
the borrowing rates currently available to the Company
for bank loans with
similar terms and average maturities.
(5)
|
Business
and Credit
Concentrations
|
The
Company’s exposure to business and credit concentration is not
significant as
the Company has not commenced business as of December 31,
2006.
Shinyo
Ocean Limited
Notes
to
the Financial Statements (continued)
for
the
period ended from December 28, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(a)
|
On
January 9, 2007, the Company took delivery of
a vessel, Shinyo Ocean. The
purchase of the vessel was financed by the proceeds
of bank loan as set
out in (b) below.
|
(b)
|
On
January 8, 2007, the Company obtained a syndicated
bank loan of
$86,800,000 from DVB Group Merchant Bank (Asia)
Ltd, Credit Suisse, Hong
Kong Branch, and Deutsche Schiffsbank AG. Interest
is charged at LIBOR
plus 0.98% per annum.
|
The
loan
is repayable by four quarterly installments of $1,575,000,
followed by four
quarterly installments of $1,650,000 each, four quarterly
installments of
$1,725,000 each, four quarterly installments of $1,575,000
each, four quarterly
installments of $1,675,000 each, four quarterly installments
of $1,725,000 each,
four quarterly installments of $1,850,000 each, four quarterly
installments of
$1,950,000 each, four quarterly installments of $2,100,000,
four quarterly
installments of $2,200,000 and a balloon payment $14,700,000.
(c)
|
On
January 10, 2007, the Company entered into a
long-term time charter
agreement which will expire in January 2017.
|
(d)
|
Pursuant
to a definitive agreement entered into between
Vanship and Energy
Infrastructure Acquisition Corp. (“EIAC”), a company listed on the
American Stock Exchange, on December 3, 2007
(the “Agreement”), Vanship
agreed to sell all of its equity interests in
the Company and other eight
related companies to Energy Infrastructure Merger
Corporation (“EIMC”)
(the “Business Combination”), a wholly-owned subsidiary of EIAC, for an
aggregate consideration of $778,000,000, consisting
of $643,000,000 in
cash (subject to closing adjustments) and 13,500,000
shares of common
stock of EIMC (valued at $10 per share of common
stock). Vanship is
entitled to an additional 3,000,000 shares of
common stock of EIMC on each
of the first and second anniversaries of the
completion of the Business
Combination, subject to certain earning criteria.
|
Approval
of the Business Combination requires the affirmative vote
of the holders of a
majority of the shares of common stock voted at EIAC’s special meeting of
stockholders, provided that there is a quorum. In addition,
if the EIAC
stockholders approve the Business Combination, the Business
Combination will
only proceed if holders of shares purchased in EIAC’s initial public offering,
representing less than 30% of the shares sold in EIAC’s initial public offering
and EIAC’s private placement that occurred immediately prior to
the initial
public offering, exercise their redemption rights at the
time of casting a vote
against the Business Combination.
Pursuant
to the Agreement, Vanship has agreed to purchase up to
5,000,000 units from EIMC
at a purchase price of $10.00 per unit, but only to the
extent necessary for
EIMC to secure financing for the Business Combination.
Each unit will consist of
one share of EIMC’s common stock and one warrant to purchase one share of
EIMC’s
common stock at an exercise price of $8.00 per warrant.
Shinyo
Ocean Limited
Unaudited
Condensed Balance Sheets
as
of
December 31, 2006 and September 30, 2007
(expressed
in US$)
|
|
|
|
December
31, 2006
|
|
September
30, 2007
|
|
|
|
Note
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
-
|
|
|
869,450
|
|
Restricted
cash
|
|
|
|
|
|
-
|
|
|
1,942,599
|
|
Prepayments
and other receivables
|
|
|
|
|
|
-
|
|
|
57,100
|
|
Amount
due from related party
|
|
|
6(b)
|
|
|
-
|
|
|
151,404
|
|
Total
current assets
|
|
|
|
|
|
-
|
|
|
3,020,553
|
|
Restricted
cash
|
|
|
|
|
|
-
|
|
|
1,000,000
|
|
Deferred
loan costs
|
|
|
|
|
|
240,000
|
|
|
222,452
|
|
Vessel,
net
|
|
|
2
|
|
|
-
|
|
|
107,357,261
|
|
Deposits
for purchase of vessel
|
|
|
|
|
|
11,100,000
|
|
|
-
|
|
Total
assets
|
|
|
|
|
|
11,340,000
|
|
|
111,600,266
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term bank loan
|
|
|
3
|
|
|
-
|
|
|
6,450,000
|
|
Amounts
due to related parties
|
|
|
6(b
)
|
|
|
255,439
|
|
|
1,166,529
|
|
Accrued
liabilities and other payables
|
|
|
|
|
|
-
|
|
|
1,781,335
|
|
Total
current liabilities
|
|
|
|
|
|
255,439
|
|
|
9,397,864
|
|
Long-term
bank loan
|
|
|
3
|
|
|
-
|
|
|
77,200,000
|
|
Loans
from related parties
|
|
|
6(b
)
|
|
|
11,100,000
|
|
|
25,200,000
|
|
Total
liabilities
|
|
|
|
|
|
11,355,439
|
|
|
111,797,864
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s
deficit
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares HK$1 par value per share
10,000
shares authorized; 1 share issued and
fully paid as of December 31,
2006/September 30, 2007
|
|
|
|
|
|
-
|
|
|
-
|
|
Accumulated
losses
|
|
|
|
|
|
(15,439
|
)
|
|
(197,598
|
)
|
Total
shareholder’s deficit
|
|
|
|
|
|
(15,439
|
)
|
|
(197,598
|
)
|
Total
liabilities and shareholder’s deficit
|
|
|
|
|
|
11,340,000
|
|
|
111,600,266
|
|
See
accompanying notes to the unaudited condensed financial
statements.
Shinyo
Ocean Limited
Unaudited
Condensed Statement of Operations
for
the
nine-month period ended September 30, 2007
(expressed
in US$)
|
|
|
|
2007
|
|
|
|
Note
|
|
|
|
Operating
revenue
|
|
|
|
|
|
Revenue
|
|
|
4
|
|
|
10,371,140
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
|
|
|
1,703,798
|
|
Depreciation
expenses
|
|
|
|
|
|
3,642,739
|
|
Management
fee
|
|
|
6(a
)
|
|
|
83,048
|
|
Commission
|
|
|
|
|
|
26,360
|
|
Administrative
expenses
|
|
|
|
|
|
55,656
|
|
Total
operating expenses
|
|
|
|
|
|
5,511,601
|
|
Operating
income
|
|
|
|
|
|
4,859,539
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
109,899
|
|
Interest
expense
|
|
|
|
|
|
(5,143,831
|
)
|
Other
net loss
|
|
|
|
|
|
(7,766
|
)
|
Total
other expense
|
|
|
|
|
|
(5,041,698
|
)
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
|
|
|
(182,159
|
)
|
Income
taxes
|
|
|
5
|
|
|
-
|
|
Net
loss
|
|
|
|
|
|
(182,159
|
)
|
(a)
|
Includes
the following expenses resulting from
transactions with related parties
(see note 6(a)):
|
|
|
2007
|
|
Management
fee
|
|
|
(83,048
|
)
|
Interest
expense
|
|
|
(1,192,449
|
)
|
See
accompanying notes to the unaudited condensed financial
statements.
Shinyo
Ocean Limited
Unaudited
Condensed Statement of Shareholder’s Deficit
for
the
nine-month period ended September 30, 2007
(expressed
in US$)
|
|
Ordinary
shares
|
|
|
|
Total
|
|
|
|
Number
of
shares
|
|
Amount
|
|
Accumulated
losses
|
|
shareholder’s
deficit
|
|
Balance
as of January 1, 2007
|
|
|
1
|
|
|
-
|
|
|
(15,439
|
)
|
|
(15,439
|
)
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
(182,159
|
)
|
|
(182,159
|
)
|
Balance
as of September 30, 2007
|
|
|
1
|
|
|
-
|
|
|
(197,598
|
)
|
|
(197,598
|
)
|
See
accompanying notes to the unaudited condensed financial
statements.
Shinyo
Ocean
Limited
Unaudited
Condensed Statement of Cash Flows
for
the
nine-month period ended September 30, 2007
(expressed
in US$)
|
|
2007
|
|
Cash
flows from operating activities
|
|
|
|
Net
loss
|
|
|
(182,159
|
)
|
Adjustments
to reconcile net income to net cash provided
by operating
activities:
|
|
|
|
|
Depreciation
expenses
|
|
|
3,642,739
|
|
Amortization
of deferred loan costs
|
|
|
17,548
|
|
Prepayments
and other receivables
|
|
|
(57,100
|
)
|
Amount
due from related party
|
|
|
(151,404
|
)
|
Amounts
due to related parties
|
|
|
911,090
|
|
Accrued
liabilities and other payables
|
|
|
1,781,335
|
|
Net
cash provided by operating activities
|
|
|
5,962,049
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
Purchase
of vessel
|
|
|
(99,900,000
|
)
|
Increase
in restricted cash
|
|
|
(2,942,599
|
)
|
Net
cash used in investing activities
|
|
|
(102,842,599
|
)
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
Proceeds
from long-term bank loan
|
|
|
86,800,000
|
|
Repayment
of long-term bank loan
|
|
|
(3,150,000
|
)
|
Proceeds
from loans from related parties
|
|
|
25,200,000
|
|
Repayment
of loans from related parties
|
|
|
(11,100,000
|
)
|
Net
cash provided by financing activities
|
|
|
97,750,000
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
869,450
|
|
Cash:
|
|
|
|
|
At
beginning of period
|
|
|
-
|
|
At
end of period
|
|
|
869,450
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
2007
|
|
Cash
paid during the period for:
|
|
|
|
Interest
|
|
|
2,761,195
|
|
See
accompanying notes to the unaudited condensed financial
statements.
Shinyo
Ocean Limited
Notes
to
the Unaudited Condensed Financial Statements
for
the
nine-month period ended September 30, 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting
Policies
|
|
(a)
|
Description
of Business
|
Shinyo
Ocean Limited (the “Company”), a company engaged in the business of ocean
transportation of crude oil worldwide, was established
in Hong Kong on December
28, 2006. The principal activity of the Company is
the ownership and chartering
of vessel “Shinyo Ocean”. Shinyo Ocean was delivered in 2000 and was a second
hand vessel acquired by the Company in January 2007.
It is a double-hulled very
large crude oil carrier with capacity of 281,395
deadweight
tonnage.
The
Company has outsourced substantially all its day-to-day
operations to its
related party, Belindtha Marine Limited (“Belindtha”), a company controlled by a
person related to a director of the Company. Belindtha
then sub-contracted its
obligations under the outsourcing arrangement to
Univan Ship Management Limited
(“Univan”) which assists Belindtha in providing technical
management services to
the Company. Univan is controlled by Captain Charles
Arthur Joseph Vanderperre,
a director of the Company. All expenses incurred
by Univan on behalf of the
Company are charged to the Company based on the actual
expenditures incurred on
its behalf.
The
Company began receiving time charter revenue on
January 10, 2007 pursuant to a time charter agreement
with Formosa Petrochemical
under which the Company is paid a daily charter
rate of $38,500, subject to
additional hire in which income excess of $43,500
is split between the Company
and the charterer.
As
of
September 30, 2007, the Company had a working capital deficit of
$6,377,311. These financial statements have been
prepared assuming that the
Company will continue as a going concern as Vanship
Holdings Limited, the
immediate holding company, has confirmed its intention
to provide continuing
financial support to the Company so as to enable
the Company to meet its
liabilities as and when they fall due.
|
(c)
|
Basis
of Presentation
|
The
accompanying unaudited condensed financial statements
as of September 30, 2007
and for the nine-month period ended September 30,
2007 have been prepared in
accordance with U.S.
generally
accepted accounting principles (“US GAAP”). Certain information and footnote
disclosures normally included in financial statements
prepared in accordance
with US GAAP have been condensed or omitted as permitted
by rules and
regulations of the U.S. Securities and Exchange Commission.
Disclosures have
been made to these unaudited condensed financial
statements where events
subsequent to period ended December 31, 2006 have
occurred which have a material
impact on the Company. The accompanying unaudited
condensed financial statements
should be read in conjunction with the financial
statements and the notes
thereto, for the first fiscal period ended December
31, 2006. The December 31,
2006 balance sheet was derived from the audited financial
statements of the
Company.
In
the
opinion of the management, all adjustments (which
include normal accruals)
necessary to present a fair statement of the financial
position of the Company
as of September 30, 2007, and the results of its
operations and cash flows for
the nine-month period ended September 30, 2007, in
conformity with US GAAP, have
been made. The unaudited condensed statement of income
for the nine-month period
ended September 30, 2007 are not necessarily indicative
of the operating results
to be expected for the full fiscal year or any future
periods.
Shinyo
Ocean Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month period ended September 30, 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(c)
|
Basis
of Presentation
(continued)
|
The
basis
of accounting differs in certain material respects
from that used in the
preparation of the books of account of the Company,
which are prepared in
accordance with the accounting principles of the
country of its domicile. The
accompanying unaudited condensed financial statements
reflect necessary
adjustments not recorded in the books of the Company
to present them in
conformity with US GAAP.
Cash
consists interest-bearing deposits placed with banks.
As of December 31, 2006
and September 30, 2007, there were no cash equivalents.
Restricted
cash represents minimum interest-bearing bank deposits
which must be maintained
in accordance with contractual bank loan arrangements
over the bank loan period.
A
vessel
is stated at cost, which consists of the contract
price and delivery costs.
Subsequent expenditures for conversions and major
overhauls (“drydocking”) are
also capitalized when they extend the life, increase
the earning capacity or
improve the efficiency or safety of the vessel otherwise
these amounts are
charged to expense as incurred.
Depreciation
on the vessel is calculated based on the straight-line
method over the estimated
useful life of the vessel, after taking into account
its estimated residual
value, from date of acquisition. The vessel’s residual value is equal to the
product of its lightweight tonnage and estimated
scrap rate. Management
estimates the useful life of the Company’s vessel to be 19 years from the date
of acquisition. The useful life of the vessel is
evaluated on a regular basis to
account for changes in circumstances, including changes
in regulatory
restrictions. If regulations place limitations over
the ability of a vessel to
trade on a worldwide basis, its useful life is adjusted
to end at the date such
regulations become effective.
The
Company follows the deferral method of accounting
for drydocking whereby actual
costs incurred are capitalized and are depreciated
on a straight-line basis over
the period through the date the next drydocking becomes
due. The vessel of the
Company is required to have an intermediate drydocking
approximately every 30
months and a special survey drydocking approximately
every 60 months.
Capitalized intermediate drydocking costs and special
survey drydocking costs
are depreciated over a period of 30 months and 60
months, respectively. If the
anticipated date of drydocking is changed from the
scheduled date, the remaining
undepreciated carrying amount of the drydocking costs
is adjusted to reflect the
revised date.
Shinyo
Ocean Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month period ended September 30, 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
A
vessel
is reviewed for impairment whenever events or changes
in circumstances indicate
that the carrying amount of a vessel may not be recoverable.
Recoverability of
the vessel is measured by a comparison of the carrying
amount of the vessel,
including capitalized drydocking costs, to the estimated
undiscounted future
cash flows expected to be generated by the vessel.
If the carrying amount of the
vessel exceeds its estimated future undiscounted
cash flows, an impairment
charge will be recognized by the amount that the
carrying amount of the vessel
exceeds its estimated fair value.
In
the
normal course of business, the Company is subject
to loss contingencies, such as
legal proceedings and claims arising out of its business.
An accrual for a loss
contingency is recognized when it is probable that
a liability will be incurred
and the amount of the loss can be reasonably estimated.
|
(i)
|
Revenue
Recognition and Related
Expenses
|
The
Company generates its revenues from time charter
agreements. Revenues are
recognized when the collectibility has been reasonably
assured. Time charter
revenues are recorded over the term of the charter
as the service is provided.
In addition, under the time charter agreement the
Company is entitled to share
profits generated from any sub-charter entered
into by the charterer.
Profit-sharing revenues are calculated at an agreed
percentage of the excess of
sub-charter rates over an agreed amount and recorded
over the term of the
sub-charter agreement. Vessel operating costs are
expensed as
incurred.
Brokerage
and charter hire commissions paid to third parties
are expensed in the same
period as revenues are recognized.
The
preparation of the financial statements requires
management of the Company to
make a number of estimates and assumptions relating
to the reported amounts of
assets and liabilities and the disclosure of contingent
assets and liabilities
at the date of the financial statements and the reported
amounts of revenues and
expenses during the reporting period. Significant
items subject to such
estimates and assumptions include the estimated useful
life of the vessel
(including drydocking costs), residual value and
recovery of the carrying amount
of the vessel. Actual results could differ from those
estimates.
Shinyo
Ocean Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month period ended September 30, 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(l)
|
Recently
Issued Accounting
Standards
|
In
September 2006, the Financial Accounting Standards
Board (“FASB”) issued FASB
Statement No. 157,
Fair
Value Measurement
(Statement
157). Statement 157 defines fair value, establishes
a framework for the
measurement of fair value measures already required
or permitted by other
standards for fiscal years beginning after November
15, 2007. The Company is
required to adopt Statement 157 for the fiscal years
beginning on January 1,
2008. Statement 157 is required to be applied prospectively,
except for certain
financial instruments. Any transition adjustment
will be recognized as an
adjustment to opening retained earnings in the year
of adoption. The Company
does not anticipate that the adoption of Statement
157 will have a material
impact on its results of operations and financial
position.
In
February 2007, the FASB issued FASB Statement No.
159,
The
Fair Value Option for Financial Assets and Financial
Liabilities - Including an
Amendment of FASB Statement No. 115
(Statement
159)
.
Statement
159 permits an entity to elect fair value as the
initial and subsequent
measurement attribute for many financial assets and
liabilities. Entities
electing the fair value option would be required
to recognize changes in fair
value in earnings. Entities electing the fair value
option are required to
distinguish, on the face of the balance sheet, the
fair value of assets and
liabilities for which the fair value option has been
elected and similar assets
and liabilities measured using another measurement
attribute. Statement 159 will
be effective for fiscal years beginning after November
15, 2007. The adjustment
to reflect the difference between the fair value
and the carrying amount would
be accounted for as a cumulative-effect adjustment
to retained earnings as of
the date of initial adoption. The Company does not
anticipate that the adoption
of the provisions of Statement 159 will have a material
impact on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No.
160,
Noncontrolling
Interests in Consolidated Financial Statements -
an Amendment of ARB No. 51
(Statement
160). Statement 160 establishes accounting and reporting
standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a
subsidiary. Statement 160 will be effective for the
fiscal year beginning after
December 15, 2008. The Company does not anticipate
that the adoption of the
provisions of Statement 160 will have a material
impact on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No.
141 (Revised),
Business
Combinations
(Statement 141(R)). Statement 141(R) establishes
principles and requirements for
how the acquirer of a business recognizes and measures
in its financial
statements the identifiable assets acquired, the
liabilities assumed, and any
noncontrolling interest in the acquiree. Statement
141(R) also provides guidance
for recognizing and measuring the goodwill acquired
in the business combination
and determines what information to disclose to enable
users of the financial
statements to evaluate the nature and financial effects
of the business
combination. Statement 141(R) will be effective for
fiscal years beginning after
December 15, 2008. The Company does not anticipate
the adoption of the
provisions of Statement 141(R) will have a material
impact on its results of
operations and financial position.
Shinyo
Ocean Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month period ended September 30, 2007
(expressed
in US$)
|
|
December
31, 2006
|
|
September
30, 2007
|
|
Vessel
|
|
|
|
|
|
Cost
|
|
|
-
|
|
|
111,000,000
|
|
Accumulated
depreciation
|
|
|
-
|
|
|
(3,642,739
|
)
|
Vessel,
net
|
|
|
-
|
|
|
107,357,261
|
|
The
vessel is mortgaged as described in Note 3.
The
Company has agreed to a mutual sale provision with
its charterer whereby either
party can request the sale of the vessel provided
that a price can be obtained
that is at least $3,000,000 greater than then the
current value of the vessel as
set forth in the charter agreement.
(3)
Long-term
Bank Loan
Lender/period
|
|
December
31, 2006
|
|
September
30, 2007
|
|
|
|
|
|
|
|
DVB
Group Merchant Bank (Asia) Ltd, Credit
Suisse, Hong Kong Branch, and
Deutsche Schiffsbank AG
|
|
|
|
|
|
January
8, 2007 to January 7, 2017
|
|
|
-
|
|
|
83,650,000
|
|
|
|
|
-
|
|
|
83,650,000
|
|
|
|
|
|
|
|
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
-
|
|
|
6,450,000
|
|
Non-current
portion
|
|
|
-
|
|
|
77,200,000
|
|
|
|
|
-
|
|
|
83,650,000
|
|
On
January 8, 2007, a syndicated loan of $86,800,000
was obtained from DVB Group
Merchant Bank (Asia) Ltd, Credit Suisse, Hong Kong
Branch, and Deutsche
Schiffsbank AG.
The
loan
is repayable by four quarterly installments of $1,575,000
each, followed by four
quarterly installments of $1,650,000 each, four quarterly
installments of
$1,725,000 each, four quarterly installments of $1,575,000
each, four quarterly
installments of $1,675,000 each, four quarterly installments
of $1,725,000 each,
four quarterly installments of $1,850,000 each, four
quarterly installments of
$1,950,000 each, four quarterly installments of $2,100,000
each, four quarterly
installments of $2,200,000 each and a balloon payment
$14,700,000.
Interest
is charged at LIBOR plus 0.98% per annum (6.21% as
of September 30, 2007). The
interest expense for the period ended September 30,
2007 was $3,933,834.
Shinyo
Ocean Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month period ended September 30, 2007
(expressed
in US$)
(3)
|
Long-term
Bank Loan (continued)
|
As
of
September 30, 2007, bank loan is secured as follows:
|
|
September
30,
2007
|
|
|
|
|
|
Secured
by:
|
|
|
|
Restricted
cash
|
|
|
2,942,599
|
|
Vessel
|
|
|
107,357,261
|
|
The
bank
loan is also guaranteed by Vanship Holdings Limited,
the immediate holding
company of the Company as of September 30, 2007.
The
principal repayments for each of the years subsequent
to September 30, 2007 are
as follows:
Year
ending September 30,
|
|
|
|
|
|
|
|
2008
|
|
|
6,450,000
|
|
2009
|
|
|
6,750,000
|
|
2010
|
|
|
6,600,000
|
|
2011
|
|
|
6,500,000
|
|
2012
and later
|
|
|
57,350,000
|
|
|
|
|
83,650,000
|
|
The
Company generates its revenues from time charter
agreements. The Company’s
revenue can be analyzed as follows:
|
|
Nine-Month
Period
Ended
September
30,
2007
|
|
Time
charter
|
|
|
10,148,440
|
|
Profit-sharing
arising sub-chartering
|
|
|
222,700
|
|
|
|
|
10,371,140
|
|
Shinyo
Ocean Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month period ended September 30, 2007
(expressed
in US$)
Under
the
laws of the countries of the Company’s incorporation and/or vessel’s
registration, the Company is not subject to tax on
international shipping
income. However, it is subject to registration and
tonnage taxes, which are
charged by the country of which the vessel is registered
at a fixed rate based
on the tonnage of the vessel. Registration and tonnage
taxes have been included
in vessel operating expenses in the accompanying
statement of opeartions.
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation
of FASB Statement
109
(FIN
48). FIN 48 clarifies the accounting for uncertainty
in income taxes recognized
in an enterprise’s financial statements and prescribes a threshold
of
more-likely-than-not for recognition of tax benefits
of uncertain tax positions
taken or expected to be taken in a tax return. FIN
48 also provides related
guidance on measurement, derecognition, classification,
interest and penalties,
and disclosure. The provisions of FIN 48 will be
effective for the fiscal years
beginning after December 15, 2006, with any cumulative
effect of the change in
accounting principle recorded as an adjustment to
opening retained earnings.
Effective from January 1, 2007, the Company adopted
the provision of FIN 48. As
of the date of the adoption of FIN 48, the Company
has no material unrecognized
tax benefit which would favorably affect the effective
income tax rate in future
periods and do not believe there will be any significant
increases or decreases
within the next twelve months. The Company has elected
to classify interest and
penalties related to unrecognized tax benefits, if
and when required, as part of
interest expense and administrative expense in the
statement of operations. No
interest or penalties in respect of unrecognized
tax benefits have been accrued
at the date of adoption.
According
to the Inland Revenue Ordinance of Hong Kong,
the statute of limitations is
seven years (i.e. calendar years 2006 to 2007
for the Company) if the
underpayment of taxes is due to omission or errors
made by either the taxpayer
or the withholding agent. The statute of limitations
will be extended to ten
years (i.e. calendar years 2006 to 2007 for the
Company) in case of tax evasion.
According
to the Internal Revenue Code of the United States
of America, the statute of
limitations is three years (i.e. calendar years
2006 to 2007 for the Company) if
the underpayment of taxes is due to omission
or errors made by either the
taxpayer or withholding agent. There is no statute
of limitations in the case of
tax evasion.
(6)
|
Related
Party Transactions
|
Name
of party
|
|
Relationship
|
|
|
|
Belindtha
Marine Limited (“Belindtha”)
|
|
A
company controlled by a person related
to a director of the
Company
|
|
|
|
Shinyo
Kannika Limited (“Shinyo Kannika”)
|
|
A
fellow subsidiary of the Company
|
|
|
|
Univan
Ship Management Limited (“Univan”)
|
|
A
company controlled by a director, Captain
Charles Arthur Joseph
Vanderperre, of the Company
|
|
|
|
Vanship
Holdings Limited (“Vanship”)
|
|
Immediate
holding company of the Company
|
Shinyo
Ocean Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month period ended September 30, 2007
(expressed
in US$)
(6)
|
Related
Party Transactions
|
(a)
|
The
principal related party transactions during
the period ended September 30,
2007 are as follows:
|
|
|
|
|
Nine-Month
|
|
|
|
|
|
Period
Ended
|
|
|
|
|
|
September
30,
|
|
|
|
|
|
2007
|
|
|
|
Note
|
|
|
|
Service
fee to Belindtha
|
|
|
(i)
|
|
|
83,048
|
|
Loan
interest expense to Vanship
|
|
|
(ii)
|
|
|
25,920
|
|
Loan
interest expense to Shinyo Kannika
|
|
|
(iii)
|
|
|
1,166,529
|
|
Notes:
|
(i)
|
The
Company has outsourced substantially all
its day to day operations to
Belindtha. The service fee is payable to
Belindtha at a pre-determined
amount in accordance with the terms mutually
agreed by Belindtha and the
Company.
|
|
(ii)
|
The
balance represents interest expense on
a loan from Vanship. Terms of loan
details are set out in Note 6(b)(v) below.
|
|
(iii)
|
The
balance represents interest expense on
a loan from Shinyo Kannika. Terms
of loan details are set out in Note 6(b)(vi)
below.
|
(b)
|
Amounts
due from and due to related parties as
of December 31, 2006 and September
30, 2007 are as follows:
|
|
|
|
|
December
31,
2006
|
|
September
30,
2007
|
|
|
|
Note
|
|
|
|
|
|
Amount
due from related party:
|
|
|
|
|
|
|
|
Amount
due from Univan
|
|
|
(i)
|
|
|
-
|
|
|
151,404
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
due to related parties:
|
|
|
|
|
|
|
|
|
|
|
Amount
due to Vanship
|
|
|
(ii)
|
|
|
14,400
|
|
|
-
|
|
Amount
due to Shinyo Kannika
|
|
|
(iii)
|
|
|
240,000
|
|
|
1,166,529
|
|
Amount
due to Univan
|
|
|
(iv)
|
|
|
1,039
|
|
|
-
|
|
|
|
|
|
|
|
255,439
|
|
|
1,166,529
|
|
Loans
from related parties:
|
|
|
|
|
|
|
|
|
|
|
Vanship
|
|
|
(v)
|
|
|
11,100,000
|
|
|
-
|
|
Shinyo
Kannika
|
|
|
(vi)
|
|
|
-
|
|
|
25,200,000
|
|
|
|
|
|
|
|
11,100,000
|
|
|
25,200,000
|
|
Shinyo
Ocean Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month period ended September 30, 2007
(expressed
in US$)
(6)
|
Related
Party Transactions
(continued)
|
(b)
|
Amounts
due from and due to related parties as
of December 31, 2006 and September
30, 2007 are as follows:
|
Notes:
|
(i)
|
The
balance represents advance payments for
expenses to be paid by Univan on
behalf of the Company. The balance is unsecured,
non-interest bearing and
with no fixed terms of repayment.
|
|
(ii)
|
The
balance represents interest payable on
loan from Vanship. Terms of loan
are set out in (v) below.
|
|
(iii)
|
The
balance represents primarily interest payable on loan from
Shinyo
Kannika as set out in (vi) below, and
other payables. The other
payables to Kanniak is unsecured, non-interest bearing
and with no
fixed terms of repayment.
|
|
(iv)
|
The
balance represents payable to Univan for
expenses paid on behalf of the
Company. The balance is unsecured, non-interest
bearing and with no fixed
terms of repayment.
|
|
(v)
|
The
balance represents a loan from Vanship.
The loan carries interest at
six-month LIBOR plus 3.98% per annum (9.34%
as of December 31, 2006) with
final maturity on January 31, 2017. The
interest expense for the period
ended September 30, 2007 was $25,920. The
loan was fully repaid on January
9, 2007.
|
|
(vi)
|
The
balance represents a loan from Shinyo Kannika.
The loan from a fellow
subsidiary represents the loan from Shinyo
Kannika Limited to finance the
purchase of vessel. The loan carries interest
at three-month LIBOR plus
0.98% per annum (6.20% as of September
30, 2007) with final maturity on
December 31, 2017. The interest expense
for the period ended September 30,
2007 was $1,166,529.
|
(c)
|
Vanship
has provided a letter of support to the
Company to confirm its intention
to provide continuing financial support
to the Company so as to enable the
Company to meet its liabilities when they
fall due.
|
(d)
|
As
of September 30, 2006, long-term bank loan
of $83,650,000 was guaranteed
by Vanship.
|
(7)
|
Commitments
and Contingencies
|
Various
claims, suits, and complaints, including those involving
government regulations
and product liability, arise in the ordinary course
of the shipping business. In
addition, losses may arise from disputes with charterers,
agents, insurance and
other claims with suppliers relating to the operations
of the Company’s vessel.
Currently, management is not aware of any such claims
or contingent liabilities,
which should be disclosed, or for which a provision
should be established in the
accompanying financial statements.
Shinyo
Ocean Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month period ended September 30, 2007
(expressed
in US$)
(8)
|
Fair
Value of Financial Instruments
|
The
carrying amounts of cash and amounts due from related
parties, approximate their
fair values because of the short maturity of these
instruments.
The
carrying values of long-term bank loan and loans
from related parties
approximate their fair values based on the borrowing
rates currently available
to the Company for bank loans with similar terms
and average
maturities.
(9)
|
Business
and Credit
Concentrations
|
The
Company operates in the shipping industry which historically
has been cyclical
with corresponding volatility in profitability. All
the Company’s revenues are
derived from vessel charters. The Company seeks to
mitigate volatilities in its
business by obtaining long-term charter contracts.
The Company has obtained a
long-term time charter contract which will expire
in January 2017
The
Company outsourced the technical management services
to Belindtha which is
controlled by a person related to a director of the
Company. Belindtha then
sub-contracted its obligations under the outsourcing
arrangement to Univan which
assists Belindtha in providing technical management
services to the Company.
Univan is controlled by Captain Charles Arthur Joseph
Vanderperre, a director of
the Company. All expenses incurred by Univan on behalf
of the Company are
charged to the Company based on the actual expenditures
incurred on its behalf.
During the period ended September 30, 2007, the Company
paid service fee of
$83,048 to Belindtha.
The
Company is engaged in the business of ocean transportation
of crude oil industry
which is extremely competitive and dependent on the
world’s demand for crude
oil. Competition depends on price, location, size,
age, condition and the
acceptability of the vessel to the charterers. The
increase in competition and
the changes in demand for crude oil could result
in lower revenue achieved for
the vessel.
The
following are revenue from a customer that individually
comprises 10% or more of
gross revenue:
|
Nine-month Period Ended
September 30 ,2007
|
|
|
%
|
|
|
|
Formosa
Petrochemical Corporation
|
10,371,140
|
100
|
Pursuant
to a definitive agreement entered into between Vanship
and Energy Infrastructure
Acquisition Corp. (“EIAC”), a company listed on the American Stock Exchange,
on
December 3, 2007 (the “Agreement”), Vanship agreed to sell all of its equity
interests in the Company and other eight related companies to Energy
Infrastructure Merger Corporation (“EIMC”) (the “Business Combination”), a
wholly-owned subsidiary of EIAC, for an aggregate
consideration of $778,000,000,
consisting of $643,000,000 in cash (subject to closing
adjustments) and
13,500,000 shares of common stock of EIMC (valued
at $10 per share of common
stock). Vanship is entitled to an additional 3,000,000
shares of common stock of
EIMC on each of the first and second anniversaries
of the completion of the
Business Combination, subject to certain earning
criteria.
Approval
of the Business Combination requires the affirmative
vote of the holders of a
majority of the shares of common stock voted at EIAC’s special meeting of
stockholders, provided that there is a quorum. In
addition, if the EIAC
stockholders approve the Business Combination, the
Business Combination will
only proceed if holders of shares purchased in EIAC’s initial public offering,
representing less than 30% of the shares sold in
EIAC’s initial public offering
and EIAC’s private placement that occurred immediately prior
to the initial
public offering, exercise their redemption rights
at the time of casting a vote
against the Business Combination.
Shinyo
Ocean Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month period ended September 30, 2007
(expressed
in US$)
(10)
|
Subsequent
Events (continued)
|
Pursuant
to the Agreement, Vanship has agreed to purchase
up to 5,000,000 units from EIMC
at a purchase price of $10.00 per unit, but only
to the extent necessary for
EIMC to secure financing for the Business Combination.
Each unit will consist of
one share of EIMC’s common stock and one warrant to purchase one share
of EIMC’s
common stock at an exercise price of $8.00 per warrant.
Report
of Independent Registered Public Accounting
Firm
The
Board
of Directors and Shareholders of
Elite
Strategic Limited:
We
have
audited the accompanying balance sheets of Elite Strategic
Limited (the
“Company”) as of December 31, 2005 and 2006, and the related statements
of
income, shareholders’ equity, and cash flows for each of the years in the
three-year period ended December 31, 2006. These financial
statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of
the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial
statements are free of material misstatement. An audit
includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. An audit also includes assessing the accounting
principles used and
significant estimates made by management, as well as evaluating
the overall
financial statement presentation. We believe that our audits
provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present
fairly, in all
material respects, the financial position of Elite Strategic
Limited as of
December 31, 2005 and 2006, and the results of its operations
and its cash flows
for each of the years in the three-year period ended December
31, 2006, in
conformity with U.S. generally accepted accounting principles.
/s/
KPMG
Hong
Kong, China
February
11, 2008
Elite
Strategic Limited
Balance
Sheets
as
of
December 31, 2005 and 2006
(expressed
in US$)
|
|
|
|
2005
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
1,437,975
|
|
|
2,031,167
|
|
Restricted
cash
|
|
|
|
|
|
1,061,818
|
|
|
1,272,304
|
|
Trade
accounts receivable
|
|
|
|
|
|
—
|
|
|
2,144
|
|
Prepayments
and other receivables
|
|
|
|
|
|
54,722
|
|
|
67,947
|
|
Supplies
|
|
|
|
|
|
40,750
|
|
|
125,283
|
|
Total
current assets
|
|
|
|
|
|
2,595,265
|
|
|
3,498,845
|
|
Deferred
loan costs
|
|
|
|
|
|
260,696
|
|
|
234,734
|
|
Vessel,
net
|
|
|
2
|
|
|
53,765,673
|
|
|
51,176,135
|
|
Total
assets
|
|
|
|
|
|
56,621,634
|
|
|
54,909,714
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term bank loan
|
|
|
3
|
|
|
2,728,050
|
|
|
2,909,820
|
|
Amount
due to related party
|
|
|
8(b)
|
|
|
84,109
|
|
|
525,373
|
|
Accrued
liabilities and other payables
|
|
|
4
|
|
|
1,206,918
|
|
|
1,438,989
|
|
Dividend
payable
|
|
|
|
|
|
456,326
|
|
|
457,124
|
|
Income
taxes payable
|
|
|
|
|
|
16,399
|
|
|
45,485
|
|
Total
current liabilities
|
|
|
|
|
|
4,491,802
|
|
|
5,376,791
|
|
Long-term
bank loan
|
|
|
3
|
|
|
35,595,450
|
|
|
32,685,630
|
|
Total
liabilities
|
|
|
|
|
|
40,087,252
|
|
|
38,062,421
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares US$1 par value per share 15,000,000
shares authorized; 15,000,000
shares issued and fully paid as of December
31
|
|
|
|
|
|
15,000,000
|
|
|
15,000,000
|
|
Retained
earnings
|
|
|
|
|
|
1,534,382
|
|
|
1,847,293
|
|
Total
shareholders’ equity
|
|
|
|
|
|
16,534,382
|
|
|
16,847,293
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
|
|
|
|
56,621,634
|
|
|
54,909,714
|
|
See
accompanying notes to the financial statements.
Elite
Strategic Limited
Statements
of Income
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
Note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
5
|
|
|
7,158,339
|
|
|
6,920,184
|
|
|
8,047,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
6
|
|
|
1,672,017
|
|
|
1,897,015
|
|
|
2,106,675
|
|
Depreciation
expenses
|
|
|
|
|
|
2,404,589
|
|
|
2,481,651
|
|
|
2,589,538
|
|
Management
fee
|
|
|
8(a)
|
|
|
114,000
|
|
|
114,000
|
|
|
114,000
|
|
Commission
|
|
|
|
|
|
117,076
|
|
|
118,077
|
|
|
125,040
|
|
Administrative
expenses
|
|
|
|
|
|
27,792
|
|
|
39,200
|
|
|
46,657
|
|
Total
operating expenses
|
|
|
|
|
|
4,335,474
|
|
|
4,649,943
|
|
|
4,981,910
|
|
Operating
income
|
|
|
|
|
|
2,822,865
|
|
|
2,270,241
|
|
|
3,065,988
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
21,152
|
|
|
65,692
|
|
|
108,363
|
|
Interest
expense
|
|
|
|
|
|
(1,820,074
|
)
|
|
(1,708,124
|
)
|
|
(2,368,681
|
)
|
Other,
net
|
|
|
|
|
|
4,888
|
|
|
(6,994
|
)
|
|
(6,549
|
)
|
Total
other expense
|
|
|
|
|
|
(1,794,034
|
)
|
|
(1,649,426
|
)
|
|
(2,266,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
|
|
|
1,028,831
|
|
|
620,815
|
|
|
799,121
|
|
Income
taxes
|
|
|
7
|
|
|
—
|
|
|
(16,399
|
)
|
|
(29,086
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
1,028,831
|
|
|
604,416
|
|
|
770,035
|
|
(a)
|
Includes
the following income/(expenses) resulting from
transactions with related
parties (see note 8(a)):
|
|
|
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
Revenue
|
|
|
|
|
|
7,518,339
|
|
|
6,920,184
|
|
|
8,047,898
|
|
Vessel
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Agency fee
|
|
|
|
|
|
(30,000
|
)
|
|
(30,000
|
)
|
|
(30,000
|
)
|
Management
fee
|
|
|
|
|
|
(114,000
|
)
|
|
(114,000
|
)
|
|
(114,000
|
)
|
See
accompanying notes to the financial statements.
Elite
Strategic Limited
Statements
of Shareholders’ Equity
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
|
|
Ordinary
shares
|
|
|
|
Total
|
|
|
|
Number
of
shares
|
|
Amount
|
|
Retained
earnings
|
|
shareholders’
equity
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2004
|
|
|
15,000,000
|
|
|
15,000,000
|
|
|
814,961
|
|
|
15,814,961
|
|
Net
income
|
|
|
—
|
|
|
|
|
|
1,028,831
|
|
|
1,028,831
|
|
Dividend
|
|
|
—
|
|
|
—
|
|
|
(457,500
|
)
|
|
(457,500
|
)
|
Balance
as of December 31, 2004
|
|
|
15,000,000
|
|
|
15,000,000
|
|
|
1,386,292
|
|
|
16,386,292
|
|
Net
income
|
|
|
—
|
|
|
—
|
|
|
604,416
|
|
|
604,416
|
|
Dividend
|
|
|
—
|
|
|
—
|
|
|
(456,326
|
)
|
|
(456,326
|
)
|
Balance
as of December 31, 2005
|
|
|
15,000,000
|
|
|
15,000,000
|
|
|
1,534,382
|
|
|
16,534,382
|
|
Net
income
|
|
|
—
|
|
|
—
|
|
|
770,035
|
|
|
770,035
|
|
Dividend
|
|
|
—
|
|
|
—
|
|
|
(457,124
|
)
|
|
(457,124
|
)
|
Balance
as of December 31, 2006
|
|
|
15,000,000
|
|
|
15,000,000
|
|
|
1,847,293
|
|
|
16,847,293
|
|
See
accompanying notes to the financial statements.
Elite
Strategic
Limited
Statements
of Cash Flows
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
|
|
2004
|
|
2005
|
|
2006
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
1,028,831
|
|
|
604,416
|
|
|
770,035
|
|
Adjustments
to reconcile net income to net cash provided
by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expenses
|
|
|
2,404,589
|
|
|
2,481,651
|
|
|
2,589,538
|
|
Amortization
of deferred loan costs
|
|
|
25,962
|
|
|
25,962
|
|
|
25,962
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
1,109
|
|
|
—
|
|
|
(2,144
|
)
|
Prepayments
and other receivables
|
|
|
70,153
|
|
|
10,823
|
|
|
(13,225
|
)
|
Supplies
|
|
|
947
|
|
|
20,863
|
|
|
(84,533
|
)
|
Amount
due from related party
|
|
|
(8,930
|
)
|
|
91,863
|
|
|
|
|
Amount
due to related party
|
|
|
|
|
|
84,109
|
|
|
441,264
|
|
Accrued
liabilities and other payables
|
|
|
18,185
|
|
|
180,865
|
|
|
232,071
|
|
Income
taxes payable
|
|
|
|
|
|
16,399
|
|
|
29,086
|
|
Net
cash provided by operating activities
|
|
|
3,540,846
|
|
|
3,516,951
|
|
|
3,988,054
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditure on drydocking
|
|
|
|
|
|
(924,743
|
)
|
|
|
|
Increase
in restricted cash
|
|
|
(926
|
)
|
|
(9,952
|
)
|
|
(210,486
|
)
|
Net
cash used in investing activities
|
|
|
(926
|
)
|
|
(934,695
|
)
|
|
(210,486
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Repayment
of long-term bank loan
|
|
|
(2,406,000
|
)
|
|
(2,560,500
|
)
|
|
(2,728,050
|
)
|
Dividend
paid
|
|
|
|
|
|
(457,500
|
)
|
|
(456,326
|
)
|
Net
cash used in financing activities
|
|
|
(2,406,000
|
)
|
|
(3,018,000
|
)
|
|
(3,184,376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash
|
|
|
1,133,920
|
|
|
(435,744
|
)
|
|
593,192
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
At
beginning of year
|
|
|
739,799
|
|
|
1,873,719
|
|
|
1,437,975
|
|
At
end of year
|
|
|
1,873,719
|
|
|
1,437,975
|
|
|
2,031,167
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
2004
|
|
2005
|
|
2006
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
1,820,277
|
|
|
1,700,138
|
|
|
2,198,724
|
|
See
accompanying notes to the financial statements.
Elite
Strategic
Limited
Notes
to
Financial Statements
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting
Policies
|
|
(a)
|
Description
of Business
|
Elite
Strategic Limited (the “Company”), a company engaged in the business of ocean
transportation of crude oil worldwide, was established
in the British Virgin
Islands on December 3, 2002. The principal activity of
the Company is the
ownership and chartering of the vessel “C Dream”. C Dream was delivered in 2000
and was a second hand vessel acquired by the Company in
February 2003. It is a
double-hulled very large crude oil carrier with capacity
of 298,570 deadweight
tonnage.
On
September 7, 2007, Shinyo Dream Limited, a company controlled
by a shareholder
of the Company, acquired the operation of C Dream from
the Company. These
financial statements serve as the predecessor financial
statements of Shinyo
Dream Limited as the operation of C Dream is the only operating
business of the
Company.
The
Company has outsourced substantially all the day-to-day
operations to its
related party, Belindtha Marine Limited (“Belindtha”), a company controlled by a
person related to a director of the Company. Belindtha
then sub-contracted its
obligations under the outsourcing arrangement to Univan
Ship Management Limited
(“Univan”) which assists Belindtha in providing technical management
services to
the Company. Univan is controlled by Captain Charles Arthur
Joseph Vanderperre,
a director of the Company. All expenses incurred by Univan
on behalf of the
Company are charged to the Company based on the actual
expenditures incurred on
their behalf. In addition, Univan provides administrative
services to the
Company.
From
January 21, 2003 to September 7, 2007, the
Company received time charter revenue pursuant to a time
charter agreement with
SK Shipping Company Limited,under which agreement the
Company was paid a daily
charter rate of $19,680 from January 21, 2003 to January
21, 2006 and $22,200
from January 21, 2006 to September 7, 2007, less commission
of $9,844 per
month.
As
of
December 31, 2006, the Company had a working capital deficit
of $1,877,946.
These financial statements have been prepared assuming
that the Company will
continue as a going concern as Vanship Holdings Limited,
a shareholder of the
Company, has confirmed its intention to provide continuing
financial support to
the Company so as to enable the Company to meet its liabilities
as and when they
fall due.
|
(c)
|
Basis
of Presentation
|
The
Company’s financial statements have been prepared in accordance
with U.S.
generally accepted accounting principles (“US GAAP”).
The
basis
of accounting differs in certain material respects from
that used in the
preparation of the financial statements of the Company,
which are prepared in
accordance with the accounting principles of the country
of its domicile. The
accompanying financial statements reflect necessary adjustments
to present them
in conformity with US GAAP.
Cash
consists interest-bearing deposits placed with banks. As
of December 31, 2005
and 2006, there were no cash equivalents.
Elite
Strategic
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
Restricted
cash represents minimum interest bearing bank deposits
which must be maintained
in accordance with contractual bank loan arrangements over
the bank loan period.
|
(f)
|
Trade
Accounts Receivable
|
The
Company generally requires customers to pay in advance
for time charter hire.
Trade accounts receivable are recorded at the invoiced
amount, do not bear
interest and reflect billings to charterers for hire,
freight and demurrage.
The
Company maintains an allowance for doubtful accounts
for estimated losses
inherent in its trade accounts receivable portfolio.
The
Company does not have any off-balance-sheet credit exposure
related to its
customers.
Supplies
consist of lubricating oil are stated at cost. Cost is
determined on a first-in,
first-out method (FIFO).
A
vessel
is stated at cost, which consists of the contract price
and delivery costs.
Subsequent expenditures for conversions and major overhauls
(“drydocking”) are
also capitalized when they extend the life, increase the
earning capacity or
improve the efficiency or safety of the vessel otherwise
these amounts are
charged to expense as incurred.
Depreciation
on the vessel is calculated based on the straight-line
method over the estimated
useful life of the vessel, after taking into account its
estimated residual
value, from date of acquisition. The vessel’s residual value is equal to the
product of its lightweight tonnage and estimated scrap
rate. Management
estimates the useful life of the Company’s vessel to be 22 years from the date
of acquisition. The useful life of the vessel is evaluated
on a regular basis to
account for changes in circumstances, including changes
in regulatory
restrictions. If regulations place limitations over the
ability of a vessel to
operate, its useful life is adjusted to end at the date
such regulations become
effective.
Elite
Strategic
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(h)
|
Vessel,
net (continued)
|
The
Company follows the deferral method of accounting for drydocking
whereby actual
costs incurred are capitalized and are depreciated on a
straight-line basis over
the period through the date the next drydocking becomes
due. The vessel of the
Company is required to have an intermediate drydocking
approximately every 30
months and a special survey drydocking approximately every
60 months.
Capitalized intermediate drydocking costs and special survey
drydocking costs
are depreciated over a period of 30 months and 60 months,
respectively. If the
anticipated date of drydocking is changed from the scheduled
date, the remaining
undepreciated carrying amount of the drydocking costs is
adjusted to reflect the
revised date.
A
vessel
is reviewed for impairment whenever events or changes in
circumstances indicate
that the carrying amount of a vessel may not be recoverable.
Recoverability of
the vessel is measured by a comparison of the carrying
amount of the vessel,
including capitalized drydocking costs, to the estimated
undiscounted future
cash flows expected to be generated by the vessel. If the
carrying amount of the
vessel exceeds its estimated future undiscounted cash flows,
an impairment
charge will be recognized by the amount that the carrying
amount of the vessel
exceeds its estimated fair value.
In
the
normal course of business, the Company is subject to loss
contingencies, such as
legal proceedings and claims arising out of its business.
An accrual for a loss
contingency is recognized when it is probable that a liability
will be incurred
and the amount of the loss can be reasonably estimated.
|
(k)
|
Revenue
Recognition and Related
Expenses
|
The
Company generates its revenues from time charter agreements.
Revenues are
recognized when the collectibility has been reasonably
assured. Time charter
revenues are recorded over the term of the charter as the
service is provided.
Vessel operating costs are expensed as incurred.
Brokerage
and charter hire commissions paid to third parties are
expensed in the same
period as revenues are recognized.
Elite
Strategic
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
Fees
incurred for obtaining new loans are deferred and amortized
to interest expense
over the life of the related debt using the effective interest
method. The
Company follows EITF 96-19 in accounting for debt modification.
A modification
is considered substantial if the present value of the cash
flows under the terms
of new debt is at least 10 percent different from the present
value of the
remaining cash flows under the terms of the original debt
at the date of
modification. When the loan is repaid or when the loan
is substantially
modified, the existing unamortized fees are written-off
in the period debt
repayment or substantial modification takes place. When
the modification is not
considered substantial, the fees associated with the modification
and, along
with the existing unamortized fees, are amortized over
the remaining term of the
modified loan using the effective interest method. There
is no write-off of
deferred loan costs during the years ended December 31,
2004, 2005 and 2006.
|
(n)
|
Foreign
Currency Transactions
|
The
Company’s functional and reporting currency is United States (“US”) dollar
because the Company’s vessel operates in international shipping markets, which
utilize the US dollar. Furthermore, the Company incurs
bank debt, pays salaries
and wages and certain other expenditure such as fuel costs,
lubricants,
insurance costs, all in US dollars.
Transactions
denominated in currencies other than US dollar are translated
into US dollars at
the exchange rates prevailing at the dates of transactions.
Monetary assets and
liabilities denominated in currencies other than US dollar
are translated at the
exchange rates prevailing at the balance sheet dates. During
the years ended
December 31, 2004, 2005 and 2006, substantially all of
the Company’s
transactions were denominated in US dollars and the Company
did not have
significant foreign currency transaction gains or losses.
The
preparation of the financial statements requires management
of the Company to
make a number of estimates and assumptions relating to
the reported amounts of
assets and liabilities and the disclosure of contingent
assets and liabilities
at the date of the financial statements and the reported
amounts of revenues and
expenses during the reporting period. Significant items
subject to such
estimates and assumptions include the estimated useful
life of the vessel
(including drydocking costs), residual value and recovery
of the carrying amount
of the vessel, determination of the fair value of financial
instruments. Actual
results could differ from those estimates.
Elite
Strategic
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(p)
|
Recently
Issued Accounting Standards
|
In
September 2006, the FASB issued FASB Statement No. 157,
Fair
Value Measurement
(Statement
157). Statement 157 defines fair value, establishes a framework
for the
measurement of fair value measures already required or
permitted by other
standards for fiscal years beginning after November 15,
2007. The Company is
required to adopt Statement 157 for the fiscal years beginning
on January 1,
2008. Statement 157 is required to be applied prospectively,
except for certain
financial instruments. Any transition adjustment will be
recognized as an
adjustment to opening retained earnings in the year of
adoption. The Company
does not anticipate that the adoption of Statement 157
will have a material
impact on its results of operations and financial position.
In
September 2006, the FASB issued FASB Staff Position No.
AUG AIR-1,
Accounting
for Planned Major Maintenance Activities
(AUG
AIR-1). This guidance prohibits the use of the accrue-in-advance
method of
accounting for planned major maintenance activities because
an obligation has
not occurred and therefore a liability should not be recognized.
The provisions
of this guidance will be effective for fiscal years beginning
after December 15,
2006. Effective from January 1, 2007, the Company adopted
the provision of AUG
AIR-1. The Company follows the deferral method of accounting
for drydocking. As
of the date of adoption of AUG AIR-1, the Company has no
accruals for planned
drydocking which require to be adjusted retrospectively.
In
February 2007, the FASB issued FASB Statement No. 159,
The
Fair Value Option for Financial Assets and Financial
Liabilities - Including an
Amendment of FASB Statement No. 115
(Statement
159)
.
Statement
159 permits an entity to elect fair value as the initial
and subsequent
measurement attribute for many financial assets and liabilities.
Entities
electing the fair value option would be required to recognize
changes in fair
value in earnings. Entities electing the fair value option
are required to
distinguish, on the face of the balance sheet, the fair
value of assets and
liabilities for which the fair value option has been
elected and similar assets
and liabilities measured using another measurement attribute.
Statement 159 will
be effective for fiscal years beginning after November
15, 2007. The adjustment
to reflect the difference between the fair value and
the carrying amount would
be accounted for as a cumulative-effect adjustment to
retained earnings as of
the date of initial adoption. The Company does not anticipate
that the adoption
of the provisions of Statement 159 will have a material
impact on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 160,
Noncontrolling
Interests in Consolidated Financial Statements - an Amendment
of ARB No. 51
(Statement
160). Statement 160 establishes accounting and reporting
standards for the
noncontrolling interest in a subsidiary and for the deconsolidation
of a
subsidiary. Statement 160 will be effective for the fiscal
year beginning after
December 15, 2008. The Company does not anticipate that
the adoption of the
provisions of Statement 160 will have a material impact
on its results of
operations and financial position.
Elite
Strategic
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(p)
|
Recently
Issued Accounting Standards
(continued)
|
In
December 2007, the FASB issued FASB Statement No. 141 (Revised),
Business
Combinations
(Statement
141(R)). Statement 141(R) establishes principles and requirements
for how the
acquirer of a business recognizes and measures in its financial
statements the
identifiable assets acquired, the liabilities assumed,
and any noncontrolling
interest in the acquiree. Statement 141(R) also provides
guidance for
recognizing and measuring the goodwill acquired in the
business combination and
determines what information to disclose to enable users
of the financial
statements to evaluate the nature and financial effects
of the business
combination. Statement 141(R) will be effective for fiscal
years beginning after
December 15, 2008. The Company does not anticipate the
adoption of the
provisions of Statement 141(R) will have a material impact
on its results of
operations and financial position.
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
Vessel
|
|
|
|
|
|
|
|
Cost
|
|
|
60,924,743
|
|
|
60,924,743
|
|
Accumulated
depreciation
|
|
|
(7,159,070
|
)
|
|
(9,748,608
|
)
|
Vessel,
net
|
|
|
53,765,673
|
|
|
51,176,135
|
|
The
vessel is mortgaged as described in Note 3.
Drydocking
costs of $924,743 were capitalized during the year ended
December 31, 2005. As
of December 31, 2005 and 2006, undepreciated carrying amount
of the drydocking
costs was $847,681 and $662,733, respectively.
For
the
years ended December 31, 2004, 2005 and 2006, $Nil, $77,062
and $184,948 of
drydocking costs were expensed as depreciation, respectively.
Elite
Strategic
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
Lender/period
|
|
Interest
rate per annum
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
DVB
Group Merchant Bank (Asia) Ltd, Credit Suisse,
BNP Paribas and Deutsche
Schiffsbank Aktiengesellschaft
|
|
|
|
|
|
|
|
|
|
|
January
17, 2003 to January 17, 2016
|
|
|
LIBOR+1.50
|
%
|
|
38,323,500
|
|
|
35,595,450
|
|
|
|
|
|
|
|
|
|
|
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
|
|
|
2,728,050
|
|
|
2,909,820
|
|
Non-current
portion
|
|
|
|
|
|
35,595,450
|
|
|
32,685,630
|
|
|
|
|
|
|
|
38,323,500
|
|
|
35,595,450
|
|
On
January 17, 2003, the Company obtained a bank loan of $45,000,000
from DVB
Group Merchant Bank (Asia) Ltd, Credit Suisse, BNP Paribas
and Deutsche
Schiffsbank Aktiengesellschaft.
The
loan
is repayable by four quarterly installments of $570,000
each, followed by four
quarterly installments of $612,000 each, four quarterly
installments of $649,500
each, four quarterly installments of $692,850 each, four
quarterly installments
of $738,990 each, four quarterly installments of $788,205
each, four quarterly
installments of $840,705 each, four quarterly installments
of $896,700 each,
four quarterly installments of $956,400 each, four quarterly
installments of
$1,020,000 each, four quarterly installments of $1,088,055
each, four quarterly
installments of $1,160,550 each and four quarterly installments
of $1,236,045
each.
Interest
is charged at LIBOR plus 1.50% per annum (4.21% and 6.37%
as of December 31,
2005 and 2006, respectively). The interest expense for
the years ended December
31, 2004, 2005 and 2006 was $1,794,112, $1,682,162 and
$2,336,792 respectively.
The
bank
loan is guaranteed by a director of the Company, Mr. Fred
Cheng, and a
shareholder of the Company, Vanship Holdings Limited, as
of December 31, 2005
and 2006.
As
of
December 31, 2005 and 2006, bank loan is secured as follows:
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
Secured
by:
|
|
|
|
|
|
Restricted
cash
|
|
|
1,061,818
|
|
|
1,272,304
|
|
Vessel
|
|
|
53,765,673
|
|
|
51,176,135
|
|
The
principal repayments for each of the years subsequent to
December 31, 2006 are
as follows:
Year
ending December 31,
|
|
|
|
|
|
|
|
2007
|
|
|
2,909,820
|
|
2008
|
|
|
3,103,605
|
|
2009
|
|
|
3,310,320
|
|
2010
|
|
|
3,530,805
|
|
2011
and later
|
|
|
22,740,900
|
|
|
|
|
35,595,450
|
|
Elite
Strategic
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(4)
|
Accrued
Liabilities and Other
Payables
|
Accrued
liabilities and other payables at December 31, 2005 and
2006 consist of the
following:
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
Accrued
audit fee
|
|
|
1,600
|
|
|
1,700
|
|
Accrued
vessel operating expenses
|
|
|
370,552
|
|
|
354,602
|
|
Bank
loan interest payable
|
|
|
340,611
|
|
|
478,680
|
|
Commission
payable
|
|
|
3,371
|
|
|
77,454
|
|
Receipt
in advance
|
|
|
401,185
|
|
|
452,556
|
|
Wages
payable
|
|
|
46,494
|
|
|
63,397
|
|
Other
payables
|
|
|
43,105
|
|
|
10,600
|
|
|
|
|
1,206,918
|
|
|
1,438,989
|
|
The
Company’s revenue for the years ended December 31, 2004, 2005 and
2006
represents revenue generated from time charter agreements.
(6)
|
Vessel
Operating Expenses
|
Vessel
operating expenses for the years ended December 31, 2004,
2005 and 2006 consist
of the following:
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
Commercial
expenses
|
|
|
30,000
|
|
|
30,000
|
|
|
30,000
|
|
Crew
wages and allowances
|
|
|
522,073
|
|
|
563,521
|
|
|
624,604
|
|
Crew
expenses
|
|
|
106,998
|
|
|
115,718
|
|
|
135,564
|
|
Insurance
expenses
|
|
|
434,683
|
|
|
501,708
|
|
|
474,960
|
|
Lubricating
oil expenses
|
|
|
224,621
|
|
|
298,613
|
|
|
418,216
|
|
Repair
and maintenance
|
|
|
122,939
|
|
|
177,532
|
|
|
122,401
|
|
Spare
parts expenses
|
|
|
111,873
|
|
|
95,733
|
|
|
162,601
|
|
Stores
expenses
|
|
|
78,432
|
|
|
73,956
|
|
|
98,109
|
|
Victualling
expenses
|
|
|
40,398
|
|
|
40,234
|
|
|
40,220
|
|
|
|
|
1,672,017
|
|
|
1,897,015
|
|
|
2,106,675
|
|
Elite
Strategic
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
Under
the
laws of the countries of the Company’s incorporation and/or vessel’s
registration, the Company is not subject to tax on international
shipping
income. However, it is subject to registration and tonnage
taxes, which are
charged by the country of which the vessel is registered
at a fixed rate based
on the tonnage of the vessel. Registration and tonnage
taxes have been included
in vessel operating expenses in the accompanying statements
of income.
In
addition, during the years ended December 31, 2005 and
2006, the vessel operated
in certain ports of the US. Accordingly, the Company is
subject to the US
Transportation Taxes which are calculated at 2% - 4% on
relevant charter hire
revenue.
Income
taxes represent US Transportation Taxes as follows:
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
Current
tax
|
|
|
—
|
|
|
16,399
|
|
|
29,086
|
|
Deferred
tax
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
income taxes
|
|
|
—
|
|
|
16,399
|
|
|
29,086
|
|
Income
taxes reported in the statements of income differ from
the amount computed by
applying the tax rate of 17.5% (the statutory tax rate
of the Company) for the
following reasons:
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
1,028,831
|
|
|
620,815
|
|
|
799,121
|
|
|
|
|
|
|
|
|
|
|
|
|
Computed
“expected” tax expense
|
|
|
(180,045
|
)
|
|
(108,643
|
)
|
|
(139,846
|
)
|
Non-deductible
vessel operating expenses
|
|
|
(292,603
|
)
|
|
(331,978
|
)
|
|
(368,668
|
)
|
Non-deductible
depreciation expenses
|
|
|
(420,803
|
)
|
|
(434,289
|
)
|
|
(453,169
|
)
|
Non-deductible
management fee
|
|
|
(19,950
|
)
|
|
(19,950
|
)
|
|
(19,950
|
)
|
Non-deductible
commission
|
|
|
(20,488
|
)
|
|
(20,663
|
)
|
|
(21,882
|
)
|
Non-deductible
administrative expenses
|
|
|
(4,864
|
)
|
|
(6,860
|
)
|
|
(8,165
|
)
|
Non-deductible
interest expense
|
|
|
(318,513
|
)
|
|
(298,922
|
)
|
|
(414,519
|
)
|
Other
non-deductible expenses
|
|
|
-
|
|
|
(1,224
|
)
|
|
(1,147
|
)
|
Non-taxable
income
|
|
|
1,257,266
|
|
|
1,222,529
|
|
|
1,427,346
|
|
US
Transportation Taxes
|
|
|
-
|
|
|
(16,399
|
)
|
|
(29,086
|
)
|
Actual
income tax expense
|
|
|
-
|
|
|
(16,399
|
)
|
|
(29,086
|
)
|
Elite
Strategic
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(7)
|
Income
Taxes (continued)
|
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation of
FASB Statement
109
(FIN
48). FIN 48 clarifies the accounting for uncertainty
in income taxes recognized
in an enterprise’s financial statements and prescribes a threshold of
more-likely-than-not for recognition of tax benefits
of uncertain tax positions
taken or expected to be taken in a tax return. FIN 48
also provides related
guidance on measurement, derecognition, classification,
interest and penalties,
and disclosure. The provisions of FIN 48 will be effective
for the fiscal years
beginning after December 15, 2006, with any cumulative
effect of the change in
accounting principle recorded as an adjustment to opening
retained earnings.
Effective from January 1, 2007, the Company adopted the
provision of FIN 48. As
of the date of the adoption of FIN 48, the Company has
no material unrecognized
tax benefit which would favorably affect the effective
income tax rate in future
periods and do not believe there will be any significant
increases or decreases
within the next twelve months. The Company has elected
to classify interest and
penalties related to unrecognized tax benefits, if and
when required, as part of
interest expenses and administrative expenses in the
statements of income,
respectively. Interest and penalties of $5,926 and $4,674,
respectively have
been accrued at the date of adoption.
According
to the Inland Revenue Ordinance of Hong Kong, the statute
of limitations is
seven years (i.e. calendar years 2002 to 2006 for the
Company) if the
underpayment of taxes is due to omission or errors
made by either the taxpayer
or the withholding agent. The statute of limitations
will be extended to ten
years (i.e. calendar years 2002 to 2006 for the Company)
in case of tax evasion.
According
to the Internal Revenue Code of the United States of
America, the statute of
limitations is three years (i.e. calendar years 2004
to 2006 for the Company) if
the underpayment of taxes is due to omission or errors
made by either the
taxpayer or withholding agent. There is no statute
of limitations in the case of
tax evasion.
(8)
|
Related
Party Transactions
|
Name
of party
|
|
Relationship
|
|
|
|
Belindtha
Marine Limited (“Belindtha”)
|
|
A
company controlled by a person related to a director
of the
Company
|
|
|
|
SK
Shipping Company Limited (“SK Shipping”)
|
|
A
shareholder of the Company
|
|
|
|
Univan
Ship Management Limited (“Univan”)
|
|
A
company controlled by a director, Captain Charles
Arthur Joseph
Vanderperre, of the Company
|
|
|
|
Vanship
Holdings Limited (“Vanship”)
|
|
A
shareholder of the Company
|
|
|
|
Fred
Cheng
|
|
A
director of the Company
|
Elite
Strategic
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(8)
|
Related
Party Transactions
(continued)
|
|
(a)
|
The
principal related party transactions during the
years ended December 31,
2004, 2005 and 2006 are as follows:
|
|
|
2004
|
|
2005
|
|
2006
|
|
Note
|
|
|
|
|
|
Service
fee to Belindtha
|
(i)
|
114,000
|
|
114,000
|
|
114,000
|
Agency
fees to Univan
|
(ii)
|
30,000
|
|
30,000
|
|
30,000
|
Charter
hire revenue from SK Shipping
|
(iii)
|
7,518,339
|
|
6,920,184
|
|
8,047,898
|
Notes:
|
(i)
|
The
Company has outsourced substantially all its
day-to-day operations to
Belindtha. The service fee is payable to Belindtha
at a pre-determined
amount in accordance with the terms mutually
agreed by Belindtha and the
Company.
|
|
(ii)
|
Univan
provided agency services to the Company. The
agency fee is payable based
on contractual agreements with the
Company.
|
|
(iii)
|
The
vessel of the Company was chartered to SK Shipping
during the years ended
December 31, 2004, 2005 and 2006. Charter hire
revenue is receivable from
SK Shipping at a pre-determined amount in accordance
with terms mutually
agreed by SK Shipping and the Company.
|
|
(b)
|
Amounts
due to related parties as of December 31, 2005
and 2006 are as
follows:
|
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
Amount
due to related party:
|
|
|
|
|
|
Amount
due to Univan
|
|
|
84,109
|
|
|
525,373
|
|
The
balance represents payable to Univan for expenses paid
on behalf of the Company.
The balance is unsecured, non-interest bearing and with
no fixed terms of
repayment.
|
(c)
|
Vanship
has provided a letter of support to the Company
to confirm its intention
to provide continuing financial support to the
Company so as to enable the
Company to meet its liabilities when they fall
due.
|
|
(d)
|
As
of December 31, 2005 and 2006, long-term bank
loan of $19,161,750 and
$17,797,725, respectively, was guaranteed by
Vanship.
|
|
(e)
|
As
of December 31, 2005 and 2006, long-term bank
loan of $19,161,750 and
$17,797,725, respectively, was guaranteed by
Fred Cheng.
|
Elite
Strategic
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(9)
|
Commitments
and Contingencies
|
Various
claims, suits, and complaints, including those involving
government regulations
and product liability, arise in the ordinary course of
the shipping business. In
addition, losses may arise from disputes with charterers,
agents, insurance and
other claims with suppliers relating to the Company. Currently,
management is
not aware of any such claims or contingent liabilities,
which should be
disclosed, or for which a provision should be established
in the accompanying
financial statements.
(10)
|
Fair
Value of Financial Instruments
|
The
carrying amounts of cash and amounts due from/to related
parties, approximate
their fair values because of the short maturity of these
instruments.
The
carrying value of long-term bank loan approximate its fair
value based on the
borrowing rates currently available to the Company for
bank loans with similar
terms and average maturities.
(11)
|
Business
and Credit Concentrations
|
The
Company operates in the shipping industry which historically
has been cyclical
with corresponding volatility in profitability. All the
revenues of the Company
are derived from vessel charters. The Company seeks to
mitigate volatilities in
its business by obtaining long-term charter contracts.
The Company has obtained
a long-term charter contract which will expire in March
2009.
The
Company outsourced the technical management services to
Belindtha which is
controlled by a person related to a director of the Company.
Belindtha then
sub-contracted its obligations under the outsourcing arrangement
to Univan which
assists Belindtha in providing technical management services
to the Company.
Univan is controlled by Captain Charles Arthur Joseph Vanderperre,
a director of
the Company. All expenses incurred by Univan on behalf
of the Company are
charged to it based on the actual expenditures incurred
on its behalf. During
the years ended December 31, 2004, 2005 and 2006, the Company
paid service fee
of $114,000 each year to Belindtha.
The
Company is engaged in the business of ocean transportation
of crude oil industry
which is extremely competitive and dependent on the world’s demand for crude
oil. Competition depends on price, location, size, age,
condition and the
acceptability of the vessel to the charterers. The increase
in competition and
the changes in demand for crude oil could result in lower
revenue achieved for
the vessel.
The
following are revenue from a customer that individually
comprises 10% or more of
gross revenue:
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SK
Shipping Company Limited
|
|
|
7,158,339
|
|
|
100
|
|
|
6,920,184
|
|
|
100
|
|
|
8,047,898
|
|
|
100
|
|
The
gross
accounts receivable due from a customer that individually
representing more than
10% of the outstanding accounts receivable were as
follows:
|
|
2005
|
|
2006
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Neostar
Corporation
|
|
|
–
|
|
|
–
|
|
|
2,144
|
|
|
100
|
|
On
September 7, 2007, the operation of C Dream (including
the vessel and its time
charter agreement) was sold to Shinyo Dream Limited,
a company controlled by a
shareholder of the Company, for a cash consideration
of $86,000,000 and gain on
disposal of the operation amounted to $35,737,521.
On
September 7, 2007, the long-term bank loan was also fully
repaid.
Elite
Strategic Limited
Unaudited
Condensed Balance Sheets
as
of
December 31, 2006 and September 6, 2007
(expressed
in US$)
|
|
|
|
December
31,
2006
|
|
September
6,
2007
|
|
|
|
Note
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
2,031,167
|
|
|
954,438
|
|
Restricted
cash
|
|
|
|
|
|
1,272,304
|
|
|
855,404
|
|
Trade
accounts receivable
|
|
|
|
|
|
2,144
|
|
|
-
|
|
Prepayments
and other receivables
|
|
|
|
|
|
67,947
|
|
|
192,885
|
|
Supplies
|
|
|
|
|
|
125,283
|
|
|
93,105
|
|
Amounts
due from related parties
|
|
|
6(b)
|
|
|
-
|
|
|
283,350
|
|
Total
current assets
|
|
|
|
|
|
3,498,845
|
|
|
2,379,182
|
|
Deferred
loan costs
|
|
|
|
|
|
234,734
|
|
|
216,705
|
|
Vessel,
net
|
|
|
2
|
|
|
51,176,135
|
|
|
49,402,479
|
|
Total
assets
|
|
|
|
|
|
54,909,714
|
|
|
51,998,366
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term bank loan
|
|
|
3
|
|
|
2,909,820
|
|
|
3,054,390
|
|
Amount
due to related party
|
|
|
6(b
)
|
|
|
525,373
|
|
|
-
|
|
Accrued
liabilities and other payables
|
|
|
|
|
|
1,438,989
|
|
|
1,228,490
|
|
Dividend
payable
|
|
|
|
|
|
457,124
|
|
|
-
|
|
Income
taxes payable
|
|
|
5
|
|
|
45,485
|
|
|
64,046
|
|
Total
current liabilities
|
|
|
|
|
|
5,376,791
|
|
|
4,346,926
|
|
Long-term
bank loan
|
|
|
3
|
|
|
32,685,630
|
|
|
30,370,230
|
|
Total
liabilities
|
|
|
|
|
|
38,062,421
|
|
|
34,717,156
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares US$1 par value per share 15,000,000
shares authorized; 15,000,000
shares issued and fully paid as of
December 31/September 6
|
|
|
|
|
|
15,000,000
|
|
|
15,000,000
|
|
Retained
earnings
|
|
|
|
|
|
1,847,293
|
|
|
2,281,210
|
|
Total
shareholders’ equity
|
|
|
|
|
|
16,847,293
|
|
|
17,281,210
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
|
|
|
|
54,909,714
|
|
|
51,998,366
|
|
See
accompanying notes to the unaudited condensed financial
statements.
Elite
Strategic Limited
Unaudited
Condensed Statements of Income
as
of
December 31, 2006 and September 6, 2007
(expressed
in US$)
|
|
|
|
2006
|
|
2007
|
|
|
|
Note
|
|
|
|
|
|
Operating
revenue
|
|
|
|
|
|
|
|
Revenue
|
|
|
4
|
|
|
6,005,498
|
|
|
5,534,429
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
|
|
|
1,521,077
|
|
|
1,578,232
|
|
Depreciation
expenses
|
|
|
|
|
|
1,942,154
|
|
|
1,773,656
|
|
Management
fee
|
|
|
6(a
)
|
|
|
85,500
|
|
|
97,217
|
|
Commission
|
|
|
|
|
|
103,471
|
|
|
87,323
|
|
Administrative
expenses
|
|
|
|
|
|
27,511
|
|
|
38,445
|
|
Total
operating expenses
|
|
|
|
|
|
3,679,713
|
|
|
3,574,873
|
|
Operating
income
|
|
|
|
|
|
2,325,785
|
|
|
1,959,556
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
75,025
|
|
|
85,487
|
|
Interest
expense
|
|
|
|
|
|
(1,777,869
|
)
|
|
(1,548,899
|
)
|
Other,
net
|
|
|
|
|
|
(6,133
|
)
|
|
(43,666
|
)
|
Total
other expense
|
|
|
|
|
|
(1,708,977
|
)
|
|
(1,507,078
|
)
|
Income
before taxes
|
|
|
|
|
|
616,808
|
|
|
452,478
|
|
Income
taxes
|
|
|
5
|
|
|
(29,086
|
)
|
|
(18,561
|
)
|
Net
income
|
|
|
|
|
|
587,722
|
|
|
433,917
|
|
(a)
Includes the following income/(expenses) resulting
from transactions with
related parties (see note 6(a)):
|
|
2006
|
|
2007
|
|
Revenue
|
|
|
6,005,498
|
|
|
5,534,429
|
|
Vessel
operating expenses
|
|
|
|
|
|
|
|
-
Agency fee
|
|
|
(22,500
|
)
|
|
(22,500
|
)
|
Management
fee
|
|
|
(85,500
|
)
|
|
(97,217
|
)
|
See
accompanying notes to the unaudited condensed financial
statements.
Elite
Strategic Limited
Unaudited
Condensed Statements of Shareholders' Equity
as
of
December 31, 2006 and September 6, 2007
(expressed
in US$)
|
|
Ordinary
shares
|
|
|
|
Total
|
|
|
|
Number
of
shares
|
|
Amount
|
|
Retained
earnings
|
|
shareholders’
equity
|
|
Balance
as of January 1, 2006
|
|
|
15,000,000
|
|
|
15,000,000
|
|
|
1,534,382
|
|
|
16,534,382
|
|
Net
income
|
|
|
–
|
|
|
|
|
|
587,722
|
|
|
587,722
|
|
Dividend
paid
|
|
|
|
|
|
|
|
|
(342,125
|
)
|
|
(342,125
|
)
|
Balance
as of September 30, 2006
|
|
|
15,000,000
|
|
|
15,000,000
|
|
|
1,779,979
|
|
|
16,779,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
|
15,000,000
|
|
|
15,000,000
|
|
|
1,847,293
|
|
|
16,847,293
|
|
Net
income
|
|
|
|
|
|
|
|
|
433,917
|
|
|
433,917
|
|
Balance
as of September 6, 2007
|
|
|
15,000,000
|
|
|
15,000,000
|
|
|
2,281,210
|
|
|
17,281,210
|
|
See
accompanying notes to the unaudited condensed financial
statements.
Elite
Strategic Limited
Unaudited
Condensed Statements of Cash Flows
as
of
December 31, 2006 and September 6, 2007
(expressed
in US$)
|
|
2006
|
|
2007
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
income
|
|
|
587,722
|
|
|
433,917
|
|
Adjustments
to reconcile net income to net cash provided
by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
expenses
|
|
|
1,942,154
|
|
|
1,773,656
|
|
Amortization
of deferred loan costs
|
|
|
19,471
|
|
|
18,029
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
|
|
|
2,144
|
|
Prepayments
and other receivables
|
|
|
(55,821
|
)
|
|
(124,938
|
)
|
Supplies
|
|
|
(63,309
|
)
|
|
32,178
|
|
Amounts
due from related parties
|
|
|
171,062
|
|
|
(283,350
|
)
|
Amount
due to related party
|
|
|
383,489
|
|
|
(525,373
|
)
|
Accrued
liabilities and other payables
|
|
|
21,395
|
|
|
(210,499
|
)
|
Income
taxes payable
|
|
|
29,086
|
|
|
18,561
|
|
Net
cash provided by operating activities
|
|
|
3,035,249
|
|
|
1,134,325
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
(Increase)/decrease
in restricted cash
|
|
|
(165,344
|
)
|
|
416,900
|
|
Net
cash provided by investing activities
|
|
|
(165,344
|
)
|
|
416,900
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Repayment
of long-term bank loan
|
|
|
(2,035,200
|
)
|
|
(2,170,830
|
)
|
Dividend
paid
|
|
|
(456,326
|
)
|
|
(457,124
|
)
|
Net
cash used in financing activities
|
|
|
(2,491,526
|
)
|
|
(2,627,954
|
)
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash
|
|
|
378,379
|
|
|
(1,076,729
|
)
|
Cash:
|
|
|
|
|
|
|
|
At
beginning of period
|
|
|
1,437,975
|
|
|
2,031,167
|
|
At
end of period
|
|
|
1,816,354
|
|
|
954,438
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
2006
|
|
2007
|
|
Cash
paid during the period for:
|
|
|
|
|
|
Interest
|
|
|
1,614,411
|
|
|
1,685,379
|
|
See
accompanying notes to the unaudited condensed financial
statements
Elite
Strategic Limited
Notes
to
the Unaudited Condensed Financial Statements
as
of
December 31, 2006 and September 6, 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting
Policies
|
|
(a)
|
Description
of Business
|
Elite
Strategic Limited (the “Company”), a company engaged in the business of ocean
transportation of crude oil worldwide, was established
in the British Virgin
Islands on December 3, 2002. The principal activity
of the Company is the
ownership and chartering of the vessel “C Dream”. C Dream was delivered in 2000
and was a second hand vessel acquired by the Company
in February 2003. It is a
double-hulled very large crude oil carrier with
capacity of 298,570 deadweight
tonnage.
On
September 7, 2007, Shinyo Dream Limited, a company
controlled by a shareholder
of the Company, acquired the operation of C Dream
from the Company. These
financial statements serve as the predecessor financial
statements of Shinyo
Dream Limited as the operation of C Dream is the
only operating business of the
Company.
The
Company has outsourced substantially all the day-to-day
operations to its
related party, Belindtha Marine Limited (“Belindtha”), a company controlled by a
person related to a director of the Company. Belindtha
then sub-contracted its
obligations under the outsourcing arrangement to
Univan Ship Management Limited
(“Univan”) which assists Belindtha in providing technical
management services to
the Company. Univan is controlled by Captain Charles
Arthur Joseph Vanderperre,
a director of the Company. All expenses incurred
by Univan on behalf of the
Company are charged to the Company based on the
actual expenditures incurred on
their behalf. In addition, Univan provides administrative
services to the
Company.
As
of
September 6, 2007, the Company had a working capital
deficit of $1,967,744.
These financial statements have been prepared assuming
that the Company will
continue as a going concern as Vanship Holdings
Limited, a shareholder of the
Company, has confirmed its intention to provide
continuing financial support to
the Company so as to enable the Company to meet
its liabilities as and when they
fall due.
|
(c)
|
Basis
of Presentation
|
The
accompanying unaudited condensed financial statements
as of September 6, 2007
and for the nine-month period ended September 30,
2006 and the period from
January 1, 2007 to September 6, 2007 have been
prepared in accordance with U.S.
generally accepted accounting (“US GAAP”). Certain information and footnote
disclosures normally included in financial statements
prepared in accordance
with US GAAP have been condensed or omitted as
permitted by rules and
regulations of the U.S. Securities and Exchange
Commission. Disclosures have
been made to these unaudited condensed financial
statements where events
subsequent to year ended December 31, 2006 have
occurred which have a material
impact on the Company. The accompanying unaudited
condensed financial statements
should be read in conjunction with the financial
statements and the notes
thereto, for the fiscal year ended December 31,
2006. The December 31, 2006
balance sheet was derived from the audited financial
statements of the Company.
Elite
Strategic Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
as
of
December 31, 2006 and September 6, 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(c)
|
Basis
of Presentation
(continued)
|
In
the
opinion of the management, all adjustments (which
include normal accruals)
necessary to present a fair statement of the financial
position of the Company
as of September 6, 2007, and the results of its
operations and cash flows for
the nine-month period ended September 30, 2006
and the period from January 1,
2007 to September 6, 2007, in conformity with US
GAAP, have been made. The
unaudited condensed statements of income for the
nine-month period ended
September 30, 2006 and the period from January
1, 2007 to September 6, 2007, are
not necessarily indicative of the operating results
to be expected for the full
fiscal year or any future periods.
The
basis
of accounting differs in certain material respects
from that used in preparation
of the books of account of the Company, which are
prepared in accordance with
the accounting principles of the country of its
domicile. The accompanying
unaudited condensed financial statements reflect
necessary adjustments not
recorded in the books of the Company to present
them in conformity with US GAAP.
The
preparation of the financial statements requires
management of the Company to
make a number of estimates and assumptions relating
to the reported amounts of
assets and liabilities and the disclosure of contingent
assets and liabilities
at the date of the financial statements and the
reported amounts of revenues and
expenses during the reporting period. Significant
items subject to such
estimates and assumptions include the estimated
useful life of the vessel
(including drydocking costs), residual value and
recovery of the carrying amount
of the vessel, determination of the fair value
of financial instruments. Actual
results could differ from those estimates.
In
the
normal course of business, the Company is subject
to loss contingencies, such as
legal proceedings and claims arising out of its
business. An accrual for a loss
contingency is recognized when it is probable that
a liability will be incurred
and the amount of the loss can be reasonably estimated.
|
(f)
|
Recently
Issued Accounting
Standards
|
In
September 2006, the FASB issued FASB Statement
No. 157,
Fair
Value Measurement
(Statement
157). Statement 157 defines fair value, establishes
a framework for the
measurement of fair value measures already required
or permitted by other
standards for fiscal years beginning after November
15, 2007. The Company is
required to adopt Statement 157 for the fiscal
years beginning on January 1,
2008. Statement 157 is required to be applied prospectively,
except for certain
financial instruments. Any transition adjustment
will be recognized as an
adjustment to opening retained earnings in the
year of adoption. The Company
does not anticipate that the adoption of Statement
157 will have a material
impact on its results of operations and financial
position.
Elite
Strategic Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
as
of
December 31, 2006 and September 6, 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(f)
|
Recently
Issued Accounting Standards
(continued)
|
In
February 2007, the FASB issued FASB Statement No.
159,
The
Fair Value Option for Financial Assets and Financial
Liabilities - Including an
Amendment of FASB Statement No. 115
(Statement
159)
.
Statement
159 permits an entity to elect fair value as the
initial and subsequent
measurement attribute for many financial assets
and liabilities. Entities
electing the fair value option would be required
to recognize changes in fair
value in earnings. Entities electing the fair value
option are required to
distinguish, on the face of the balance sheet,
the fair value of assets and
liabilities for which the fair value option has
been elected and similar assets
and liabilities measured using another measurement
attribute. Statement 159 will
be effective for fiscal years beginning after November
15, 2007. The adjustment
to reflect the difference between the fair value
and the carrying amount would
be accounted for as a cumulative-effect adjustment
to retained earnings as of
the date of initial adoption. The Company does
not anticipate that the adoption
of the provisions of Statement 159 will have a
material impact on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No.
160,
Noncontrolling
Interests in Consolidated Financial Statements
- an Amendment of ARB No. 51
(Statement
160). Statement 160 establishes accounting and
reporting standards for the
noncontrolling interest in a subsidiary and for
the deconsolidation of a
subsidiary. Statement 160 will be effective for
the fiscal year beginning after
December 15, 2008. The Company does not anticipate
that the adoption of the
provisions of Statement 160 will have a material
impact on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No.
141 (Revised),
Business
Combinations
(Statement
141(R)). Statement 141(R) establishes principles
and requirements for how the
acquirer of a business recognizes and measures
in its financial statements the
identifiable assets acquired, the liabilities assumed,
and any noncontrolling
interest in the acquiree. Statement 141(R) also
provides guidance for
recognizing and measuring the goodwill acquired
in the business combination and
determines what information to disclose to enable
users of the financial
statements to evaluate the nature and financial
effects of the business
combination. Statement 141(R) will be effective
for fiscal years beginning after
December 15, 2008. The Company does not anticipate
the adoption of the
provisions of Statement 141(R) will have a material
impact on its results of
operations and financial position.
Elite
Strategic Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
as
of
December 31, 2006 and September 6, 2007
(expressed
in US$)
|
|
December
31,
2006
|
|
September
6,
2007
|
|
Vessel
|
|
|
|
|
|
|
|
Cost
|
|
|
60,924,743
|
|
|
60,924,743
|
|
Accumulated
depreciation
|
|
|
(9,748,608
|
)
|
|
(11,522,264
|
)
|
Vessel,
net
|
|
|
51,176,135
|
|
|
49,402,479
|
|
The
vessel is mortgaged as described in Note 3.
Drydocking
costs of $924,743 were capitalized for the year
ended December 31, 2004. As of
December 31, 2006 and September 6, 2007, undepreciated
carrying amount of the
drydocking costs was $662,733 and $536,056, respectively.
For
the
nine-month period ended September 30, 2006 and
the period from January 1, 2007
to September 6, 2007, $138,712 and $126,677 of
drydocking costs were expensed as
depreciation, respectively.
Lender/period
|
|
December
31, 2006
|
|
September
6, 2007
|
|
DVB
Group Merchant Bank (Asia) Ltd, Credit
Suisse, BNP Paribas and Deutsche
Schiffsbank Aktiengesellschaft
|
|
|
|
|
|
|
|
January
17, 2003 to January 16, 2016
|
|
|
35,595,450
|
|
|
33,424,620
|
|
|
|
|
|
|
|
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
2,909,820
|
|
|
3,054,390
|
|
Non-current
portion
|
|
|
32,685,630
|
|
|
30,370,230
|
|
|
|
|
35,595,450
|
|
|
33,424,620
|
|
The
loan
carried interest at LIBOR plus 1.50% per annum
(6.37% and 6.37% as of December
31, 2006 and September 6, 2007, respectively).
The interest expense for the
nine-month period ended September 30, 2006 and
the period from January 1, 2007
to September 6, 2007 was $1,755,376 and $1,514,243,
respectively.
As
of
December 31, 2006 and September 6, 2007, bank loan
is secured as
follows:
|
|
December
31, 2006
|
|
September
6,
2007
|
|
Secured
by:
|
|
|
|
|
|
Restricted
cash
|
|
|
1,272,304
|
|
|
855,404
|
|
Vessel
|
|
|
51,176,135
|
|
|
49,402,479
|
|
The
bank
loan is also guaranteed by a director of the Company,
Mr. Fred Cheng, and a
shareholder of the Company, Vanship Holdings Limited
as of December 31, 2006 and
September 6, 2007.
Elite
Strategic Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
as
of
December 31, 2006 and September 6, 2007
(expressed
in US$)
The
Company’s revenue for the nine-month period ended September
30, 2006 and the
period from January 1, 2007 to September 6, 2007
represents revenue generated
from time charter agreements.
Under
the
laws of the countries of the Company’s incorporation and/or vessel’s
registration, the Company is not subject to tax
on international shipping
income. However, it is subject to registration
and tonnage taxes, which are
charged by the country of which the vessel is registered
at a fixed rate based
on the tonnage of the vessel. Registration and
tonnage taxes have been included
in vessel operating expenses in the accompanying
statements of income.
In
addition, during the nine-month period ended September
30, 2006 and the period
from January 1, 2007 to September 6, 2007, the
vessel operated in certain ports
of the US. Accordingly, the Company is subject
to the US Transportation Taxes
which are calculated at 2% - 4% on relevant charter
hire revenue.
Income
taxes represent US Transportation Taxes as follows:
|
|
Nine-Month
|
|
Period
From
|
|
|
|
Period
Ended
|
|
January
1, 2007
|
|
|
|
September
30,
|
|
to
September 6,
|
|
|
|
2006
|
|
2007
|
|
Current
taxes
|
|
|
16,339
|
|
|
18,561
|
|
Deferred
taxes
|
|
|
-
|
|
|
-
|
|
Total
income taxes
|
|
|
16,339
|
|
|
18,561
|
|
Income
taxes reported in the statements of income differ
from the amount computed by
applying the tax rate of 17.5% (the statutory tax
rate of the Company) for the
following reasons:
|
|
Nine-Month
Period Ended
September 30,
2006
|
|
Period From
January 1, 2007
to September 6,
2007
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
616,808
|
|
|
452,478
|
|
|
|
|
|
|
|
|
|
Computed
“expected” tax expense
|
|
|
(107,941
|
)
|
|
(79,184
|
)
|
Non-deductible
vessel operating expenses
|
|
|
(266,188
|
)
|
|
(276,191
|
)
|
Non-deductible
depreciation expenses
|
|
|
(339,877
|
)
|
|
(310,390
|
)
|
Non-deductible
management fee
|
|
|
(14,963
|
)
|
|
(17,013
|
)
|
Non-deductible
commission
|
|
|
(18,107
|
)
|
|
(15,282
|
)
|
Non-deductible
administrative expenses
|
|
|
(4,814
|
)
|
|
(6,728
|
)
|
Non-deductible
interest expense
|
|
|
(311,127
|
)
|
|
(271,057
|
)
|
Other
non-deductible expenses
|
|
|
(1,075
|
)
|
|
(7,641
|
)
|
Non-taxable
income
|
|
|
1,064,092
|
|
|
983,486
|
|
US
Transportation Taxes
|
|
|
(29,086
|
)
|
|
(18,561
|
)
|
Actual
income tax expense
|
|
|
(29,086
|
)
|
|
(18,561
|
)
|
Elite
Strategic Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
as
of
December 31, 2006 and September 6, 2007
(expressed
in US$)
(5)
|
Income
Taxes (continued)
|
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation
of FASB Statement
109
(FIN
48). FIN 48 clarifies the accounting for uncertainty
in income taxes recognized
in an enterprise’s financial statements and prescribes a threshold
of
more-likely-than-not for recognition of tax benefits
of uncertain tax positions
taken or expected to be taken in a tax return. FIN
48 also provides related
guidance on measurement, derecognition, classification,
interest and penalties,
and disclosure. The provisions of FIN 48 will be
effective for the fiscal years
beginning after December 15, 2006, with any cumulative
effect of the change in
accounting principle recorded as an adjustment to
opening retained earnings.
Effective from January 1, 2007, the Company adopted
the provision of FIN 48. As
of the date of the adoption of FIN 48, the Company
has no material unrecognized
tax benefit which would favorably affect the effective
income tax rate in future
periods and do not believe there will be any significant
increases or decreases
within the next twelve months. The Company has elected
to classify interest and
penalties related to unrecognized tax benefits, if
and when required, as part of
interest expenses and administrative expenses in
the statements of income,
respectively. Interest and penalties of $5,926 and $4,674, respectively
have been accrued at the date of adoption.
According
to the Inland Revenue Ordinance of Hong Kong, the
statute of limitations is
seven years (i.e. calendar years 2002 to 2007 for
the Company) if the
underpayment of taxes is due to omission or errors
made by either the taxpayer
or the withholding agent. The statute of limitations
will be extended to ten
years (i.e. calendar years 2002 to 2007 for the
Company) in case of tax evasion.
According
to the Internal Revenue Code of the United States
of America, the statute of
limitations is three years (i.e. calendar years
2005 to 2007 for the Company) if
the underpayment of taxes is due to omission or
errors made by either the
taxpayer or withholding agent. There is no statute
of limitations in the case of
tax evasion.
(6)
Related
Party Transactions
Name
of party
|
|
Relationship
|
Mr.
Fred Cheng
|
|
A
director of the Company
|
|
|
|
Belindtha
Marine Limited (“Belindtha”)
|
|
A
company controlled by a person related to
a director of the
Company
|
|
|
|
Shinyo
Dream Limited (“Shinyo Dream”)
|
|
A
wholly-owned subsidiary of Vanship
|
|
|
|
SK
Shipping Company Limited. (“SK Shipping”)
|
|
A
shareholder of the Company
|
|
|
|
Univan
Ship Management Limited (“Univan”)
|
|
A
company controlled by a director, Captain
Charles Arthur Joseph
Vanderperre, of the Company
|
|
|
|
Vanship
Holdings Limited (“Vanship”)
|
|
A
shareholder of the Company
|
(a)
|
The
principal related party transactions during
the nine-month period ended
September 30, 2006 and the period from January
1, 2007 to September 6,
2007 are as follows:
|
|
|
|
|
Nine
Month
|
|
Period
From
|
|
|
|
|
|
Period
Ended
|
|
January
1, 2007
|
|
|
|
|
|
September
30,
|
|
to
September 6,
|
|
|
|
|
|
2006
|
|
2007
|
|
|
|
Note
|
|
|
|
|
|
Service
fee to Belindtha
|
|
|
(i)
|
|
|
85,500
|
|
|
97,217
|
|
Agency
fee to Univan
|
|
|
(ii)
|
|
|
22,500
|
|
|
22,500
|
|
Charter
hire revenue from SK Shipping
|
|
|
(iii)
|
|
|
6,005,498
|
|
|
5,534,429
|
|
Elite
Strategic Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
as
of
December 31, 2006 and September 6, 2007
(expressed
in US$)
(6)
|
Related
Party Transactions
(continued)
|
(a)
|
The
principal related party transactions during
the nine-month period ended
September 30, 2006 and the period from January
1, 2007 to September 6,
2007 are as follows (continued):
|
Notes:
|
(i)
|
The
Company has outsourced substantially all
its day-to-day operations to
Belindtha. The service fee is payable to
Belindtha at a pre-determined
amount in accordance with the terms mutually
agreed by Belindtha and the
Company.
|
|
(ii)
|
Univan
provided agency services to the Company.
The agency fee is payable based
on contractual agreements with the Company.
|
|
(iii)
|
The
vessel of the Company was chartered to SK
Shipping during the nine month
period ended September 30, 2006 and the period
from January 1, 2007 to
September 6, 2007. Charter hire revenue is
receivable from SK Shipping at
a pre-determined amount in accordance with
terms mutually agreed by SK
Shipping and the Company.
|
(b)
|
Amounts
due from and due to related parties as of
December 31, 2006 and September
6, 2007 are as follows:
|
|
|
|
|
December
31,
2006
|
|
September
6,
2007
|
|
|
|
Note
|
|
|
|
|
|
Amounts
due from related parties:
|
|
|
|
|
|
|
|
Amount
due from Univan
|
|
|
(i
)
|
|
|
|
|
|
283,350
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
due to related party:
|
|
|
|
|
|
|
|
|
|
|
Amount
due to Univan
|
|
|
(ii
)
|
|
|
525,373
|
|
|
|
|
Notes:
|
(i)
|
The
balance represents advance payments for expenses
to be paid by Univan on
behalf of the Company. The balance is unsecured,
non-interest bearing and
with no fixed terms of repayment.
|
|
(ii)
|
The
balance represents payable to Univan for
expenses paid on behalf of the
Company. The balance is unsecured, non-interest
bearing and with no fixed
terms of repayment.
|
(c)
|
Vanship
has provided a letter of support to the Company
to confirm its intention
to provide continuing financial support to
the Company so as to enable the
Company to meet its liabilities when they
fall due.
|
Elite
Strategic Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
as
of
December 31, 2006 and September 6, 2007
(expressed
in US$)
(6)
|
Related
Party Transactions
(continued)
|
(d)
|
As
of December 31, 2006 and September 6, 2007,
long-term bank loan of
$17,797,725 and $16,712,310, respectively,
was guaranteed by Mr. Fred
Cheng.
|
(e)
|
As
of December 31, 2006 and September 6, 2007,
long-term bank loan of
$17,797,725 and $16,712,310, respectively,
was guaranteed by Vanship.
|
(7)
|
Commitment
and Contingencies
|
Various
claims, suits, and complaints, including those involving
government regulations
and product liability, arise in the ordinary course
of the shipping business. In
addition, losses may arise from disputes with charterers,
agents, insurance and
other claims with suppliers relating to the Company.
Currently, management is
not aware of any such claims or contingent liabilities,
which should be
disclosed, or for which a provision should be established
in the accompanying
financial statements.
(8)
|
Fair
Value of Financial Instruments
|
The
carrying amounts of cash and amounts due from/to related
parties, approximate
their fair values because of the short maturity of
these instruments.
The
carrying value of long-term bank loan approximate its
fair value based on the
borrowing rates currently available to the Company
for bank loans with similar
terms and average maturities.
(9)
|
Business
and Credit Concentrations
|
The
Company operates in the shipping industry which historically
has been cyclical
with corresponding volatility in profitability. All
the revenues of the Company
are derived from vessel charters. The Company seeks
to mitigate volatilities in
its business by obtaining long-term charter contracts.
The Company has obtained
a long-term charter contract, which will expire in
March 2009.
The
Company outsourced the technical management services
to Belindtha which is
controlled by a person related to a director of the
Company. Belindtha then
sub-contracted its obligations under the outsourcing
arrangement to Univan which
assists Belindtha in providing technical management
services to the Company.
Univan is controlled by Captain Charles Arthur Joseph
Vanderperre, a director of
the Company. All expenses incurred by Univan on behalf
of the Company are
charged to it based on the actual expenditures incurred
on its behalf. During
the nine-month period ended September 30, 2006 and
the period from January 1,
2007 to September 6, 2007, the Company paid service
fee of $85,500 and $97,217,
respectively, to Belindtha.
The
Company is engaged in the business of ocean transportation
of crude oil industry
which is extremely competitive and dependent on the
world’s demand for crude
oil. Competition depends on price, location, size,
age, condition and the
acceptability of the vessel to the charterers. The
increase in competition and
the changes in demand for crude oil could result in
lower revenue achieved for
the vessel.
The
following are revenue from a customer that individually
comprises 10% or more of
gross revenue:
|
|
Nine-month Period Ended September 30,
|
|
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SK
Shipping Company Limited
|
|
|
6,005,498
|
|
|
100
|
|
|
5,534,429
|
|
|
100
|
|
The
gross
accounts receivable due from a customer that individually
representing more than
10% of the outstanding accounts receivable were
as follows:
|
|
December
31,
2006
|
|
September
30,
2007
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Neostar
Corporation
|
|
|
2,144
|
|
|
100
|
|
|
|
|
|
|
|
Elite
Strategic Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
as
of
December 31, 2006 and September 6, 2007
(expressed
in US$)
On
September 7, 2007, the operation of C Dream (including
the vessel and its time
charter agreement) was sold to Shinyo Dream Limited,
a company controlled by a
shareholder of the Company, for a cash consideration
of $86,000,000 and gain on
disposal of the operation amounted to $35,737,521.
On
September 7, 2007, the long-term bank loan was also
fully repaid.
Shinyo
Dream Limited
Unaudited
Balance Sheet
as
of
September 30, 2007
(expressed
in US$)
|
|
|
|
September
30, 2007
|
|
|
|
Note
|
|
|
|
Assets
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash
|
|
|
|
2,279,603
|
|
Amount
due from related party
|
|
|
10(b)
|
|
|
169,189
|
|
Total
current assets
|
|
|
|
|
|
2,448,792
|
|
Restricted
cash
|
|
|
|
|
|
1,000,000
|
|
Deferred
loan costs
|
|
|
|
|
|
193,700
|
|
Vessel,
net
|
|
|
3
|
|
|
75,971,611
|
|
Total
assets
|
|
|
|
|
|
79,614,103
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Current
portion of long-term bank loan
|
|
|
4
|
|
|
3,475,000
|
|
Amount
due to related party
|
|
|
10(b
)
|
|
|
118,545
|
|
Accrued
liabilities and other payables
|
|
|
5
|
|
|
1,345,964
|
|
Deferred
revenue
|
|
|
6
|
|
|
5,368,421
|
|
Total
current liabilities
|
|
|
|
|
|
10,307,930
|
|
Loan
from related party
|
|
|
10(b
)
|
|
|
23,000,000
|
|
Long-term
bank loan
|
|
|
4
|
|
|
61,525,000
|
|
Deferred
revenue
|
|
|
6
|
|
|
2,773,684
|
|
Total
liabilities
|
|
|
|
|
|
97,606,614
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s
deficit
|
|
|
|
|
|
|
|
Ordinary
shares HK$1 par value per share
10,000
shares authorized; 1 share issued and
fully
paid as of September 30, 2007
|
|
|
|
|
|
-
|
|
Retained
earning
|
|
|
|
|
|
306,250
|
|
Deemed
distribution
|
|
|
|
|
|
(18,298,761
|
)
|
Total
shareholder’s deficit
|
|
|
|
|
|
(17,992,511
|
)
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholder’s deficit
|
|
|
|
|
|
79,614,103
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the unaudited financial statements.
Shinyo
Dream Limited
Unaudited
Statement of Income
for
the
period from July 20, 2007 (date of incorporation)
to
September 30, 2007
(expressed
in US$)
|
|
|
|
2007
|
|
|
|
Note
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
|
|
|
|
Revenue
|
|
|
6,
7
|
|
|
1,041,059
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
8
|
|
|
120,385
|
|
Depreciation
expenses
|
|
|
|
|
|
229,628
|
|
Management
fee
|
|
|
10(a
)
|
|
|
7,600
|
|
Commission
|
|
|
|
|
|
13,663
|
|
Administrative
expenses
|
|
|
|
|
|
3,214
|
|
Total
operating expenses
|
|
|
|
|
|
374,490
|
|
Operating
income
|
|
|
|
|
|
666,569
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
30,273
|
|
Interest
expense
|
|
|
|
|
|
(390,592
|
)
|
Total
other expense
|
|
|
|
|
|
(360,319
|
)
|
|
|
|
|
|
|
|
|
Income
before taxes
|
|
|
|
|
|
306,250
|
|
Income
taxes
|
|
|
9
|
|
|
-
|
|
Net
income
|
|
|
|
|
|
306,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Includes the following expenses resulting
from transactions with related
parties (see note 10(a)):
|
|
|
2007
|
|
Management
fee
|
|
|
(7,600
|
)
|
Interest
expense
|
|
|
(95,979
|
)
|
See
accompanying notes to the unaudited financial statements.
Shinyo
Dream Limited
Unaudited
Statement of Shareholder’s Deficit
for
the
period from July 20, 2007 (date of incorporation)
to
September 30, 2007
(expressed
in US$)
|
|
|
|
Ordinary
shares
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
Amount
|
|
Deemed
distribution
|
|
Retained
earning
|
|
Total
shareholder’s
deficit
|
|
|
|
Note
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of July 20, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
injected upon incorporation
|
|
|
1
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
306,250
|
|
|
306,250
|
|
Distribution
to shareholder
|
|
|
2
|
|
|
|
|
|
|
|
|
(18,298,761
|
)
|
|
|
|
|
(18,298,761
|
)
|
Balance
as of September 30, 2007
|
|
|
|
|
|
1
|
|
|
|
|
|
(18,298,761
|
)
|
|
306,250
|
|
|
(17,992,511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the unaudited financial statements.
Shinyo
Dream Limited
Unaudited
Statement of Cash Flows
for
the
period from July 20, 2007 (date of incorporation)
to
September 30, 2007
(expressed
in US$)
|
|
2007
|
|
Cash
flows from operating activities
|
|
|
|
Net
loss
|
|
|
306,250
|
|
Adjustments
to reconcile net income to net cash provided
by operating
activities:
|
|
|
|
|
Depreciation
expenses
|
|
|
229,628
|
|
Amortization
of deferred loan costs
|
|
|
1,300
|
|
Amortization
of deferred revenue
|
|
|
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
Amount
due from related party
|
|
|
(169,189
|
)
|
Amount
due to related party
|
|
|
118,545
|
|
Accrued
liabilities and other payables
|
|
|
1,345,964
|
|
Net
cash provided by operating activities
|
|
|
1,474,603
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
Purchase
of vessel
|
|
|
(67,701,239
|
)
|
Increase
in restricted cash
|
|
|
(1,000,000
|
)
|
Net
cash used in investing activities
|
|
|
(68,701,239
|
)
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
Proceed
from long-term bank loan
|
|
|
65,000,000
|
|
Payment
of loan costs
|
|
|
(195,000
|
)
|
Proceeds
from loan from related party
|
|
|
23,000,000
|
|
Distribution
to shareholder
|
|
|
(18,298,761
|
)
|
Net
cash provided by financing activities
|
|
|
69,506,239
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
2,279,603
|
|
Cash:
|
|
|
|
|
At
beginning of period
|
|
|
|
|
At
end of period
|
|
|
2,279,603
|
|
|
|
|
|
|
See
accompanying notes to the unaudited financial statements.
Shinyo
Dream Limited
Notes
to
the Unaudited Financial Statements
for
the
period from July 20, 2007 (date of incorporation)
to
September 30, 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting
Policies
|
|
(a)
|
Description
of Business
|
Shinyo
Dream Limited (the “Company”), a company engaged in the business of ocean
transportation of crude oil worldwide, was established
in Hong Kong on July 20,
2007. The principal activity of the Company is the
ownership and chartering of
vessel “C Dream”. C Dream was delivered in 2000 and was a second hand
vessel
acquired by the Company in September 2007. It is a
double-hulled very large
crude oil carrier with capacity of 298,570 deadweight
tonnage.
On
July
20, 2007, Vanship Holdings Limited established the
Company in Hong Kong as a
limited liability company with authorized share capital
of 10,000 ordinary
shares of HK$ 1 each. On date of incorporation, 1 subscriber
share of HK$1 was
issued.
On
September 7, 2007, the Company acquired C Dream and
its operation from Elite
Strategic Limited, a 50% jointly-controlled entity
of the Company’s immediate
holding company.
The
Company has outsourced substantially all its day-to-day
operations to its
related party, Belindtha Marine Limited (“Belindtha”), a company controlled by a
person related to a director of the Company. Belindtha
then sub-contracted its
obligations under the outsourcing arrangement to Univan
Ship Management Limited
(“Univan”) which assists Belindtha in providing technical management
services to
the Company. Univan is controlled by Captain Charles
Arthur Joseph Vanderperre,
a director of the Company. All expenses incurred by
Univan on behalf of the
Company are charged to the Company based on the actual
expenditures incurred on
its behalf.
The
Company began receiving time charter revenue on
September 7, 2007 pursuant to a time charter agreement
with The Sanko Steamship
Co., Ltd under which agreement the Company is paid
a daily charter rate of
$28,900.
As
of
September 30, 2007, the Company had a working capital
deficit of $7,859,138.
These financial statements have been prepared assuming
that the Company will
continue as a going concern as Vanship Holdings Limited, the immediate holding
company, has confirmed its intention to provide continuing
financial support to
the Company so as to enable the Company to meet its
liabilities as and when they
fall due.
|
(c)
|
Basis
of Presentation
|
The
accompanying unaudited financial statements as of September
30, 2007 and for the
period from July 7, 2007 to September 30, 2007 have
been prepared in accordance
with U.S. generally accepted accounting principles
(“US GAAP”).
In
the
opinion of the management, all adjustments (which include
normal accruals)
necessary to present a fair statement of the financial
position of the Company
as of September 30, 2007, and the results of its operations
and cash flows for
the period ended September 30, 2007, in conformity
with US GAAP, have been made.
The unaudited statement of operations for the period
from July 7, 2007 to
September 30, 2007 is not necessarily indicative of
the operating results to be
expected for the full fiscal year or any future periods.
Shinyo
Dream Limited
Notes
to
the Unaudited Financial Statements (continued)
for
the
period from July 20, 2007 (date of incorporation)
to
September 30, 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(c)
|
Basis
of Presentation
(continued)
|
The
basis
of accounting differs in certain material respects
from that used in the
preparation of the books of account of the Company,
which are prepared in
accordance with the accounting principles of the country
of its domicile. The
accompanying unaudited financial statements reflect
necessary adjustments not
recorded in the books of the Company to present them
in conformity with US GAAP.
Cash
consists interest-bearing deposits placed with banks.
As of September 30, 2007,
there were no cash equivalents.
Restricted
cash represents minimum interest-bearing bank deposits
which must be maintained
in accordance with contractual bank loan arrangements
over the bank loan period.
A
vessel
is stated at cost, which consists of the contract price
and delivery costs.
Subsequent expenditures for conversions and major overhauls
(“drydocking”) are
also capitalized when they extend the life, increase
the earning capacity or
improve the efficiency or safety of the vessel otherwise
these amounts are
charged to expense as incurred.
Depreciation
on the vessel is calculated based on the straight-line
method over the estimated
useful life of the vessel, after taking into account
its estimated residual
value, from date of acquisition. The vessel’s residual value is equal to the
product of its lightweight tonnage and estimated scrap
rate. Management
estimates the useful life of the Company’s vessel to be 17 years from the date
of acquisition. The useful life of the vessel is evaluated
on a regular basis to
account for changes in circumstances, including changes
in regulatory
restrictions. If regulations place limitations over
the ability of a vessel to
operate, its useful life is adjusted to end at the
date such regulations become
effective.
The
Company follows the deferral method of accounting for
drydocking whereby actual
costs incurred are capitalized and are depreciated
on a straight-line basis over
the period through the date the next drydocking becomes
due. The vessel of the
Company is required to have an intermediate drydocking
approximately every 30
months and a special survey drydocking approximately
every 60 months.
Capitalized intermediate drydocking costs and special
survey drydocking costs
are depreciated over a period of 30 months and 60 months,
respectively. If the
anticipated date of drydocking is changed from the
scheduled date, the remaining
undepreciated carrying amount of the drydocking costs
is adjusted to reflect the
revised date.
Shinyo
Dream Limited
Notes
to
the Unaudited Financial Statements (continued)
for
the
period from July 20, 2007 (date of incorporation)
to
September 30, 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
A
vessel
is reviewed for impairment whenever events or changes
in circumstances indicate
that the carrying amount of a vessel may not be recoverable.
Recoverability of
the vessel is measured by a comparison of the carrying
amount of the vessel,
including capitalized drydocking costs, to the estimated
undiscounted future
cash flows expected to be generated by the vessel.
If the carrying amount of the
vessel exceeds its estimated future undiscounted cash
flows, an impairment
charge will be recognized by the amount that the carrying
amount of the vessel
exceeds its estimated fair value.
In
the
normal course of business, the Company is subject to
loss contingencies, such as
legal proceedings and claims arising out of its business.
An accrual for a loss
contingency is recognized when it is probable that
a liability will be incurred
and the amount of the loss can be reasonably estimated.
|
(i)
|
Revenue
Recognition and Related
Expenses
|
The
Company generates its revenues from time charter
agreements. Revenues are
recognized when the collectibility has been reasonably
assured. Time charter
revenues are recorded over the term of the charter
as the service is provided.
In addition, under the time charter agreement the
Company is entitled to share
profits generated from any sub-charter entered
into by the charterer.
Profit-sharing revenues are calculated at an agreed
percentage of the excess of
sub-charter rates over an agreed amount and recorded
over the term of the
sub-charter agreement. Vessel operating costs are
expensed as
incurred.
Brokerage
and charter hire commissions are paid to third parties
expensed in the same
period as revenues are recognized.
Fees
incurred for obtaining new loans are deferred and amortized
to interest expense
over the life of the related debt using the effective
interest method. The
Company follows EITF 96-19 in accounting for debt modification.
A modification
is considered substantial if the present value of the
cash flows under the terms
of new debt is at least 10 percent different from the
present value of the
remaining cash flows under the terms of the original
debt at the date of
modification. When the loan is repaid or when the loan
is substantially
modified, the existing unamortized fees are written-off
in the period debt
repayment or substantial modification takes place.
When the modification is not
considered substantial, the fees associated with the
modification and, along
with the existing unamortized fees, are amortized over
the remaining term of the
modified loan using the effective interest method.
There was no write-off of
deferred loan costs during the period from July 20,
2007 to September 30, 2007.
Shinyo
Dream Limited
Notes
to
the Unaudited Financial Statements (continued)
for
the
period from July 20, 2007 (date of incorporation)
to
September 30, 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(l)
|
Foreign
Currency
Transactions
|
The
Company’s functional and reporting currency is the United States
(“US”) dollar
because the Company’s vessel operates in international shipping markets,
where
most transactions are denominated in US dollar. Furthermore,
the Company incurs
bank debt, pays salaries and wages and certain other
expenditures such as fuel
costs, lubricants, insurance costs, all in US dollars.
Transactions
denominated in currencies other than US dollar are
translated into US dollars at
the exchange rates prevailing at the dates of transactions.
Monetary assets and
liabilities denominated in currencies other than US
dollar are translated at the
exchange rates prevailing at the balance sheet dates.
During the period from
July 20, 2007 to September 30, 2007, substantially
all of the Company’s
transactions were denominated in US dollars and the
Company did not have
significant foreign currency transaction gains or losses.
The
preparation of the financial statements requires management
of the Company to
make a number of estimates and assumptions relating
to the reported amounts of
assets and liabilities and the disclosure of contingent
assets and liabilities
at the date of the financial statements and the reported
amounts of revenues and
expenses during the reporting period. Significant items
subject to such
estimates and assumptions include the estimated useful
life of the vessel
(including drydocking costs), residual value and recovery
of the carrying amount
of the vessel. Actual results could differ from those
estimates.
|
(n)
|
Recently
Issued Accounting
Standards
|
In
September 2006, the Financial Accounting Standards
Board (“FASB”) issued FASB
Statement No. 157,
Fair
Value Measurement
(Statement
157). Statement 157 defines fair value, establishes
a framework for the
measurement of fair value measures already required
or permitted by other
standards for fiscal years beginning after November
15, 2007. The Company is
required to adopt Statement 157 for the fiscal years
beginning on January 1,
2008. Statement 157 is required to be applied prospectively,
except for certain
financial instruments. Any transition adjustment will
be recognized as an
adjustment to opening retained earnings in the year
of adoption. The Company
does not anticipate that the adoption of Statement
157 will have a material
impact on its results of operations and financial position.
Shinyo
Dream Limited
Notes
to
the Unaudited Financial Statements (continued)
for
the
period from July 20, 2007 (date of incorporation)
to
September 30, 2007
(expressed
in US$)}
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(n)
|
Recently
Issued Accounting Standards
(continued)
|
In
February 2007, the FASB issued FASB Statement No. 159,
The
Fair Value Option for Financial Assets and Financial
Liabilities - Including an
Amendment of FASB Statement No. 115
(Statement
159)
.
Statement
159 permits an entity to elect fair value as the initial
and subsequent
measurement attribute for many financial assets and
liabilities. Entities
electing the fair value option would be required to
recognize changes in fair
value in earnings. Entities electing the fair value
option are required to
distinguish, on the face of the balance sheet, the
fair value of assets and
liabilities for which the fair value option has been
elected and similar assets
and liabilities measured using another measurement
attribute. Statement 159 will
be effective for fiscal years beginning after November
15, 2007. The adjustment
to reflect the difference between the fair value and
the carrying amount would
be accounted for as a cumulative-effect adjustment
to retained earnings as of
the date of initial adoption. The Company does not
anticipate that the adoption
of the provisions of Statement 159 will have a material
impact on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 160,
Noncontrolling
Interests in Consolidated Financial Statements - an
Amendment of ARB No. 51
(Statement
160). Statement 160 establishes accounting and reporting
standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a
subsidiary. Statement 160 will be effective for the
fiscal year beginning after
December 15, 2008. The Company does not anticipate
that the adoption of the
provisions of Statement 160 will have a material impact
on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 141
(Revised),
Business
Combinations
(Statement 141(R)). Statement 141(R) establishes principles
and requirements for
how the acquirer of a business recognizes and measures
in its financial
statements the identifiable assets acquired, the liabilities
assumed, and any
noncontrolling interest in the acquiree. Statement
141(R) also provides guidance
for recognizing and measuring the goodwill acquired
in the business combination
and determines what information to disclose to enable
users of the financial
statements to evaluate the nature and financial effects
of the business
combination. Statement 141(R) will be effective for
fiscal years beginning after
December 15, 2008. The Company does not anticipate
the adoption of the
provisions of Statement 141(R) will have a material
impact on its results of
operations and financial position.
Shinyo
Dream Limited
Notes
to
the Unaudited Financial Statements (continued)
for
the
period from July 20, 2007 (date of incorporation)
to
September 30, 2007
(expressed
in US$)
On
September 7, 2007, the Company acquired the vessel
and vessel related business
(the “C Dream Operation”) from Elite Strategic Limited, a 50% jointly-controlled
entity of the Company’s immediate holding company, at a cash consideration
of
$86,000,000. This purchase transaction was financed
entirely by loans from bank
and related party.
A
step up
of $36,596,522 was resulted. As the Company’s immediate holding company and the
Company are under common control, 50% of the step
up amounting to $18,298,761
was accounted for as deemed distribution to the
Company’s immediate holding
company. The remaining $67,701,239 represented
deemed consideration for
acquiring the C Dream Operation.
The
following table summarizes the estimated fair values
of the assets acquired and
liabilities assumed at the date of acquisition
of the C Dream Operation. The
valuation for the purpose of purchase accounting
is preliminary and is subject
to review by experts; thus, the allocation of the
purchase price is subject to
refinement.
|
|
2007
|
|
Vessel
|
|
|
76,201,239
|
|
Deferred
revenue
|
|
|
(8,500,000
|
)
|
Net
assets acquired
|
|
|
67,701,239
|
|
|
|
September
30, 2007
|
|
Vessel
|
|
|
|
Deemed
cost
|
|
|
76,201,239
|
|
Accumulated
depreciation
|
|
|
(229,628
|
)
|
Vessel,
net
|
|
|
75,971,611
|
|
The
vessel is mortgaged as described in Note 3.
On
September 7, 2007, the Company acquired the vessel
from Elite Strategic Limited,
a 50% jointly-controlled entity of the Company’s immediate holding company, at a
cash consideration of $86,000,000. A step up of $36,596,522
was resulted. As the
Company’s immediate holding company and the Company are under
common control,
50% of the step up amounting to $18,298,761 was accounted
for as deemed
distribution to the Company’s immediate holding company.
Lender/period
|
|
September
30, 2007
|
|
DVB
Group Merchant Bank (Asia) Ltd, BNP Paribas,
Credit Suisse and Deutsche
Schiffsbank Aktiengesellschaft
|
|
|
|
September
7, 2007 to September 6, 2017
|
|
|
65,000,000
|
|
|
|
|
65,000,000
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
3,475,000
|
|
Non-current
portion
|
|
|
61,525,000
|
|
|
|
|
65,000,000
|
|
On
September 7, 2007, a syndicated loan of $65,000,000
was obtained from DVB Group
Merchant Bank (Asia) Ltd, Credit Suisse and Deutsche
Schiffsbank
Aktiengesellschaft.
The
loan
is repayable by a balloon payment of $1,000,000 on
December 7, 2007, followed by
eight quarterly installments of $825,000 each, four
quarterly installments of
$900,000 each, four quarterly installments of $950,000
each, four quarterly
installments of $1,000,000 each, four quarterly installments
of $1,075,000 each,
four quarterly installments of $1,150,000 each, four
quarterly installments of
$1,200,000 each, four quarterly installments of $1,250,000
each and a balloon
payment $23,550,000.
Interest
is charged at LIBOR plus 0.95% per annum (6.77% as
of September 30, 2007). The
interest expense for the period from July 20, 2007
to September 30, 2007 was
$293,313.
Shinyo
Dream Limited
Notes
to
the Unaudited Financial Statements (continued)
for
the
period from July 20, 2007 (date of incorporation)
to
September 30, 2007
(expressed
in US$)
(4)
|
Long-term
Bank Loan (continued)
|
As
of
September 30, 2007, bank loan is secured as follows:
|
|
September
30,
2007
|
|
|
|
|
|
Secured
by:
|
|
|
|
Restricted
cash
|
|
|
1,000,000
|
|
Vessel
|
|
|
67,504,945
|
|
The
bank
loan is also guaranteed by Vanship Holdings Limited,
the immediate holding
company of the Company, as of September 30, 2007.
The
principal repayments for each of the years subsequent
to September 30, 2007 are
as follows:
Year
ending September 30,
|
|
|
|
|
|
|
|
2008
|
|
|
3,475,000
|
|
2009
|
|
|
3,300,000
|
|
2010
|
|
|
3,525,000
|
|
2011
|
|
|
3,750,000
|
|
2012
and later
|
|
|
50,950,000
|
|
|
|
|
65,000,000
|
|
(5)
|
Accrued
Liabilities and Other
Payables
|
Accrued
liabilities and other payables at September 30, 2007
consist of the
following:
|
|
September
30,
2007
|
|
|
|
|
|
Accrued
audit fee
|
|
|
450
|
|
Accrued
vessel operating expenses
|
|
|
73,420
|
|
Accrued
agency fee
|
|
|
10,000
|
|
Bank
loan interest payable
|
|
|
293,313
|
|
Commission
payable
|
|
|
13,664
|
|
Receipt
in advance
|
|
|
895,900
|
|
Wages
payable
|
|
|
36,653
|
|
Other
payable
|
|
|
22,564
|
|
|
|
|
1,345,964
|
|
|
|
2007
|
|
|
|
|
|
July
20, 2007
|
|
|
-
|
|
Additions
|
|
|
8,500,000
|
|
Amortization
|
|
|
(357,895
|
)
|
September
30, 2007
|
|
|
8,142,105
|
|
|
|
|
|
|
Current
portion
|
|
|
5,368,421
|
|
Non-current
portion
|
|
|
2,773,684
|
|
|
|
|
8,142,105
|
|
The
Company values any liability arising from the below
market value time charter
assumed upon acquisition of a business that includes
a vessel under an existing
charter. The liability, being the difference between
the market value charter
rate and assumed charter rate is discounted using
the Company’s weighted average
cost of capital and is recorded as deferred revenue
and amortized to revenue
over the remaining period of time charter.
The
Company’s revenue for the period from July 20, 2007 to September
30, 2007
represents revenue generated from time charter agreements.
Shinyo
Dream Limited
Notes
to
the Unaudited Financial Statements (continued)
for
the
period from July 20, 2007 (date of incorporation)
to
September 30, 2007
(expressed
in US$)
(8)
|
Vessel
Operating Expenses
|
Vessel
operating expenses for the period ended September 30,
2007 consist of the
following:
|
|
Period
from
|
|
|
|
July
20, 2007 to
|
|
|
|
September
30,
|
|
|
|
2007
|
|
Crew
wages and allowances
|
|
|
45,804
|
|
Crew
expenses
|
|
|
4,247
|
|
Insurance
expenses
|
|
|
27,378
|
|
Lubricating
oil expenses
|
|
|
29,004
|
|
Repair
and maintenance
|
|
|
1,122
|
|
Victualling
expenses
|
|
|
2,830
|
|
Other
operating expenses
|
|
|
10,000
|
|
|
|
|
120,385
|
|
Under
the
laws of the countries of the Company’s incorporation and/or vessel’s
registration, the Company is not subject to tax on
international shipping
income. However, it is subject to registration and
tonnage taxes, which are
charged by the country of which the vessel is registered
at a fixed rate based
on the tonnage of the vessel. Registration and tonnage
taxes have been included
in vessel operating expenses in the accompanying statement
of income.
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation
of FASB Statement
109
(FIN
48). FIN 48 clarifies the accounting for uncertainty
in income taxes recognized
in an enterprise’s financial statements and prescribes a threshold of
more-likely-than-not for recognition of tax benefits
of uncertain tax positions
taken or expected to be taken in a tax return. FIN
48 also provides related
guidance on measurement, derecognition, classification,
interest and penalties,
and disclosure. The provisions of FIN 48 will be effective
for the fiscal years
beginning after December 15, 2006, with any cumulative
effect of the change in
accounting principle recorded as an adjustment to opening
retained earnings.
Effective from July 20, 2007 (date of incorporation),
the Company adopted the
provision of FIN 48. As of the date of the adoption
of FIN 48, the Company has
no material unrecognized tax benefit which would favorably
affect the effective
income tax rate in future periods and do not believe
there will be any
significant increases or decreases within the next
twelve months. The Company
has elected to classify interest and penalties related
to unrecognized tax
benefits, if and when required, as part of interest
expense and administrative
expense in the statement of income. No interest or
penalties in respect of
unrecognized tax benefits have been accrued at the
date of
adoption.
According
to the Inland Revenue Ordinance of Hong Kong, the
statute of limitations is
seven years (i.e. calendar year 2007 for the Company)
if the underpayment of
taxes is due to omission or errors made by either
the taxpayer or the
withholding agent. The statute of limitations will
be extended to ten years
(i.e. calendar year 2007 for the Company) in case
of tax evasion.
According
to the Internal Revenue Code of the United States
of America, the statute of
limitations is three years (i.e. calendar year
2007 for the Company) if the
underpayment of taxes is due to omission or errors
made by either the taxpayer
or withholding agent. There is no statute of limitations
in the case of tax
evasion.
Shinyo
Dream Limited
Notes
to
the Unaudited Financial Statements (continued)
for
the
period from July 20, 2007 (date of incorporation)
to
September 30, 2007
(expressed
in US$)
(10)
|
Related
Party Transactions
|
Name
of party
|
|
Relationship
|
|
|
|
Belindtha
Marine Limited (“Belindtha”)
|
|
A
company controlled by a person related to
a director of the
Company
|
|
|
|
Elite
Strategic Limited (“Elite Strategic”)
|
|
A
50% jointly-controlled entity of the Company’s immediate holding company
|
|
|
|
Univan
Ship Management Limited (“Univan”)
|
|
A
company controlled by a director, Captain
Charles Arthur Joseph
Vanderperre, of the Company
|
|
|
|
Vanship
Holdings Limited (“Vanship”)
|
|
Immediate
holding company of the Company
|
(a)
|
The
principal related party transactions during
the period ended September 30,
2007 are as follows:
|
|
|
|
|
Period
from
|
|
|
|
|
|
July
20, 2007 to
|
|
|
|
|
|
September
30,
|
|
|
|
|
|
2007
|
|
|
|
Note
|
|
|
|
Service
fee to Belindtha
|
|
|
(i)
|
|
|
7,600
|
|
Loan
interest expense to Vanship
|
|
|
(ii
)
|
|
|
95,979
|
|
Notes:
|
(i)
|
The
Company has outsourced substantially all
its day to day operations to
Belindtha. The service fee is payable to
Belindtha at a pre-determined
amount in accordance with the terms mutually
agreed by Belindtha and the
Company.
|
|
(ii)
|
The
balance represents interest expense on loan
from Vanship. Terms of loan
details are set out in Note 10(b)(iii) below.
|
(b)
|
Amounts
due from and due to related parties as of
September 30, 2007 are as
follows:
|
|
|
|
|
September
30, 2007
|
|
|
|
Note
|
|
|
|
Amount
due from related party:
|
|
|
|
|
|
-
Amount due from Univan
|
|
|
(i
)
|
|
|
169,189
|
|
|
|
|
|
|
|
|
|
Amount
due to related party:
|
|
|
|
|
|
|
|
-
Amount due to Vanship
|
|
|
(ii
)
|
|
|
118,545
|
|
|
|
|
|
|
|
|
|
Loan
from related party:
|
|
|
|
|
|
|
|
-
Vanship
|
|
|
(iii
)
|
|
|
23,000,000
|
|
|
|
|
|
|
|
|
|
Shinyo
Dream Limited
Notes
to
the Unaudited Financial Statements (continued)
for
the
period from July 20, 2007 (date of incorporation)
to
September 30, 2007
(expressed
in US$)
(10)
|
Related
Party Transactions
(continued)
|
(b)
|
Amounts
due from and due to related parties as of
September 30, 2007 are as
follows (continued):
|
Notes:
|
(i)
|
The
balance represents advance payments for expenses
to be paid by Univan on
behalf of the Company. The balance is unsecured,
non-interest bearing and
with no fixed terms of repayment.
|
|
(ii)
|
The
balance represents interest payable on loan
from Vanship. Terms of loan
are set out in (iii) below.
|
|
(iii)
|
The
balance represents a loan from Vanship. The
loan period is from September
12, 2007 to December 31, 2017. Interest is
charged at six-month LIBOR plus
2.39% per annum (7.52% as of September 30,
2007). The interest expense for
the period from July 20, 2007 to September
30, 2007 was $95,979. No
interest was paid for the period ended September
30, 2007.
|
In
accordance with the contractual bank loan arrangement,
the loan from Vanship
shall not be repaid before the bank loan is repaid
in full.
(c)
|
Vanship
has provided a letter of support to the Company
to confirm its intention
to provide continuing financial support to
the Company so as to enable the
Company to meet its liabilities when they
fall due.
|
(d)
|
On
September 7, 2007, the Company acquired the
vessel and its operation from
Elite Strategic, a 50% jointly-controlled
entity of the Company’s
immediate holding company, at a cash consideration
of $86,000,000.
|
(e)
|
As
of September 30, 2007, long-term bank loan
of $65,000,000 was guaranteed
by Vanship.
|
(11)
|
Commitments
and Contingencies
|
Various
claims, suits, and complaints, including those involving
government regulations
and product liability, arise in the ordinary course
of the shipping business. In
addition, losses may arise from disputes with charterers,
agents, insurance and
other claims with suppliers relating to the operations
of the Company’s vessel.
Currently, management is not aware of any such claims
or contingent liabilities,
which should be disclosed, or for which a provision
should be established in the
accompanying financial statements.
(12)
|
Fair
Value of Financial Instruments
|
The
carrying amounts of cash and amounts due from/to related
parties, approximate
their fair values because of the short maturity of
these instruments.
The
carrying values of long-term bank loan and loan from
related party approximate
their fair values based on the borrowing rates currently
available to the
Company for bank loans with similar terms and average
maturities.
Shinyo
Dream Limited
Notes
to
the Unaudited Financial Statements (continued)
for
the
period from July 20, 2007 (date of incorporation)
to
September 30, 2007
(expressed
in US$)
(13)
|
Business
and Credit
Concentrations
|
The
Company operates in the shipping industry which historically
has been cyclical
with corresponding volatility in profitability. All
the Company’s revenues are
derived from vessel charters. The Company seeks to
mitigate volatilities in its
business by obtaining long-term charter contracts.
The Company has obtained a
long-term time charter contract which will expire in
February 2019.
The
Company outsourced the technical management services
to Belindtha which is
controlled by a person related to a director of the
Company. Belindtha then
sub-contracted its obligations under the outstanding
arrangement to Univan which
assists Belindtha in providing technical management
services to the Company.
Univan is controlled by Captain Charles Arthur Joseph
Vanderperre, a director of
the Company. All expenses incurred by Univan on behalf
of the Company are
charged to the Company based on the actual expenditures
incurred on its behalf.
During the period from July 20, 2007 to September 30,
2007, the Company paid
service fee of $7,600 to Belindtha.
The
Company is engaged in the business of ocean transportation
of crude oil industry
which is extremely competitive and dependent on the
world’s demand for crude
oil. Competition depends on price, location, size,
age, condition and the
acceptability of the vessel to the charterers. The
increase in competition and
the changes in demand for crude oil could result in
lower revenue achieved for
the vessel.
The
following are revenue from a customer that individually
comprises 10% or more of
gross revenue:
|
|
July 20 ,2007 to
September 30, 2007
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
Sanko
Steamship Co., Ltd.
|
|
|
683,164
|
|
|
100
|
|
Pursuant
to a definitive agreement entered into between Vanship
and Energy Infrastructure
Acquisition Corp. (“EIAC”), a company listed on the American Stock Exchange,
on
December 3, 2007 (the “Agreement”), Vanship agreed to sell all of its equity
interests in the Company and other eight related companies
to Energy
Infrastructure Merger Corporation (“EIMC”) (the “Business Combination”), a
wholly-owned subsidiary of EIAC, for an aggregate consideration
of $778,000,000,
consisting of $643,000,000 in cash (subject to closing
adjustments) and
13,500,000 shares of common stock of EIMC (valued at
$10 per share of common
stock). Vanship is entitled to an additional 3,000,000
shares of common stock of
EIMC on each of the first and second anniversaries
of the completion of the
Business Combination, subject to certain earning criteria.
Approval
of the Business Combination requires the affirmative
vote of the holders of a
majority of the shares of common stock voted at EIAC’s special meeting of
stockholders, provided that there is a quorum. In addition,
if the EIAC
stockholders approve the Business Combination, the
Business Combination will
only proceed if holders of shares purchased in EIAC’s initial public offering,
representing less than 30% of the shares sold in EIAC’s initial public offering
and EIAC’s private placement that occurred immediately prior
to the initial
public offering, exercise their redemption rights at
the time of casting a vote
against the Business Combination.
Pursuant
to the Agreement, Vanship has agreed to purchase up
to 5,000,000 units from EIMC
at a purchase price of $10.00 per unit, but only to
the extent necessary for
EIMC to secure financing for the Business Combination.
Each unit will consist of
one share of EIMC’s common stock and one warrant to purchase one share
of EIMC’s
common stock at an exercise price of $8.00 per warrant.
Report
of Independent Registered Public Accounting Firm
The
Board
of Directors and Shareholder of
Shinyo
Jubilee Limited:
We
have
audited the accompanying balance sheets of Shinyo
Jubilee Limited (the
“Company”) as of December 31, 2005 and 2006, and the related
statements of
operations, shareholder’s (deficit)/equity, and cash flows for each of
the years
in the three-year period ended December 31, 2006.
These financial statements are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements based
on our audits.
We
conducted our audits in accordance with the standards
of the Public Company
Accounting Oversights Board (United States). Those
standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the
financial statements are free of material misstatement.
An audit includes
examining, on a test basis, evidence supporting the
amounts and disclosures in
the financial statements. An audit also includes
assessing the accounting
principles used and significant estimates made by
management, as well as
evaluating the overall financial statement presentation.
We believe that our
audits provide a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above
present fairly, in all
material respects, the financial position of Shinyo
Jubilee Limited as of
December 31, 2005 and 2006, and the results of its
operations and its cash flows
for each of the years in the three-year period ended
December 31, 2006, in
conformity with U.S. generally accepted accounting
principles.
/s/
KPMG
Hong
Kong, China
February
11, 2008
Shinyo
Jubilee Limited
Balance
Sheets
as
of
December 31, 2005 and 2006
(expressed
in US$)
|
|
|
|
2005
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
1,315,633
|
|
|
3,839,838
|
|
Trade
accounts receivable
|
|
|
|
|
|
2,542,269
|
|
|
2,623,246
|
|
Prepayments
and other receivables
|
|
|
|
|
|
91,921
|
|
|
70,893
|
|
Supplies
|
|
|
2
|
|
|
459,946
|
|
|
629,321
|
|
Amount
due from related party
|
|
|
9(b)
|
|
|
-
|
|
|
126,509
|
|
Total
current assets
|
|
|
|
|
|
4,409,769
|
|
|
7,289,807
|
|
Restricted
cash
|
|
|
|
|
|
1,000,000
|
|
|
357,250
|
|
Deferred
loan costs
|
|
|
|
|
|
78,375
|
|
|
27,700
|
|
Vessel,
net
|
|
|
3
|
|
|
33,837,077
|
|
|
30,278,644
|
|
Total
assets
|
|
|
|
|
|
39,325,221
|
|
|
37,953,401
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term bank loans
|
|
|
4
|
|
|
6,000,000
|
|
|
2,120,000
|
|
Amounts
due to related parties
|
|
|
9(b)
|
|
|
2,001,029
|
|
|
1,112,167
|
|
Accrued
liabilities and other payables
|
|
|
5
|
|
|
1,483,226
|
|
|
757,756
|
|
Total
current liabilities
|
|
|
|
|
|
9,484,255
|
|
|
3,989,923
|
|
Loan
from related party
|
|
|
9(b)
|
|
|
14,031,100
|
|
|
14,031,100
|
|
Long-term
bank loans
|
|
|
4
|
|
|
12,000,000
|
|
|
11,820,000
|
|
Total
liabilities
|
|
|
|
|
|
35,515,355
|
|
|
29,841,023
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s
equity
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares HK$1 par value per share
10,000
shares authorized; 100 shares issued
and fully paid as of December
31
|
|
|
|
|
|
13
|
|
|
13
|
|
Retained
earnings
|
|
|
|
|
|
3,809,853
|
|
|
8,112,365
|
|
Total
shareholder’s equity
|
|
|
|
|
|
3,809,866
|
|
|
8,112,378
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholder’s equity
|
|
|
|
|
|
39,325,221
|
|
|
37,953,401
|
|
See
accompanying notes to the financial statements.
Shinyo
Jubilee Limited
Statements
of Operations
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
6
|
|
|
-
|
|
|
16,317,093
|
|
|
20,339,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
7
|
|
|
-
|
|
|
1,697,496
|
|
|
1,968,865
|
|
Voyage
expenses
|
|
|
8
|
|
|
-
|
|
|
5,765,881
|
|
|
7,934,121
|
|
Depreciation
expenses
|
|
|
|
|
|
-
|
|
|
2,852,946
|
|
|
3,558,433
|
|
Management
fee
|
|
|
9(a)
|
|
|
-
|
|
|
108,484
|
|
|
114,000
|
|
Commission
|
|
|
|
|
|
-
|
|
|
600,917
|
|
|
736,432
|
|
Administrative
expenses
|
|
|
|
|
|
867
|
|
|
75,728
|
|
|
65,966
|
|
Total
operating expenses
|
|
|
|
|
|
867
|
|
|
11,101,452
|
|
|
14,377,817
|
|
Operating
(loss)/income
|
|
|
|
|
|
(867
|
)
|
|
5,215,641
|
|
|
5,962,014
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
-
|
|
|
77,990
|
|
|
117,205
|
|
Interest
expense
|
|
|
|
|
|
(64,896
|
)
|
|
(1,668,639
|
)
|
|
(1,713,686
|
)
|
Write-off
of deferred loan costs
|
|
|
|
|
|
-
|
|
|
-
|
|
|
(65,307
|
)
|
Other,
net
|
|
|
|
|
|
-
|
|
|
252,047
|
|
|
2,286
|
|
Total
other expense
|
|
|
|
|
|
(64,896
|
)
|
|
(1,338,602
|
)
|
|
(1,659,502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/income
before income taxes
|
|
|
|
|
|
(65,763
|
)
|
|
3,877,039
|
|
|
4,302,512
|
|
Income
taxes
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)/income
|
|
|
|
|
|
(65,763
|
)
|
|
3,877,039
|
|
|
4,302,512
|
|
(a)
Includes the following expenses resulting from
transactions with related parties
(see note 9(a)):
|
|
|
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
Vessel
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Agency fee
|
|
|
|
|
|
-
|
|
|
(51,387
|
)
|
|
(32,419
|
)
|
Management
fee
|
|
|
|
|
|
-
|
|
|
(108,484
|
)
|
|
(114,000
|
)
|
Commission
|
|
|
|
|
|
-
|
|
|
(192,989
|
)
|
|
(227,936
|
)
|
Interest
expense
|
|
|
|
|
|
(64,896
|
)
|
|
(777,110
|
)
|
|
(731,998
|
)
|
See
accompanying notes to the financial statements.
Shinyo
Jubilee Limited
Statements
of Shareholder’s (Deficit)/Equity
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
|
|
Ordinary
shares
|
|
(Accumulated
|
|
Total
|
|
|
|
Number
of shares
|
|
Amount
|
|
losses)/retained
earnings
|
|
deficit
|
|
Balance
as of January 1, 2004
|
|
|
100
|
|
|
13
|
|
|
(1,423
|
)
|
|
(1,410
|
)
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
(65,763
|
)
|
|
(65,763
|
)
|
Balance
as of December 31, 2004
|
|
|
100
|
|
|
13
|
|
|
(67,186
|
)
|
|
(67,173
|
)
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
3,877,039
|
|
|
3,877,039
|
|
Balance
as of December 31, 2005
|
|
|
100
|
|
|
13
|
|
|
3,809,853
|
|
|
3,809,866
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
4,302,512
|
|
|
4,302,512
|
|
Balance
as of December 31, 2006
|
|
|
100
|
|
|
13
|
|
|
8,112,365
|
|
|
8,112,378
|
|
See
accompanying notes to the financial statements.
Shinyo
Jubilee
Limited
Statements
of Cash Flows
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
(loss)/income
|
|
|
(65,763
|
)
|
|
3,877,039
|
|
|
4,302,512
|
|
Adjustments
to reconcile net income to net cash
from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expenses
|
|
|
-
|
|
|
2,852,946
|
|
|
3,558,433
|
|
Amortization
of loan costs
|
|
|
-
|
|
|
26,625
|
|
|
16,082
|
|
Write-off
of deferred loan costs
|
|
|
-
|
|
|
-
|
|
|
65,307
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
-
|
|
|
(2,542,269
|
)
|
|
(80,977
|
)
|
Prepayments
and other receivables
|
|
|
-
|
|
|
(91,921
|
)
|
|
21,028
|
|
Supplies
|
|
|
-
|
|
|
(459,946
|
)
|
|
(169,375
|
)
|
Amount
due from related party
|
|
|
-
|
|
|
-
|
|
|
(126,509
|
)
|
Amounts
due to related parties
|
|
|
65,763
|
|
|
1,933,856
|
|
|
(888,862
|
)
|
Accrued
liabilities and other payables
|
|
|
-
|
|
|
1,483,226
|
|
|
218,473
|
|
Net
cash provided by operating activities
|
|
|
-
|
|
|
7,079,556
|
|
|
6,916,112
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Purchase
of vessel
|
|
|
-
|
|
|
(29,750,000
|
)
|
|
-
|
|
Capital
expenditure on drydocking
|
|
|
-
|
|
|
(1,690,023
|
)
|
|
|
)
|
(Increase)/decrease
in restricted cash
|
|
|
-
|
|
|
(1,000,000
|
)
|
|
642,750
|
|
Net
cash (used in)/provided by investing
activities
|
|
|
-
|
|
|
(32,440,023
|
)
|
|
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from long-term bank loans
|
|
|
-
|
|
|
21,000,000
|
|
|
15,000,000
|
|
Repayment
of long-term bank loans
|
|
|
-
|
|
|
(3,000,000
|
)
|
|
(19,060,000
|
)
|
Payment
of loan costs
|
|
|
-
|
|
|
(105,000
|
)
|
|
(30,714
|
)
|
Proceeds
from loan from related party
|
|
|
-
|
|
|
29,781,100
|
|
|
-
|
|
Repayment
of loan from related party
|
|
|
-
|
|
|
(21,000,000
|
)
|
|
-
|
|
Net
cash provided by/(used in) financing
activities
|
|
|
-
|
|
|
26,676,100
|
|
|
(4,090,714
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
-
|
|
|
1,315,633
|
|
|
2,524,205
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
At
beginning of year
|
|
|
-
|
|
|
-
|
|
|
1,315,633
|
|
At
end of year
|
|
|
-
|
|
|
1,315,633
|
|
|
3,839,838
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
2004
|
|
2005
|
|
2006
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
-
|
|
|
614,957
|
|
|
1,978,628
|
|
Supplemental
Disclosure of Non-Cash Flow Operating, Investing
and Financing
Activities:
|
|
2004
|
|
2005
|
|
2006
|
|
Operating
activities:
|
|
|
|
|
|
|
|
Payment
of operating expenses by related parties
|
|
|
|
|
|
|
|
-
Administrative expenses
|
|
|
867
|
|
|
-
|
|
|
-
|
|
-
Interest
|
|
|
64,896
|
|
|
-
|
|
|
-
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
Payment
of deposits for purchase vessel by
related party
|
|
|
(5,250,000
|
)
|
|
-
|
|
|
-
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
Loan
from related party
|
|
|
5,250,000
|
|
|
-
|
|
|
-
|
|
See
accompanying notes to the financial statements.
Shinyo
Jubilee
Limited
Notes
to
Financial Statements
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting
Policies
|
|
(a)
|
Description
of Business
|
Shinyo
Jubilee Limited (the “Company”), a company engaged in the business of ocean
transportation of crude oil worldwide, was established
in Hong Kong on September
8, 2003. The principal activity of the Company
is the ownership and chartering
of the vessel “Shinyo Jubilee”. Shinyo Jubilee was delivered in 1988 and was
a
second hand vessel acquired by the Company in
January 2005. It is a
single-hulled very large crude oil carrier with
capacity of 250,192 deadweight
tonnage.
The
Company has outsourced substantially all its day
to day operations to its
related party, Belindtha Marine Limited (“Belindtha”), a company controlled by a
person related to a director of the Company. Belindtha
then sub-contracted its
obligations under the outsourcing arrangement to
Univan Ship Management Limited
(“Univan”) which assists Belindtha in providing technical
management services to
the Company. Univan is controlled by Captain Charles
Arthur Joseph Vanderperre,
a director of the Company, and is jointly owned
by Captain Charles Arthur Joseph
Vanderperre and Clipper Group Invest Group Ltd,
a shareholder of the Company’s
immediate holding company. All expenses incurred
by Univan on behalf of the
Company are charged to the Company based on the
actual expenditures incurred on
its behalf. In addition, Univan provides administrative
services to the
Company.
From
March 2005 to October 2005, Shinyo Jubilee
operated in the spot market. In October 2005,
the Company entered into
continuous voyage contracts with S-Oil Corporation
pursuant to which the Company
is paid a freight rate on the basis of moving
quantity of crude oil from a
loading port to port of discharge.
|
(b)
|
Basis
of Presentation
|
The
Company’s financial statements have been prepared in accordance
with U.S.
generally accepted accounting principles (“US GAAP”).
The
basis
of accounting differs in certain material respects
from that used in the
preparation of the statutory financial statements
of the Company, which are
prepared in accordance with the accounting principles
of the country of its
domicile. The accompanying financial statements
reflect necessary adjustments to
present them in conformity with US GAAP.
Cash
consists interest-bearing deposits placed with
banks. As of December 31, 2005
and 2006, there were no cash equivalents.
Restricted
cash represents minimum interest-bearing bank deposits
which must be maintained
in accordance with contractual bank loan arrangements
over the bank loan period.
Shinyo
Jubilee
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(e)
|
Trade
Accounts Receivable
|
Trade
accounts receivable are recorded at the invoiced
amount, do not bear interest
and reflect billings from charterers for hire,
freight and demurrage. The
Company maintains an allowance for doubtful accounts
for estimated losses
inherent in its trade accounts receivable portfolio.
In establishing the
required allowance, management considers historical
losses, current receivables
aging, and existing industry and national economic
data. The Company’s customers
are in the crude oil industry and are affected
by demand and supply of crude oil
worldwide. The Company has been able to collect
all of its receivable balances,
and accordingly, the Company did not provide for
any allowance for doubtful
accounts at December 31, 2005 and 2006. The Company
does not have any
off-balance-sheet credit exposure related to its
customers.
Supplies
consisting of bunkers and lubricating oils which
are stated at cost. Cost is
determined on a first-in, first-out method (FIFO).
A
vessel
is stated at cost, which consists of the contract
price and delivery costs.
Subsequent expenditures for conversions and major
overhauls (“drydocking”) are
also capitalized when they extend the life, increase
the earning capacity or
improve the efficiency or safety of the vessel
otherwise these amounts are
charged to expense as incurred.
Depreciation
on the vessel is calculated based on the straight-line
method over the estimated
useful life of the vessel, after taking into account
its estimated residual
value, from date of acquisition. The vessel’s residual value is equal to the
product of its lightweight tonnage and estimated
scrap rate. Management
estimates the useful life of the Company’s vessel to be 8 years from the date of
acquisition. The useful life of the vessel is evaluated
on a regular basis to
account for changes in circumstances, including
changes in regulatory
restrictions. If regulations place limitations
over the ability of a vessel to
operate, its useful life is adjusted to end at
the date such regulations become
effective.
The
Company follows the deferral method of accounting
for drydocking whereby actual
costs incurred are capitalized and are depreciated
on a straight-line basis over
the period through the date the next drydocking
becomes due. The vessel of the
Company is required to have an intermediate drydocking
approximately every 30
months and a special survey drydocking approximately
every 60 months.
Capitalized intermediate drydocking costs and special
survey drydocking costs
are depreciated over a period of 30 months and
60 months, respectively. If the
anticipated date of drydocking is changed from
the scheduled date, the remaining
undepreciated carrying amount of the drydocking
costs is adjusted to reflect the
revised date.
Shinyo
Jubilee
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
A
vessel
is reviewed for impairment whenever events or changes
in circumstances indicate
that the carrying amount of a vessel may not be
recoverable. Recoverability of
the vessel is measured by a comparison of the carrying
amount of the vessel,
including capitalized drydocking costs, to the
estimated undiscounted future
cash flows expected to be generated by the vessel.
If the carrying amount of the
vessel exceeds its estimated future undiscounted
cash flows, an impairment
charge will be recognized by the amount that the
carrying amount of the vessel
exceeds its estimated fair value.
In
the
normal course of business, the Company is subject
to contingencies, such as
legal proceedings and claims arising out of its
business. An accrual for a loss
contingency is recognized when it is probable that
a liability will be incurred
and the amount of the loss can be reasonably estimated.
|
(j)
|
Revenue
Recognition and Related
Expenses
|
The
Company generates its revenues from voyage charter
agreements. Revenues are
recognized when the collectibility has been reasonably
assured. The Company
follows EITF 91-9 in accounting for voyage charter
revenues. Voyage revenues are
recognized based on the percentage of completion
at the balance sheet date. A
voyage is deemed to commence upon the completion
of discharge of the vessel’s
previous cargo and is deemed to end upon the completion
of discharge of the
current cargo. Voyage related costs are expensed
as incurred.
Brokerage
and charter hire commissions paid to third parties
are expensed in the same
period as revenues are recognized.
Fees
incurred for obtaining new loans are deferred and
amortized to interest expense
over the life of the related debt using the effective
interest method. The
Company follows EITF 96-19 in accounting for debt
modification. A modification
is considered substantial if the present value
of the cash flows under the terms
of new debt is at least 10 percent different from
the present value of the
remaining cash flows under the terms of the original
debt at the date of
modification. When the loan is repaid or when the
loan is substantially
modified, the existing unamortized fees are written-off
in the period debt
repayment or substantial modification takes place.
When the modification is not
considered substantial, the fees associated with
the modification and, along
with the existing unamortized fees, are amortized
over the remaining term of the
modified loan using the effective interest method.
The amount of deferred loan
costs written off during the years ended December
31, 2004, 2005 and 2006 was
$Nil, $Nil and $65,307 respectively.
Shinyo
Jubilee
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(m)
|
Foreign
Currency Transactions
|
The
Company’s functional and reporting currency is the United
States (“US”) dollar
because the Company’s vessel operates in international shipping markets,
which
most of the transactions are denominated in US
dollar. Furthermore, the Company
incurs bank debt, pays salaries and wages and certain
other expenditures such as
fuel costs, lubricants, insurance costs, all in
US dollars.
Transactions
denominated in currencies other than US dollar
are translated into US dollars at
the exchange rates prevailing at the dates of transactions.
Monetary assets and
liabilities denominated in currencies other than
US dollar are translated at the
exchange rates prevailing at the balance sheet
dates. During the years ended
December 31, 2004, 2005 and 2006, substantially
all of the Company’s
transactions were denominated in US dollars and
the Company did not have
significant foreign currency transaction gains
or losses.
The
preparation of the financial statements requires
management of the Company to
make a number of estimates and assumptions relating
to the reported amounts of
assets and liabilities and the disclosure of contingent
assets and liabilities
at the date of the financial statements and the
reported amounts of revenues and
expenses during the reporting period. Significant
items subject to such
estimates and assumptions include the estimated
useful life of the vessel
(including drydocking costs), residual value and
recovery of the carrying amount
of the vessel. Actual results could differ from
those estimates.
|
(o)
|
Income
and Other Taxes
|
Under
the
laws of the countries of the Company’s incorporation and/or vessel’s
registration, the Company is not subject to tax
on international shipping
income. However, it is subject to registration
and tonnage taxes, which are
charged by the country of which the vessel is registered
at a fixed rate based
on the tonnage of the vessel. Registration and
tonnage taxes have been included
in vessel operating expenses in the accompanying
statements of operations.
Shinyo
Jubilee
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(o)
|
Income
and Other Taxes
(continued)
|
In
June
2006, the Financial Accounting Standards Board
(“FASB”) issued FASB
Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation
of FASB Statement
109
(FIN
48). FIN 48 clarifies the accounting for uncertainty
in income taxes recognized
in an enterprise’s financial statements and prescribes a threshold
of
more-likely-than-not for recognition of tax benefits
of uncertain tax positions
taken or expected to be taken in a tax return.
FIN 48 also provides related
guidance on measurement, derecognition, classification,
interest and penalties,
and disclosure. The provisions of FIN 48 will be
effective for the fiscal years
beginning after December 15, 2006, with any cumulative
effect of the change in
accounting principle recorded as an adjustment
to opening retained earnings.
Effective from January 1, 2007, the Company adopted
the provision of FIN 48. As
of the date of the adoption of FIN 48, the Company
has no material unrecognized
tax benefit which would favorably affect the effective
income tax rate in future
periods and do not believe there will be any significant
increases or decreases
within the next twelve months. The Company has
elected to classify interest and
penalties related to unrecognized tax benefits,
if and when required, as part of
income tax expenses in the statements of operations.
No interest or penalties
have been accrued at the date of adoption.
According
to the Inland Revenue Ordinance of Hong Kong,
the statute of limitations is
seven years (i.e. calendar years 2003 to 2006
for the Company) if the
underpayment of taxes is due to omission or
errors made by either the taxpayer
or the withholding agent. The statute of limitations
will be extended to ten
years (i.e. calendar years 2003 to 2006 for
the Company) in case of tax evasion.
According
to the Internal Revenue Code of the United
States of America, the statute of
limitations is three years (i.e. calendar years
2003 to 2006 for the Company) if
the underpayment of taxes is due to omission
or errors made by either the
taxpayer or withholding agent. There is no
statute of limitations in the case of
tax evasion.
|
(p)
|
Recently
Issued Accounting Standards
|
In
September 2006, the FASB issued FASB Statement
No. 157,
Fair
Value Measurement
(Statement
157). Statement 157 defines fair value, establishes
a framework for the
measurement of fair value measures already required
or permitted by other
standards for fiscal years beginning after November
15, 2007. The Company is
required to adopt Statement 157 for the fiscal
years beginning on January 1,
2008. Statement 157 is required to be applied prospectively,
except for certain
financial instruments. Any transition adjustment
will be recognized as an
adjustment to opening retained earnings in the
year of adoption. The Company
does not anticipate that the adoption of Statement
157 will have a material
impact on its results of operations and financial
position.
In
September 2006, the FASB issued FASB Staff Position
No. AUG AIR-1,
Accounting
for Planned Major Maintenance Activities
(AUG
AIR-1). This guidance prohibits the use of the
accrue-in-advance method of
accounting for planned major maintenance activities
because an obligation has
not occurred and therefore a liability should not
be recognized. The provisions
of this guidance will be effective for fiscal years
beginning after December 15,
2006. Effective from January 1, 2007, the Company
adopted the provision of AUG
AIR-1. The Company follows the deferral method
of accounting for drydocking. As
of the date of adoption of AUG AIR-1, the Company
has no accruals for planned
drydocking which require to be adjusted retrospectively.
Shinyo
Jubilee
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(p)
|
Recently
Issued Accounting Standards
(continued)
|
In
February 2007, the FASB issued FASB Statement
No. 159,
The
Fair Value Option for Financial Assets and Financial
Liabilities - Including an
Amendment of FASB Statement No. 115
(Statement
159). Statement 159 permits an entity to elect
fair value as the initial and
subsequent measurement attribute for many financial
assets and liabilities.
Entities electing the fair value option would
be required to recognize changes
in fair value in earnings. Entities electing
the fair value option are required
to distinguish, on the face of the balance sheet,
the fair value of assets and
liabilities for which the fair value option has
been elected and similar assets
and liabilities measured using another measurement
attribute. Statement 159 will
be effective for fiscal years beginning after
November 15, 2007. The adjustment
to reflect the difference between the fair value
and the carrying amount would
be accounted for as a cumulative-effect adjustment
to retained earnings as of
the date of initial adoption. The Company does
not anticipate that the adoption
of the provisions of Statement 159 will have
a material impact on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No.
160,
Noncontrolling
Interests in Consolidated Financial Statements
- an Amendment of ARB No.
51
(Statement 160). Statement 160 establishes accounting
and reporting standards
for the noncontrolling interest in a subsidiary
and for the deconsolidation of a
subsidiary. Statement 160 will be effective for
the fiscal year beginning after
December 15, 2008. The Company does not anticipate
that the adoption of the
provisions of Statement 160 will have a material
impact on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No.
141 (Revised),
Business
Combinations
(Statement 141(R)). Statement 141(R) establishes
principles and requirements for
how the acquirer of a business recognizes and measures
in its financial
statements the identifiable assets acquired, the
liabilities assumed, and any
noncontrolling interest in the acquiree. Statement
141(R) also provides guidance
for recognizing and measuring the goodwill acquired
in the business combination
and determines what information to disclose to
enable users of the financial
statements to evaluate the nature and financial
effects of the business
combination. Statement 141(R) will be effective
for fiscal years beginning after
December 15, 2008. The Company does not anticipate
the adoption of the
provisions of Statement 141(R) will have a material
impact on its results of
operations and financial position.
|
|
2005
|
|
2006
|
|
Lubricating
oil
|
|
|
17,110
|
|
|
77,408
|
|
Bunkers
|
|
|
442,836
|
|
|
551,913
|
|
|
|
|
459,946
|
|
|
629,321
|
|
Shinyo
Jubilee
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
|
|
2005
|
|
2006
|
|
Vessel
|
|
|
|
|
|
Cost
|
|
|
36,690,023
|
|
|
36,690,023
|
|
Accumulated
depreciation
|
|
|
(2,852,946
|
)
|
|
(6,411,379
|
)
|
Vessel,
net
|
|
|
33,837,077
|
|
|
30,278,644
|
|
The
vessel is mortgaged as described in Note 4.
Drydocking
costs of $1,690,023 were capitalized for the year
ended December 31, 2005. As of
December 31, 2005 and 2006, undepreciated carrying
amount of the drydocking
costs was $1,577,354 and $901,345, respectively.
For
the
years ended December 31, 2004, 2005 and 2006, $Nil,
$112,669 and $676,009 of
drydocking costs were expensed as depreciation
expenses, respectively.
|
|
Interest
|
|
|
|
|
|
|
|
|
|
rate
per
|
|
|
|
|
|
|
|
Lender/period
|
|
annum
|
|
Note
|
|
2005
|
|
2006
|
|
Nordea
Bank Danmark A/S
|
|
|
|
|
|
|
|
|
|
February
11, 2005 to October 1, 2008
|
|
|
LIBOR+1.50
|
%
|
|
(a
|
)
|
|
18,000,000
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
HSH
Nordbank AG, Nordea Bank
Danmark
A/S, and DVB Group Merchant
Bank
(Asia) Ltd
|
|
|
|
|
|
|
|
|
|
|
|
June
9, 2006 to February 29, 2012
|
|
|
LIBOR+1.00
|
%
|
|
(b
|
)
|
|
-
|
|
13,940,000
|
|
|
|
|
|
|
|
|
|
18,000,000
|
|
13,940,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
|
|
|
|
|
|
6,000,000
|
|
2,120,000
|
Non-current
portion
|
|
|
|
|
|
|
|
|
12,000,000
|
|
11,820,000
|
|
|
|
|
|
|
|
|
|
18,000,000
|
|
13,940,000
|
Notes:
|
(a)
|
On
February 11, 2005, the Company obtained
a bank loan of $21,000,000 from
Nordea Bank Danmark A/S.
|
The
loan
is repayable by fourteen quarterly installments
of $1,500,000 each. Interest is
charged at LIBOR plus 1.50% per annum. (5.55%
as of December 31, 2005). The
interest expense for the year ended December
31, 2005 and 2006 was $864,904 and
$434,275 respectively.
|
(b)
|
On
June 9, 2006, the Company refinanced
the above loan arrangement and repaid
the existing loan and obtained a new
loan of $15,000,000. The loan is
repayable by nineteen quarterly installments
of $530,000 each, further
three quarterly installments of $1,250,000
each and a balloon payment of
$1,180,000.
|
Interest
is charged at LIBOR plus 1.00% per annum (6.37%
as of December 31, 2006). The
interest expense for the year ended December 31,
2006 was $531,331.
Shinyo
Jubilee
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(4)
|
Long-term
Bank Loans (continued)
|
As
of
December 31, 2005 and 2006, bank loans are secured
as follows:
|
|
2005
|
|
2006
|
|
Secured
by:
|
|
|
|
|
|
Restricted
cash
|
|
|
1,000,000
|
|
|
357,250
|
|
Vessel
|
|
|
33,837,077
|
|
|
30,278,644
|
|
The
bank
loans are also guaranteed by Vanship Holdings Limited
and Clipper Group Invest
Ltd, both are shareholders of the Company’s immediate holding company, for the
years ended December 31, 2005 and 2006.
The
principal repayments for each of the years subsequent
to December 31, 2006 are
as follows:
Year
ending December 31,
|
|
|
|
2007
|
|
|
2,120,000
|
|
2008
|
|
|
2,120,000
|
|
2009
|
|
|
2,120,000
|
|
2010
|
|
|
2,120,000
|
|
2011
and later
|
|
|
5,460,000
|
|
|
|
|
13,940,000
|
|
(5)
|
Accrued
Liabilities and Other
Payables
|
Accrued
liabilities and other payables at December 31,
2005 and 2006 consist of the
following:
|
|
2005
|
|
2006
|
|
Accrued
audit fee
|
|
|
5,000
|
|
|
5,000
|
|
Accrued
vessel operating expenses
|
|
|
22,983
|
|
|
253,541
|
|
Accrued
drydocking expenses
|
|
|
943,943
|
|
|
-
|
|
Bank
loan interest payable
|
|
|
249,947
|
|
|
78,931
|
|
Commission
payable
|
|
|
220,958
|
|
|
344,598
|
|
Wages
payable
|
|
|
40,395
|
|
|
75,686
|
|
|
|
|
1,483,226
|
|
|
757,756
|
|
Shinyo
Jubilee
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
The
Company’s revenue for the years ended December 31, 2005
and 2006 represents
revenue generated from voyage charter agreements.
(7)
|
Vessel
Operating Expenses
|
Vessel
operating expenses for the years ended December
31, 2004, 2005 and 2006 consist
of the following:
|
|
2004
|
|
2005
|
|
2006
|
|
Crew
wages and allowances
|
|
|
-
|
|
|
530,814
|
|
|
592,838
|
|
Crew
expenses
|
|
|
-
|
|
|
104,798
|
|
|
105,346
|
|
Insurance
expenses
|
|
|
-
|
|
|
336,951
|
|
|
367,945
|
|
Lubricating
oil expenses
|
|
|
-
|
|
|
279,808
|
|
|
422,223
|
|
Repair
and maintenance
|
|
|
-
|
|
|
108,728
|
|
|
134,229
|
|
Stores
expenses
|
|
|
-
|
|
|
114,631
|
|
|
119,134
|
|
Spare
parts expenses
|
|
|
-
|
|
|
118,999
|
|
|
152,534
|
|
Other
operating expenses
|
|
|
-
|
|
|
102,767
|
|
|
74,616
|
|
|
|
|
|
|
|
1,697,496
|
|
|
1,968,865
|
|
Voyage
expenses for the years ended December 31, 2004,
2005 and 2006 consist of the
following:
|
|
2004
|
|
2005
|
|
2006
|
|
Bunker
consumption
|
|
|
-
|
|
|
5,210,470
|
|
|
7,243,111
|
|
Port
dues
|
|
|
-
|
|
|
382,756
|
|
|
448,669
|
|
Tug
dues
|
|
|
-
|
|
|
49,536
|
|
|
80,042
|
|
Mooring/unmooring
|
|
|
-
|
|
|
37,739
|
|
|
49,901
|
|
Pilotage
dues
|
|
|
-
|
|
|
30,794
|
|
|
43,953
|
|
Miscellaneous
expenses
|
|
|
-
|
|
|
54,586
|
|
|
68,445
|
|
|
|
|
-
|
|
|
5,765,881
|
|
|
7,934,121
|
|
Shinyo
Jubilee
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(9)
|
Related
Party Transactions
|
Name
of party
|
|
Relationship
|
|
|
|
Belindtha
Marine Limited (“Belindtha”)
|
|
A
company controlled by a person related
to a director of the
Company
|
|
|
|
Clipper
Group Invest Ltd (“Clipper Group”)
|
|
Shareholder
of the Company’s immediate holding company
|
|
|
|
Shinyo
Clipper Limited (“Shinyo Clipper”)
|
|
A
fellow subsidiary of the Company
|
|
|
|
Univan
Ship Management Limited (“Univan”)
|
|
A
company controlled by a director, Captain
Charles Arthur Joseph
Vanderperre, of the Company and jointly
owned by Charles Arthur Joseph
Vanderperre and Clipper Group
|
|
|
|
Van-Clipper
Holding Co., Ltd. (“Van-Clipper”)
|
|
Immediate
holding company of the Company
|
|
|
|
Vanship
Holdings Limited (“Vanship”)
|
|
Shareholder
of the Company’s immediate holding
company
|
(a)
The
principal related party transactions during the
years ended December 31, 2004,
2005 and 2006 are as follows:
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
|
|
Service
fee to Belindtha
|
|
|
(i)
|
|
|
-
|
|
|
108,484
|
|
|
114,000
|
|
Agency
fee to Univan
|
|
|
(ii)
|
|
|
-
|
|
|
51,387
|
|
|
32,419
|
|
Charter
hire commission to Vanship
|
|
|
(iii)
|
|
|
-
|
|
|
192,989
|
|
|
227,936
|
|
Loan
interest expenses to Van-Clipper
|
|
|
(iv)
|
|
|
64,896
|
|
|
777,110
|
|
|
731,998
|
|
Notes:
|
(i)
|
The
Company has outsourced substantially
all its day to day operations to
Belindtha. The service fee is payable
to Belindtha at a pre-determined
amount in accordance with the terms mutually
agreed by Belindtha and the
Company.
|
|
(ii)
|
Univan
provided agency services to the Company.
The agency fee is payable based
on contractual agreements with the
Company.
|
|
(iii)
|
It
represents standard commission for the
chartering and operation of the
vessel at the rate of 1.25% on the charter
rate as stipulated on the
charter party agreement with prospective
charterers, subject to a maximum
of $625 per day to Vanship.
|
|
(iv)
|
The
balance represents interest expense on
a loan facility provided by
Van-Clipper. Terms of loan details are
set out in Note 9(b)(vi)
below.
|
Shinyo
Jubilee
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(9)
|
Related
Party Transactions
(continued)
|
(b)
Amounts
due from and due to related parties as of December
31, 2005 and 2006 are as
follows:
|
|
|
|
2005
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
Amount
due from related party:
|
|
|
|
|
|
|
|
Amount
due from Univan
|
|
|
(i)
|
|
|
-
|
|
|
126,509
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
due to related parties:
|
|
|
|
|
|
|
|
|
|
|
Amount
due to Univan
|
|
|
(ii)
|
|
|
570,649
|
|
|
-
|
|
Amount
due to Van-Clipper
|
|
|
(iii)
|
|
|
1,192,006
|
|
|
1,081,998
|
|
Amount
due to Vanship
|
|
|
(iv)
|
|
|
32,007
|
|
|
30,169
|
|
Amount
due to Shinyo Clipper
|
|
|
(v)
|
|
|
206,367
|
|
|
-
|
|
|
|
|
|
|
|
2,001,029
|
|
|
1,112,167
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
from related party:
|
|
|
|
|
|
|
|
|
|
|
Van-Clipper
|
|
|
(vi)
|
|
|
14,031,100
|
|
|
14,031,100
|
|
Notes:
|
(i)
|
The
balance represents advance payments for
expenses to be paid by Univan on
behalf of the Company. The balance is
unsecured, non-interest bearing and
with no fixed terms of repayment.
|
|
(ii)
|
The
balance represents payable to Univan
for expenses paid on behalf of the
Company. The balance is unsecured, non-interest
bearing and with no fixed
terms of repayment.
|
|
(iii)
|
The
balance represents current account with
Van-Clipper and interest payable
on a loan facility provided by Van-Clipper
as set out in (vi) below. The
current account with Van-Clipper is unsecured,
non-interest bearing and
with no fixed terms of repayment.
|
|
(iv)
|
The
balance represents current account with
Vanship. The current account with
Vanship is unsecured, non-interest bearing
and with no fixed terms of
repayment.
|
|
(v)
|
The
balance represents advance to Shinyo
Clipper for working capital purposes.
The balance is unsecured, non-interest
bearing and with no fixed terms of
repayment.
|
|
(vi)
|
The
balance represents a loan from Van-Clipper.
The loan period is from
September 8, 2004 to December 15, 2012.
Interest is charged at 5.00% per
annum. The interest expense for the years
ended December 31, 2004, 2005
and 2006 was $64,896, $777,110, $731,998
respectively. Interest of $Nil,
$Nil and $842,006 was paid for the years
ended December 31, 2004, 2005 and
2006 respectively.
|
In
accordance with the contractual bank loan arrangements,
the loan from
Van-Clipper shall not be repaid before the bank
loans are repaid in
full.
Shinyo
Jubilee
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
(9)
|
Related
Party Transactions
(continued)
|
(c)
As
of
December 31, 2005 and 2006, long-term bank loan
of $9,000,000 and $6,970,000,
respectively, was guaranteed by Vanship.
(d)
As
of
December 31, 2005 and 2006, long-term bank loan
of $9,000,000 and $6,970,000,
respectively, was guaranteed by Clipper Group.
(10)
|
Commitments
and Contingencies
|
Various
claims, suits, and complaints, including those
involving government regulations
and product liability, arise in the ordinary course
of the shipping business. In
addition, losses may arise from disputes with charterers,
agents, insurance and
other claims with suppliers relating to the operations
of the Company’s vessel.
Currently, management is not aware of any such
claims or contingent liabilities,
which should be disclosed, or for which a provision
should be established in the
accompanying financial statements.
(11)
|
Fair
Value of Financial Instruments
|
The
carrying amounts of cash, trade accounts receivable
and amounts due from/to
related parties, approximate their fair values
because of the short maturity of
these instruments.
The
carrying values of long-term bank loans and loan
from related party approximate
their fair values based on the borrowing rates
currently available to the
Company for bank loans with similar terms and average
maturities.
(12)
|
Business
and Credit
Concentrations
|
The
Company operates in the shipping industry which
historically has been cyclical
with corresponding volatility in profitability.
All the Company’s revenues are
derived from vessel charters. The Company seeks
to mitigate volatilities in its
business by obtaining long-term charter contracts.
The Company has obtained a
long-term consecutive voyage charter contract which
will expire in September
2009.
The
Company outsourced the technical management services
to Belindtha which is
controlled by a person related to a director
of the Company. Belindtha then
sub-contracted its obligations under the outsourcing
arrangement to Univan which
assists Belindtha in providing technical management
services to the Company.
Univan is controlled by Captain Charles Arthur
Joseph Vanderperre, a director of
the Company and is jointly owned by Captain Charles
Arthur Joseph Vanderperre
and Clipper Group, a shareholder of the immediate
holding company of the
Company. All expenses incurred by Univan on behalf
of the Company are charged to
the Company based on actual expenditures incurred
on its behalf. During the
years ended December 31, 2004, 2005 and 2006,
the Company paid service fee of
$Nil, $108,484 and $114,000, respectively, to
Belindtha.
The
Company is engaged in the business of ocean transportation
of crude oil industry
which is extremely competitive and dependent on
the world’s demand for crude
oil. Competition depends on price, location, size,
age, condition and the
acceptability of the vessel to the charterers.
The increase in competition and
the changes in demand for crude oil could result
in lower revenue achieved for
the vessel.
The
following are revenue from a customer that
individually comprises 10% or more of
gross revenue:
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-Oil
Corporation
|
|
|
–
|
|
|
|
|
|
16,317,093
|
|
|
100
|
|
|
20,339,831
|
|
|
100
|
|
The
gross
accounts receivable due from a customer that
individually representing more than
10% of the outstanding accounts receivable
were as follows:
|
|
2005
|
|
2006
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
S-Oil
Corporation
|
|
|
2,535,661
|
|
|
99.7
|
|
|
2,621,116
|
|
|
99.9
|
|
Shinyo
Jubilee
Limited
Notes
to
Financial Statements (continued)
for
the
years ended December 31, 2004, 2005 and 2006
(expressed
in US$)
Pursuant
to a definitive agreement entered into between
Vanship and Energy Infrastructure
Acquisition Corp. (“EIAC”), a company listed on the American Stock Exchange,
on
December 3, 2007 (the “Agreement”), Vanship agreed to sell all of its equity
interests in the Company and other eight related
companies to Energy
Infrastructure Merger Corporation (“EIMC”) (the “Business Combination”), a
wholly-owned subsidiary of EIAC, for an aggregate
consideration of $778,000,000,
consisting of $643,000,000 in cash (subject to
closing adjustments) and
13,500,000 shares of common stock of EIMC (valued
at $10 per share of common
stock). Vanship is entitled to an additional 3,000,000
shares of common stock of
EIMC on each of the first and second anniversaries
of the completion of the
Business Combination, subject to certain earning
criteria.
Approval
of the Business Combination requires the affirmative
vote of the holders of a
majority of the shares of common stock voted at
EIAC’s special meeting of
stockholders, provided that there is a quorum.
In addition, if the EIAC
stockholders approve the Business Combination,
the Business Combination will
only proceed if holders of shares purchased in
EIAC’s initial public offering,
representing less than 30% of the shares sold in
EIAC’s initial public offering
and EIAC’s private placement that occurred immediately prior
to the initial
public offering, exercise their redemption rights
at the time of casting a vote
against the Business Combination.
Pursuant
to the Agreement, Vanship has agreed to purchase
up to 5,000,000 units from EIMC
at a purchase price of $10.00 per unit, but only
to the extent necessary for
EIMC to secure financing for the Business Combination.
Each unit will consist of
one share of EIMC’s common stock and one warrant to purchase one
share of EIMC’s
common stock at an exercise price of $8.00 per
warrant.
Shinyo
Jubilee Limited
Unaudited
Condensed Balance Sheets
as
of
December 31, 2006 and September 30, 2007
(expressed
in US$)
|
|
|
|
December
31, 2006
|
|
September
30, 2007
|
|
|
|
Note
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
3,839,838
|
|
|
10,484,715
|
|
Trade
accounts receivable
|
|
|
|
|
|
2,623,246
|
|
|
175,928
|
|
Prepayments
and other receivables
|
|
|
|
|
|
70,893
|
|
|
733,826
|
|
Supplies
|
|
|
|
|
|
629,321
|
|
|
776,320
|
|
Amount
due from related party
|
|
|
6(b
)
|
|
|
126,509
|
|
|
-
|
|
Total
current assets
|
|
|
|
|
|
7,289,807
|
|
|
12,170,789
|
|
Restricted
cash
|
|
|
|
|
|
357,250
|
|
|
1,000,000
|
|
Deferred
loan costs
|
|
|
|
|
|
27,700
|
|
|
23,694
|
|
Vessel,
net
|
|
|
2
|
|
|
30,278,644
|
|
|
27,609,820
|
|
Total
assets
|
|
|
|
|
|
37,953,401
|
|
|
40,804,303
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term bank loan
|
|
|
3
|
|
|
2,120,000
|
|
|
2,120,000
|
|
Amounts
due to related parties
|
|
|
6(b
)
|
|
|
1,112,167
|
|
|
1,547,078
|
|
Accrued
liabilities and other payables
|
|
|
|
|
|
757,756
|
|
|
921,772
|
|
Total
current liabilities
|
|
|
|
|
|
3,989,923
|
|
|
4,588,850
|
|
Loan
from related party
|
|
|
6(b
)
|
|
|
14,031,100
|
|
|
14,031,100
|
|
Long-term
bank loan
|
|
|
3
|
|
|
11,820,000
|
|
|
10,230,000
|
|
Total
liabilities
|
|
|
|
|
|
29,841,023
|
|
|
28,849,950
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s
equity
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares HK$1 par value per share
10,000
shares authorized; 100 shares issued
and fully paid as of December 31,
2006/September 30, 2007
|
|
|
|
|
|
13
|
|
|
13
|
|
Retained
earnings
|
|
|
|
|
|
8,112,365
|
|
|
11,954,340
|
|
Total
shareholder’s equity
|
|
|
|
|
|
8,112,378
|
|
|
11,954,353
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholder’s equity
|
|
|
|
|
|
37,953,401
|
|
|
40,804,303
|
|
See
accompanying notes to the unaudited condensed
financial statements.
Shinyo
Jubilee Limited
Unaudited
Condensed Statements of Income
for
the
nine-month periods ended September 30, 2006 and
2007
(expressed
in US$)
|
|
|
|
2006
|
|
2007
|
|
|
|
Note
|
|
|
|
|
|
Operating
revenue
|
|
|
|
|
|
|
|
Revenue
|
|
|
4
|
|
|
15,309,025
|
|
|
15,216,354
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
|
|
|
1,449,027
|
|
|
1,618,144
|
|
Voyage
expenses
|
|
|
|
|
|
6,044,357
|
|
|
5,536,869
|
|
Depreciation
expenses
|
|
|
|
|
|
2,668,824
|
|
|
2,668,824
|
|
Commission
|
|
|
|
|
|
553,162
|
|
|
537,856
|
|
Management
fee
|
|
|
6(a
)
|
|
|
85,500
|
|
|
85,500
|
|
Administrative
expenses
|
|
|
|
|
|
42,111
|
|
|
47,282
|
|
Total
operating expenses
|
|
|
|
|
|
10,842,981
|
|
|
10,494,475
|
|
Operating
income
|
|
|
|
|
|
4,466,044
|
|
|
4,721,879
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
65,422
|
|
|
299,379
|
|
Interest
expense
|
|
|
|
|
|
(1,299,310
|
)
|
|
(1,180,420
|
)
|
Write-off
of deferred loan costs
|
|
|
|
|
|
(65,307
|
)
|
|
-
|
|
Other,
net
|
|
|
|
|
|
2,065
|
|
|
1,137
|
|
Total
other expense
|
|
|
|
|
|
(1,297,130
|
)
|
|
(879,904
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
|
|
|
3,168,914
|
|
|
3,841,975
|
|
Income
taxes
|
|
|
5
|
|
|
-
|
|
|
-
|
|
Net
income
|
|
|
|
|
|
3,168,914
|
|
|
3,841,975
|
|
(a)
Includes the following expenses resulting from
transactions with related parties
(see note 6(a)):
|
|
2006
|
|
2007
|
|
Vessel
operating expenses
|
|
|
|
|
|
-
Agency fee
|
|
|
(23,419
|
)
|
|
(27,000
|
)
|
Management
fee
|
|
|
(85,500
|
)
|
|
(85,500
|
)
|
Commission
|
|
|
(170,436
|
)
|
|
(157,447
|
)
|
Interest
expense
|
|
|
(552,712
|
)
|
|
(536,486
|
)
|
See
accompanying notes to the unaudited condensed
financial statements.
Shinyo
Jubilee Limited
Unaudited
Condensed Statements of Shareholder’s Equity
for
the
nine-month periods ended September 30, 2006 and
2007
(expressed
in US$)
|
|
Ordinary
shares
|
|
|
|
|
|
|
|
Number
of shares
|
|
Amount
|
|
Retained
earnings
|
|
Total
shareholder’s
equity
|
|
Balance
as of January 1, 2006
|
|
|
100
|
|
|
13
|
|
|
3,809,853
|
|
|
3,809,866
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
3,168,914
|
|
|
3,168,914
|
|
Balance
as of September 30, 2006
|
|
|
100
|
|
|
13
|
|
|
6,978,767
|
|
|
6,978,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
|
100
|
|
|
13
|
|
|
8,112,365
|
|
|
8,112,378
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
3,841,975
|
|
|
3,841,975
|
|
Balance
as of September 30, 2007
|
|
|
100
|
|
|
13
|
|
|
11,954,340
|
|
|
11,954,353
|
|
See
accompanying notes to the unaudited condensed
financial statements.
Shinyo
Jubilee Limited
Unaudited
Condensed Statements of Cash Flows
for
the
nine-month periods ended September 30, 2006
and 2007
(expressed
in US$)
|
|
2006
|
|
2007
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
income
|
|
|
3,168,914
|
|
|
3,841,975
|
|
Adjustments
to reconcile net income to net cash
from operating
activities:
|
|
|
|
|
|
|
|
Depreciation
expenses
|
|
|
2,668,824
|
|
|
2,668,824
|
|
Amortization
of deferred loan cost
|
|
|
14,270
|
|
|
4,006
|
|
Write-off
of deferred loan costs
|
|
|
65,307
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
(143,880
|
)
|
|
2,447,318
|
|
Prepayments
and other receivables
|
|
|
(225,334
|
)
|
|
(662,933
|
)
|
Supplies
|
|
|
(262,007
|
)
|
|
(146,999
|
)
|
Amount
due from related party
|
|
|
(351,516
|
)
|
|
126,509
|
|
Amounts
due to related parties
|
|
|
(862,486
|
)
|
|
434,911
|
|
Accrued
liabilities and other payables
|
|
|
(683,788
|
)
|
|
164,016
|
|
Net
cash provided by operating activities
|
|
|
3,388,304
|
|
|
8,877,627
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Increase
in restricted cash
|
|
|
-
|
|
|
(642,750
|
)
|
Net
cash used in investing activities
|
|
|
-
|
|
|
(642,750
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Proceeds
from long-term bank loan
|
|
|
15,000,000
|
|
|
-
|
|
Repayment
of long-term bank loan
|
|
|
(18,530,000
|
)
|
|
(1,590,000
|
)
|
Payment
of loan costs
|
|
|
(30,714
|
)
|
|
-
|
|
Net
cash used in financing activities
|
|
|
(3,560,714
|
)
|
|
(1,590,000
|
)
|
|
|
|
|
|
|
|
|
Net
(decrease)/increase in cash
|
|
|
(172,410
|
)
|
|
6,644,877
|
|
Cash:
|
|
|
|
|
|
|
|
At
beginning of period
|
|
|
1,315,633
|
|
|
3,839,838
|
|
At
end of period
|
|
|
1,143,223
|
|
|
10,484,715
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
2006
|
|
2007
|
|
Cash
paid during the period for:
|
|
|
|
|
|
Interest
|
|
|
1,740,529
|
|
|
1,301,715
|
|
See
accompanying notes to the unaudited condensed
financial statements.
Shinyo
Jubilee Limited
Notes
to
the Unaudited Condensed Financial Statements
for
the
nine-month periods ended September 30, 2006
and 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting
Policies
|
|
(a)
|
Description
of Business
|
Shinyo
Jubilee Limited (the “Company”), a company engaged in the business of ocean
transportation of crude oil worldwide, was
established in Hong Kong on September
8, 2003. The principal activity of the Company
is the ownership and chartering
of the vessel “Shinyo Jubilee”. Shinyo Jubilee was delivered in 1988 and
was a
second hand vessel acquired by the Company
in January 2005. It is a
single-hulled very large crude oil carrier
with capacity of 250,192 deadweight
tonnage.
The
Company has outsourced substantially all its
day-to-day operations to its
related party, Belindtha Marine Limited (“Belindtha”), a company controlled by a
person related to a director of the Company.
Belindtha then sub-contracted its
obligations under the outsourcing arrangement
to Univan Ship Management Limited
(“Univan”) which assists Belindtha in providing technical
management services to
the Company. Univan is controlled by Captain
Charles Arthur Joseph Vanderperre,
a director of the Company, and is jointly owned
by Captain Charles Arthur Joseph
Vanderperre and Clipper Group Invest Ltd, a shareholder
of the immediate holding
company of the Company. All expenses incurred
by Univan on behalf of the Company
are charged to the Company based on the actual
expenditures incurred on its
behalf. In addition, Univan provides administrative
services to the
Company.
In
October 2005, the Company entered into continuous
voyage contracts with S-Oil Corporation pursuant
to which the Company is paid a
freight rate on the basis of moving quantity
of crude oil from a loading port to
port of discharge.
|
(b)
|
Basis
of Presentation
|
The
accompanying unaudited condensed financial statements
as of September 30, 2007
and for the nine-month periods ended September
30, 2006 and 2007 have been
prepared in accordance with accounting principles
generally accepted in
the
United
States of America (“US GAAP”). Certain information and footnote disclosures
normally included in financial statements prepared
in accordance with US GAAP
have been condensed or omitted as permitted by
rules and regulations of the U.S.
Securities and Exchange Commission. Disclosures
have been made to these
unaudited condensed financial statements where
events subsequent to year ended
December 31, 2006 have occurred which have a
material impact on the Company. The
accompanying unaudited condensed financial statements
should be read in
conjunction with the financial statements and
the notes thereto, for the fiscal
year ended December 31, 2006. The December 31,
2006 balance sheet was derived
from the audited financial statements of the
Company.
In
the
opinion of the management, all adjustments (which
include normal accruals)
necessary to present a fair statement of the
financial position of the Company
as of September 30, 2007, and the results of
its operations and cash flows for
the nine-month periods ended September 30, 2006
and 2007, in conformity with US
GAAP, have been made. The unaudited condensed
statements of income for the
nine-month periods ended September 30, 2006 and
2007 are not necessarily
indicative of the operating results to be expected
for the full fiscal year or
any future periods.
The
basis
of accounting differs in certain material respects
from that used in the
preparation of the books of account of the Company,
which are prepared in
accordance with the accounting principles of
the country of its domicile. The
accompanying unaudited condensed financial statements
reflect necessary
adjustments not recorded in the books of the
Company to present them in
conformity with US GAAP.
Shinyo
Jubilee Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month periods ended September 30, 2006
and 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
The
preparation of the financial statements requires
management of the Company to
make a number of estimates and assumptions relating
to the reported amounts of
assets and liabilities and the disclosure of
contingent assets and liabilities
at the date of the financial statements and the
reported amounts of revenues and
expenses during the reporting period. Significant
items subject to such
estimates and assumptions include the estimated
useful life of the vessel
(including drydocking costs), residual value
and recovery of the carrying amount
of the vessel. Actual results could differ from
those estimates.
In
the
normal course of business, the Company is subject
to loss contingencies, such as
legal proceedings and claims arising out of its
business. An accrual for a loss
contingency is recognized when it is probable
that a liability will be incurred
and the amount of the loss can be reasonably
estimated.
|
(e)
|
Recently
Issued Accounting
Standards
|
In
September 2006, the Financial Accounting Standards
Board (“FASB”) issued FASB
Statement No. 157,
Fair
Value Measurement
(Statement
157). Statement 157 defines fair value, establishes
a framework for the
measurement of fair value measures already required
or permitted by other
standards for fiscal years beginning after November
15, 2007. The Company is
required to adopt Statement 157 for the fiscal
years beginning on January 1,
2008. Statement 157 is required to be applied
prospectively, except for certain
financial instruments. Any transition adjustment
will be recognized as an
adjustment to opening retained earnings in the
year of adoption. The Company
does not anticipate that the adoption of Statement
157 will have a material
impact on its results of operations and financial
position.
In
February 2007, the FASB issued FASB Statement
No. 159,
The
Fair Value Option for Financial Assets and Financial
Liabilities - Including an
Amendment of FASB Statement No. 115
(Statement
159)
.
Statement
159 permits an entity to elect fair value as
the initial and subsequent
measurement attribute for many financial assets
and liabilities. Entities
electing the fair value option would be required
to recognize changes in fair
value in earnings. Entities electing the fair
value option are required to
distinguish, on the face of the balance sheet,
the fair value of assets and
liabilities for which the fair value option has
been elected and similar assets
and liabilities measured using another measurement
attribute. Statement 159 will
be effective for fiscal years beginning after
November 15, 2007. The adjustment
to reflect the difference between the fair value
and the carrying amount would
be accounted for as a cumulative-effect adjustment
to retained earnings as of
the date of initial adoption. The Company does
not anticipate that the adoption
of the provisions of Statement 159 will have
a material impact on its results of
operations and financial position.
Shinyo
Jubilee Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month periods ended September 30, 2006
and 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(e)
|
Recently
Issued Accounting
Standards
|
In
December 2007, the FASB issued FASB Statement
No. 160,
Noncontrolling
Interests in Consolidated Financial Statements
- an Amendment of ARB No. 51
(Statement
160). Statement 160 establishes accounting and
reporting standards for the
noncontrolling interest in a subsidiary and for
the deconsolidation of a
subsidiary. Statement 160 will be effective for
the fiscal year beginning after
December 15, 2008. The Company does not anticipate
that the adoption of the
provisions of Statement 160 will have a material
impact on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement
No. 141 (Revised),
Business
Combinations
(Statement
141(R)). Statement 141(R) establishes principles
and requirements for how the
acquirer of a business recognizes and measures
in its financial statements the
identifiable assets acquired, the liabilities
assumed, and any noncontrolling
interest in the acquiree. Statement 141(R) also
provides guidance for
recognizing and measuring the goodwill acquired
in the business combination and
determines what information to disclose to enable
users of the financial
statements to evaluate the nature and financial
effects of the business
combination. Statement 141(R) will be effect
for fiscal years beginning after
December 15, 2008. The Company does not anticipate
the adoption of the
provisions of Statement 141(R) will have a material
impact on its results of
operations and financial position.
|
|
December
31, 2006
|
|
September
30, 2007
|
|
Vessel
|
|
|
|
|
|
Cost
|
|
|
36,690,023
|
|
|
36,690,023
|
|
Accumulated
depreciation
|
|
|
(6,411,379
|
)
|
|
(9,080,203
|
)
|
Vessel,
net
|
|
|
30,278,644
|
|
|
27,609,820
|
|
The
vessel is mortgaged as described in Note 3.
Drydocking
costs of $1,690,023 were capitalized for the
year ended December 31, 2005. As of
December 31, 2006 and September 30, 2007, undepreciated
carrying amount of the
drydocking costs was $901,345 and $394,339, respectively.
For
the
periods ended September 30, 2006 and 2007, $507,006
and $507,006 of drydocking
costs were expensed as depreciation, respectively.
Shinyo
Jubilee Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month periods ended September 30, 2006 and
2007
(expressed
in US$)
Lender/period
|
|
December
31, 2006
|
|
September
30, 2007
|
|
|
|
|
|
|
|
HSH
Nordbank AG, Nordea Bank Danmark A/S,
and DVB Group Merchant Bank (Asia)
Ltd
|
|
|
|
|
|
June
9, 2006 to February 29, 2012
|
|
|
13,940,000
|
|
|
12,350,000
|
|
|
|
|
13,940,000
|
|
|
12,350,000
|
|
|
|
|
|
|
|
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
2,120,000
|
|
|
2,120,000
|
|
Non-current
portion
|
|
|
11,820,000
|
|
|
10,230,000
|
|
|
|
|
13,940,000
|
|
|
12,350,000
|
|
In
2005,
a bank loan of $21,000,000 was obtained from
Nordea Bank Danmark A/S. This loan
carried interest at LIBOR plus 1.50% per annum.
The interest expense for the
period ended September 30, 2006 was $437,052.
On
June
9, 2006, the Company refinanced the above loan
arrangement and repaid the
existing loan and obtained a new loan of $15,000,000.
The loan carried interest
at LIBOR plus 1.00% per annum (6.36% and 6.54%
as of December 31, 2006 and
September 30, 2007, respectively). The interest
expense for the periods ended
September 30, 2006 and 2007 was $295,276 and
$639,928, respectively.
As
of
December 31, 2006 and September 30, 2007, bank
loan is secured as
follows:
|
|
December
31,
2006
|
|
September
30,
2007
|
|
Secured
by:
|
|
|
|
|
|
Restricted
cash
|
|
|
375,250
|
|
|
1,000,000
|
|
Vessel
|
|
|
30,278,644
|
|
|
27,609,820
|
|
The
bank
loan is also guaranteed by Vanship Holdings Limited
and Clipper Group Invest
Ltd, both are shareholders of the Company’s immediate holding company, as of
December 31, 2006 and September 30, 2007.
The
Company’s revenue for the nine-month periods ended
September 30, 2006 and 2007
represents revenue generated from voyage charter
agreements.
Shinyo
Jubilee Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month periods ended September 30, 2006 and
2007
(expressed
in US$)
Under
the
laws of the countries of the Company’s incorporation and/or vessel’s
registration, the Company is not subject to tax
on international shipping
income. However, it is subject to registration
and tonnage taxes, which are
charged by the country of which the vessel is
registered at a fixed rate based
on the tonnage of the vessel. Registration and
tonnage taxes have been included
in vessel operating expenses in the accompanying
statements of income.
In
June
2006, the Financial Accounting Standards Board
(“FASB”) issued FASB
Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation
of FASB Statement
109
(FIN
48). FIN 48 clarifies the accounting for uncertainty
in income taxes recognized
in an enterprise’s financial statements and prescribes a threshold
of
more-likely-than-not for recognition of tax benefits
of uncertain tax positions
taken or expected to be taken in a tax return.
FIN 48 also provides related
guidance on measurement, derecognition, classification,
interest and penalties,
and disclosure. The provisions of FIN 48 will
be effective for the fiscal years
beginning after December 15, 2006, with any cumulative
effect of the change in
accounting principle recorded as an adjustment
to opening retained earnings.
Effective from January 1, 2007, the Company adopted
the provision of FIN 48. As
of the date of the adoption of FIN 48, the Company
has no material unrecognized
tax benefit which would favorably affect the
effective income tax rate in future
periods and do not believe there will be any
significant increases or decreases
within the next twelve months. The Company has
elected to classify interest and
penalties related to unrecognized tax benefits,
if and when required, as part of
interest expense and administrative expense in
the statements of income. No
interest or penalties in respect of unrecognized
tax benefits have been accrued
at the date of adoption.
According
to the Inland Revenue Ordinance of Hong Kong,
the statute of limitations is
seven years (i.e. calendar years 2003 to
2007 for the Company) if the
underpayment of taxes is due to omission
or errors made by either the taxpayer
or the withholding agent. The statute of
limitations will be extended to ten
years (i.e. calendar years 2003 to 2007 for
the Company) in case of tax evasion.
According
to the Internal Revenue Code of the United
States of America, the statute of
limitations is three years (i.e. calendar
years 2005 to 2007 for the Company) if
the underpayment of taxes is due to omission
or errors made by either the
taxpayer or withholding agent. There is no
statute of limitations in the case of
tax evasion.
(6)
|
Related
Party Transactions
|
Name
of party
|
|
Relationship
|
Belindtha
Marine Limited (“Belindtha”)
|
|
A
company controlled by a person related
to a director of the
Company
|
|
|
|
Clipper
Group Invest Ltd (“Clipper Group”)
|
|
Shareholder
of the immediate holding company
of the Company
|
|
|
|
Univan
Ship Management Limited (“Univan”)
|
|
A
company controlled by a director,
Captain Charles Arthur Joseph
Vanderperre, of the Company and is
jointly owned by Captain Charles
Arthur
Joseph Vanderperre and Clipper Group.
|
|
|
|
Van-Clipper
Holding Co., Ltd. (“Van-Clipper”)
|
|
Immediate
holding company of the Company
|
|
|
|
Vanship
Holdings Limited (“Vanship”)
|
|
Shareholder
of the immediate holding company
of the
Company
|
Shinyo
Jubilee Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month periods ended September 30, 2006 and
2007
(expressed
in US$)
(6)
|
Related
Party Transactions
(continued)
|
(a)
|
The
principal related party transactions
during the periods ended September
30, 2006 and 2007 are as follows:
|
|
|
|
|
Nine-Month Periods Ended September 30,
|
|
|
|
|
|
2006
|
|
2007
|
|
|
|
Note
|
|
|
|
|
|
Service
fee to Belindtha
|
|
|
(i)
|
|
|
85,500
|
|
|
85,500
|
|
Agency
fee to Univan
|
|
|
(ii)
|
|
|
23,419
|
|
|
27,000
|
|
Charter
hire commission to Vanship
|
|
|
(iii)
|
|
|
170,436
|
|
|
157,447
|
|
Loan
interest expense to Van-Clipper
|
|
|
(iv)
|
|
|
552,712
|
|
|
536,486
|
|
Notes:
|
(i)
|
The
Company has outsourced substantially
all its day-to-day operations to
Belindtha. The service fee is payable
to Belindtha at a pre-determined
amount in accordance with the terms
mutually agreed by Belindtha and the
Company.
|
|
(ii)
|
Univan
provided agency services to the Company.
The agency fee is payable based
on contractual agreements with the
Company.
|
|
(iii)
|
It
represents standard commission for
the chartering and operation of the
vessel at 1.25% on the charter rate
as stipulated on the charter party
agreement with prospective charterers,
subject to a maximum of $625 per
day to Vanship.
|
|
(iv)
|
The
balance represents interest expense
on a loan facility provided by
Van-Clipper. Terms of loan facility
details are set out in Note 6(b)(v)
below.
|
(b)
|
Amounts
due from and due to related parties
as of December 31, 2006 and September
30, 2007 are as follows:
|
|
|
|
|
December 31,
2006
|
|
September 30,
2007
|
|
|
|
Note
|
|
|
|
|
|
Amount
due from related party:
|
|
|
|
|
|
|
|
Amount
due from Univan
|
|
|
(i)
|
|
|
126,509
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
due to related parties:
|
|
|
|
|
|
|
|
|
|
|
Amount
due to Van-Clipper
|
|
|
(ii)
|
|
|
1,081,998
|
|
|
886,486
|
|
Amount
due to Vanship
|
|
|
(iii)
|
|
|
30,169
|
|
|
38,684
|
|
Amount
due to Univan
|
|
|
(iv)
|
|
|
-
|
|
|
621,908
|
|
|
|
|
|
|
|
1,112,167
|
|
|
1,547,078
|
|
Loan
from related party:
|
|
|
|
|
|
|
|
|
|
|
Van-Clipper
|
|
|
(v)
|
|
|
14,031,100
|
|
|
14,031,100
|
|
Shinyo
Jubilee Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month periods ended September 30, 2006 and
2007
(expressed
in US$)
(6)
|
Related
Party Transactions
(continued)
|
(b)
|
Amounts
due from and due to related parties
as of December 31, 2006 and September
30, 2007 are as follows
(continued):
|
Notes:
|
(i)
|
The
balance represents advance payments
for expenses to be paid by Univan on
behalf of the Company. The balance
is unsecured, non-interest bearing
and
with no fixed terms of repayment.
|
|
(ii)
|
The
balance represents current account
with Van-Clipper and interest payable
to Van-Clipper on a loan facility provided
by Van-Clipper set out in (v)
below. The current account with Van-Clipper
is unsecured, non-interest
bearing and with no fixed terms of
repayment.
|
|
(iii)
|
The
balance represents current account
with Vanship. The current account with
Vanship is unsecured, non-interest
bearing and with no fixed terms of
repayment.
|
|
(iv)
|
The
balance represents payable to Univan
for expenses paid on behalf of the
Company in relation to the provision
of technical management service. The
balance is unsecured, non-interest
bearing and with no fixed terms of
repayment.
|
|
(v)
|
The
balance represents a loan facility
provided by Van-Clipper with maximum
draw down balance of $14,031,100. The
loan facility period is from
September 8, 2004 to December 15, 2012.
Interest is charged at 5.00% per
annum on draw down balance. The interest
expense for the periods ended
September 30, 2006 and 2007 was $552,712
and $536,486 respectively.
Interest of $842,006 and $731,998 was
paid for the periods ended September
30, 2006 and 2007 respectively.
|
In
accordance with the contractual bank loan arrangements,
the loan from
Van-Clipper shall not be repaid before the bank
loans are repaid in
full.
(c)
|
As
of December 31, 2006 and September
30, 2007, long-term bank loan of
$6,970,000 and $6,175,000, respectively,
was guaranteed by Vanship.
|
(d)
|
As
of December 31, 2006 and September
30, 2007, long-term bank loan of
$6,970,000 and $6,175,000, respectively,
was guaranteed by Clipper Group.
|
(7)
|
Commitments
and Contingencies
|
Various
claims, suits, and complaints, including those
involving government regulations
and product liability, arise in the ordinary
course of the shipping business. In
addition, losses may arise from disputes with
charterers, agents, insurance and
other claims with suppliers relating to the operations
of the Company’s vessel.
Currently, management is not aware of any such
claims or contingent liabilities,
which should be disclosed, or for which a provision
should be established in the
accompanying financial statements.
Shinyo
Jubilee Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month periods ended September 30, 2006 and
2007
(expressed
in US$)
(8)
|
Fair
Value of Financial Instruments
|
The
carrying amounts of cash, trade accounts receivable
and amounts due from/to
related parties, approximate their fair values
because of the short maturity of
these instruments.
The
carrying values of long-term bank loan and loan
from related party approximate
their fair values based on the borrowing rates
currently available to the
Company for bank loans with similar terms and
average maturities.
(9)
|
Business
and Credit
Concentrations
|
The
Company operates in the shipping industry which
historically has been cyclical
with corresponding volatility in profitability.
All the Company’s revenues are
derived from vessel charters. The Company seeks
to mitigate volatilities in its
business by obtaining long-term charter contracts.
The Company has obtained a
long-term consecutive voyage charter contract
which will expire in September
2009.
The
Company outsourced the technical management
services to Belindtha which is
controlled by a person related to a director
of the Company. Belindtha then
sub-contracted its obligations under the outsourcing
arrangement to Univan which
assists Belindtha in providing technical management
services to the Company.
Univan is controlled by Captain Charles Arthur
Joseph Vanderperre, a director of
the Company and is jointly owned by Captain
Charles Arthur Joseph Vanderperre
and Clipper Group, a shareholder of the immediate
holding company of the
Company. All expenses incurred by Univan on
behalf of the Company are charged to
the Company based on the actual expenditures
incurred on its behalf. During the
periods ended September 30, 2006 and 2007,
the Company paid service fee of
$85,500 each period to Belindtha.
The
Company is engaged in the business of ocean transportation
of crude oil industry
which is extremely competitive and dependent
on the world’s demand for crude
oil. Competition depends on price, location,
size, age, condition and the
acceptability of the vessel to the charterers.
The increase in competition and
the changes in demand for crude oil could result
in lower revenue achieved for
the vessel.
The
following are revenue from a customer that
individually comprises 10% or more of
gross revenue:
|
|
Nine-month Period Ended September 30,
|
|
|
|
2006
|
|
2007
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
S-Oil
Corporation
|
|
|
15,309,025
|
|
|
100
|
|
|
15,216,354
|
|
|
100
|
|
The
gross
accounts receivable due from a customer
that individually representing more than
10% of the outstanding accounts receivable
were as follows:
|
|
December
31,
2006
|
|
September
30,
2007
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
S-Oil
Corporation
|
|
|
2,623,246
|
|
|
100
|
|
|
175,928
|
|
|
100
|
|
Pursuant
to a definitive agreement entered into between
Vanship and Energy Infrastructure
Acquisition Corp. (“EIAC”), a company listed on the American Stock Exchange,
on
December 3, 2007 (the “Agreement”), Vanship agreed to sell all of its equity
interests in the Company and other eight related
companies to Energy
Infrastructure Merger Corporation (“EIMC”) (the “Business Combination”), a
wholly-owned subsidiary of EIAC, for an aggregate
consideration of $778,000,000,
consisting of $643,000,000 in cash (subject to
closing adjustments) and
13,500,000 shares of common stock of EIMC (valued
at $10 per share of common
stock). Vanship is entitled to an additional
3,000,000 shares of common stock of
EIMC on each of the first and second anniversaries
of the completion of the
Business Combination, subject to certain earning
criteria.
Approval
of the Business Combination requires the affirmative
vote of the holders of a
majority of the shares of common stock voted
at EIAC’s special meeting of
stockholders, provided that there is a quorum.
In addition, if the EIAC
stockholders approve the Business Combination,
the Business Combination will
only proceed if holders of shares purchased in
EIAC’s initial public offering,
representing less than 30% of the shares sold
in EIAC’s initial public offering
and EIAC’s private placement that occurred immediately
prior to the initial
public offering, exercise their redemption rights
at the time of casting a vote
against the Business Combination.
Shinyo
Jubilee Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
nine-month periods ended September 30, 2006
and 2007
(expressed
in US$)
(10)
|
Subsequent
Events (continued)
|
Pursuant
to the Agreement, Vanship has agreed to purchase
up to 5,000,000 units from EIMC
at a purchase price of $10.00 per unit, but only
to the extent necessary for
EIMC to secure financing for the Business Combination.
Each unit will consist of
one share of EIMC’s common stock and one warrant to purchase one
share of EIMC’s
common stock at an exercise price of $8.00 per
warrant.
Report
of Independent Registered Public Accounting
Firm
The
Board
of Directors and Shareholder of
Shinyo
Mariner Limited:
We
have
audited the accompanying balance sheets of Shinyo Mariner Limited
(the
“Company”) as of December 31, 2005 and 2006, and the related statements
of
operations, shareholder’s (deficit)/equity, and cash flows for the period from
December 22, 2004 (date of incorporation) to December 31, 2004,
and the years
ended December 31, 2005 and 2006. These financial statements are
the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public
Company
Accounting Oversight Board (United States). Those standards require
that we plan
and perform the audit to obtain reasonable assurance about whether
the financial
statements are free of material misstatement. An audit includes
examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial
statements. An audit also includes assessing the accounting principles
used and
significant estimates made by management, as well as evaluating
the overall
financial statement presentation. We believe that our audits provide
a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly,
in all
material respects, the financial position of Shinyo Mariner Limited
as of
December 31, 2005 and 2006, and the results of its operations and
its cash flows
for the period from December 22, 2004 (date of incorporation) to
December 31,
2004, and the years ended December 31, 2005 and 2006, in conformity
with U.S.
generally accepted accounting principles.
/s/
KPMG
Hong
Kong, China
February
11, 2008
Shinyo
Mariner Limited
Balance
Sheets
as
of
December 31, 2005 and 2006
(expressed
in US$)
|
|
|
|
2005
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
1,461,909
|
|
|
356,560
|
|
Trade
accounts receivable
|
|
|
|
|
|
355,060
|
|
|
1,024,850
|
|
Prepayments
and other receivables
|
|
|
|
|
|
54,728
|
|
|
20,348
|
|
Supplies
|
|
|
2
|
|
|
42,168
|
|
|
1,177,842
|
|
Amounts
due from related parties
|
|
|
8(b)
|
|
|
91,500
|
|
|
3,479
|
|
Total
current assets
|
|
|
|
|
|
2,005,365
|
|
|
2,583,079
|
|
Restricted
cash
|
|
|
|
|
|
750,000
|
|
|
-
|
|
Deferred
loan costs
|
|
|
|
|
|
139,012
|
|
|
72,105
|
|
Vessel,
net
|
|
|
3
|
|
|
55,006,958
|
|
|
55,216,576
|
|
Total
assets
|
|
|
|
|
|
57,901,335
|
|
|
57,871,760
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term bank loans
|
|
|
4
|
|
|
6,000,000
|
|
|
7,200,000
|
|
Amounts
due to related parties
|
|
|
8(b)
|
|
|
1,009,907
|
|
|
1,279,221
|
|
Accrued
liabilities and other payables
|
|
|
5
|
|
|
309,357
|
|
|
4,679,505
|
|
Total
current liabilities
|
|
|
|
|
|
7,319,264
|
|
|
13,158,726
|
|
Loan
from related party
|
|
|
8(b)
|
|
|
12,650,000
|
|
|
15,150,000
|
|
Long-term
bank loans
|
|
|
4
|
|
|
34,500,000
|
|
|
28,200,000
|
|
Total
liabilities
|
|
|
|
|
|
54,469,264
|
|
|
56,508,726
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s
equity
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares HK$ 1 par value per share
10,000
shares authorized; 1 share issued and fully paid as of
December
31
|
|
|
|
|
|
-
|
|
|
-
|
|
Retained
earnings
|
|
|
|
|
|
3,432,071
|
|
|
1,363,034
|
|
Total
shareholder’s equity
|
|
|
|
|
|
3,432,071
|
|
|
1,363,034
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholder’s equity
|
|
|
|
|
|
57,901,335
|
|
|
57,871,760
|
|
See
accompanying notes to the financial statements.
Shinyo
Mariner Limited
Statements
of Operations
for
the
period from December 22, 2004 (date of incorporation) to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
6
|
|
|
-
|
|
|
11,498,032
|
|
|
8,857,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
7
|
|
|
-
|
|
|
1,535,566
|
|
|
2,169,892
|
|
Voyage
expenses
|
|
|
|
|
|
-
|
|
|
-
|
|
|
589,432
|
|
Depreciation
expenses
|
|
|
|
|
|
-
|
|
|
3,693,042
|
|
|
4,634,658
|
|
Management
fee
|
|
|
8(a)
|
|
|
-
|
|
|
91,935
|
|
|
114,000
|
|
Commission
|
|
|
|
|
|
-
|
|
|
383,230
|
|
|
288,603
|
|
Administrative
expenses
|
|
|
|
|
|
1,195
|
|
|
79,071
|
|
|
55,937
|
|
Total
operating expenses
|
|
|
|
|
|
1,195
|
|
|
5,782,844
|
|
|
7,852,522
|
|
Operating
(loss)/income
|
|
|
|
|
|
(1,195
|
)
|
|
5,715,188
|
|
|
1,004,600
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
-
|
|
|
54,069
|
|
|
158,870
|
|
Interest
expense
|
|
|
|
|
|
(8,153
|
)
|
|
(2,318,385
|
)
|
|
(3,099,923
|
)
|
Write-off
of deferred loan costs
|
|
|
|
|
|
-
|
|
|
-
|
|
|
(129,212
|
)
|
Other,
net
|
|
|
|
|
|
-
|
|
|
(9,453
|
)
|
|
(3,372
|
)
|
Total
other expense
|
|
|
|
|
|
(8,153
|
)
|
|
(2,273,769
|
)
|
|
(3,073,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/income
before income taxes
|
|
|
|
|
|
(9,348
|
)
|
|
3,441,419
|
|
|
(2,069,037
|
)
|
Income
taxes
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)/income
|
|
|
|
|
|
(9,348
|
)
|
|
3,441,419
|
|
|
(2,069,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Includes the following expenses resulting from transactions
with related
parties (see note 8(a)):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
Vessel
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Agency fee
|
|
|
|
|
|
-
|
|
|
(29,032
|
)
|
|
(37,064
|
)
|
Management
fee
|
|
|
|
|
|
-
|
|
|
(91,935
|
)
|
|
(114,000
|
)
|
Commission
|
|
|
|
|
|
-
|
|
|
(143,725
|
)
|
|
(98,105
|
)
|
Interest
expense
|
|
|
|
|
|
(8,153
|
)
|
|
(691,222
|
)
|
|
(669,686
|
)
|
See
accompanying notes to the financial statements.
Shinyo
Mariner Limited
Statements
of Shareholder’s (Deficit)/Equity
for
the
period from December 22, 2004 (date of incorporation) to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
|
|
|
|
Ordinary
shares
|
|
(Accumulated
|
|
Total
|
|
|
|
|
|
Number
of
shares
|
|
Amount
|
|
loss)/retained
earnings
|
|
shareholder’s
(deficit)/equity
|
|
|
|
Note
|
|
|
|
|
|
|
|
|
|
Balance
as of December 22, 2004
|
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Capital
injected upon incorporation
|
|
|
1
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
loss
|
|
|
|
|
|
-
|
|
|
-
|
|
|
(9,348
|
)
|
|
(9,348
|
)
|
Balance
as of December 31, 2004
|
|
|
|
|
|
1
|
|
|
-
|
|
|
(9,348
|
)
|
|
(9,348
|
)
|
Net
income
|
|
|
|
|
|
-
|
|
|
-
|
|
|
3,441,419
|
|
|
3,441,419
|
|
Balance
as of December 31, 2005
|
|
|
|
|
|
1
|
|
|
-
|
|
|
3,432,071
|
|
|
3,432,071
|
|
Net
loss
|
|
|
|
|
|
-
|
|
|
-
|
|
|
(2,069,037
|
)
|
|
(2,069,037
|
)
|
Balance
as of December 31, 2006
|
|
|
|
|
|
1
|
|
|
-
|
|
|
1,363,034
|
|
|
1,363,034
|
|
See
accompanying notes to the financial statements.
Shinyo
Mariner
Limited
Statements
of Cash Flows
for
the
period from December 22, 2004 (date of incorporation) to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
|
|
2004
|
|
2005
|
|
2006
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
(loss)/income
|
|
|
(9,348
|
)
|
|
3,441,419
|
|
|
(2,069,037
|
)
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expenses
|
|
|
-
|
|
|
3,693,042
|
|
|
4,634,658
|
|
Amortization
of deferred loan costs
|
|
|
-
|
|
|
18,488
|
|
|
17,553
|
|
Write-off
of deferred loan costs
|
|
|
-
|
|
|
-
|
|
|
129,212
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
-
|
|
|
(355,060
|
)
|
|
(669,790
|
)
|
Prepayments
and other receivables
|
|
|
-
|
|
|
(54,728
|
)
|
|
34,380
|
|
Supplies
|
|
|
-
|
|
|
(42,168
|
)
|
|
(1,135,674
|
)
|
Amounts
due from related parties
|
|
|
-
|
|
|
(91,500
|
)
|
|
88,021
|
|
Amounts
due to related parties
|
|
|
9,348
|
|
|
1,000,559
|
|
|
269,314
|
|
Accrued
liabilities and other payables
|
|
|
-
|
|
|
309,357
|
|
|
2,191,389
|
|
Net
cash provided by operating activities
|
|
|
-
|
|
|
7,919,409
|
|
|
3,490,026
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Purchase
of vessel
|
|
|
-
|
|
|
(52,830,000
|
)
|
|
-
|
|
Capital
expenditure on drydocking
|
|
|
-
|
|
|
-
|
|
|
(2,665,517
|
)
|
(Increase)/decrease
in restricted cash
|
|
|
-
|
|
|
(750,000
|
)
|
|
750,000
|
|
Net
cash used in investing activities
|
|
|
-
|
|
|
(53,580,000
|
)
|
|
(1,915,517
|
)
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from long-term bank loans
|
|
|
-
|
|
|
45,000,000
|
|
|
39,000,000
|
|
Repayment
of long-term bank loans
|
|
|
-
|
|
|
(4,500,000
|
)
|
|
(44,100,000
|
)
|
Proceeds
from loan from related party
|
|
|
-
|
|
|
9,530,000
|
|
|
2,500,000
|
|
Repayment
of loan from related party
|
|
|
-
|
|
|
(2,750,000
|
)
|
|
-
|
|
Payment
of loan costs
|
|
|
-
|
|
|
(157,500
|
)
|
|
(79,858
|
)
|
Net
cash provided by/(used in) financing activities
|
|
|
-
|
|
|
47,122,500
|
|
|
(2,679,858
|
)
|
Net
increase/(decrease) in cash
|
|
|
-
|
|
|
1,461,909
|
|
|
(1,105,349
|
)
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
At
beginning of year
|
|
|
-
|
|
|
-
|
|
|
1,461,909
|
|
At
end of year
|
|
|
-
|
|
|
1,461,909
|
|
|
356,560
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
2004
|
|
2005
|
|
2006
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
-
|
|
|
1,488,892
|
|
|
3,031,399
|
|
Supplemental
Disclosure of Non-Cash Flow Operating, Investing and Financing
Activities:
|
|
2004
|
|
2005
|
|
2006
|
|
Operating
activities:
|
|
|
|
|
|
|
|
Payment
of operating expenses by related parties
|
|
|
|
|
|
|
|
-
Administrative expenses
|
|
|
1,195
|
|
|
-
|
|
|
-
|
|
-
Interest
|
|
|
8,153
|
|
|
-
|
|
|
-
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
Payment
of deposits for purchase of vessel by
|
|
|
|
|
|
|
|
|
|
|
related
party
|
|
|
(5,870,000
|
)
|
|
-
|
|
|
-
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
Loan
from related party
|
|
|
5,870,000
|
|
|
-
|
|
|
-
|
|
See
accompanying notes to the financial statements.
Shinyo
Mariner
Limited
Notes
to
the Financial Statements
for
the
period from December 22, 2004 (date of incorporation) to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting
Policies
|
|
(a)
|
Description
of Business
|
Shinyo
Mariner Limited (the “Company”), a company engaged in the business of ocean
transportation of crude oil worldwide, was established in Hong Kong
on December
22, 2004. The principal activity of Shinyo Mariner is the ownership
and
chartering of vessel “Shinyo Mariner”. Shinyo Mariner was delivered in 1991 and
was a second hand vessel acquired by the Company in March 2005. It
is a
single-hulled very large crude oil carrier with capacity of 271,208
deadweight
tonnage.
On
December 22, 2004, Van-Clipper Holding Co., Ltd. established the
Company in Hong
Kong as a limited liability company with authorized share capital
of 10,000
ordinary shares of HK$1 each. On date of incorporation, 1 subscriber
share of
HK$1 was issued.
The
Company has outsourced substantially all its day to day operations
to its
related party, Belindtha Marine Limited (“Belindtha”), a company controlled by a
person related to a director of the Company. Belindtha then sub-contracted
its
obligations under the outsourcing arrangement to Univan Ship Management
Limited
(“Univan”) which assists Belindtha in providing technical management services
to
the Company. Univan is controlled by, Captain Charles Arthur Joseph
Vanderperre,
a director of the Company, and is jointly owned by Captain Charles
Arthur Joesph
Vanderperre and Clipper Group Invest Ltd, a shareholder of the immediate
holding
company of the Company. All expenses incurred by Univan on behalf
of the Company
are charged to the Company based on the actual expenditures incurred
on their
behalf. In addition, Univan provides administrative services to the
Company.
The
Company began receiving time charter revenue on
March 11, 2005. The Company had one spot voyage from December 2006
to January
2007. Pursuant to a time charter agreement with Dalian Ocean Shipping
Company
dated January 18, 2007, the Company is paid a daily charter rate
of
$39,088.
As
of
December 31, 2006, the Company had a working capital deficit of $10,575,647.
These financial statements have been prepared assuming that the Company
will
continue as a going concern as Van-Clipper Holding Co., Ltd., the
immediate
holding company, has confirmed its intention to provide continuing
financial
support to the Company so as to enable the Company to meet its liabilities
as
and when they fall due.
|
(c)
|
Basis
of Presentation
|
The
Company’s financial statements
have
been
prepared in accordance with U.S. generally accepted accounting principles
(“US
GAAP”).
The
basis
of accounting differs in certain material respects from that used
in the
preparation of the statutory financial statements of the Company,
which are
prepared in accordance with the accounting principles of the country
of its
domicile. The accompanying financial statements reflect necessary
adjustments to
present them in conformity with US GAAP.
Cash
consists interest-bearing deposits placed with banks. As of December
31, 2005
and 2006, there were no cash equivalents.
Shinyo
Mariner
Limited
Notes
to
the Financial Statements (continued)
for
the
period from December 22, 2004 (date of incorporation) to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
Restricted
cash represents minimum interest-bearing bank deposits which must
be maintained
in accordance with contractual bank loan arrangements over the bank
loan period.
|
(f)
|
Trade Accounts
Receivable
|
The
Company generally requires customers to pay in advance for time charter
hire.
Trade accounts receivable are recorded at the invoiced amount, do
not bear
interest and reflect billings to charterers for hire, freight and
demurrage
.
The
Company maintains an allowance for doubtful accounts for estimated
losses
inherent in its trade accounts receivable portfolio. In establishing
the
required allowance, management considers historical losses, current
receivables
aging, and existing industry and national economic data.
The
Company’s customers are in the crude oil industry and are affected by demand
and
supply of crude oil worldwide. The Company has been able to collect
on all of
its receivable balances, and accordingly, the Company did not provide
for any
allowance for doubtful accounts at December 31, 2005 and 2006. The
Company does
not have any off-balance-sheet credit exposure related to its customers.
Supplies
consisting of bunkers and lubricating oil are stated at cost. Cost
is determined
on a first-in, first-out method (FIFO).
A
vessel
is stated at cost, which consists of the contract price and delivery
costs.
Subsequent expenditures for conversions and major overhauls (“drydocking”) are
also capitalized when they appreciably extend the life, increase
the earning
capacity or improve the efficiency or safety of the vessel otherwise
these
amounts are charged to expense as incurred.
Depreciation
on the vessel is calculated based on the straight-line method over
the estimated
useful life of the vessel, after taking into account its estimated
residual
value, from date of acquisition. The vessel’s residual value is equal to the
product of its lightweight tonnage and estimated scrap rate. Management
estimates the useful life of 11 years from the date of acquisition.
The useful
life of the vessel is evaluated on a regular basis to account for
changes in
circumstances, including changes in regulatory restrictions. If regulations
place limitations over the ability of a vessel to operate, its useful
life is
adjusted to end at the date such regulations become effective.
Shinyo
Mariner
Limited
Notes
to
the Financial Statements (continued)
for
the
period from December 22, 2004 (date of incorporation) to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(h)
|
Vessel,
net (continued)
|
The
Company follows the deferral method of accounting for drydocking
whereby actual
costs incurred are capitalized and are depreciated on a straight-line
basis over
the period through the date the next drydocking becomes due. The
vessel of the
Company is required to have an intermediate drydocking approximately
every 30
months and a special survey drydocking approximately every 60 months.
Capitalized intermediate drydocking costs and special survey drydocking
costs
are depreciated over a period of 30 months and 60 months, respectively.
If the
anticipated date of drydocking is changed from the scheduled date,
the remaining
undepreciated carrying amount of the drydocking costs is adjusted
to reflect the
revised date.
A
vessel
is reviewed for impairment whenever events or changes in circumstances
indicate
that the carrying amount of a vessel may not be recoverable. Recoverability
of
the vessel is measured by a comparison of the carrying amount of
the vessel,
including capitalized drydocking costs, to the estimated undiscounted
future
cash flows expected to be generated by the vessel. If the carrying
amount of the
vessel exceeds its estimated future undiscounted cash flows, an impairment
charge will be recognized by the amount that the carrying amount
of the vessel
exceeds its estimated fair value.
In
the
normal course of business, the Company is subject to loss contingencies,
such as
legal proceedings and claims arising out of its business. An accrual
for a loss
contingency is recognized when it is probable that a liability will
be incurred
and the amount of the loss can be reasonably estimated.
|
(k)
|
Revenue
Recognition and Related
Expenses
|
The
Company generates its revenues from time and voyage charter agreements.
Revenues are recognized when the collectibility has been reasonably
assured.
Time charter revenues are recorded over the term of the charter
as the service
is provided. In addition, under the time charter agreement the Company is
entitled to share profits generated from any sub-charter entered
into by the
charterer. Profit-sharing revenues are calculated at an agreed
percentage of the
excess of sub-charter rates over an agreed amount and recorded over
the term of the sub-charter agreement. The Company follows EITF
91-9 in
accounting for voyage charter revenues. Voyage charter revenues
are recognized
based on the percentage of completion at the balance sheet date.
A voyage is
deemed to commence upon the completion of discharge of the vessel’s previous
cargo and is deemed to end upon the completion of discharge of
the current
cargo. Voyage related and vessel operating costs are expensed as incurred.
Brokerage
and charter hire commissions paid to third parties are expensed in
the same
period as revenues are recognized.
Shinyo
Mariner
Limited
Notes
to
the Financial Statements (continued)
for
the
period from December 22, 2004 (date of incorporation) to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
Fees
incurred for obtaining new loans are deferred and amortized to interest
expense
over the life of the related debt using the effective interest method.
The
Company follows EITF 96-19 in accounting for debt modification. A
modification
is considered substantial if the present value of the cash flows
under the terms
of new debt is at least 10 percent different from the present value
of the
remaining cash flows under the terms of the original debt at the
date of
modification. When the loan is repaid or when the loan is substantially
modified, the existing unamortized fees are written-off to interest
expense in
the period debt repayment or substantial modification takes place.
When the
modification is not considered substantial, the fees associated with
the
modification and, along with the existing unamortized fees, are amortized
over
the remaining term of the modified loan using the effective interest
method. The
amount of deferred loan costs written-off during the years ended
December 31,
2004, 2005 and 2006 was $Nil, $Nil and $129,212, respectively.
|
(n)
|
Foreign
Currency Transactions
|
The
Company’s functional and reporting currency is United States (“US”) dollar
because the Company’s vessel operates in international shipping markets, which
utilize the US dollar. Furthermore, the Company incurs bank debt,
pays salaries
and wages and certain other expenditure such as fuel costs, lubricants,
insurance costs, all in US dollars.
Transactions
denominated in currencies other than US dollar are translated into
US dollars at
the exchange rates prevailing at the dates of transactions. Monetary
assets and
liabilities denominated in currencies other than US dollar are translated
at the
exchange rates prevailing at the balance sheet dates. The resulting
exchange
differences are recorded in the statements of income as part of the
related
transaction amounts. During the period/years ended December 31, 2004,
2005 and
2006, substantially all of the Company’s transactions were denominated in US
dollars and the Company did not have significant foreign currency
transaction
gains or losses.
The
preparation of the financial statements requires management of the
Company to
make a number of estimates and assumptions relating to the reported
amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities
at the date of the financial statements and the reported amounts
of revenues and
expenses during the reporting period. Significant items subject to
such
estimates and assumptions include the estimated useful life of the
vessel
(including drydocking costs), residual value and recovery of the
carrying amount
of the vessel. Actual results could differ from those estimates.
Shinyo
Mariner
Limited
Notes
to
the Financial Statements (continued)
for
the
period from December 22, 2004 (date of incorporation) to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(p)
|
Income
and Other Taxes
(continued)
|
Under
the
laws of the countries of the Company’s incorporation and/or vessel’s
registration, the Company is not subject to tax on international
shipping
income. However, it is subject to registration and tonnage taxes,
which are
charged by the country of which the vessel is registered at a fixed
rate based
on the tonnage of the vessel. Registration and tonnage taxes have
been included
in vessel operating expenses in the accompanying statements of operations.
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement
109
(FIN
48).
FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in an
enterprise’s financial statements and prescribes a threshold of
more-likely-than-not for recognition of tax benefits of uncertain
tax positions
taken or expected to be taken in a tax return. FIN 48 also provides
related
guidance on measurement, derecognition, classification, interest
and penalties,
and disclosure. The provisions of FIN 48 will be effective for the
fiscal years
beginning after December 15, 2006, with any cumulative effect of
the change in
accounting principle recorded as an adjustment to opening retained
earnings.
Effective from January 1, 2007, the Company adopted the provision
of FIN 48. As
of the date of the adoption of FIN 48, the Company has no material
unrecognized
tax benefit which would favorably affect the effective income tax
rate in future
periods and do not believe there will be any significant increases
or decreases
within the next twelve months. The Company has elected to classify
interest and
penalties related to unrecognized tax benefits, if and when required,
as part of
income tax expenses in the statements of operations. No interest
or penalties
have been accrued at the date of adoption.
According
to the Inland Revenue Ordinance of Hong Kong, the statute of
limitations is
seven years (i.e. calendar years 2004 to 2006 for the Company)
if the
underpayment of taxes is due to omission or errors made by either
the taxpayer
or the withholding agent. The statute of limitations will be
extended to ten
years (i.e. calendar years 2004 to 2006 for the Company) in case
of tax evasion.
According
to the Internal Revenue Code of the United States of America,
the statute of
limitations is three years (i.e. calendar years 2004 to 2006
for the Company) if
the underpayment of taxes is due to omission or errors made by
either the
taxpayer or withholding agent. There is no statute of limitations
in the case of
tax evasion.
|
(q)
|
Recently
Issued Accounting
Standards
|
In
September 2006, the FASB issued FASB Statement No. 157,
Fair
Value Measurement
(Statement
157). Statement 157 defines fair value, establishes a framework for
the
measurement of fair value measures already required or permitted
by other
standards for fiscal years beginning after November 15, 2007. The
Company is
required to adopt Statement 157 for the fiscal years beginning on
January 1,
2008. Statement 157 is required to be applied prospectively, except
for certain
financial instruments. Any transition adjustment will be recognized
as an
adjustment to opening retained earnings in the year of adoption.
The Company
does not anticipate that the adoption of Statement 157 will have
a material
impact on its results of operations and financial position.
In
September 2006, the FASB issued FASB Staff Position No. AUG AIR-1,
Accounting
for Planned Major Maintenance Activities
(AUG
AIR-1). This guidance prohibits the use of the accrue-in-advance
method of
accounting for planned major maintenance activities because an obligation
has
not occurred and therefore a liability should not be recognized.
The provisions
of this guidance will be effective for fiscal years beginning after
December 15,
2006. Effective from January 1, 2007, the Company adopted the provision
of AUG
AIR-1. The Company follows the deferral method of accounting for
drydocking. As
of the date of adoption of AUG AIR-1, the Company has no accruals
for planned
drydocking which require to be adjusted retrospectively.
Shinyo
Mariner
Limited
Notes
to
the Financial Statements (continued)
for
the
period from December 22, 2004 (date of incorporation) to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(q)
|
Recently
Issued Accounting Standards
(continued)
|
In
February 2007, the FASB issued FASB Statement No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities
- Including an
Amendment of FASB Statement No. 115
(Statement
159)
.
Statement
159 permits an entity to elect fair value as the initial and subsequent
measurement attribute for many financial assets and liabilities.
Entities
electing the fair value option would be required to recognize changes
in fair
value in earnings. Entities electing the fair value option are
required to
distinguish, on the face of the balance sheet, the fair value of
assets and
liabilities for which the fair value option has been elected and
similar assets
and liabilities measured using another measurement attribute. Statement
159 will
be effective for fiscal years beginning after November 15, 2007.
The adjustment
to reflect the difference between the fair value and the carrying
amount would
be accounted for as a cumulative-effect adjustment to retained
earnings as of
the date of initial adoption. The Company does not anticipate that
the adoption
of the provisions of Statement 159 will have a material impact
on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 160,
Noncontrolling
Interests in Consolidated Financial Statements - an Amendment of
ARB No. 51
(Statement
160). Statement 160 establishes accounting and reporting standards
for the
noncontrolling interest in a subsidiary and for the deconsolidation
of a
subsidiary. Statement 160 will be effective for the fiscal year beginning
after
December 15, 2008. The Company does not anticipate that the adoption
of the
provisions of Statement 160 will have a material impact on its results
of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 141 (Revised),
Business
Combinations
(Statement
141(R)). Statement 141(R) establishes principles and requirements
for how the
acquirer of a business recognizes and measures in its financial statements
the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree. Statement 141(R) also provides guidance
for
recognizing and measuring the goodwill acquired in the business combination
and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. Statement 141(R) will be effective for fiscal years
beginning after
December 15, 2008. The Company does not anticipate the adoption of the
provisions of Statement 141(R) will have a material impact on its
results of
operations and financial position.
Shinyo
Mariner
Limited
Notes
to
the Financial Statements (continued)
for
the
period from December 22, 2004 (date of incorporation) to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
Lubricating
oil
|
|
|
42,168
|
|
|
43,435
|
|
Bunkers
|
|
|
-
|
|
|
1,134,407
|
|
|
|
|
42,168
|
|
|
1,177,842
|
|
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
Vessel
|
|
|
|
|
|
Cost
|
|
|
58,700,000
|
|
|
63,544,276
|
|
Accumulated
depreciation
|
|
|
(3,693,042
|
)
|
|
(8,327,700
|
)
|
Vessel,
net
|
|
|
55,006,958
|
|
|
55,216,576
|
|
The
vessel is mortgaged as described in Note 4.
Drydocking
costs of $4,844,276 were capitalized for the year ended December
31, 2006. As of
December 31, 2005 and 2006, undepreciated carrying amount of the
drydocking
costs was $Nil and $4,763,538, respectively.
For
the
period/years ended December 31, 2004, 2005 and 2006, $Nil, $Nil and
$80,738 of
drydocking costs were expensed as depreciation, respectively.
|
|
Interest
|
|
|
|
|
|
|
|
|
|
rate
per
|
|
|
|
|
|
|
|
Lender/period
|
|
annum
|
|
Note
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
HSH
Nordbank AG
|
|
|
|
|
|
|
|
|
|
|
|
LIBOR+0.88%
|
|
|
|
|
|
|
|
|
|
to
|
|
|
|
|
|
|
|
March
7, 2005 to March 15, 2012
|
|
|
LIBOR+1.25%
|
|
|
(a)
|
|
|
40,500,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HSH
Nordbank AG, Nordea Bank Danmark A/S, and DVB Group
Merchant Bank (Asia)
Ltd
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
9, 2006 to May 31, 2012
|
|
|
LIBOR+1.00%
|
|
|
(b)
|
|
|
-
|
|
|
35,400,000
|
|
|
|
|
|
|
|
|
|
|
40,500,000
|
|
|
35,400,000
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
|
|
|
|
|
|
6,000,000
|
|
|
7,200,000
|
|
Non-current
portion
|
|
|
|
|
|
|
|
|
34,500,000
|
|
|
28,200,000
|
|
|
|
|
|
|
|
|
|
|
40,500,000
|
|
|
35,400,000
|
|
Shinyo
Mariner
Limited
Notes
to
the Financial Statements (continued)
for
the
period from December 22, 2004 (date of incorporation) to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(4)
|
Long-term
Bank Loans (continued)
|
Notes:
|
(a)
|
The
loan is repayable by twenty eight quarterly installments
of $1,500,000
each and followed by a balloon payment $3,000,000. Interest
is charged at
LIBOR plus 0.88% per annum and interest rate was subsequently
changed to
LIBOR plus 1.25% per annum since September 15, 2005 (5.74%
as of December
31, 2005). The interest expense for the years ended December
31, 2005 and
2006 was $1,608,675 and $1,042,830 respectively.
|
|
(b)
|
On
June 9, 2006, the Company refinanced the above loan arrangement
and repaid
the existing loan and obtained a new loan of $39,000,000.
The loan is
repayable by nineteen quarterly installments of $1,800,000
each, followed
by five quarterly installments of $960,000 each. Interest
is charged at
LIBOR plus 1.00% per annum (6.37% as of December 31, 2006).
The interest
expense for the year ended December 31, 2006 was
$1,369,854.
|
As
of
December 31, 2005 and 2006, bank loans are secured as follows:
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
Secured
by:
|
|
|
|
|
|
Restricted
cash
|
|
|
750,000
|
|
|
-
|
|
Vessel
|
|
|
55,006,958
|
|
|
55,216,576
|
|
The
bank
loans are also guaranteed by Vanship Holdings Limited and Clipper
Group Invest
Ltd, both are shareholders of the Company’s immediate holding company, for the
years ended December 31, 2005 and 2006.
The
principal repayments for each of the years subsequent to December
31, 2006 are
as follows:
Year
ending December 31,
|
|
|
|
|
|
|
|
2007
|
|
|
7,200,000
|
|
2008
|
|
|
7,200,000
|
|
2009
|
|
|
7,200,000
|
|
2010
|
|
|
7,200,000
|
|
2011
and later
|
|
|
6,600,000
|
|
|
|
|
35,400,000
|
|
Shinyo
Mariner
Limited
Notes
to
the Financial Statements (continued)
for
the
period from December 22, 2004 (date of incorporation) to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(5)
|
Accrued
Liabilities and Other
Payables
|
Accrued
liabilities and other payables at December 31, 2005 and 2006 consist
of the
following:
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
Accrued
audit fee
|
|
|
5,000
|
|
|
5,000
|
|
Accrued
vessel operating expenses
|
|
|
117,452
|
|
|
425,445
|
|
Accrued
drydocking expenses
|
|
|
-
|
|
|
2,178,759
|
|
Bunker
oil payable
|
|
|
-
|
|
|
1,241,164
|
|
Bank
loan interest payable
|
|
|
119,783
|
|
|
200,443
|
|
Claim
payable
|
|
|
-
|
|
|
529,777
|
|
Commission
payable
|
|
|
12,594
|
|
|
37,829
|
|
Wages
payable
|
|
|
54,528
|
|
|
61,088
|
|
|
|
|
309,357
|
|
|
4,679,505
|
|
The
Company generates its revenues from time, voyage and pool trade charter
agreements. The Company’s revenue can be analyzed as follows:
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
Time
charter
|
|
|
-
|
|
|
9,580,165
|
|
|
5,602,413
|
|
Voyage
charter
|
|
|
-
|
|
|
-
|
|
|
1,008,761
|
|
Profit-sharing
|
|
|
-
|
|
|
1,917,867
|
|
|
2,245,948
|
|
|
|
|
-
|
|
|
11,498,032
|
|
|
8,857,122
|
|
(7)
|
Vessel
Operating Expenses
|
Vessel
operating expenses for the period/years ended December 31, 2004,
2005 and 2006
consist of the following:
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
Crew
wages and allowances
|
|
|
-
|
|
|
460,881
|
|
|
611,023
|
|
Crew
expenses
|
|
|
-
|
|
|
104,178
|
|
|
108,771
|
|
Insurance
expenses
|
|
|
-
|
|
|
309,380
|
|
|
382,192
|
|
Lubricating
oil expenses
|
|
|
-
|
|
|
263,402
|
|
|
299,942
|
|
Stores
expenses
|
|
|
-
|
|
|
95,521
|
|
|
75,239
|
|
Repair
and maintenance
|
|
|
-
|
|
|
115,029
|
|
|
97,184
|
|
Spare
parts expenses
|
|
|
-
|
|
|
121,886
|
|
|
51,422
|
|
Commercial
expenses
|
|
|
-
|
|
|
32,533
|
|
|
502,187
|
|
Other
operating expenses
|
|
|
-
|
|
|
32,756
|
|
|
41,932
|
|
|
|
|
-
|
|
|
1,535,566
|
|
|
2,169,892
|
|
Shinyo
Mariner
Limited
Notes
to
the Financial Statements (continued)
for
the
period from December 22, 2004 (date of incorporation) to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(8)
|
Related
Party Transactions
|
Name
of party
|
|
Relationship
|
|
|
|
Belindtha
Marine Limited (“Belindtha”)
|
|
A
company controlled by a person related to a director of
the
Company
|
|
|
|
Clipper
Group Invest Ltd (“Clipper Group”)
|
|
Shareholder
of the Company’s immediate holding company
|
|
|
|
Univan
Ship Management Limited (“Univan”)
|
|
A
company controlled by a director, Captain Charles Arthur
Joseph
Vanderperre, of the Company and is jointly owned by Charles
Arthur Joseph
Vanderperre and Clipper Group
|
|
|
|
Van-Clipper
Holding Co., Ltd. (“Van-Clipper”)
|
|
Immediate
holding company of the Company
|
|
|
|
Vanship
Holdings Limited (“Vanship”)
|
|
Shareholder
of the Company’s immediate holding
company
|
(a)
|
The
principal related party transactions during the period/years
ended
December 31, 2004, 2005 and 2006 are as follows:
|
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
|
|
Service
fee to Belindtha
|
|
|
(i)
|
|
|
-
|
|
|
91,935
|
|
|
114,000
|
|
Charter
hire commission to Vanship
|
|
|
(ii)
|
|
|
-
|
|
|
143,725
|
|
|
98,105
|
|
Agency
fee to Univan
|
|
|
(iii)
|
|
|
-
|
|
|
29,032
|
|
|
37,064
|
|
Loan
interest expense to Van-Clipper
|
|
|
(iv)
|
|
|
8,153
|
|
|
691,222
|
|
|
669,686
|
|
Notes:
|
(i)
|
The
Company has outsourced substantially all its day to day
operations to
Belindtha. The service fee is payable to Belindtha at a
pre-determined
amount in accordance with the terms mutually agreed by
Belindtha and the
Company.
|
|
(ii)
|
It
represents standard commission for the chartering and operation
of the
vessel at the rate of 1.25% on the charter rate as stipulated
on the
charter party agreement with prospective charterers, subject
to a maximum
of US$625 per day to Vanship.
|
|
(iii)
|
Univan
has provided agency services to the Company. The agency
fee is payable
based on contractual agreement with the
Company.
|
|
(iv)
|
The
balance represents interest expense on a loan facility
provided by
Van-Clipper. Terms of loan details are set out in Note
8(b)(v)
below.
|
Shinyo
Mariner
Limited
Notes
to
the Financial Statements (continued)
for
the
period from December 22, 2004 (date of incorporation) to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(8)
|
Related
Party Transactions
(continued)
|
(b)
Amounts
due from and due to related parties as of December 31, 2005 and 2006
are as
follows:
|
|
|
|
2005
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
Amounts
due from related parties:
|
|
|
|
|
|
|
|
Amount
due from Vanship
|
|
|
(i)
|
|
|
-
|
|
|
3,479
|
|
Amount
due from Univan
|
|
|
(ii)
|
|
|
91,500
|
|
|
-
|
|
|
|
|
|
|
|
91,500
|
|
|
3,479
|
|
Amounts
due to related parties:
|
|
|
|
|
|
|
|
|
|
|
Amount
due to Van-Clipper
|
|
|
(iii)
|
|
|
992,875
|
|
|
963,186
|
|
Amount
due to Vanship
|
|
|
(i)
|
|
|
17,032
|
|
|
-
|
|
Amount
due to Univan
|
|
|
(iv)
|
|
|
-
|
|
|
316,035
|
|
|
|
|
|
|
|
1,009,907
|
|
|
1,279,221
|
|
Loan
from related party:
|
|
|
|
|
|
|
|
|
|
|
Van-Clipper
|
|
|
(v)
|
|
|
12,650,000
|
|
|
15,150,000
|
|
Notes:
|
(i)
|
The
balance represents current account with to Vanship. The
current account
with Vanship is unsecured, non-interest bearing and with
no fixed terms of
repayment.
|
|
(ii)
|
The
balance represents advance payments for expenses to be
paid by Univan on
behalf of the Company. The balance is unsecured, non-interest
bearing and
with no fixed terms of repayment.
|
|
(iii)
|
The
balance represents current account with Van-Clipper and
interest payable
on a loan facility provided by Van-Clipper as set out in
(v) below. The
current account with Van-Clipper is unsecured, non-interest
bearing and
with no fixed terms of repayment.
|
|
(iv)
|
The
balance represents payable to Univan for expense paid on
behalf of the
Company. The balance is unsecured, non-interest bearing
and with no fixed
terms of repayment.
|
|
(v)
|
The
balance represents a loan facility provided by Van-Clipper.
The loan
facility period is from December 22, 2004 to December 15,
2012. Interest
is charged at 5% per annum on drawdown balance. The interest
expense for
the period/years ended December 31, 2004, 2005 and 2006
was $8,153,
$691,222 and $669,686 respectively. Interest of $Nil, $Nil
and $699,375
was paid for the period/years ended December 31, 2004,
2005 and 2006
respectively.
|
|
|
In
accordance with the contractual bank loan arrangements,
the loan from
Van-Clipper shall not be repaid before the bank loans are
repaid in
full.
|
Shinyo
Mariner
Limited
Notes
to
the Financial Statements (continued)
for
the
period from December 22, 2004 (date of incorporation) to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(8)
|
Related
Party Transactions
(continued)
|
(c)
|
Van-Clipper
has provided a letter of support to the Company to confirm
its intention
to provide continuing financial support to the Company
so as to enable the
Company to meet its liabilities when they fall due.
|
(d)
|
As
of December 31, 2005 and 2006, long-term bank loan of $20,250,000
and
$17,700,000, respectively, was guaranteed by
Vanship.
|
(e)
|
As
of December 31, 2005 and 2006, long-term bank loan of $20,250,000
and
$17,700,000, respectively, was guaranteed by Clipper
Group.
|
(9)
|
Commitments
and Contingencies
|
The
Company entered into a time charter agreement on January 7, 2005
with Euronav
N.V (“Charterer”) for a period of approximately 7 years. In 2006, a dispute
arose between the Company and the Charterer as the scheduled drydocking
and
associated survey and repairs of the vessel of the Company took longer
than
originally anticipated. The Charterer purported to terminate the
time charter
agreement and the Company accepted the purported termination as a
repudiatory
breach of the time charter agreement.
The
Company received a claim from the Charterer in March 2007 and
the Charterer is
seeking monetary damages on termination of the time charter agreement
of
$2,277,799 relating to bunkers remaining on board, return of
profit share, and
speed and consumption claim. The Company admits the claim for
bunkers remaining
on board of $529,777 and a provision of $529,777 has been made
as of December
31, 2006. For the remaining claims, no provision has been made
because the
amount cannot be reasonably estimated as the claims are in preliminary
stages.
However, management considered that unfavorable outcome towards
the Company is
reasonably possible. Management estimated the exposure to the
remaining claims
ranges from $Nil to $1,748,002 as of December 31,
2006.
(10)
|
Fair
Value of Financial Instruments
|
The
carrying amounts of cash, trade accounts receivable and amounts due
from/to
related parties, approximate their fair values because of the short
maturity of
these instruments.
The
carrying values of long-term bank loans and loan from related party
approximate
their fair values based on the borrowing rates currently available
to the
Company for bank loans with similar terms and average maturities.
Shinyo
Mariner
Limited
Notes
to
the Financial Statements (continued)
for
the
period from December 22, 2004 (date of incorporation) to
December
31, 2004, and the years ended December 31, 2005 and 2006
(expressed
in US$)
(11)
|
Business
and Credit Concentrations
|
The
Company operates in the shipping industry which historically has
been cyclical
with corresponding volatility in profitability. All the Company’s revenues are
derived from vessel charters. The Company seeks to mitigate volatilities
in its
business by obtaining long-term charter contracts. The Company has
obtained a
long-term time charter contract which will expire in February 2010.
The
Company outsourced the technical management services to Belindtha
which is
controlled by a person related to a director of the Company. Belindtha
then
sub-contracted its obligations under the outsourcing arrangement
to Univan which
assists Belindtha in providing technical management services to
the Company.
Univna is controlled by Captain Charles Arthur Joseph Vanderperre,
a director of
the Company and is jointly owned by Captain Charles Arthur Joseph
Vanderperre
and Clipper Group, a shareholder of the immediate holding company
of the
Company. All expenses incurred by Univan on behalf of the Company
are charged to
the Company based on actual expenditures incurred on its behalf.
During the
period/years ended December 31, 2004, 2005 and 2006, the Company
paid service
fee of $Nil, $91,935 and $114,000, respectively, to Belindtha.
The
Company is engaged in the business of ocean transportation of crude
oil industry
which is extremely competitive and dependent on the world’s demand for crude
oil. Competition depends on price, location, size, age, condition
and the
acceptability of the vessel to the charterers. The increase in competition
and
the changes in demand for crude oil could result in lower revenue
achieved for
the vessel.
The
following are revenue from customers that individually comprise
10% or more of
gross revenue:
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euronav
Luxembourg S.A.
|
|
|
-
|
|
|
-
|
|
|
11,498,032
|
|
|
100
|
|
|
7,848,361
|
|
|
89
|
|
Hyundai
Oilbank Co., Ltd.
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,008,761
|
|
|
11
|
|
|
|
|
-
|
|
|
-
|
|
|
11,498,032
|
|
|
100
|
|
|
8,857,122
|
|
|
100
|
|
The
gross
accounts receivable due from customers that individually representing
more than
10% of the outstanding accounts receivable were as follows:
|
|
2005
|
|
2006
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Euronav
Luxembourg S.A.
|
|
|
355,060
|
|
|
100
|
|
|
-
|
|
|
-
|
|
Hyundai
Oilbank Co., Ltd.
|
|
|
-
|
|
|
-
|
|
|
1,024,850
|
|
|
100
|
|
|
|
|
355,060
|
|
|
100
|
|
|
1,024,850
|
|
|
100
|
|
Pursuant
to a definitive agreement entered into between Vanship and Energy
Infrastructure
Acquisition Corp. (“EIAC”), a company listed on the American Stock Exchange, on
December 3, 2007 (the “Agreement”), Vanship agreed to sell all of its equity
interests in the Company and other eight related companies to Energy
Infrastructure Merger Corporation (“EMIC”) (the “Business Combination”), a
wholly-owned subsidiary of EIAC, for an aggregate consideration of
$778,000,000,
consisting of $643,000,000 in cash (subject to closing adjustments)
and
13,500,000 shares of common stock of EMIC (valued at $10 per share
of common
stock). Vanship is entitled to an additional 3,000,000 shares of
common stock of
EIMC on each of the first and second anniversaries of the completion
of the
Business Combination, subject to certain earning criteria.
Approval
of the Business Combination requires the affirmative vote of the
holders of a
majority of the shares of common stock voted at EIAC’s special meeting of
stockholders, provided that there is a quorum. In addition, if the
EIAC
stockholders approve the Business Combination, the Business Combination
will
only proceed if holders of shares purchased in EIAC’s initial public offering,
representing less than 30% of the shares sold in EIAC’s initial public offering
and EIAC’s private placement that occurred immediately prior to the initial
public offering, exercise their redemption rights at the time of
casting a vote
against the Business Combination.
Pursuant
to the Agreement, Vanship has agreed to purchase up to 5,000,000
units from EIMC
at a purchase price of $10.00 per unit, but only to the extent necessary
for
EIMC to secure financing for the Business Combination. Each unit
will consist of
one share of EIMC’s common stock and one warrant to purchase one share of EIMC’s
common stock at an exercise price of $8.00 per warrant.
Shinyo
Mariner Limited
Unaudited
Condensed Balance Sheets
as
of
December 31, 2006 and September 30, 2007
(expressed
in US$)
|
|
|
|
December
31, 2006
|
|
September
30, 2007
|
|
|
|
Note
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
356,560
|
|
|
1,144,231
|
|
Trade
accounts receivable
|
|
|
|
|
|
1,024,850
|
|
|
-
|
|
Prepayments
and other receivables
|
|
|
|
|
|
20,348
|
|
|
247,347
|
|
Supplies
|
|
|
|
|
|
1,177,842
|
|
|
70,576
|
|
Amount
due from related party
|
|
|
6(b)
|
|
|
3,479
|
|
|
-
|
|
Total
current assets
|
|
|
|
|
|
2,583,079
|
|
|
1,462,154
|
|
Restricted
cash
|
|
|
|
|
|
-
|
|
|
750,000
|
|
Deferred
loan costs
|
|
|
|
|
|
72,105
|
|
|
61,799
|
|
Vessel,
net
|
|
|
2
|
|
|
55,216,576
|
|
|
51,074,495
|
|
Total
assets
|
|
|
|
|
|
57,871,760
|
|
|
53,348,448
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term bank loan
|
|
|
3
|
|
|
7,200,000
|
|
|
7,200,000
|
|
Amounts
due to related parties
|
|
|
6(b)
|
|
|
1,279,221
|
|
|
1,131,981
|
|
Accrued
liabilities and other payables
|
|
|
|
|
|
4,679,505
|
|
|
2,024,156
|
|
Total
current liabilities
|
|
|
|
|
|
13,158,726
|
|
|
10,356,137
|
|
Loan
from related party
|
|
|
6(b)
|
|
|
15,150,000
|
|
|
18,500,000
|
|
Long-term
bank loan
|
|
|
3
|
|
|
28,200,000
|
|
|
22,800,000
|
|
Total
liabilities
|
|
|
|
|
|
56,508,726
|
|
|
51,656,137
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s
equity
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares HK$ 1 par value per share
10,000
shares authorized; 1 share issued and fully paid as of
December 31,
2006/September 30, 2007
|
|
|
|
|
|
-
|
|
|
-
|
|
Retained
earnings
|
|
|
|
|
|
1,363,034
|
|
|
1,692,311
|
|
Total
shareholder’s equity
|
|
|
|
|
|
1,363,034
|
|
|
1,692,311
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholder’s equity
|
|
|
|
|
|
57,871,760
|
|
|
53,348,448
|
|
See
accompanying notes to the unaudited condensed financial statements.
Shinyo
Mariner Limited
Unaudited
Condensed Statements of Income
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
|
|
|
|
2006
|
|
2007
|
|
|
|
Note
|
|
|
|
|
|
Operating
revenue
|
|
|
|
|
|
|
|
Revenue
|
|
|
4
|
|
|
7,848,361
|
|
|
9,293,247
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
|
|
|
1,278,889
|
|
|
1,535,516
|
|
Voyage
expenses
|
|
|
|
|
|
-
|
|
|
593,328
|
|
Depreciation
expenses
|
|
|
|
|
|
3,415,440
|
|
|
4,142,081
|
|
Management
fee
|
|
|
6(a)
|
|
|
85,500
|
|
|
85,500
|
|
Commission
|
|
|
|
|
|
238,165
|
|
|
364,896
|
|
Administrative
expenses
|
|
|
|
|
|
35,947
|
|
|
51,293
|
|
Total
operating expenses
|
|
|
|
|
|
5,053,941
|
|
|
6,772,614
|
|
Operating
income
|
|
|
|
|
|
2,794,420
|
|
|
2,520,633
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
117,182
|
|
|
30,483
|
|
Interest
expense
|
|
|
|
|
|
(2,326,462
|
)
|
|
(2,222,915
|
)
|
Write-off
of deferred loan costs
|
|
|
|
|
|
(129,212
|
)
|
|
-
|
|
Other,
net
|
|
|
|
|
|
(3,014
|
)
|
|
1,076
|
|
Total
other expense
|
|
|
|
|
|
(2,341,506
|
)
|
|
(2,191,356
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
|
|
|
452,914
|
|
|
329,277
|
|
Income
taxes
|
|
|
5
|
|
|
-
|
|
|
-
|
|
Net
income
|
|
|
|
|
|
452,914
|
|
|
329,277
|
|
(a)
Includes the following expenses resulting from transactions
with related
parties (see note 6(a)):
|
|
|
2006
|
|
2007
|
|
Vessel
operating expenses
|
|
|
|
|
|
-
Agency fee
|
|
|
(27,000
|
)
|
|
(28,452
|
)
|
Management
fee
|
|
|
(85,500
|
)
|
|
(85,500
|
)
|
Commission
|
|
|
(98,105
|
)
|
|
(116,166
|
)
|
Interest
expense
|
|
|
(496,936
|
)
|
|
(617,356
|
)
|
|
|
|
|
|
|
|
|
See
accompanying notes to the unaudited condensed financial statements.
Shinyo
Mariner Limited
Unaudited
Condensed Statements of Shareholder’s Equity
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
|
|
Ordinary
shares
|
|
|
|
|
|
|
|
Number
of shares
|
|
Amount
|
|
Retained
earnings
|
|
Total
shareholder’s
equity
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2006
|
|
|
1
|
|
|
-
|
|
|
3,432,071
|
|
|
3,432,071
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
452,914
|
|
|
452,914
|
|
Balance
as of September 30, 2006
|
|
|
1
|
|
|
-
|
|
|
3,884,985
|
|
|
3,884,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
|
1
|
|
|
-
|
|
|
1,363,034
|
|
|
1,363,034
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
329,277
|
|
|
329,277
|
|
Balance
as of September 30, 2007
|
|
|
1
|
|
|
-
|
|
|
1,692,311
|
|
|
1,692,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the unaudited condensed financial statements.
Shinyo
Mariner
Limited
Unaudited
Condensed Statements of Cash Flows
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
|
|
2006
|
|
2007
|
|
Cash
flow from operating activities
|
|
|
|
|
|
Net
income
|
|
|
452,914
|
|
|
329,277
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
of vessel
|
|
|
3,415,440
|
|
|
4,142,081
|
|
Amortization
of deferred loan costs
|
|
|
14,084
|
|
|
10,306
|
|
Write-off
of deferred loan costs
|
|
|
129,212
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
355,060
|
|
|
1,024,850
|
|
Prepayments
and other receivables
|
|
|
(505,119
|
)
|
|
(226,999
|
)
|
Supplies
|
|
|
(149,266
|
)
|
|
1,107,266
|
|
Amount
due from related party
|
|
|
75,411
|
|
|
3,479
|
|
Amounts
due to related parties
|
|
|
163,559
|
|
|
(147,240
|
)
|
Accrued
liabilities and other payables
|
|
|
2,326,254
|
|
|
(476,590
|
)
|
Net
cash provided by operating activities
|
|
|
6,277,549
|
|
|
5,766,430
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Capital
expenditure on drydocking
|
|
|
-
|
|
|
(2,178,759
|
)
|
Decrease
in restricted cash
|
|
|
-
|
|
|
(750,000
|
)
|
Net
cash used in investing activities
|
|
|
-
|
|
|
(2,928,759
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Proceeds
from long-term bank loan
|
|
|
39,000,000
|
|
|
-
|
|
Repayment
of long-term bank loan
|
|
|
(42,300,000
|
)
|
|
(5,400,000
|
)
|
Proceeds
from loan from related party
|
|
|
-
|
|
|
3,350,000
|
|
Payment
of loan costs
|
|
|
(79,857
|
)
|
|
-
|
|
Net
cash used in financing activities
|
|
|
(3,379,857
|
)
|
|
(2,050,000
|
)
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
2,897,692
|
|
|
787,671
|
|
Cash:
|
|
|
|
|
|
|
|
At
beginning of period
|
|
|
1,461,909
|
|
|
356,560
|
|
At
end of period
|
|
|
4,359,601
|
|
|
1,144,231
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
2006
|
|
2007
|
|
Cash
paid during the period for:
|
|
|
|
|
|
Interest
|
|
|
3,429,587
|
|
|
2,296,400
|
|
See
accompanying notes to the unaudited condensed financial statements.
Shinyo
Mariner Limited
Notes
to
the Unaudited Condensed Financial Statements
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting
Policies
|
|
(a)
|
Description
of Business
|
Shinyo
Mariner Limited (the “Company”), a company engaged in the business of ocean
transportation of crude oil worldwide, was established in Hong
Kong on December
22, 2004. The principal activity of Shinyo Mariner is the ownership
and
chartering of vessel “Shinyo Mariner”. Shinyo Mariner was delivered in 1991 and
was a second hand vessel acquired by the Company in March 2005.
It is a
single-hulled very large crude oil carrier with capacity of 271,208
deadweight
tonnage.
The
Company has outsourced substantially all its day-to-day operations
to its
related party, Belindtha Marine Limited (“Belindtha”), a company controlled by a
person related to a director of the Company. Belindtha then sub-contracted
its
obligations under the outsourcing arrangement to Univan Ship Management
Limited
(“Univan”) which assists Belindtha in providing technical management services
to
the Company. Univan is controlled by Captain Charles Arthur Joseph
Vanderperre,
a director of the Company, and is jointly owned by Captain Charles
Arthur Joseph
Vanderperre and Clipper Group Invest Ltd, a shareholder of the
immediate holding
company of the Company. All expenses incurred by Univan on behalf
of the Company
are charged to the Company based on the actual expenditures incurred
on its
behalf. In addition, Univan provides administrative services to
the
Company.
The
Company began receiving time charter revenue on
March 11, 2005. The Company had one spot voyage from December
2006 to January
2007. Pursuant to a time charter agreement with Dalian Ocean
Shipping Company
dated January 18, 2007, the Company is paid a daily charter rate
of
$39,088.
As
of
September 30, 2007, the Company had a working capital deficit of
$8,893,983.
These financial statements have been prepared assuming that the
Company will
continue as a going concern as Van-Clipper Holding Limited, the
immediate
holding company, has confirmed its intention to provide continuing
financial
support to the Company so as to enable the Company to meet its
liabilities as
and when they fall due.
|
(c)
|
Basis
of Presentation
|
The
accompanying unaudited condensed financial statements as of September
30, 2007
and for the nine-month periods ended September 30, 2006 and 2007
have been
prepared in accordance with U.S. generally accepted accounting
(“US GAAP”).
Certain information and footnote disclosures normally included
in financial
statements prepared in accordance with US GAAP have been condensed
or omitted as
permitted by rules and regulations of the U.S. Securities and Exchange
Commission. Disclosures have been made to these unaudited condensed
financial
statements where events subsequent to year ended December 31, 2006
have occurred
which have a material impact on the Company. The accompanying unaudited
condensed financial statements should be read in conjunction with
the financial
statements and the notes thereto, for the fiscal year ended December
31, 2006.
The December 31, 2006 balance sheet was derived from audited financial
statements of the Company.
In
the
opinion of the management, all adjustments (which include normal
accruals)
necessary to present a fair statement of the financial position
of the Company
as of September 30, 2007, and the results of its operations and
cash flows for
the nine-month periods ended September 30, 2006 and 2007, in conformity
with US
GAAP, have been made. The unaudited condensed statements of income
for the
nine-month periods ended September 30, 2006 and 2007 are not necessarily
indicative of the operating results to be expected for the full
fiscal year or
any future periods.
Shinyo
Mariner Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(c)
|
Basis
of Presentation
(continued)
|
The
basis
of accounting differs in certain material respects from that used
in preparation
of the books of account of the Company, which are prepared in accordance
with
the accounting principles of the country of its domicile. The accompanying
unaudited condensed financial statements reflect necessary adjustments
not
recorded in the books of the Company to present them in conformity
with US GAAP.
The
preparation of the financial statements requires management of
the Company to
make a number of estimates and assumptions relating to the reported
amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities
at the date of the financial statements and the reported amounts
of revenues and
expenses during the reporting period. Significant items subject
to such
estimates and assumptions include the estimated useful life of
the vessel
(including drydocking costs), residual value and recovery of the
carrying amount
of the vessel. Actual results could differ from those estimates.
In
the
normal course of business, the Company is subject to loss contingencies,
such as
legal proceedings and claims arising out of its business. An accrual
for a loss
contingency is recognized when it is probable that a liability
will be incurred
and the amount of the loss can be reasonably estimated.
|
(f)
|
Recently
Issued Accounting
Standards
|
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Statement No. 157,
Fair
Value Measurement
(Statement
157). Statement 157 defines fair value, establishes a framework
for the
measurement of fair value measures already required or permitted
by other
standards for fiscal years beginning after November 15, 2007. The
Company is
required to adopt Statement 157 for the fiscal years beginning
on January 1,
2008. Statement 157 is required to be applied prospectively, except
for certain
financial instruments. Any transition adjustment will be recognized
as an
adjustment to opening retained earnings in the year of adoption.
The Company
does not anticipate that the adoption of Statement 157 will have
a material
impact on its results of operations and financial position.
Shinyo
Mariner Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(f)
|
Recently
Issued Accounting Standards
(continued)
|
In
February 2007, the FASB issued FASB Statement No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities
- Including an
Amendment of FASB Statement No. 115
(Statement
159)
.
Statement
159 permits an entity to elect fair value as the initial and subsequent
measurement attribute for many financial assets and liabilities.
Entities
electing the fair value option would be required to recognize changes
in fair
value in earnings. Entities electing the fair value option are
required to
distinguish, on the face of the balance sheet, the fair value of
assets and
liabilities for which the fair value option has been elected and
similar assets
and liabilities measured using another measurement attribute. Statement
159 will
be effective for fiscal years beginning after November 15, 2007.
The adjustment
to reflect the difference between the fair value and the carrying
amount would
be accounted for as a cumulative-effect adjustment to retained
earnings as of
the date of initial adoption. The Company does not anticipate that
the adoption
of the provisions of Statement 159 will have a material impact
on its results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 160,
Noncontrolling
Interests in Consolidated Financial Statements - an Amendment of
ARB No. 51
(Statement
160). Statement 160 establishes accounting and reporting standards
for the
noncontrolling interest in a subsidiary and for the deconsolidation
of a
subsidiary. Statement 160 will be effective for the fiscal year
beginning after
December 15, 2008. The Company does not anticipate that the adoption
of the
provisions of Statement 160 will have a material impact on its
results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 141 (Revised),
Business
Combinations
(Statement 141(R)). Statement 141(R) establishes principles and
requirements for
how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed,
and any
noncontrolling interest in the acquiree. Statement 141(R) also
provides guidance
for recognizing and measuring the goodwill acquired in the business
combination
and determines what information to disclose to enable users of
the financial
statements to evaluate the nature and financial effects of the
business
combination. Statement 141(R) will be effective for fiscal years
beginning after
December 15, 2008. The Company does not anticipate the adoption
of the
provisions of Statement 141(R) will have a material impact on its
results of
operations and financial position.
Shinyo
Mariner Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
|
|
December
31, 2006
|
|
September
30, 2007
|
|
Vessel
|
|
|
|
|
|
Cost
|
|
|
63,544,276
|
|
|
63,544,276
|
|
Accumulated
depreciation
|
|
|
(8,327,700
|
)
|
|
(12,469,781
|
)
|
Vessel,
net
|
|
|
55,216,576
|
|
|
51,074,495
|
|
The
vessel is mortgaged as described in Note 3.
Drydocking
costs of $4,844,276 were capitalized for the year end December
31, 2006. As of
December 31, 2006 and September 30, 2007, undepreciated carrying
amount of the
drydocking costs was $4,763,538 and $4,036,897, respectively.
For
the
nine-month periods ended September 30, 2006 and 2007, $Nil and
$726,641 of
drydocking costs were expensed as depreciation, respectively.
Lender/period
|
|
December
31, 2006
|
|
September
30, 2007
|
|
HSH
Nordbank AG, Nordea Bank Danmark A/S, and DVB Group Merchant
Bank (Asia)
Ltd
|
|
|
|
|
|
June
9, 2006 to May 31, 2012
|
|
|
35,400,000
|
|
|
30,000,000
|
|
|
|
|
35,400,000
|
|
|
30,000,000
|
|
|
|
|
|
|
|
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
7,200,000
|
|
|
7,200,000
|
|
Non-current
portion
|
|
|
28,200,000
|
|
|
22,800,000
|
|
|
|
|
35,400,000
|
|
|
30,000,000
|
|
In
2005,
a bank loan of $45,000,000 was obtained from
HSH
Nordbank AG.
This
loan
carried interest at LIBOR plus 1.25% per annum. The interest expense
for the
nine-month period ended September 30, 2006 was $1,042,829.
On
June
9, 2006, the Company refinanced the above loan arrangement and
repaid the
existing loan and obtained a new loan of $39,000,000. The loan
carried interest
charged at LIBOR plus 1.00% per annum (6.37% and 6.54% as of December
31, 2006
and September 30, 2007, respectively). The interest expense for
the nine-month
periods ended September 30, 2006 and 2007 were $772,613 and $1,595,253
respectively.
Shinyo
Mariner Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(3)
|
Long-term
Bank Loan (continued)
|
As
of
December 31, 2006 and September 30, 2007, bank loan are secured
as
follows:
|
|
December
31,
2006
|
|
September
30,
2007
|
|
Secured
by:
|
|
|
|
|
|
Restricted
cash
|
|
|
-
|
|
|
750,000
|
|
Vessel
|
|
|
55,216,576
|
|
|
51,074,495
|
|
The
bank
loan is also guaranteed by Vanship Holdings Limited and Clipper
Group Invest
Ltd, both are shareholders of the Company’s immediate holding company, as of
December 31, 2006 and September 30, 2007.
The
Company generates its revenues from time and voyage charter agreements.
The
Company’s revenue can be analyzed as follows:
|
|
Nine-Month
Periods Ended
September
30,
|
|
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
Time
charter
|
|
|
5,602,413
|
|
|
7,981,311
|
|
Profit-sharing
arising from sub-contracting
|
|
|
2,245,948
|
|
|
-
|
|
Voyage
charter
|
|
|
-
|
|
|
1,311,936
|
|
|
|
|
7,848,361
|
|
|
9,293,247
|
|
Under
the
laws of the countries of the Company’s incorporation and/or vessel’s
registration, the Company is not subject to tax on international
shipping
income. However, it is subject to registration and tonnage taxes,
which are
charged by the country of which the vessel is registered at a fixed
rate based
on the tonnage of the vessel. Registration and tonnage taxes have
been included
in vessel operating expenses in the accompanying statements of
income.
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement
109
(FIN
48). FIN 48 clarifies the accounting for uncertainty in income
taxes recognized
in an enterprise’s financial statements and prescribes a threshold of
more-likely-than-not for recognition of tax benefits of uncertain
tax positions
taken or expected to be taken in a tax return. FIN 48 also provides
related
guidance on measurement, derecognition, classification, interest
and penalties,
and disclosure. The provisions of FIN 48 will be effective for
the fiscal years
beginning after December 15, 2006, with any cumulative effect of
the change in
accounting principle recorded as an adjustment to opening retained
earnings.
Effective from January 1, 2007, the Company adopted the provision
of FIN 48. As
of the date of the adoption of FIN 48, the Company has no material
unrecognized
tax benefit which would favorably affect the effective income tax
rate in future
periods and do not believe there will be any significant increases
or decreases
within the next twelve months. The Company has elected to classify
interest and
penalties related to unrecognized tax benefits, if and when required,
as part of
interest expense and administrative expense in the statements of
income. No
interest or penalties in respect of unrecognized tax benefits have
been accrued
at the date of adoption.
According
to the Inland Revenue Ordinance of Hong Kong, the statute of
limitations is
seven years (i.e. calendar years 2004 to 2007 for the Company)
if the
underpayment of taxes is due to omission or errors made by
either the taxpayer
or the withholding agent. The statute of limitations will be
extended to ten
years (i.e. calendar years 2004 to 2007 for the Company) in
case of tax
evasion.
According
to the Internal Revenue Code of the United States of America,
the statute of
limitations is three years (i.e. calendar years 2005 to 2007
for the Company) if
the underpayment of taxes is due to omission or errors made
by either the
taxpayer or withholding agent. There is no statute of limitations
in the case of
tax evasion.
Shinyo
Mariner Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(6)
|
Related
Party Transactions
|
Name
of party
|
|
Relationship
|
|
|
|
Belindtha
Marine Limited (“Belindtha”)
|
|
A
company controlled by a person related to a director
of the
Company
|
|
|
|
Clipper
Group Invest Ltd (“Clipper Group”)
|
|
Shareholder
of the Company’s immediate holding company
|
|
|
|
Univan
Ship Management Limited (“Univan”)
|
|
A
company controlled by a director, Captain Charles Arthur
Joseph
Vanderperre, of the Company
|
|
|
|
Van-Clipper
Holding Co., Ltd. (“Van-Clipper”)
|
|
Immediate
holding company of the Company
|
|
|
|
Vanship
Holdings Limited (“Vanship”)
|
|
Shareholder
of the Company’s immediate holding
company
|
(a)
|
The
principal related party transactions during the nine-month
periods ended
September 30, 2006 and 2007 are as follows:
|
|
|
|
|
Nine-Month
Periods Ended
September
30,
|
|
|
|
|
|
2006
|
|
2007
|
|
|
|
Note
|
|
|
|
|
|
Service
fee to Belindtha
|
|
|
(i)
|
|
|
85,500
|
|
|
85,500
|
|
Charter
hire commission to Vanship
|
|
|
(ii)
|
|
|
98,105
|
|
|
116,166
|
|
Agency
fee to Univan
|
|
|
(iii)
|
|
|
27,000
|
|
|
28,452
|
|
Loan
interest expense to Van-Clipper
|
|
|
(iv)
|
|
|
496,936
|
|
|
617,356
|
|
Notes:
|
(i)
|
The
Company has outsourced substantially all its day-to-day
operations to
Belindtha. The service fee is payable to Belindtha at
a pre-determined
amount in accordance with the terms mutually agreed by
Belindtha and the
Company.
|
|
(ii)
|
It
represents standard commission for the chartering and
operation of the
vessel at the rate of 1.25% on the charter rate as stipulated
on the
charter party agreement with prospective charterers,
subject to a maximum
of US$625 per day to Vanship.
|
|
(iii)
|
Univan
provided agency services to the Company. The agency fee
is payable based
on contractual agreement with the
Company.
|
|
(iv)
|
The
balance represents interest expense on a loan facility
provided by
Van-Clipper. Terms of loan facility details are set out
in Note 6(b)(iv)
below.
|
Shinyo
Mariner Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(6)
|
Related
Party Transactions
(continued)
|
(b)
|
Amounts
due from and due to related parties as of December 31,
2006 and September
30, 2007 are as follows:
|
|
|
|
|
December
31,
2006
|
|
September
30,
2007
|
|
|
|
Note
|
|
|
|
|
|
Amount
due from related party:
|
|
|
|
|
|
|
|
Amount
due from Vanship
|
|
|
(i)
|
|
|
3,479
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
due to related parties:
|
|
|
|
|
|
|
|
|
|
|
Amount
due to Van-Clipper
|
|
|
(ii)
|
|
|
963,186
|
|
|
910,856
|
|
Amount
due to Vanship
|
|
|
(i)
|
|
|
-
|
|
|
25,764
|
|
Amount
due to Univan
|
|
|
(iii)
|
|
|
316,035
|
|
|
195,361
|
|
|
|
|
|
|
|
1,279,221
|
|
|
1,131,981
|
|
Loan
from related party:
|
|
|
|
|
|
|
|
|
|
|
Van-Clipper
|
|
|
(iv)
|
|
|
15,150,000
|
|
|
18,500,000
|
|
(b)
Amounts
due from and due to related parties as of December 31, 2006 and
September 30,
2007 are as follows:
Notes:
|
(i)
|
The
balance represents current account with Vanship. The
balance is unsecured,
non-interest bearing and with no fixed terms of repayment.
|
|
(ii)
|
The
balance represents interest payable on loan from and
other payables to
Van-Clipper. Terms of loan are set out in (iv)
below.
|
|
(iii)
|
The
balance represents advance payments for expenses to be
paid by Univan on
behalf of the Company. The balance is unsecured, non-interest
bearing and
with no fixed terms of repayment.
|
|
(iv)
|
The
balance represents loan facility provided by Van-Clipper.
The loan
facility period is from December 22, 2004 to December
15, 2012. Interest
is charged at 5% per annum on drawdown balance. The interest
expense for
the nine-month periods ended September 30, 2006 and 2007
was $496,936 and
$617,356, respectively. Interest of $699,375 and $669,686
was paid for the
nine-month periods ended September 30, 2006 and 2007
respectively.
|
In
accordance with the contractual bank loan arrangement, the loan
from Van-Clipper
shall not be repaid before the bank loan is repaid in full.
(c)
|
Van-Clipper
has provided a letter of support to the Company to confirm
its intention
to provide continuing financial support to the Company
so as to enable the
Company to meet its liabilities when they fall due.
|
Shinyo
Mariner Limited
Notes
to
the Unaudited Condensed Financial Statements (continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(6)
|
Related
Party Transactions
(continued)
|
(d)
|
As
of December 31, 2006 and September 30, 2007, long-term
bank loan of
$17,700,000 and $15,000,000, respectively, was guaranteed
by Vanship.
|
(e)
|
As
of December 31, 2006 and September 30, 2007, long-term
bank loan of
$17,700,000 and $15,000,000, respectively, was guaranteed
by Clipper
Group.
|
(7)
|
Commitments
and Contingencies
|
The
Company entered into a time charter agreement on January 7, 2005
with Euronav
N.V (“Charterer”) for a period of approximately 7 years. In 2006, a dispute
arose between the Company and Charterer as the scheduled drydocking
and
associated survey and repairs of the vessel of the Company took
longer than
originally anticipated. The Charterer purported to terminate the
time charter
agreement and the Company accepted the purported termination as
a repudiatory
breach of the time charter agreement.
The
Company received a claim from the Charterer in March 2007 and
the Charterer is
seeking monetary damages on termination of the time charter
agreement of
$2,277,799 relating to bunkers remaining on board, return of
profit share, and
speed and consumption claim. The Company admits the claim for
the bunkers
remaining on board of $529,777 and a provision of $529,777
has been made as of
September 30, 2007. For the remaining claims, no provision
has been made because
the amount cannot be reasonably estimated as the claims are
in preliminary
stages. However, management considered that unfavorable outcome
towards the
Company is reasonably possible. Management estimated the exposure to the
remaining claims ranges from $Nil to $1,748,002 as of September 30,
2007.
(8)
|
Fair
Value of Financial Instruments
|
The
carrying amounts of cash, trade accounts receivable and amounts
due from/to
related parties, approximate their fair values because of the short
maturity of
these instruments.
The
carrying values of long-term bank loan and loan from related party
approximate
their fair values based on the borrowing rates currently available
to the
Company for bank loans with similar terms and average maturities.
Shinyo
Mariner Limited
Notes
to
the Unaudited Condensed Financial Statements(continued)
for
the
nine-month periods ended September 30, 2006 and 2007
(expressed
in US$)
(9)
|
Business
and Credit Concentrations
|
The
Company operates in the shipping industry which historically has
been cyclical
with corresponding volatility in profitability. All the Company’s revenues are
derived from vessel charters. The Company seeks to mitigate volatilities
in its
business by obtaining long-term charter contracts. The Company
has obtained a
long-term time charter contract which will expire in February 2010.
The
Company outsourced the technical management services to Belindtha
which is
controlled by a person related to a director of the Company.
Belindtha then
sub-contracted its obligations under the outsourcing arrangement
to Univan which
assists Belindtha in providing technical management services
to the Company.
Univan is controlled by Captain Charles Arthur Joseph Vanderperre,
a director of
the Company and is jointly owned by Captain Charles Arthur Joseph
Vanderperre and Clipper Group, a shareholder of the immediate
holding company of
the Company. All expenses incurred by Univan on behalf of the
Company are
charged to the Company based on the actual expenditures incurred
on its behalf.
During the nine-month periods ended September 30, 2006 and 2007,
the Company
paid service fee of $85,500 each period to Belindtha.
The
Company is engaged in the business of ocean transportation of crude
oil industry
which is extremely competitive and dependent on the world’s demand for crude
oil. Competition depends on price, location, size, age, condition
and the
acceptability of the vessel to the charterers. The increase in
competition and
the changes in demand for crude oil could result in lower revenue
achieved for
the vessel.
The
following are revenue from customers that individually comprise
10% or more of
gross revenue:
|
|
Nine-month
Period Ended September 30,
|
|
|
|
2006
|
|
2007
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Dalian
Ocean Shipping Company
|
|
|
-
|
|
|
-
|
|
|
7,981,311
|
|
|
86
|
|
Euronav
Luxembourg S.A.
|
|
|
7,848,361
|
|
|
100
|
|
|
-
|
|
|
-
|
|
Hyundai
Oilbank Co., Ltd.
|
|
|
-
|
|
|
-
|
|
|
1,311,936
|
|
|
14
|
|
|
|
|
7,848,361
|
|
|
100
|
|
|
9,293,247
|
|
|
100
|
|
The
gross
accounts receivable due from a customer that individually representing
more than
10% of the outstanding accounts receivable were as
follows:
|
|
December
31,
2006
|
|
September
30,
2007
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Hyundai
Oilbank Co., Ltd.
|
|
|
1,024,850
|
|
|
100
|
|
|
-
|
|
|
-
|
|
Pursuant
to a definitive agreement entered into between Vanship and Energy
Infrastructure
Acquisition Corp. (“EIAC”), a company listed on the American Stock Exchange, on
December 3, 2007 (the “Agreement”), Vanship agreed to sell all of its equity
interests in the Company and other eight related companies to Energy
Infrastructure Merger Corporation (“EIMC”) (the “Business Combination”), a
wholly-owned subsidiary of EIAC, for an aggregate consideration
of $778,000,000,
consisting of $643,000,000 in cash (subject to closing adjustments)
and
13,500,000 shares of common stock of EIMC (valued at $10 per share
of common
stock). Vanship is entitled to an additional 3,000,000 shares of
common stock of
EIMC on each of the first and second anniversaries of the completion
of the
Business Combination, subject to certain earning criteria.
Approval
of the Business Combination requires the affirmative vote of the
holders of a
majority of the shares of common stock voted at EIAC’s special meeting of
stockholders, provided that there is a quorum. In addition, if
the EIAC
stockholders approve the Business Combination, the Business Combination
will
only proceed if holders of shares purchased in EIAC’s initial public offering,
representing less than 30% of the shares sold in EIAC’s initial public offering
and EIAC’s private placement that occurred immediately prior to the initial
public offering, exercise their redemption rights at the time of
casting a vote
against the Business Combination.
Pursuant
to the Agreement, Vanship has agreed to purchase up to 5,000,000
units from EIMC
at a purchase price of $10.00 per unit, but only to the extent
necessary for
EIMC to secure financing for the Business Combination. Each unit
will consist of
one share of EIMC’s common stock and one warrant to purchase one share of EIMC’s
common stock at an exercise price of $8.00 per warrant.
Report
of Independent Registered Public Accounting
Firm
The
Board
of Directors and Shareholder of
Shinyo
Sawako Limited:
We
have
audited the accompanying balance sheet of Shinyo Sawako Limited
(the “Company”)
as of December 31, 2006, and the related statements of income,
shareholder’s
equity, and cash flows for the period from March 2, 2006 (date
of incorporation)
to December 31, 2006. These financial statements are the responsibility
of the
Company’s management. Our responsibility is to express an opinion on
these
financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public
Company
Accounting Oversight Board (United States). Those standards require
that we plan
and perform the audit to obtain reasonable assurance about whether
the financial
statements are free of material misstatement. An audit includes
examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial
statements. An audit also includes assessing the accounting principles
used and
significant estimates made by management, as well as evaluating
the overall
financial statement presentation. We believe that our audit provides
a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly,
in all
material respects, the financial position of Shinyo Sawako Limited
as of
December 31, 2006, and the results of its operation and its cash
flows for the
period from March 2, 2006 (date of incorporation) to December
31, 2006, in
conformity with U.S. generally accepted accounting principles.
/s/
KPMG
Hong
Kong, China
February
11, 2008
Shinyo
Sawako Limited
Balance
Sheet
as
of
December 31, 2006
(expressed
in US$)
|
|
|
|
2006
|
|
|
|
Note
|
|
|
|
Assets
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash
|
|
|
|
5,675,573
|
|
Trade
accounts receivable
|
|
|
|
1,372,215
|
|
Prepayments
and other receivables
|
|
|
|
75,021
|
|
Supplies
|
|
|
2
|
|
|
121,509
|
|
Amount
due from related party
|
|
|
9(b
)
|
|
|
38,281
|
|
Total
current assets
|
|
|
|
|
|
7,282,599
|
|
Restricted
cash
|
|
|
|
|
|
762,000
|
|
Deferred
loan costs
|
|
|
|
|
|
60,903
|
|
Vessel,
net
|
|
|
3
|
|
|
49,613,774
|
|
Total
assets
|
|
|
|
|
|
57,719,276
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Current
portion of long-term bank loan
|
|
|
4
|
|
|
5,700,000
|
|
Amounts
due to related parties
|
|
|
9(b
)
|
|
|
1,770,588
|
|
Accrued
liabilities and other payables
|
|
|
5
|
|
|
1,061,141
|
|
Total
current liabilities
|
|
|
|
|
|
8,531,729
|
|
Loan
from related party
|
|
|
9(b)
|
|
|
20,020,391
|
|
Long-term
bank loan
|
|
|
4
|
|
|
23,450,000
|
|
Total
liabilities
|
|
|
|
|
|
52,002,120
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s
equity
|
|
|
|
|
|
|
|
Ordinary
shares HK$1 par value per share
10,000
shares authorized; 1 share issued and fully paid
as
of December 31
|
|
|
|
|
|
-
|
|
Retained
earning
|
|
|
|
|
|
5,717,156
|
|
Total
shareholder’s equity
|
|
|
|
|
|
5,717,156
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholder’s equity
|
|
|
|
|
|
57,719,276
|
|
See
accompanying notes to the financial statements.
Shinyo
Sawako Limited
Statement
of Income
for
the
period from March 2, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
|
|
|
|
2006
|
|
|
|
Note
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
|
|
|
|
Revenue
|
|
|
6
|
|
|
20,027,863
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
7
|
|
|
1,750,003
|
|
Voyage
expenses
|
|
|
8
|
|
|
5,625,233
|
|
Depreciation
expenses
|
|
|
|
|
|
3,511,226
|
|
Management
fee
|
|
|
9(a)
|
|
|
92,548
|
|
Commission
|
|
|
|
|
|
945,120
|
|
Administrative
expenses
|
|
|
|
|
|
53,538
|
|
Total
operating expenses
|
|
|
|
|
|
11,977,668
|
|
Operating
income
|
|
|
|
|
|
8,050,195
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
263,034
|
|
Interest
expense
|
|
|
|
|
|
(2,597,883
|
)
|
Other,
net
|
|
|
|
|
|
1,810
|
|
Total
other expense
|
|
|
|
|
|
(2,333,039
|
)
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
|
|
|
5,717,156
|
|
Income
taxes
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
5,717,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Includes the following expenses resulting from transactions
with related
parties (see note 9(a)):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
Vessel
operating expenses
|
|
|
|
|
|
|
|
-
Agency fee
|
|
|
|
|
|
(42,339
|
)
|
Management
fee
|
|
|
|
|
|
(92,548
|
)
|
Commission
|
|
|
|
|
|
(180,353
|
)
|
Interest
expense
|
|
|
|
|
|
(1,467,851
|
)
|
|
|
|
|
|
|
|
|
See
accompanying notes to the financial statements.
Shinyo
Sawako Limited
Statement
of Shareholder’s Equity
for
the
period from March 2, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
|
|
|
|
Ordinary
shares
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
Amount
|
|
Retained
earning
|
|
Total
Shareholder’s
equity
|
|
|
|
Note
|
|
|
|
|
|
|
|
|
|
Balance
as of March 2, 2006
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Capital
injected upon incorporation
|
|
|
1
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
income
|
|
|
|
|
|
-
|
|
|
-
|
|
|
5,717,156
|
|
|
5,717,156
|
|
Balance
as of December 31, 2006
|
|
|
|
|
|
1
|
|
|
-
|
|
|
5,717,156
|
|
|
5,717,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the financial statements.
Shinyo
Sawako Limited
Statement
of Cash Flows
for
the
period from March 2, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
|
|
2006
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
Net
income
|
|
|
5,717,156
|
|
Adjustments
to reconcile net income to net cash from operating
activities:
|
|
|
|
|
Depreciation
expenses
|
|
|
3,511,226
|
|
Amortization
of deferred loan costs
|
|
|
4,621
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
Trade
accounts receivable
|
|
|
(1,372,215
|
)
|
Prepayments
and other receivables
|
|
|
(75,021
|
)
|
Supplies
|
|
|
(121,509
|
)
|
Amount
due from related party
|
|
|
(38,281
|
)
|
Amounts
due to related parties
|
|
|
1,770,588
|
|
Accrued
liabilities and other payables
|
|
|
1,061,141
|
|
Net
cash provided by operating activities
|
|
|
10,457,706
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
Purchase
of vessel
|
|
|
(53,125,000
|
)
|
Increase
in restricted cash
|
|
|
(762,000
|
)
|
Net
cash used in investing activities
|
|
|
(53,887,000
|
)
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
Proceeds
from loan from related party
|
|
|
54,125,000
|
|
Repayment
of loan from related party
|
|
|
(34,104,609
|
)
|
Proceeds
from long-term bank loan
|
|
|
32,000,000
|
|
Repayment
of long-term bank loan
|
|
|
(2,850,000
|
)
|
Payment
of loan costs
|
|
|
(65,524
|
)
|
Net
cash provided by financing activities
|
|
|
49,104,867
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
5,675,573
|
|
Cash:
|
|
|
|
|
At
beginning of period
|
|
|
-
|
|
At
end of period
|
|
|
5,675,573
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
2006
|
|
Cash
paid during the period for:
|
|
|
|
Interest
|
|
|
960,357
|
|
See
accompanying notes to the financial statements.
Shinyo
Sawako Limited
Notes
to
the Financial Statements
for
the
period from March 2, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting
Policies
|
|
(a)
|
Description
of Business
|
Shinyo
Sawako Limited (the “Company”), a company engaged in the business of ocean
transportation of crude oil worldwide, was established in Hong
Kong on March 2,
2006. The principal activity of the Company is the ownership
and chartering of
the vessel “Shinyo Sawako”. Shinyo Sawako was delivered in 1995 and was a second
hand vessel acquired by the Company in March 2006. It is a single-hulled
very
large crude oil carrier with capacity of 275,616 deadweight
tonnage.
On
March
2, 2006, Van-Clipper Holding Co., Ltd established the Company in
Hong Kong as a
limited liability company with authorized share capital of 10,000
ordinary
shares of HK$1 each. On date of incorporation, 1 subscriber share
of HK$1 was
issued.
The
Company has outsourced substantially all its day to day operations
to its
related party, Beldan Marine Limited (“Beldan”), a company controlled by a
person related to a director of the Company. Beldan then sub-contracted
its
obligations under the outsourcing arrangement to Univan Ship Management
Limited.
(“Univan”) which assists Beldan in providing technical management services
to
the Company. Univan is controlled by Captain Charles Arthur Joseph
Vanderperre,
a director of the Company, and is jointly owned by Captain Charles
Arthur Joseph
Vanderperre and Clipper Group Invest Ltd, a shareholder of the
immediate holding
company of the Company. All expenses incurred by Univan on behalf
of the Company
are charged to the Company based on the actual expenditures incurred
on its
behalf. In addition, Univan provides administrative services to
the
Company.
From
March 2006 to December 2006, Shinyo Sawako
operated in the spot market. The Company begain receiving time
charter revenue
in December 2006 pursuant to a time charter agreement with Dalian
Ocean Shipping
Company, under which the Company is paid a daily charter rate
of
$39,088.
As
of
December 31, 2006, the Company had a working capital deficit of
$1,249,130.
These financial statements have been prepared assuming that the
Company will
continue as a going concern as Van-Clipper Holding Limited, the
immediate
holding company, has confirmed its intention to provide continuing
financial
support to the Company so as to enable the Company to meet its
liabilities as
and when they fall due.
|
(c)
|
Basis
of Presentation
|
The
Company’s financial statements have been prepared in accordance with U.S.
generally accepted accounting principles (“US GAAP”).
This
basis of accounting differs in certain material respects from that
used in the
preparation of the statutory financial statements of the Company,
which are
prepared in accordance with the accounting principles of the country
of its
domicile. The accompanying financial statements reflect necessary
adjustments to
present them in conformity with US GAAP.
Cash
consists interest-bearing deposits placed with banks. As of December
31, 2006,
there were no cash equivalents.
Shinyo
Sawako Limited
Notes
to
the Financial Statements (continued)
for
the
period from March 2, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting
Policies
|
Restricted
cash represents minimum interest-bearing bank deposits which must
be maintained
in accordance with contractual bank loan arrangements over the
bank loan period.
|
(f)
|
Trade
Accounts Receivable
|
The
Company generally requires customers to pay in advance for time
charter hire.
Trade accounts receivable are recorded at the invoiced amount,
do not bear
interest and reflect billings from charterers for hire, freight
and demurrage.
The
Company maintains an allowance for doubtful accounts for estimated
losses
inherent in its trade accounts receivable portfolio. In establishing
the
required allowance, management considers historical losses, current
receivables
aging, and existing industry and national economic data.
The
Company’s customers are in the crude oil industry and are affected by demand
and
supply of crude oil worldwide. The Company has been able to collect
all of its
receivable balances, and accordingly, the Company did not provide
for any
allowance for doubtful accounts at December 31, 2006. The Company
does not have
any off-balance-sheet credit exposure related to its customers.
Supplies
consisting of bunkers and lubricating oil which are stated at cost.
Cost is
determined on a first-in, first-out method (FIFO).
A
vessel
is stated at cost, which consists of the contract price and delivery
costs.
Subsequent expenditures for conversions and major overhauls (“drydocking”) are
also capitalized when they extend the life, increase the earning
capacity or
improve the efficiency or safety of the vessel otherwise these
amounts are
charged to expense as incurred.
Depreciation
on the vessel is calculated based on the straight-line method over
the estimated
useful life of the vessel, after taking into account its estimated
residual
value, from date of acquisition. The vessel’s residual value is equal to the
product of its lightweight tonnage and estimated scrap rate. Management
estimates the useful life of the Company’s vessel to be 10 years from the date
of acquisition. The useful life of the vessel is evaluated on a
regular basis to
account for changes in circumstances, including changes in regulatory
restrictions. If regulations place limitations over the ability
of a vessel to
operate, its useful life is adjusted to end at the date such regulations
become
effective.
The
Company follows the deferral method of accounting for drydocking
whereby actual
costs incurred are capitalized and are depreciated on a straight-line
basis over
the period through the date the next drydocking becomes due. The
vessel of the
Company is required to have an intermediate drydocking approximately
every 30
months and a special survey drydocking approximately every 60 months.
Capitalized intermediate drydocking costs and special survey drydocking
costs
are depreciated over a period of 30 months and 60 months, respectively.
If the
anticipated date of drydocking is changed from the scheduled date,
the remaining
undepreciated carrying amount of the drydocking costs is adjusted
to reflect the
revised date.
Shinyo
Sawako Limited
Notes
to
the Financial Statements (continued)
for
the
period from March 2, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
A
vessel
is reviewed for impairment whenever events or changes in circumstances
indicate
that the carrying amount of a vessel may not be recoverable. Recoverability
of
the vessel is measured by a comparison of the carrying amount of
the vessel,
including capitalized drydocking costs, to the estimated undiscounted
future
cash flows expected to be generated by the vessel. If the carrying
amount of the
vessel exceeds its estimated future undiscounted cash flows, an
impairment
charge will be recognized by the amount that the carrying amount
of the vessel
exceeds its estimated fair value.
In
the
normal course of business, the Company is subject to loss contingencies,
such as
legal proceedings and claims arising out of its business. An accrual
for a loss
contingency is recognized when it is probable that a liability
will be incurred
and the amount of the loss can be reasonably estimated.
|
(k)
|
Revenue
Recognition and Related
Expenses
|
The
Company generates its revenues from time and voyage charter agreements.
Revenues
are recognized when the collectibility has been reasonably assured.
Time charter
revenues are recorded over the term of the charter as the service
is provided.
The Company follows EITF 91-9 in accounting for voyage charter
revenues which
are recognized based on the percentage of completion at the balance
sheet date.
A voyage is deemed to commence upon the completion of discharge
of the vessel’s
previous cargo and is deemed to end upon the completion of discharge
of the
current cargo. Voyage related and vessel operating costs are expensed
as
incurred.
Brokerage
and charter hire commissions paid to third parties are expensed
in the same
period as revenues are recognized.
Fees
incurred for obtaining new loans are deferred and amortized to
interest expense
over the life of the related debt using the effective interest
method. The
Company follows EITF 96-19 in accounting for debt modification.
A modification
is considered substantial if the present value of the cash flows
under the terms
of new debt is at least 10 percent different from the present value
of the
remaining cash flows under the terms of the original debt at the
date of
modification. When the loan is repaid or when the loan is substantially
modified, the existing unamortized fees are written-off in the
period the debt
repayment or substantial modification takes place. When the modification
is not
considered substantial, the fees associated with the modification
and, along
with the existing unamortized fees, are amortized over the remaining
term of the
modified loan using the effective interest method. There is no
write-off of
deferred loan costs during the period ended December 31, 2006.
Shinyo
Sawako Limited
Notes
to
the Financial Statements (continued)
for
the
period from March 2, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(n)
|
Foreign
Currency Transactions
|
The
Company’s functional and reporting currency is United States (“US”) dollar
because the Company’s vessel operates in international shipping markets, which
utilize the US dollar. Furthermore, the Company incurs bank debt,
pays salaries
and wages and certain other expenditures such as fuel costs, lubricants,
insurance costs, all in US dollars.
Transactions
denominated in currencies other than US dollar are translated into
US dollars at
the exchange rates prevailing at the dates of transactions. Monetary
assets and
liabilities denominated in currencies other than US dollar are
translated at the
exchange rates prevailing at the balance sheet dates. During the
period ended
December 31, 2006, substantially all of the company’s transactions were
denominated in US dollars and the Company did not have significant
foreign
currency transaction gains or losses.
The
preparation of the financial statements requires management of
the Company to
make a number of estimates and assumptions relating to the reported
amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities
at the date of the financial statements and the reported amounts
of revenues and
expenses during the reporting period. Significant items subject
to such
estimates and assumptions include the estimated useful life of
the vessel
(including drydocking costs), residual value and recovery of the
carrying amount
of the vessel. Actual results could differ from those estimates.
|
(p)
|
Income
and Other Taxes
|
Under
the
laws of the countries of the Company’s incorporation and/or vessel’s
registration, the Company is not subject to tax on international
shipping
income. However, it is subject to registration and tonnage taxes,
which are
charged by the country of which the vessel is registered at a fixed
rate based
on the tonnage of the vessel. Registration and tonnage taxes have
been included
in vessel operating expenses in the accompanying statement of income.
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement
109
(FIN
48).
FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an
enterprise’s financial statements and prescribes a threshold of
more-likely-than-not for recognition of tax benefits of uncertain
tax positions
taken or expected to be taken in a tax return. FIN 48 also provides
related
guidance on measurement, derecognition, classification, interest
and penalties,
and disclosure. The provisions of FIN 48 will be effective for
the fiscal years
beginning after December 15, 2006, with any cumulative effect of
the change in
accounting principle recorded as an adjustment to opening retained
earnings.
Effective from January 1, 2007, the Company adopted the provision
of FIN 48. As
of the date of the adoption of FIN 48, the Company has no material
unrecognized
tax benefit which would favorably affect the effective income tax
rate in future
periods and do not believe there will be any significant increases
or decreases
within the next twelve months. The Company has elected to classify
interest and
penalties related to unrecognized tax benefits, if and when required,
as part of
income tax expenses in the statements of income. No interest or
penalties have
been accrued at the date of adoption.
According
to the Inland Revenue Ordinance of Hong Kong, the statute of
limitations is
seven years (i.e. calendar year 2006 for the Company) if the
underpayment of
taxes is due to omission or errors made by either the taxpayer
or the
withholding agent. The statute of limitations will be extended
to ten years
(i.e. calendar year 2006 for the Company) in case of tax evasion.
According
to the Internal Revenue Code of the United States of America,
the statute of
limitations is three years (i.e. calendar year 2006 for the
Company) if the
underpayment of taxes is due to omission or errors made by
either the taxpayer
or withholding agent. There is no statute of limitations in
the case of tax
evasion.
Shinyo
Sawako Limited
Notes
to
the Financial Statements (continued)
for
the
period from March 2, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(q)
|
Recently
Issued Accounting
Standards
|
In
September 2006, the FASB issued FASB Statement No. 157,
Fair
Value Measurement
(Statement
157). Statement 157 defines fair value, establishes a framework
for the
measurement of fair value measures already required or permitted
by other
standards for fiscal years beginning after November 15, 2007. The
Company is
required to adopt Statement 157 for the fiscal years beginning
on January 1,
2008. Statement 157 is required to be applied prospectively, except
for certain
financial instruments. Any transition adjustment will be recognized
as an
adjustment to opening retained earnings in the year of adoption.
The Company
does not anticipate that the adoption of Statement 157 will have
a material
impact on its results of operations and financial position.
In
September 2006, the FASB issued FASB Staff Position No. A
UG
AIR-1, Accounting for Planned Major Maintenance Activities
(AUG
AIR-1). This guidance prohibits the use of the accrue-in-advance
method of
accounting for planned major maintenance activities because an
obligation has
not occurred and therefore a liability should not be recognized.
The provisions
of this guidance will be effective for fiscal years beginning after
December 15,
2006. Effective from January 1, 2007, the Company adopted the provision
of AUG
AIR-1. The Company follows the deferral method of accounting for
drydocking. As
of the date of adoption of AUG AIR-1, the Company has no accruals
for planned
drydocking which require to be adjusted retrospectively.
In
February 2007, the FASB issued FASB Statement No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities - Including an
Amendment of FASB Statement No. 115
(Statement
159)
.
Statement
159 permits an entity to elect fair value as the initial and
subsequent
measurement attribute for many financial assets and liabilities.
Entities
electing the fair value option would be required to recognize
changes in fair
value in earnings. Entities electing the fair value option are
required to
distinguish, on the face of the balance sheet, the fa
i
r
value of assets and liabilities for which the fair value option
has been elected
and similar assets and liabilities measured using another measurement
attribute.
Statement 159 will be effective for fiscal years beginning after
November 15,
2007. The adjustment to reflect the difference between the fair
value and the
carrying amount would be accounted for as a cumulative-effect
adjustment to
retained earnings as of the date of initial adoption. The Company
does not
anticipate that the adoption of the provisions of Statement 159
will have a
material impact on its results of operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 160,
Noncontrolling
Interests in Consolidated Financial Statements - an Amendment of
ARB No. 51
(Statement
160). Statement 160 establishes accounting and reporting standards
for the
noncontrolling interest in a subsidiary and for the deconsolidation
of a
subsidiary. Statement 160 will be effective for the fiscal year
beginning after
December 15, 2008. The Company does not anticipate that the adoption
of the
provisions of Statement 160 will have a material impact on its
results of
operations and financial position.
Shinyo
Sawako Limited
Notes
to
the Financial Statements (continued)
for
the
period from March 2, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
(q)
|
Recently
Issued Accounting Standards
(continued)
|
In
December 2007, the FASB issued FASB Statement No. 141 (Revised),
Business
Combinations
(Statement
141(R)). Statement 141(R) establishes principles and requirements
for how the
acquirer of a business recognizes and measures in its financial
statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling
interest in the acquiree. Statement 141(R) also provides guidance
for
recognizing and measuring the goodwill acquired in the business
combination and
determines what information to disclose to enable users of the
financial
statements to evaluate the nature and financial effects of the
business
combination. Statement 141(R) will be effective for fiscal years
beginning after
December 15, 2008. The Company does not anticipate the adoption
of the
provisions of Statement 141(R) will have a material impact on its
results of
operations and financial position.
|
|
2006
|
|
|
|
|
|
Lubricating
oil
|
|
|
43,435
|
|
Bunkers
|
|
|
78,074
|
|
|
|
|
121,509
|
|
(3)
Vessel
,
net
|
|
2006
|
|
|
|
|
|
Vessel
|
|
|
|
Cost
|
|
|
53,125,000
|
|
Accumulated
depreciation
|
|
|
(3,511,226
|
)
|
Vessel,
net
|
|
|
49,613,774
|
|
The
vessel is mortgaged as described in Note 4.
(4)
Long-term
Bank Loan
|
|
|
|
Lender
|
|
2006
|
|
HSH
Nordbank AG, Nordea Bank Denmark A/S, and
DVB
Group Merchant Bank (Asia) Ltd
|
|
|
|
June
9, 2006 to May 31, 2014
|
|
|
29,150,000
|
|
|
|
|
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
5,700,000
|
|
Non-current
portion
|
|
|
23,450,000
|
|
|
|
|
29,150,000
|
|
Shinyo
Sawako Limited
Notes
to
the Financial Statements (continued)
for
the
period from March 2, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(4)
|
Long-term
Bank Loan (continued)
|
On
June
9, 2006, a loan of $32,000,000 was obtained. The loan is repayable by
nineteen quarterly installments of $1,425,000 each, followed
by twelve quarterly
installments of $400,000 each and final installment of $125,000.
Interest is
charged at LIBOR plus 1.00% per annum (6.37% as of December 31,
2006). The
interest expense for the period ended December 31, 2006 was $1,125,411.
As
of
December 31, 2006, bank loan is secured as follows:
|
|
2006
|
|
|
|
|
|
Secured
by:
|
|
|
|
Restricted
cash
|
|
|
762,000
|
|
Vessel
|
|
|
49,613,774
|
|
The
bank
loan is also guaranteed by related parties, Vanship Holdings Limited
and Clipper
Group Invest Ltd, both are shareholders of the immediate holding
company of the
Company as of December 31, 2006.
The
principal repayments for each of the years subsequent to December
31, 2006 are
as follows:
Year
ending December 31,
|
|
|
|
|
|
|
|
2007
|
|
|
5,700,000
|
|
2008
|
|
|
5,700,000
|
|
2009
|
|
|
5,700,000
|
|
2010
|
|
|
5,700,000
|
|
2011
and later
|
|
|
6,350,000
|
|
|
|
|
29,150,000
|
|
(5)
|
Accrued
Liabilities and Other
Payables
|
Accrued
liabilities and other payables at December 31, 2006 consist of
the
following:
|
|
2006
|
|
|
|
|
|
Accrued
audit fee
|
|
|
5,000
|
|
Accrued
vessel operating expenses
|
|
|
314,621
|
|
Bank
loan interest payable
|
|
|
165,054
|
|
Commission
payable
|
|
|
374,635
|
|
Receipt
in advance
|
|
|
5,775
|
|
Wages
payable
|
|
|
46,367
|
|
Other
payable
|
|
|
149,689
|
|
|
|
|
1,061,141
|
|
Shinyo
Sawako Limited
Notes
to
the Financial Statements (continued)
for
the
period from March 2, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
The
Company generates its revenues from time and voyage charter agreements.
The
Company’s revenue can be analyzed as follows:
|
|
2006
|
|
|
|
|
|
Time
charter
|
|
|
1,052,188
|
|
Voyage
charter
|
|
|
18,975,675
|
|
|
|
|
20,027,863
|
|
(7)
|
Vessel
Operating Expenses
|
Vessel
operating expenses for the period ended December 31, 2006 consist
of the
following:
|
|
2006
|
|
|
|
|
|
Crew
wages and allowances
|
|
|
503,458
|
|
Crew
expenses
|
|
|
94,391
|
|
Insurance
expenses
|
|
|
291,414
|
|
Lubricating
oil expenses
|
|
|
282,300
|
|
Stores
expenses
|
|
|
121,128
|
|
Repair
and maintenance
|
|
|
165,374
|
|
Spare
parts expenses
|
|
|
218,066
|
|
Others
|
|
|
73,872
|
|
|
|
|
1,750,003
|
|
Voyage
expenses for the period ended December 31, 2006 consist of the
following:
|
|
2006
|
|
|
|
|
|
Port
dues
|
|
|
564,842
|
|
Bunker
consumption
|
|
|
4,775,440
|
|
Other
voyage expenses
|
|
|
284,951
|
|
|
|
|
5,625,233
|
|
Shinyo
Sawako Limited
Notes
to
the Financial Statements (continued)
for
the
period from March 2, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(9)
|
Related
Party Transactions
|
Name
of party
|
|
Relationship
|
|
|
|
Beldan
Marine Limited (“Beldan”)
|
|
A
company controlled by a person related to a director
of the
Company
|
|
|
|
Clipper
Group Invest Ltd (“Clipper Group”)
|
|
Shareholder
of the Company’s immediate holding company
|
|
|
|
Shinyo
Kannika Limited (“Shinyo Kannika”)
|
|
A
fellow subsidiary of the Company
|
|
|
|
Univan
Ship Management Limited (“Univan”)
|
|
A
company controlled by a director, Captain Charles Arthur
Joseph
Vanderperre, of the Company, and is jointly owned by
Charles Arthur Joseph
Vanderperre and Clipper Group.
|
|
|
|
Van-Clipper
Holding Co., Ltd. (“Van-Clipper”)
|
|
Immediate
holding company of the Company
|
|
|
|
Vanship
Holdings Limited (“Vanship”)
|
|
A
shareholder of the immediate holding company of the
Company
|
(a)
The
principal related party transactions during the period ended December
31, 2006
are as follows:
|
|
|
|
|
|
|
2006
|
|
Note
|
|
|
Service
fee to Beldan
|
(i)
|
|
92,548
|
Charter
hire commission to Vanship
|
(ii)
|
|
180,353
|
Agency
fee to Univan
|
(iii)
|
|
42,339
|
Loan
interest expense to Van-Clipper
|
(iv)
|
|
1,467,851
|
Notes:
|
(i)
|
The
Company has outsourced substantially all its day to day
operations to
Beldan. The service fee is payable to Beldan at a pre-determined
amount in
accordance with the terms mutually agreed by Beldan and
the
Company.
|
|
(ii)
|
It
represents standard commission for the chartering and
operation of the
vessel at the rate of 1.25% on the charter rate as stipulated
on the
charter party agreement with prospective charterers,
subject to a maximum
of US$625 per day to Vanship.
|
|
(iii)
|
Univan
provided agency services to the Company. The agency fee
is payable based
on contractual agreements with the
Company.
|
|
(vi)
|
The
balance represents interest expense on loans from Van-Clipper.
Terms of
loan details are set out in Note 9(b)(iv) below.
|
Shinyo
Sawako Limited
Notes
to
the Financial Statements (continued)
for
the
period from March 2, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(9)
|
Related
Party Transactions
(continued)
|
(b)
|
Amounts
due from and due to related parties as of December 31,
2006:
|
|
|
|
|
2006
|
|
|
|
Note
|
|
|
|
Amount
due from related party:
|
|
|
|
|
|
Amount
due from Univan
|
|
|
(i
)
|
|
|
38,281
|
|
|
|
|
|
|
|
|
|
Amounts
due to related parties:
|
|
|
|
|
|
|
|
Amount
due to Van-Clipper
|
|
|
(ii)
|
|
|
1,733,477
|
|
Amount
due to Vanship
|
|
|
(iii)
|
|
|
37,111
|
|
|
|
|
|
|
|
1,770,588
|
|
Loan
from related party:
|
|
|
|
|
|
|
|
Van-Clipper
|
|
|
(iv)
|
|
|
20,020,391
|
|
|
|
|
|
|
|
|
|
Notes:
|
(i)
|
The
balance represents advance payments for expenses to be
paid by Univan on
behalf of the Company. The balance is unsecured, non-interest
bearing and
with no fixed terms of repayment.
|
|
(ii)
|
The
balance represents interest payable on loan from and
other payables to
Van-Clipper. Terms of the loan are set out in (iv) below.
|
|
(iii)
|
The
balance represents current account with Vanship. The
balance is unsecured,
non-interest bearing and with no fixed terms of
repayment.
|
|
(iv)
|
The
balance represents a loan advance from Van-Clipper. The
loan period is
from March 3, 2006 to June 30, 2014 with no fixed repayment
schedule.
Interest is charged at 5% per annum. The interest expense
for the period
ended December 31, 2006 was $1,467,851.
|
In
accordance with the contractual bank loan arrangement, the loan
from Van-Clipper
shall not be repaid before the bank loan is repaid in full.
(c)
|
Van-Clipper
has provided a letter of support to the Company to confirm
its intention
to provide continuing financial support to the Company
so as to enable the
Company to meet its liabilities when they fall due.
|
(d)
|
As
of December 31, 2006, long-term bank loan of $14,575,000
was guaranteed by
Vanship.
|
(e)
|
As
of December 31, 2006, long-term bank loan of $14,575,000
was guaranteed by
Clipper Group.
|
Shinyo
Sawako Limited
Notes
to
the Financial Statements (continued)
for
the
period from March 2, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
(10)
|
Commitments
and Contingencies
|
Various
claims, suits, and complaints, including those involving government
regulations
and product liability, arise in the ordinary course of the shipping
business. In
addition, losses may arise from disputes with charterers, agents,
insurance and
other claims with suppliers relating to the operations of the Company’s vessel.
Currently, management is not aware of any such claims or contingent
liabilities,
which should be disclosed, or for which a provision should be established
in the
accompanying financial statements.
(11)
|
Fair
Value of Financial Instruments
|
The
carrying amounts of cash, trade accounts receivable and amounts
due from/to
related parties, approximate their fair values because of the short
maturity of
these instruments.
The
carrying values of long-term bank loan and loan from related party
approximate
their fair values based on the borrowing rates currently available
to the
Company for bank loans with similar terms and average maturities.
(12)
|
Business
and Credit Concentrations
|
The
Company operates in the shipping industry which historically has
been cyclical
with corresponding volatility in profitability. All the Company’s revenues are
derived from vessel charters. The Company seeks to mitigate volatilities
in its
business by obtaining long-term charter contracts. The Company
has obtained a
long-term time charter contract which will expire in December 2011.
The
Company outsourced the technical management services to Beldan
which is
controlled by a person related to a director of the Company.
Beldan then
sub-contracted its obligations under the outstanding arrangement
to Univan which
assists Beldan in providing technical management services to
the Company. Univan
is controlled by Captain Charles Arthur Joseph Vanderperre, a
director of the
Company and is jointly owned by Captain Charles Arhur Joseph
Vanderperre and
Clipper Group, a shareholder of the immediate holding company
of the Company.
All expenses incurred by Univan on behalf of the Company are
charged to the
Company based on actual expenditures incurred on its behalf.
During the period
ended December 31, 2006, the Company paid service fee of $92,548
to
Beldan.
The
Company is engaged in the business of ocean transportation of crude
oil industry
which is extremely competitive and dependent on the world’s demand for crude
oil. Competition depends on price, location, size, age, condition
and the
acceptability of the vessel to the charterers. The increase in
competition and
the changes in demand for crude oil could result in lower revenue
achieved for
the vessel.
The
following are revenue from a customer that individually comprises
10% or more of
gross revenue:
|
|
2006
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
S-Oil
Corporation
|
|
|
18,975,675
|
|
|
95
|
|
The
gross
accounts receivable due from customers that individually representing
more than
10% of the outstanding accounts receivable were as follows:
|
|
2006
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
S-Oil
Corporation
|
|
|
644,357
|
|
|
47
|
|
SK
Shipping Company Limited
|
|
|
498,372
|
|
|
36
|
|
Shipping
Corporation of India Ltd
|
|
|
229,486
|
|
|
17
|
|
|
|
|
1,372,215
|
|
|
100
|
|
Shinyo
Sawako Limited
Notes
to
the Financial Statements (continued)
for
the
period from March 2, 2006 (date of incorporation)
to
December 31, 2006
(expressed
in US$)
Pursuant
to a definitive agreement entered into between Vanship and Energy
Infrastructure
Acquisition Corp. (“EIAC”), a company listed on the American Stock Exchange, on
December 3, 2007 (the “Agreement”), Vanship agreed to sell all of its equity
interests in the Company and other eight related companies to Energy
Infrastructure Merger Corporation (“EIMC”) (the “Business Combination”), a
wholly-owned subsidiary of EIAC, for an aggregate consideration
of $778,000,000,
consisting of $643,000,000 in cash (subject to closing adjustments)
and
13,500,000 shares of common stock of EIMC (valued at $10 per share
of common
stock). Vanship is entitled to an additional 3,000,000 shares of
common stock of
EIMC on each of the first and second anniversaries of the completion
of the
Business Combination, subject to certain earning criteria.
Approval
of the Business Combination requires the affirmative vote of the
holders of a
majority of the shares of common stock voted at EIAC’s special meeting of
stockholders, provided that there is a quorum. In addition, if
the EIAC
stockholders approve the Business Combination, the Business Combination
will
only proceed if holders of shares purchased in EIAC’s initial public offering,
representing less than 30% of the shares sold in EIAC’s initial public offering
and EIAC’s private placement that occurred immediately prior to the initial
public offering, exercise their redemption rights at the time of
casting a vote
against the Business Combination.
Pursuant
to the Agreement, Vanship has agreed to purchase up to 5,000,000
units from EIMC
at a purchase price of $10.00 per unit, but only to the extent
necessary for
EIMC to secure financing for the Business Combination. Each unit
will consist of
one share of EIMC’s common stock and one warrant to purchase one share of EIMC’s
common stock at an exercise price of $8.00 per warrant.
Shinyo
Sawako Limited
Unaudited
Condensed Balance Sheets
as
of
December 31, 2006 and September 30, 2007
(expressed
in US$)
|
|
|
|
December
31, 2006
|
|
September
30, 2007
|
|
|
|
Note
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
5,675,573
|
|
|
6,921,976
|
|
Trade
accounts receivable
|
|
|
|
|
|
1,372,215
|
|
|
156,961
|
|
Prepayments
and other receivables
|
|
|
|
|
|
75,021
|
|
|
172,478
|
|
Supplies
|
|
|
|
|
|
121,509
|
|
|
64,607
|
|
Amount
due from related party
|
|
|
6(b
)
|
|
|
38,281
|
|
|
-
|
|
Total
current assets
|
|
|
|
|
|
7,282,599
|
|
|
7,316,022
|
|
Restricted
cash
|
|
|
|
|
|
762,000
|
|
|
762,000
|
|
Deferred
loan costs
|
|
|
|
|
|
60,903
|
|
|
54,760
|
|
Vessel,
net
|
|
|
2
|
|
|
49,613,774
|
|
|
46,388,277
|
|
Total
assets
|
|
|
|
|
|
57,719,276
|
|
|
54,521,059
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term bank loan
|
|
|
3
|
|
|
5,700,000
|
|
|
5,700,000
|
|
Amounts
due to related parties
|
|
|
6(b
)
|
|
|
1,770,588
|
|
|
2,137,709
|
|
Accrued
liabilities and other payables
|
|
|
|
|
|
1,061,141
|
|
|
2,115,621
|
|
Total
current liabilities
|
|
|
|
|
|
8,531,729
|
|
|
9,953,330
|
|
Loan
from related party
|
|
|
6(b
)
|
|
|
20,020,391
|
|
|
16,570,222
|
|
Long-term
bank loan
|
|
|
3
|
|
|
23,450,000
|
|
|
19,175,000
|
|
Total
liabilities
|
|
|
|
|
|
52,002,120
|
|
|
45,698,552
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s
equity
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares HK$1 par value per share
10,000
shares authorized; 1 share issued and fully paid as of December
31,
2006/September 30, 2007
|
|
|
|
|
|
-
|
|
|
-
|
|
Retained
earnings
|
|
|
|
|
|
5,717,156
|
|
|
8,822,507
|
|
Total
shareholder’s equity
|
|
|
|
|
|
5,717,156
|
|
|
8,822,507
|
|
Total
liabilities and shareholder’s equity
|
|
|
|
|
|
57,719,276
|
|
|
54,521,059
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the unaudited condensed financial statements.
Shinyo
Sawako Limited
Unaudited
Condensed Statements of Income
for
the
period from March 2, 2006 (date of incorporation) to September 30,
2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
|
|
|
|
2006
|
|
2007
|
|
|
|
Note
|
|
|
|
|
|
Operating
revenue
|
|
|
|
|
|
|
|
Revenue
|
|
|
4
|
|
|
14,669,125
|
|
|
10,598,762
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
|
|
|
1,160,899
|
|
|
1,972,532
|
|
Voyage
expenses
|
|
|
|
|
|
4,314,877
|
|
|
-
|
|
Depreciation
expenses
|
|
|
|
|
|
2,508,720
|
|
|
3,225,497
|
|
Management
fee
|
|
|
6(a
)
|
|
|
64,048
|
|
|
85,500
|
|
Commission
|
|
|
|
|
|
686,000
|
|
|
397,914
|
|
Administrative
expenses
|
|
|
|
|
|
35,405
|
|
|
45,509
|
|
Total
operating expenses
|
|
|
|
|
|
8,769,949
|
|
|
5,726,952
|
|
Operating
income
|
|
|
|
|
|
5,899,176
|
|
|
4,871,810
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
188,733
|
|
|
281,863
|
|
Interest
expense
|
|
|
|
|
|
(1,828,156
|
)
|
|
(2,049,216
|
)
|
Other,
net
|
|
|
|
|
|
2,202
|
|
|
894
|
|
Total
other expense
|
|
|
|
|
|
(1,637,221
|
)
|
|
(1,766,459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
before tax
|
|
|
|
|
|
4,261,955
|
|
|
3,105,351
|
|
Income
taxes
|
|
|
5
|
|
|
-
|
|
|
-
|
|
Net
income
|
|
|
|
|
|
4,261,955
|
|
|
3,105,351
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Includes the following expenses resulting from transactions
with related
parties (see note 6(a)):
|
Vessel
operating expenses
|
|
2006
|
|
2007
|
|
-
Agency fee
|
|
|
(30,339
|
)
|
|
(27,000
|
)
|
Management
fee
|
|
|
(64,048
|
)
|
|
(85,500
|
)
|
Commission
|
|
|
(128,490
|
)
|
|
(131,234
|
)
|
Interest
expense
|
|
|
(1,191,201
|
)
|
|
(725,713
|
)
|
See
accompanying notes to the unaudited condensed financial statements.
Shinyo
Sawako Limited
Unaudited
Condensed Statements of Shareholder’s Equity
for
the
period from March 2, 2006 (date of incorporation) to September 30,
2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
|
|
|
|
Ordinary
shares
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
Amount
|
|
Retained
earnings
|
|
Total
shareholder’s
equity
|
|
|
|
|
Note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of March 2, 2006
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Capital
injected upon incorporation
|
|
|
1
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
income
|
|
|
|
|
|
-
|
|
|
-
|
|
|
4,261,955
|
|
|
4,261,955
|
|
Balance
as of September 30, 2006
|
|
|
|
|
|
1
|
|
|
-
|
|
|
4,261,955
|
|
|
4,261,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
|
|
|
|
1
|
|
|
-
|
|
|
5,717,156
|
|
|
5,717,156
|
|
Net
income
|
|
|
|
|
|
-
|
|
|
-
|
|
|
3,105,351
|
|
|
3,105,351
|
|
Balance
as of September 30, 2007
|
|
|
|
|
|
1
|
|
|
-
|
|
|
8,822,507
|
|
|
8,822,507
|
|
See
accompanying notes to the unaudited condensed financial
statements.
Shinyo
Sawako
Limited
Unaudited
Condensed Statements of Cash Flows
for
the
period from March 2, 2006 (date of incorporation) to September 30,
2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
|
|
2006
|
|
2007
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
income
|
|
|
4,261,955
|
|
|
3,105,351
|
|
Adjustments
to reconcile net income to net cash from operating
activities:
|
|
|
|
|
|
|
|
Depreciation
expenses
|
|
|
2,508,720
|
|
|
3,225,497
|
|
Amortization
of deferred loan costs
|
|
|
2,730
|
|
|
6,143
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
(6,497,872
|
)
|
|
1,215,254
|
|
Prepayments
and other receivables
|
|
|
(359,219
|
)
|
|
(97,457
|
)
|
Supplies
|
|
|
(575,153
|
)
|
|
56,902
|
|
Amount
due from related party
|
|
|
-
|
|
|
38,281
|
|
Amounts
due to related parties
|
|
|
1,536,801
|
|
|
367,121
|
|
Accrued
liabilities and other payables
|
|
|
1,087,506
|
|
|
1,054,480
|
|
Net
cash provided by operating activities
|
|
|
1,965,468
|
|
|
8,971,572
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Purchase
of vessel
|
|
|
(53,125,000
|
)
|
|
-
|
|
Increase
in restricted cash
|
|
|
(762,000
|
)
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(53,887,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Proceeds
from long-term bank loan
|
|
|
32,000,000
|
|
|
-
|
|
Repayment
of long-term bank loan
|
|
|
(1,425,000
|
)
|
|
(4,275,000
|
)
|
Proceeds
from loan from related party
|
|
|
54,125,000
|
|
|
-
|
|
Repayment
of loan from related party
|
|
|
(31,604,609
|
)
|
|
(3,450,169
|
)
|
Payment
of loan costs
|
|
|
(65,524
|
)
|
|
-
|
|
Net
cash provided by/(used in) financing activities
|
|
|
53,029,867
|
|
|
(7,725,169
|
)
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
1,108,335
|
|
|
1,246,403
|
|
Cash:
|
|
|
|
|
|
|
|
At
beginning of period
|
|
|
-
|
|
|
5,675,573
|
|
At
end of period
|
|
|
1,108,335
|
|
|
6,921,976
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
2006
|
|
2007
|
|
Cash
paid during the period for:
|
|
|
|
|
|
Interest
|
|
|
465,724
|
|
|
2,810,150
|
|
See
accompanying notes to the unaudited condensed financial statements.
Shinyo
Sawako Limited
Notes
to
the Unaudited Condensed Financial Statements
for
the
period from March 2, 2006 (date of incorporation) to September 30,
2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting
Policies
|
|
(a)
|
Description
of Business
|
Shinyo
Sawako Limited (the “Company”), a company engaged in the business of ocean
transportation of crude oil worldwide, was established in Hong Kong
on March 2,
2006. The principal activity of the Company is the ownership and chartering
of
the vessel “Shinyo Sawako”. Shinyo Sawako was delivered in 1995 and was a second
hand vessel acquired by the Company in March 2006. It is a single-hulled
very
large crude oil carrier with capacity of 275,616 deadweight
tonnage.
On
March
2, 2006, Van-Clipper Holding Co., Ltd established the Company in Hong
Kong as a
limited liability company with authorized share capital of 10,000 ordinary
shares of HK$1 each. On date of incorporation, 1 subscriber share of
HK$1 was
issued.
The
Company has outsourced substantially all its day-to-day operations
to its
related party, Beldan Marine Limited (“Beldan”), a company controlled by a
person related to a director of the Company. Beldan then sub-contracted
its
obligations under the outsourcing arrangement to Univan Ship Management
Limited
(“Univan”) which assists Beldan in providing technical management services to
the Company. Univan is controlled by Captain Charles Arthur Joseph
Vanderperre,
a director of the Company, and is jointly owned by Captain Charles
Arthur Joseph
Vanderperre and Clipper Group Invest Ltd, a shareholder of the immediate
holding
company of the Company. All expenses incurred by Univan on behalf of
the Company
are charged to the Company based on the actual expenditures incurred
on its
behalf. In addition, Univan provides administrative services to the
Company.
From
March 2006 to December 2006, Shinyo Sawako
operated in the spot market. The Company began receiving time charter
revenue in
December 2006 pursuant to a time charter agreement with Dalian Ocean
Shipping
Company, under which the Company is paid a daily charter rate of
$39,088.
As
of
September 30, 2007, the Company had a working capital deficit of $2,637,308.
These financial statements have been prepared assuming that the Company
will
continue as a going concern as Van-Clipper Holding Limited, the immediate
holding company, has confirmed its intention to provide continuing
financial
support to the Company so as to enable the Company to meet its liabilities
as
and when they fall due.
|
(c)
|
Basis
of Presentation
|
The
accompanying unaudited condensed financial statements as of September
30, 2007
and for the period from March 2, 2006 to September 30, 2006 and nine-month
period ended September 30, 2007 have been prepared in accordance with
U.S.
generally accepted accounting principles (“US GAAP”). Certain information and
footnote disclosures normally included in financial statements prepared
in
accordance with US GAAP have been condensed or omitted as permitted
by rules and
regulations of the U.S. Securities and Exchange Commission. Disclosures
have
been made to these unaudited condensed financial statements where events
subsequent to period ended December 31, 2006 have occurred which have
a material
impact on the Company. The accompanying unaudited condensed financial
statements
should be read in conjunction with the financial statements and the
notes
thereto, for the first fiscal period ended December 31, 2006. The December
31,
2006 balance sheet was derived from the audited financial statements
of the
Company.
Shinyo
Sawako Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
period from March 2, 2006 (date of incorporation) to September 30,
2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(c)
|
Basis
of Presentation
(continued)
|
In
the
opinion of the management, all adjustments (which include normal accruals)
necessary to present a fair statement of the financial position of
the Company
as of September 30, 2007, and the results of its operations and cash
flows for
the period from March 2, 2006 to September 30, 2006 and nine-month
period ended
September 30, 2007, in conformity with US GAAP, have been made. The
unaudited
condensed statements of income for the period from March 2, 2006 to
September
30, 2006 and nine-month period ended September 30, 2007 are not necessarily
indicative of the operating results to be expected for the full fiscal
year or
any future periods.
The
basis
of accounting differs in certain material respects from that used in
the
preparation of the books of account of the Company, which are prepared
in
accordance with the accounting principles of the country of its domicile.
The
accompanying unaudited condensed financial statements reflect necessary
adjustments not recorded in the books of the Company to present them
in
conformity with US GAAP.
The
preparation of the financial statements requires management of the
Company to
make a number of estimates and assumptions relating to the reported
amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities
at the date of the financial statements and the reported amounts of
revenues and
expenses during the reporting period. Significant items subject to
such
estimates and assumptions include the estimated useful life of the
vessel
(including drydocking costs), residual value and recovery of the carrying
amount
of the vessel. Actual results could differ from those estimates.
In
the
normal course of business, the Company is subject to loss contingencies,
such as
legal proceedings and claims arising out of its business. An accrual
for a loss
contingency is recognized when it is probable that a liability will
be incurred
and the amount of the loss can be reasonably estimated.
|
(f)
|
Recently
Issued Accounting
Standards
|
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Statement No. 157,
Fair
Value Measurement
(Statement
157). Statement 157 defines fair value, establishes a framework for
the
measurement of fair value measures already required or permitted by
other
standards for fiscal years beginning after November 15, 2007. The Company
is
required to adopt Statement 157 for the fiscal years beginning on January
1,
2008. Statement 157 is required to be applied prospectively, except
for certain
financial instruments. Any transition adjustment will be recognized
as an
adjustment to opening retained earnings in the year of adoption. The
Company
does not anticipate that the adoption of Statement 157 will have a
material
impact on its results of operations and financial position.
Shinyo
Sawako Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
period from March 2, 2006 (date of incorporation) to September 30,
2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
(1)
|
Summary
of Significant Accounting Policies
(continued)
|
|
(f)
|
Recently
Issued Accounting Standards
(continued)
|
In
February 2007, the FASB issued FASB Statement No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities -
Including an
Amendment of FASB Statement No. 115
(Statement
159)
.
Statement
159 permits an entity to elect fair value as the initial and subsequent
measurement attribute for many financial assets and liabilities. Entities
electing the fair value option would be required to recognize changes
in fair
value in earnings. Entities electing the fair value option are required
to
distinguish, on the face of the balance sheet, the fair value of assets
and
liabilities for which the fair value option has been elected and similar
assets
and liabilities measured using another measurement attribute. Statement
159 will
be effective for fiscal years beginning after November 15, 2007. The
adjustment
to reflect the difference between the fair value and the carrying amount
would
be accounted for as a cumulative-effect adjustment to retained earnings
as of
the date of initial adoption. The Company does not anticipate that
the adoption
of the provisions of Statement 159 will have a material impact on its
results of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 160,
Noncontrolling
Interests in Consolidated Financial Statements - an Amendment of ARB
No. 51
(Statement
160). Statement 160 establishes accounting and reporting standards
for the
noncontrolling interest in a subsidiary and for the deconsolidation
of a
subsidiary. Statement 160 will be effective for the fiscal year beginning
after
December 15, 2008. The Company does not anticipate that the adoption
of the
provisions of Statement 160 will have a material impact on its results
of
operations and financial position.
In
December 2007, the FASB issued FASB Statement No. 141 (Revised),
Business
Combinations
(Statement 141(R)). Statement 141(R) establishes principles and requirements
for
how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed,
and any
noncontrolling interest in the acquiree. Statement 141(R) also provides
guidance
for recognizing and measuring the goodwill acquired in the business
combination
and determines what information to disclose to enable users of the
financial
statements to evaluate the nature and financial effects of the business
combination. Statement 141(R) will be effective for fiscal years beginning
after
December 15, 2008. The Company does not anticipate the adoption of
the
provisions of Statement 141(R) will have a material impact on its results
of
operations and financial position.
|
|
December
31, 2006
|
|
September
30, 2007
|
|
Vessel
|
|
|
|
|
|
Cost
|
|
|
53,125,000
|
|
|
53,125,000
|
|
Accumulated
depreciation
|
|
|
(3,511,226
|
)
|
|
(6,736,723
|
)
|
Vessel,
net
|
|
|
49,613,774
|
|
|
46,388,277
|
|
The
vessel is mortgaged as described in Note 3.
Shinyo
Sawako Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
period from March 2, 2006 (date of incorporation) to September 30,
2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
Lender/period
|
|
December
31, 2006
|
|
September
30, 2007
|
|
HSH
Nordbank AG, Nordea Bank Denmark A/S, and DVB Group Merchant
Bank (Asia)
Ltd
|
|
|
|
|
|
June
9, 2006 to May 31, 2014
|
|
|
29,150,000
|
|
|
24,875,000
|
|
|
|
|
|
|
|
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
5,700,000
|
|
|
5,700,000
|
|
Non-current
portion
|
|
|
23,450,000
|
|
|
19,175,000
|
|
|
|
|
29,150,000
|
|
|
24,875,000
|
|
The
loan
carried interest at LIBOR plus 1.00% per annum (6.37% and 6.54% as
of December
31, 2006 and September 30, 2007 respectively). The interest expense
for the
period from March 2, 2006 to September 30, 2006 and nine-month period
ended
September 30, 2007 was $634,225 and $1,317,360, respectively.
As
of
December 31, 2006 and September 30, 2007, bank loan is secured as
follows:
|
|
December
31,
2006
|
|
September
30,
2007
|
|
|
|
|
|
|
|
Secured
by:
|
|
|
|
|
|
Restricted
cash
|
|
|
762,000
|
|
|
762,000
|
|
Vessel
|
|
|
49,613,774
|
|
|
46,388,277
|
|
The
above
bank loan is also guaranteed by related parties, Vanship Holdings Limited
and
Clipper Group Invest Ltd, both are shareholders of the immediate holding
company
of the Company, as of December 31, 2006 and September 30, 2007.
The
Company generates its revenues from time and voyage charter agreements.
The
Company’s revenue can be analyzed as follows:
|
|
Period
From
|
|
|
|
|
|
March
2, 2006
|
|
Nine-Month
|
|
|
|
to
September 30,
|
|
Period
Ended
|
|
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
Time
charter
|
|
|
-
|
|
|
10,598,762
|
|
Voyage
charter
|
|
|
14,669,125
|
|
|
-
|
|
|
|
|
14,669,125
|
|
|
10,598,762
|
|
Shinyo
Sawako Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
period from March 2, 2006 (date of incorporation) to September 30,
2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
Under
the
laws of the countries of the Company’s incorporation and/or vessel’s
registration, the Company is not subject to tax on international shipping
income. However, it is subject to registration and tonnage taxes, which
are
charged by the country of which the vessel is registered at a fixed
rate based
on the tonnage of the vessel. Registration and tonnage taxes have been
included
in vessel operating expenses in the accompanying statements of income.
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement
109
(FIN
48). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized
in an enterprise’s financial statements and prescribes a threshold of
more-likely-than-not for recognition of tax benefits of uncertain tax
positions
taken or expected to be taken in a tax return. FIN 48 also provides
related
guidance on measurement, derecognition, classification, interest and
penalties,
and disclosure. The provisions of FIN 48 will be effective for the
fiscal years
beginning after December 15, 2006, with any cumulative effect of the
change in
accounting principle recorded as an adjustment to opening retained
earnings.
Effective from January 1, 2007, the Company adopted the provision of
FIN 48. As
of the date of the adoption of FIN 48, the Company has no material
unrecognized
tax benefit which would favorably affect the effective income tax rate
in future
periods and do not believe there will be any significant increases
or decreases
within the next twelve months. The Company has elected to classify
interest and
penalties related to unrecognized tax benefits, if and when required,
as part of
interest expense and administrative expense in the statements of income.
No
interest or penalties in respect of unrecognized tax benefits have
been accrued
at the date of adoption.
According
to the Inland Revenue Ordinance of Hong Kong, the statute of limitations
is
seven years (i.e. calendar years 2006 to 2007 for the Company)
if the
underpayment of taxes is due to omission or errors made by either
the taxpayer
or the withholding agent. The statute of limitations will be extended
to ten
years (i.e. calendar years 2006 to 2007 for the Company) in case
of tax evasion.
According
to the Internal Revenue Code of the United States of America, the
statute of
limitations is three years (i.e. calendar years 2006 to 2007 for
the Company) if
the underpayment of taxes is due to omission or errors made by
either the
taxpayer or withholding agent. There is no statute of limitations
in the case of
tax evasion.
(6)
|
Related
Party Transactions
|
Name
of party
|
|
Relationship
|
|
|
|
Beldan
Marine Limited (“Beldan”)
|
|
A
company controlled by a person related to a director of the
Company
|
|
|
|
Clipper
Group Invest Ltd (“Clipper Group”)
|
|
Shareholder
of the Company's immediate holding company
|
|
|
|
Univan
Ship Management Limited (“Univan”)
|
|
A
company controlled by a director, Captain Charles Arthur
Joseph
Vanderperre, of the Company
|
|
|
|
Van-Clipper
Holding Co., Ltd. (“Van-Clipper”)
|
|
Immediate
holding company of the Company
|
|
|
|
Vanship
Holdings Limited (“Vanship”)
|
|
Shareholder
of the Company’s immediate holding
company
|
Shinyo
Sawako Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
period from March 2, 2006 (date of incorporation) to September 30,
2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
(6)
|
Related
Party Transactions
(continued)
|
(a)
|
The
principal related party transactions during the period from
March 2, 2006
to September 30, 2006 and nine-month period ended September
30, 2007 are
as follows:
|
|
|
|
|
Period
From
|
|
|
|
|
|
|
|
March
2, 2006
|
|
Nine-Month
|
|
|
|
|
|
to
September 30,
|
|
Period
Ended
|
|
|
|
|
|
2006
|
|
2007
|
|
|
|
Note
|
|
|
|
|
|
Service
fee to Beldan
|
|
|
(i
)
|
|
|
64,048
|
|
|
85,500
|
|
Agency
fee to Univan
|
|
|
(ii
)
|
|
|
30,339
|
|
|
27,000
|
|
Charter
hire commission to Vanship
|
|
|
(iii
)
|
|
|
128,490
|
|
|
131,234
|
|
Loan
interest expense to Van-Clipper
|
|
|
(iv
)
|
|
|
1,191,201
|
|
|
725,713
|
|
Notes:
|
(i)
|
The
Company has outsourced substantially all its day to day operations
to
Beldan. The service fee is payable to Beldan at a pre-determined
amount in
accordance with the terms mutually agreed by Beldan and the
Company.
|
|
(ii)
|
Univan
provided agency services to the Company. The agency fee is
payable based
on contractual agreements with the
Company.
|
|
(iii)
|
It
represents standard commission for the chartering and operation
of the
vessel at the rate of 1.25% on the charter rate as stipulated
on the
charter party agreement with prospective charterers, subject
to a maximum
of $625 per day to Vanship.
|
|
(iv)
|
The
balance represents interest expense on a loan facility provided
by
Van-Clipper. Terms of loan facility details are set out in
Note 6(b)(v)
below.
|
(b)
|
Amounts
due from and due to related parties as of December 31, 2006
and September
30, 2007 are as follows:
|
|
|
|
|
December
31,
2006
|
|
September
30,
2007
|
|
|
|
Note
|
|
|
|
|
|
Amount
due from related party:
|
|
|
|
|
|
|
|
Amount
due from Univan
|
|
|
(i
)
|
|
|
38,281
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
due to related parties:
|
|
|
|
|
|
|
|
|
|
|
Amount
due to Van-Clipper
|
|
|
(ii
)
|
|
|
1,733,477
|
|
|
1,777,856
|
|
Amount
due to Vanship
|
|
|
(iii
)
|
|
|
37,111
|
|
|
29,347
|
|
Amount
due to Univan
|
|
|
(iv
)
|
|
|
-
|
|
|
330,506
|
|
|
|
|
|
|
|
1,770,588
|
|
|
2,137,709
|
|
Loan
from related party:
|
|
|
|
|
|
|
|
|
|
|
Van-Clipper
|
|
|
(v
)
|
|
|
20,020,391
|
|
|
16,570,222
|
|
Shinyo
Sawako Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
period from March 2, 2006 (date of incorporation) to September 30,
2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
(6)
|
Related
Party Transactions
(continued)
|
(b)
|
Amounts
due from and due to related parties as of December 31, 2006
and September
30, 2007 are as follows
(continued):
|
Notes:
|
(i)
|
The
balance represents advance payments for expenses to be paid
by Univan on
behalf of the Company. The balance is unsecured, non-interest
bearing and
with no fixed terms of repayment.
|
|
(ii)
|
The
balance represents interest payable to Van-Clipper on a loan
facility
provided by Van-Clipper set out in (v) below.
|
|
(iii)
|
The
balance represents current account with Vanship. The current
account with
Vanship is unsecured, non-interest bearing and with no fixed
terms of
repayment.
|
|
(iv)
|
The
balance represents payable to Univan for expenses paid on
behalf of the
Company in relation to the provision of technical management
service. The
balance is unsecured, non-interest bearing and with no fixed
terms of
repayment.
|
|
(v)
|
The
balance represents a loan from Van-Clipper. The loan period
is from March
3, 2006 to June 30, 2014 with no fixed repayment schedule.
Interest is
charged at 5% per annum. The interest expense for the period
from March 2,
2006 to September 30, 2006 and nine-month period ended
September 30, 2007
was $1,191,201 and $725,713 respectively. Interest of $Nil
and $1,467,851
were paid for the period from March 2, 2006 to September
30, 2006 and
nine-month period ended September 30, 2007 respectively.
|
|
|
In
accordance
with
the contractual bank loan arrangement, the loan from Van-Clipper
shall not be repaid before the bank loan is repaid in
full.
|
(c)
|
Van-Clipper
has provided a letter of support to the Company to confirm
its intention
to provide continuing financial support to the Company so
as to enable the
Company to meet liabilities when they fall due.
|
(d)
|
As
of December 31, 2006 and September 30, 2007, long-term bank
loan of
$14,575,000 and $12,437,500 respectively was guaranteed by
Vanship.
|
(e)
|
As
of December 31, 2006 and September 30, 2007, long-term bank
loan of
$14,575,000 and $12,437,500 respectively was guaranteed by
Clipper.
|
(7)
|
Commitments
and Contingencies
|
Various
claims, suits, and complaints, including those involving government
regulations
and product liability, arise in the ordinary course of the shipping
business. In
addition, losses may arise from disputes with charterers, agents, insurance
and
other claims with suppliers relating to the operations of the Company’s vessel.
Currently, management is not aware of any such claims or contingent
liabilities,
which should be disclosed, or for which a provision should be established
in the
accompanying financial statements.
Shinyo
Sawako Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
period from March 2, 2006 (date of incorporation) to September 30,
2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
(8)
|
Fair
Value of Financial Instruments
|
The
carrying amounts of cash and amounts due from/to related parties, approximate
their fair values because of the short maturity of these instruments.
The
carrying values of long-term bank loan and loan from related party
approximate
their fair values based on the borrowing rates currently available
to the
Company for bank loans with similar terms and average maturities.
(9)
|
Business
and Credit Concentrations
|
The
Company operates in the shipping industry which historically has been
cyclical
with corresponding volatility in profitability. All the Company’s revenues are
derived from vessel charters. The Company seeks to mitigate volatilities
in its
business by obtaining long-term charter contracts. The Company has
obtained a
long-term time charter contract which will expire in December 2011.
The
Company outsourced the technical management services to Beldan which
is
controlled by a person related to a director of the Company. Beldan
then
sub-contracted its obligations under the outsourcing arrangement
to Univan which
assists Beldan in providing technical management services to the
Company. Univan
is controlled by Captain Charles Arthur Joseph Vanderperre, a director
of the
Company and is jointly owned by Captain Charles Arthur Joseph Vanderperre
and
Clipper Group, a shareholder of the immediate holding company of
the Company.
All expenses incurred by Univan on behalf of the Company are charged
to the
Company based on the actual expenditures incurred on its behalf.
During the
period from March 2, 2006 to September 30, 2006 and nine-month period
ended
September 30, 2007, the Company paid service fee of $64,048 and $85,500,
respectively, to Beldan.
The
Company is engaged in the business of ocean transportation of crude
oil industry
which is extremely competitive and dependent on the world’s demand for crude
oil. Competition depends on price, location, size, age, condition and
the
acceptability of the vessel to the charterers. The increase in competition
and
the changes in demand for crude oil could result in lower revenue achieved
for
the vessel.
The
following are revenue from customers that individually comprise
10% or more of
gross revenue:
|
|
March 2, 2006 to
September 30, 2006
|
|
Nine-month Period Ended
September 30, 2007
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
S-Oil
Corporation
|
|
|
14,669,125
|
|
|
100
|
|
|
-
|
|
|
-
|
|
Dalian
Ocean Shipping Company
|
|
|
-
|
|
|
-
|
|
|
10,598,762
|
|
|
100
|
|
|
|
|
14,669,125
|
|
|
100
|
|
|
10,598,762
|
|
|
100
|
|
The
gross
accounts receivable due from customers that individually representing
more than
10% of the outstanding accounts receivable were as follows:
|
|
December
31,
2006
|
|
September
30,
2007
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
S-Oil
Corporation
|
|
|
644,357
|
|
|
47
|
|
|
156,961
|
|
|
100
|
|
SK
Shipping Company Limited
|
|
|
498,372
|
|
|
36
|
|
|
-
|
|
|
-
|
|
Shipping
Corporation of India Ltd
|
|
|
229,486
|
|
|
17
|
|
|
-
|
|
|
-
|
|
|
|
|
1,372,215
|
|
|
100
|
|
|
156,961
|
|
|
100
|
|
Shinyo
Sawako Limited
Notes
to
the Unaudited Condensed Financial Statements
(continued)
for
the
period from March 2, 2006 (date of incorporation) to September 30,
2006
and
nine-month
period ended
September
30, 2007
(expressed
in US$)
Pursuant
to a definitive agreement entered into between Vanship and Energy Infrastructure
Acquisition Corp. (“EIAC”), a company listed on the American Stock Exchange, on
December 3, 2007 (the “Agreement”), Vanship agreed to sell all of its equity
interests in the Company and other eight related companies to Energy
Infrastructure Merger Corporation (“EIMC”) (the “Business Combination”), a
wholly-owned subsidiary of EIAC, for an aggregate consideration of
$778,000,000,
consisting of $643,000,000 in cash (subject to closing adjustments)
and
13,500,000 shares of common stock of EIMC (valued at $10 per share
of common
stock). Vanship is entitled to an additional 3,000,000 shares of common
stock of
EIMC on each of the first and second anniversaries of the completion
of the
Business Combination, subject to certain earning criteria.
Approval
of the Business Combination requires the affirmative vote of the holders
of a
majority of the shares of common stock voted at EIAC’s special meeting of
stockholders, provided that there is a quorum. In addition, if the
EIAC
stockholders approve the Business Combination, the Business Combination
will
only proceed if holders of shares purchased in EIAC’s initial public offering,
representing less than 30% of the shares sold in EIAC’s initial public offering
and EIAC’s private placement that occurred immediately prior to the initial
public offering, exercise their redemption rights at the time of casting
a vote
against the Business Combination.
Pursuant
to the Agreement, Vanship has agreed to purchase up to 5,000,000 units
from EIMC
at a purchase price of $10.00 per unit, but only to the extent necessary
for
EIMC to secure financing for the Business Combination. Each unit will
consist of
one share of EIMC’s common stock and one warrant to purchase one share of EIMC’s
common stock at an exercise price of $8.00 per warrant.
Appendix
A
AMENDED
AND RESTATED
SHARE
PURCHASE AGREEMENT
dated
as
of February 6, 2008
by
and
among
VANSHIP
HOLDINGS LIMITED,
a
Liberian corporation,
ENERGY
INFRASTRUCTURE MERGER CORPORATION
a
Marshall Islands corporation
and
ENERGY
INFRASTRUCTURE ACQUISITION CORP.,
a
Delaware corporation
relating
to the purchase of shares of companies owning
9
ocean-going vessels
Table
of
Contents
|
|
Page
|
|
|
|
SECTION
1.
|
DEFINITIONS.
|
A-1
|
|
|
|
SECTION
2.
|
INTENTIONALLY
OMITTED.
|
A-13
|
|
|
|
SECTION
3.
|
SALE
AND PURCHASE.
|
A-13
|
|
|
|
SECTION
4.
|
COVENANTS
OF THE SELLER.
|
A-17
|
|
|
|
SECTION
5.
|
COVENANTS
OF EIAC AND THE BUYER.
|
A-18
|
|
|
|
SECTION
6.
|
REGISTRATION
RIGHTS; LOCK UP.
|
A-20
|
|
|
|
SECTION
7.
|
DIVIDENDS.
|
A-27
|
|
|
|
SECTION
8.
|
NO
SOLICITATION OF OTHER ACQUISITIONS.
|
A-28
|
|
|
|
SECTION
9.
|
DIRECTOR
NOMINEES AND OFFICERS; MANAGEMENT STRUCTURE.
|
A-29
|
|
|
|
SECTION
10.
|
BINDING
AGREEMENTS; NON-COMPETITION.
|
A-30
|
|
|
|
SECTION
11.
|
REPRESENTATIONS
AND WARRANTIES OF THE SELLER.
|
A-32
|
|
|
|
SECTION
12.
|
REPRESENTATIONS
AND WARRANTIES OF THE BUYER.
|
A-41
|
|
|
|
SECTION
13.
|
REPRESENTATIONS
AND WARRANTIES OF EIAC.
|
A-43
|
|
|
|
SECTION
14.
|
CONDITIONS
PRECEDENT TO THE OBLIGATIONS OF THE SELLER.
|
A-45
|
|
|
|
SECTION
15.
|
CONDITIONS
PRECEDENT TO THE OBLIGATIONS OF THE BUYER AND EIAC.
|
A-48
|
|
|
|
SECTION
16.
|
FURTHER
ASSURANCES AND OTHER MATTERS.
|
A-50
|
|
|
|
SECTION
17.
|
INDEMNITIES.
|
A-51
|
|
|
|
SECTION
18.
|
TAX
RETURNS AND PRE-CLOSING TAXES AND STRADDLE PERIOD TAXES.
|
A-53
|
|
|
|
SECTION
19.
|
CONFIDENTIALITY
AND ANNOUNCEMENTS.
|
A-57
|
|
|
|
SECTION
20.
|
TERM
AND TERMINATION.
|
A-58
|
|
|
|
SECTION
21.
|
MISCELLANEOUS.
|
A-58
|
Schedules
Schedule
1 -
|
Carry-Over
Financing
|
Schedule
2 -
|
Legal
Proceedings
|
Schedule
11(c) -
|
Required
Consents
|
Schedule
11(d) -
|
Ownership
of SPV Shares
|
Schedule
11(g) -
|
Governmental
Actions
|
Schedule
11(j) -
|
Tax
sharing or allocation agreements
|
Schedule
11(p) -
|
Material
Contracts
|
Schedule
11(q) -
|
Defaults;
Breaches of Material Contracts
|
Schedule
11(r) -
|
Business
Conduct
|
Schedule
11(z) -
|
Bank
Accounts
|
Schedule
12(g) -
|
Buyer’s
Corporate Documents
|
Schedule
12(h) -
|
Buyer’s
outstanding shares of common stock, rights and
warrants
|
Schedule
12(j) -
|
Buyer’s
Contractual Liabilities
|
Schedule
13(g) -
|
EIAC’s
Contractual Liabilities
|
Schedule
13(h) -
|
EIAC’s
insider loans
|
Schedule
13(i) -
|
EIAC’s
outstanding shares of common stock, rights and warrants and shares
outstanding on a fully diluted
basis
|
AMENDED
AND RESTATED SHARE PURCHASE AGREEMENT
THIS
AMENDED AND RESTATED SHARE PURCHASE AGREEMENT, dated as of February 6, 2008
(this “
Agreemen
t”),
is made by and among VANSHIP HOLDINGS LIMITED, a Liberian corporation (the
“
Seller
”),
ENERGY INFRASTRUCTURE MERGER CORPORATION, a Marshall Islands corporation (the
“
Buyer
”),
and ENERGY INFRASTRUCTURE ACQUISITION CORP., a Delaware corporation
(“
EIAC
”).
WITNESSETH:
WHEREAS,
to effect the Sale and Purchase the Seller, the Buyer and EIAC entered into
that
certain Share Purchase Agreement dated December 3, 2007 (the “
Original
Agreemen
t”),
and wish to amend and restate the same as set forth below.
NOW,
THEREFORE, in consideration of the foregoing premises, and the mutual covenants
and agreements herein contained, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
(a)
Definitions.
For
purposes of this Agreement, the following terms shall have the following
meanings:
“Accounts”
means together the Audited Financial Statements and the Interim Financial
Statements and any other financial statements as may be provided by Seller
with
respect to each of the SPVs.
“
Acknowledgment
and Agreement
”
means the acknowledgment and agreement in respect of Section 6(h)(ii) of this
Agreement, and also as provided by (i) Robert Ventures Limited pursuant to
which
it agrees not to transfer any shares of EIAC common stock issuable to it upon
conversion of the convertible promissory notes in the aggregate principal amount
of $2,685,000 until the earlier of the termination of this Agreement pursuant
to
Section 20 hereof or the consummation of the business combination and (ii)
the
holders of the units purchased in the Initial Private Placement pursuant to
which they agree not to transfer any of the common stock contained therein
until
the earlier of the termination of this Agreement pursuant to Section 20 hereof
or the consummation of the business combination, as required to be executed
pursuant to the terms of Section 14(p) hereof, such acknowledgment and agreement
to be in form and substance satisfactory to the parties hereto and
thereto.
“
Acquisition
Proposal
”
means any proposal of EIAC, the Buyer or an Affiliate of either to effect a
business combination with a target business (other than with the
Seller).
“
Acquisition
Registration Statement
”
means the Registration Statement on Form F-4 or S-4 to be filed by the Buyer
with the SEC in connection with the Sale and Purchase.
“
Action
”
means any claim, action, suit, arbitration, inquiry, proceeding or investigation
by or before any Governmental Authority.
“Affiliate”
means
a
Person who, directly or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, such Person. For purposes
of this definition, “control”, when used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise; and the terms
“controlling” and “controlled” have correlative meanings.
“Ancillary
Agreements”
means,
collectively, the Acknowledgment and Agreements, the Dividend Waiver Agreements,
the Management Agreement, the Dividend Escrow Agreement, SOC Escrow Agreement,
the Option Agreement and all other agreements identified herein and required
to
be delivered in connection herewith or therewith
.
“
Aggregate
Purchase Price
”
means, collectively, the Cash Consideration, the Stock Consideration and the
Warrant Consideration.
“
Arab
Boycott Clause
”
means any clause in a Charter or other contract of employment for a Vessel
that
warrants, confirms or implies that the Vessel (or the SPV owning such Vessel)
performing thereunder complies with the Arab League boycott of Israel or
indicates that such Vessel is not blacklisted by the Arab League.
“Audited
Financial Statements”
means,
collectively, the audited individual balance sheet of each SPV for each of
the
three fiscal years ended as of December 31, 2004, 2005, and 2006 or from the
date of their incorporation, if later, and the related audited individual
statements of income, retained earnings, stockholders’ equity and cash flows of
such SPV, together with all related or required notes and schedules thereto,
accompanied by the reports thereon of the Seller’s Accountants, all prepared in
accordance with GAAP.
“Business”
means the principal business of each SPV, which is ownership and chartering
of
VLCCs.
“b
usiness
combination
”
shall have the meaning assigned such term in the prospectus summary of the
Prospectus.
“Business
Day”
means a day (other than a Saturday, Sunday or public holiday) when banks in
Hong
Kong and New York are open for business.
“
Buyer
Common Stock
”
means the common stock, par value $.0001 per share, of the Buyer.
“Buyer
Indemnitees”
means,
collectively, the Buyer, EIAC and their respective officers, directors,
successors and permitted assigns, and each other person, if any, who controls
the Buyer Indemnitees.
“Buyer’s
Portion”
shall have the meaning set forth in Section 18(f).
“Carry-Over
Financing”
means those financing arrangements described on
Schedule
1
existing as of the Original Agreement Date in respect of the Vessels
;
provided that (a) the parties hereto shall amend and restate
Schedule
1
on the Closing Date so that the financing arrangements described therein are
those which the parties hereto mutually agree
in
writing
will
exist on and after the Closing Date (such mutual agreement not to be
unreasonably withheld by any party; and (b) notwithstanding anything herein
to
the contrary, the Seller and/or the SPVs may amend, restate, pay or prepay
any
of the financing arrangements listed on
Schedule
1
between the date hereof and the Closing Date with the consent of EIAC and the
Buyer, such consent not to be unreasonably withheld or delayed.
“
Cash
Consideration
”
means $643,000,000 minus the principal amount of any Carry-Over Financing as
of
the Closing Date plus the sum of the Closing Date Net Current Assets of each
SPV
“
Charter
”
means the time charter of each Vessel by the relevant SPV to the Charterer
named
therein, as set forth in
Schedule
11(q)
.
“Charterer”
means the time charterer of any Vessel pursuant to a Charter.
“Claims”
means any and all administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of non-compliance or violation,
investigations, audits, proceedings, consent orders or consent
agreements.
“Closing”
means completion of the Merger and the Sale and Purchase in accordance with
Section 3(c).
“Closing
Date”
has the meaning set forth in Section 3(c).
“Closing
Date Balance Sheet”
for an SPV shall mean a balance sheet of the SPV prepared by Seller in
accordance with GAAP reflecting the assets and liabilities of the SPV on the
Closing Date.
“Closing
Date Net Current Assets”
of an SPV shall mean the excess of the assets of such SPV shown on the Closing
Date Balance Sheet of such SPV, other than such SPV’s Vessel, over the
liabilities of such SPV shown on the Closing Date Balance Sheet, other than
any
liability for any Carry-Over Financing.
“
Code
”
means, except as the context may otherwise state expressly, the U.S. Internal
Revenue Code of 1986, as amended.
“Competitive
Business
”
means a business which can reasonably be regarded as being in direct competition
with the Business during the Non-Compete Period.
“Disclosed
Legal Proceedings”
shall mean those litigations, arbitrations and other legal proceedings
identified in
Schedule
2
.
“Disclosure
Letter”
means the disclosure letter dated as of the Closing Date from the Seller to
the
Buyer and EIAC, and any other disclosure letter dated and delivered from the
Seller to the Buyer and EIAC prior to the Closing Date pursuant to Section
4(b)(x), in each case, in connection with the Seller’s representations and
warranties under Section 11 hereof.
“Dividend
Escrow Agreement”
means the escrow agreement among the Buyer, the Escrow Agent and the parties
named in Section 7(b) and (c) upon the terms and conditions of which the
Dividend Waiver Securities held by the parties identified in Section 7(b) and
(c) shall be held in escrow, such escrow agreement to be in form and substance
reasonably acceptable to the Buyer, the Escrow Agent and the parties identified
in Section 7(b) and (c).
“Dividend
Waiver Agreement”
means
an agreement between the Buyer and the parties named in Section 7(b) and (c)
pursuant to which the parties named in Section 7(b) and (c) agree to waive
all
rights to receive the First Year Dividend (whenever paid) in respect of the
Dividend Waiver Securities, such Dividend Waiver Agreement to be in form and
substance reasonably acceptable to the parties hereto and thereto.
“Dividend
Waiver Securities”
means
all shares of Buyer Common Stock and any warrant, right, option or other form
of
security exercisable or convertible for Buyer Common Stock, except for an
aggregate of 5,268,849 shares of EIAC common stock held by the Initial
Stockholders, which are already held in escrow pursuant to the Stock Escrow
Agreement (and the corresponding Shares of Buyer Common Stock to be issued
upon
the Merger).
“EBITDA”
means,
for any period, the sum of: revenue less operating expenses excluding gains
or
losses on disposal of property and equipment. For the avoidance of doubt, (i)
depreciation and amortization, impairment of assets, non-recurring costs or
expenses, extraordinary items, unusual items, and any other non operating income
or expenses shall not be included in the calculation of EBITDA and (ii) all
items referred to in this definition of EBITDA shall be determined in accordance
with U.S. generally accepted accounting principles in effect as of the date
of
this Agreement.
“
Effective
Time
”
has the meaning set forth in Section 3(c)(i).
“Employee
”
means any person employed by any SPV under a contract of employment but does
not
include any crew member manning any Vessel under the applicable technical
management contract.
“Employment
Legislation”
means legislation applying in Hong Kong affecting contractual or other relations
between employers and their employees or workers, including but not limited
to
any legislation and any amendment, extension or re-enactment of such
legislation.
“Environmental
Claims
”
means Claims relating in any way to any Environmental Law or any Environmental
Permit, including, without limitation, (a) any and all Claims by Governmental
Authorities for enforcement, cleanup, removal, response, remedial or other
actions or damages pursuant to any applicable Environmental Law and (b) any
and
all Claims by any person seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from Hazardous Materials
or arising from alleged injury or threat of injury to health, safety or the
environment.
“Environmental
Laws”
means any federal, state, regional or foreign law, statute, treaty, regulation,
policy, guidance, order, injunction, judgment or decision of any Governmental
Authority relating to the protection of natural resources, the environment
and
public and employee health and safety and shall include, without limitation,
the
International Convention for the Prevention of Pollution from Ships, and, in
each case, the regulations promulgated pursuant thereto, and any applicable
analogous state statutes, and the regulations promulgated pursuant thereto,
as
such laws have been amended or supplemented.
“Environmental
Permits
”
means all permits, approvals, identification numbers, licenses and other
authorizations required under any applicable Environmental Law.
“Escrow
Agent”
means Fortis Capital Corp. acting through its office located at 520 Madison
Avenue, New York, New York 10022.
“Escrow
Shares”
shall have the meaning assigned such term in the Stock Escrow
Agreement.
“Estimated
Tax Returns”
means any Tax Returns filed or to be filed in connection with estimated Tax
payments which estimated Tax payments are to be made on or before the Closing
Date.
“
Exchange
Act
”
means the U.S. Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC thereunder, as the same shall be in effect from time
to
time.
“
Financing
”
shall mean a written commitment from a lending institution to make available
to
the Buyer a credit facility in such amount and on such terms as shall be agreed
to by and among Buyer, Seller and EIAC (and without requiring any continuing
guarantees or security from Seller or any Seller’s Affiliates).
“Financing
Private Placement”
means
the private placement of up to 5 million Financing Private Placement Units
at a
purchase price of $10.00 per unit for an aggregate purchase price of up to
$50
million.
“Financing
Private Placement Unit”
means a unit consisting of one share of Buyer Common Stock and one warrant
to
purchase one share of Buyer Common Stock, exercisable at $8.00 per warrant,
substantially in the form of the IPO Warrants.
“First
Anniversary”
means the date corresponding to the first anniversary of the Closing
Date.
“First
Fiscal Year”
means a fiscal year of the Buyer commencing on the Closing Date and ending
on
the First Anniversary.
“First
Year Dividend”
means a cash dividend in the amount of $1.54 per share of Buyer Common Stock
to
be paid for the First Fiscal Year.
“GAAP”
means generally accepted accounting principles in the United States of America
in effect from time to time.
“Governmental
Approvals”
means
all
governmental filings, authorizations and approvals that are required (if any)
for the Merger and the Sale and Purchase.
“Governmental
Authority”
means any federal, national, supranational, international, state, regional,
local or provincial government, governmental, regulatory or administrative
authority, agency, instrumentality or commission or any court, tribunal, or
judicial or arbitral body.
“Hazardous
Materials”
means (a) any compound or chemical that is defined, listed or otherwise
classified as a toxic pollutant, toxic or hazardous substance, extremely
hazardous substance or chemical or hazardous waste, medical waste, bio-hazardous
or infectious waste under or regulated by Environmental Laws; (b) petroleum,
petroleum-based or petroleum-derived products; and (c) polychlorinated
biphenyls.
“IACS”
means
the International Association of Classification Societies.
“Indebtedness”
means
with respect to any Person to the extent required to be reflected as a liability
on a balance sheet for such Person prepared in accordance with GAAP, (a) any
indebtedness for borrowed money or issued in substitution for or exchange of
indebtedness for borrowed money, (b) any indebtedness evidenced by any note,
bond, debenture or other debt security, (c) any indebtedness for the deferred
purchase price of property or services with respect to which a Person is liable,
contingently or otherwise, as obligor or otherwise (other than trade payables
and other current liabilities incurred in the ordinary course of business),
(d)
any obligations under capitalized leases with respect to which a Person is
liable as obligor, (e) any indebtedness secured by a Lien on a Person’s assets,
(f) any distributions payable or loans/advances payable to any Affiliates,
shareholders or partners as of the Closing, which are not paid at Closing,
(g)
any other liabilities recorded in accordance with GAAP on the balance sheet
of
such Person which are not due within one year of the Closing, and (h) any
accrued interest, prepayment penalties and premiums on any of the
foregoing.
“Initial
Private Placement”
means
the private placement of EIAC units made in accordance with Regulation S under
the Securities Act as described in the Prospectus.
“Initial
Stockholders”
shall have the meaning assigned such term in the Stock Escrow
Agreement.
“Initial
Stockholders’ Undertaking”
shall have the meaning assigned such term in Section 5(a)(vi).
“Interim
Financial Statements”
means
the unaudited balance sheets of the SPVs as of September 30, 2006 and September
30, 2007 and the related statements of income, retained earnings, stockholders’
equity and cash flows of such SPVs, together with all related or required notes
and schedules thereto applicable for financial statements of such nature, all
prepared in accordance with GAAP.
“IPO”
means
EIAC’s initial public offering made pursuant to the Prospectus.
“IPO
Warrants”
means
the warrants contained in the units sold to the public in connection with the
IPO.
“JVCo”
means
the Bahamas corporation in which Seller is a shareholder.
“Key
Person”
means each of Captain Charles Arthur Joseph Vanderperre (“
Captain
Vanderperre
”)
and Mr. Fred Cheng.
“
Knowledge
of the Seller
”
or any similar phrase means the actual knowledge of each of Captain Vanderperre
and Mr. Fred Cheng.
“Laws”
in respect of any Person means any applicable national, international, federal,
state, local or foreign statute, law, ordinance, regulation, rule, code,
executive order, injunction, judgment, decree or other order of any Governmental
Authority to which that Person is subject.
“
Liabilities
”
means any and all debts, liabilities and obligations, whether accrued or fixed,
absolute or contingent, matured or unmatured or determined or determinable,
arising under any Law or Action and those arising under any contract, agreement,
arrangement, commitment or undertaking.
“
Lien
”
means any lien, mortgage, security interest, tax lien, pledge, encumbrance,
conditional sale or title retention arrangement, or any other interest or equity
of any Person (including any right to acquire, option or right of pre-emption)
in property designated to secure the repayment of indebtedness, or other adverse
claim or restriction whether arising by agreement or under any statute or law,
or otherwise.
“Losses”
means all direct losses, damages, judgments, awards, orders, settlements, costs
and expenses (including, without limitation, interest, penalties, court costs
and reasonable legal fees and expenses, but excluding any incidental damages,
consequential damages, special damages, damages arising out of business
interruption or lost profits, damages arising through the application of any
statutory multiplier to any Losses, punitive damages or loss of
reputation).
“Management
Agreement”
means
the agreement to be executed between the Buyer and the Management Company for
the provision of the Management Services, such agreement to be in form and
substance acceptable in the sole discretion of each of the Buyer and
Seller.
“Management
Company”
means
Vanship
Group Limited, a company incorporated under the laws of Bermuda (to be renamed
prior to Closing as “Van Asia Capital Management Limited”).
“
Management
Services
”
means
the commercial and technical management of the Vessels and related crewing
services, and the provision of appropriate premises and equipment, staffing
and
administrative and accounting services and related activities in connection
with
the operation of the business of EIMC following Closing, including the provision
of the services of the Key Persons.
“Maritime
Guideline”
means
any
rule, code of practice, convention, protocol, guideline or similar requirement
or restriction to which a Vessel is subject that is imposed or published by
any
Governmental Authority, the International Maritime Organization, such Vessel’s
classification society or the insurer(s) of such Vessel.
“
Material
Adverse Effect
”
means any circumstance, change in, or effect on the Vessels or the SPVs that,
individually or in the aggregate with any other circumstances, changes in,
or
effects on, the SPVs or the Vessels is, or might reasonably be expected to
be,
materially adverse to the business, operations, assets or liabilities, employee
relationships, customer or supplier relationships, prospects, results of
operations or the condition (financial or otherwise) of the SPVs or the Vessels
on an individual or aggregate basis;
provided
,
however
,
that “Material Adverse Effect” shall not include the impact on such business,
operations, assets or liabilities, employee relationships, customer or supplier
relationships, prospects, results of operations or the condition (financial
or
otherwise) of the SPVs or the Vessels solely arising out of or solely
attributable to: (i) conditions or effects that generally affect the industries
in which the SPVs or the Vessels operate (including legal and regulatory
changes), (ii) effects resulting from changes in general economic or political
conditions, (iii) effects resulting from changes affecting capital market
conditions (including in the case of each of clauses (i) and (ii) above, any
effects or conditions resulting from an outbreak or escalation of hostilities,
war, acts of terrorism, political instability or other national or international
calamity, crisis, emergency, epidemic or natural disaster, or any governmental
or other response to any of the foregoing, in each case whether or not involving
the United States), (iii) effects resulting from changes in laws or GAAP, (iv)
effects relating to the announcement of the execution of this Agreement or
the
transactions contemplated hereby, assuming compliance with Section 19 hereof,
(v) effects resulting from compliance with the terms and conditions of this
Agreement or the transactions contemplated hereby by the Seller or any SPV
or
consented to in writing by the Buyer or (vi) effects resulting from any action
or omission of the Buyer or any of its Affiliates other than as permitted or
contemplated pursuant to the terms of this Agreement. For the avoidance of
doubt, a Material Adverse Effect shall be measured only against past performance
of the SPVs and the Vessels, and not against any forward-looking statements,
financial projections or forecasts of the Seller or any SPV.
“
Material
Contract
”
has the meaning set forth in Section 11(p).
“
Merger
”
means the business combination of EIAC with the Buyer to be effected by way
of a
merger in which the Buyer is the surviving corporation.
“Merger
Proxy”
means the Proxy Statement to be filed with the SEC by EIAC pursuant to Section
14(a) of the Exchange Act in connection with the Merger.
“
NASD
”
shall mean the National Association of Securities Dealers, Inc., or any
successor self regulatory organization.
“Non-Compete
Period”
means
the period commencing on the Closing Date and ending on the third anniversary
thereof.
“
Option
Vessels
”
means each of the newbuilding vessels described in the Option
Agreement.
“Option
Agreement”
means the agreement to be executed between the Buyer and the Option Vessel
Seller(s) pursuant to which the Buyer shall have the option to acquire the
ownership interest in the Option Vessels held by such Option Vessel Seller(s)
until 90 days before the delivery date of each Option Vessel at the higher
of
fair market value of or the price offered by a Third Party for such Option
Vessel on the date of the Buyer’s proposed exercise of such option, such Option
Agreement to be in form and substance reasonably acceptable to Seller, EIAC
and
Buyer.
“Option
Vessel Seller(s)”
means, in respect of the Option Vessels, the Seller and/or one or more
subsidiaries of the Seller that in each case has an ownership interest in one
or
more of such vessels.
“Order”
means
any judgment, order, decree, writ, ruling, charge or injunction issued by any
court or Governmental Authority or administrative body or agency or arbitral
authority.
“Original
Agreement Date”
means
the date of the Original Agreement.
“
Out-of-Pocket
Expenses
”
shall include, but not be limited to, reasonable attorney’s fees, accountant
fees and other related professional fees and disbursements.
“
Permits
”
means all the health and safety and other permits (including, without
limitation, Environmental Permits) licenses, authorizations, certificates,
exemptions and approvals of Governmental Authorities necessary for the current
use and operation of the relevant Vessel and the conduct of the
Business.
“
Permitted
Liens
”
means (a) Liens disclosed in the Accounts or any Schedules to this Agreement,
(b) Liens created or permitted by the Carry-Over Financing, (c) Liens for Taxes
not yet due and payable or which are being contested diligently and in good
faith by appropriate proceedings, as set forth in
Schedule
2
,
(d) mechanics’, workmens’, repairmens’, warehousemens’, carriers’ or other like
Liens arising in the ordinary course of business of the SPVs, any of which
do
not exceed $500,000 on an individual basis or $1,000,000 in the aggregate,
(e)
Liens securing rental payments under capitalized leases, (f) Liens that do
not
otherwise materially detract from the value or current use of the applicable
asset, (g) Liens to be removed, and which are actually removed, prior to or
at
Closing, (h) Liens for which title insurance coverage, bonding or an
indemnification has been obtained, (i) Liens for current crew wages not
exceeding three (3) months, (j) Liens for salvage or general average, (k) Liens
arising from the supply of goods and/or services to any Vessel in the ordinary
course of business, (l) Liens arising under charters (including the Charters)
entered into in the ordinary course of business and (m) Liens securing claims
which are completely covered by insurance.
“Person”
means
any individual, partnership, firm, corporation, joint venture, association,
trust, unincorporated organization, limited liability company, limited liability
partnership or other legal entity.
“Pre-Closing
Taxes”
means all Taxes (other than those arising as a result of a Section 338 Election)
incurred by, imposed on or asserted against any SPV for a Pre-Closing Tax
Period.
“Pre-Closing
Tax Period”
means any tax period of an SPV ended or ending on or before the Closing
Date.
“Pre-Closing
Tax Returns”
means
any and all Tax Returns of an SPV for each Pre-Closing Tax Period.
“Prepaid
Taxes”
means all payments of Taxes made in respect of the Tax liability of any SPV
(whether by reason of an estimated Tax payment or otherwise) on or prior to
the
Closing Date, including any refunds or credits attributable to a Pre-Closing
Tax
Period, applied to a Straddle Period.
“Prospectus”
means the Final Prospectus dated July 18, 2006 with respect to the
IPO.
“
Registrable
Securities
”
shall mean (a) the Buyer Common Stock issued to and owned by the Seller or
any
Seller’s Affiliates as the Stock Consideration, (b) the shares of Buyer Common
Stock underlying the warrants transferred to the Seller as Warrant Consideration
and owned by the Seller or any Seller’s Affiliates, (c) the Buyer Common Stock
issued to and owned by the Seller or any Seller’s Affiliates pursuant to the
terms of Section 3(d) of this Agreement and (d) the Buyer Common Stock contained
in the Financing Private Placement Units and the Buyer Common Stock issuable
upon exercise of the warrants contained therein issued to and owned by the
Seller or any Seller’s Affiliates.
“
Registrable
Securities Holder
”
shall mean any of the Seller or a Seller’s Affiliate holding the Registrable
Securities.
“Registration
Buyer Indemnitees”
means, collectively, the Buyer, the Buyer Indemnitees and any other person
(including each underwriter) who participated in the offering of such
Registrable Securities.
“
Requested
Stock
”
shall have the meaning set forth in Section 6(b)(ii).
“Resale
Registration Statement”
means a registration statement filed by the Buyer with the SEC on Form F-1
or
S-1 (or Form F-3 or S-3 (or other comparable short form) if eligible) under
the
Securities Act for the purpose of registering the resale of Registrable
Securities.
“Reserved
Tax Liability”
means that part of Seller’s Portion of any Straddle Period Taxes of an SPV which
is shown as a current liability on the Closing Date Balance Sheet of such
SPV.
“
Sale
and Purchase
”
means the sale by the Seller and the purchase by the Buyer of the SPV Shares
in
accordance with the terms of this Agreement.
“
SEC
”
means the United States Securities and Exchange Commission.
“
Section
338 Election
”
means an election that may be made by the Buyer or any of its nominated
subsidiaries under Section 338(g) of the Code in respect to the acquisition
of
the SPV Shares hereunder.
“
Securities
Act
”
shall mean the U.S. Securities Act of 1933, as amended, and the rules and
regulations of the SEC thereunder, as the same shall be in effect from time
to
time.
“
Seller’s
Affiliates
”
mean any entity which is an Affiliate of the Seller.
“
Seller’s
Indemnitees
”
means, collectively, the Registrable Securities Holders, their respective
directors and officers and each other person, if any, who controls the
Registrable Securities Holders.
“Seller’s
Portion”
shall
have the meaning set forth in Section 18(f).
“SK
Shipping”
means SK Shipping Co. Limited, a Korean corporation.
“SK
Shipping Venture”
means the agreement between JVCo and SK Shipping in respect of a profit and
loss
share for a VLCC that is chartered to SK Shipping.
“SOC
Escrow Agreement”
means the escrow agreement among the Buyer, the Seller and the Escrow Agent
upon
the terms and conditions of which the SOC Escrow Amount shall be held in escrow,
in form and substance reasonably acceptable to the Buyer, the Seller and the
Escrow Agent.
“SOC
Escrow Amount”
means $17,250,000.
“SPV”
means each corporation indicated on
Schedule
11(f)
,
which wholly owns a Vessel.
“SPV
Shares”
means all the outstanding ordinary shares of an SPV on the Closing
Date.
“
Stock
Consideration
”
means 13,500,000 shares of the Buyer Common Stock.
“Stock
Escrow Agreement”
means that certain Stock Escrow Agreement dated as of July 21, 2006 among EIAC,
the Initial Stockholders and Continental Stock Transfer & Trust
Company.
“
Straddle
Period
”
means any tax period of an SPV that begins on or before the Closing Date and
ends after the Closing Date.
“
Straddle
Period Tax Return
”
means any Tax Return of an SPV that relates to a Straddle Period.
“
Straddle
Period Taxes
”
means all Taxes (other than those arising as a result of a Section 338 Election)
incurred by, imposed on, or asserted against any SPV for a Straddle
Period.
“
Surviving
Corporation
”
has the meaning set forth in Section 14(f).
“
target
business
”
shall have the meaning assigned such term in the prospectus summary of the
Prospectus.
“
Tax
”
or “
Taxes
”
means (i) any and all taxes, fees, levies, duties, tariffs, imposts, and other
charges of any kind (together with any and all interest, penalties, additions
to
tax and additional amounts imposed with respect thereto) imposed by any
Governmental Authority, including any income, franchise, windfall or other
profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers’ compensation, unemployment compensation,
net worth, excise, withholding, ad valorem, stamp, transfer, value added, gains,
license, registration, documentation, recording, occupancy, occupation,
estimated, minimum, customs, duties, tariffs or other similar taxes and charges,
whether disputed or not, (ii) any liability for or in respect of the payment
of
any amount of a type described in clause (i) of this definition as a result
of
being a member of an affiliated, combined, consolidated, unitary or other group
for Tax purposes, and (iii) any liability for or in respect of the payment
of
any amount described in clauses (i) or (ii) of this definition of another Person
as a transferee or successor, as a responsible person, as a result of a tax
sharing or allocation agreements, or otherwise.
“Tax
Matter”
means any inquiry, claim, assessment, audit, proceeding or similar event with
respect to Taxes.
“Tax
Returns”
means any and all returns, reports, forms, claims for refund or credit, and
information returns filed or required to be filed with any Governmental
Authority (including any Schedule or attachment thereto) in connection with
the
reporting, determination, assessment, collection or payment of any
Tax.
“Third
Parties”
means all Persons and Governmental Authorities other than parties to this
Agreement or their Affiliates.
“Third
Party Approvals”
means
all
approvals, consents, licenses and waivers from Third Parties that are required
to effect the Merger and the Sale and Purchase.
“Third
Party Claim
”
means a claim for money damages brought by a Third Party.
“
Trust
Fund
”
has the meaning set forth in Section 16(d).
“
Trust
Fund Claim
”
has the meaning set forth in Section 16(d).
“
Univan
”
means Univan Ship Management Limited.
“
$
”
means an amount expressed in United States dollars, the currency of the United
States of America.
“
Vessel
”
or “
Vessels
”
means each of the vessels listed on
Schedule
11(f)
.
“VLCC”
means a crude oil carrier vessel with a deadweight tonnage between 200,000
and
320,000 deadweight tons.
“Warrant
Consideration”
means an aggregate of 425,000 warrants to purchase Buyer Common
Stock.
“Worker”
means any person who personally performs services for any SPV but who is not
in
business on their own account or in a client/customer relationship, but does
not
include any crew member manning any Vessel under the applicable technical
management contract.
(b)
Section
and appendix or schedule or exhibit headings do not affect the interpretation
of
this Agreement.
(c)
Words
in the singular include the plural and in the plural include the
singular.
(d)
A
reference to one gender includes a reference to the other gender, and a
reference to “including” means “including without limitation.”
(e)
A
reference to a statute or statutory provision is a reference to it as it is
in
force taking account of any amendment, extension or re-enactment and includes
any subordinate legislation in force made under it.
(f)
Writing
or
written
includes faxes but not e-mail.
(g)
Documents
in
agreed
form
are documents in the form agreed by the parties or on their behalf and initialed
by them or on their behalf for identification.
(h)
References
to Sections, Schedules and Exhibits are to the Sections and Schedules of this
Agreement; references to paragraphs are to paragraphs of the relevant Section
or
Schedule or Exhibit.
(i)
Reference
to this Agreement include this Agreement, the Schedules and the Exhibits (which
are an integral part of this Agreement) as each may be amended or varied in
accordance with the terms hereof.
SECTION
2.
|
INTENTIONALLY
OMITTED
.
|
SECTION
3.
|
SALE
AND PURCHASE
.
|
(a)
On
the terms of this Agreement, and immediately after the Merger, the Seller shall
sell and transfer or cause to be sold and transferred to the Buyer or its
nominated subsidiaries all of the SPV Shares and the Buyer shall buy and pay
for
all of the SPV Shares for the Aggregate Purchase Price. Such SPV Shares shall
be
free of all Liens (other than such Liens imposed by the Carry-Over Financing)
and with all rights that attach (or may in the future attach) to such SPV Shares
including, in particular, the right to receive all dividends and distributions
declared in respect of any period commencing on or after the Closing Date and
for the avoidance of doubt the Seller shall retain and be entitled to receive
and retain for its own benefit all dividends and distributions declared in
respect of any period up to the Closing Date.
(b)
The
Seller on behalf of itself, JVCo and Golden Asia Limited waives any right of
pre-emption or other restriction on transfer in respect of the SPV Shares or
any
of them conferred on the Seller or JVCo under the organizational documents
of
any SPV, any shareholders’ agreement or otherwise.
(c)
Subject
to Section 20, the Closing shall take place as soon as practicable after the
satisfaction or waiver of each of the conditions set forth in Sections 14 and
15
hereof or at such other time as the parties hereto agree (the “
Closing
Date
”)
as soon as practicable following the receipt of the shareholder approval
required under Section 14(g). The Closing shall take place at the offices of
Loeb & Loeb LLP, 345 Park Avenue, New York, New York 10154, or at such other
location as the parties hereto agree.
In
connection with the Closing:
(i)
the
Buyer and EIAC shall cause the Merger to be consummated immediately prior to
the
Closing (the time of such consummation of the Merger being the “
Effective
Time
”).
Upon the consummation of the Merger, Buyer’s name shall be changed to
Van
Asia
Tankers Corporation
(or such other name which is acceptable to and as may be directed by
Seller).
(ii)
the
Ancillary Agreements shall be executed by each party thereto (
provided
that
in the event that the Seller obtains deletion of the “mutual sales option”
clause from the Charter of the SHINYO OCEAN, then notwithstanding the foregoing,
execution of the SOC Escrow Agreement shall not be required).
(iii)
from
the Cash Consideration otherwise due pursuant to Section 3(a) above the Buyer
shall:
(A)
deposit
the SOC Escrow Amount into the account designated in the SOC Escrow Agreement
(
provided
that
in the
event that the Seller obtains deletion of the “mutual sales option” clause from
the Charter of the SHINYO OCEAN, then notwithstanding the foregoing, the SOC
Escrow Amount shall not be payable to the account designated in the SOC Escrow
Agreement but shall instead be payable under the immediately following clause
(B) of this clause (iii)); and
(B)
pay
the
balance of the Cash Consideration to the Seller to such account(s) as the Seller
shall direct, in each case, in immediately available funds (
provided
that
the
Buyer shall deduct from such Cash Consideration and retain an amount equal
to
the consideration payable by the Seller for the Financing Private Placement
Units purchased by the Seller).
(iv)
the
Buyer shall deliver (or shall arrange to be delivered) to the Seller one or
more
share certificates representing the Stock Consideration and effect the transfer
from one or more of the Initial Stockholders (free of cost to the Seller) of
one
or more warrants representing the Warrant Consideration, in each case registered
in the name of the Seller or such Seller’s Affiliates as the Seller may
designate in writing.
(v)
the
Seller shall deliver to the Buyer (or its nominated subsidiaries) appropriate
stock transfer documents in respect of all of the SPV Shares duly executed
by
the registered owner thereof together with share certificates representing
such
SPV Shares, as required in order to fully effect the transfer thereof to Buyer
(or its nominated subsidiaries) subject only to execution of appropriate stock
transfer documents by the Buyer or its nominated subsidiaries and payment of
applicable stamp duty, except for such share certificates as may be retained
by
the financing institutions in connection with the Carry-Over
Financing.
(vi)
the
Seller shall deliver to the Buyer the written resignation of the directors
and
officers of each SPV if required to do so by the Buyer.
(vii)
each
SPV will assign to Seller all of its rights to any litigation (including
arbitration or mediation proceedings) commenced in any part of the world prior
to the Closing Date (
“Assignment
of Rights”
)
and Seller will assume and agree to indemnify each SPV in connection with all
costs, expenses and other liabilities in connection with such assigned rights
(
“Assumption
of Liabilities”
),
provided
that
where it is or may be contrary to the applicable law to assign such rights
or to
maintain or participate in such an action, the relevant SPV shall permit Seller
at Seller’s sole cost and expense to undertake such proceedings in its name and
on its behalf and shall hold all proceeds of such proceedings which it may
actually receive in trust for Seller absolutely.
(viii)
Mr.
George Sagredos shall receive an aggregate of 1 million units of the Buyer,
each
unit consisting of one share of Buyer Common Stock and a warrant to purchase
one
share of Buyer Common Stock at an exercise price of $8.00 per share
substantially in the form of the IPO Warrants. Mr. Sagredos shall in his sole
discretion have the right to direct the issuance of 500,000 of such units to
Mr.
Marios Pantazopoulos. The shares of Buyer Common Stock, warrants and the shares
of Buyer Common Stock issuable upon exercise thereof shall
have
the
same
registration
and
other
rights
contained in Section 6 of this Agreement
and,
solely for the purposes of such Section 6 rights, shall be deemed to be
Registrable Securities, and Mr. Sagredos and Mr. Pantazopoulos (or any
transferees of such securities) shall be deemed to be a holder of Registrable
Securities.
(ix)
all
Dividend
Waiver
Securities
shall be deposited with (in the case of certificated shares), or registered
in
the name of (in the case of uncertificated shares), the Escrow Agent pursuant
to
the terms of the Dividend Escrow Agreement.
(d)
In
addition to the Aggregate Purchase Price, the following shall constitute
additional consideration to be paid by the Buyer to the Seller for the
acquisition by the Buyer of the SPV Shares:
(i)
With
respect to the first full twelve month period following the Closing Date, in
the
event that the Vessels achieve EBITDA for such period equal to or in excess
of
$75,000,000, then the Seller shall be entitled to receive, within 30 days
following the end of such period, an additional 3,000,000 shares of Buyer Common
Stock at no cost. Any expense or other charge to earnings incurred in
conjunction with the award of these additional shares or other shares awarded
to
EIAC or management will be added back to EBITDA for purposes of calculating
the
share award. In the event that the Buyer sells any of the Vessels during the
first full twelve month period after the Merger, the consolidated EBITDA hurdle
for the first twelve month period will be reduced by an amount calculated as
follows:
First
Twelve Month Reduction =A * (365/C - 1)
-
(D*E*(1-y%)).
where
A
= actual EBITDA contribution for the first twelve month period from the Vessel
in question up to and including the closing of the sale of such
Vessel,
C
= the number of days during the first twelve month period up to and including
the closing date of the sale of such Vessel,
D
= the
number of days of the scheduled offhire after the sale of such Vessel (i.e.,
drydock or special survey) during the first twelve-month period,
E
= the
gross time charter rate of such Vessel for the first twelve-month period, as
presented in Schedule 11(p)(vi), and
y%
= the
brokerage commission on the gross time charter rate of such Vessel, as presented
in Schedule 11(p)(vi).
The
consolidated EBITDA hurdle for the second twelve month period shall be reduced
by an amount calculated as follows:
Second
Twelve Month Reduction = A *(365/C)
- (D*E *
(1-y%))
.
where
D
= the
number of days of the scheduled offhire after the sale of such Vessel (i.e.,
drydock or special survey) during the first twelve-month period,
E
= the
gross time charter rate of such Vessel for the second twelve-month period,
as
presented in Schedule 11(p)(vi)
,
and
y%
= the
brokerage commission on the gross time charter rate of such Vessel, as presented
in Schedule 11(p)(vi).
To
illustrate, assume Buyer sells Vessel X on the 90th day of the first twelve
month period after the Closing Date, and that during the period from the Closing
Date up to and including the close of the 90th day Vessel X has earned EBITDA
of
US$2,000,000. Assume also that Vessel X is due for drydock during the first
twelve month period with projected 20 offhire days and Vessel X is earning
a
gross charter rate of $28,000 per day less 1.25% brokerage commission. Then
the
EBITDA hurdle rate for purposes of calculating the earnout consideration for
the
first twelve months
would
be reduced by US$5,558,111, calculated as follows:
US$2,000,000
* (365/90 - 1) - (US$28,000 * (1-1.25%) * 20) = US$5,558,111
and
the EBITDA hurdle for the second twelve month period would be reduced
by
US$2,000,000
* (365/90) - (US$28,000 * (1-1.25%) * 0) = US$8,111,111
plus
(ii)
With
respect to the second twelve month period following the Closing Date, in the
event that the Vessels achieve EBITDA for such period equal to or in excess
of
$75,000,000, then the Seller shall be entitled to receive within 30 days
following the end of such period, an additional 3,000,000 shares of Buyer Common
Stock at no cost. Any expense
or
other charge to earnings
incurred
in conjunction with the award of these additional shares or other shares awarded
to EIAC or management will be added back to EBITDA for purposes of calculating
the share award. In the event that the Buyer sells any of the Vessels during
the
second twelve month period after the Merger, the consolidated EBITDA hurdle
for
the second twelve month period will be reduced by an amount calculated as
follows:
Second
Twelve Month Reduction =A * (365/C - 1)
-
(D*E*(1-y%)).
where
A
= actual EBITDA contribution for the Vessel for the second twelve month period
up to and including the closing of the sale of such Vessel,
C
= the number of days during the second twelve month period up to and including
the closing date of the sale of such Vessel,
D
=
the
number of days of the scheduled offhire after the sale of such Vessel (i.e.,
drydock or special survey) during the second twelve-month period,
E
= the
gross time charter rate of such Vessel for the second twelve-month period,
as
presented in Schedule 11(p)(vi), and
y%
= the
brokerage commission on the gross time charter rate of such Vessel, as presented
in Schedule 11(p)(vi).
For
the avoidance of doubt, the additional 6,000,000 shares of Buyer Common Stock,
if issued in accordance with subclauses (i) and (ii) above, shall not be subject
to any lock-up from the date of any such issuance.
SECTION
4.
|
COVENANTS
OF THE SELLER
.
|
(a)
The
Seller will use its best efforts to deliver to EIAC no later than December
14,
2007 (or such later date as shall be agreed to in writing between EIAC and
Seller) true and complete copies of the Audited Financial Statements and the
Interim Financial Statements, accompanied by a related Management’s Discussion
and Analysis of Financial Condition in form and substance in accordance with
the
requirements of the Securities Act for purposes of the Merger Proxy and the
Acquisition Registration Statement.
(b)
From
the Original Agreement Date, through and including the Closing Date, the Seller
shall:
(i)
use
its best efforts to prevent the SPVs from becoming insolvent (within the meaning
of the U.S. Bankruptcy Code);
(ii)
use
its best efforts to ensure that each SPV shall continue to operate its
respective Business as it is currently conducted;
(iii)
use
its best efforts to ensure that each SPV shall retain ownership of the Vessel
owned by such SPV, provided that an SPV may sell its Vessel if EIAC and the
Buyer have consented in advance to such sale;
(iv)
use
reasonable commercial efforts to ensure that each SPV shall perform its
respective obligations under each Charter;
(v)
use
its best efforts to continue to keep each SPV, each Vessel and the SPV Shares
free and clear of any Liens, other than Permitted Liens, and use its best
efforts to ensure that each SPV shall forbear from creating any Liens, claims
or
encumbrances of any kind upon the Vessels, the SPV Shares or any other material
assets of the SPVs, in each case other than in the ordinary course of
business;
(vi)
[intentionally
omitted];
(vii)
[intentionally
omitted];
(viii)
use
its best efforts to ensure that the Closing Date Net Current Assets of each
SPV
shall be not less than zero;
(ix)
use
reasonable commercial efforts to obtain the consent or waiver of any party
to a
Carry-Over Financing, to the extent such consent or waiver is necessary to
continue such financing arrangements upon the consummation of the Sale and
Purchase; and
(x)
to
the extent that the terms of any representation and warranty contained in
Section 11 are no longer accurate and complete, Seller shall promptly provide
EIAC and Buyer with a Disclosure Letter with the corrected complete and accurate
information.
(c)
Subsequent
to the Closing Date, to the extent not waived or paid pursuant to the SOC Escrow
Agreement, promptly pay any obligation due pursuant to the “mutual sales option”
clause in the relevant Charter.
(d)
Seller
shall use its best reasonable efforts to cause the Financing to be committed
on
or before
December
17, 2007.
SECTION
5.
|
COVENANTS
OF EIAC AND THE BUYER
.
|
(a)
Each
of EIAC and the Buyer covenants with the Seller that it shall:
(i)
use
its best efforts to assist the Seller in procuring the Financing;
(ii)
as
soon as is reasonably practicable following the date hereof, and after receipt
of the required financial statements of the SPVs, file the Merger Proxy and
Acquisition Registration Statement with the SEC;
(iii)
use
its best efforts to materially comply with all applicable rules and regulations
of the SEC in connection with the Merger and the Sale and Purchase;
(iv)
obtain
all Governmental Approvals and take all other actions, as may be necessary
or
reasonably appropriate in order to effect the Merger and the Sale and
Purchase;
(v)
have
received prior to the Closing Date a market stand-off agreement signed by each
of the Initial Stockholders, such market stand-off agreement to be in form
and
substance satisfactory to the Seller;
(vi)
have
received prior to the Closing Date an undertaking (“
Initial
Stockholders’ Undertaking
”)
executed by each of the Initial Stockholders that they shall not without the
prior written consent of the Seller exercise any rights they may have under
the
Stock Escrow Agreement to cause the release of any of the Escrow Shares prior
to
the First Anniversary, other than as permitted pursuant to Sections 3.2 and
4.3
of the Stock Escrow Agreement, such undertaking to be in form and substance
reasonably satisfactory to the Seller and provided that in the case of any
transfer of the Escrow Shares pursuant to Section 4.3 of the Stock Escrow
Agreement the transferee of such shares shall first enter into an undertaking
with the Seller in terms equivalent to the Initial Stockholders’ Undertaking and
acceptable to the Seller; and
(vii)
from
the date hereof until the Closing Date (unless this Agreement is otherwise
terminated earlier), not enter into any obligations, commitments or liabilities
except as (1) necessary to effect the Merger and the Sale and Purchase or (2)
subject to the terms of Section 8 hereof, in connection with the business of
either of Buyer or EIAC as currently conducted or as disclosed in the
Prospectus.
(b)
Each
of EIAC and the Buyer shall not without the prior written consent of the Seller
permit any change to be made in its Certificate or Articles of Incorporation
(as
the case may be) or Bylaws or issue any shares or rights to acquire shares
until
Closing
except
as
mutually agreed in writing between Buyer and Seller to effect the Merger and
the
Sale and Purchase
.
(c)
At
least ten (10)
days
prior to the
initial
filing of the Merger Proxy or Acquisition Registration Statement or Resale
Registration Statement, and
at least
five (5) days prior to the filing
of any amendment of or supplements to the Merger Proxy or Acquisition
Registration Statement or Resale Registration Statement, or of any document
that
is to be incorporated by reference therein after initial filing thereof with
the
SEC, and of any responses to the comments of the SEC, Buyer and EIAC shall
in
each case provide copies of such documents (including revised drafts) to the
Seller, its counsel and auditors and other advisors as specifically advised
by
Seller and make such of the representatives of EIAC and the Buyer as shall
be
reasonably requested by the Seller, and their respective counsel, auditors
and
advisors, available for discussion of such document, including comments of
and
responses to the SEC; EIAC and Buyer shall consult and cooperate with and take
account of the comments and suggestions of Seller and its counsel, auditors
and
advisors with regard to the foregoing; and neither EIAC nor the Buyer shall
file
with the SEC or distribute to shareholders or otherwise make publicly available
any Merger Proxy, the Acquisition Registration Statement, the Resale
Registration Statement, any amendment of or supplement to any of the foregoing,
or any document that is to be incorporated by reference therein after initial
filing thereof with the SEC, nor any SEC response letter or related
correspondence, except (i) if pursuant to this paragraph the Seller and its
counsel shall have previously been
furnished
with a copy thereof
,
and (ii) if the Seller
(or
any
representative of Seller)
shall
have provided its
written
consent (such consent not to be unreasonably withheld or delayed) to such
filing, distribution or other public release. In addition, EIAC and Buyer shall
not request acceleration of the effectiveness of the Acquisition Registration
Statement or Resale Registration Statement without the
written
consent of Seller
or its
representative
(such consent not to be unreasonably withheld or delayed).
SECTION
6.
|
REGISTRATION
RIGHTS; LOCK UP
.
|
(a)
Registration
on Form F-4 / S-4.
Buyer shall include the Registrable Securities in the Acquisition Registration
Statement to the extent that such inclusion would not, in Buyer’s reasonable
judgment, after receiving written comments from the SEC that address the
registration of the Registrable Securities, materially hinder or delay the
SEC’s
declaration of effectiveness thereof or approval of the Merger
Proxy.
(b)
Registration
of Registrable Securities.
(i)
“Demand
Registration.”
Upon
request by the Seller or any other holder of Registrable Securities, from time
to time the Buyer shall prepare and file and use its best efforts to have
declared effective as soon as is reasonably practical but in any event within
120 days from the date of such request the Resale Registration Statement with
the SEC and shall include all of the Registrable Securities in such Resale
Registration Statement (or such lesser number of shares of Registrable
Securities as is permitted under SEC rules, regulations and interpretations)
and
shall keep such Resale Registration Statement effective until all Registrable
Securities are sold thereunder.
(ii)
“Piggyback
Registration Rights.”
If
the Buyer shall determine to proceed with the preparation and filing of a new
registration statement under the Securities Act in connection with the proposed
offer and sale of any of its securities (other than a registration statement
on
Form F-4 / S-4, S-8 or other limited purpose form), the Buyer will give written
notice of its determination to any holder of Registrable Securities. Upon the
written request from any such holder of Registrable Securities, within 15 days
after receipt of any such notice from the Buyer, the Buyer will cause all of
the
Registrable Securities covered by such request (the “Requested Stock”) held by
any such holder of Registrable Securities to be included in such registration
statement, all to the extent requisite to permit the sale or other disposition
by the prospective seller or sellers of the Requested Stock; provided that
nothing herein shall prevent the Buyer from, at any time, abandoning or delaying
any such registration.
(c)
Registration
Procedures.
Pursuant to the Buyer’s obligations as set forth in Section 6(a) and 6(b), the
Buyer will:
(i)
prepare
and file with the SEC the Acquisition Registration Statement and, if requested
in accordance with the provisions of subparagraph (b) above, the Resale
Registration Statement, and use its best efforts to cause each such registration
statement to become and remain effective for such period of time as may be
required for the disposition of such securities covered by such registration
statement by the holders thereof (which period of time shall not expire earlier
than the first date on which the Registrable Securities Holders could sell
or
dispose the Registrable Securities without restrictions pursuant to Rule 144(k)
promulgated under the Securities Act);
(ii)
prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary
to
keep such registration statement effective and to comply with the provisions
of
the Securities Act with respect to the sale or other disposition of all
securities covered by such registration statement until such time as all of
such
securities have been fully disposed of;
(iii)
furnish
to all selling security holders (including the Registrable Securities Holders)
such number of copies of the relevant prospectus, including the relevant
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents, as such selling security holders may reasonably
request;
(iv)
use
its best efforts to register or qualify the securities covered by such
registration statement under such other securities or blue sky laws of such
jurisdictions within the United States and Puerto Rico as each holder of such
securities shall request (
provided,
however,
that
the Buyer shall not be obligated to qualify as a foreign corporation to do
business under the laws of any jurisdiction in which it is not then qualified
or
to file any general consent to service or process), and do such other reasonable
acts and things as may be required of it to enable such holder to consummate
the
disposition in such jurisdiction of the securities covered by such registration
statement;
(v)
furnish,
at the request of the selling Registrable Securities Holder(s), on the date
that
such shares of Registrable Securities are delivered to the underwriters for
sale
pursuant to a registration that is underwritten or, if such Registrable
Securities are not being sold through underwriters, on the date that the
registration statement with respect to such shares of Registrable Securities
becomes effective, (A) an opinion, dated such date, of the counsel representing
the Buyer for the purposes of such registration, addressed to the underwriters,
if any, and if such Registrable Securities are not being sold through
underwriters, then to the selling Registrable Securities Holder(s), in customary
form and covering matters of the type customarily covered in such legal
opinions; and (B) a comfort letter dated such date, from the independent
certified public accountants of the Buyer, addressed to the underwriters, if
any, and the selling Registrable Securities Holder(s), in a customary form
and
covering matters of the type customarily covered by such comfort letters and
as
they shall reasonably request;
(vi)
enter
into customary agreements (including an underwriting agreement in customary
form, it being understood that any underwriting agreement entered into by the
selling Registrable Securities Holder(s) with respect to an underwritten
offering of Registrable Securities will impose customary indemnification
obligations on the underwriter(s)) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Securities;
(vii)
cooperate
reasonably with any managing underwriter to effect the sale of Registrable
Securities, including but not limited to attendance of the Buyer’s executive
officers at any planned “road show” presentations to the extent that such
attendance does not unduly or unreasonably impact the performance of such
officer’s duties;
(viii)
notify
the selling Registrable Securities Holder(s) and the underwriter(s), if any,
in
writing at any time when the Buyer is aware that offering documents include
an
untrue statement of a material fact or omit to state a material fact required
to
be stated therein or necessary to make the statements therein not misleading
in
light of the circumstances then existing, and at the request of any selling
Registrable Securities Holder or underwriter, prepare and furnish to such
person(s) such reasonable number of copies of any amendment or supplement to
the
offering documents as may be necessary so that, as thereafter delivered to
the
purchasers of such shares, such offering documents would not include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, and to deliver to purchasers of any
other securities of the Buyer included in the offering copies of such offering
documents as so amended or supplemented;
(ix)
promptly
notify the selling Registrable Securities Holder(s) of (A) the effectiveness
of
such offering documents, (B) the issuance by the SEC of an order suspending
the
effectiveness of the offering documents, or of the threat of any proceeding
for
that purpose, and (C) the suspension of the qualification of any securities
to
be included in the offering documents for sale in any jurisdiction or the
initiation or threat of any proceeding for that purpose; and
(x)
cause
all Registrable Securities to be listed on each securities exchange on which
similar securities issued by the Buyer are then listed.
It
shall be a condition precedent to the obligation of the Buyer to take any action
pursuant to this Section 6 in respect of the securities which are to be
registered that the Registrable Securities Holder(s) shall furnish to the Buyer
such information regarding the securities held by the Registrable Securities
Holder(s) and the intended method of disposition thereof as the Buyer shall
reasonably request and as shall be required in connection with the action taken
by the Buyer.
(d)
Expenses.
All expenses incurred in complying with this Section 6 shall be paid by the
Buyer, including, without limitation, (i) all registration and filing fees
(including all expenses incident to filing with the NASD), (ii) all “road show”
expenses incurred by the Buyer or the Registrable Securities Holder(s) and
all
applicable selling security holders, (iii) printing expenses, (iv) fees and
expenses of counsel for the Buyer, (v) the reasonable fees and expenses of
one
counsel for the Registrable Securities Holders, (vi) expenses of any special
audits incident to or required by any such registration, (vii) expenses of
complying with the securities or blue sky laws of any jurisdiction pursuant
to
Section 6(c)(iv) and (viii) any fees or disbursements of counsel for any
underwriter in respect of the securities sold by any applicable selling security
holders, including the Registrable Securities Holders, if applicable, except
that the Buyer shall not be liable for any fees, discounts or commissions to
any
underwriter.
(e)
Indemnification
and Contribution
.
(i)
In
the event of any registration of any Registrable Securities under the Securities
Act pursuant to this Agreement, the Buyer shall indemnify and hold harmless
the
Seller’s Indemnitees from and against any losses, claims, damages or
liabilities, joint or several, to which a Seller’s Indemnitee may become subject
under the Securities Act or any other statute or at common law, insofar as
such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out
of or are based upon: (A) any untrue statement or any alleged untrue statement
of any material fact contained or incorporated by reference, on the effective
date thereof, in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, any free writing prospectus or any amendment
or
supplement thereto, (B) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (C) any other violation of any applicable securities
laws, and in each of the foregoing circumstances shall pay for or reimburse
the
Seller’s Indemnitees for any legal or any other expenses reasonably incurred by
all or any one of the Seller’s Indemnitees in connection with investigating or
defending any such loss, claim, damage, liability or action;
provided
,
however
,
that, with respect to any Seller’s Indemnitee, the Buyer shall not be liable in
any such case to the extent that any such loss, claim, damage or liability
has
been found by a court of competent jurisdiction to have been based upon any
actual untrue statement or actual omission made or incorporated by reference
in
such registration statement, preliminary prospectus, prospectus, free writing
prospectus or any amendment or supplement thereto solely in reliance upon and
in
conformity with written information furnished to the Buyer by such Seller’s
Indemnitee specifically for use therein. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of a
Seller’s Indemnitee, and shall survive the transfer of such securities by a
Seller’s Indemnitee.
(ii)
In
the event of any registration of any Registrable Securities under the Securities
Act pursuant to this Agreement, the Registrable Securities Holders, by
acceptance hereof, agree to indemnify and hold harmless the Registration Buyer
Indemnitees against any losses, claims, damages or liabilities, joint or
several, to which the Registration Buyer Indemnitees may become subject under
the Securities Act or any other statute or at common law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out
of or are based upon: (A) any untrue statement or any alleged untrue statement
of any material fact contained or incorporated by reference, effective date
thereof, in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, any free writing prospectus, or any amendment
or
supplement thereto, or (B) any omission or alleged omission to state therein
a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but in either case only to the extent that such untrue
statement or omission is (1) made in reliance on and in conformity with any
information furnished in writing by the Seller to the Buyer concerning the
Seller specifically for inclusion in the registration statement, preliminary
prospectus, prospectus, free writing prospectus or any amendment or supplement
thereto relating to such offering, and (2) is not corrected by the Seller and
distributed to the purchasers of shares within a reasonable period of
time.
(iii)
If
the indemnification provided for in this Section 6 from an indemnifying party
is
unavailable to an indemnified party hereunder in respect of any losses, claims,
damages, liabilities or expenses referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to
the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as is appropriate
to
reflect the relative fault of the indemnifying party and indemnified parties
in
connection with the actions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of such indemnifying party and indemnified parties shall
be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates
to
information supplied by, such indemnifying party or indemnifying parties, and
the parties’ relative intent, knowledge, access to information and opportunity
to correct or prevent such action. The amount paid or payable by a party as
a
result of the losses, claims, damages, liabilities and expenses referred to
above shall include any legal or other fees or expenses reasonably incurred
by
such party in connection with any investigation or proceeding.
(iv)
The
parties hereto agree that it would not be just and equitable if contribution
pursuant to Section 6(e)(iii) were determined by pro rata allocation or by
any
other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11 (f)
of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
(f)
“Market
Stand-Off” Agreement
.
The Seller (on behalf of itself and each Registrable Securities Holder) hereby
agrees, in connection with any firm commitment, underwritten primary public
offering by the Buyer of its securities, that it shall not, to the extent
requested by the Buyer or a managing underwriter of such securities, sell or
otherwise transfer or dispose of or engage in any other transaction regarding
any Registrable Securities or other shares of the Buyer then owned by the Seller
or any Registrable Securities Holder for a period not to exceed one hundred
and
eighty (180) days following the effective date of a registration statement
of
the Buyer filed under the Securities Act in connection with such firm
commitment, underwritten public offering by the Buyer.
(g)
Resale
Exemptions; Reports Under Exchange Act.
In
order to permit a Registrable Securities Holder to sell Registrable Securities,
if it so desires, pursuant to any applicable resale exemption under applicable
securities laws and regulations, the Buyer shall:
(i)
comply
with all requirements under the Securities Act and all rules and regulations
of
the SEC thereunder in connection with use of any such resale
exemption;
(ii)
make
and keep available adequate and current public information regarding the
Buyer;
(iii)
file
with the SEC in a timely manner, all reports and other documents required to
be
filed under the Securities Act, the Exchange Act, or other applicable securities
laws and regulations;
(iv)
furnish
to the Registrable Securities Holders, upon written request, copies of annual
reports required to be filed under the Exchange Act and other applicable
securities laws and regulations; and
(v)
furnish
to the Registrable Securities Holders, upon written request (A) a copy of the
most recent quarterly report of the Buyer and such other reports and documents
filed by the Buyer with the SEC and (B) such other information as may be
reasonably required to permit the Registrable Securities Holders to sell
pursuant to any applicable resale exemption under the Securities Act or other
applicable securities law and regulations, if any.
(h)
Lock-up
.
(i)
The
Seller hereby agrees that, without the prior written consent of the Buyer,
it
(A) will not, directly or indirectly, offer, sell, agree to offer or sell,
solicit offers to purchase, grant any call option or purchase any put option
with respect to, or pledge, borrow or otherwise dispose of, any of the
Registrable Securities, and (B) will not establish or increase any “put
equivalent position” or liquidate or decrease any “call equivalent position”
with respect to such Registrable Securities (in each case within the meaning
of
Section 16 of the Exchange Act), or otherwise enter into any swap, derivative
or
other transaction or arrangement that transfers to another, in whole or in
part,
any economic consequence of ownership of such Registrable Securities, whether
or
not such transaction is to be settled by delivery of Registrable Securities,
other securities, cash or other consideration, in either case for a period
of
(x) one hundred and eighty (180) days with respect to one-half of such
Registrable Securities, and (y) three hundred and sixty five (365) days with
respect to the remaining Registrable Securities, in each case commencing on
the
Closing Date;
provided
that
,
notwithstanding the foregoing, the Seller shall be permitted to transfer all
or
any portion of the Registrable Securities to any Seller’s Affiliate;
provided,
further, that
prior
to any such transfer the transferor at its expense shall provide to the Buyer
an
opinion of counsel reasonably acceptable to the Buyer to the effect that such
transfer would not require registration under the Securities Act. The Seller
hereby further agrees to cause each Registrable Securities Holder to enter
into
a lock-up agreement giving effect to the provisions of this Section 6(h)
immediately upon such Registrable Securities Holder’s acquisition of an
aggregate of
any
Registrable Securities. The registration of the Registrable Securities as
contemplated by Sections 6(a) and (b) shall not be prohibited by this Section
6(h).
(ii)
The
Buyer and EIAC shall cause each of George Sagredos
and
Marios Pantazopoulos
to
enter into an acknowledgment and agreement (as required by Section 14(p))
providing
that,
without the prior written consent of the Buyer,
he
(A) will not, directly or indirectly, offer, sell, agree to offer or sell,
solicit offers to purchase, grant any call option or purchase any put option
with respect to, or pledge, borrow or otherwise dispose of
the
1
million units of Buyer to be issued pursuant to Section 3(c)(viii) of this
Agreement, or any of the
Buyer
Common Stock or warrants included therein
,
and (B) will not establish or increase any “put equivalent position” or
liquidate or decrease any “call equivalent position” with respect to
1
million units of Buyer to be issued pursuant to Section 3(c)(viii) of this
Agreement, or any of the Buyer Common Stock or warrants included therein
(in
each case within the meaning of Section 16 of the Exchange Act), or otherwise
enter into any swap, derivative or other transaction or arrangement that
transfers to another, in whole or in part, any economic consequence of ownership
of the 1 million units of Buyer to be issued pursuant to Section 3(c)(viii)
of
this Agreement, or any of the Buyer Common Stock or warrants included therein,
whether or not such transaction is to be settled by delivery of shares of Buyer
Common Stock or warrants, other securities, cash or other consideration, in
either case for a period of one hundred and eighty (180) days commencing on
the
Closing Date. The registration rights contemplated by Sections 6(a) and (b)
shall not be prohibited by this Section 6(h)(ii).
(i)
Termination.
The rights granted under this Section 6 shall expire at the earlier of such
time
as the Registrable Securities Holders collectively (i) hold less than five
(5%)
percent of the outstanding Buyer Common Stock, or (ii) are eligible to sell
their Registrable Securities without restriction under Rule 144(k) promulgated
under the Securities Act (it being agreed, for purposes of this Section 6(i),
that the Buyer, upon the request of a Registrable Securities Holder and at
Buyer’s expense, shall provide to Buyer’s transfer agent a legal opinion of its
counsel regarding the ability of such holder to sell its Registrable Securities
under Rule 144(k) and any appropriate legend removal instructions).
(j)
Legends.
The Seller hereby acknowledges and agrees that the Buyer shall legend the share
certificates representing the Registrable Securities to reflect the restrictions
on transfer contained in this Agreement and may issue to its transfer agent
a
stop transfer instruction in relation thereto. Such legend shall
state:
THE
SHARES OF COMMON STOCK REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT
BE
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN
THE
ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY HAS RECEIVED AN OPINION
OF
COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO AN AGREEMENT BY THE REGISTERED HOLDER WITH THE
COMPANY NOT TO SELL SUCH SHARES FOR A PERIOD OF 180 (OR 365 DAYS, AS THE CASE
MAY BE) DAYS FOLLOWING THE DATE OF ISSUANCE OF THE SHARES.
(a)
Subject
to its ability to do so under applicable law, the Buyer agrees to pay the First
Year Dividend to its shareholders on the First Anniversary.
(b)
The
Seller shall, and shall cause each other Registrable Securities Holder holding
Dividend Waiver Securities to, enter into a Dividend Waiver Agreement as
required under Section 3(c)(ii) hereof.
(c)
EIAC
and the Buyer shall cause the Initial Stockholders, the directors and officers
of EIAC and their respective Affiliates holding Dividend Waiver Securities
to
enter into a Dividend Waiver Agreement
as required under Section 3(c)(ii) hereof.
(d)
Subject
to the restrictions contained in Section 6(h), a Person described in Section
7(b) or (c) may:
(i)
sell
any Dividend Waiver Securities to an unrelated third party free of any
restrictions imposed by a Dividend Waiver Agreement, and upon such sale, and
pursuant to the terms of the Dividend Escrow Agreement,
if
applicable,
the
Escrow Agent shall release such Dividend Waiver Securities from escrow upon
receipt by it of the agreed consideration therefor and shall pay to the seller
the amount of the consideration received less such amount as would be necessary
to pay the First Year Dividend on such Dividend Waiver Securities, which amount
shall be retained by the Escrow Agent and held in escrow pursuant to the terms
of the Dividend Escrow Agreement.
Any
amounts
deposited
in escrow
pursuant
to this paragraph
and
not used to pay the First Year Dividend shall be refunded, together with any
interest accrued thereon
,
to such seller upon the payment of the First Year Dividend; and
(ii)
exercise
any warrants, rights or other options in respect of any Dividend Waiver
Securities, and upon notifying the Escrow Agent of such exercise the Escrow
Agent shall promptly take all such steps as are necessary to exercise such
warrants, rights or other options in respect of any Dividend
Waiver
Securities,
provided
that
any shares of Buyer Common Stock issuable upon any such exercise shall remain
subject to the applicable Dividend Waiver Agreement and shall be held in escrow
by the Escrow Agent and pursuant to the terms of the Dividend Escrow
Agreement.
(e)
The
Buyer
shall be obligated and agrees to pay any and all expenses of the Escrow Agent
in
connection with the Dividend Escrow Agreement.
SECTION
8.
|
NO
SOLICITATION OF OTHER ACQUISITIONS
.
|
(a)
Only
in
the event that the Seller obtains the Financing, and commencing on such date,
until the termination of this Agreement pursuant to Section 20 hereof,
EIAC,
the Buyer, their Affiliates and their respective representatives, agents and
officers
will
cease
all activities, discussions or negotiations with any Person or Persons other
than the Seller with respect to any Acquisition Proposal and in particular,
EIAC
and the Buyer and their respective representatives, agents and officers shall
not take, and shall use commercially reasonable efforts to cause their
respective Affiliates and their respective representatives, agents and officers
not to take, any action to:
(i)
knowingly
solicit the making or submission of any Acquisition Proposal; or
(ii)
knowingly
initiate or participate in any discussions or negotiations with any Person
(other than the Seller) in furtherance of any proposal that constitutes or
could
reasonably be expected to lead to any Acquisition Proposal.
(b)
Only
in
the event that the Seller obtains the Financing, and commencing on such date,
until the termination of this Agreement pursuant to Section 20 hereof,
the
Board of Directors of each of EIAC and the Buyer (or any committee thereof)
shall not (i) approve or recommend, or propose to approve or recommend, any
Acquisition Proposal (other than with the Seller) nor (ii) cause EIAC, the
Buyer
or any of their respective Affiliates to enter into and approve any letter
of
intent, agreement in principle or similar agreement relating to any Acquisition
Proposal.
(c)
Only
in
the event that the Seller obtains the Financing, and commencing on such date,
until the termination of this Agreement pursuant to Section 20 hereof,
in
addition to the obligations set forth the preceding clauses of this Section
8,
EIAC and the Buyer shall as promptly as practicable (and in any event within
two
(2) Business Days) advise the Seller of any request for information with respect
to any Acquisition Proposal or of any Acquisition Proposal, or any inquiry
with
respect to any Acquisition Proposal, including the terms and conditions of
such
Acquisition Proposal.
SECTION
9.
|
DIRECTOR
NOMINEES AND OFFICERS; MANAGEMENT STRUCTURE
.
|
(a)
The
Merger Proxy will provide that following the Merger and the Sale and Purchase
the Buyer’s board of directors shall consist of nine (9) persons, eight (8) of
whom (consisting of two (2) Class A directors, three (3) Class B directors
and
three (3) Class C directors) shall be nominated by the Seller and one (1) of
whom (consisting of one (1) Class A director) shall be nominated by the holders
of
Buyer
Common Stock
immediately prior to the Effective Time. Five (5) of the directors so nominated
by Seller shall qualify as independent directors under the Securities Act and
the rules of any applicable securities exchange. In accordance with Article
Sixth of the Buyer’s Articles of Incorporation, following the consummation of
the Merger and the Sale and Purchase, subject to subparagraph (i) below, Captain
Vanderperre and Mr. Fred Cheng shall be appointed as Class C directors and
Mr.
Marios Pantazopoulos shall be appointed as a Class A director. Subject to the
placement of director and officer liability insurance in form and substance
satisfactory to each of the following individuals in his sole discretion,
following the Effective Time the following individuals shall be appointed to
the
offices of Buyer indicated:
(i)
Captain
Vanderperre shall serve as non-executive Chairman of the Board of Directors
or
if he is unable or unwilling to accept such appointment, the Seller may nominate
another individual to serve as non-executive Chairman of the Board of Directors;
and
(ii)
Mr.
Fred Cheng shall serve as Chief Executive Officer.
(b)
After
the Effective Time, Buyer shall have its principal office located in Hong Kong
subject to confirmation by the Closing Date that the location of such office
will not result in any adverse tax consequences.
(c)
Upon
the
consummation of the Closing the Buyer shall procure that under the Management
Agreement the management of the Vessels is contracted for a period of three
(3)
years to the Management Company or such other entity as may be nominated by
Seller, which shall in turn subcontract the technical management and crewing
services activities to Univan
.
(d)
After
the
initial appointments referred to in sub-clause (a) above and in consideration
of
Closing, the Buyer hereby irrevocably grants to the Seller, for so long as
the
Seller shall hold not less than 25% of the outstanding Buyer Common Stock for
the time being (calculated assuming conversion of any outstanding shares of
convertible preferred stock of the Buyer held by the Seller at such time),
the
continuing right to appoint by written notice to the Buyer one (1) Class A
director, one (1) Class B director and one (1) Class C director at any time
in
place of any of the Class A, Class B or Class C directors nominated by the
Seller under sub-clause (a) above, or their successors, whether upon the
retirement, removal, incapacity or death of any such Class A, Class B or Class
C
directors (as the case may be). None of such appointed directors shall be
required to be independent directors, provided that following any such
appointment the board of the directors of the Buyer shall include such number
of
independent directors as are then required under applicable U.S. securities
laws
and the rules and regulations of the American Stock Exchange. The parties hereto
agree that, at or prior to the Closing, the Buyer shall effect such amendments
to its Articles of Incorporation, issue to the Seller such shares of convertible
preferred stock or other convertible voting securities (in each case for no
consideration) in lieu of shares of Buyer Common Stock that would otherwise
be
issued to the Seller as Stock Consideration or in the Financing Private
Placement, and enter into such agreements with the Seller, in each case as
are
in the reasonable opinion of the Seller necessary to give effect to the
provisions of this Section 9(d)
.
SECTION
10.
|
BINDING
AGREEMENTS; NON-COMPETITION
.
|
(a)
Subject
to Section 20 hereof, the Buyer, EIAC and Seller agree to be bound by the terms
of this Agreement and shall not enter into any agreements, negotiations or
transactions that would adversely affect their respective obligations
hereunder.
(b)
During
the Non-Compete Period, the Seller hereby agrees and undertakes not to do any
of
the things set out in Section 10(c) below, except with the Buyer’s prior written
consent (which consent shall not be unreasonably withheld or delayed),
regardless of whether the Seller is acting:
(i)
for
itself or on behalf of any Person (including as director, manager, partner,
shareholder, employee, consultant or agent of such Person);
(ii)
alone
or in conjunction with any other Person;
(iii)
directly
or indirectly through agents, intermediaries, Affiliates or any other Person;
or
(iv)
in
any other capacity and in any other manner whatsoever.
(c)
Pursuant
to Section 10(b) above, the Seller shall refrain from:
(i)
participating
in any capacity (other than as a customer) in any Competitive Business,
provided
that
:
(A)
the
Seller shall be permitted to participate as a minority shareholder in any
Competitive Business; and
(B)
the
Seller shall not be prevented or restrained in any way from acquiring or
participating in any Competitive Business in any manner the Seller deems fit
in
its sole discretion if Seller shall have offered to the Buyer the first
opportunity to acquire or participate in such Competitive Business on the terms
available to the Seller and, within not more than three (3) business days of
the
date the Seller offered such opportunity to the Buyer, the Buyer has either
declined to proceed with such opportunity or failed to respond to such
offer;
(ii)
inducing
or attempting to induce any person who is or was within one year prior to the
Closing Date a customer, supplier or other business relation of any SPV to
cease
doing business with or materially reduce its business with such SPV or to do
business with such SPV on less favorable terms than such business had previously
been conducted or in any way interfering in a materially detrimental manner
with
the relationship between any SPV or the Buyer and any of its customers,
suppliers or other business relations;
(iii)
inducing
or attempting to induce any prospective customer of any SPV not to do business
with such SPV;
(iv)
inducing
or attempting to induce any employee of the Buyer to leave such employment
or in
any way interfering with the relationship between any SPV or the Buyer and
any
of its employees,
provided
that
nothing herein shall extend to the crew for the respective Vessels provided
by
Univan under the management agreements or to any employee who responds to a
general employment advertisement;
(v)
employing
(or otherwise engaging as an independent contractor or in any other capacity)
any employee of the Buyer or any person who was an employee of the Buyer at
any
time during the Non-Compete Period except (A) after such person has left his
employment with the Buyer, but then only if the circumstances set out in
paragraph (iv) above do not apply or (B) any employee who responds to a general
employment advertisement; and
(vi)
inducing
or attempting to induce any director of any SPV or the Buyer or any person
having a consultancy or similar agreement with any SPV or the Buyer to leave
his
position with any SPV or the Buyer or to terminate his agreement with any SPV
or
the Buyer or in any way interfering in a materially detrimental manner with
the
relationship between any SPV or the Buyer and any of its directors or any of
the
persons referred to in this paragraph,
provided
that
nothing herein shall extend to any director or consultant who responds to a
general advertisement.
(d)
If
the Buyer becomes aware of any infringement of the provisions set out in Section
10(c) by the Seller, the Buyer shall give a notice to the Seller requesting
them
to cease any such infringement within fifteen days. In case of failure by the
Seller to comply with this notice, the Seller shall compensate the Buyer for
all
Losses (as defined herein) caused by such infringement.
(e)
The
Seller acknowledges that the provisions of Section 10(c) above are reasonable
and necessary to protect the legitimate interests of the Buyer. However, if
any
of such provisions shall ever be held to exceed the limitations imposed by
applicable law, they shall not be nullified but the parties hereto shall be
deemed to have agreed to such provisions that conform with the maximum permitted
by applicable law, and any such provision exceeding such limitations shall
be
automatically reformed accordingly.
(f)
The
Buyer and EIAC acknowledge that the Seller (either directly or through
subsidiaries other than the SPVs), Captain Vanderperre, Mr. Fred Cheng and/or
JVCo are now engaged in (i) the SK Shipping Venture, and (ii) activities or
lines of business that are similar to the Business but which are not Competitive
Businesses, and that in the event that the option available pursuant to the
Option Agreement has not been exercised by the Buyer in respect of any or all
of
the respective Option Vessels, such Option Vessels may carry on Competitive
Business. Notwithstanding anything in this Section 10 to the contrary, the
Buyer
and EIAC acknowledge that the Seller (either directly or through subsidiaries
other than the SPVs), Captain Vanderperre, Mr. Fred Cheng and/or JVCo shall
have
the right to continue to engage in (x) the SK Shipping Venture, (y) such
activities or lines of business that are similar to the Business in which they
are now engaged or may in the future elect to engage in so long as such
activities or lines of business are not Competitive Businesses, and (z) any
Business in respect of any Option Vessels in respect of which the option
available pursuant to the Option Agreement has not been exercised by the Buyer,
whether or not it is Competitive Business.
SECTION
11.
|
REPRESENTATIONS
AND WARRANTIES OF THE SELLER
.
|
The
Seller hereby makes the following representations and warranties to the Buyer
and EIAC as of the Original Agreement Date and as of the Closing Date (unless
otherwise indicated),
provided
that
the Seller shall have no liability whatsoever in respect of any Claims or Losses
if and to the extent that any fact, matter or circumstance which causes any
of
the following representations and warranties to be breached or which might
result in any Claims or Losses has been disclosed in this Agreement or in the
Disclosure Letter, assuming compliance with Section (4)(b)(x):
(a)
it
is duly organized and existing under the laws of the jurisdiction of its
organization with full power and authority to execute and deliver this Agreement
and to perform all of the duties and obligations to be performed by it under
this Agreement;
(b)
as
of the date of this Agreement and as of the Closing Date, this Agreement has
been duly authorized, executed and delivered by it, and constitutes its valid,
legal and binding obligation enforceable against it in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency or
other similar laws of general application relating to or affecting the
enforcement of creditors’ rights in general or by general principles of equity
whether considered in a proceeding at law or equity;
(c)
its
execution and delivery of, the performance and incurrence by it of its
obligations and liabilities under, and the consummation by it of the other
transactions contemplated by, this Agreement do not and will not as of the
date
of this Agreement and as of the Closing Date:
(i)
violate
any provision of its organizational documents;
(ii)
violate
any applicable law, rule or regulation of any Governmental Authority having
jurisdiction over the Seller, except as would not reasonably be expected, based
on customary practice in the maritime shipping industry, individually or in
the
aggregate, to materially impair the Seller’s ability to consummate the
transactions contemplated hereby or otherwise result in a Material Adverse
Effect;
(iii)
violate
any order, writ, injunction or decree of any Governmental Authority having
jurisdiction over the Seller, except as would not reasonably be expected, based
on customary practice in the maritime shipping industry, individually or in
the
aggregate, to materially impair the Seller’s ability to consummate the
transactions contemplated hereby or otherwise result in a Material Adverse
Effect; or
(iv)
other
than as set forth in
Schedule
11(c)(iv)
result in a breach of, constitute a default under, require any consent under,
or
result in the acceleration or required prepayment of any indebtedness pursuant
to the terms of, any agreement or instrument to which it or any SPV is a party
or by which it or any SPV is bound or to which it or any SPV is subject, or
result in the creation or imposition of any Lien upon any property of it or
any
SPV (other than the Financing or Carry-Over Financing) pursuant to the terms
of
any such agreement or instrument, except as would not reasonably be expected,
based on customary practice in the maritime shipping industry, individually
or
in the aggregate, to materially impair the Seller’s ability to consummate the
transactions contemplated hereby or otherwise result in a Material Adverse
Effect;
(d)
Schedule
11(d)
sets forth the Seller’s and JVCo’s record and beneficial ownership of the SPV
Shares. The Seller and JVCo have good and valid title to the SPV Shares and,
upon the transfer of the SPV Shares in accordance with this Agreement, the
Buyer
will receive good and valid title to all of the issued and outstanding SPV
Shares, free and clear of all Liens except for any Liens in respect of the
Carry-Over Financing;
(e)
the
SPV Shares constitute the whole of the authorized and issued share capital
of
each SPV, and as of the date hereof are, and as of the Closing Date will be,
duly authorized, validly issued, fully paid and nonassessable. There are no
options, warrants, rights, calls, commitments, conversion rights, rights of
exchange or other agreements of any character, contingent or otherwise,
providing for the purchase or sale of any of the SPV Shares by any person other
than the Buyer pursuant hereto, nor any arrangements that require or permit
the
SPV Shares to be voted by or at the discretion of anyone other than the Seller
except following an event of default in respect of the Carry-Over
Financing;
(f)
each
SPV wholly owns the Vessel indicated on
Schedule
11(f)
,
free and clear of any Liens, other than Permitted Liens;
(g)
except
as set forth in
Schedule
11(g)
(which,
with respect to each Action disclosed therein, sets forth the parties, nature
of
the proceeding, date and method commenced, amount of damages or other relief
sought and, if applicable, paid or granted), to the Knowledge of the Seller
after due inquiry, there are no Actions as of the date hereof by or against
any
SPV (or by or against the Seller or any Affiliate thereof and relating to the
Business, an SPV or any Vessel), pending before any Governmental Authority
(or,
to the Knowledge of the Seller after due inquiry, threatened to be brought
by or
before any Governmental Authority);
(h)
none
of the SPVs are conducting their Business in violation of any Laws, except
such
violations which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect;
(i)
in
connection with Taxes of the SPVs:
(i)
all
Tax Returns required to be filed with respect to each SPV have been duly and
timely filed and, to the Knowledge of the Seller, are true, correct and complete
in all material respects;
(ii)
all
Taxes required to be shown on such Tax Returns or otherwise due and payable
on
or prior to the Closing Date have been duly and timely paid, and all Taxes
required to be deducted and/or withheld by an SPV have been so deducted and/or
withheld and timely paid and reported to the appropriate Governmental
Authority;
(iii)
no
adjustment relating to any such Tax Return has been proposed formally or
informally by any Governmental Authority and, to the Knowledge of the Seller,
no
basis exists for any such adjustment;
(iv)
there
are no pending or, to the Knowledge of the Seller, threatened Tax Matters for
the assessment or collection of Taxes against any SPV or any company that was
included in the filing of a return with an SPV on a consolidated, combined
or
unitary basis; and
(v)
neither
the Seller nor any SPV has received any notice of the existence of any Tax
liens
other than Permitted Liens on any assets of any SPV;
(j)
the
Seller has delivered to EIAC correct and complete copies of all Tax Returns
filed with respect to each SPV for any taxable period ending after 2001, and
copies of all correspondence to or from any Governmental Authority with respect
thereto or any Tax Matter relating thereto, including any examination reports
and statements of deficiencies assessed against or agreed to by any SPV. Any
tax
sharing or allocation agreement involving any SPV shall be terminated as of
the
Closing on terms that require no further payments by any party. Seller has
delivered to EIAC a true and complete copy of each such agreement as listed
on
Schedule
11(j)
;
(k)
as
of the Original Agreement Date and as of the Closing Date, each of the SPVs
was
and is currently duly organized, validly existing and in good standing under
the
laws of its jurisdiction of formation.
(l)
the
Accounts:
(i)
have
been prepared in accordance with the books of account and other financial
records of the relevant SPV;
(ii)
present
fairly the consolidated financial condition and results of operations of the
relevant SPV as of the dates thereof or for the periods covered
thereby;
(iii)
were
prepared on a basis consistent with past practices and have been (or will be
as
required by this Agreement) converted to GAAP; and
(iv)
include
all adjustments (consisting only of normal recurring accruals) that are
necessary for a fair presentation of the consolidated financial condition of
the
relevant SPV and the results of the operations of the relevant SPV as of the
dates thereof or for the periods covered thereby;
(m)
the
books of account and other financial records of each SPV provided in accordance
with the terms of this Agreement reflect all items of income and expense and
all
assets and liabilities required to be reflected therein in accordance with
past
practices, (ii) are in all material respects complete and correct, and do not
contain or reflect any material inaccuracies or discrepancies and (iii) have
been maintained in accordance with good business and accounting
practices;
(n)
to
the Knowledge of the Seller, there are no Liabilities of any SPV, other than
Liabilities reflected or reserved against in the Accounts;
(o)
to
the Knowledge of the Seller, there are no oral or informal arrangements or
agreements that would be binding on any SPV or otherwise relate to any
Vessel;
(p)
Schedule
11(p)
sets forth the following contracts and agreements of each SPV currently in
effect (such contracts and agreements being “
Material
Contracts
”):
(i)
each
contract and agreement involving the purchase of spare parts, other materials,
or for the furnishing of services to a SPV or a Vessel (including repair
services) or otherwise related to the Business under the terms of which such
SPV: (A) is likely to pay or otherwise give consideration of more than $500,000
in the aggregate during the calendar year ended December 31, 2007, (B) is likely
to pay or otherwise give consideration of more than $1,000,000 in the aggregate
over the remaining term of such contract or (C) cannot be cancelled by such
SPV
without penalty or further payment and without more than 180 days’
notice;
(ii)
all
ship broker, market research, marketing consulting and advertising contracts
and
agreements to which any SPV is a party under the terms of which such SPV: (A)
is
likely to pay or otherwise give consideration of more than $500,000 in the
aggregate during the calendar year ended December 31, 2007 or (B) is likely
to
pay or otherwise give consideration of more than $1,000,000 in the aggregate
over the remaining term of such contract;
(iii)
all
technical and commercial management contracts (or other contracts with
independent contractors or consultants), to which any SPV is a party and which
are not cancelable without penalty or further payment and without more than
180
days’ notice;
(iv)
all
contracts and agreements pursuant to which any SPV has incurred
Indebtedness;
(v)
all
contracts and agreements with any Governmental Authority to which any SPV is
a
party;
(vi)
all
contracts and agreements for the employment of a Vessel with a duration in
excess of 12 months;
(vii)
all
contracts and agreements, whether or not made in the ordinary course of
business, which are material to the business as conducted prior to the Closing
Date; and
(viii)
all
contracts pertaining to insurance for the Vessels;
(q)
except
as set forth on
Schedule
11(q)
,
with respect to all Material Contracts:
(i)
none
of the SPVs or, to the Knowledge of the Seller, any other party to any such
Material Contract is in material breach thereof or default
thereunder;
(ii)
to
the Knowledge of the Seller, there does not exist under any Material Contract
any event which, with the giving of notice or the lapse of time, would
constitute such a material breach or default by an SPV or, to the Knowledge
of
the Seller, any other party thereto;
(iii)
each
Material Contract is a valid and enforceable obligation of the SPV party thereto
and with respect to such SPV party is in full force and effect and to the
Knowledge of the Seller, with respect to any other party thereto is in full
force and effect (except to the extent that the enforceability thereof may
be
limited by (A) applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws from time to time in effect affecting
generally the enforcement of creditors’ rights and remedies, and (B) general
principles of equity), in each case except for such breaches, defaults, events
and other circumstances as to which requisite waivers or consents have been
obtained, or which would not, individually or in the aggregate, be material
to
the SPVs, individually, and taken as a whole; and
(iv)
no
consent is required by any Person that is a party to a Material Contract to
consummate the Sale and Purchase, except with respect to the Carry-Over
Financing;
(r)
since
the date of the most recent balance sheet included in the Audited Financial
Statements, except as disclosed in
Schedule
11(r)
,
the business of the SPVs has been conducted in the ordinary course and
consistent with past practice. As amplification and not limitation of the
foregoing, except as so disclosed, since such date, no SPV has:
(i)
permitted
or allowed any of the assets or properties (whether tangible or intangible)
of
such SPV to be subjected to any Lien, other than Permitted Liens;
(ii)
except
in the ordinary course of business consistent with past practice, discharged
or
otherwise obtained the release of any Lien or paid or otherwise discharged
any
liability, other than current liabilities reflected in the Accounts and current
liabilities incurred in the ordinary course of business consistent with past
practice;
(iii)
made
any loan to, guaranteed any Indebtedness of or otherwise incurred any
Indebtedness on behalf of any Person;
(iv)
failed
to pay any creditor any amount owed to such creditor;
(v)
except
for the Charters and insurance policies relating to the Vessels, entered into
any contract or agreement that limits or purports to limit the ability of any
SPV to compete in any line of business or with any Person in any geographic
area
or during any period of time;
(vi)
made
any material changes in the operating practices of such SPV that would be
inconsistent with past practice, including, without limitation, practices and
policies relating to marketing, selling and pricing;
(vii)
merged
with, entered into a consolidation with or acquired an interest of 30% or more
in any Person or acquired 50% or more of the assets or business of any Person
or
any division or line of business thereof, or otherwise acquired any material
assets other than in the ordinary course of business consistent with past
practice;
(viii)
made
any capital expenditure or commitment for any capital expenditure in excess
of
$1,000,000 individually or $3,000,000 in the aggregate other than in the
ordinary course of business;
(ix)
issued
any sales orders or otherwise agreed to make any purchases involving exchanges
in value in excess of $1,000,000 individually or $3,000,000 in the aggregate
other than in the ordinary course of business;
(x)
sold,
transferred, leased, subleased, licensed or otherwise disposed of any properties
or assets, real, personal or mixed (including, without limitation, leasehold
interests and intangible assets) in value in excess of $1,000,000 individually
or $3,000,000 in the aggregate, other than in the ordinary course of business
consistent with past practice;
(xi)
issued
or sold any capital stock, notes, bonds or other securities, or any option,
warrant or other right to acquire the same, of, or any other interest in, SPVs
other than to the Seller;
(xii)
entered
into any agreement, arrangement or transaction with any of its directors,
officers, employees or shareholders (or with any relative, beneficiary, spouse
or Affiliate of such person), other than shareholder loans reflected in (jj)
below;
(xiii)
granted
any increase, or announced any increase, in the wages, salaries, compensation,
bonuses, incentives, pension or other benefits payable by such SPV to any of
its
Employees;
(xiv)
amended,
terminated, cancelled, waived or compromised any material claims or rights
of
such SPV, except such claims or rights as would not, individually or in the
aggregate, be expected to have a Material Adverse Effect;
(xv)
failed
to maintain the Vessels in accordance with class requirements and past
practices;
(xvi)
allowed
any Permit that was issued or relates to such SPV or its Vessel to lapse or
terminate except such Permits as would not, individually or in the aggregate,
be
reasonably expected to have a Material Adverse Effect, or failed to renew any
such Permit or any insurance policy that is scheduled to terminate or expire
within 45 calendar days prior to or after the Closing Date;
(xvii)
incurred
any Indebtedness, in excess of $1,000,000 individually or $3,000,000 in the
aggregate, other than in the ordinary course of business and except for
shareholder loans reflected in (jj) below;
(xviii)
amended,
modified or consented to the termination of any Material Contract or such SPV’s
rights thereunder except (A) in the ordinary course of business consistent
with
past practice or (B) for such amendments and terminations as would not be
expected to have a Material Adverse Effect;
(xix)
amended
or restated the charter or the by-laws (or other organizational documents)
of
such SPV except for such amendments that would not be expected to have a
Material Adverse Effect;
(xx)
suffered
any Material Adverse Effect; or
(xxi)
agreed,
whether in writing or otherwise, to take any of the actions specified in this
Section 11(r) or granted any options to purchase, rights of first refusal,
rights of first offer or any other similar rights or commitments with respect
to
any of the actions specified in this Section 11(r), except as expressly
contemplated by this Agreement;
(s)
on
the date hereof, Captain Vanderperre and Mr. Fred Cheng are the sole directors
of each SPV except Shinyo Jubilee Ltd., Shinyo Mariner Ltd., and Shinyo Sawako
Ltd. in respect of which on the date hereof Captain Vanderperre and Mr. Fred
Cheng are both directors, and provided it is within their ability on the Closing
Date, Captain Vanderperre and Mr. Fred Cheng will be directors of each SPV.
None
of the SPVs have any officers, Employees or Workers. To the Knowledge of the
Seller, no dispute in excess of $100,000 exists under any Employment Legislation
or otherwise is outstanding between any SPV and any crew on such SPV’s Vessel.
No SPV is a party to or bound by any redundancy payment scheme in addition
to
statutory redundancy pay requirements. No SPV is a party to or bound by any
share option, profit sharing, bonus, commission or any other scheme relating
to
the profit or sales of the SPVs or the Vessel other than profit sharing
arrangements under the respective Charters in respect of the Vessels SHINYO
KANNIKA and SHINYO OCEAN which have been disclosed on
Schedule
11(p)
;
(t)
since
the date of the most recent balance sheet included in the Audited Financial
Statements, no SPV has incurred any actual, or to the Knowledge of Seller,
contingent liability in connection with any termination of employment of its
Employees (including redundancy payments) or Workers or to the Knowledge of
Seller for failure to comply with any order for the reinstatement or
re-engagement of any Employees or Workers;
(u)
[intentionally
omitted];
(v)
true
and correct copies of the insurance policies maintained by or on behalf of
each
SPV as listed in
Schedule
11(p)
have been provided to the Buyer. Other than as set forth in
Schedule
2
of
this Agreement, there are no material outstanding claims under, or in respect
of
the validity of, any of those insurance policies and, to the Knowledge of the
Seller, there are no circumstances likely to give rise to any claim under any
of
those insurance policies, other than in the normal conduct of the Business
by
the SPVs. To the Knowledge of the Seller, (i) all the insurance policies are
in
full force and effect, (ii) are not void and (iii) nothing has been done or
not
done which could make any of them void or voidable;
(w)
each
SPV currently holds all Permits (except where the failure to have such permits
would not reasonably be likely to have a Material Adverse Effect), and to the
Knowledge of the Seller all such Permits are in full force and effect. To the
Knowledge of the Seller, except for the Arab Boycott Clauses found in certain
of
the charters, there is no existing practice, action or activity of the Seller,
any SPV or their businesses as presently conducted, and no existing condition
of
the Vessels, which will give rise to any civil or criminal liability under,
or
violate or prevent compliance with, any health or occupational safety or other
applicable Law. Since the date of the most recent balance sheet included in
the
Audited Financial Statements, none of the Seller nor any SPV has received any
notice in writing from any Governmental Authority revoking, canceling,
rescinding, materially modifying or refusing to renew any Permit or providing
written notice of violations under any Law. To the Knowledge of the Seller,
each
SPV is in all respects in compliance with the requirements of the Permits and
no
Permit will require the consent of any Governmental Authority upon the
consummation of the Sale and Purchase;
(x)
there
are no pending, and to the Knowledge of the Seller, during the one-year period
prior to the Original Agreement Date, there have been no threatened,
Environmental Claims against any SPV or any Vessel and, to the Knowledge of
the
Seller, there are no circumstances with respect to any Vessel or the operation
of the Business which could reasonably be anticipated (i) to form the basis
of
an Environmental Claim against any SPV or any Vessel or (ii) to cause such
Vessel to be subject to any restrictions on ownership, occupancy, use or
transferability under any applicable Environmental Law;
(y)
the
name, official number, registered owner, and jurisdiction of registration of
each Vessel owned by any SPV is listed in
Schedule
11(f)
hereto. To the Knowledge of the Seller, each Vessel is operated in material
compliance with each Maritime Guideline and all Laws to which it is subject.
Each SPV is qualified to own and operate the Vessel owned by it under all
applicable Laws (including the Laws of each Vessel’s flag state). Each Vessel is
classed by a classification society which is a member of the IACS and is in
class and free of overdue recommendations affecting class with all class and
trading certificates valid. The Vessels are insured in accordance with customary
market practice for vessels of similar age and type and as required by the
Carry-Over Financing. To the Knowledge of the Seller, since the date of the
most
recent balance sheet included in the Audited Financial Statements, the Vessels
have not been employed in any trade or business which is unlawful under the
laws
of any jurisdiction in which such Vessel is registered or trades, or in any
manner whatsoever which may render any such Vessel liable to condemnation in
a
prize court or to destruction, seizure or confiscation;
(z)
all
of the bank accounts, safe deposit boxes and lock boxes used by each SPV
(designating each authorized signatory) are listed in
Schedule
11(y)
.
Excepting the authorized signatories, no SPV has granted a power of attorney
with respect to such bank accounts to any Person which has not been
terminated;
(aa)
it
is an “accredited investor” within the meaning of Rule 501 of Regulation D under
the Securities Act;
(bb)
it
has received or has had full access to all the information it considers
necessary or appropriate to make an informed decision with respect to the
acquisition of the Registrable Securities;
(cc)
the
Registrable Securities being acquired by it are being acquired for its own
account for the purpose of investment and not with a view to, or for resale
in
connection with, any distribution thereof within the meaning of the Securities
Act, and it has no current specific plan or intention to sell or otherwise
dispose of such Registrable Securities;
(dd)
it
understands that (i) the Registrable Securities have not been registered under
the Securities Act by reason of their issuance in a transaction exempt from
the
registration requirements of the Securities Act, (ii) the Registrable Securities
must be held indefinitely (subject, however, to the Buyer’s obligation to effect
the registration of Registrable Securities in accordance with Section 6 hereof)
unless a subsequent disposition thereof is registered under the Securities
Act
or is exempt from such registration, and (iii) shares of Buyer Common Stock
will
bear a legend to such effect set forth in Section 6(j) hereof;
(ee)
the
representations and warranties made by the Seller in this Section 11 are the
exclusive representations and warranties made by the Seller and the Seller
hereby disclaims any other express or implied representations or
warranties;
(ff)
the
Seller is not aware of any existing facts pertaining to any SPV or the business
which could have a Material Adverse Effect and which have not been disclosed
to
EIAC and the Buyer by the Seller other than normal business or market risks
prevailing from time to time;
(gg)
no
representation or warranty of the Seller in this Agreement, nor any statement
or
certificate furnished or to be furnished to EIAC or the Buyer pursuant to this
Agreement, or in connection with the transactions contemplated by this
Agreement, contains or will contain any untrue statement of a material fact,
or
omits or will omit to state a material fact necessary to make the statements
contained herein or therein not misleading;
(hh)
during
the period the Vessels have been owned by the SPVs, the Vessels have not
violated any United Nations or United States of America sanctions applicable
to
the Vessels at any time;
(ii)
Seller
has the full power and authority to waive any and all rights of preemption
or
other restrictions on transfer in respect of the SPV Shares, as provided in
Section 3(b) of this Agreement; and
(jj)
The
aggregate net amount of shareholder loans to the SPVs and inter-company
indebtedness between the respective SPVs at the Original Agreement Date and
the
date of this Agreement is approximately $87,330,000, which shall be satisfied
prior to or at Closing.
SECTION
12.
|
REPRESENTATIONS
AND WARRANTIES OF THE BUYER
.
|
The
Buyer hereby makes the following representations and warranties to the Seller
and EIAC as of the Original Agreement Date and as of the Closing Date (unless
otherwise indicated):
(a)
it
is duly organized and existing under the laws of the jurisdiction of its
organization with full power and authority to execute and deliver this Agreement
and to perform all of the duties and obligations to be performed by it under
this Agreement;
(b)
as
of the date of this Agreement and as of the Closing Date, this Agreement has
been duly authorized, executed and delivered by it, and constitutes its valid,
legal and binding obligation enforceable against it in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency or
other similar laws of general application relating to or affecting the
enforcement of creditors’ rights in general or by general principles of equity
whether considered in a proceeding at law or equity;
(c)
its
execution and delivery of, the performance and incurrence by it of its
obligations and liabilities under, and the consummation by it of the other
transactions contemplated by this Agreement do not and will not as of the date
of this Agreement and as of the Closing Date (i) violate any provision of its
organizational documents, (ii) violate any applicable law, rule or regulation,
(iii) violate any order, writ, injunction or decree of any court or governmental
or regulatory authority or agency or any arbitral award applicable to it or
its
affiliates or (iv) result in a breach of, constitute a default under, require
any consent under, or result in the acceleration or required prepayment of
any
indebtedness pursuant to the terms of, any agreement or instrument of which
it
is a party or by which it is bound or to which it is subject, or result in
the
creation or imposition of any lien upon any property of it pursuant to the
terms
of any such agreement or instrument, in the case of (i), (ii), (iii) or (iv)
which could have a material adverse effect on the transactions contemplated
hereby;
(d)
there
are no legal or governmental actions, suits or proceedings pending or, to its
actual knowledge, threatened against it before any court, administrative agency
or tribunal which, if determined adversely to it, could reasonably be expected
to adversely affect the ability of it to perform its obligations under this
Agreement;
(e)
as
of the Closing Date, the Buyer will (i) have sufficient cash in immediately
available funds to pay the Cash Consideration required to be paid by the Buyer
and all of its fees and expenses in order to consummate the Sale and Purchase
and (ii) be duly authorized without the consent of any other Person to issue
the
Stock
Consideration
,
such that upon issuance, such
Stock
Consideration
will be duly and validly issued, fully paid and non-assessable;
(f)
the
affirmative vote of the holders of a majority of the outstanding shares of
Buyer
Common Stock is the only vote of the holders of any class or series of equity
securities of the Buyer necessary to approve the Merger and the Sale and
Purchase;
(g)
attached
as
Schedule
12(g)
are a true, correct and complete copy of the Buyer’s Articles of Incorporation
and Bylaws;
(h)
as
of the date hereof and as of the Closing Date immediately prior to the Merger,
the Buyer has no shares of common stock or rights or warrants or any other
instrument to acquire shares of common stock currently outstanding except as
disclosed in
Schedule
12(h)
,
which shares of common stock, rights, warrants and instruments are necessary
to
fulfill its obligations in connection with Merger and the Sale and
Purchase;
(i)
the
Buyer acknowledges that it and its representatives have been permitted full
and
complete access to the books and records, facilities, equipment, Tax Returns,
contracts, insurance policies (or summaries thereof) and other properties and
assets of the SPVs that it and its representatives have desired or requested
to
see or review, and that it and its representatives have had a full opportunity
to meet with such Employees and other representatives of the SPVs to discuss
the
business of the SPVs; the Buyer acknowledges that none of the SPVs, the Seller
or any other Person has made any representation or warranty, expressed or
implied, as to the SPV Shares, the Vessels or the SPVs furnished or made
available to the Buyer and its representatives, except as expressly set forth
in
Section 11, and neither the Seller nor any other Person (including any officer,
director, member or partner of the Seller) shall have or be subject to any
liability to the Buyer, or any other Person, resulting from the Buyer’s use of
any information, documents or material made available to the Buyer in any
confidential information memoranda, “data rooms” (whether electronic or
otherwise), management presentations, due diligence or in any other form in
expectation of the transactions contemplated hereby; the Buyer acknowledges
that, should the Closing occur, the Buyer shall acquire the SPVs and their
respective Vessels in class pursuant to the rules of the applicable
classification society with no overdue recommendations affecting class, except
as otherwise expressly represented or warranted in Section 11 or in the
Disclosure Letter;
provided
,
however
,
that nothing in this Section 12(i) is intended to limit or modify the
representations and warranties contained in Section 11 or in the Disclosure
Letter; and the Buyer acknowledges that, except for the representations and
warranties contained in Section 11 or in the Disclosure Letter, none of the
SPVs, the Seller or any other Person has made, and the Buyer has not relied
on
any other express or implied representation or warranty by or on behalf of
the
SPVs or the Seller;
(j)
save
as set out in
Schedule
12(j)
there are not now in existence any contracts, agreements, or understandings
of
any nature to which the Buyer is a party or by which it is or may become bound
which give rise to any Liabilities which will survive the Merger
(except
as mutually agreed in writing between Buyer and Seller to effect the Merger
and
the Sale and Purchase)
and become the Liabilities of the Buyer, in whole or in part
;
Buyer agrees that its Liabilities with respect to the contractual obligations
set forth in
Schedule
12(j)
(other than legal, accounting and auditing fees and expenses) will not exceed
$7.15 million in the aggregate and expects legal, accounting and auditing fees
and expenses not to exceed $1.25 million in the aggregate; but in the event
that
Buyer has reason to believe that legal, accounting and auditing fees and
expenses will exceed $1.25 million, then Buyer shall notify Seller promptly
of
the amount by which it expects such Liabilities to exceed $1.25 million;
and
(k)
no
representation or warranty of the Buyer in this Agreement, nor any statement
or
certificate furnished or to be furnished to Seller pursuant to this Agreement
or
in connection with the transactions contemplated by this Agreement, or in
respect of any filings made or to be made by the Buyer or EIAC with the
SEC
prior to
the Closing
,
contains or will contain any untrue statement of a material fact, or omits
or
will omit to state a material fact necessary to make the statements contained
herein or therein not misleading;
provided
that
nothing in the foregoing representation shall be construed to include any actual
untrue statement or actual omission made or incorporated by reference in any
filings made or to be made by the Buyer or EIAC with the SEC
(i)
solely in reliance upon and in conformity with written information furnished
to
the Buyer or EIAC by the Seller
(or
any
of its representatives)
specifically
for use therein
or (ii)
which otherwise relates to Seller, the SPVs, or their businesses (individually
and combined), that the Seller has had the opportunity to review and has
provided its written consent thereto as provided in Section 5(c) of this
Agreement
.
SECTION
13.
|
REPRESENTATIONS
AND WARRANTIES OF EIAC
.
|
EIAC
hereby makes the following representations and warranties to the Seller and
the
Buyer as of the Original Agreement Date and as of the Closing Date (unless
otherwise indicated):
(a)
it
is duly organized and existing under the laws of the jurisdiction of its
organization with full power and authority to execute and deliver this Agreement
and to perform all of the duties and obligations to be performed by it under
this Agreement;
(b)
as
of the date of this Agreement and as of the Closing Date, this Agreement has
been duly authorized, executed and delivered by it, and constitutes its valid,
legal and binding obligation enforceable against it in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency or
other similar laws of general application relating to or affecting the
enforcement of creditors’ rights in general or by general principles of equity
whether considered in a proceeding at law or equity;
(c)
its
execution and delivery of, the performance and incurrence by it of its
obligations and liabilities under, and the consummation by it of the other
transactions contemplated by, this Agreement do not and will not as of the
date
of this Agreement and as of the Closing Date (i) violate any provision of its
organizational documents, (ii) violate any applicable law, rule or regulation,
(iii) violate any order, writ, injunction or decree of any court or governmental
or regulatory authority or agency or any arbitral award applicable to it or
its
affiliates or (iv) result in a breach of, constitute a default under, require
any consent under, or result in the acceleration or required prepayment of
any
indebtedness pursuant to the terms of, any agreement or instrument of which
it
is a party or by which it is bound or to which it is subject, or result in
the
creation or imposition of any lien upon any property of it pursuant to the
terms
of any such agreement or instrument, in the case of (i), (ii), (iii) or (iv)
which could have a material adverse effect on the transactions contemplated
hereby;
(d)
there
are no legal or governmental actions, suits or proceedings pending or, to its
actual knowledge, threatened against it before any court, administrative agency
or tribunal which, if determined adversely to it, could reasonably be expected
to adversely affect the ability of it to perform its obligations under this
Agreement;
(e)
other
than the affirmative vote of the holders of a majority of the shares of common
stock voted by the holders of shares issued in the IPO and Initial Private
Placement, subject to public stockholders owning less than 30.0% of the total
number of shares sold in the IPO and Initial Private Placement exercising their
redemption rights (as described in the Prospectus), there is no other
shareholder vote of the holders of any class or series of equity securities
of
EIAC necessary to approve the transactions contemplated hereby to be undertaken
by EIAC hereunder;
(f)
EIAC
acknowledges that it and its representatives have been permitted full and
complete access to the books and records, facilities, equipment, Tax Returns,
contracts, insurance policies (or summaries thereof) and other properties and
assets of the SPVs that it and its representatives have desired or requested
to
see or review, and that it and its representatives have had a full opportunity
to meet with such Employees and other representatives of the SPVs to discuss
the
business of the SPVs; EIAC acknowledges that none of the SPVs, the Seller or
any
other Person has made any representation or warranty, expressed or implied,
as
to the SPV Shares, the Vessels or the SPVs furnished or made available to EIAC
and its representatives, except as expressly set forth in Section 11, and
neither the Seller nor any other Person (including any officer, director, member
or partner of the Seller) shall have or be subject to any liability to EIAC,
or
any other Person, resulting from EIAC’s use of any information, documents or
material made available to EIAC in any confidential information memoranda,
“data
rooms” (whether electronic or otherwise), management presentations, due
diligence or in any other form in expectation of the transactions contemplated
hereby; EIAC acknowledges that, should the Closing occur, the Buyer shall
acquire the SPVs and their respective Vessels in class pursuant to the rules
of
the applicable classification society with no overdue recommendations affecting
class, except as otherwise expressly represented or warranted in Section 11
or
in the Disclosure Letter;
provided
,
however
,
that nothing in this Section 13(f) is intended to limit or modify the
representations and warranties contained in Section 11 or in the Disclosure
Letter; and EIAC acknowledges that, except for the representations and
warranties contained in Section 11 or in the Disclosure Letter, none of the
SPVs, the Seller or any other Person has made, and EIAC has not relied on any
other express or implied representation or warranty by or on behalf of the
SPVs
or the Seller;
(g)
save
as set out in
Schedule
13(g)
there are no contracts, agreements, or understandings of any nature to which
EIAC is a party or by which it is or may become bound which give rise to any
Liabilities which will survive the Merger
(except
as mutually agreed in writing between Buyer and Seller to effect the Merger
and
the Sale and Purchase)
and become the Liabilities of the Buyer, in whole or in part
;
Buyer agrees that its Liabilities with respect to the contractual obligations
set forth in
Schedule
13(g)
(other than legal, accounting and auditing fees and expenses) will not exceed
$7.15 million in the aggregate and expects legal, accounting and auditing fees
and expenses not to exceed $1.25 million in the aggregate; but in the event
that
Buyer has reason to believe that legal, accounting and auditing fees and
expenses will exceed $1.25 million, then Buyer shall notify Seller promptly
of
the amount by which it expects such Liabilities to exceed $1.25
million;
(h)
set
out in
Schedule
13(h)
are all currently outstanding loans made by officers, directors or principal
stockholders to EIAC.
(i)
as
of the date hereof and as of the Closing Date immediately prior to the Merger,
EIAC has no shares of common stock or rights or warrants or any other instrument
to acquire shares of common stock currently outstanding except as disclosed
in
Schedule
13(i)
,
which shares of common stock, rights, warrants and instruments represent the
fully diluted capitalization of EIAC as of such dates and are necessary to
fulfill its obligations in connection with Merger and the Sale and Purchase;
and
(j)
no
representation or warranty of EIAC in this Agreement, nor any statement or
certificate furnished or to be furnished to the Seller pursuant to this
Agreement or in connection with the transactions contemplated by this Agreement,
or in respect of any filings made or to be made by EIAC or the Buyer with the
SEC
prior to
the Closing
,
contains or will contain any untrue statement of a material fact, or omits
or
will omit to state a material fact necessary to make the statements contained
herein or therein not misleading;
provided
that
nothing in the foregoing representation shall be construed to include any actual
untrue statement or actual omission made or incorporated by reference in any
filings made or to be made by the Buyer or EIAC with the SEC
(i)
solely in reliance upon and in conformity with written information furnished
to
the Buyer or EIAC by the Seller
(or
any
of its representatives)
specifically
for use therein
or (ii)
which otherwise relates to Seller, the SPVs, or their businesses (individually
and combined), that the Seller has had the opportunity to review and has
provided its written consent thereto as provided in Section 5(c) of this
Agreement
.
SECTION
14.
|
CONDITIONS
PRECEDENT TO THE OBLIGATIONS OF THE SELLER
.
|
The
obligation of the Seller to sell and deliver the SPV Shares to the Buyer is
subject to the satisfaction or waiver of the following conditions, which
conditions are intended wholly for the benefit of the Seller:
(a)
Due
Authorization, Execution and Delivery.
This Agreement shall have been duly authorized, executed and delivered by the
Buyer and EIAC, shall be in full force and effect and executed counterparts
thereof shall have been delivered to the Seller.
(b)
Representations
and Warranties.
The representations and warranties of the Buyer and EIAC contained in this
Agreement shall be true and correct on and as of the date hereof and the Closing
Date.
(c)
Illegality.
The performance of the transactions contemplated hereby upon the terms and
subject to the conditions set forth in this Agreement shall not, in the
reasonable judgment of the Seller, violate, and shall not subject the Seller
or
any Seller’s Affiliate or any SPV or Vessel to any material penalty or liability
under, any law, rule or regulation binding upon any of them.
(d)
No
Proceedings.
No legal or governmental action, suit or proceeding shall have been instituted
or threatened before any court, administrative agency or tribunal, nor shall
any
order, judgment or decree have been issued or proposed to be issued by any
court, administrative agency or tribunal, to set aside, restrain, enjoin or
prevent the consummation of this Agreement or the transactions contemplated
hereby.
(e)
Performance
of Obligations.
EIAC and the Buyer shall have performed all obligations required of them under
this Agreement in all material respects.
(f)
Merger.
(i)
EIAC
shall have been merged with and into the Buyer on the terms disclosed in the
Merger Proxy, the separate corporate existence of EIAC shall have ceased and
the
Buyer shall continue as the surviving corporation (the “
Surviving
Corporation
”);
(ii)
the
Certificate of Incorporation and By-laws of EIAC, as in effect immediately
prior
to the Effective Time, shall cease and the Articles of Incorporation and Bylaws
of the Buyer shall be the Articles of Incorporation and Bylaws of the Surviving
Corporation; and
(iii)
the
board of directors of the Surviving Corporation shall consist of those persons
elected to serve as directors in accordance with Section 9.
(g)
Shareholder
Approval.
Each of EIAC and the Buyer shall have received the required affirmative votes
from its stockholders in favor of the Merger and the purchase of the SPV Shares
as contemplated hereby.
(h)
Admission
to Listing.
The
consent to the listing of the securities of the Buyer on the American Stock
Exchange at and from the Effective Time shall have been obtained and a copy
supplied to Seller.
(i)
Opinions
of Counsel to Buyer.
The Seller shall have received from counsel to Buyer opinions, customary for
transactions of the type contemplated by the Merger and the Sale and Purchase,
which opinions shall be in form and substance reasonably satisfactory to
Seller.
(j)
Financing
.
The Financing shall have been made available to Buyer on the Closing
Date.
(k)
Market
Stand-off Agreement
.
Prior to the Closing Date, each of the Initial Stockholders, each of the
executive officers and directors of the Buyer shall have executed and delivered
to the Seller and the Buyer a market stand-off agreement in form and substance
reasonably satisfactory to the Seller.
(l)
Initial
Stockholders
.
The Seller shall have received the Initial Stockholders’ Undertaking duly
executed by the Initial Stockholders, and the Seller and the Initial
Stockholders shall have entered into an agreement, in form and substance
reasonably satisfactory to the Seller, providing the Seller with a right of
first refusal to purchase the Escrow Shares.
(m)
Management
Agreement
.
(i) The
terms of the Management Agreement shall have been mutually agreed in writing
by
the Seller, the Buyer and EIAC on or before the date of the filing of the final
Merger Proxy with the SEC, (ii) each of Buyer and the Management Company shall
have executed the Management Agreement, and the Management Agreement shall
be in
full force and effect and all conditions to its performance shall have been
satisfied on or before the Closing Date, and (iii) any pre-existing contracts
of
employment between EIAC and any officer, director, or other employee of EIAC
and
any pre-existing consulting agreement with any consultant to EIAC shall have
been terminated without any liability thereunder being transferred to the Buyer
in consequence of the Merger, the Sale and Purchase or otherwise
.
(n)
Assigned
Rights.
The Seller shall have received documentation evidencing each SPVs assignment
of
the Assigned Rights.
(o)
Termination
of Options.
Outstanding options to purchase an aggregate of 2,688,750 shares of EIAC common
stock granted to Mr. George Sagredos, and outstanding options to purchase an
aggregate of 896,250 shares of EIAC common stock granted to Mr. Andreas
Theotokis, shall be terminated and cancelled, and upon such termination and
cancellation, neither EIAC nor the Buyer will have any further obligation under
the corresponding option agreements covering the grants of such
options.
(p)
Acknowledgment
and Agreement
.
Each of George Sagredos, Marios Pantazopoulos, each holder of EIAC units
received in the Initial Private Placement and Robert Ventures Limited shall
have
executed an Acknowledgment and Agreement.
(q)
Officer’s
Certificates
.
Each of the Buyer and EIAC had have delivered to the Seller a certificate,
signed by its President, dated as of the Closing Date, certifying the matters
set forth in Sections 14(a), (b), (d), (e), (f), (g), (m)(iii), (
o
)
and (s).
(r)
Minute
Books
.
The Seller shall have received
(i)
a
copy of the minute books
of
EIAC
and Buyer
and
stock register of
the
Buyer
,
certified by their respective Secretaries or Assistant Secretaries
as of
the Closing Date and (ii) a copy of the stock register of EIAC, certified by
its
stock transfer agent
as of the Closing Date.
(s)
Third
Party Approvals
.
Each
of
EIAC and Buyer shall have obtained all Third Party Approvals, other than those
Third Party Approvals that Seller is obligated to obtain pursuant to Section
15(s) of this Agreement.
SECTION
15.
|
CONDITIONS
PRECEDENT TO THE OBLIGATIONS OF THE BUYER AND EIAC
.
|
The
obligation of each of the Buyer and EIAC to effectuate the Merger and to
purchase the SPV Shares from the Seller is subject to the satisfaction or waiver
of the following conditions, which conditions are intended wholly for the
benefit of the Buyer and EIAC:
(a)
Due
Authorization. Execution and Delivery.
This Agreement shall have been duly authorized, executed and delivered by the
Seller, shall be in full force and effect and executed counterparts thereof
shall have been delivered to the Buyer.
(b)
Representations
and Warranties.
The representations and warranties of the Seller contained in this Agreement,
as
supplemented by the Disclosure Letter(s), shall be true and correct on and
as of
the date hereof and the Closing Date.
(c)
Illegality.
The performance of the transactions contemplated hereby upon the terms and
subject to the conditions set forth in this Agreement shall not, in the
reasonable judgment of the Buyer and EIAC, violate, and shall not subject the
Buyer or EIAC to any material penalty or liability under, any law, rule or
regulation binding upon the Buyer or EIAC.
(d)
No
Proceedings.
No legal or governmental action, suit or proceeding shall have been instituted
or threatened before any court, administrative agency or tribunal, nor shall
any
order, judgment or decree have been issued or proposed to be issued by any
court, administrative agency or tribunal, to set aside, restrain, enjoin or
prevent the consummation of this Agreement or the transactions contemplated
hereby.
(e)
Performance
of Obligations.
The Seller shall have performed all obligations required of it under this
Agreement in all material respects.
(f)
Shareholder
Approval.
Each of the Buyer and EIAC shall have received the required affirmative votes
from its stockholders in favor of the Merger and the Sale and Purchase and
the
SEC shall have declared the Acquisition Registration Statement
effective.
(g)
Opinion
of Counsel to Seller.
Buyer and EIAC shall have received from counsel to Seller an opinion, customary
for transactions of the type contemplated by the Merger and the Sale and
Purchase, which opinion shall be in form and substance reasonably satisfactory
to Buyer and EIAC.
(h)
Resignations
of Directors
.
Buyer and EIAC shall have received the resignations, effective as of the
Closing, of all the directors and officers of each SPV, except for such persons
as shall have been designated in writing prior to the Closing by the Buyer
to
the Seller.
(i)
Organizational
Documents
.
Buyer and EIAC shall have received a copy of (i) the Certificates of
Incorporation, as amended (or similar organizational documents), of each SPV,
certified by the appropriate government official in the jurisdiction in which
each such entity is incorporated or organized, as of a date not earlier than
five days prior to the Closing Date accompanied, if available, by a
certification by the appropriate government official that each such entity
is
validly existing and in good standing under the laws of the jurisdiction of
its
incorporation and accompanied by a certificate of the Secretary or Assistant
Secretary of each such entity, dated as of the Closing Date, stating that no
amendments have been made to such Certificate of Incorporation (or similar
organizational documents) since such date, and (ii) the By-laws (or similar
organizational documents) of each SPV, certified by a Director of each such
entity.
(j)
Minute
Books
.
Buyer and EIAC shall have received a copy of the minute books and stock register
of each SPV, certified by their respective Secretaries or Assistant Secretaries
as of the Closing Date.
(k)
Vessel
Management Agreements.
All management agreements and submanagement agreements that any SPV is party
to
or relating to any Vessel will be terminated on or prior to the Closing Date
and
new management agreements will be entered into as required by Section 9(c)
of
this Agreement.
(l)
No
Material Adverse Effect
.
No event or events shall have occurred, or be reasonably likely to occur, which
individually or in the aggregate have, or might reasonably be expected to have,
a Material Adverse Effect.
(m)
SOC
Escrow Agreement
.
The Seller, the Buyer and the Escrow Agent shall have executed the SOC Escrow
Agreement (unless such execution is not required pursuant to Section
3(c)(ii)).
(n)
Management
Agreement
.
The
terms of the Management Agreement shall have been mutually agreed in writing
by
the Seller, the Buyer and EIAC and on or before the date of the filing of the
final Merger Proxy with the SEC and each of Buyer and the Management Company
shall have executed the Management Agreement on or before the Closing
Date
.
(o)
Transcripts
of Register.
The Buyer and EIAC shall have received a Transcript of Register dated as of
the
Closing Date issued by the Hong Kong Shipping Registry evidencing each Vessel
duly registered in the ownership of the relevant SPV free from any and all
registered Liens except Permitted Liens;
(p)
Classification
Status.
The
Buyer and EIAC shall have received a certificate issued by the Classification
Society of each Vessel dated as of the Closing Date stating that such Vessel
maintains its class free of overdue recommendations affecting
class.
(q)
Insurances.
The Buyer and EIAC shall have received evidence that each Vessel is properly
insured in accordance with customary market practice for vessels of similar
age
and type and as required by the Carry-Over Financing.
(r)
SPV
Share Ownership.
The Seller and/or JVCo shall own all of the issued and outstanding ordinary
shares of each SPV, free and clear of all Liens other than Liens created by
the
Carry-Over Financing.
(s)
Third
Party Approvals
.
The Seller shall have obtained all Third Party Approvals and the consent or
waiver of any party to a Carry-Over Financing, to the extent such consent or
waiver is necessary to continue the financing arrangements thereby upon the
consummation of the transactions contemplated hereby.
(t)
Officer’s
Certificates
.
Seller shall have delivered to each of EIAC and Buyer a certificate, signed
by a
Director, dated as of the Closing Date, certifying the matters set forth in
Sections 15(a), (b), (d), (e), (k), (l) (to the Knowledge of Seller), (s) and
(u).
(u)
Seller
Closing Conditions
.
All of the conditions set forth in Section 14 (other than Section 14(f)(ii))
shall have been met.
(v)
Assumption
of Liabilities
.
The Buyer shall have received documentation evidencing the Seller’s Assumption
of Liabilities.
(w)
Financing
.
The Financing shall have been made available to Buyer on the Closing
Date.
(x)
Financing
Private Placement
.
Seller shall have purchased or agreed to purchase at and subject to Closing
the
Financing Private Placement Units issued in the Financing Private Placement.
Notwithstanding the foregoing, the number of Financing Private Placement Units
actually purchased shall not exceed $50 million, and shall be the actual amount
as is necessary to meet any capital threshold requirements of the Financing
referred to in (x) immediately above.
SECTION
16.
|
FURTHER
ASSURANCES AND OTHER MATTERS
.
|
(a)
Each
of the Seller, the Buyer and EIAC agrees, upon the request of the other party,
at any time and from time to time, promptly to execute and deliver all such
further documents, promptly to take and forbear from all such action, and to
obtain all approvals, consents, exemptions or authorizations from such
governmental agencies or authorities as may be necessary or reasonably
appropriate in order to effect the Merger and the Sale and Purchase and to
more
effectively confirm or carry out the provisions of this Agreement and the other
documents entered into in connection herewith.
(b)
Seller
shall cooperate with and assist EIAC and Buyer in the preparation of the Merger
Proxy and other documents required in connection therewith, which cooperation
and assistance shall include, but not be limited to, providing appropriate
representation letters, preparing and reviewing explanations and descriptions
of
Seller’s business and making available Seller’s financial and business
information required to be included in the Merger Proxy pursuant to the rules
and regulations under the Securities Act (including such additional audited
and
unaudited financial statements for each SPV and other related information with
respect to any required periods (including the related Management’s Discussion
and Analysis of Financial Conditions), provided that any financial statements
and other related information shall be prepared at the sole cost of EIAC and
the
Buyer).
(c)
Seller
will review the Merger Proxy and other documents required in connection
therewith to assist EIAC and Buyer in their confirmation processes with respect
to information that Seller has provided, and will further permit EIAC and Buyer
to have access to such information as, in Buyer’s discretion, Buyer deems
necessary to ensure that the Merger Proxy, Acquisition Registration Statement
and Resale Registration Statement, as the case may be, do not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order
to make the statements contained therein not misleading
.
(d)
Seller
on behalf of itself and the SPVs hereby agrees that, except for any expenses
which EIAC and/or the Buyer has agreed to pay under the terms of this
Agreement
on the
earlier of the termination of this Agreement under Section 20 and the Closing
Date
,
neither it nor any of the SPVs shall have any right, title, interest or claim
of
any kind (each, a “
Trust
Fund Claim
”)
in or to any monies that were at any time retained in the trust fund (the
“
Trust
Fund
”)
established by EIAC for the benefit of the public stockholders and the
underwriters of the IPO and hereby waive any Trust Fund Claim against any such
monies which it may have in the future as a result of, or arising out of, any
negotiations, contracts or agreements with EIAC and will not for any reason
whatsoever seek recourse against the monies that are retained in the Trust
Fund
for such purposes. The obligations arising under this Section 16(d) shall
survive the termination of this Agreement.
SECTION
17.
|
INDEMNITIES
.
|
(a)
Subject
to the terms and conditions of this Section 17 and the Closing having occurred,
and notwithstanding anything to the contrary contained in this Agreement, the
Seller hereby agrees to indemnify, defend and hold harmless the Buyer
Indemnitees from and against all Losses asserted against, resulting to, imposed
upon, or incurred by any Buyer Indemnitee by reason of, arising out of or
resulting from:
(i)
the
inaccuracy or breach of any representation or warranty of the Seller contained
in or made pursuant to this Agreement, any Exhibits, Schedules or any
certificate delivered by the Seller to the Buyer pursuant to this Agreement
with
respect hereto or thereto in connection with the Closing;
(ii)
the
non-fulfillment or breach of any agreement, covenant or undertaking of the
Seller or any SPV contained in this Agreement or any Ancillary
Agreement;
(iii)
any
Liability (other than the Carry-Over Financing) of an SPV attributable to the
operations or actions of any SPV or the Seller occurring on or prior to the
Closing Date; or
(iv)
Disclosed
Legal Proceedings.
(b)
The
Buyer shall notify the Seller of any Claim for which the Seller may have an
indemnification liability under this Agreement as soon as reasonably possible,
giving reasonable details, provided, however, that the failure to give such
timely notice shall not affect the Buyer’s rights to indemnification hereunder,
except to the extent the Seller is actually prejudiced by such failure. In
the
event of a Third Party Claim, the Seller shall have 30 days after the receipt
of
such notice to elect to undertake, conduct and control, through counsel of
its
own choosing and at its expense, the settlement or defense thereof, and the
Buyer shall cooperate with the Seller in connection therewith; provided
that:
(i)
the
Seller acknowledges and agrees in writing that the indemnification provisions
of
this Section 17 apply to such Third Party Claim;
(ii)
the
Seller shall permit the Buyer to participate in such settlement or defense
through counsel chosen by the Buyer, provided that the fees and expenses of
such
counsel shall be borne by the Buyer;
(iii)
the
Seller shall keep the Buyer advised as to the current status and progress of
such settlement or defense;
(iv)
the
Seller shall not, without the prior written consent of the Buyer (which consent
shall not be unreasonably withheld or delayed), settle or compromise any such
Third Party Claim or consent to the entry of any order, judgment, injunction,
or
consent decree in respect to such Third Party Claim; and
(v)
nothing
herein shall require the Buyer to consent to any such settlement or compromise
or to the entry of any order, judgment, injunction or consent decree which
does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to the Buyer a release from all liability in respect to such Third
Party Claim or which affects the ability of the Buyer or any SPV to conduct
its
business operations after the date thereof.
So
long as the Seller is diligently contesting any such Third Party Claim in good
faith (and is otherwise complying with the conditions in the preceding
sentence), the Buyer shall not pay or settle any such Third Party Claim.
Notwithstanding the foregoing, the Buyer shall have the right to pay or settle
any Third Party Claim, provided that in such event it shall waive any right
to
indemnity therefor by the Seller. If the Seller does not notify the Buyer within
30 days after the receipt of the Buyer’s written notice of a Third Party Claim
that it elects to undertake the defense thereof (or does not otherwise comply
with the conditions set forth in this Section 17(b)), the Buyer shall have
the
right to contest, settle or compromise the Third Party Claim in the exercise
of
its reasonable judgment at the expense of the Seller.
(c)
Seller’s
indemnity shall include all Losses arising from any demands, claims, suits,
actions, costs of investigation, notices of violation or noncompliance, causes
of action, proceedings and assessments made by Third Parties whether or not
ultimately determined to be valid. Solely for the purpose of determining the
amount of any Losses (and not for determining any breach) for which any Buyer
Indemnitee may be entitled to indemnification pursuant to this Section 17,
any
Losses recoverable in respect of a breach of representation or warranty
contained in this Agreement that is qualified by a term or terms such as
“material” or “materially,” or any equivalent qualification shall include all
Losses that are recoverable in respect of such breach, and not only the
“material” Losses or the Losses that relate to the part which is “material.” Any
Buyer Indemnitee seeking indemnification under this Agreement shall take and
shall cause its Affiliates and their respective directors and officers to take
all commercially reasonable steps to mitigate the amount of any Losses upon
becoming aware of any event which would reasonably be expected to, or does,
give
rise thereto, including incurring costs only to the minimum extent necessary
to
remedy the breach or inaccuracy which gives rise to such Losses.
(d)
The
parties hereto acknowledge and agree that the remedies provided for in this
Section 17 shall be their sole and exclusive remedy with respect to any Claims
under this Agreement, except in respect of Taxes. The Buyer’s rights and
remedies under this Section 17 or any other provision of this Agreement shall
not exclude or limit any other remedies that may be available to it under any
applicable law, such as (without limitation) the right to apply to a court
of
competent authority in any jurisdiction for relief by way of injunction or
restraining order or the right to seek specific performance of this
Agreement.
(e)
To
the extent that a Claim indemnified by Seller under this Agreement is in effect
paid in full (or if payment of such Claim is otherwise provided for to the
reasonable satisfaction of the Buyer Indemnitee) by the Seller, the Seller
(as
the case may be) shall, to the extent permitted by law, be subrogated to the
rights and remedies of the Buyer Indemnitee on whose behalf such Claim was
paid
or provided for (including the rights of such Buyer Indemnitee under its
insurance) with respect to the transaction or event giving rise to such Claim.
Should the Buyer Indemnitee receive any refund, reimbursement or other payment,
in whole or in part, with respect to any Claim paid by or on behalf of Seller,
such Buyer Indemnitee shall promptly pay the amount so received (but not an
amount in excess of the amount Seller has paid or caused to be paid in respect
of such Claim) plus interest thereon to the extent that such amount reimbursed
included such interest less any Taxes (net after adjustment) as may be required
to be paid with respect to such reimbursed amount.
(f)
[Intentionally
omitted].
(g)
Seller
shall have no liability (for indemnification or otherwise) with respect to
any
Claim under this Agreement (except in respect to Taxes):
(i)
until
the total of all Losses with respect to such matters exceeds $5,000,000, after
which Seller must indemnify the Buyer Indemnitees for the full amount of such
Losses from the first dollar of such Losses; or
(ii)
made
after the First Anniversary.
(h)
Seller’s
aggregate liability (for indemnification or otherwise, except in respect of
Taxes) with respect to Claims under this Agreement shall not exceed $25,000,000;
provided
that
the limitation provided under this subclause (h) shall not apply to Claims
made
after the Closing arising under Section 11(a), (b), (d), (e), (f) and (i) of
this Agreement or related thereto or Claims resulting from or due to
fraud.
SECTION
18.
|
TAX
RETURNS AND PRE-CLOSING TAXES AND STRADDLE PERIOD
TAXES
|
(a)
Notwithstanding
any provision of this Agreement to the contrary, all rights and remedies of the
parties relating to Pre-Closing Taxes and Straddle Period Taxes, Losses arising
from such Taxes and any other matter relating to such Taxes are set forth
exclusively in this Section 18. The sole remedies, rights of payments and
damages available with respect to such Taxes, Losses arising from such Taxes
and
any other matter relating to such Taxes are those set forth in this Section
18.
(b)
The
Seller shall be liable for, and, subject to the provisions of this Section
18,
shall pay, indemnify and hold harmless the Buyer Indemnitees, on an after-tax
basis, against any and all Pre-Closing Taxes and any Losses arising from
Pre-Closing Taxes. Seller shall be liable for, and subject to the provisions
of
this Section 18, shall pay, indemnify and hold harmless the Buyer Indemnitees,
on an after-tax basis, against Seller’s Portion of any Straddle Period Taxes
(including any amounts paid to Seller under Section 18(j)) in excess of the
Reserved Tax Liability and any Losses arising therefrom.
(c)
The
Seller shall have exclusive authority subject to the provisions of this Section
18 to prepare and file or cause to be prepared and filed all Pre-Closing Tax
Returns for each SPV, including any Estimated Tax Returns due on or prior to
the
Closing Date.
(d)
The
Seller shall prepare and duly and timely file or cause to be prepared and duly
and timely filed all Pre-Closing Tax Returns for all SPVs. Each such Tax Return
shall be true, correct and complete, shall be prepared in the same manner as
the
Tax Returns of the SPVs for the immediately preceding taxable year or period,
and shall not make, amend or terminate any election without the prior written
consent of the Buyer (which consent shall not be unreasonably withheld or
delayed). The Seller shall duly and timely pay the Tax shown to be due on each
such Tax Return. Promptly after the filing of each such Tax Return, Seller
shall
provide Buyer with a copy of the Tax Return, together with proof of the payment
of the Tax shown thereon to be due.
(e)
The
Buyer shall prepare (in accordance with the past practices of the relevant
SPV,
except to the extent required by law) the initial draft of all Straddle Period
Tax Returns (other than Estimated Tax Returns due on or prior to the Closing
Date) of each of the SPVs and shall submit such Tax Returns, along with a
calculation of the Seller’s Portion of any Straddle Period Taxes relating to
such Tax Returns (net of the Reserved Tax Liability for the relevant SPV and
net
of any Prepaid Taxes related to such Straddle Period Taxes), to the Seller
for
its approval no later than thirty (30) days prior to the due date thereof.
No
later than ten (10) days after the receipt of such Tax Return from the Buyer,
the Seller shall notify the Buyer of any reasonable objections the Seller may
have to items set forth in such draft Tax Returns and/or the calculation of
the
Sellers Portion of Straddle Period Taxes for which the Seller is responsible.
The Buyer and Seller agree to consult and resolve in good faith any such
objections, it being understood and agreed that in the absence of any such
resolution, any and all such objections shall be in a manner consistent with
the
past practices with respect to such items unless otherwise required by
law.
If
the Seller and the Buyer cannot resolve any and all objections by the fifteenth
(15
th
)
day prior to the due date of the Straddle Period Tax Returns that are the
subject of the dispute, the issue involved shall be submitted to an independent
public accounting firm acceptable to both the Seller and the Buyer; provided,
however, that if the dispute or disagreement involves a matter of legal
interpretation, then upon the written consent of both parties (which shall
not
be unreasonably withheld or delayed by either of them), such dispute shall
be
resolved by such independent public accounting firm, provided that in the
absence of such written consent, such independent accounting firm shall select
an outside attorney (1) experienced in the relevant tax law and (2) mutually
acceptable to the Seller and the Buyer (which acceptance shall be in writing
and
shall not be unreasonably withheld or delayed by either of them) to resolve
such
dispute or disagreement. If the Seller and the Buyer cannot agree on an
independent public accounting firm, the first Big Four Public Accounting Firm
(on an alphabetical basis) that is not currently serving as the auditor of
the
Seller or the Buyer shall be selected to resolve the dispute. The Seller and
the
Buyer shall provide all necessary information to the independent accounting
firm
(or any outside attorney selected by such accounting firm), and shall instruct
the independent accounting firm (or outside attorney selected by such accounting
firm) to resolve the dispute, to the extent reasonably possible, no later than
five 5 days prior to the due date of such Tax Returns. The decision of the
independent public accounting firm (and any outside attorney selected by such
accounting firm) in resolving the dispute shall be final and binding. The fees
and expenses incurred with respect to the independent public accounting firm
resolving the dispute shall be allocated fifty percent (50%) to the Seller
and
fifty percent (50%) to the Buyer. All other fees and expenses incurred in
resolving the dispute shall be borne by the party hereto that incurs such fees
and expenses.
Not
later than three (3) days prior to the due date of the Straddle Period Tax
Returns, the Seller shall pay to the Buyer the Seller’s Portion of Straddle
Period Taxes in respect to such Tax Returns if such calculation shall not then
be in dispute, provided that if any amount involved in such calculation shall
then be in dispute under the provisions of the preceding paragraph, Seller
shall
pay to Buyer the amount in dispute, upon receipt of a written acknowledgement
by
the Buyer that it will repay to Seller any such amount promptly after a
determination pursuant to the provisions of the preceding paragraph that Seller
does not owe such amount.
(f)
For
purposes of this Agreement, Taxes related to a Straddle Period shall be
apportioned to the Seller (“
Seller’s
Portion
”)
for the period up to and including the close of the Closing Date and to the
Buyer (“
Buyer’s
Portion
”)
for the period subsequent to the Closing Date, determined as
follows:
(i)
in
the case of real property and personal property Taxes on a per-diem basis;
and
(ii)
otherwise,
as determined from the books and records of the relevant SPV as though the
taxable year of the SPV had terminated as of the close on the Closing Date
but
apportioning any annual exemption amount based on the relative number of days
in
the portion of the Straddle Period through and including the Closing Date and
in
the balance of the Straddle Period.
For
avoidance of doubt, Seller’s Portion of any Straddle Period Taxes shall be
determined without regard to any Prepaid Taxes or Reserved Tax
Liability.
(g)
The
Buyer shall have exclusive authority to prepare and file or cause to be prepared
and filed all Tax Returns for all SPVs for all tax reporting periods that begin
on or after the Closing Date. Notwithstanding any provision of this Agreement
to
the contrary, Buyer or any of its nominated subsidiaries also shall have
exclusive authority to make a Section 338 Election in respect to the acquisition
of the SPV Shares hereunder and to prepare and file or cause to be prepared
and
filed all Tax Returns in connection therewith.
(h)
The
Seller and the Buyer agree that Tax Returns that would otherwise be filed for
tax periods that begin on or prior to the Closing Date and which would otherwise
end after the Closing Date will reflect a short taxable year for any SPV ending
on the Closing Date in any federal, state, local or foreign taxing jurisdiction
in which such tax year is allowed by administrative practice, whether or not
required by law.
(i)
Each
of the Buyer and Seller shall bear all costs incurred in preparing and filing
the Tax Returns that such party is responsible to prepare and file under this
Agreement.
(j)
To
the extent that the Reserved Tax Liability shall exceed the Seller’s Portion of
the Straddle Period Taxes (as determined under this Section 18), the Buyer
shall
pay the Seller such excess at the same time as the related Straddle Period
Tax
Return is filed.
(k)
The
Buyer shall promptly notify the Seller in writing upon receipt by the Buyer
or
any Affiliate of the Buyer (including any SPV) of any communication with respect
to any Tax Matter (or pending or threatened Tax Matter) relating to any Tax
period beginning before the Closing Date. The Buyer shall include with such
notification a complete copy of any written communication received by the Buyer
or any affiliate of the Buyer in respect of such Tax Matter.
(l)
The
Seller shall have the sole right to represent the interests of the any SPA,
and
the right to employ counsel of its choice at its expense and to make decisions
with respect to negotiation, contest or settlements in any Tax Matter relating
to any Pre-Closing Tax Returns for any SPV, provided that (i) the Seller
acknowledges and agrees in writing that the indemnification provisions of this
Section 18 apply to the Pre-Closing Taxes in dispute, (ii) the Seller shall
permit the Buyer to participate in such settlement or defense through counsel
chosen by the Buyer and at the Buyer’s expense, (iii) Seller shall keep the
Buyer advised as to the current status and progress of such settlement or
defense, and (iv) the Seller shall not, without the prior written consent of
the
Buyer (which shall not be unreasonably withheld or delayed) settle or compromise
any such Tax Matter if any such settlement or compromise could affect any tax
period other than a Pre-Closing Tax Period.
(m)
The
Buyer and Seller shall jointly represent the interests of any SPV, and shall
jointly employ counsel mutually agreed
in
writing
(with
expenses divided in the proportions that the Seller’s Portion and the Buyer’s
Portion are of the relevant Straddle Period Tax) and shall jointly make
decisions with respect to negotiation, contest or settlements in any Tax Matter
related to any Straddle Period Tax Return.
(n)
Beginning
on the Closing Date, each of the Seller and the Buyer, on behalf of itself
and
each Affiliate, respectively, agrees to use good faith efforts to provide the
other party hereto with such cooperation or information as such other party
hereto reasonably shall request in connection with the determination of any
payment or any calculations described in this Agreement and the preparation
or
filing of any Pre-Closing Tax Return or Straddle Period Tax Return. Such
cooperation and information shall include preparing and submitting to the Seller
(in a time frame consistent with past practice), at Buyer’s expense (other than
Out-of-Pocket Expenses, which shall be paid by the Seller) all information
within the control or possession of Buyer, any SPV or any Affiliate of any
of
them that the Seller shall reasonably request, in such form as the Seller shall
reasonably request, to enable the Seller to prepare any Tax Returns required
to
be filed by the Seller pursuant to this Section 18.
(o)
Any
request for information or documents pursuant to this Section 18 shall be made
by the requesting party in writing. The other party hereto shall use reasonable
efforts to promptly provide the requested information. Except as otherwise
provided in this Agreement, the requesting party shall reimburse the other
party
for any Out-of-Pocket Expenses incurred by such party in connection with
providing any information or documentation pursuant to this clause (o). Upon
reasonable notice, each of the Seller and the Buyer (at its own expense other
than Out-of-Pocket Expenses, which will be paid by the Seller) shall make its,
or shall cause its Affiliates, as applicable, to make their, employees and
facilities available on a mutually convenient basis to provide explanation
of
any documents or information provided hereunder. Any information obtained under
this provision shall be kept confidential, except as otherwise reasonably may
be
necessary in connection with the filing of Tax Returns or in conducting any
Tax
Matter.
(p)
For
at least three (3) years following the Closing Date, each party hereto will
retain such records, documents, accounting data and other information (including
computer data) in its possession in the ordinary course of business reasonably
necessary for (i) the preparation and filing of all Pre-Closing Tax Returns
and
Straddle Period Tax Returns required to be filed by, on behalf of, or with
respect to another party hereto, and (ii) any Tax Matters relating to such
Pre-Closing Tax Returns, Straddle Period Tax Returns, or to any Pre-Closing
Taxes payable by, on behalf of, or with respect to, another party
hereto.
SECTION
19.
|
CONFIDENTIALITY
AND ANNOUNCEMENTS
.
|
(a)
The
parties to this Agreement agree that the existence and terms of this Agreement
are strictly confidential and further agree that they and their respective
representatives shall not disclose to the public or to any third party the
existence or terms of this Agreement or any other Confidential Information
(as
defined below) other than with the express prior written consent of the other
party, except as may be required by applicable law, rule or regulation, or
at
the request of any Governmental Authority having jurisdiction over such party
or
any of its representatives, control persons or affiliates, including, without
limitation, the rules and regulations of the SEC, the American Stock Exchange,
or the NASD, or as may be required to defend any action brought against such
person in connection with the transactions contemplated by this
Agreement.
(b)
Notwithstanding
the above, the Seller hereby consents to the filing by EIAC of a current report
on Form 8-K with the SEC announcing the transaction contemplated by this
Agreement upon the execution of this Agreement in such form as shall be agreed
between EIAC and the Seller before the execution of this Agreement.
(c)
Any
other press release or other public announcement by the Seller or EIAC or their
respective representatives relating to the transactions contemplated by the
Agreement shall be agreed between EIAC and the Seller prior to the public
release or dissemination of same (such agreement not to be unreasonably withheld
or delayed).
(d)
For
the purposes of this Section 19, “Confidential Information” means any
information relating to EIAC, the Buyer, the Seller, the SPVs, their directors,
officers, representatives, employees, agents or advisers obtained whether before
or after the date of this Agreement in any form from or pursuant to discussions
with EIAC, the Buyer, the Seller, the SPVs, or any of their directors, officers,
representatives, employees, agents or advisers unless it is publicly known
either at the date of the disclosure or at any time thereafter (other than
by
breach of this Agreement).
SECTION
20.
|
TERM
AND TERMINATION
.
|
(a)
This
Agreement shall terminate and be of no further force and effect upon the earlier
to occur of:
(i)
satisfaction
of all obligations of all parties to this Agreement;
(ii)
from
and after May 14, 2008 (or such later date as determined by clause (b) below),
mutual agreement in writing of the Seller and EIAC acting in good faith that
the
market has not reacted favorably to the transactions contemplated hereby (which
may be determined by, among other things, average stock and warrant prices
of
EIAC over a 20 day period), such mutual agreement not be unreasonably
withheld;
(iii)
in
the event that the SEC has not cleared the Merger Proxy by July 21, 2008, notice
by Seller to EIAC and Buyer that it has elected unilaterally to terminate this
Agreement;
(iv)
in
the event Captain Vanderperre and Mr. Fred Cheng are not appointed to the
respective offices of Buyer set forth in Section 9(a) hereof, notice by Seller
to EIAC and Buyer that it has elected unilaterally to terminate this Agreement;
and
(v)
in
the event that the Seller fails to obtain the Financing on or before
December
17, 2007,
by notice of Seller to EIAC and Buyer, or notice of Buyer and EIAC to
Seller.
(b)
In
the event the Audited Financial Statements and the Interim Financial Statements
have not been prepared and delivered to EIAC by December 14, 2007, then the
May
14, 2008 date referred to in Section 20(a) above shall be extended for the
greater of (i) such period of time as shall equal the difference between
December 14, 2007 and the date on which such financial statements (or the
financial statements for a subsequent reporting period, in the event that the
Interim Financial Statements are stale and cannot be used in the Merger Proxy)
have been delivered to EIAC for inclusion in the Merger Proxy, and (ii) 15
calendar days.
(c)
Notwithstanding
anything to the contrary set forth in this Agreement, Sections 17 and 19 hereof
shall survive the termination of this Agreement and remain in full force and
effect.
SECTION
21.
|
MISCELLANEOUS
.
|
(a)
Notices.
All notices provided hereunder shall be given in writing and either delivered
personally or by courier service or by facsimile transmission,
if
to the Buyer, to:
ENERGY
INFRASTRUCTURE MERGER CORPORATION
c/o
V&P Law Firm
15,
Filikis Eterias Sq.,
106
73 Athens,
Greece
Attention:
John Papapetros, Esq.
Fax
No: 30 210 723 1462
if
to EIAC, to:
ENERGY
INFRASTRUCTURE ACQUISITION CORP.
1105
North Main Street
Suite
1300,
Wilmington,
Delaware 19081
Attention:
Ms. Susan Dub
Fax
No: (302) 651-8423
or
ENERGY
INFRASTRUCTURE ACQUISITION CORP.
Athens
Office
1
Zissimopoulou + Poseidonos Ave.
GR-16674
Glyfada
Athens
Attention:
Mr. Marios Pantazopoulos
Fax
No: +30 210 89 83 929
with
a copy (which shall not constitute notice) to:
Loeb
& Loeb LLP
345
Park Avenue
New
York, NY 10021
Attention:
Mitchell Nussbaum, Esq.
Fax
No: (212) 407-4990
if
to the Seller to:
VANSHIP
HOLDINGS LIMITED
C/o
Univan Ship Management Limited
Suite
801 Asian House
1
Hennessy Road, Wanchai
Hong
Kong
Attention:
Captain C.A.J. Vanderperre
Fax
No: (+852) 2861 0742
with
a copy (which shall not constitute notice) to:
Watson,
Farley & Williams (New York) LLP
100
Park Avenue, 31
st
Floor
New
York, NY 10017
Attention:
Daniel C. Rodgers, Esq.
Fax
No: (212) 922-1512
or
to such other address as the parties shall from time to time designate in
writing. Any notice delivered personally or by fax shall be deemed given upon
receipt (with confirmation of receipt required in the case of fax
transmissions); any notice given by overnight courier shall be deemed given
on
the third Business Day after delivery to the overnight courier.
(b)
Governing
Law.
This Agreement shall be governed by and construed under the laws of the State
of
New York
without
regard to conflicts of laws principles.
(c)
Arbitration
.
Any controversy or claim arising out of or in conjunction with this Agreement
shall be settled by arbitration in accordance with the Commercial Rules of
the
American Arbitration Association then in effect in the State of New York and
judgment upon such award rendered by the arbitrator shall be final and binding
upon the parties and may be entered and enforced in any court having
jurisdiction thereof. The arbitration shall be held in the State of New York,
New York County or such other location as is mutually agreed
in
writing
before
a panel of three (3) arbitrators, one selected by Seller, one selected jointly
by Buyer and EIAC, and the third by the two (2) so chosen. The arbitration
award
shall include attorneys’ fees and costs to the prevailing party.
(d)
Survival.
(i) All representations and warranties contained herein, as made, when made,
shall survive the Closing (unless the damaged party knew of any
misrepresentation or breach of warranty at the time of Closing, other than
in
the case of fraud); and (ii) Sections 6 and 9(d) hereof shall survive the
Closing.
(e)
Headings.
Headings used herein are for convenience only and shall not in any way affect
the construction of, or be taken into consideration in interpreting, this
Agreement.
(f)
Severability.
Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
(g)
No
Trading
.
From the date of this Agreement, neither the Seller nor any Seller’s Affiliate,
their respective officers, directors, employees, agents or representatives
shall
use any material non-public information of EIAC (including the existence and
terms of this Agreement) to purchase, sell, make any short sale of, loan, grant
any option for the purchase of, or otherwise transfer or dispose of any
securities of EIAC.
(h)
Amendments
in Writing.
No amendment, modification, waiver, termination or discharge of any provision
of
this Agreement, or any consent to any departure by any of the Seller, the Buyer
or EIAC from any provision hereof, shall in any event be effective unless the
same shall be in writing and signed by the parties hereto, and each such
amendment, modification, waiver, termination or discharge shall be effective
only in the specific instance and for the specific purpose for which given.
No
provision of this Agreement shall be varied, contradicted or explained by any
oral agreement, course of dealing or performance or any other matter not set
forth in an agreement in writing and signed by the parties hereto.
(i)
Expenses.
Each
party shall be responsible for its own expenses in connection with the
preparation, negotiation, execution and delivery of this Agreement, provided
that the costs of preparing the Audited Financial Statements and the Interim
Financial Statements
and
the
costs of Seller's counsel
shall
be borne by Seller and, together with any costs of counsel to EIAC, Buyer or
the
lending parties in respect of the Financing advanced by Seller, shall be
reimbursed by Buyer and/or EIAC to Seller, upon the earlier of termination
of
this Agreement pursuant to Section 20 and the Closing, and the cost of any
other
audited or interim financial statements requested by SEC shall be borne by
EIAC.
Any stamp duties or other transfer or similar Taxes payable to any Governmental
Authority in relation to the transfer of the SPV Shares to the Buyer shall
be
borne by the Buyer. No broker, agent, finder, consultant or other person or
entity is entitled to be paid based upon any agreement made by any party in
connection with any transaction contemplated hereby other than (i) Fortis
Securities LLC, which Seller shall have the obligation to compensate
(
provided
that
on the Closing Date the Buyer shall issue to Fortis Securities LLC 200,000
shares of Buyer Common Stock (such shares forming part of the Stock
Consideration) in partial satisfaction of the fees of Fortis Securities LLC)),
and (ii) Maxim Group LLC and Investment Bank of Greece, which EIAC shall have
the sole obligation to compensate. Each party shall indemnify the other for
any
claim by any third party to such payment.
(j)
Execution
in Counterparts.
This Agreement and any amendment, waiver or consent hereto may be executed
by
the parties hereto in separate counterparts (or upon separate signature pages
bound together into one or more counterparts), each of which, when so executed
and delivered, shall be an original, but all such counterparts shall together
constitute one and the same instrument. All such counterparts may be delivered
among the parties hereto by facsimile or other electronic transmission, which
shall not affect the validity thereof.
(k)
Entire
Agreement.
This Agreement and the other documents referred to herein or therein, on and
as
of the date hereof, constitute the entire agreement of the parties hereto with
respect to the subject matter hereof or thereof, and all prior understandings
or
agreements, whether written or oral between the parties hereto with respect
to
such subject matter (including, without limitation, the Memorandum of
Understanding) are hereby superseded in their entirety.
(l)
Exhibits
and Schedules.
The exhibits attached hereto or any schedules referenced in this Agreement
are
incorporated by reference herein and shall have the same force and effect with
respect to the provisions set forth therein as though fully set forth in this
Agreement.
(m)
Successors
and Assigns.
This Agreement shall be binding upon, shall inure to the benefit of and shall
be
enforceable by the parties hereto and their respective successors and assigns;
provided, that, except for permitted transferees of Registrable Securities,
who
shall be entitled to the benefits of Section 6 hereof, none of the Buyer, the
Seller or EIAC may assign any of its obligations hereunder without the prior
written consent of the other party or parties (as the case may be).
(n)
Non
Waiver.
Any failure at any time of either party to enforce any provision of this
Agreement shall neither constitute a waiver of such provision nor prejudice
the
right of any party hereto to enforce such provision at any subsequent
time.
(o)
Rights
Against JVCo Shareholders.
Each of EIAC and the Buyer hereby waive any right or cause of action it may
have
against any shareholder in JVCo other than Seller in respect of or arising
from
the Merger, the Sale and Purchase and/or any other transaction contemplated
in
connection therewith by this Agreement.
(p)
Acknowledgement
of Prior Agreements.
Buyer
hereby acknowledges (i) that certain Registration Rights Agreement between
EIAC
and the Initial Stockholders dated as of July 17, 2006 ("
Registration
Rights Agreement
")
and
(ii) that certain Subscription Agreement dated as of January 2, 2006, by and
between the Company and George Sagredos, as amended, as subsequently assigned
to
Energy Corp. ("
Initial
Private Placement Subscription Agreement
"),
and
hereby confirms such agreements and that upon the Merger agrees to honor and
be
bound by the obligations of EIAC under each such agreement, in accordance with
the terms thereof, as if it were originally a party thereto.
(q)
Filing
of Merger Proxy.
Each of
Seller, EIAC and Buyer agree to perform their respective best reasonable efforts
in order that the preliminary filing of the Merger Proxy is made with the SEC
no
later than December 21, 2007.
[Signature
Page Follows]
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by
their respective officers thereunto duly authorized as of the day and date
first
above written.
ENERGY
INFRASTRUCTURE ACQUISITION CORP.
By:
|
/s/
George P. Sagredos
|
|
|
Name:
George P. Sagredos
|
|
|
Title:
President & Chief Operating
Officer
|
ENERGY
INFRASTRUCTURE MERGER CORPORATION
By:
|
/s/
George P. Sagredos
|
|
|
Name:
George P. Sagredos
|
|
|
Title:
President
|
VANSHIP
HOLDINGS LIMITED
By:
|
/s/
Captain C.A.J. Vanderperre
|
|
|
Name:
Captain C.A.J. Vanderperre
|
|
Title:
Director
|
The
following schedules to the Share Purchase Agreement have been omitted
in
accordance with the Item 601(b)(2) of Regulation S-K. The Company agrees
to
furnish supplementally a copy of any omitted schedule to the Securities
and
Exchange Commission upon request.
Schedule
1 -
|
Carry-Over
Financing
|
Schedule
2 -
|
Legal
Proceedings
|
Schedule
11(c) -
|
Required
Consents
|
Schedule
11(d) -
|
Ownership
of SPV Shares
|
Schedule
11(g) -
|
Governmental
Actions
|
Schedule
11(j) -
|
Tax
sharing or allocation
agreements
|
Schedule
11(p) -
|
Material
Contracts
|
Schedule
11(q) -
|
Defaults;
Breaches of Material Contracts
|
Schedule
11(r) -
|
Business
Conduct
|
Schedule
11(z) -
|
Bank
Accounts
|
Schedule
12(g) -
|
Buyer’s
Corporate Documents
|
Schedule
12(h) -
|
Buyer’s
outstanding shares of common stock, rights and
warrants
|
Schedule
12(j) -
|
Buyer’s
Contractual Liabilities
|
Schedule
13(g) -
|
EIAC’s
Contractual Liabilities
|
Schedule
13(h) -
|
EIAC’s
insider loans
|
Schedule
13(i) -
|
EIAC’s
outstanding shares of common stock, rights and warrants and shares
outstanding on a fully diluted
basis
|
Appendix
B
AGREEMENT
AND PLAN OF MERGER
BETWEEN
A
Delaware Domestic Corporation
AND
A
Marshall Islands Corporation
This
Agreement and Plan of Merger (this “Agreement”) made and entered into on this
______ day of __________, 2008, by and between Energy Infrastructure Acquisition
Corp., a Delaware corporation (“
EIAC
”)
and
Energy Infrastructure Merger Corporation, a Marshall Islands corporation
(“
MergerCo,
”
together with EIAC, the “
Constituent
Corporations
”).
WITNESSETH:
WHEREAS
,
EIAC is
a corporation organized and existing under the laws of the State of Delaware,
its Certificate of Incorporation having been filed in the Office of the
Secretary of State of the State of Delaware (the “
Secretary
of State
”)
on
11th August 2005, the first amended and restated Certificate of Incorporation
of
EIAC having been filed with the Secretary of State on 6th February 2006, the
second amended and restated Certificate of Incorporation of EIAC having been
filed with the Secretary of State on 6th June 2006, and the third amended and
restated Certificate of Incorporation of EIAC having been filed with the
Secretary of State on 10th July 2006; and
WHEREAS
,
MergerCo is a corporation organized and existing under the laws of the Republic
of the Marshall Islands, its Articles of Incorporation having been filed in
the
Office of the Registrar of Corporations (the “Registrar”) of the Republic of the
Marshall Islands on 30th November 2007; and
WHEREAS
,
the
aggregate number of shares which EIAC has authority to issue is Ninety Million
(90,000,000), of which Eighty-Nine Million (89,000,000) are common shares,
par
value $0.0001, and One Million (1,000,000) are Preferred Stock, par value
$0.0001, of which 21,750,398 shares of common stock are issued and outstanding;
WHEREAS
,
the
aggregate number of shares which MergerCo has authority to issue is One Hundred
Twenty Million (120,000,000), of which One Hundred Nineteen Million
(119,000,000) are common shares, par value $0.0001, and One Million (1,000,000)
are Preferred Stock, par value $0.0001, of which 100 shares of common stock
are
issued and outstanding and have all voting power; and
WHEREAS
,
the
Board of Directors of each of the Constituent Corporations deems it advisable
that EIAC be merged with and into MergerCo (the “
Merger
”)
on
terms and conditions hereinafter set forth, in accordance with the applicable
provisions of the statutes of the State of Delaware and the Republic of the
Marshall Islands, respectively, which permit such Merger;
NOW,
THEREFORE
,
in
consideration for the premises and of the agreements, covenants and provisions
hereinafter contained, the Constituent Corporations, by their respective Board
of Directors, have agreed and do hereby agree, each with the other as
follows:
ARTICLE
I
Principal
Terms of Merger
Merger
.
The Constituent Corporations shall be merged into a single corporation, in
accordance with the applicable provisions of the laws of the Republic of the
Marshall Islands and the State of Delaware, by EIAC merging with and into
MergerCo, which shall be the surviving corporation (the “Surviving
Corporation”).
Effective
Time of Merger
.
The Merger shall be effective as of the completion of all filing requirements
specified in Sections 6.03 and 6.04 of this Agreement, and such date and time
is
hereinafter referred to as the “Effective Time”.
ARTICLE
II
Articles
of Incorporation, Bylaws and Directors
Articles
of Incorporation
.
The Articles of Incorporation of MergerCo, in effect at the Effective Time
and
in the form attached hereto as Exhibit A, shall be the Articles of Incorporation
of the Surviving Corporation, to remain unchanged until amended as provided
by
law.
Bylaws
.
The Bylaws of MergerCo in effect at the Effective Time shall be the Bylaws
of
the Surviving Corporation, to remain unchanged until amended as provided by
law.
Directors
.
At the Effective Time, the number of directors of MergerCo shall be nine, and
the names, and respective classes of the directors who shall act until their
successors are duly elected and qualified are:
Name
|
Position
|
Captain
Charles Arthur Joseph Vanderperre
|
Chairman
of the board of directors and Class C Director
|
Fred
Cheng
|
Class
C Director
|
Marios
Pantazopoulos
|
Class
A Director
|
Christoph
Widmer
|
Class
B Director
|
|
Class
A Director
|
|
Class
A Director
|
|
Class
B Director
|
|
Class
B Director
|
|
Class
C Director
|
ARTICLE
III
Conversion
of Securities
The
manner of converting the outstanding shares of each of the Constituent
Corporations shall be as follows.
Conversion
of EIAC Shares
.
At the Effective Time, each share of the EIAC common stock issued and
outstanding immediately prior to the Effective Time shall be converted
automatically into one share of the Surviving Corporation common shares (the
“Conversion Ratio”), subject to any adjustments made pursuant to Section 3.05
hereof. At the Effective Time, all such shares of EIAC common stock shall cease
to be outstanding and shall automatically be canceled and shall cease to exist.
Each certificate previously evidencing EIAC common stock shall be exchanged
for
a certificate representing such number of shares of the Surviving Corporation
common shares calculated by multiplying the Conversion Ratio by the number
of
shares of EIAC common stock previously evidenced by the canceled certificates
upon the surrender of such certificate.
Conversion
of Stock Rights
.
At the Effective Time the options, warrants and other rights to purchase EIAC
common stock (collectively, “EIAC Stock Rights”) then outstanding shall be
converted into one substantially equivalent option, warrant or other right
to
purchase the Surviving Corporation common shares (collectively, the “Surviving
Corporation Share Rights”), except that (i) each of the Surviving Corporation
Share Rights will be exercisable for that number of whole shares of the
Surviving Corporation common shares equal to the product of the number of shares
of EIAC common stock that were issuable upon exercise of such option or warrant
immediately prior to the Effective Time multiplied by the Conversion Ratio
and
rounded down to the nearest whole number of shares of the Surviving Corporation
common shares, and (ii) the per share exercise price for the shares of the
Surviving Corporation common shares issuable upon exercise of such Surviving
Corporation Share Rights will be equal to the quotient determined by dividing
the exercise price per share of EIAC common stock at which each such option
or
warrant was exercisable immediately prior to the Effective Time by the
Conversion Ratio, rounded down to the nearest whole cent. At the Effective
Time,
the EIAC Stock Rights shall cease to be outstanding and shall automatically
be
canceled and shall cease to exist.
Cancellation
of EIAC Shares
.
At the Effective Time, all shares of EIAC common stock that are owned by EIAC
as
treasury stock and each share of EIAC common stock owned by any direct or
indirect wholly owned subsidiary of EIAC immediately prior to the Effective
Time
shall by virtue of the Merger and without any action on the part of the holder
thereof, automatically be cancelled and shall cease to exist, and no cash or
other consideration shall be delivered or deliverable in exchange
therefor.
Cancellation
of MergerCo Shares
.
At the Effective Time, the one hundred issued and outstanding shares of MergerCo
common stock held by EIAC immediately prior to the Effective Time, shall by
virtue of the Merger and without any action on the part of the holder thereof,
automatically be cancelled and shall cease to exist, and no cash or other
consideration shall be delivered or deliverable in exchange
therefor.
Conversion
Ratio Adjustments
.
The Conversion Ratio shall be adjusted to reflect fully the effect of any stock
split, reverse split, stock dividend (including any dividend or distribution
of
securities convertible into MergerCo common shares or EIAC common stock),
reorganization, recapitalization or other like change with respect to MergerCo
common shares or EIAC common stock occurring after the date hereof and prior
to
the Effective Time, so as to provide holders of EIAC common stock and MergerCo
common shares the same economic effect as contemplated by this Agreement prior
to such stock split, reverse split, stock dividend, reorganization,
recapitalization or like change.
ARTICLE
IV
Representations
and Warranties
Representations
and Warranties of MergerCo
.
MergerCo hereby makes the following representations and warranties to EIAC
as of
the date hereof and as of the Effective Time (unless otherwise
indicated):
|
(a)
|
Corporate
Existence and Power
.
MergerCo is a corporation duly formed, validly existing and in good
standing under and by virtue of the Laws of the Republic of the Marshall
Islands, and has all power and authority, corporate and otherwise,
and all
governmental licenses, franchises, permits, authorizations, consents
and
approvals required to own and operate its properties and assets and
to
carry on its business as now
conducted.
|
|
(b)
|
Corporate
Authorization
.
The execution, delivery and performance by MergerCo of this Agreement
and
the consummation by MergerCo of the transactions contemplated hereby
are
within its corporate powers and have been duly authorized by all
necessary
action on the part of MergerCo, including the approval of its sole
stockholder. This Agreement constitutes a valid and legally binding
agreement of MergerCo, enforceable against the same in accordance
with its
terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, or (ii) rules of law governing
specific performance, injunctive relief or other equitable remedies.
|
|
(c)
|
Charter
Documents; Legality
.
MergerCo has previously delivered to EIAC true and complete copies
of its
Articles of Incorporation, minute books and stock books (the “MergerCo
Charter Documents”), as in effect or constituted on the date hereof. The
execution, delivery, and performance by MergerCo of this Agreement
and any
additional agreement to which the same is to be a party has not violated
and will not violate, and the consummation by MergerCo of the transactions
contemplated hereby or thereby will not violate, any of the MergerCo
Charter Documents or any law or
order.
|
|
(d)
|
Litigation
.
There is no action (or any basis therefor) pending against, or to
the
knowledge of MergerCo, threatened against or affecting MergerCo,
any of
its officers or directors, any stockholder, or any action before
any court
or arbitrator or any governmental body, agency or official or which
in any
manner challenges or seeks to prevent, enjoin, alter or delay the
transactions contemplated hereby. There are no outstanding judgments
against MergerCo.
|
|
(e)
|
Compliance
with Laws
.
MergerCo is not in violation of, has not violated, and to the knowledge
of
MergerCo, is not under investigation with respect to, nor has been
threatened to be charged with or given notice of, any violation or
alleged
violation of, any law or order, nor is there any basis for any such
charge.
|
Representations
and Warranties of EIAC
.
EIAC
hereby makes the following representations and warranties to MergerCo as of
the
date hereof and as of the Effective Time (unless otherwise
indicated):
|
(a)
|
Corporate
Existence and Power
.
EIAC is a corporation duly formed, validly existing and in good standing
under and by virtue of the Laws of the State of Delaware, and has
all
power and authority, corporate and otherwise, and all governmental
licenses, franchises, permits, authorizations, consents and approvals
required to own and operate its properties and assets and to carry
on its
business as now conducted.
|
|
(b)
|
Corporate
Authorization
.
The execution, delivery and performance by EIAC of this Agreement
and the
consummation by EIAC of the transactions contemplated hereby are
within
its corporate powers and have been duly authorized by all necessary
action
on the part of EIAC, other than the approval of its stockholders.
This
Agreement constitutes a valid and legally binding agreement of EIAC,
enforceable against the same in accordance with its terms, subject
to (i)
laws of general application relating to bankruptcy, insolvency and
the
relief of debtors, or (ii) rules of law governing specific performance,
injunctive relief or other equitable
remedies.
|
|
(c)
|
Charter
Documents; Legality
.
EIAC has previously delivered to MergerCo true and complete copies
of its
Certificate of Incorporation, by-laws, minute books and stock books
(the
“EIAC Charter Documents”), as in effect or constituted on the date hereof.
The execution, delivery, and performance by EIAC of this Agreement
and any
additional agreement to which the same is to be a party has not violated
and will not violate, and the consummation by EIAC of the transactions
contemplated hereby or thereby will not violate, any of the EIAC
Charter
Documents or any law or order.
|
|
(d)
|
Litigation
.
There is no action (or any basis therefor) pending against, or to
the
knowledge of EIAC, threatened against or affecting EIAC, any of its
officers or directors, any stockholder, or any action before any
court or
arbitrator or any governmental body, agency or official or which
in any
manner challenges or seeks to prevent, enjoin, alter or delay the
transactions contemplated hereby. There are no outstanding judgments
against EIAC.
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(e)
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Compliance
with
Laws
.
EIAC is not in violation of, has not violated, and to the knowledge
of
EIAC, is not under investigation with respect to, nor has been threatened
to be charged with or given notice of, any violation or alleged violation
of, any law or order, nor is there any basis for any such
charge.
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ARTICLE
V
Conditions
Precedent
The
obligation of each of the Constituent Corporations to effectuate the Merger
is
subject to the following conditions:
Stockholder
Approval
.
The
stockholders of EIAC and MergerCo shall have adopted this Agreement in
accordance with the requirements of the laws of the State of Delaware and the
Republic of the Marshall Islands.
Share
Purchase Agreement
.
Other
than the consummation of the Merger, all conditions precedent to the performance
of each of the parties to that certain Amended and Restated Share
Purchase
Agreement, dated February 6, 2008 (as may be amended or amended and restated
from time to time, the “Share Purchase Agreement”), by and among EIAC, MergerCo
and
Vanship
Holdings Limited, shall have been satisfied or waived.
ARTICLE
VI
Adoption
and Termination
Submission
to Vote of Stockholders
.
This Agreement shall be submitted to the stockholders of EIAC and MergerCo,
respectively, as provided by applicable law, and shall take effect, and be
deemed to be the Agreement of the Constituent Corporations, upon the approval
or
adoption thereof by said stockholders of EIAC and MergerCo, respectively, in
accordance with the requirements of the laws of the State of Delaware and the
Republic of the Marshall Islands.
Termination
of Agreement
.
This
Agreement may be terminated and the Merger may be abandoned at any time prior
to
the Effective Time, notwithstanding the adoption of this Agreement by the
stockholders of the Constituent Corporations, by mutual written agreement of
the
Constituent Corporations, or unilaterally by one party to this Agreement if
the
other party to this Agreement materially breaches one of its material
representation and warranties or fails to comply with a condition in this
Agreement.
In
the
event of termination of this
Agreement
by
either
of the Constituent Corporations, this
Agreement
will
become void and there shall be no further obligation on the part of either
Constituent Corporation. No party shall be relieved from liability for any
breach of this
Agreement
.
Filing
of Certificate of Merger in Delaware
.
As soon as practicable after the satisfaction of the conditions precedent set
forth in Article V hereof, a Certificate of Merger to effectuate the terms
of
this Agreement shall be executed by the Surviving Corporation and shall be
delivered to the Secretary of State for filing and recording in accordance
with
applicable law, unless this Agreement has been terminated pursuant to Section
6.02 hereof, and the Surviving Corporation shall thereafter make all other
filings or recordings required by Delaware law in connection with the
Merger.
Filing
of Articles of Merger in the Marshall Islands
.
As soon as practicable after the satisfaction of the conditions precedent set
forth in Article V hereof, Articles of Merger to effectuate the terms of this
Agreement shall be executed by each of the Constituent Corporations and shall
be
delivered to the Registrar in accordance with Marshall Islands law, unless
this
Agreement has been terminated pursuant to Section 6.02 hereof and the Surviving
Corporation shall thereafter make all other filings, payments or recordings
required by Marshall Islands law in connection with the Merger.
ARTICLE
VII
Post
Merger Undertakings
The
Surviving Corporation agrees that it may be served with process in the State
of
Delaware, and in the Republic of the Marshall Islands, in any proceeding for
enforcement of any obligation of any Constituent Corporation of Delaware, as
well as for enforcement of any obligation of the Surviving Corporation arising
from this Merger, including any suit or other proceeding to enforce the rights
of any stockholders as determined in appraisal proceedings pursuant to the
provisions of Section 262 of the DGCL, and irrevocably appoints the Secretary
of
State as its agent to accept service of process in any such suit or proceeding.
The Secretary of State shall mail any such process to the Surviving Corporation
at [●].
[
Signature
page follows
]
IN
WITNESS WHEREOF, each of the Constituent Corporations, pursuant to the approval
and authority duly given by resolutions adopted by their respective Boards
of
Directors, has caused this Agreement to be executed by an authorized officer
of
each party thereto.
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ENERGY
INFRASTRUCTURE
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ACQUISITION CORP.
of
Delaware
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By:
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Name:
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Title:
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ENERGY
INFRASTRUCTURE MERGER CORPORATION
of
the Marshall Islands
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By:
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Name:
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Title:
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SECRETARY’S
CERTIFICATE
I,
[●],
Secretary of Energy Infrastructure Acquisition Corp., a corporation organized
and existing under the laws of the State of Delaware, hereby certify, as such
Secretary of the said corporation, that:
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1.
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The
Agreement and Plan of Merger to which this certificate is attached,
after
having been first duly signed on behalf of said corporation by an
authorized officer of Energy Infrastructure Acquisition Corp., a
corporation of the State of Delaware, was duly submitted to the
stockholders of Energy Infrastructure Acquisition Corp., at a special
meeting of said stockholders duly called and held separately from
the
meeting of stockholders of any other corporation for the purpose
of
considering and taking action upon said Agreement and Plan of
Merger;
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2.
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[●]
shares of stock of said corporation were on said date issued and
outstanding;
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3.
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The
holders of [●] shares voted by ballot in favor of said Agreement and Plan
of Merger;
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4.
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The
holders of [●] shares voted by ballot against
same;
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5.
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The
affirmative vote represents a majority of the total number of shares
of
the outstanding capital stock of said corporation; and
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6.
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Thereby,
the Agreement and Plan of Merger was at said meeting adopted as the
act of
the stockholders of Energy Infrastructure Acquisition Corp., and
the duly
adopted agreement of said
corporation.
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WITNESS
my hand
on behalf of Energy Infrastructure Acquisition Corp. on this _____ day of
_________, ________.
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By:
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Name:
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Title:
Secretary
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Appendix
C
Appendix
D
Appendix
F
FOLD
AND DETACH HERE AND READ THE REVERSE SIDE
PROXY
Energy
Infrastructure Acquisition Corp.
Suite
1300, 1105
North
Market Street
Wilmington,
Delaware
SPECIAL
MEETING OF STOCKHOLDERS
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF
ENERGY INFRASTRUCTURE ACQUISITION CORP.
The
undersigned appoints ___________ and ___________, and each of them with full
power to act without the other, as proxies, each with the power to appoint
a
substitute, and thereby authorizes either of them to represent and to vote,
as
designated on the reverse side, all shares of common stock of Energy
Infrastructure held of record by the undersigned on _________, 2008 at the
Special Meeting of Stockholders to be held on ___________, 2008, and any
postponement or adjournment thereof.
THIS
PROXY REVOKES ALL PRIOR PROXIES GIVEN BY THE UNDERSIGNED.
THIS
PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTIONS ARE GIVEN WITH RESPECT TO
A
PROPOSAL, THIS PROXY WILL BE VOTED “FOR” THE PROPOSAL. ENERGY INFRASTRUCTURE’S
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE PROPOSALS SHOWN ON
THE REVERSE SIDE.
(Continued
and to be signed on reverse side)
VOTE
BY TELEPHONE OR INTERNET
QUICK
*** EASY *** IMMEDIATE
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Energy
Infrastructure Acquisition Corp.
Voting
by
telephone or Internet is quick, easy and immediate. As an Energy Infrastructure
Acquisition Corp. stockholder, you have the option of voting your shares
electronically through the Internet or on the telephone, eliminating the need
to
return the proxy card. Your electronic vote authorizes the named proxies to
vote
your shares in the same manner as if you marked, signed, dated and returned
the
proxy card. Votes submitted electronically over the Internet or by telephone
must be received by 11:59 p.m., Eastern standard time, on _____________,
2008.
To
Vote Your Proxy By Internet
It’s
fast, convenient, and your vote is immediately confirmed and posted. Follow
these four easy steps.
1.
Read
the
accompanying proxy statement/prospectus and Proxy Card.
2.
Go
to the
Website http://www.proxyvote.com
3.
Enter
your 12-digit Control Number located on your Proxy Card above your
name.
4.
Follow
the instructions provided.
YOUR
VOTE
IS IMPORTANT! http://www.______________!
To
Vote Your Proxy By Phone
It’s
fast, convenient and immediate. Follow these four easy steps:
1.
Read
the
accompanying proxy statement/prospectus and Proxy Card.
2.
Call
the
toll-free number ( )
3.
Enter
your 12-digit Control Number located on your Proxy Card above your
name.
4.
Follow
the recorded instructions.
YOUR
VOTE
IS IMPORTANT! Call ______________!
DO
NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR
INTERNET.
To
Vote Your Proxy By Mail
Mark,
sign and date your proxy card below, detach it and return it in the postage-paid
envelope provided.
FOLD
AND DETACH HERE AND READ THE REVERSE SIDE
PROXY
THIS
PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTIONS ARE GIVEN WITH RESPECT TO
A
PROPOSAL, THIS PROXY WILL BE VOTED “FOR” THE PROPOSAL. ENERGY INFRASTRUCTURE’S
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” EACH OF THE
PROPOSALS.
1.
To
approve the Redomiciliation Merger of Energy Infrastructure with
and into
its wholly-owned Marshall Islands subsidiary, Energy Merger Corporation,
for the purpose of redomiciling Energy Infrastructure to the Marshall
Islands.
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FOR
¨
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AGAINST
¨
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ABSTAIN
¨
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2.
To
approve the Business Combination by Energy Infrastructure of the
nine SPVs
from Vanship, and the transactions contemplated thereby.
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FOR
¨
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AGAINST
¨
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ABSTAIN
¨
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Only
if you voted “AGAINST” Proposal Number 2 and you hold shares of Energy
Infrastructure common stock issued in its initial public offering,
you may
exercise your redemption rights and demand that Energy Infrastructure
redeem your shares of common stock into a pro rata portion of the
IPO
trust account by marking the “Exercise Redemption Rights” box below. If
you exercise your redemption rights, then you will be exchanging
your
shares of Energy Infrastructure common stock for cash and will
no longer
own these shares. You will only be entitled to receive cash for
these
shares if the business combination is completed and you continue
to hold
these shares through the closing of the business combination and
tender
your stock certificate to the combined company.
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EXERCISE
REDEMPTION RIGHTS
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¨
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3.
To
permit Energy Infrastructure’s Board of Directors or its chairman, in
their discretion, to adjourn or postpone the special meeting if
necessary
for further solicitation of proxies if there are not sufficient
votes at
the originally scheduled time of the special meeting to adopt Proposal
Number 1 or Proposal Number 2
.
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FOR
¨
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AGAINST
¨
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ABSTAIN
¨
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MARK
HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
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¨
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PLEASE
MARK, DATE AND RETURN THIS PROXY PROMPTLY.
Signature
_____________________
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Signature
_____________________
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Date
_____________________
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Sign
exactly as name appears on this proxy card. If shares are held jointly, each
holder should sign. Executors, administrators, trustees, guardians, attorneys
and agents should give their full titles. If stockholder is a corporation,
sign
in full name by an authorized officer.
PART II:
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20.
Indemnification of Directors and Officers
Our
articles of incorporation provide that all persons whom we may indemnify
pursuant to Section 60 the Marshall Islands Business Corporations Act (“BCA”)
shall be entitled to be indemnified by us to the fullest extent permitted
thereunder.
Section 60
of the BCA provides as follows:
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(1)
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Actions
not by or in right of the corporation
.
A
corporation shall have power to indemnify any person who was or
is a party
or is threatened to be made a party to any threatened, pending
or
completed action, suit or proceeding whether civil, criminal,
administrative or investigative (other than an action by or in
the right
of the corporation) by reason of the fact that he is or was a director
or
officer of the corporation, or is or was serving at the request
of the
corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys’ fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action,
suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no
reasonable
cause to believe his conduct was unlawful. The termination of any
action,
suit or proceeding by judgment, order, settlement, conviction,
or upon a
plea of no contest, or its equivalent, shall not, of itself, create
a
presumption that the person did not act in good faith and in a
manner
which he reasonable believed to be in or not opposed to the bests
interests of the corporation, and, with respect to any criminal
action or
proceedings, had reasonable cause to believe that his conduct was
unlawful.
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(2)
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Actions
by or in right of the corporation
.
A
corporation shall have the power to indemnify any person who was
or is a
party or is threatened to be made a party to any threatened, pending
or
completed action or suit by or in the right of the corporation
to procure
a judgment in its favor by reason of the fact that he is or was
a director
or officer of the corporation, or is or was serving at the request
of the
corporation, or is or was serving at the request of the corporation
as a
director or officer of another corporation, partnership, joint
venture,
trust or other enterprise against expenses (including attorneys’ fees)
actually and reasonably incurred by him or in connection with the
defense
or settlement of such action or suit if he acted in good faith
and in a
manner he reasonably believed to be in or not, opposed to the best
interests of the corporation and except that no indemnification
shall be
made in respect of any claims, issue or matter as to which such
person
shall have been adjudged to be liable for negligence or misconduct
in the
performance of his duty to the corporation unless and only to the
extent
that the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but
in view
of all the circumstances of the case, such person is fairly and
reasonably
entitled to indemnity for such expenses which the court shall deem
proper.
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(3)
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When
director or officer successful
.
To the extent that a director or officer of a corporation has been
successful on the merits or otherwise in defense of any action,
suit or
proceeding referred to in subsections (1) or (2) of this
section, or in the defense of a claim, issue or matter therein,
he shall
be indemnified against expenses (including attorneys’ fees) actually and
reasonably incurred by him in connection
therewith.
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(4)
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Payment
of expenses in advance
.
Expenses incurred in defending a civil or criminal action, suit
or
proceeding may be paid in advance of the final disposition of such
action,
suit or proceeding as authorized by the board of directors in the
specific
case upon receipt of an undertaking by or on behalf of the director
or
officer to repay such amount if it shall ultimately be determined
that he
is not entitled to be indemnified by the corporation as authorized
in this
section.
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(5)
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Indemnification
pursuant to other rights.
The
indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be
deemed
exclusive of any other rights to which those seeking indemnification
or
advancement of expenses may be entitled under any bylaw, agreement,
vote
of stockholders or disinterested directors or otherwise, both as
to action
in his official capacity and as to action in another capacity while
holding such office.
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(6)
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Continuation
of indemnification.
The indemnification and advancement of expenses provided by, or
granted
pursuant to, this section shall, unless otherwise provided when
authorized
or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the
heirs,
executors and administrators of such a
person.
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(7)
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Insurance
.
A
corporation shall have power to purchase and maintain insurance
on behalf
of any person who is or was a director or officer of the corporation
or is
or was serving at the request of the corporation as a director
or officer
against any liability asserted against him and incurred by him
in such
capacity whether or not the corporation would have the power to
indemnify
him against such liability under the provisions of this
section.
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Item
21.
Exhibits
and Financial Statement Schedules
Exhibit
Number
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Description
of Exhibit
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2.1
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Form
of Agreement and Plan of Merger by and between Energy Infrastructure
Acquisition Corp. and the Company
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3.1
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Articles
of Incorporation
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3.2
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By-laws
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5.1
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Legal
opinion of Reeder & Simpson P.C.*
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10.1
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Amended
and Restated Share Purchase Agreement by and among Vanship Holdings
Limited, Energy Infrastructure Acquisition Corp., and the
Company
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10.2
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Committed
Term sheet of DVB Merchant Bank (Asia) Ltd., Fortis Bank S.A.
/ N.V. and
NIBC Bank Ltd.
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10.3
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Side
Letter to Committed Term Sheet
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23.1
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Consent
of Goldstein Golub Kessler LLP
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23.2
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Consent
of KPMG (
Shinyo
Alliance)
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23.3
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Consent
of KPMG (
Shinyo
Loyalty)
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23.4
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Consent
of KPMG (
Shinyo
Kannika)
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23.5
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Consent
of KPMG (
Shinyo
Navigator)
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23.6
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Consent
of KPMG (
Shinyo
Ocean)
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23.7
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Consent
of KPMG (
Elite
Strategic; Shinyo Dream)
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23.8
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Consent
of KPMG (
Shinyo
Jubilee)
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23.9
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Consent
of KPMG (
Shinyo
Mariner)
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23.10
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Consent
of KPMG (
Shinyo
Sawako)
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23.11
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Consent
of Clarkson Research Services Ltd.
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23.12
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Consent
of Simpson Spence & Young Ltd. (included in Appendix
E)
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23.13
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Consent
of Captain Charles Arthur Joseph Vanderperre
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23.14
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Consent
of Fred Cheng
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23.15
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Consent
of Christoph Widmer
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99.1
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Tanker
Voyage Charter Party for
C.
Jubilee
,
including Addendum Nos. 1, 2, 3 and 4
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99.2
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Time
Charter Party for
Shinyo
Kannika
,
including Addendum Nos. 1, 2 and 3
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99.3
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Time
Charter Party for
Shinyo
Splendor
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99.4
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Time
Charter Party for
Shinyo
Mariner
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99.5
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Time
Charter Party for
Shinyo
Navigator
,
including Addendum Nos. 1 and 2
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99.6
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Time
Charter Party for
Shinyo
Sawako
,
including Addendum No. 1
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99.7
|
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Time
Charter Party for
Shinyo
Ocean
,
including Additional Clauses
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99.8
|
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Time
Charter Party for
C.
Dream
,
including Addendum Nos. 1 and 2
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99.9
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Time
Charter Party for
C.
Dream
dated
June 13, 2007
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99.10
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Time
Charter Party for
Shinyo
Alliance
,
including Additional Clauses
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99.11
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Fairness
Opinion of New Century Capital Partners LLC, dated October 17,
2007
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*To
be
filed by amendment
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A.
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The
Company hereby undertakes:
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(1)
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To
file, during any period in which offers or sales are being made,
a
post-effective amendment to this registration statement, unless
the
information required to be included is contained in reports filed
with or
furnished to the Commission that are incorporated by reference
in this
registration statement or is contained in a form of prospectus
filed
pursuant to Rule 424(b) under the Securities Act that is part of
this
registration statement,
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(i)
|
To
include any prospectus required by Section 10(a)(3) of the Securities
Act
of 1933;
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(ii)
|
To
reflect in the prospectus any facts or events arising after the
effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent
a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease
in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation
from
the low or high end of the estimated maximum offering range may
be
reflected in the form of prospectus filed with the Commission pursuant
to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate
offering
price set forth in the “Calculation of Registration Fee” table in the
effective registration statement.
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(iii)
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To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement.
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(2)
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That,
for the purpose of determining any liability under the Securities
Act of
1933, as amended, each such post-effective amendment shall be deemed
to be
a new registration statement relating to the securities offered
therein,
and the offering of such securities at that time shall be deemed
to be the
initial
bona
fide
offering thereof.
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(3)
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To
remove from registration by means of a post-effective amendment
any of the
securities being registered which remain unsold at the termination
of the
offering.
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(4)
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To
file a post-effective amendment to the registration statement to
include
any financial statements required by Item 8.A. of Form 20-F at
the start
of any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3)
of the
Act need not be furnished, provided, that the registrant includes
in the
prospectus, by means of a post-effective amendment, financial statements
required pursuant to this paragraph (a)(4) and other information
necessary
to ensure that all other information in the prospectus is at least
as
current as the date of those financial statements. Notwithstanding
the
foregoing, with respect to registration statements on Form F-3,
a
post-effective amendment need not be filed to include financial
statements
and information required by Section 10(a)(3) of the Act or Rule
3-19 of
this chapter if such financial statements and information are contained
in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
Form
F-3.
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(5)
|
That,
for the purpose of determining liability under the Securities Act
of 1933
to any purchaser:
(i)
If the Registrant is relying on Rule 430(B):
(A)
Each prospectus filed by the registrant pursuant to Rule 424(b)(3)
shall
be deemed to be part of this registration statement in reliance
on Rule
430B as of the date the filed prospectus was deemed part of and
included
in this registration statement.
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(B)
Each prospectus required to be filed pursuant to Rule 424(b)(2),
(b)(5),
or (b)(7) as part of a registration statement relating to an offering
made
pursuant to Rule 415(a)(1)(i), (vii) or (x) for the purpose of
providing
the information required by section 10(a) of the Securities Act
of 1933
shall be deemed to be part of and included in this registration
statement
as of the earlier of the date such form of prospectus is first
used after
effectiveness or the date of the first contract of sale of securities
in
the offering described in the prospectus. As provided in Rule 430B,
for
liability purposes of the issuer and any person that is at that
date an
underwriter, such date shall be deemed to be a new effective date
of the
registration statement relating to the securities in the registration
statement to which that prospectus relates, and the offering of
such
securities at that time shall be deemed to be the initial bona
fide
offering thereof. Provided, however, that no statement made in
a
registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated
by
reference into the registration statement or prospectus that is
part of
the registration statement will, as to a purchaser with a time
of contract
of sale prior to such effective date, supersede or modify any statement
that was made in the registration statement or prospectus that
was part of
the registration statement or made in any such document immediately
prior
to such effective date; or
(ii)
If the registrant is subject to Rule 430C, each prospectus filed
pursuant
to Rule 424 (b) as part of a registration statement relating to
an
offering, other than registration statements relying on Rule 430B
or other
than prospectuses filed in reliance on Rule 430A, shall be deemed
to be
part of and included in the registration statement as of the date
it is
first used after effectiveness.
Provided,
however
,
that no statement made in a registration statement or prospectus
that is
part of the registration statement or made in a document incorporated
or
deemed incorporated by reference into the registration statement
or
prospectus that is part of the registration statement will, as
to a
purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement
or
made in any such document immediately prior to such date of first
use.
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(6)
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That,
for the purpose of determining liability of the registrant under
the
Securities Act of 1933 to any purchaser in the initial distribution
of the
securities:
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The
undersigned registrant undertakes that in a primary offering of
securities
of the undersigned registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the securities
to the
purchaser, if the securities are offered or sold to such purchaser
by
means of any of the following communications, the undersigned registrant
will be a seller to the purchaser and will be considered to offer
or sell
such securities to such purchaser:
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(i)
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Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
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(ii)
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Any
free writing prospectus relating to the offering prepared by or
on behalf
of the undersigned registrant or used or referred to by the undersigned
registrant;
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(iii)
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The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant
or its
securities provided by or on behalf of the undersigned registrant;
and
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(iv)
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Any
other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
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(7)
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The
undersigned registrant hereby undertakes as follows: That prior
to any
public reoffering of the securities registered hereunder through
use of a
prospectus which is a part of this registration statement, by any
person
or party who is deemed to be an underwriter within the meaning
of Rule
145(c), the issuer undertakes that such reoffering prospectus will
contain
the information called for by the applicable registration form
with
respect to reofferings by persons who may be deemed underwriters,
in
addition to the information called for by the other Items of the
applicable form.
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(8)
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The
registrant undertakes that every prospectus (i) that is filed pursuant
to
paragraph 7 immediately preceding, or (ii) that purports to meet
the
requirements of section 10(a)(3) of the Act and is used in connection
with
an offering of securities subject to Rule 415, will be filed as
a part of
an amendment to the registration statement and will not be used
until such
amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating
to
the securities offered therein, and the offering of such securities
at
that time shall be deemed to be the initial bona fide offering
thereof.
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B.
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Insofar
as indemnification for liabilities arising under the Securities
Act of
1933 may be permitted to directors, officers and controlling persons
of
the registrant pursuant to the foregoing provisions, or otherwise,
the
registrant has been advised that in the opinion of the Securities
and
Exchange Commission such indemnification is against public policy
as
expressed in the Act and is, therefore, unenforceable. In the event
that a
claim for indemnification against such liabilities (other than
the payment
by the registrant of expenses incurred or paid by a director, officer
or
controlling person of the registrant in the successful defense
of any
action, suit or proceeding) is asserted by such Director, officer
or
controlling person in connection with the securities being registered,
the
registrant will, unless in the opinion of its counsel the matter
has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against
public policy as expressed in the Act and will be governed by the
final
adjudication of such issue.
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C.
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The
undersigned registrant hereby undertakes (i) to respond to requests
for
information that is incorporated by reference into the prospectus
pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business
day of
receipt of such request, and to send the incorporated documents
by first
class mail or other equally prompt means, and (ii) to arrange or
provide
for a facility in the United States for the purpose of responding
to such
requests. The undertaking in subparagraph (i) above includes information
contained in documents filed subsequent to the effective date of
the
registration statement through the date of responding to the
request.
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D.
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The
undersigned registrant hereby undertakes to supply by means of
a
post-effective amendment all information concerning a transaction
and the
company being acquired involved therein, that was not the subject
of and
included in the registration statement when it became
effective.
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SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the registrant
has duly caused this registration statement to be signed on its behalf by
the
undersigned thereunto duly authorized on the 12
th
day of
February, 2008.
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ENERGY
INFRASTRUCTURE MERGER CORPORATION
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By:
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/s/
George Sagredos
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Name:
George Sagredos
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Title:
Chairman of the Board and President
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POWER
OF ATTORNEY
KNOW
ALL
MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints George Sagredos and Marios Pantazopoulos, or either
of
them, with full power to act alone, his or her true lawful attorneys-in-fact
and
agents, with full powers of substitution and resubstitution, for him or her
and
in his or her name, place and stead, in any and all capacities, to sign any
or
all amendments (including post-effective amendments) to this registration
statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing necessary to be done, as fully for all
intents and purposes as he or she might or could do in person hereby ratifying
and confirming all that said attorneys-in-fact and agents, or his substitute,
may lawfully do or cause to be done by virtue hereof.
In
accordance with the requirements of the Securities Act of 1933, as amended,
this
registration statement has been signed by the following persons on February
12, 2008 in the capacities indicated.
Signature
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Title
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/s/
George Sagredos
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Chairman
of the Board and President
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George
Sagredos
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(Principal
Executive Officer)
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/s/
Marios Pantazopoulos
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Chief
Executive Officer, Treasure and Secretary
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Marios
Pantazopoulos
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(Principal
Financial Officer and Principal Accounting
Officer)
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Authorized
Representative
Pursuant
to the requirement of the Securities Act of 1933, the undersigned, the duly
undersigned representative in the United States, has signed this registration
statement in the City of New York, State of New York, on February 12,
2008.
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PUGLISI
& ASSOCIATES
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By:
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/s/
Donald J. Puglisi
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Name:
Donald
J. Puglisi
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Title:
Managing
Director
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