PROSPECTUS
AMERICAN TANKER, INC.
Prospectus
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American Tanker, Inc. (the “Issuer” or the “Company”) issued 1,100 bonds with nominal value of USD 200,000 each (the “Bonds”) on 22 February 2017 (the “Settlement Date”). The Company is an indirect wholly owned subsidiary of the ultimate parent company American Shipping Company ASA (the “Ultimate Parent”). The Bond Issue is guaranteed by the Ultimate Parent and American Tanker Holding Company, Inc., (the “Guarantors”).
Prospective investors are expressly advised that an investment in the Bonds entails financial and legal risk and that they should therefore read this Prospectus in its entirety and in particular Section 1 (“Risk Factors”) when considering an investment in the Bonds.
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The date of this Prospectus is 12 June 2017
______IMPORTANT INFORMATION This Prospectus has been prepared in order to provide information about the Company and its business in relation to the listing of the Bonds at Oslo Børs and to comply with the Norwegian Securities Trading Act of 29 June 2007 no. 75 (the “Norwegian Securities Trading Act”) and related secondary legislation, including the Commission Regulation (EC) no. 809/2004 implementing Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 regarding information contained in prospectuses (the “Prospectus Directive”) as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements (hereafter “EC Regulation 809/2004”). This Prospectus has been prepared solely in the English language. The Financial Supervisory Authority of Norway (Nw. Finanstilsynet) (the “Norwegian FSA”) has reviewed and approved this Prospectus in accordance with Sections 7-7 and 7-8 of the Norwegian Securities Trading Act. The Norwegian FSA has not verified or approved the accuracy or completeness of the information included in this Prospectus. The approval by the Norwegian FSA only relates to the information included in accordance with pre-defined disclosure requirements. The Norwegian FSA has not made any form of verification or approval relating to corporate matters described in or referred to in this Prospectus. The Prospectus was approved by the Norwegian FSA on 12 June 2017 and is valid for 12 months thereafter. The information contained herein is current as of the date hereof and subject to change, completion and amendment without notice. In accordance with Section 7-15 of the Norwegian Securities Trading Act, significant new factors, material mistakes or inaccuracies relating to the information included in this Prospectus, which are capable of affecting the assessment of the Bonds between the time when this Prospectus is approved and the date of listing of the Bonds, will be included in a supplement to this Prospectus. Neither the publication nor distribution of this Prospectus, nor any sale of Bonds made hereunder, shall under any circumstances create any implication that there has been no change in the Company’s affairs or that the information herein is correct as of any date subsequent to the date of this Prospectus. Only the Issuer and the Joint Lead Managers are entitled to provide information in respect of matters described in this Prospectus. Information provided by any other persons is of no relevance to the contents of this Prospectus and must not be relied upon. The information contained herein has been prepared by the Issuer to assist interested parties in making their own evaluation of the Company and the Guarantors and their creditworthiness and does not purport to be all-inclusive or to contain all information that prospective investors may desire or that may be required in order to properly evaluate the business, prospects or value of the Company and the Guarantors. In all cases, interested parties should conduct their own investigation and analysis of the Company and the data set forth in this Prospectus. No legal, financial or technical due diligence, or similar third-party verification of the Issuer, the Guarantors or the assets of the Issuer or the Guarantors has been carried out by the Issuer, the Guarantors or the Joint Lead Managers. None of the Joint Lead Managers, nor any of their subsidiary undertakings or any such person’s directors, officers, employees, advisors or representatives (collectively the “Representatives”), make any representation or warranty (expressed or implied) as to the accuracy or completeness of this Prospectus or any statements, information, estimates or projections contained herein, or the legality of any prospective investor’s investment in the Bonds issued by the Company. None of the Joint Lead Managers, nor any of their Representatives, have any liability for the recipient’s use of this Prospectus or any other oral, written or other communications transmitted to the recipient in the course of its evaluation of the Company and the Guarantors. This Prospectus may contain certain tables and other statistical analyses (the “Statistical Information”). Numerous assumptions were used in preparing the Statistical Information, which may or may not be reflected herein. As such, no assurance can be given as to the Statistical Information’s accuracy, appropriateness or completeness in any particular context nor as to whether the Statistical Information and/or the assumptions upon which they are based reflect present market conditions or future market performance. The contents of this Prospectus including the Statistical Information are not to be construed as legal, credit, business or tax advice. Each prospective investor should consult with its own legal, credit, business or tax advisor as to legal, credit, business and tax advice. By receiving this Prospectus you acknowledge that you will be solely responsible for your own assessment of the market and the market position of the Company and the Guarantors and that you will conduct your own analysis and are solely responsible for forming your own opinion of the potential future performance of the Company’s and the Guarantors’ business. The Joint Lead Managers have not conducted any due diligence investigation of the Group. In making an investment decision, investors must rely on their own examination of the Company and the Guarantors including the merits and risks involved. Potential investors should contact the Joint Lead Managers or the Company with any questions about the Bonds or if they require additional information to verify the information contained in this Prospectus. Each recipient of this Prospectus shall be deemed to acknowledge that: (i) it has been afforded an opportunity to request from the Company and/or the Joint Lead Managers, and to review, and has received, all additional information considered by it to be necessary to verify the accuracy of, or to supplement, the information contained in this Prospectus; (ii) it has not relied on the Joint Lead Managers or any person affiliated with the Joint Lead Managers in connection with its investigation of the accuracy of such information or its investment decision; and (iii) no person (other than the Joint Lead Managers) has been authorized to give any information or to make any representation concerning the Company, the Guarantors or their respective affiliates or the Bonds (other than as contained in this Prospectus) and, if given or made, any such other information or representation should not be relied upon as having been authorized by the Company, the Guarantors or the Joint Lead Managers. This Prospectus is not an offer to sell or a request to buy bonds. (ii)
The Joint Lead Managers and/or any of their affiliated companies and/or officers, directors and employees may be a market maker or hold a position in any instrument or related instrument discussed in this Prospectus, and may perform or seek to perform financial advisory or banking services related to such instruments. The corporate finance department of either Joint Lead Manager may act as manager or co-manager for the Company in private and/or public placement and/or resale not publicly available or commonly known. Copies of this Prospectus are not being mailed or otherwise distributed or sent in or into or made available in the United States. Persons receiving this document (including custodians, nominees and trustees) must not distribute or send such documents or any related documents in or into the United States. Other than in compliance with applicable United States securities laws, no solicitations are being made or will be made, directly or indirectly, in the United States. Securities will not be registered under the United States Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The distribution of the Prospectus may be limited by law also in other jurisdictions, for example in the United Kingdom. Approval of the Prospectus by the Norwegian FSA implies that the Prospecuts may be used in any EEA country. No other measures have been taken to obtain authorisation to distribute the Prospectus in any jurisdiction where such action is required. This Prospectus is subject to Norwegian law, unless otherwise explicitly stated. Any dispute arising in respect of this Prospectus or arising in reliance to this Prospectus is subject to the exclusive jurisdiction of the Norwegian courts.
Overseas Los Angeles
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TABLE OF CONTENTS
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Side
1. RISK FACTORS ...... 1 1.1 Risks Relating to the Business and the Jones Act Tanker Industry ...... 1 1.2 Risks Relating to AMSC’s Financial Position and Liquidity ...... 7 1.3 Risks Relating to the Bonds ...... 9
2. PERSONS RESPONSIBLE ...... 12 2.1 Persons responsible for the information ...... 12 2.2 Responsibility statement ...... 12
3. INVESTMENT SUMMARY ...... 13 3.1 Background of the Bond Issue...... 13 3.2 Our Business...... 13 3.3 Summary of the Bond ...... 14 3.4 Additional information ...... 16
4. GENERAL INFORMATION ...... 17 4.1 Cautionary Note Regarding Forward-Looking Statements ...... 17 4.2 Presentation of Industry Data and Other Information ...... 17
5. THE BOND ISSUE AND THE BONDS ...... 19 5.1 Approvals ...... 19 5.2 Joint Lead Managers...... 19 5.3 Use of Proceeds ...... 19 5.4 The Bonds...... 19 5.5 Regulation of Registration ...... 19
6. PRESENTATION OF AMSC ...... 20 6.1 AMSC overview and structure ...... 20 6.2 Management and Board of Directors of Ultimate Parent ...... 22 6.3 Presentation of the Issuer ...... 23 6.4 Presentation of ATHC ...... 24 6.5 Disclosure of Conflicts of Interests ...... 24 6.6 Dependence upon other entities within the Group...... 24 6.7 AMSC Business Overview ...... 24 6.8 AMSC Fleet ...... 24 6.9 Material contracts ...... 25 1
6.10 Material operational contracts of AMSC ...... 25 6.11 Strengths and Strategies ...... 28 6.12 History and Development ...... 29 6.13 Group Financing ...... 31 6.14 Principal Factors Affecting AMSC's Results of Operations ...... 34 6.15 Use of Charter Hire from OSG ...... 35 6.16 OSG Deferred Principal Obligation ...... 36
7. FINANCIAL INFORMATION ...... 37 7.1 Historical financial information of the Ultimate Parent ...... 37 7.2 Historical financial information of the Issuer ...... 37 7.3 Auditing of historical annual financial information ...... 37 7.4 Statement of no material adverse change ...... 37 7.5 No significant change in the Group’s financial or trading position ...... 37 7.6 Legal and arbitration proceedings ...... 37 7.7 Recent events relevant to evaluation of solvency of the Issuer or the Guarantors ...... 38
8. THE GUARANTEES ...... 39
9. REGULATORY REGIME ...... 40 9.1 The Jones Act ...... 40 9.2 Qualified Leasing Company under the Jones Act ...... 40 9.3 Environmental Regulation ...... 40
10. OSG ...... 44
11. INDUSTRY OVERVIEW ...... 46 11.1 Introduction ...... 46 11.2 Trade Patterns in the Jones Act Product Carrier Industry...... 47 11.3 The Types of Vessels in the Jones Act Product Carrier Industry ...... 48 11.4 The Supply of Vessels in the Jones Act Product Carrier Industry ...... 49 11.5 The Deployment of the Jones Act Fleet ...... 51 11.6 Demand for Jones Act Product Carriers ...... 51 11.7 Charter Rates in the Jones Act Product Tanker Industry ...... 53
12. INDEPENDENT AUDITORS ...... 54 12.1 Names and addresses ...... 54
13. DOCUMENTS ON DISPLAY ...... 55
14. MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS ...... 56
15. DEFINITIONS ...... 60
APPENDIX A — AMERICAN TANKER, INC. – 2015 AND 2016 FINANCIAL STATEMENTS, INCLUDING AUDIT REPORTS ...... A1 APPENDIX B — BOND AGREEMENT ...... B1
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1. RISK FACTORS Investing in the Bonds involves inherent risks. Prospective investors should carefully consider, among other things, the risk factors set out below before making an investment decision. The risk factors described in this section apply to the Ultimate Parent taken together with its consolidated subsidiaries, including the Issuer and the Guarantors. This section is not intended to be exhaustive – additional risks and uncertainties not presently known to the Issuer or AMSC, or that it currently deems immaterial, may also impair the Issuer and AMSC’s business operations or the value of the Bonds. The Issuer cannot assure investors that any of the events discussed in the risk factors below will not occur. If they do, the Issuer’s and/or AMSC’s business, financial condition, results of operations and cash flows could be materially adversely affected. In such case, the trading price of the Bonds could decline, and an investor may lose all or part of its investment. An investment in the Bonds is suitable only for investors who understand the risk factors associated with this type of investment and who can afford a loss of all or part of the investment. The order in which the risks are presented below is not intended to provide an indication of the likelihood of their occurrence nor of their severity or significance. This Prospectus also contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this Prospectus. See Section 4.1 - Cautionary Note Regarding Forward-Looking Statements. 1.1 Risks Relating to the Business and the Jones Act Tanker Industry OSG is AMSC’s only customer and AMSC is thus heavily dependent on the financial condition and performance of OSG. After the spin-off as completed in December 2016, OSG became a less diversified shipping company solely dependent on the Jones Act market. As OSG is AMSC’s only customer and charterer of its vessels, AMSC is heavily exposed and dependent on the performance of OSG. Furthermore, after the spin-off of OSG international flag business as completed in December 2016, OSG became a less diversified shipping company solely dependent and vulnerable to the Jones Act market. The bareboat charters for nine out of the ten vessels on charter to OSG expire in December 2019, i.e. two years prior to the maturity date under the Bonds. There is no assurance that AMSC will be able to obtain replacement charters with terms at least as favorable as charters with OSG if OSG defaults under any of the bareboat charters or does not extend the terms of the bareboat charters. Moreover, as OSG is AMSC’s only customer, AMSC is inherently indirectly exposed to all risks facing OSG (such as the risks associated with operation of vessels, the cyclicality of the shipping industry, etc.). Such risks are largely the same as those directly faced by AMSC and, according to OSG's annual report for 2015, inter alia include the following: An increase in the supply of vessels without a commensurate increase in demand for such vessels could cause charter rates to decline, which could adversely affect OSG's revenues, profitability and cash flows, as well as the value of its vessels Constraints on capital availability have adversely affected the tanker industry and OSG's business Changes in fuel prices may adversely affect OSG's profits OSG has incurred significant indebtedness which could affect its ability to finance its operations, pursue desirable business opportunities and successfully run its business in the future, all of which could affect OSG's ability to fulfil its obligations under that indebtedness OSG's business depends primarily on time charters, and any future decrease in time charter rates could adversely affect its earnings OSG may not be able to renew time charters when they expire or enter into new time charters OSG derives a substantial portion of its U.S. flag segment's revenue from a limited number of customers The lifting of the U.S. crude oil export ban could adversely impact OSG's U.S. flag fleet. OSG's business would be adversely affected if it failed to be a Jones Act Citizen or to otherwise comply with the Jones Act's limitations on U.S. coastwise trade, or if these limitations were waived, modified or repealed, or if changes in international trade agreements were to occur that result in relaxation of those limitations. A difficult financial situation or bankruptcy in OSG could have a material negative affect on AMSC. In November 2012, OSG and certain of its subsidiaries filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. On 5 August 2014, OSG emerged from Chapter 11 bankruptcy. While in bankruptcy, OSG made all payments due under its bareboat charters with ASMC and assumed those bareboat charters as part of its final restructuring plan.
AMSC’s business could be adversely affected if AMSC is not able to secure extension of the bareboat charter contracts with OSG AMSC’s vessels are all bareboat chartered out to subsidiaries of OSG, which in turn has chartered out the vessels under time charters to major oil companies, refineries and oil traders that employ the vessels in the Jones Act Trades. AMSC's business relies exclusively on these bareboat contracts. The fixed term of AMSC’s bareboat charters of the nine product tankers have a common maturity date in December 2019. The bareboat charter for the shuttle tanker (Overseas Tampa) expires in 2025. For the nine product tankers (the vessels other than Overseas Tampa) OSG has options to extend the charter terms for three or five years for the remaining useful lives of the vessels and a one-time option per vessel to extend the charter terms for one year. For its shuttle tanker Overseas Tampa, OSG has two five-year renewal options followed by five one-year renewal options. Should OSG not extend some or all of the bareboat charters this could adversely affect AMSC’s business. Although vessels operating in the Jones Act Trades currently are obtaining strong daily charter hire rates, no assurance can be given that AMSC would be able to re-charter out its vessels to another Jones Act market operator on equal or better terms than under current charters with OSG. The Jones Act market is unpredictable and historically volatile. The nature, timing and degree of changes in the Jones Act market and shipping industry conditions are unpredictable and may result in significant fluctuations in daily charter hire rates for vessels operating in the Jones Act Trades. This may significantly impact the level of profit share AMSC is entitled to under its Profit Sharing Arrangement with OSG, and the charter rates AMSC is able to obtain at expiry of the existing charters with OSG. Any such decrease in charter rates would also reduce the value at which a vessel may be sold at any given time. AMSC’s exposure to such fluctuations is to some extent mitigated as OSG has a number of vessels on long-term time charters whose earnings are not volatile in the near term given its contract cover (the vessels are typically on 3 to 5 years contracts). The market value of AMSC's vessels may decrease, which could limit the amount of funds AMSC can borrow, trigger financial covenants under AMSC's financing arrangements or lead to losses in the event of a vessel sale following a decline in market value. The fair market values of AMSC's vessels may decrease or increase depending on a number of factors, including the prevailing level of charter rates from time to time; general economic and market conditions affecting the maritime and offshore industries; types, sizes and ages of vessels; supply and demand for vessels; availability of or developments in other modes of operation or transportation; competition; costs of newbuildings; new governmental or other regulations and technological advances. During the period a vessel is subject to a charter or used as collateral under a loan, AMSC may not be permitted to sell such vessel to take advantage of increased values of vessels without the charterer's and/or lenders' prior consent1. Conversely, if AMSC's counterparties were to default under the charters due to unfavorable market conditions, causing termination of the charters, the market value of the vessels could also be depressed for that or related reasons. If the market values of AMSC's vessels decline, AMSC may not be in compliance with “minimum value” or “asset coverage ratio” provisions (which compare the market value of the vessels to the outstanding amount of the loan) under some of its financing arrangements and AMSC may not be able to refinance its debt, obtain additional financing or make distributions to its shareholders. Declining values of AMSC's vessels could also affect the ability of AMSC to raise new financing based on the use of unencumbered vessels as collateral for new loans. In addition, if AMSC at any time determines that a vessel's value has been impaired, AMSC may need to recognize a corresponding impairment charge which will reduce the earnings and net assets of AMSC. AMSC has a limited number of vessels and any loss of use of a vessel could adversely affect its results of operations. AMSC's fleet consists of nine product tankers and one shuttle tanker, all of which are bareboat chartered out to subsidiaries of OSG, which in turn has chartered out the vessels under time charters to major oil companies, refineries and oil traders that employ the vessels in the Jones Act Trades. AMSC's business relies exclusively on the revenues generated by the bareboat charter agreements relating to these ten vessels, and future share of profit under a Profit Sharing Agreement with OSG. In the event any of the vessels has to be taken out of service that would, among other things, impact the level of
1 The current agreements with OSG allow the sale of a vessel(s) subject to certain limitation (e.g., AMSC cannot sell to a competitor of OSG or to an entity which is not qualified to document a vessel under the U.S. flag with a coastwise endorsement), provided the sale is subject to the OSG bareboat charter. Likewise, the current Bank Facilities allow a sale of a vessel(s) provided the related vessel loan is repaid.
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profit share to be available to AMSC under its arrangements with OSG. Due to AMSC's limited number of vessels and its lack of business diversification, and also the lack of business diversification of OSG (following the spin-off of its international fleet in December 2016), an adverse development in its business or involving its fleet and/or the Jones Act market would have a significantly greater impact on AMSC's business and results of operations than if it maintained and operated a more diverse business. AMSC's business could be adversely affected if the Jones Act were waived, modified or repealed or if changes in international trade agreements or applicable law or government regulations were to occur or if OPA 90 were modified. AMSC's vessels operate in the protected Jones Act Trade, which generally restricts the marine transportation of cargo and passengers between points in the United States to vessels built in the United States, registered under the U.S. flag, manned by predominately U.S. crews, and owned and operated by Jones Act Citizens. AMSC’s vessels are owned by subsidiaries that satisfy the Lease Finance Law exception to the Jones Act, and as such they benefit from these Jones Act restrictions. The operation of AMSC's vessels is also subject to OPA 90, which sets forth various technical and operating requirements for tankers operating in U.S. waters. The relevant subsidiaries of OSG are, as bareboat charterer and operator of AMSC's vessels, responsible for the vessels under OPA 90, while AMSC does not have such liability by virtue of a leasing company exception under the OPA 90. If the Jones Act or OPA 90 were repealed, amended, modified or altered, the maritime transportation of cargo between points in the United States could be opened to foreign-flag, foreign-built or foreign-owned vessels or vessels not satisfying OPA 90 standards, any of which could result in increased competition in the Jones Act Trade tanker market and have a material adverse effect on the Company’s business, results of operations and financial condition. Furthermore, interest groups have lobbied the U.S. Congress in the past to repeal or modify the Jones Act in order to facilitate competition by foreign built, foreign owned and/or foreign flagged vessels in the Jones Act Trade. Foreign-built vessels generally have lower construction costs, and foreign-flag vessels generally have lower operating costs than U.S.- built, U.S.-flag vessels with U.S. citizen crews. These lower costs would likely result in reduced daily hire rates. AMSC believes that continued efforts may be made to modify or repeal the Jones Act. If these efforts are successful, foreign-built and flagged vessels could be permitted to trade in the Jones Act Trade and significantly increase competition with AMSC's fleet, which could adversely affect AMSC's business and results of operations. In addition, the Lease Finance Law exception to the Jones Act could be modified or repealed such that the Company’s subsidiaries would no longer be able to rely on that exception to own their vessels and charter them to OSG or other Jones Act Citizens, which would have a material adverse effect on the Company’s business, results of operations and financial condition. There can be no assurance as to the occurrence or timing of any future amendment, suspension, repeal or waivers of the Jones Act, the Lease Finance Law or related laws or government regulations. Additionally, the Jones Act restrictions on maritime cabotage services are not currently subject to certain international trade agreements, including the General Agreement on Trade in Services and the North American Free Trade Agreement. If maritime cabotage services were included in the General Agreement on Trade in Services, the North American Free Trade Agreement or other international trade agreements, the marine transportation of cargo and passengers between points in the United States could be opened to foreign-flag, foreign-built or foreign-owned vessels. Because foreign vessels may have lower construction and operating costs as compared to U.S.-built, U.S.- flag vessels with U.S. citizen crews, this could significantly increase competition in the Jones Act Trade, which could have a material adverse effect on AMSC's business, results of operations and financial condition and AMSC's ability to pay principal and interest on its indebtedness. Compliance with the Jones Act and the Lease Finance Law could limit AMSC's ability to sell any portion of its business and Non-Compliance could result in the forfeiture of AMSC's vessels. The Jones Act generally requires that vessels operating in the Jones Act Trades be built in the United States, registered under the U.S. flag and owned and operated by Jones Act Citizens. However, as AMSC’s subsidiaries own the Company’s vessels through the Lease Finance Law exception to the Jones Act, there is currently no requirement that AMSC have any minimum level of ownership by Jones Act Citizens. In fact, AMSC may be wholly-owned by non-Jones Act Citizens. To own a Jones Act-qualified vessel, a subsidiary of AMSC must meet the following requirements of the Lease Finance Law: the subsidiary must satisfy the minimum requirements to own a U.S. flag vessel, which are that (i) it must be organized under the laws of the United States or of a state, territory or possession thereof, (ii) each of the chief executive officer and the chairman of the board of directors of the subsidiary must be a U.S. citizen, and (iii) no more than a minority of the number of directors of the subsidiary necessary to constitute a quorum for the transaction of business can be non- U.S. citizens;
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the subsidiary must be a leasing company that owns the vessel solely as a passive investment, does not operate any vessel for hire, is not affiliated with any company that operates any vessel for hire, and is independent from and not affiliated with any charterer of the vessel or any other person who has the right, directly, or indirectly, to control or direct the movement or use of the vessel; and the subsidiary must bareboat charter the vessel to a Jones Act Citizen for a term of at least three years. AMSC’s ten indirectly wholly-owned subsidiaries that hold title to the vessels currently fulfill these requirements. In furtherance of these requirements the Articles of Association of the Ultimate Parent contain restrictions on ownership of its shares by companies that operate any vessel for hire. If such restrictions were not successful in preventing a company that operates vessels for hire from becoming an affiliate of AMSC, and hence these subsidiaries, they would no longer qualify under the Lease Finance Law. In such an event or if these subsidiaries were to otherwise no longer qualify under the Lease Finance Law, the vessels would be required to cease operation in the Jones Act Trade during the period of non-compliance or OSG could exercise its rights under its agreements with the Company to take indirect ownership of the vessels until these subsidiaries were again able to qualify under the Lease Finance Law. Failure by the subsidiaries to satisfy the minimum requirements to own a U.S. flag vessel could result in the permanent loss of the eligibility of their vessels to operate in the Jones Act Trade. In any case where the vessels continue to operate after any of these requirements are no longer satisfied, the subsidiaries could be subject to fines and their vessels could be subject to seizure and forfeiture for violations of the Jones Act and the related U.S. vessel documentation laws. If AMSC was to seek to sell any of its vessels, AMSC would have fewer potential purchasers, since some potential purchasers might be unable or unwilling to satisfy the requirements to be a Jones Act Citizen or to qualify under the Lease Finance Law described above. As a result, the sales price that AMSC might receive for such vessel or vessels may not reach the amount that could be obtained in an unregulated market. Marine transportation is inherently risky and an incident involving significant loss or environmental contamination by any of AMSC's vessels could materially and adversely affect AMSC. The operation of vessels that carry crude oil or refined petroleum products carries with it an inherent risk of catastrophic maritime disaster, mechanical failure, collision, and loss of or damage to cargo. AMSC's vessels and their cargoes are at risk of being damaged or lost because of events such as marine disasters; bad weather, environmental accidents and natural disasters; mechanical failures; grounding, fire, explosions and collisions; and human error. An accident involving any of AMSC's vessels could result in any of the following: death or injury to persons, loss of property (including vessels); oil spills or other environmental damage; rerouting or delays in the delivery of cargo. Although AMSC's bareboat charters are on "hell and high water" terms and AMSC is indemnified by OSG for any consequences arising during the performance of the charter, AMSC could in certain circumstances, for example in the event OSG should come in a position where it is not able to fulfill its obligations towards AMSC, experience loss of revenues from or termination of end-user charters; governmental fines, penalties or restrictions on conducting business; private claims for damages and other compensation; higher insurance rates; and damage to AMSC's reputation and customer relationships. Although the Issuer and the Ultimate Parent believes that AMSC is in substantial compliance with applicable safety and health and environmental laws, regulations, treaties and conventions, the Issuer and Ultimate Parent cannot predict the ultimate cost of complying with these requirements or the impact of these requirements on the resale value or useful lives of the vessels. As AMSC charters out its vessels on "hell and high water" bareboat charter terms, the principal risks involved in the operation of the vessels rests with the charterer during the periods in which the vessels are on charter. AMSC's insurance may be insufficient to cover losses that may occur to its vessels or result from their operations. Although AMSC carries, or under the bareboat charters requires that OSG carries, insurance to protect against most of the accident-related risks involved in the conduct of its business, risks may arise for which AMSC is not adequately insured. Any particular claim may not be paid by AMSC's insurance and any claims covered by insurance would be subject to deductibles, the aggregate amount of which could be material. Any uninsured or underinsured loss could harm AMSC's business and financial condition and have a material adverse effect on AMSC's operations. Furthermore, even if insurance coverage is adequate to cover AMSC's losses, AMSC may not be able to obtain a replacement ship in a timely manner in the event of a loss. A decrease in shipping volume in AMSC's markets will adversely affect AMSC's business. Demand for AMSC's vessels, and therefore the availability to AMSC of profit sharing from the operation of the vessels by OSG, depends on levels of shipping in the Jones Act Trades, as well as on economic growth and logistics. Cyclical or other recessions in the United States or elsewhere can negatively affect the operating results of AMSC as customers may
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decrease the shipping volume of crude oil and refined petroleum products. AMSC cannot predict whether or when such downturns will occur. Decreases in United States refining activity could adversely affect AMSC's business. The demand for AMSC's vessels is heavily influenced by the level of refinery capacity in the United States. Any decline in refining capacity in the United States may significantly reduce the demand for waterborne movements of crude oil and refined petroleum products. While AMSC currently has secured income due to their bareboat charters with subsidiaries of OSG, and expects that these refinery expansions will increase demand for waterborne transportation of refined petroleum products, if refining capacity is not repaired and/or expanded or decreases from current levels, demand for AMSC's vessels could decrease, which could have a material adverse effect on the business of AMSC following the expiry of the bareboat charters with OSG, or in the event OSG should come in a position where it is unable to fulfill its obligations towards AMSC, or, in the event OSG should file for bankruptcy protection, choose to reject the bareboat charters in accordance with the U.S. Bankruptcy Act. A decrease in the cost of importing refined petroleum products could cause demand for U.S.-flag product carriers to decline. The demand for U.S.-flag product carriers is influenced by the cost of importing refined petroleum products. Historically, daily hire rates for vessels qualified to participate in the U.S. coastwise trade under the Jones Act have been higher than daily hire rates for foreign-flag vessels. This is due to the higher construction and operating costs of U.S.-flag vessels under the Jones Act, which requires that such vessels must be built in the United States and manned predominately by U.S. crews. As a result, it has at times been less expensive for certain areas of the United States, especially those that are underserved by pipelines or which lack local refining capacity, such as in the Northeast, to import refined petroleum products carried aboard foreign-flag vessels than to obtain them from U.S. refineries. If the cost of importing refined petroleum products decreases sufficiently it may become less expensive in certain regions of the United States to import refined petroleum products from overseas, than to purchase domestically refined petroleum products that are transported to the region on U.S.-flag vessels. In such case, the demand for AMSC's vessels could decrease. A decrease in the demand for oil and gas may adversely affect AMSC’s business The Jones Act product tanker market is currently softer compared to the markets seen over the past three years. The low oil price, which has been persistent for the past 18-24 months, has contributed to reduced production of shale oil in the U.S. This has led to reduced volumes of crude being transported out of Corpus Cristi, the main hub in Texas for shipping crude on Jones Act tankers. An increase in the supply of Jones Act vessels without an increase in demand for such vessels could cause charter hire rates to decline. The supply of vessels generally increases with deliveries of new vessels and decreases with the scrapping of older vessels. It is expected that five vessels will be added to the Jones Act fleet over the next 12 months from Philly Shipyard and General Dynamics NASSCO Shipyard, the two yards that have the ability to build Jones Act compliant product tankers. The supply of Jones Act compliant vessels may significantly impact the level of profit share AMSC will be entitled to under the Profit Sharing Agreement with OSG, and the charter rates AMSC will be able to obtain at expiry of current charter contracts with subsidiaries of OSG or, where AMSC attempts to dispose of a vessel, the values at which a vessel may be sold at any given time. AMSC may face increased competition from Jones Act vessels built at additional U.S. shipyards. Currently, only two U.S. shipyards are building large product tankers for the Jones Act Trades: the Philly Shipyard and General Dynamics NASSCO Shipyard. In addition, other U.S. shipyards could, in the future, enter the market to build Jones Act tankers. If other U.S. shipyards are able to enter the market to build new product tankers for the Jones Act Trades, the overall shipbuilding capacity of the Jones Act product tanker fleet could increase, which may lead to additional supply of tankers which the market may not be able to absorb. This could lead to lower charter hire rates, which could significantly impact the level of profit share AMSC will be entitled to under its Profit Sharing Agreement with OSG, and the charter rates AMSC will be able to obtain at expiry of current charter contracts with subsidiaries of OSG or, where AMSC attempts to dispose of a vessel, the values at which a vessel may be sold at any given time. AMSC is subject to complex laws and regulations, including environmental regulations, which can adversely affect the cost, manner or feasibility of doing business and which may affect AMSC's ability to sell, charter out or otherwise transfer its vessels. AMSC's operations are specifically subject to federal, state and local laws and regulations and international conventions that regulate and control the discharge and emission of pollutants into the environment or otherwise relate to environmental
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protection. Compliance with such laws, regulations and conventions may require installation of costly equipment or operational changes. Failure to comply with applicable laws, regulations and conventions may result in administrative and civil penalties, criminal sanctions or the suspension or termination of AMSC’s operations. Some environmental laws impose strict liability for removal costs and damages related to releases of oil and hazardous substances, without regard to whether there is negligence or fault. Under OPA 90, owners, operators and bareboat charterers are jointly and severally strictly liable for the removal costs and damages resulting from the discharge of oil within the 200-mile exclusive economic zone around the United States. Additionally, an oil spill could result in significant liability, including fines, penalties, criminal liability and costs for natural resource and other damages under other federal and state laws or civil actions. Many states bordering on a navigable waterway have enacted legislation more stringent than OPA 90, providing for potentially unlimited liability for the discharge of pollutants within their waters. Although AMSC is indemnified by OSG for any consequences arising during the performance of the charter, AMSC could in certain circumstances, for example in the event OSG should come in a position where it is not able to fulfill its obligations towards AMSC, be liable towards a third party for breach of such laws and regulations. Greenhouse gas restrictions may adversely impact AMSC's operations and markets. Due to concern over the risk of climate change, a number of countries, including the United States, and the IMO have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions from vessels. These regulatory measures include, among other things, adoption of cap and trade regimes, carbon taxes, increased efficiency standards and incentives or mandates for renewable energy. Compliance with changes in laws, regulations and obligations relating to climate change could increase AMSC's cost should AMSC be required to install new emission controls, acquire allowances or pay taxes related to greenhouse gas emissions or administer and manage a greenhouse gas emissions program. Revenue generation and strategic growth opportunities may also be adversely affected. AMSC may be required to make capital expenditures to comply with changes in regulatory requirements, and the cost of maintaining its vessels will increase over time, which will reduce cash available for distribution. In general, capital expenditures and other costs necessary for maintaining a vessel in good operating condition increase as the age of the vessel increases. Accordingly, as the age of AMSC's vessels increases it is likely that the operating costs will increase, which could reduce the profit share available to AMSC under the Profit Sharing Agreement with OSG. Maintenance and replacement capital expenditures include capital expenditures associated with the removal of a vessel from the water for inspection (or "drydocking"), maintenance and/or repair of submerged parts or drydocking and modifying an existing vessel. Such capital expenditures can be significant, and will reduce cash available for distribution. In the case of modifications to the vessel required by regulatory changes, AMSC is obligated to make these expenditures itself. For example, AMSC expects that capital expenditures of approximately USD 10 million may be required in 2016- 2019 relating to modifications to the ballast water treatment systems of AMSC's vessels required by changes in applicable regulations. Increased operating costs for OSG and OSG’s ability to operate vessels in a cost-efficient manner may affect the profit share available to AMSC under the Profit Sharing Agreement. The calculation of the profit share pursuant to the Profit Sharing Agreement starts with total vessel revenue, from which is subtracted certain defined cost elements such as crew, management fees and drydock expenses, Hence, increased operating costs for OSG will lead to less profits available for sharing between AMSC and OSG. Operating costs can be unpredictable and there is no guarantee that there will be any profits to be distributed under the profit sharing arrangement with OSG. Each of AMSC's vessels must undergo scheduled and, on occasion, unscheduled shipyard maintenance. The U.S. Coast Guard requires AMSC's vessels to be drydocked for inspection and maintenance twice every five years. However, up until the fifteenth year of operation, AMSC is permitted to do an underwater hull inspection of the vessel in lieu of one of these drydockings. In addition, vessels may have to be drydocked in the event of accidents or other unforeseen damage or for capital improvements. Costs for drydocking are difficult to estimate and may be higher than AMSC currently anticipates. Vessels in drydock will generally not generate any time charter income. In addition, the time when a vessel is out of service for maintenance is determined by a number of factors including regulatory deadlines, market conditions, shipyard availability and customer requirements. Because U.S. shipyards have limited availability for drydocking a vessel, they may not have the capacity to perform drydock maintenance on AMSC's vessels at the times required, particularly in the event of an unscheduled drydock due to accident. This may result in the work being performed at an overseas shipyard and result in the vessel being off-hire for a longer period of time. Maritime claimants could arrest one or more of AMSC's vessels. Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against one or more of AMSC's vessels for unsatisfied debts, claims or damages. The arrest or attachment of 6
one or more of AMSC's vessels could interrupt the cash flow from the charterer and/or AMSC and require AMSC to pay a significant amount of money to have the arrest lifted if this is not done by the bareboat charterer. Terrorist attacks have resulted in increased costs for the tanker industry and any new attacks could disrupt the tanker business. Any future terrorist attacks could disrupt harbor operations in the ports in which AMSC's vessels operates, and lead to, among other things, bodily injury or loss of life, vessel or other property damage, increased vessel operating costs, including insurance costs, and the inability to transport crude oil and refined petroleum products to or from certain locations. Terrorist attacks, war or other events beyond AMSC's control that adversely affect the distribution, production or transportation of crude oil and refined petroleum products to be shipped on AMSC's vessels could give the time charterers the right to terminate their charter for AMSC's vessels. AMSC’s business is subject to risk of future claims under legal proceedings and contractual disputes. AMSC’s business may expose it to litigation, including environmental litigation, contractual litigation with clients, tax or securities litigation, and maritime lawsuits including possible arrest of AMSC’s vessels. AMSC is currently not involved in any litigation, but may in the future be involved in litigation matters from time to time. AMSC cannot predict with certainty the outcome and effect of any claim or other litigation matter. Any future litigation may have a material adverse effect on AMSC’s business. 1.2 Risks Relating to AMSC’s Financial Position and Liquidity OSG, the AMSC’s sole customer, is AMSC’s principal counterparty credit risk. AMSC's fleet consists of ten vessels, all of which are bareboat chartered out to subsidiaries of OSG, which in turn has chartered out the vessels under time charters to major oil companies, refineries and oil traders which are employing the vessels in the Jones Act Trades. OSG holds leases that represent AMSC’s entire backlog (which as of 31 December 2016, amounted to USD 313.7 million). In addition, OSG also owes AMSC long term receivables related to the Deferred Principal Obligation (DPO) (as of 31 December 2016, USD 30.6 million was outstanding under the DPO). Although OSG has serviced its financial obligations to AMSC on time, the ability of OSG to perform its financial obligations to AMSC depends on a number of factors which are beyond AMSC’s control, including but not limited to general economic conditions, the Jones Act market conditions and the maritime and offshore industry. No assurance can be given that AMSC would be able to re-charter out its vessels to another Jones Act market operator on equal or better terms than under current charters with OSG in the event OSG should become unable to fulfill its obligations towards AMSC. AMSC operates in a business environment that is capital intensive. AMSC operates in a business environment that is capital intensive and AMSC is dependent upon having access to long- term funding for the vessels and other loan facilities to the extent its own cash flow from operations is insufficient to fund its operations. Unsecured bond refinancing is not required before 2018 and the senior secured debt is due in 2020 and is therefore not considered a significant risk in the near term. AMSC's debt levels may limit its flexibility in obtaining additional financing, pursuing other business opportunities and paying distributions. As of 31 December 2016, AMSC's net interest bearing liabilities, including derivative financial instruments, were USD 613.0 million and AMSC had an equity ratio of 22%. AMSC's level of debt could have important consequences to it, including the following: AMSC's ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms; AMSC will need a substantial portion of its cash flow to make principal and interest payments on its debt, reducing the funds that would otherwise be available for operations, future business opportunities and distributions to shareholders; AMSC's debt level may make it more vulnerable than its competitors with less debt to competitive pressures or a downturn in our industry or the economy generally; AMSC's debt level may limit its flexibility in responding to changing business and economic conditions; and If AMSC is unable to satisfy the restrictions included in its Bank Facilities or any future financing agreements or are otherwise in default under any of those agreements, as a result of its debt levels or otherwise, it will not be able to make cash distributions to its shareholders, notwithstanding its stated cash distribution policy.
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AMSC's ability to service its debt depends upon, among other things, its future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond its control. If AMSC's operating results are not sufficient to service its current or future indebtedness, AMSC will be forced to take actions such as reducing distributions, reducing or delaying its business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing its debt, or seeking additional equity capital or bankruptcy protection. AMSC may not be able to effect any of these remedies on satisfactory terms, or at all. AMSC may not be able to generate sufficient cash to service all of its indebtedness. As the Issuer is a holding company it is dependent on dividends received from its subsidiaries to repay its indebtedness. AMSC's ability to make scheduled payments or to refinance its debt obligations depends on its financial and operating performance, which is subject to prevailing economic and competitive conditions, the condition of OSG, market conditions and certain financial, business and other factors beyond the AMSC's control. AMSC may not be able to maintain a level of cash flow from operating activities sufficient to permit AMSC to pay the principal and interest on its indebtedness. If AMSC's cash flows and capital resources are insufficient to fund its debt service obligations, AMSC may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or seek to restructure or refinance its indebtedness. These alternative measures may not be successful and may not permit AMSC to meet its scheduled debt service obligations. In the absence of such operating results and resources, AMSC could face substantial liquidity problems and might be required to sell material assets to attempt to meet its debt service and other obligations. AMSC may not be able to consummate those asset sales, to raise capital or sell assets at prices that AMSC believes are fair, and the proceeds AMSC receives may not be adequate to meet any debt service obligations when due. As the Issuer is a holding company it is depend on dividends received from its subsidiaries to repay its indebtedness. The subsidiaries may be subject to dividend restrictions in its financing arrangements and there may be limits in applicable law as to dividend distributions which could leave the Issuer unable to repay its indebtedness. Financing agreements, including the Group’s Bank Facilities, which contain operating and financial restrictions, may restrict AMSC's business and financing activities. The operating and financial restrictions and covenants in the Group’s Bank Facilities and any future financing agreements could adversely affect AMSC's ability to finance future operations or capital needs or to engage, expand or pursue its business activities. For example, such financing agreements may restrict the ability of the Ultimate Parent and its subsidiaries to: incur additional indebtedness, make guarantees and enter into hedging arrangements; create or permit liens to exist on assets; engage in mergers or consolidations or other fundamental changes; transfer, sell or otherwise dispose of assets; pay dividends and distributions; make investments, loans and advances, including acquisitions; make changes in the nature of its business; and make prepayments of junior debt. In addition, AMSC’s financing agreements require AMSC to comply with certain financial ratios and tests. AMSC's ability to comply with the restrictions and covenants, including financial ratios and tests, contained in its current and any future financing agreements, is dependent on future performance and may be affected by events beyond the AMSC's control, including prevailing economic, financial and industry conditions. If market or other economic conditions deteriorate, AMSC's ability to comply with these covenants may be impaired. If AMSC is unable to comply with the restrictions and covenants in its financing agreements, there could be a default or event of default under the terms of those agreements. If an event of default occurs under these agreements, lenders could terminate their commitments to lend and/or accelerate the outstanding loans and declare all other outstanding amounts due and payable. AMSC's current financing agreements have, and its future financing arrangements may have, floating interest rates, and as a result interest rate fluctuations could negatively affect the financial performance of AMSC. As AMSC's current financing agreements have, and its future financing arrangements may have, floating interest rates, movements in interest rates could negatively affect the financial performance of AMSC. In order to manage its exposure to interest rate fluctuations, AMSC may from time to time use interest rate derivatives to effectively fix the interest rates with respect to some of its floating rate debt obligations. The interest rate risk related to the vessel financing is partially mitigated by the use of interest rate swap agreements to hedge the interest rate risk. No assurance can however be given 8
that use of these derivative instruments, if any, may effectively protect AMSC from adverse interest rate movements. AMSC entered into interest rate swaps to convert its floating rate debt to fixed rates for USD 300 million of its vessel debt (USD 448.4 million as of 31 December 2015). As of 31 December 2015, the bond carries a floating interest rate of LIBOR plus a margin of 6.0% per annum. The use of hedging transactions also involves certain risks. These risks include (i) the possibility that the market will move in a manner or direction that would have resulted in gain for AMSC had a particular hedging transaction not been utilized, in which case AMSC's performance would have been better had AMSC not engaged in the hedging transaction; (ii) the risk of imperfect correlation between the risk sought to be hedged and the hedging instrument used; and (iii) potential illiquidity for the hedging instrument used, which may make it difficult or costly for AMSC to close-out or unwind a hedging transaction. AMSC’s financing arrangements contain events of default provisions which could lead to acceleration of the loans AMSC’s financing arrangements contain event of default provisions such as cross default, misrepresentation, breach of financial covenants, insolvency, non-permitted liens etc, which if breached could lead to acceleration of the loans. Mandatory prepayment events such as early termination of charter contracts, sale or total loss of a vessel, or repeal of the Jones Act could trigger mandatory repayment obligations in times where AMSC is unable to repay such facilities. A breach by AMSC of any of its covenants and undertakings in its financing agreements could materially harm AMSC. Tax risk The Group’s operations and personnel are located or incorporated in various jurisdictions and are subject to a number of tax regimes. The final determination of the Group’s tax liabilities involves the interpretation of local tax laws, tax treaties and the determination of tax authorities in each jurisdiction. Changes in the operating environment, location of assets and personnel, changes in tax laws or practices and currency/repatriation controls could adversely impact the Group’s financial performance. 1.3 Risks Relating to the Bonds The Bonds may not be a suitable investment for all investors. Each potential investor in the Bonds must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: have sufficient knowledge and experience to make a meaningful evaluation of the Bonds, the merits and risks of investing in the Bonds and the information contained or incorporated by reference in this Prospectus or any applicable supplement; have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Bonds and the impact the Bonds will have on its overall investment portfolio; have sufficient financial resources and liquidity to bear all of the risks of an investment in the Bonds; understand thoroughly the terms of the Bonds; and be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks. There may be no public market for the Bonds The Bonds will be new securities for which currently there is no trading market. The liquidity of any market for the Bonds will depend on the number of holders of those Bonds, investor interest at large and relative to the Company and its business segment in particular, and the interest of securities dealers in making a market in those securities and other factors. Accordingly, there can be no assurance as to: the liquidity of any such market that may develop; bondholders’ ability to sell the Bonds; or the price at which bondholders would be able to sell the Bonds. If such a market were to exist, the Bonds could trade at prices that may be lower than the principal amount or purchase price, depending on many factors, including prevailing interest rates, the market for similar notes and the Company’s financial performance and outlook. If an active market does not develop or is not maintained, the price and liquidity of the Bonds may be adversely affected.
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In addition, the Bonds have not been, and will not be, registered under the U.S. Securities Act, or under the securities laws of any other jurisdiction. The Bonds may not be transferred, offered or resold in the United States or to U.S. persons (as defined in Regulation S under the U.S. Securities Act) nor may they be transferred, offered or resold in any other jurisdiction in which the registration of the Bonds is required but has not taken place, unless an exemption from the applicable registration requirement is available or the transfer, offer or resale of the Bonds occurs in connection with a transaction that is not subject to these provisions. Legal investment considerations may restrict certain investments The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (i) the Bonds are legal investments for it, (ii) the Bonds can be used as collateral for various types of borrowing and (iii) other restrictions apply to its purchase or use of the Bonds. Financial institutions should consult their legal advisors or the appropriate regulators to determine the appropriate treatment of the Bonds under any applicable risk-based capital or similar rules. The terms and conditions of the Bond Agreement will allow for modification of the Bonds or waivers or authorizations of breaches and substitution of the Company which, in certain circumstances, may be affected without the consent of bondholders The Bond Agreement will contain provisions for calling meetings of bondholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all bondholders, including bondholders who did not attend and vote at the relevant meeting and bondholders who voted in a manner contrary to the majority. The Trustee may, without the consent of the bondholders, agree to certain modifications of the Bond Agreement and other finance documents (as defined in the Bond Agreement) which, in the opinion of the Trustee, are proper to make. Such modifications which will be binding upon the bondholders will be further described in the Bond Agreement. Change of control - the Issuer’s ability to redeem the Bonds with cash may be limited Upon the occurrence of a Change of Control Event (as defined in the Bond Agreement), each individual bondholder shall have a right of pre-payment of the Bonds at a price of 101% of par value plus all accrued and unpaid interest to the date of redemption together with a prepayment premium established in the Bond Agreement. However, it is possible that the Issuer may not have sufficient funds at the time of the Change of Control Event to make the required redemption of Bonds. The Issuer’s failure to redeem tendered Bonds would constitute an event of default under the Bond Agreement. Mandatory prepayment events may lead to a prepayment of the Bonds in circumstances where an investor may not be able to reinvest the prepayment proceeds at an equivalent rate of interest In accordance with the terms and conditions of the Bond Agreement, the Bonds are subject to mandatory prepayment by the Issuer on the occurrence of certain specified events. Following any early redemption after the occurrence of a Mandatory Prepayment Event, it may not be possible for bondholders to reinvest such proceeds at an effective interest rate as high as the interest rate on the Bonds and may only be able to do so at a significantly lower rate. It is further possible that the Issuer will not have sufficient funds at the time of the Mandatory Prepayment Event to make the required redemption of Bonds. The Bonds may be subject to optional redemption by the Issuer, which may have a material adverse effect on the value of the Bonds, and in such circumstances an investor may not be able to reinvest the redemption proceeds at an equivalent rate of interest In accordance with the terms and conditions of the Bond Agreement, the Bonds are subject to optional redemption by the Issuer at an amount calculated in accordance with the terms and conditions of the Bond Agreement. This feature is likely to limit the market value of the Bonds. During any period when the Issuer may elect to redeem the Bonds, the market value of the Bonds generally will not rise substantially above the price at which they can be redeemed. This may also be true prior to any redemption period. The price of the Bonds is volatile The market value of the Bonds could be subject to significant fluctuations in response to actual or anticipated variations in the Group’s operating results and those of their competitors, adverse business developments, changes to the regulatory environment in which the Group operates, changes in financial estimates by securities analysts and the actual or expected sale of a large number of Bonds, as well as other factors. In addition, in recent years, the global financial markets have experienced significant price and volume fluctuations, which, if repeated in the future, could adversely affect the market value of the Bonds without regard to the Issuer’s operating results, financial condition or prospects.
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The market value of the Bonds also depends on the level of market interest rate, and increases in market interest rates may adversely affect the value of the Bonds. The Issuer's ability to service its indebtedness depends on many factors beyond its control The Issuer's ability to make scheduled payments on or to refinance its obligations under, the Bonds will depend upon the Issuer's financial and operating performance, which, in turn, will be subject to prevailing economic and competitive conditions and to financial and business factors, many of which may be beyond the Issuer's control. Risks related to insolvency or bankruptcy of the Company As a general matter, the Company’s liabilities in respect of the Bonds may, in the event of a bankruptcy or insolvency proceeding or similar proceeding, rank junior to certain of such Company’s debts that may be entitled to priority under the laws of the relevant jurisdiction. A bankruptcy may, depending on which jurisdiction the proceedings are opened in, stay or temporarily prevent any enforcement proceedings of the bondholders The Group depends to a certain extent on its subsidiaries, associates and joint ventures The Group’s ability to pay any amounts due on the Bonds is, to a significant extent, dependent on the financial performance of its subsidiaries, associates and joint ventures and will depend upon the level of distributions, interest payments and loan repayments, if any, received from its operating subsidiaries, associated undertakings and joint ventures, any amounts received on disposals of assets and equity holdings and the level of cash balances. Certain of the Group’s operating subsidiaries, associated undertakings and joint ventures are and may, from time to time, be subject to restrictions on their ability to make distributions and loans including as a result of restrictive covenants in loan agreements, foreign exchange and other regulatory restrictions and agreements with the other shareholders of such subsidiaries or associated undertakings. Risks relating to conflict of interests Aker ASA holds 19.07% of the shares in the Ultimate Parent and has an additional 30.38% economic exposure to the fluctuation of the Ultimate Parent’s share price and any dividends by virtue of total return swap agreements between Aker ASA’s wholly-owned subsidiary, Aker Capital AS, and the banks SEB and DNB. In addition, Aker indirectly (via its ownership in Ocean Yield) holds 93% of the Existing bond. Aker’s ownership of 19.07% of the shares in the Ultimate Parent gives it the ability, as the Ultimate Parent’s largest shareholder, to influence but not control the Ultimate Parent. Aker’s interests may not necessarily be aligned with those of the Bondholders. All settlement and trading in the Bonds will be made through Euroclear All Bonds will be issued to and registered on Euroclear’s account in the VPS operated by Nordea Bank Norge ASA as nominee. The Bond Issue will be blocked for all trading in VPS and all trading in the Bonds will be made through Euroclear and all buyers and sellers of Bonds must therefore be account holders with Euroclear. No other International Central Securities Depository can hold the Bonds in VPS and may therefore not be a substitute to Euroclear. The aforementioned factors may adversely affect the market for and liquidity of the Bonds.
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2. PERSONS RESPONSIBLE 2.1 Persons Responsible for the Information Persons responsible for the information given in this Prospectus are as follows: American Tanker, Inc., with its registered office at 2711 Centerville Road, Suite 400, City of Wilmington 19808, County of New Castle, USA and business address at 415 McFarlan Road, Suite 205, Kennett Square, PA, 19348, USA. American Shipping Company ASA, with its registered office at Oksenøyveien 10, 1366 Lysaker, Norway. American Tanker Holding Company, Inc., with its registered office at 2711 Centerville Road, Suite 400, City of Wilmington 19808, County of New Castle, USA and business address at 415 McFarlan Road, Suite 205, Kennett Square, PA, 19348, USA. 2.2 Responsibility Statement The Company and the Guarantors hereby confirm that the information contained in this Prospectus is as of its date, to the best of their knowledge, in accordance with the facts and contains no omissions likely to materially affect the contents of the Prospectus and which may materially influence the assessment of the Company and the Guarantors.
12 June 2017
On behalf of: On behalf of:
American Tanker Holding Company, American Tanker, Inc. Inc.
Name: Leigh Jaros Name: Leigh Jaros Title: CEO Title: CEO
On behalf of:
American Shipping Company ASA
Name: Pål Lothe Magnussen Name: Audun Stensvold Title: CEO Title: Director
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3. INVESTMENT SUMMARY 3.1 Background of the Bond Issue The background of the Bond Issue was to refinance the Ultimate Parent’s outstanding bond (the Existing Bond) with maturity 28 February 2018. The refinancing has further strengthened AMSC’s financial position and improved its maturity profile. 3.2 Our Business AMSC is an owner of Jones Act vessels operating in the U.S. Jones Act market, owning nine handysize product tankers and one handysize shuttle tanker all built at Philly Shipyard. The tankers have an average age of 8 years. All vessels are bareboat chartered-out to subsidiaries of OSG on long-term bareboat charters, and OSG time charters out these vessels to major oil companies (such as Shell, BP, Chevron, etc), refineries and oil traders. The bareboat charter contracts between the subsidiaries of the Ultimate Parent and subsidiaries of OSG provide stable cash flows based on fixed contracted daily rates of hire for the charter period, as well as a Profit Sharing Agreement that entitles the Company to 50% of the profit from OSG’s operations of the ten tankers. OSG was incorporated in 1969 and is operating in the U.S. Jones Act market. Nine of the tankers in the fleet are bareboat chartered out to subsidiaries of OSG on long-term bareboat charters until December 2019, after which OSG has unlimited options to extend the charter period by one or more sequential optional periods of one, three or five years each, provided that the right to elect an optional period of one year may be exercised only once. The shuttle tanker Overseas Tampa is bareboat chartered out to a subsidiary of OSG until June 2025, after which OSG has two five-year renewal options followed by five one-year renewal options. The U.S. Jones Act market, which is the market for U.S. point-to-point maritime shipping, enjoys significant barriers to entry. These barriers result from the laws contained in 46 U.S.C. § 50501 and 46 U.S.C. Chapter 551 and related statutes and regulations, which are commonly referred to collectively as the “Jones Act”. Subject to limited exceptions, the Jones Act requires that vessels engaged in the Jones Act Trade be built in the United States, registered under the U.S.-flag, manned by predominantly U.S. crews, and owned and operated by U.S.-organized companies that are controlled and at least 75% owned by U.S. citizens. The so-called “lease finance law” exception to these requirements permits leasing companies, banks, and financial institutions that are not Jones Act Citizens to own U.S.-flag vessels for operation in the Jones Act Trade, provided that they can make certain certifications and that the vessels are bareboat chartered to a Jones Act Citizen for a term of at least three years. The Company’s subsidiaries that own the tankers in its fleet have satisfied the requirements of the Lease Finance Law. Dynamics in the Jones Act tanker industry are impacted fundamentally by the demand for U.S. domestic marine transportation of crude oil, refined petroleum products and chemicals and the available supply of vessels. AMSC believes the following Jones Act industry trends could impact daily rates positively after the slowdown in the market over the past year: The market enjoys significant barriers to entry given the general limitation on foreign-owned and/or constructed vessels which protects the U.S. point-to-point maritime shipping market from foreign competition, as well as General Dynamics Nassco Shipyard and Philly Shipyard’s predominant positions controlling the market for construction of U.S. Jones Act tankers Ongoing market consolidation where the five largest owners and operators now control 74% of the total tanker fleet The required high investment costs (maintenance, repair, drydock, etc) to continue trading older vessels compared to current rates and earnings environment, will cause the owners of older vessels to consider scrapping them rather than continuing to invest in them as they come off existing charters Increased U.S. production of crude oil and chemicals U.S. refinery and pipeline capacity driving increased reliance on coastwise transportation
AMSC has offices in the U.S. where the operations of AMSC are carried out, in addition to the headquarters at Lysaker, Norway. American Shipping Company ASA is a public company with shares listed on the Oslo Stock Exchange (ticker: AMSC). For the twelve months ended 31 December 2016 AMSC generated total revenues of USD 88.0 million and EBITDA of USD 85.1 million and, as of 31 December 2016, had a backlog of USD 313.7 million with average weighted tenor of 3.6 years per 31 December 2016.
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3.3 Summary of the Bond ISIN code: NO 0010777519 Issue name: American Tanker Inc. 17/22 9.25% USD C. Issuer: American Tanker, Inc. Parent: American Shipping Company ASA Guarantors: American Shipping Company ASA and American Tanker Holding Company, Inc. Issued Amount: USD 220 million Status: The Bonds shall rank as senior debt of the Issuer and shall be unsecured. The Bonds shall rank pari passu with all other senior debt of the Issuer save for obligations which are mandatorily preferred by law. The Bonds shall rank ahead of subordinated debt. Security type: Bond issue with fixed interest rate. Coupon: 9.25% p.a., semi-annually interest payments. Effective interest: Dependent on the market price. Assuming a price of 100 %, the yield is 9.25% p.a. Price: 100% of par value. Call Options: Two years non call (make whole), thereafter at 105.55% in year 3, 103.70% in year 4, and 101.85% in year 4 to 4.5, and 100% at par thereafter. Amortization: The Bonds shall be partially repaid by 4 semi-annually instalments each of USD 10 million at 100% of par value (plus accrued interest on the redeemed Bonds) commencing 42 months after the Settlement Date. Issuer’s General Obligations: The Issuer shall comply with certain general undertakings, inter alia pari passu ranking, mergers/de-mergers restrictions, continuation of business provisions, disposal of assets restrictions, reporting requirements, arm’s length provisions, compliance with laws. Issuer’s Special Covenants: The Issuer shall comply inter alia with negative pledge, subsidiary distributions, financial support restrictions, financial indebtedness restrictions, restrictions of financing of new vessels, compliance with Jones Act. Ultimate Parent’s Special Covenants: The Parent shall comply inter alia with the dividend restrictions (subject to the Distribution Incurrence Test, ownership of the issuer, restrictions on Subordinated Loans, the Aker Loan and reporting requirements). Distribution Incurrence Test: The Debt Service Coverage Ratio (means the ratio of Projected EBITDA to Projected Debt Service) is not less than 1.10x. Financial Covenants: Minimum Liquidity: The Issuer shall ensure that the Group maintains Cash and Cash Equivalents of minimum USD 25,000,000. Maximum Total Adjusted Interest-Bearing Debt: The Issuer undertakes that the Total Adjusted Interest-Bearing Debt shall not exceed USD 615m YE 2017, USD 590m in YE 2018, USD 560m YE 2019, USD 530m YE 2020 and USD 480m YE 2021. Change of Control: Investor put at 101% of par value. Settlement Date: 22 February 2017. First Interest Payment: 22 August 2017 (6 months after the Settlement Date). Last Interest Payment: Final Maturity Date. Final Maturity Date: 22 February 2022 (5 years after the Settlement Date). Minimum Subscription: Minimum subscription amount and allotment amount shall be USD 200,000, and thereafter integral multiples of USD 200,000 in excess thereof. Listing: Oslo Stock Exchange (Nw. Oslo Børs). 14
Listing will take place as soon as possible after this Prospectus has been approved by the Norwegian FSA. Eligible Purchasers: All buyers and sellers of Bonds must have or open a securities account with Euroclear Bank SA/NV or have an agreement with an authorized nominee in Euroclear Bank SA/NV holding the Bonds on behalf of the subscriber or become a direct or sponsored member of Euroclear Bank SA/NV. Restrictions on the Free Transferability: Subject to any purchase and transfer restrictions for each bondholder, the Bonds are freely transferable. Bondholders located in the United States will not be permitted to transfer the Bonds except (a) to the Issuer, (b) pursuant to an effective registration statement under the Securities Act, (c) to a person that the bondholder reasonably believes is a “qualified institutional buyer” (“QIB”) within the meaning of Rule 144A that is purchasing for its own account, or the account of another QIB, in a transaction meeting the requirements of Rule 144A, (d) to a non-U. S. person in an offshore transaction satisfying the requirements of Rule 904 of Regulation S under the Securities Act, and (e) in accordance with Rule 144 under the Securities Act (if available) and (f) pursuant to any other available exemption from registration under the Securities Act. The Bonds may not, subject to applicable Canadian laws, be traded in Canada for a period of four months and a day from the date the Bonds were originally issued. Joint Lead Managers: Arctic Securities AS, Haakon VII’s gate 5, 0161 Oslo, Norway; Clarksons Platou Securities AS, Munkedamsveien 62C, 0270 Oslo, Norway; Pareto Securities AS, Dronning Mauds gate 3, 0250 Oslo, Norway; and Skandinaviska Enskilda Banken AB (publ) Oslo branch, Filipstad Brygge 1, 0252 Oslo, Norway. Co-Manager: SpareBank 1 Markets AS, Olav V’s gate 5, 0161 Oslo, Norway. Bond Trustee: Nordic Trustee ASA, P.O. Box 1470 Vika, 0116 Oslo, Norway. Bond Agreement: The Bond Agreement has been entered into by the Issuer and the Bond Trustee. The Bond Agreement regulates the bondholder’s rights and obligations with respect to the Bonds. The Bond Trustee has entered into the Bond Agreement for and on behalf of the bondholders and is granted authority to act on behalf of the bondholders to the extent provided for in the Bond Agreement. When bonds are registered in the VPS, the bondholder shall be bound by the terms and conditions of the Bond Agreement. The Bond Agreement is attached as Appendix B to this Prospectus. Bondholders’ meeting: At the bondholders’ meeting each bondholder may cast one vote for each outstanding Bond owned by it at the date falling on the immediate preceding business day to the date of the bondholders’ meeting. However, Bonds owned by the Issuer, any Guarantors or affiliates of such do not carry any voting rights. In order to form a quorum, at least 50% of the outstanding bonds must be represented at the bondholders’ meeting. Resolutions will be passed by a simple majority of the outstanding bonds represented at the bondholders’ meeting, save for certain exceptions where at least 2/3 of the votes are required. For more details, see also the Bond Agreement Clause 16. Paying Agent: DNB Bank ASA, Verdipapirservice, Dronning Eufemias gate 30, N-0191 Oslo, Norway. Securities form and registration: The Bonds are electronic registered in book-entry form with the Norwegian Central Securities Depository (the “VPS”), P.O. Box 4, 0051 OSLO, Norway (blocked for trading). Settlement and trading to take place through Euroclear only. See Section 5.4 below for further information. Estimate of total expenses related to the admission to trading: Prospectus fee (NFSA): NOK 75,600 15
Listing fee 2017 (Oslo Stock Exchange): NOK 49,480 Registration fee (Oslo Stock Exchange): NOK 11,400 Governing Law: Norwegian law
3.4 Additional Information The involved persons in the Issuer and the Guarantors have no interest, nor conflicting interests that are material to the Bond Issue.
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4. GENERAL INFORMATION 4.1 Cautionary Note Regarding Forward-Looking Statements Certain statements in this Prospectus are forward-looking. Such forward-looking statements and information are based on the beliefs of the Company’s management or assumptions based on information available to the Company. When used in this document, the words "anticipate", "believe", "estimate" and "expect" and similar expressions, as they relate to the Guarantors, the Company or its management, are intended to identify forward-looking statements. They appear in a number of places throughout this Prospectus; Section 6 - Presentation of AMSC and Section 11 - Industry Overview. Such forward- looking statements reflect the current views of the Company or its management with respect to future events and are subject to certain risks, uncertainties and assumptions. The Company and its management can give no assurance as to the correctness of such forward-looking statements. Many factors could cause the actual results, performance and achievements of the Company to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including among others, risks or uncertainties associated with the Group’s vessels, technological development, growth management, relations with customers and, more generally economic and business conditions, changes in domestic and foreign laws and regulations (including those of the European Union, U.S., Canada and Nigeria), taxes, changes in competition and pricing environments, and other factors whether referenced in this document or not. Some of these factors are discussed in more detail under Section 1 - Risk Factors. Should one or more of these or other risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this document as anticipated, believed, estimated or expected. Except as required by applicable law, the Company does not intend, and does not assume any obligation, to update the forward-looking statements included in this Prospectus as at the date hereof. Certain of the information and conclusions set forth herein are based on projections. These projections were prepared for the limited purpose of analysing the potential risks and benefits of an investment in the bonds by illustrating under certain limited assumptions projected capital and operating expenditures. In addition, because of the subjective judgments and inherent uncertainties of projections and because the projections are based on a number of assumptions, which are subject to significant uncertainties and contingencies that are beyond the control of the Company and the Guarantors, there can be no assurance that the projections or conclusions derived therefrom will be realized. Under no circumstances should the projections set forth herein be regarded as a representation, warranty or prediction by the Company or its management, the Guarantors or the Joint Lead Managers that the Company or the Guarantors will achieve or are likely to achieve any particular future result. Accordingly, you may lose all or part of your investment to the extent the projections or conclusions included herein are not ultimately realized. 4.2 Presentation of Industry Data and Other Information Sources of Industry and Market Data To the extent not otherwise indicated, the information contained in this Prospectus on the market environment, market developments, growth rates, market trends, market positions, industry trends, competition in the industry in which the Group operates and similar information are estimates based on data compiled by professional organisations, consultants and analysts; in addition to market data from other external and publicly available sources as well as the Group's knowledge of the markets. While the Company has compiled, extracted and reproduced such market and other industry data from external sources, the Company has not independently verified the correctness of such data. Thus, the Company takes no responsibility for the correctness of such data. The Company cautions prospective investors not to place undue reliance on the above mentioned data. Although the industry and market data is inherently imprecise, the Company confirms that where information has been sourced from a third party, such information has been accurately reproduced and that as far as the Company is aware and is able to ascertain from information published by that third party, no facts have been omitted that would render the reproduced information inaccurate or misleading. Where information sourced from third parties has been presented, the source of such information has been identified. In addition, although the Company believes its internal estimates to be reasonable, such estimates have not been verified by any independent sources and the Company cannot assure prospective investors as to their accuracy or that a third party using different methods to assemble, analyse or compute market data would obtain the same results. The Company does not intend to or assume any obligations to update industry or market data set forth in this Prospectus. Finally, behaviour, preferences and trends in the marketplace tend to change. As a result, prospective investors should be aware that data in this Prospectus and estimates based on those data may not be reliable indicators of future results. Other Information In this Prospectus, all references to “NOK” are to the lawful currency of Norway, and all references to “U.S. dollar”, “US$”, “USD”, or “$” are to the lawful currency of the United States of America. 17
In this Prospectus all references to “EU” are to the European Union and its Member States as of the date of this Prospectus; all references to “EEA” are to the European Economic Area and its member states as of the date of this Prospectus; and all references to “US”, “U.S.” or “United States” are to the United States of America. Certain figures included in this Prospectus have been subject to rounding adjustments. Accordingly, figures shown for the same category presented in different tables may vary slightly.
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5. THE BOND ISSUE AND THE BONDS 5.1 Approvals The Bonds were issued in accordance with the approval of the board of directors of the Ultimate Parent dated 6 February 2017. The Prospectus will be sent to the Norwegian FSA and Oslo Børs ASA for control in relation to a listing application of the Bonds. 5.2 Joint Lead Managers The joint lead managers are Arctic Securities AS, Clarksons Platou Securities AS, Pareto Securities AS and Skandinaviska Enskilda Banken AB (the “Joint Lead Managers”). The Joint Lead Managers were jointly appointed as managers for the Bond Issue. SpareBank I Markets AS acted as Co-Manager. 5.3 Use of Proceeds The proceeds from the Bond Issue were utilized to redeem the Existing Bond and will also be used for general corporate purposes. 5.4 The Bonds The Bonds are registered and issued in the Norwegian Central Securities Depository (the "VPS"). All Bonds are issued and registered on Euroclear’s VPS account operated by Nordea Bank Norge ASA as nominee. In order to receive the Bonds, the subscriber must have or open a securities account with Euroclear or have an agreement with an authorized nominee in Euroclear holding the Bonds on behalf of the subscriber or become a direct or sponsored member of Euroclear. The Bonds were made available to the subscribers through Euroclear upon receipt of full payment for allocated Bonds. The Bonds are blocked for all trading in VPS and all trading in the Bonds will be made through Euroclear and all buyers and sellers of Bonds must therefore be account holders with Euroclear. No other International Central Securities Depository can hold the Bonds in VPS and may therefore not be a substitute to Euroclear. 5.5 Regulation of Registration The registration of the Bonds is to be subject to the provisions of the Norwegian Security Register Act of 5 July 2002 no. 64. Trading and settlement of the Bonds through Euroclear is to be subject to the rules and regulations of Euroclear from time to time and be subject to Belgian law.
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6. PRESENTATION OF AMSC 6.1 AMSC Overview and Structure American Shipping Company ASA is a Norwegian public limited liability company (Nw. allmennaksjeselskap (ASA)) organized and existing under the laws of Norway, pursuant to the Norwegian Public Limited Liability Companies Act, incorporated 30 May 2005, with registration number 988 228 397. The Ultimate Parent is a holding company and the operations of AMSC are carried out through the U.S. operating subsidiaries of the Ultimate Parent. The Ultimate Parent has its registered and head office in Oksenøyveien 10, 1366 Lysaker, Norway, with telephone number +47 24 13 00 00, and with subsidiaries in the United States (USA). The Ultimate Parent has a share capital of NOK 606,165,050 divided into 60,616,505 ordinary shares. Each share carries one vote, and otherwise confers equal rights in the Ultimate Parent. The most recent by-laws of the Ultimate Parent are dated 27 April 2016 and are available on the AMSC website www.americanshippingco.com/. The shares in the Ultimate Parent are listed on Oslo Stock Exchange in Norway. The Ultimate Parent is the parent company of a group which includes the Issuer. AMSC owns and bareboat charters-out nine handysize product tankers and one handysize shuttle tanker that transport refined petroleum products and crude oil in the U.S. domestic trade, which is commonly referred to as the Jones Act Trade. American Tanker, Inc. (the Issuer) is a 100% indirectly owned subsidiary of the Ultimate Parent. American Tanker Holding Company, Inc. is a 100% owned subsidiary of the Ultimate Parent. The current legal structure of AMSC and a description of all AMSC entities at the date of this Prospectus follow below:
The table below shows the ownership and voting interests, as well as country of incorporation of the entities comprised by the Group:
Country of Principal Place of Ownership/voting incorporation Business interest % American Tanker Holding Company, Inc.(1)...... USA ..... Pennsylvania, USA 100% American Tanker, Inc.(2) ...... USA ... Pennsylvania, USA 100% American Shipping Corporation(3) ...... USA Pennsylvania, USA 100% ASC Leasing I, Inc.(4) ...... USA ...... Pennsylvania, USA 100% ASC Leasing II, Inc.(5) ...... USA ...... Pennsylvania, USA 100% ASC Leasing III, Inc.(6) ...... USA ..... Pennsylvania, USA 100% ASC Leasing IV, Inc.(7) ...... USA .... Pennsylvania, USA 100% ASC Leasing V, Inc.(8) ...... USA ...... Pennsylvania, USA 100% ASC Leasing VI, Inc.(9) ...... USA .... Pennsylvania USA 100% ASC Leasing VII, Inc.(10) ...... USA .. Pennsylvania, USA 100% ASC Leasing VIII, Inc.(11) ...... USA Pennsylvania, USA 100% ASC Leasing IX, Inc.(12) ...... USA ... Pennsylvania, USA 100% ASC Leasing X, Inc.(13) ...... USA .... Pennsylvania, USA 100% Philly Tankers AS (14) ...... Norway...... Oslo, Norway 19.6% _____
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(1) American Tanker Holding Company, Inc. is a Delaware corporation. The company is a holding company owning all of the shares in American Tanker, Inc. and has no business activities. (2) American Tanker, Inc. is a Delaware corporation. The company is a sub-holding company owning all the shares in American Shipping Corporation and has no business activities, other than holding the Profit Sharing Agreement. (3) American Shipping Corporation is a Delaware corporation. The company owns and manages its equity interest in each of ASC Leasing I, Inc., ASC Leasing II, Inc., ASC Leasing III, Inc., ASC Leasing IV, Inc., ASC Leasing V, Inc., ASC Leasing VI, Inc., ASC Leasing VII, Inc., ASC Leasing VIII, Inc., ASC Leasing IX, Inc. and ASC Leasing, X, Inc. (4) ASC Leasing I, Inc., a Delaware corporation with business address 415 McFarlan Rd. Suite 205, Kennett Square, PA 19348, USA, is the owner of Overseas Houston. (5) ASC Leasing II, Inc., a Delaware corporation with business address 415 McFarlan Rd. Suite 205, Kennett Square, PA 19348, USA, is the owner of Overseas Long Beach. (6) ASC Leasing III, Inc., a Delaware corporation, with business address 415 McFarlan Rd. Suite 205, Kennett Square, PA 19348, USA, is the owner of Overseas Los Angeles. (7) ASC Leasing IV, Inc., a Delaware corporation with business address 415 McFarlan Rd. Suite 205, Kennett Square, PA 19348, USA, is the owner of Overseas New York. (8) ASC Leasing V, Inc., a Delaware corporation with business address 415 McFarlan Rd. Suite 205, Kennett Square, PA 19348, USA, is the owner of Overseas Texas City. (9) ASC Leasing VI, Inc., a Delaware corporation with business address 415 McFarlan Rd. Suite 205, Kennett Square, PA 19348, USA, is the owner of Overseas Boston. (10) ASC Leasing VII, Inc.; a Delaware corporation with business address 415 McFarlan Rd. Suite 205, Kennett Square, PA 19348, USA, is the owner of Overseas Nikiski. (11) ASC Leasing VIII, Inc., a Delaware corporation with business address 415 McFarlan Rd. Suite 205, Kennett Square, PA 19348, USA, is the owner of Overseas Martinez. (12) ASC Leasing IX, Inc., a Delaware corporation with business address 415 McFarlan Rd. Suite 205, Kennett Square, PA 19348, USA, is the owner of Overseas Anacortes. (13) ASC Leasing X, Inc., a Delaware corporation with business address 415 McFarlan Rd. Suite 205, Kennett Square, PA 19348, USA, is the owner of Overseas Tampa. (14) Philly Tankers AS, a Norwegian limited liability company with business address Vika Atrium, Munkedamsveien 45, 0250 Oslo, Norway, is the owner (through its subsidiary, Philly Tankers LLC) of two shipbuilding contracts with Philly Shipyard, each for the construction of one handysize product tanker for operation in the Jones Act Trade.
Major Shareholders The table below shows the Ultimate Parent's 20 largest shareholders as recorded in the shareholders' register of the Ultimate Parent with the VPS as of 29 May 2017.
Type of Number of Account Shares % Aker Capital AS Regular 11,557,022 19.07% DNB NOR Markets Regular 9,349,785 15.42% Skandinaviska Enskilda Banken AB Regular 9,182,520 15.15% Goldman, Sachs & Co. LLC Nominee 5,130,053 8.46% The Bank of New York Mellon SA/NV Nominee 3,672,738 6.06% Trethom AS Regular 1,373,111 2.27% Credit Suisse Securities (USA) LLC Nominee 1,240,326 2.05% Euroclear Bank S.A./N.V.(‘BA’) Nominee 988,793 1.63% J.P. Morgan Securities LLC Nominee 937,825 1.55% UBS Switzerland AG Nominee 800,000 1.32% Nordnet Livsforsikring AS Regular 731,260 1.21% J.P. Morgan Chase Bank, N.A., London Nominee 700,000 1.15% Ro Lars Private 700,000 1.15% Goldman Sachs International Nominee 606,076 1.00% B.O. Steen Shipping AS Regular 495,000 0.82% Norron Sicav - Select Regular 450,000 0.74% Herfo Finans AS Regular 425,000 0.70%
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Skandinaviska Enskila Banken AB Nominee 332,864 0.55% KLP Aksjenorge Indeks Regular 313,270 0.52% Beddingen Finans AS Regular 313,216 0.52% Total, top 20 shareholders 49,298,859 81.33% Others 11,317,646 18,67% Total 60,616,505 100%
None of the shareholders have different voting rights attaching to their shares than other shareholders of the Ultimate Parent. 6.2 Management and Board of Directors of Ultimate Parent The Ultimate Parent's management is vested in the Board of Directors and the CEO. In accordance with Norwegian law, the Board of Directors is responsible for, among other things, supervising the general and day-to-day management of the Ultimate Parent's business ensuring proper organization; preparing plans and budgets for its activities ensuring that the Ultimate Parent’s activities, accounts and assets management are subject to adequate controls and undertaking investigations necessary to perform its duties. The CEO is responsible for the day-to-day management of the Ultimate Parent's operations within the business objective of the Ultimate Parent and in accordance with instructions set out by the Board of Directors. Among other responsibilities, the CEO is responsible for keeping the Ultimate Parent’s accounts in accordance with existing Norwegian legislation and regulations and for managing the Ultimate Parent’s assets in a responsible manner. In addition, at least once a month the CEO must report to the Board of Directors about the Ultimate Parent's activities, financial position and operating results. Board of Directors The Ultimate Parent's Articles of Association provide that the Board of Directors shall consist of a minimum of three and a maximum of nine members. The names and positions of the Directors, and the terms for which they have been elected, are set out in the table below.
Served As Term Position Director Since Expires Annette Beate Wacknitz Malm Justad ...... Chairperson December 2007 2017 Peter Ditlef Knudsen ...... Director March 2012 2018 Audun Stensvold ...... Director April 2016 2018 The Ultimate Parent's registered business address, Oksenøyveien 10, 1366 Lysaker, Norway, serves as c/o addresses for the members of the Board of Directors in relation to their directorships in the Ultimate Parent. Set out below are brief biographies of the Directors. Annette Malm Justad, Chairperson Annette Malm Justad has been a member of the Ultimate Parent’s Board of Directors since December 2007. From 2006 through 2010, she held the position of CEO of Eitzen Maritime Services ASA, a Norwegian marine shipping services company. Prior to that she has held various positions in large companies such as Yara International ASA, Norgas Carriers/IM Skaugen ASA, and Norsk Hydro ASA. Ms. Justad is chairman of the board of Store Norske Spitsbergen Kulkompani AS and SeaBird Exploration Plc, a member of the Board of Port of London Authority, Odfjell, and Awilco LNG ASA. Ms. Justad holds a Master degree of Technology Management from NTH/MIT (Sloan School)/NHH in addition to a MSc in Chemical Engineering from NTH. Ms. Justad is a Norwegian citizen. Ms. Justad holds 4,523 shares in the Ultimate Parent and has no stock options. She has been elected for the period 2015-2017.
Peter Ditlef Knudsen, Director Peter D. Knudsen has been the CEO of Jason Shipping ASA (Camillo Eitzen & Co. ASA) from November 2008 until January 2012, and CEO of Eitzen Maritime Services ASA (EMS) from June 2011 to October 2011. He has also served as member of the Board of Directors in Eitzen Chemical ASA and Eitzen Maritime Services ASA. He has previously worked with Christiania Bank og Kreditkasse/Nordea Bank for 15 years, and came from the position as General Manager of Nordea Bank in Singapore. Mr. Knudsen has also been employed with GIEK, Den norske Creditbank, Jøtun Fonds and Stemoco Shipping. He holds an MBA from Oslo Business School / Arizona State University (1979). Mr. Knudsen is currently member of the Board of Directors in Uglands Rederi AS, Grimstad (since May 2011) including various subsidiaries. He is a Norwegian citizen and holds 2,000 shares in the Ultimate Parent. Mr. Knudsen was re-elected for the period 2016-2018. 22
Audun Stensvold, Director Audun Stensvold is currently Investment Director of Aker ASA. Prior to his appointment as an investment director, he was CFO and Investment Director for Converto, which manages the Aker-owned Converto Capital Fund. He has also served as Vice President of Aker’s M&A and Business Development team. Before joining Aker, Mr Stensvold worked as a strategy and finance consultant for Selmer, and as a financial analyst for DnB NOR. Mr Stensvold holds a Masters degree in Business and Economics from the Norwegian School of Economics (NHH). Mr Stensvold is a Norwegian citizen and holds zero shares in the Ultimate Parent. Mr. Stensvold was elected to the Board of Directors at the Ultimate Parent's Annual General Meeting in 2016 for the period 2016-2018. Management The Ultimate Parent's management team consists of Pål Magnussen, President and CEO, Morten Bakke, CFO and Leigh Jaros, Controller and Finance Manager, being the only employees of the Ultimate Parent as of the end of 2016. Set out below are brief biographies of the members of management. Pål Lothe Magnussen, President/CEO Pål L. Magnussen was appointed President and CEO of AMSC effective 1 January 2015. He previously served as the Ultimate Parent’s CFO from 1 June 2014. A Norwegian national, Mr. Magnussen comes from the position as Director of the Investment Banking Division in DNB Markets where he has worked since 2007 focusing on the shipping and offshore sectors. Prior to that he worked for five years as Vice President of Corporate Banking in DNB Bank’s shipping and offshore division. He has significant experience from international shipping finance and has been based in New York, Singapore and Oslo. Mr. Magnussen holds an MBA from Columbia University, New York, and a Master of Science from the Norwegian School of Management, Oslo. He holds 50,000 shares in the Ultimate Parent.
Morten Bakke, CFO Morten Bakke was appointed Chief Financial Officer from April 2016. He has 14 years of corporate finance, shipping and offshore experience of which 10 years with DVB Corporate Finance in London and Oslo and previously with Chartered Accountants Moore Stephens and Credit Suisse, both in London. Mr. Bakke has advised multiple offshore, shipping and private equity firms on a variety of M&A deals and holds a MSC in Shipping, Trade and Finance from Cass Business School and BA in Business Studies from University of Greenwich. Mr. Bakke is a Norwegian national and holds zero shares in the Ultimate Parent.
Leigh Jaros, Controller Leigh Jaros joined AMSC as Controller in July 2008. Ms. Jaros has over 10 years of progressively responsible corporate financial experience including financial reporting, analysis and budgeting. Ms. Jaros was employed by Philly Shipyard as its Accounting Supervisor prior to joining AMSC. Ms. Jaros holds a Bachelor of Science in Finance and Economics from West Chester University. Ms. Jaros is a U.S. citizen and holds zero shares of stock in the Ultimate Parent. 6.3 Presentation of the Issuer American Tanker, Inc. (the Issuer) is a corporation incorporated under the laws of the State of Delaware on 30 March 2005. The Issuer’s business registration number is US-3899715. The Issuer is a sub-holding company of the Ultimate Parent and owns all the shares in American Shipping Corporation. The Issuer has no business activities other than holding the Profit Sharing Agreement. The registered office of the Issuer is 2711 Centerville Road, Suite 400, City of Wilmington 19808, County of New Castle, USA and its business address is 415 McFarlan Road, Suite 205, Kennett Square, PA, 19348, USA. The Issuer’s telephone number is +1 484-732-3021. Management and Board of Directors of the Issuer The Issuer’s Director, President, CEO, CFO, Secretary and Treasurer is Leigh Jaros. See Section 6.2 – Management and Board of Directors of Ultimate Parent - Management above for further information. The Ultimate Parent's registered business address, Oksenøyveien 10, 1366 Lysaker, Norway, serves as c/o address for the member of the Board of Directors in relation to the directorship in the Issuer.
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6.4 Presentation of ATHC American Tanker Holding Company, Inc. (ATHC) is a company incorporated under the laws of the State of Delaware on 19 December 2008. ATHC’s business registration number is US-4636250. The registered office of ATHC is 2711 Centerville Road, Suite 400, City of Wilmington 19808, County of New Castle, USA and its business address is 415 McFarlan Road, Suite 205, Kennett Square, PA, 19348, USA. ATHC’s telephone number is +1 484-732-3021. The company is a holding company owning all of the shares in American Tanker, Inc. and has no business activities. Management and Board of Directors of ATHC ATHC’s Director, President, CEO, CFO, Secretary and Treasurer is Leigh Jaros. See Section 6.2 – Management and Board of Directors of Ultimate Parent - Management above for further information. The Ultimate Parent's registered business address, Oksenøyveien 10, 1366 Lysaker, Norway, serves as c/o address for the member of the Board of Directors in relation to the directorship in the Issuer. 6.5 Disclosure of Conflicts of Interests There are currently no actual or potential conflicts of interest between the Company and/or the Guarantors and the members of the Board of Directors or management, including any family relationships between such persons as of the date of this Prospectus. 6.6 Dependence upon other Entities within the Group As AMSC’s operating cash flow is primarily composed of bareboat charter hire from the vessels owned by the individual AMSC leasing subsidiaries, the Issuer and AMSC are dependent upon the results of the operations of all of the AMSC leasing subsidiaries listed in Section 6.10 below. Furthermore, as the Issuer is a holding company with no business activities other than holding the Profit Sharing Agreement, the Issuer depends on distribution received from its subsidiaries to repay its indebtedness. See Section 6.10 below for further information on the material operational contracts of AMSC. 6.7 AMSC Business Overview All of the tankers in AMSC's fleet are bareboat chartered out to subsidiaries of OSG on long-term bareboat charters, and OSG time charters out these vessels to major oil companies, refineries and oil traders. AMSC's bareboat charter contracts with OSG provides stable cash flows based on fixed contracted daily rates of hire for the charter period with an annual bareboat hire to AMSC of approximately USD 88 million. Under a Profit Sharing Agreement with OSG, AMSC will also be entitled to share in the profits from OSG's operations of AMSC's ten tankers on a 50/50 basis, after certain deductions have been made, as further described in Section 6.10 - Material operational contracts of AMSC. The Jones Act market, which is the market for U.S. point-to-point maritime shipping, enjoys significant barriers to entry. These barriers result from the laws contained in 46 U.S.C. § 50501 and 46 U.S.C. Chapter 551 and related statutes and regulations, which are commonly referred to collectively as the “Jones Act”. Subject to limited exceptions, the Jones Act requires that vessels engaged in the Jones Act Trade be built in the United States, registered under the U.S.-flag, manned by predominantly U.S. crews, and owned and operated by Jones Act Citizens. The so-called “lease finance law” exception to these requirements permits leasing companies, banks, and financial institutions that are not Jones Act Citizens to own U.S.-flag vessels for operation in the Jones Act Trade, provided that they can make certain certifications and that the vessels are bareboat chartered to a Jones Act Citizen for a term of at least three years. The Company’s subsidiaries that own the tankers in its fleet have satisfied the requirements of the Lease Finance Law. American Shipping Company ASA is headquartered in Lysaker, Norway, with its shares listed on the Oslo Stock Exchange, and with its principal operating subsidiaries located in Kennett Square, Pennsylvania, USA. 6.8 AMSC Fleet The AMSC fleet consists of nine handysize product tankers and one handysize shuttle tanker (46,000 dwt) with an average age of 8 years, compared to an average age of 12 years2 for the rest of the Jones Act tanker fleet.
2 Source: Navigistic’s Wilson Gillette Report, December 2016
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The product- and shuttle tankers are self-propelled vessels with design features including special tank coatings, cargo segregations and piping systems that permit the simultaneous transportation of multiple grades of cargo. All of the ten vessels were built at Philly Shipyard, based on Hyundai Mipo Dockyard design, with the following key specifications, and key advantages compared to less modern Jones Act product tankers: Key Advantages Compared to Vessel Names Key Specifications Less Modern Vessels Overseas Houston Dwt: 46,000 Reduced maintenance Overseas Long Beach Cargo tanks: six pairs Reduced fuel consumption Overseas Los Angeles Accommodation: 26+6 Reduced noise and air Overseas New York persons emissions Overseas Texas City Speed: 15 knots Reduced crew size Overseas Boston Radius of action: 14,000 Highly flexible cargo system Overseas Nikiski nm Stainless steel piping system Overseas Martinez Overseas Anacortes Overseas Tampa (1) _____ (1) Overseas Tampa was converted to a shuttle tanker in 2014 (and consequently has some additional equipment/ specification deviating from the rest of the vessels) and is on a long term time charter from OSG to Shell for operation in the U.S. Gulf of Mexico. Each of the ten vessels is owned by individual AMSC leasing companies. Each of the individual leasing companies has bareboat chartered its vessel directly to a subsidiary of OSG who has chartered out the vessel under time charter to a major oil company (such as Shell, BP, Chevron, etc.), refinery or oil trader that employ the vessels in the Jones Act Trades.
Each of the individual leasing companies is party to either a term loan facility agreement (which covers eight of the vessels and for which BNP Paribas serves as agent) or a loan and security agreement (which covers two vessels and for which CIT Bank serves as agent). See Section 6.13 below - Group Financing for further information. 6.9 Material Contracts Neither the Group nor any member of the Group has entered into any material contracts outside the ordinary course of business which contains any provision under which any member of the Group has any obligation or entitlement which is material to the Group. Below in Section 6.10 - Material operational contracts of AMSC is a summary of the material operational contracts entered into by AMSC and its subsidiaries which are within the ordinary course of business of the Group, and in Section 6.13 – Group Financing is a description of AMSC’s financing agreements which are within the ordinary course of business of the Group. 6.10 Material Operational Contracts of AMSC OSG Charters Nine of the tankers in the fleet are bareboat chartered out to subsidiaries of OSG on long-term bareboat charters until December 2019, after which OSG has unlimited options to extend the charter period by one or more sequential optional periods of one, three or five years each, provided that the right to elect an optional period of one year may be exercised only once. The shuttle tanker Overseas Tampa is bareboat chartered out until June 2025, after which OSG has two five- year renewal options followed by five one-year renewal options. The table below shows the owners and bareboat charterers of each vessel. Owner Vessel name Bareboat Charterer ASC Leasing I, Inc Overseas Houston Overseas Houston LLC ASC Leasing II, Inc Overseas Long Beach Overseas Long Beach LLC ASC Leasing III, Inc Overseas Los Angeles Overseas Los Angeles LLC ASC Leasing IV, Inc Overseas New York Overseas New York LLC ASC Leasing V, Inc Overseas Texas City Overseas Texas City LLC ASC Leasing VI, Inc Overseas Boston Overseas Boston LLC ASC Leasing VII, Inc Overseas Nikiski Overseas Nikiski LLC ASC Leasing VIII, Inc Overseas Martinez Overseas Martinez LLC 25
ASC Leasing IX, Inc Overseas Anacortes Overseas Anacortes LLC ASC Leasing X, Inc Overseas Tampa Overseas Tampa LLC
The vessels are chartered out to the subsidiaries of OSG. The charters have the following terms: The OSG bareboat charters are contracts for leasing of the vessels from the individual leasing companies which are wholly-owned indirect subsidiaries of AMSC to the charterers which are wholly-owned indirect subsidiaries of OSG. The OSG charters are bareboat charter contracts (not time charters) meaning that the charterer (i.e. the subsidiaries of OSG) are responsible for providing the personnel/crew and management to operate the vessels, and have the commercial and navigational control of the vessels. OSG charterers are responsible for maintaining and taking out insurance for the vessels. Risks involved in the operation of the vessels, for example the risks of a vessel becoming unable to operate due to a breakdown, are OSG’s risk. The OSG charters are based on the standard BIMCO “BARECON 2001” suitably amended, with additional rider clauses. The OSG charters are comparable with financing arrangements, and contain terms which commonly are referred to as "hell and high water" terms, meaning inter alia that the charterer's (i.e. the subsidiaries of OSG) obligation to pay hire (i.e., the lease payments) is absolute irrespective of any contingency whatsoever, including the unavailability of the vessel for any reason, any set-off available to the charterer, or any other cause which might have the effect of terminating the charter (an exemption, or modification, to the above apply in respect of a total loss of the vessel, in which case the obligation of the OSG charterer to pay hire will cease upon occurrence of the total loss). In addition, OSG charters provide that the OSG charterer shall indemnify the owner against any loss, damage or expense arising out of or in relation to the operation of the vessel by the charterer. The bareboat charter contracts for Overseas Martinez and Overseas Tampa are guaranteed by OSG, and the bareboat charter contracts for Overseas Houston, Overseas Long Beach, Overseas Los Angeles, Overseas New York, Overseas Texas City, Overseas Boston, Overseas Nikiski and Overseas Anacortes are guaranteed by OSG America LP and OSG America Operating Company LLC. The annual bareboat hire to AMSC under the bareboat charter contracts is approximately USD 88 million. As of 31 December 2016, AMSC's fixed bareboat charter hire backlog (i.e. excluding any profit share) amounted to approximately USD 313.7 million. Any profit sharing contribution will come in addition to the fixed bareboat charter revenues, pursuant to the terms and conditions of the Profit Sharing Agreement with OSG, as further described in the section below (OSG Profit Sharing Agreement and OSG Credit). OSG time charters out the AMSC vessels to major oil companies, refineries and oil traders, and these time charterers have various options to extend the time charters with OSG. OSG Profit Sharing Agreement and the OSG Credit Under the Profit Sharing Agreement with OSG, the Issuer will share the profits (above a certain threshold) from OSG's operations of AMSC's ten tankers on a 50/50 basis. The amount of profit share is determined on an aggregated fleet basis. The calculation of profit share accordingly starts with total vessel revenue, from which is subtracted certain defined cost elements, as set out below: Element Explanation Time Charter hire Fleet revenue - BBC hire Bareboat rate paid by OSG to AMSC - OPEX Crew, maintenance and repairs, insurance, fees and vetting, lubes - OSG profit layer Fixed daily rate of USD 4,000/day (per vessel) - Management fee Fixed daily rate per vessel which escalates annually - Auditor expenses Actual OSG auditor expenses relating to the vessels - Amortization of start-up costs Amortized through December 2019 - Amortization of conversion costs3 Amortized over ten years - Any Combined Loss Carry forward Recovery of any net loss from the immediately preceding year
3 During 2014, the Overseas Tampa was converted to a shuttle tanker for a time charter to Shell, beginning in 2015. During the conversion period, the vessel did not earn time charter hire. As part of the conversion agreement, the conversion costs which were paid by OSG are amortized through an adjustment to profit sharing over ten years.
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= Profit share before drydock reserve Income subject to profit share before covering drydocking costs provision, drydock reserve true-up The remaining amount of profit share is then reduced by a "drydock reserve provision", adjusted for a drydock reserve true- up once a drydock has been completed. The drydock reserve provision includes the estimated costs for each intermediary repair period (which occurs every three years), in addition to each special survey occurring every five years. In connection with a restructuring of the AMSC / OSG transaction that occurred in 2009, the parties agreed that OSG would be given a credit in the amount of USD 18,167,921 (the “OSG Credit”). This OSG Credit was to be paid by the Company to OSG only out of the Company’s share of any profit to be shared from operation of the vessels (determined in the manner described below), meaning that the first USD 18,167,921 (plus accrued interest as described below) of profit to be shared that would otherwise be paid to the Company would be retained by OSG and used to offset or reduce the OSG Credit. The OSG Credit is payable to OSG only to the extent of Profit Share payable by OSG to the Company. When the OSG Credit has been reduced to zero, profit share will be paid to the Company in cash. As long as the OSG Credit remains outstanding, the outstanding portion accrues interest at the rate of approximately 2.3 percent per quarter. As of 31 December 2016, the outstanding OSG Credit was approximately USD 4.9 million. The Company anticipates that the OSG Credit will be reduced to zero at some point in the future, at which point the Company’s share of any profit to be shared will be distributed in cash to the Company under the Profit Sharing Agreement. As an example, the calculation of profit sharing for the last four quarters ended 31 December 2016 is shown with aggregated, rounded figures in USD millions below:
Note: Market rate not adjusted for utilization. AMSC’s 50% share of the profit split is used to reduce the OSG credit, to USD 4.9m as of end Q4 2016. When the OSG credit has been fully repaid, AMSC will receive its 50% share of the profit in cash. As of 31 December 2016, the total year-to-date profit to share amounted to approximately USD 20.4 million, (of which USD 10.2 million was AMSC’s portion). The amount payable to AMSC was applied to reduce the OSG Credit. As explained above, AMSC’s share of such profit to share will be retained by OSG and applied to the OSG Credit until the OSG Credit is reduced to zero. Once the OSG Credit balance has been reduced to zero, the Issuer will be entitled to receive 50% of the profit to share in cash. The cumulative balance as of 31 December 2016 for the OSG Credit is shown, with aggregated, rounded figures in USD millions, in the table below:
Balance per 31 December 2016:
Beginning balance Ending balance
as of 31 Dec 2015 Interest Reduction as of 31 Dec 2016
OSG credit 13.8 1.3 (10.2) 4.9
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6.11 Strengths and Strategies AMSC believes that the future prospects for success are enhanced by the following aspects of its business: Stable cash flows from long-term bareboat charters, and with upside potential through profit sharing. AMSC benefits from the stable cash flows associated with its long-term bareboat charters with OSG, which gave a fixed payment to
AMSC in 2016 of approximately USD 88 million providing a cash flow that satisfied debt service on both the senior secured and unsecured debt. For illustration purposes, see simplified illustration of AMSC’s estimated annual cash- flow (excluding profit share) below:
Modern, high quality fleet. AMSC has one of the youngest Jones Act tanker fleets, with an average age of approximately 8 years, compared to the average age of 12 years for the rest of the Jones Act tanker fleet, which the Issuer believes gives AMSC a competitive advantage and will allow it to capture new charter opportunities in the event that options on existing charters are not declared. The relatively young age of AMSC's vessels also allows OSG (or any future charterer of the vessels) to obtain attractive time charter rates which AMSC would benefit from through profit sharing. In addition, newer vessels are more fuel-efficient, cost-effective and environmentally sound than older vessels, while requiring less annual capital expenditures to maintain. As a result, the Issuer believes AMSC's vessels will be more attractive to customers with increasingly stringent vetting and inspection standards. The chart below illustrates average vessel age of AMSC tankers, other Jones Act tankers and ATBs, respectively:
Source: Navigistic’s Wilson Gillette Report, December 2016 28
Ability to generate cash even in the event of adverse market scenarios. AMSC's objective is to generate stable cash flows that will enable the Ultimate Parent to pay quarterly cash dividends to its shareholders, by being the preferred vessel leasing company in the Jones Act market and by pursuing strategic and accretive acquisitions of vessels on long-term charters. Blue chip end users. Global, market leading blue chip end users provide low default risk. OSG charters out the AMSC tankers to the likes of Shell, BP, Chevron and Conoco Phillips, four of which have investment grade credit ratings according to Standard & Poor’s, as well as refineries and oil traders. 6.12 History and Development The following table provides a summary of the AMSC's history and development, since its inception in 2005. 2005 ...... The Ultimate Parent was established by Aker ASA, under the trading name Aker American Shipping ASA. The Ultimate Parent took control of Kværner Philadelphia Shipyard AS, later renamed to Philly Shipyard. American Shipping Company ASA was listed on Oslo Stock Exchange. AMSC reached agreement with OSG for the bareboat charter-out of ten product tankers and placed a corresponding order for ten vessels at Philly Shipyard. 2007 ...... AMSC obtained take-out financing under the Bank Facility for the ten vessels and issued the Existing Bond. Philly Shipyard ASA was spun off and separately listed on Oslo Axess. AMSC took delivery of first three product tankers, the Overseas Houston, the Overseas Long Beach and the Overseas Los Angeles, and entered into an option agreement with Aker Philadelphia Shipyard for thirteen additional product tankers. An order was also placed for an additional two product tankers, which would be converted to the first shuttle tankers built in the United States. 2008 ...... AMSC took delivery of the fourth and the fifth product tankers, the Overseas New York and the Overseas Texas City. 2009 ...... AMSC reached agreement with OSG on a restructuring of their commercial agreements which resulted in the sale of the two shuttle tankers to OSG and the settlement of certain commercial disputes which had arisen between the companies. The sixth and the seventh product tankers, the Overseas Boston and the Overseas Nikiski were delivered. Nine option agreements with Philly Shipyard were cancelled. 2010 ...... AMSC took delivery of the eighth and the ninth product tankers, the Overseas Martinez and the Overseas Anacortes. 2011 ...... AMSC took delivery of the tenth product tanker, the Overseas Tampa. The maturity of the Existing Bond was extended by six years, to February 2018. 2012 ...... The maturity of the Bank Facility was extended to June 2016. The fixed terms of the bareboat charters with OSG were extended to December 2019. OSG filed for bankruptcy relief under Chapter 11 of the U.S. Bankruptcy Code. 2013 ...... Launched major recapitalization of AMSC including USD 120 million 29
private placement, conversion of subordinated debt to equity and amendments to vessel debt and bond issue. Negotiated agreement with OSG for conversion of one of the ten product tankers (the Overseas Tampa) into a shuttle tanker for a long term time charter with Shell. 2014 ...... Completed major recapitalization which raised approximately USD 128 million in cash and increased equity by approximately USD 166 million. Began paying quarterly dividends of USD 0.10 per share. OSG emerged from Chapter 11 bankruptcy with all of AMSC’s agreements assumed as part of OSG’s plan of reorganization. Overseas Tampa was converted to a shuttle tanker for a ten year time charter to Shell beginning in 2015. Invested USD 25 million in Philly Tankers with orders for two product tankers and options for two additional tankers. 2015 ...... Refinancing of secured vessel debt completed with USD450 million in new secured debt. Philly Tankers AS4 secured long-term time charters on its first two ships and declared its two options. In the third quarter of 2015, Philly Tankers AS agreed to sell its four product tanker shipbuilding contracts to a subsidiary of Kinder Morgan, Inc. for a total consideration of USD 568 million. The sale of each shipbuilding contract will occur immediately before delivery of the relevant ship, which deliveries are scheduled to occur between 31 December 2016 and 31 December 2017. 2016 ...... On 30 November American Endurance, the first of the Philly Tankers AS four newbuilds, was delivered to American Petroleum Tankers, a subsidiary of Kinder Morgan On 1 December, 2016 OSG completed its spin-off of its international flag business, renamed to International Seaways
4 The Ultimate Parent owns 19.61% of and holds a seat on Philly Tanker AS’ Board of Directors
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6.13 Group Financing Overview See overview of AMSC’s current debt repayment profile post the Bond Issue below:
Note: For accounting purposes the book value of the Existing Bond is USD 212 million, however the amount to be repaid including a 101 call option is USD 218million.
AMSC’s fleet consists of nine product tankers and one shuttle tanker. Each of AMSC’s ten vessels is owned by an individual leasing company, ASC Leasing I - X, Inc. Each leasing company has a bareboat charter contract for its vessel directly with a subsidiary of OSG who has chartered out the vessel under time charter to a major oil company, refinery or oil trader that employs the vessel in the Jones Act Trades.
AMSC’s primary source of liquidity has been net proceeds of borrowings and cash in-flows from operating activities. Each of the individual leasing companies is party to either a term loan facility agreement (which covers eight of the vessels and for which BNP Paribas serves as agent) or a loan and security agreement (which covers two vessels and for which CIT Bank serves as agent). The eight individual leasing companies that are party to the term loan facility agreement with BNP Paribas are each responsible for the debt on all eight vessels (i.e., the eight vessel loans are cross-guaranteed and cross- collateralized) and the two individual leasing companies that are party to the loan and security agreements with CIT are each responsible for the debt on both vessels (i.e., the two vessel loans are cross-guaranteed and cross-collateralized).
The bareboat charter hire from OSG is used to service in full AMSC's debt (interest and installments) under the Bank Facilities.
As of 31 December 2016, AMSC’s current assets were USD 51.7 million, of which USD 49.1 million was cash and cash equivalents, USD 2.3 million was cash held for specific uses and USD 0.3 million were trade and other receivables. As of 31 December 2016, AMSC’s non-current assets were USD 837.7 million, of which USD 779.5 million were its vessels, USD 30.6 million was the DPO receivable from OSG and USD 27.6 million was its investment in Philly Tankers.
As of 31 December 2016, AMSC’s current liabilities were USD 40.1 million, which comprised of interest-bearing short- term debt of USD 28.3 million and deferred revenues and other payables of USD 11.8 million. As of 31 December 2016 AMSC’s non-current liabilities were USD 653.6 million consisting of the Bank Facilities amounting to USD 431.6 million (net of USD 6.7 million of capitalized fees), the Existing Bond of USD 212.8 million, a loan from Aker ASA of USD 20 million, a deferred tax liability of USD 17.4 million and the long-term portion of derivative financial liabilities of USD 0.1 million. As of 31 December 2016, AMSC’s total liabilities (current plus non-current) amounted to USD 693.7 million.
AMSC’s interest-bearing loans and liabilities can be illustrated by the following table:
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Year Ended USD millions 31 December, 2016 2015 Non-current liabilities Secured loans ...... 403.3 430.3 Unsecured bond issue ...... 212.8 210.4 Loan from Aker ASA ...... 20.0 20.0 Total long term interest bearing loans 636,1 660.6
Current Liabilities Current portion of secured loans...... 28.3 10.1 Total interest bearing short term debt 28.3 10.1
Summary of secured loans BNP Paribas gross borrowings ...... 298.7 300.5 CIT Bank gross borrowings ...... 139.6 147.9 Less unamortized loan fees ...... (6.7) (8.0) Sum secured loans 431.6 440.4
Unsecured Existing Bond (Maturity 2018) Bond balance at beginning of period ...... 210.4 201.3 Interest added to bonds outstanding ...... - 6.7 Foreign currency impact ...... - - Gain on de-recognition ...... - - Plus amortization of discount and capitalized fees ...... 2.4 2.4 Sum Unsecured Existing Bond 212.8 210.4
Loan from Aker ASA (Maturity 2021) Principal amount 20.0 20.0 Sum Aker Loan 20.0 20.0
A further description of AMSC’s loans and liabilities is given below.
The Bank Facilities On 25 November 2015, funding was completed on USD 450 million of secured vessel debt. The new loans plus 20 million from the Aker Loan, along with approximately USD 45 million of cash, repaid the previous secured vessel debt of USD 492.4 million, which had a maturity in June 2016, and prepaid the interest rate swap contracts under the old loan of USD 14.2 million.
The USD 450 million loan is structured in two separate facilities; one being a USD 300 million facility secured by eight vessels with BNP Paribas, SEB and Credit Agricole as lenders and BNP Paribas as agent (the “BNP Paribas Facility”) and the other a USD 150 million facility secured by two vessels with CIT Bank, N.A., Prudential Capital Group and AloStar Bank of Commerce as lenders and CIT Bank as agent (the “CIT Facility” and together with the “BNP Facility”, the “Bank Facilities”).
The CIT Facility is structured as two separate vessel loans (each documented by a separate loan and security agreement), one with respect to the Overseas Martinez in the amount of USD 60,000,000 (the “Martinez Loan”), and one with respect to the Overseas Tampa in the amount of USD 90,000,000 (the “Tampa Loan”). The two loans are cross guaranteed and cross-collateralized by the borrowers, who are ASC Leasing VIII, Inc. with respect to the Martinez Loan and ASC Leasing X, Inc. with respect to the Tampa Loan. The maturity date of the Martinez Loan is five years after the closing date, i.e. 25 November 2020, and the maturity date of the Tampa Loan is ten years after the closing date, i.e. 25 November 2025. The Margin for both loans is 3.95% and the reference rate is LIBOR on both tranches. The principal of each loan shall be repaid in quarterly instalments with payment dates on 31 March, 30 June, 30 September and 31 December each year. The amount of the balloon on the Martinez Loan is USD 42.5 million, and the amount of the balloon on the Tampa Loan is USD 40 million. In addition to the cross guarantee given by each of the borrowers, the Martinez Loan and the Tampa Loan are also guaranteed by the Ultimate Parent, American Tanker Holding Company Inc, the Issuer, and American Shipping
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Corporation. The relevant loan shall be prepaid upon expiry of a charter contract unless an acceptable replacement charter is found with another charterer. There is also a mandatory prepayment event if changes in Jones Act regulations occurs which can be expected to have a material adverse effect (as defined in the CIT Facility) and upon a total loss of a relevant vessel.
The BNP Paribas Facility is structured as eight separate vessel loans (all documented in a single term loan facility agreement). The eight vessel loans are cross guaranteed and cross-collateralized by the borrowers, who are ASC Leasing I, Inc. through VII and IX. The maturity date of all eight vessel loans under the BNP Paribas Facility is five years after the closing date, i.e. 25 November 2020. The Margin is 2.90% and the reference rate is LIBOR on all tranches. The principal shall be repaid in monthly instalments with the first repayment falling on the thirteenth month following the closing date. Each installment up until and including the forty ninth month will be in the amount of USD 1,666,666.67 per month and each installment thereafter will be in the amount of USD 3,000,000. The installments are subject to a certain step-up in case of few long term charters for the relevant vessels). The balance of the loan is repayable on the maturity date. In addition to the cross guarantee given by each of the borrowers, the BNP Paribas Facility is also guaranteed by the Ultimate Parent, American Tanker Holding Company Inc., the Issuer, and American Shipping Corporation. The relevant tranches of the BNP Paribas Facility shall be prepaid upon expiry of a charter contract unless an acceptable replacement charter is found with another charterer. There is also a mandatory prepayment event if changes in Jones Act regulations occurs which can be expected to have a material adverse effect (as defined in the BNP Paribas Facility) and upon a total loss of a relevant vessel.
In addition to the mortgages referred to above, the Bank Facilities are secured by collateral assignments of the insurances, earnings and bareboat charters for the relevant vessels (and certain related guarantees of the relevant bareboat charters and related supplemental indemnifications by OSG) and other customary security.
Subject to certain exceptions, as of 31 December 2016, the BNP Paribas Facility and the CIT Facility restrict the payment of dividends by AMSC and its subsidiaries. Specifically, AMSC and its subsidiaries may pay cash dividends only if there is no default and AMSC is in compliance with its financial covenants under the loans. Beginning in 2019, dividends may be paid only if all ships remain on bareboat charter contracts.
Furthermore, the Ultimate Parent is subject to financial covenants under the Bank Facilities relating to minimum liquidity and collateral value, maximum leverage and debt service ratios. The Ultimate Parent was in compliance with all of its debt covenants as of 31 December 2016.
The Aker Loan The Ultimate Parent entered into on 6 September 2016 a USD 20 million loan with Aker ASA (as lender) and BNP Paribas (in its capacity as agent under the BNP Paribas Facility). The Aker Loan has an interest rate of 10.25% per annum.
The Aker Loan shall only be repaid (i) when sale proceeds are received (and then only with such sale proceeds) by the Ultimate Parent from a sale of the shares of Philly Tankers AS, (ii) when any dividends or other distributions from Philly Tankers AS are received (and then only with such dividend or distribution amount) and (iii), upon its maturity being the date falling 6 months after the termination date. The Aker Loan is fully subordinated to the Bank Facilities (but not the Bond Issue). The Ultimate Parent's shares in Philly Tankers AS are pledged as security for the Aker Loan.
Interest Rate Swaps In relation to the entering into of the BNP Paribas Facility, the borrowers under the BNP Paribas Facility entered into a mandatory interest rate swap with BNP Paribas, Credit Agricole and SEB related to the vessel debt financing.
The interest swap had a maturity five years at an average rate of 164 basis points for USD 210 million of the BNP Paribas Facility. Subsequent to year-end 2015, the borrowers entered into a four year interest rate swaps at an average rate of 93 basis points for an additional USD 90 million of the BNP Paribas Facility. On a combined basis, the secured debt has an average weighted tenor of six years and average weighted interest cost of LIBOR plus a 325 basis points margin.
The Existing Bond In February 2007, the Ultimate Parent issued the Existing Bond, with a nominal amount of NOK 700 million and initial maturity of 28 February 2012, later extended to 28 February, 2018. The call option price payable on the redemption of the Existing Bond is 101% of par plus interest on redeemed amount. Ocean Yield, through a subsidiary, holds 93% of the Existing Bond.
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Guarantees AMSC, ATHC, the Issuer and ASC, as guarantors of the Bank Facilities (see above), have provided irrevocable and unconditional on demand guarantees in favor of the lenders as security for all of the borrowers’ obligations under the respective Bank Facilities. The liability of each of the guarantors under the BNP Paribas Facility is limited to USD 420,000,000 plus any unpaid amount of interest, fees and expenses. The guarantees provided by the guarantors under the CIT Facility are unlimited.
In addition, under an amended and restated framework agreement, dated as of December 11, 2009 between AMSC (the Ultimate Parent and all its subsidiaries) and OSG and its subsidiaries, that are party to the various documents that constitute the AMSC / OSG transaction, all companies in the AMSC group have each agreed, jointly and severally, to indemnify OSG and its subsidiaries for any losses, damages, costs, etc. arising out of a breach by any of the companies in the AMSC group of any of their obligations under any of the AMSC / OSG transaction documents.
The ATI Loan As of 31 December 2016 the Ultimate Parent has extended an internal loan to the Issuer, amounting to USD 26.3 million. The loan is unsecured and carries interest at the higher of 9.5% or LIBOR + 6%. The loan is payable on demand by the Ultimate Parent.
The Ultimate Parent has also extended a second loan to the Issuer, made in connection with the vessel debt refinancing, amounting to USD 57.7 million (as at 31 December 2016). The loan is unsecured and carries an interest rate of 10%. The loan is payable on demand by the Ultimate Parent, provided that demand may not be made prior to the maturity date of the secured vessel debt.
6.14 Principal Factors Affecting AMSC's Results of Operations AMSC's business, financial condition, results of operations and cash flows, as well as the period-to-period comparability of AMSC's financial results, are affected by a number of factors; see Section 1 - Risk Factors. Some of the factors that have influenced the financial condition and results of operations during the periods under review and which are expected to continue to influence the business, financial condition, results of operations and cash flows, as well as the period-to-period comparability of AMSC's financial results, are: Ability to successfully employ vessels at economically attractive terms. AMSC's revenue is derived from long-term bareboat charters with OSG on the basis of fixed contracted daily rates of hire for the charter period, and share of profit from OSG's operations of AMSC's ten tankers under the Profit Sharing Agreement with OSG. The share of profit from OSG's operations of the tankers depends on OSG's ability to time charter out the tankers at economically attractive daily rates of hire. Up until 31 December, 2016, no cash profit share payments have been received from OSG, as the OSG Credit must be reduced to zero prior to any such cash payments. See Section 6.10 — Material operational contracts of AMSC above. Levels of demand for Jones Act product tankers. All of AMSC's tankers operate within the Jones Act Trade. The time charter hire OSG receives under its time charters, which impacts the potential profit share payable to the Issuer under the Profit Sharing Agreement, and AMSC's ability to employ its vessels at attractive rates as the current bareboat charters with OSG expire or are otherwise terminated, depends on the level of demand for Jones Act product tankers. Performance of counterparties. AMSC has during the period under review been exposed, and still is exposed, to significant counterparty risk with respect of its agreements with OSG. In November 2012, OSG and certain of its subsidiaries filed a petition in the U.S. Bankruptcy Court for the District of Delaware for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code, which permits reorganization of a company which is unable to service its debt or pay its creditors. On 9 January 2013, the U.S. Bankruptcy Court approved the motion of OSG to continue to perform all of its obligations under the bareboat charters and attendant agreements with AMSC; and to date, OSG has continued to fulfill its obligations towards AMSC. The revenues and expenses related to acquired vessels, and the sale of vessels. Investments in new vessels, and sale of vessels (or contracts relating thereto), have during the period under review significantly affected, and any additional investments may in the future significantly affect, AMSC's revenues and expenses. The following table sets forth information about the vessels that AMSC has acquired and sold between 1 January, 2007 and to the date of this Prospectus.
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Year Delivered Vessel name Year Built Yard to AMSC Overseas Houston ...... 2007 Philly Shipyard 2007 Overseas Long Beach ...... 2007 Philly Shipyard 2007 Overseas Los Angeles ...... 2007 Philly Shipyard 2007 Overseas New York ...... 2008 Philly Shipyard 2008 Overseas Texas City ...... 2008 Philly Shipyard 2008 Overseas Boston ...... 2009 Philly Shipyard 2009 Overseas Nikiski ...... 2009 Philly Shipyard 2009 Overseas Martinez ...... 2010 Philly Shipyard 2010 Overseas Anacortes ...... 2010 Philly Shipyard 2010 Overseas Tampa ...... 2011 Philly Shipyard 2011
Expenses relating to vessel upgrades and modifications. AMSC will from time to time have to upgrade its vessels, as a result of customer requirements, regulatory requirements or for other reasons. The tanker Overseas Tampa was in 2014 converted to a shuttle tanker as a consequence of OSG obtaining a long term time charter with Shell for a shuttle tanker for operation in the U.S. Gulf of Mexico. The cost of the conversion was paid by OSG, but is amortized (and thereby recovered by OSG) in the calculation of profit sharing under the Profit Sharing Agreement. Further, the U.S. Coast Guard has adopted regulations under NISA in July 2004 that impose mandatory ballast water management practices for all vessels equipped with ballast water tanks in U.S. waters. New ships constructed on or after 1 December, 2013 must comply with these standards on delivery. The deadline for installing these new systems on AMSC's vessels is tied to the first drydocking of each vessel after 1 January, 2016, except if operating in California, in which case the deadline is 1 January, 2018, in each case, subject to possible extension. AMSC estimates that the cost of these ballast water treatment systems for its vessels will amount to approximately USD 1 million per vessel. AMSC may recover some or all of the cost of installing these ballast water treatment systems from OSG through an increase in the bareboat charter rate over the remaining charter period of the vessels.5 Level of debt and the related interest expense. AMSC has financed its vessel acquisitions with debt. During the period under review, all bareboat charter hire from OSG has been applied to debt service under the Bank Facilities, the Existing Bond and to provide dividends to shareholders. 6.15 Use of Charter Hire from OSG Bareboat charter hire: The bareboat charter hire received by AMSC from OSG is used to service AMSC's debt under the Bank Facilities, and any surplus amounts of bareboat charter hire over scheduled debt service is used to pay interest on the Existing Bond, overhead expenses and dividends. Profit sharing element: As explained in Section 6.10 above (Material Operational Contracts of AMSC – OSG Profit Sharing Agreement), profit share (if any) from operation of the vessels is first reduced by a "drydock provision", and adjusted for a drydock reserve true-up once a drydock has been completed. The drydock reserve provision includes the estimated costs for each periodic regulatory inspection or "survey" of each vessel, including the special surveys that occur every five years and the intermediate surveys that occur between special surveys. When these drydock costs are covered, AMSC's portion of the remaining profit share will first be applied to the outstanding OSG Credit (if any). Once the OSG Credit is reduced to zero, the remaining portion of AMSC’s profit share will be paid to the Issuer in cash. As of the date of this Prospectus, the profits from OSG's operations of AMSC’s ten tankers that are attributable to AMSC under the Profit Sharing Agreement
5 In case of such upgrade costs, the charter hire under the respective bareboat charter shall be adjusted for the remainder of the charter period (including any optional periods), commencing on the date such costs are incurred, by an amount equal to the cost of compliance therewith divided by the number of days remaining in the “Agreed Useful Life” (defined as 25 years from delivery of the Vessel. Hence, if the bareboat charter is extended until the end of the Agreed Useful Life of the vessel, then the entire cost will be recovered. If the Bareboat Charter expires or is terminated prior to the end of the Agreed Useful Life of the vessel, then only a portion of the cost will be recovered.
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are used to reduce the OSG Credit. For more information about the Profit Sharing Agreement, see Section 6.10 — Material Operational Contracts of AMSC — OSG Profit Sharing Agreement. Under the CIT Facility, a profit share account has been established by the Issuer for each of the two vessels securing the CIT loan (the Overseas Martinez and the Overseas Tampa). The terms of the CIT Facility require that 10% of any profit share cash payment received from OSG shall be deposited into each of the two profit share accounts (i.e., a total of 20% of any profit share cash payment). The profit share accounts are pledged in favour of CIT Bank, N.A to secure the CIT loans. The Issuer may, from time to time, withdraw funds from the profit share accounts provided there is no event of default under the CIT Facility agreement. If the Issuer wishes to withdraw funds, it must submit a request to withdraw funds from the profit sharing account. Upon receipt of the request, and provided there is no amount then due and owing with respect to the CIT loan and there is no continuing default, CIT will transfer the requested funds from the profit sharing account to the Issuer. 6.16 OSG Deferred Principal Obligation As of 31 December 2016, OSG America L.P. (“OSP”), owed ASC Leasing I, Inc. through V (the relevant vessel owning companies) USD 30.6 million of long-term receivables relating to certain agreements originally entered into between ATI and OSG in June 2005 (as amended in December 2009 when they were assigned by OSG to OSP, and by ATI to the relevant vessel owning company (i.e., ASC Leasing I, Inc. II, III, IV or V)). AMSC refers to these long-term receivables as the "deferred principal obligation" (or the "DPO"). The agreements were structured to reduce OSG's cash cost during the start-up period for the Overseas Houston, the Overseas Long Beach, the Overseas Los Angeles, the Overseas New York and the Overseas Texas City, with the difference between the contracted bareboat charter rate and the cash rate set up as a loan from AMSC to OSG. As part of the DPO arrangement, OSG paid a reduced cash rate being on the first five vessels during the initial seven year fixed bareboat charter period, accruing a deferred principal obligation of up to USD 7 million per vessel. After the initial seven years, which ended in 2012, the DPO is repayable over 18 years including interest at 6.04%. If the bareboat charter for one or more of the mentioned vessels is terminated earlier, the DPO relating to the respective vessel(s) would become due immediately.
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7. FINANCIAL INFORMATION 7.1 Historical Financial Information of the Ultimate Parent The Norwegian Securities Trading Act and the Norwegian Securities Trading Regulations, implementing Commission Regulation (EC) no. 809/2004 implementing Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 regarding information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements, allow the Company to incorporate by reference information into this Prospectus that has been previously filed with the Oslo Stock Exchange or the Norwegian Financial Supervisory Authority in other documents. The audited consolidated annual financial statements of the Ultimate Parent as of and for the twelve months ended 31 December 2016 and 2015 are by this reference incorporated as a part of this Prospectus. Accordingly, this Prospectus is to be read in conjunction with these documents. Cross reference table The information incorporated by reference in this Prospectus should be read in connection with the following cross- reference table. References in the table to "Annex" and "Items" are references to the disclosure requirements as set forth in the Norwegian Securities Trading Act cf. the Norwegian Securities Trading Regulations by reference to such Annex (and Item therein) of Commission Regulation (EC) no. 809/2004. Page of Disclosure Reference Requirement Reference Document Document Annex VI Audited Annual Report 2016 of the Ultimate Parent: Item 3 cf. historical http://files.zetta.no/www-americanshippingco- Annex IX, financial com/upload/amsc_2016_annual_report_final_web_version.pdf Item 11.1 information for the Annual Report 2015 of the Ultimate Parent: Ultimate http://files.zetta.no/www-americanshippingco-com/upload/amsc_2015_annual_report_final1.pdf Parent Annex VI Audit Audit Report 2016 of the Ultimate Parent: Item 3 cf. reports for http://files.zetta.no/www-americanshippingco- 39-42 Annex IX, the Ultimate com/upload/amsc_2016_annual_report_final_web_version.pdf Item 11.1 Parent Audit Report 2015 of the Ultimate Parent: http://files.zetta.no/www-americanshippingco-com/upload/amsc_2015_annual_report_final1.pdf 40-41
7.2 Historical Financial Information of the Issuer The audited annual financial statements of the Issuer as and for the twelve months ended 31 December 2016 and 2015 and the related auditor reports thereto are attached to this Prospectus as Appendix A. 7.3 Auditing of Historical Annual Financial Information The historical annual financial information of the Issuer and the Ultimate Parent for the twelve months ended 31 December 2015 and 2016 has been audited. 7.4 Statement of no Material Adverse Change There has been no material adverse change in the prospects of the Issuer or the Guarantors since the end of the last financial period for which audited financial information has been published. 7.5 No Significant Change in the Group’s Financial or Trading Position There has been no significant change in the Group’s financial and trading position since the end of the last financial period for which audited financial information has been published. 7.6 Legal and Arbitration Proceedings As of the date of this Prospectus, neither Company nor the Guarantors are aware of any governmental, legal or arbitration proceedings during the course of the preceding twelve months, including any such proceedings which are pending or threatened, of such importance that they have had in the recent past, or may have, a significant effect on the Issuer’s or the Guarantors’ financial position or profitability. 37
7.7 Recent Events Relevant to Evaluation of Solvency of the Issuer or the Guarantors None.
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8. THE GUARANTEES Pursuant to the Bond Agreement, each of the Guarantors has irrevocably and unconditionally jointly and severally guaranteed to Nordic Trustee (on behalf of the bondholders) the punctual performance by each of the Issuer’s and any of the Guarantors’ obligations thereunder.
The Guarantee is an on-demand guarantee (Nw. pakravsgaranti), meaning that in the event that the Issuer or any of the Guarantors does not pay any amount when due under any of the Finance Documents (as defined in the Bond Agreement), the Guarantor shall immediately on demand pay that amount, and the Guarantor shall have no right of defence, reservation or objection to such demand for payment by Nordic Trustee (on behalf of the bondholders) and no conflict or dispute of whatsoever nature between Nordic Trustee and the Issuer or any of the Guarantors shall have an impact on the Guarantors’ obligation to pay under the Guarantee.
If any obligation guaranteed by any of the Guarantors is or becomes unenforceable, invalid or illegal, it shall, as an independent and primary obligation, indemnify Nordic Trustee immediately on demand against any cost, loss or liability it incurs as a result of the Issuer or any of the Guarantors not paying any amount which would, but for such unenforceability, invalidity or illegality, have been payable by as set out in the Bond Agreement on the date when it would have been due.
The maximum guarantee liability of each of the Guarantors is limited to USD 240,000,000 plus interest and costs.
Each Guarantor has waived all its rights under the provisions of the Norwegian Financial Agreements Act of 25 June 1999 no. 46 (not being mandatory provisions), including (without limitation) the rights set out in Sections 62 through 74 of that act (to the extent that Guarantors is deemed to be a guarantor pursuant to the Norwegian Financial Agreements Act).
See the Bond Agreement attached to this Prospectus as Appendix B for further information.
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9. REGULATORY REGIME 9.1 The Jones Act The Jones Act is the U.S. cabotage law that imposes certain restrictions on the ownership and operation of vessels in the U.S. coastwise trade (i.e., trade between points in the United States). The Jones Act applies to the transportation of cargo by water, or by land and water, between coastwise points in the United States either directly or via a foreign port, or for any part of the transportation. These laws are principally contained in 46 U.S.C. § 50501 and 46 U.S.C. Chapter 551 and related statutes and regulations and are commonly referred to collectively as the “Jones Act.” Subject to limited exceptions, the Jones Act requires that vessels engaged in U.S. coastwise trade be built in the United States, registered under the U.S.-flag, manned by predominantly U.S. crews, and owned and operated by Jones Act Citizens. A corporation must satisfy the following requirements to be deemed a Jones Act Citizen: (i) the corporation must be organized under the laws of the United States or of a state, territory or possession thereof; (ii) each of the chief executive officer and the chairman of the board of directors of such corporation must be a U.S. citizen; (iii) no more than a minority of the number of directors of such corporation necessary to constitute a quorum for the transaction of business can be non-U.S. citizens; and (iv) at least 75% of each class or series of stock in such corporation must be owned by Jones Act Citizens. 9.2 Qualified Leasing Company under the Jones Act The Jones Act generally requires that vessels operating in the Jones Act Trades be built in the United States, registered under the U.S. flag and owned and operated by Jones Act Citizens. However, as AMSC’s subsidiaries own the Company’s vessels through the Lease Finance Law exception to the Jones Act, there is currently no requirement that AMSC have any minimum level of ownership by Jones Act Citizens. In fact, AMSC may be wholly-owned by non-Jones Act Citizens. To own a Jones Act-qualified vessel, a subsidiary of AMSC must meet the following requirements of the Lease Finance Law: the subsidiary must satisfy the minimum requirements to own a U.S. flag vessel, which are that (i) it must be organized under the laws of the United States or of a state, territory or possession thereof, (ii) each of the chief executive officer and the chairman of the board of directors of the subsidiary must be a U.S. citizen, and (iii) no more than a minority of the number of directors of the subsidiary necessary to constitute a quorum for the transaction of business can be non- U.S. citizens; the subsidiary must be a leasing company that owns the vessel solely as a passive investment, does not operate any vessel for hire, is not affiliated with any company that operates any vessel for hire, and is independent from and not affiliated with any charterer of the vessel or any other person who has the right, directly, or indirectly, to control or direct the movement or use of the vessel; and the subsidiary must bareboat charter the vessel to a Jones Act Citizen for a term of at least three years. AMSC’s ten indirectly wholly-owned subsidiaries that hold title to the vessels currently fulfill these requirements. In furtherance of these requirements the Articles of Association of the Ultimate Parent contain restrictions on ownership of its shares by companies that operate any vessel for hire. 9.3 Environmental Regulation Government environmental regulation affects the operation of AMSC's vessels. The vessels are subject to treaties and conventions, U.S. federal, state and local laws and regulations relating to safety and health and environmental protection, including requirements related to the generation, storage, handling, emission, transportation, discharge and remediation of releases of regulated materials and operations. Violations of these laws may result in civil and criminal penalties, fines, injunctions or other sanctions. These treaties and conventions, U.S. federal, state and local laws and regulation include: OPA 90, which established a comprehensive federal liability regime, as well as prevention and response requirements, relating to discharges of oil in U.S. waters, which include the navigable waters and 200-mile Exclusive Economic Zone of the United States. OPA 90 imposes, among other things, joint and several strict liability (i.e., liability without fault) on responsible parties, defined as owners, operators and bareboat charterers, for removal costs and other damages arising from spills attributable to their vessels up to their limits of liability, unless the limits are broken, or unless the spill results solely from the act or omission of certain third parties under specified circumstances, an act of God or an act of war. An owner does not include a lender that does not participate in management of a vessel but holds indicia of ownership primarily to protect the security interest of the person in the vessel. For purposes of its liability limits and financial responsibility and response planning requirements, OPA 90 differentiates between tank vessels and “other vessels.” OPA 90 expanded pre-existing financial responsibility requirements and requires vessel operators (i.e. the person who conducts the operation of or is responsible for the operation of the vessel) to establish and maintain 40
Certificates of Financial Responsibility with the U.S. Coast Guard as evidence of insurance or qualification as a self- insurer or other evidence of financial responsibility sufficient to meet their potential liabilities under OPA 90. Any vessel without the necessary evidence of financial responsibility is subject to seizure by and forfeiture to the United States. The regulations also implement the financial responsibility requirements of the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), which imposes liability for discharges of hazardous substances such as chemicals, similar to OPA 90, and provides compensation for cleanup, removal and natural resource damages. Liability per vessel under CERCLA is limited to the greater of USD 300 per gross ton or USD5 million, unless the incident is caused by gross negligence, willful misconduct, or a violation of certain regulations, in which case liability is unlimited. In addition, OPA 90 amended the U.S. Clean Water Act (the "CWA") to require the owner or operator of certain facilities or of a tank vessel to prepare facility or vessel response plans and to contract with oil spill removal organizations to remove, to the maximum extent practicable, a worst-case discharge. OPA 90 allows states to impose their own liability regimes with respect to oil pollution incidents occurring within their boundaries and many states have enacted legislation providing for unlimited liability for oil spills. Some states have issued regulations addressing financial responsibility and vessel and facility response planning requirements. Effective 21 December 2015, the OPA 90 regulations were amended to increase the liability limits for responsible parties for non-tank vessels to USD1,100 per gross ton or USD 939,800, whichever is greater, and for tank vessels the maximum limits of liability are the greater of USD3,500 per gross ton or USD 25,845,600. Under revised procedures, the Coast Guard will conduct an evaluation every three years to determine whether liability limits should be increased further. The CWA, enacted in 1972, prohibits the discharge of “pollutants,” which includes oil or hazardous substances, into navigable waters of the United States and imposes civil and criminal penalties for unauthorized discharges. The CWA complements the remedies available under OPA 90 and CERCLA. The AMSC affiliates, as owners of the vessels bareboat chartered to OSG, may be considered a “responsible party” along with OSG, as bareboat charterer, for liability related to the oil spill and removal costs if the affiliates do not qualify as a “lender.” The U.S. Act to Prevent Pollution from Ships (the "APPS"), which implements, in part, the International Convention for the Prevention of Pollution From Ships, 1973 as modified by the Protocol of 1978 ("MARPOL") in the United States. MARPOL is the main international convention covering the prevention of pollution of the marine environment by ships from operational or accidental causes. MARPOL has six specific annexes. APPS incorporates into U.S. law, Annex I, which governs oil pollution; Annex II, which governs noxious liquid substances; Annex V which governs garbage pollution; and Annex VI governs air pollution. Since the 1990s, the U.S. Department of Justice has been aggressively enforcing U.S. criminal laws against vessel owners, operators, managers, crewmembers, shoreside personnel, and corporate officers for actions related to violations of APPS, in particular, to violations of Annex I and Annex V. Among other things, MARPOL Annex I requires that operational discharges, such as machinery space bilge water, must pass through pollution prevention equipment that separates the oil from the water and monitors the discharge of bilge water to ensure discharges to not exceed 15 ppm. In addition, MARPOL Annex I mandates strict record keeping requirements for operational discharges and requires a shipboard oil pollution emergency plan. MARPOL Annex V governs the discharge of garbage from ships and imposes a general strict prohibition on the discharge of all garbage unless the discharge is expressly provided for under the regulations, and imposes strict garbage management procedures and documentation requirements, applicable to vessels (and fixed and floating platforms) in U.S. waters and the special area for the Wider Caribbean region including the Gulf of Mexico and the Caribbean Sea,.. MARPOL defines certain sea areas as "special areas", in which, for technical reasons relating to their oceanographically and ecological condition and to their sea traffic, the adoption of special mandatory methods for the prevention of sea pollution is required. The U.S. National Invasive Species Act (the "NISA"), was enacted in 1996 in response to growing reports of harmful organisms being released into U.S. waters through ballast water taken on by vessels. The U.S. Coast Guard adopted regulations under NISA in July 2004 that impose mandatory ballast water management practices for all vessels equipped with ballast water tanks in U.S. waters. These requirements could be met by performing mid-ocean ballast exchange, by retaining ballast water on board the vessel, or by using environmentally sound ballast water treatment methods approved by the Coast Guard. In March 2012, the Coast Guard amended its regulations on ballast water management by establishing standards for the allowable concentration of living organisms in a vessel’s ballast water discharged in United States waters. The final rule sets limits to match those set internationally by IMO in the International Convention for the Control and Management of Ships Ballast Water and Sediments (the “Ballast Water Convention”). In most cases vessels will be required to install and operate a ballast water management system (“BWMS”) that has been type-approved by the Coast Guard. A vessel’s compliance date varies based upon the date of construction and ballast water capacity. New ships constructed on or after 1 December 2013 must comply with these standards on delivery. The deadline for installing these new systems on the AMSC's vessels is tied to the first dry- docking of each vessel after January 1, 2016, subject to possible extension. If a vessel intends to install a BWMS prior to the applicable compliance date and the Coast Guard has not yet type-approved systems appropriate for the vessel’s
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class or type, the vessel may install an Alternate Management System (“AMS”) that has been approved by a foreign- flag administration pursuant to the IMO’s Ballast Water Convention if the Coast Guard determines that it is at least as effective as ballast water exchanges. If an AMS is installed prior to the applicable compliance date, it may be used until five years after the compliance date, which is intended to provide sufficient time for the manufacturer to obtain Coast Guard approval. At present, the Coast Guard has issued type-approvals to three BWMS manufacturers. Now that three BWMSs have been approved, operators can no longer request an extension on the basis that no type- approved systems are available. Rather, an operator must demonstrate that one of the accepted methods in the regulations, including installation of a Coast Guard type approved system, is not possible for purposes of compliance with the regulatory implementation schedule. The Coast Guard will consider a number of factors when evaluating an extension request including the lead time required to contract and install a U.S. type-approved BWMS, issues related to limited market and manufacturing capabilities, and limited shipyard capacity. In lieu of the AMS option, vessel owners and operators may request an extension of the BWMS requirements. AMSC estimates that the cost of these ballast water treatment systems for its vessels will amount to approximately USD 1 million per vessel. So long as the vessels remain on bareboat charter to OSG, this will be compensated by OSG through an increased bareboat charter rate over the remaining useful life of the vessels. In addition to the federal standards, states have enacted legislation or regulations to address invasive species through ballast water and hull cleaning management, and permitting requirements, which in many cases have also become part of the state’s 2013 VGP certification. California, for example, requires vessels to comply with its own ballast water discharge and hull fouling requirements. Numerous other states have also added more stringent requirements to their certification of the 2013 VGP (discussed below). The CWA prohibits the discharge of "pollutants", which includes oil or hazardous substances, into navigable waters of the United States and imposes civil and criminal penalties for unauthorized discharges. The CWA complements the remedies available under OPA 90 and CERCLA. The CWA also established the National Pollutant Discharge Elimination System ("NPDES") permitting program, which governs discharges of pollutants into navigable waters of the United States. Pursuant to the NPDES, EPA issued a Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels (“2008 VGP”), which was in effect from 6 February, 2009 to 19 December 2013, covering 26 types of discharges incidental to normal vessel operations. The 2008 VGP was replaced by the Phase II VGP Regime ("2013 VGP"), which became effective on 19 December 2013. Like the 2008 VGP, the 2013 VGP applies to U.S. and foreign-flag commercial vessels that are at least 79 feet in length, and therefore applies to the AMSC’s vessels. The 2013 VGP has implemented more stringent requirements than the 2008 VGP. For example, with regard to ballast water discharge standards, the 2008 VGP requirements for ballast water were minimal, whereas the 2013 VGP implements numeric technology-based effluent limitations that replace the non-numeric based best management practice requirements in the 2008 VGP. The 2013 VGP also contains more stringent effluent limits for oil-to-sea interfaces and exhaust gas scrubber washwater, which seeks to improve environmental protection of U.S. waters, by requiring all vessels to use an Environmentally Acceptable Lubricant (EAL) in all oil-to-sea interfaces, unless not technically feasible. Pursuant to a Memorandum of Understanding entered into between the U.S. Coast Guard and EPA on February 11, 2011, the Coast Guard identifies and reports to EPA detected VGP deficiencies, and EPA retains responsibility and enforcement authority to address VGP violations. Failure to comply with the VGP may result in civil or criminal penalties. Section 401(d) of the CWA permits individual states to attach additional limitations and requirements to federal permits, including the 2013 VGP, that are necessary to assure that the permit will comply with any applicable CWA-based effluent limitations and other limitations, standards of performance, prohibitions, effluent standards, or pretreatment standards, and with any other appropriate requirements of that state. Pursuant to this authority, several states have specified significant, additional requirements that became a condition of the 2013 VGP. As a result, in addition to the 2013 VGP requirements, a permit may not be issued until the owners and operators of a vessel have met specific state conditions in accordance with Section 401 of the CWA, if applicable. A Notice of Intent to be covered by the 2013 VGP has been filed with the EPA for each of the Company’s ships. The next VGP is scheduled for implementation in 2018 which could result in even more stringent requirements. The U.S. Resource Conservation and Recovery Act (the "RCRA"), or comparable state requirements regulate the disposal of hazardous waste or hazardous substances at offsite disposal facilities. With respect to AMSC’s marine operations, the EPA has a longstanding policy that RCRA only applies after wastes are "purposely removed" from the vessel. The degree of RCRA regulation will depend on the amount of hazardous waste a generator generates in any given month. Moreover, vessel owners and operators may be subject to more stringent state hazardous waste requirements in those states where they land hazardous wastes. If such materials are improperly disposed of by third parties that AMSC contracts with, AMSC may still be held liable for cleanup costs under applicable laws. The U.S. federal Clean Air Act (the "CAA") required the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. The CAA also requires states to submit State Implementation Plans ("SIPs"), which are designed to attain national health-based air quality standards throughout the United States. The EPA and some states have each proposed more stringent regulations of air emissions from propulsion and 42
auxiliary engineers on oceangoing vessels. In particular, the California Air Resources Board (“CARB”) has published regulations requiring oceangoing vessels calling on California ports to reduce air pollution through the use of low sulfur marine distillate fuels once they sail within 24 miles of the California coastline. The state of California also requires certain vessels to either shut down their auxiliary engines while in port in California and use electrical power supplied at the dock or implement alternative means to significantly reduce emissions from the vessel's electric power generating equipment while it is in port. In addition, Annex VI of MARPOL, as implemented in the U.S. by APPS, addresses air emissions, including emissions of sulfur and nitrous oxide (“NOx”), from vessels, requires the use of low sulfur fuels worldwide in both auxiliary and main propulsion diesel engines on vessels. These requirements will become more stringent over the next few years. More stringent sulfur and NOx requirements apply in designated Emission Control Areas (ECAs), as approved by IMO. There are currently four ECAs worldwide, the Baltic Sea ECA, North Sea ECA, North American ECA, and U.S. Caribbean ECA. The North American ECA encompasses all waters, with certain limited exceptions, within 200 nautical miles of Hawaii and the U.S. and Canadian coasts. The U.S. Caribbean ECA includes waters adjacent to the Commonwealth of Puerto Rico and the U.S. Virgin Islands out to approximately 50 nautical miles from the coastline. As of 1 January 2015, vessels operating in an ECA must burn fuel with a sulfur content no greater than 0.1%. Further, marine diesel engines on vessels constructed on or after 1 January 2016 that are operated in an ECA must meet the stringent NOx standards. In addition, the current global sulfur cap of 4.5% sulfur was reduced to 3.5% effective 1 January 2012 and will be further reduced to as low as 0.5% sulfur in 2020. The EPA and U.S. the Coast Guard are increasing their coordinated inspection and enforcement efforts to monitor compliance with the sulfur emissions restrictions. Failure to comply with these requirements may result in civil penalties up to USD 25,000 per violation, per day, subject to statutory inflation. All of the AMSC vessels are operated in compliance with Annex VI. The U.S. Endangered Species Act, federal conservation regulations and comparable state laws protect species threatened with possible extinction. Protection of endangered and threatened species may include restrictions on the speed of vessels in certain ocean waters or changes in route. For example, in an effort to prevent the collision of vessels with the North Atlantic right whale, federal regulations restrict the speed of vessels to ten knots or less in certain areas along the Atlantic Coast of the United States during certain times of the year. The reduced speed and special routing along the Atlantic Coast results in the use of additional fuel, which affects AMSC's results of operations. AMSC's vessels are subject to periodic inspections by the U.S. Coast Guard and periodic inspections and surveys by others, and enforcement action by the U.S. Coast Guard, U.S. Environmental Protection Agency, U.S. Customs and Border Protection, among others.
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10. OSG Information in this chapter has been sourced from the webpage of OSG http://www.osg.com/ and other public information. Overseas Shipholding Group, Inc. was incorporated in 1969 and is a provider of energy transportation services, delivering crude oil and petroleum products throughout the United States. OSG owns and operates a combined fleet of 24 vessels, registered and operating in the U.S. Jones Act market, but also internationally. Its fleet includes 14 tankers and 10 ATBs. The vessels predominately operate on medium to long-term time charters which contributes to predictable revenue streams, independent of the volatility in the spot market.
Source: OSG’s webpage, Navigistic’s Wilson Gillette Report, December 2016 and Arctic Securities. MV Lawrence Gianella not included in the U.S. Fleet.
Source: OSG’s webpage In November 2012, OSG and certain of its subsidiaries filed a petition in the district of Delaware for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code, which permits reorganization of a company which is unable to service its debt or pay its creditors.
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On 5 August 2014, OSG emerged from Chapter 11 bankruptcy protection when its plan of reorganization became effective. Under the terms of the plan, all AMSC agreements with OSG were assumed and accepted on the effective date. As charterer of AMSC’s vessels, OSG continued to service its financial obligations to AMSC in 2014 on time, including the first instalments on the deferred principal obligation (as discussed in section 6.16) OSG has always serviced its financial obligations to AMSC in full and on time, also during the entire period of its bankruptcy filing. On 15 July 2016, OSG filed a registration statement with the SEC setting out its intention to spin-off its International Flag business (OIN), dividing OSG and OIN into two independent entities with independent owners and management to better enable both firms to focus on its core activities without fighting for resources and senior management. On 26 September 2016, OSG International filed an 8-K form to the SEC with the required acceptance to upstream USD 100 million from OIN to OSG (i.e. following the spin-off of OIN, these funds would remain with the U.S. Jones Act part of the business). On 21 October 2016, OSG announced that its Board of Directors had approved the spin-off of its International Flag business. On 1 December 2016, OSG announced it had completed the spin-off of its International Flag business, International Seaways, with the new stock being tradable as per 1 December 2016. 100% of the shares in International Seaways were distributed to OSG shareholders and warrant holders as part of the spin-off. OSG’s net income (pro-forma adjusted for the spin-off of International Seaways) amounted to USD -46.0 million during the first nine months in 2016. As of 30 September 2016 OSG had USD 523.1 million of long-term debt and cash of NOK 203.1 million, and the book equity ratio was 23.3%. For further information, please see SEC filing on FORM 8-K, dated 5 December 2016: http://www.osg.com/Cache/36969576.pdf.
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11. INDUSTRY OVERVIEW 11.1 Introduction AMSC’s vessels operate in the protected U.S. domestic or Jones Act Trade. Originally enacted as the Merchant Marine Act, 1920, the Jones Act is a federal statute that generally provides for the promotion and maintenance of the American merchant marine. In particular, the Jones Act requires that all goods transported between points in the United States must be carried on vessels built in the United States, registered under the U.S. flag, predominantly crewed by U.S. citizens, and owned and operated by U.S.-organized companies that are controlled and at least 75% owned by U.S. citizens. Since its enactment, there have been some attempts without success to repeal the Jones Act or weaken its requirements. These attempts have failed due to an active lobby supporting the Jones Act and the general perception that the Jones Act is important for the national security of the United States and the maintenance of its U.S. naval forces and merchant marine. However, the Jones Act has been waived on certain occasions – most recently in response to Hurricane Sandy in 2012, but also in response to Hurricanes Katrina and Rita in 2005. These waivers, which may only be granted in the interest of national defense, lasted for short periods of time (10-14 days) where movements of petroleum products between U.S. ports was opened for foreign-flag vessels. The Jones Act tanker fleet peaked in 2009 as a number of vessels were delivered ahead of the phase-out of single hull vessels through 2013 which resulted in a considerable reduction of the fleet. The regulatory phase-out of tonnage was driven by increased attention to environmental issues after the Exxon Valdez accident in 1989 and the implementation of OPA 90 which stated that all single hull vessels either had to be converted to double hull or scrapped. While scrapping was the preferred solution for tankers, ATB owners to a higher degree opted to convert units – leading to a portion of today’s fleet being relatively old. As construction of commercial tanker tonnage at U.S. yards is expensive compared to construction at Asian yards and the availability of yard capacity is limited, the timely replacement of old vessels has presented a challenge which has resulted in supply tightness in recent years. Although recent deliveries of tankers at U.S. yards have increased the supply of available Jones Act tankers, AMSC believes these conditions will continue to limit the construction of Jones Act tankers. The U.S.-flag domestic trade in petroleum products and chemicals is now carried by 91 vessels with a total capacity of 23,740 million barrels according to Navigistics. Out of these 91 vessels, 42 are tankers and the remaining 49 are Articulated Tug Barges (ATBs). Jones Act Tanker Industry Fundamentals Dynamics in the Jones Act tanker industry are impacted fundamentally by the demand for U.S. domestic marine transportation of crude oil, refined petroleum products and chemicals and the available supply of vessels. AMSC believes the following Jones Act industry trends could impact daily rates positively after the slowdown in the market over the past year: The market enjoys significant barriers to entry. The Jones Act limitation on foreign-owned and/or constructed vessels protects the U.S. point-to-point maritime shipping market from foreign competition. General Dynamics Nassco Shipyard and Philly Shipyard are the predominant yards and both have significant market shares basically controlling the market for construction of Jones Act tankers in the Jones Act tankers industry. The number of Jones Act qualified tankers has increased significantly over the past year with a current Jones Act tanker fleet of 42 vessels and an orderbook of 5 tankers, all to be delivered by the end of 2017. This has put some downward pressure on the market, with current short term rates as low as at USD 38,000/day. Increased U.S. production of crude oil and chemicals. Rystad Energy published the results of their report on shale oil based on three years of research concluding that the U.S. has the second largest recoverable oil reserve in the world. Furthermore, Rystad estimates that the U.S. will reach self-sufficiency by 2019 and that total shale gas and tight oil formation production to exceed 22 million barrels of oil equivalent per day by the end of 2020 (Financial Times, 2016). Shale producers are however continuing to invest into R&D to increase efficiency and some firms have reached break-even prices as low as USD30 per barrel, making them realise profits in a market where OPEC has maintained production to defend market share. Ongoing market consolidation The market has over the past years witnessed consolidation where the five largest owners and operators now control 65% of the total tanker and ATB fleet. Scrapping: As older vessels come of charter the owners will have to consider the required high investments costs (maintenance, repair, drydock, etc.) to continue trading compared to current rates and earnings environment, with the expectation that at current rates the owners are better off with scrapping the vessels. There are 6 tankers and 16 ATBs 30 years or older, all of an age where scrapping will be considered over the next couple of years.
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U.S. refinery and pipeline capacity driving increased reliance on coastwise transportation. Marine transportation provides a critical link between a number of major refined petroleum product producing and consuming regions of the United States. The growth in U.S. Gulf of Mexico refinery capacity and refinery closures in the Northeast and in the Caribbean have further accentuated the refined petroleum product surplus on the U.S. Gulf Coast and the supply deficit in the U.S. Atlantic States, driving additional demand for coastwise transportation. There are currently only two pipelines (the Colonial and the Plantation) that carry refined petroleum products from the U.S. Gulf of Mexico to the U.S. Mid-Atlantic and Southern Atlantic regions, and they are operating at full or near full capacity. While a number of pipeline projects to move crude out of Canada, Texas and the Bakken region are scheduled to come on line over the next few years, the rapid growth in shale and unconventional oil production is outpacing the construction of pipeline capacity. Tankers and barges, as well as rail, are expected to be widely used to supplement the insufficient pipeline capacity and cover routes not practicably covered by pipelines.
11.2 Trade Patterns in the Jones Act Product Carrier Industry The Jones Act encompass all goods moved between U.S. ports – including dry bulk, containers, ro-ro, crude and refined petroleum products. The latter two is transported by pipelines, marine transportation, trucks and railroads. Historically waterborne transportation has been the most important mode of transportation for refined petroleum products after pipelines. Rail cars and trucks are generally only cost-effective for moving refined petroleum products over short distances. Marine transportation provides a vital link between onshore and offshore oil fields, major refined petroleum product producing locations and consuming regions of the United States. A number of areas along the U.S. coast have access to refined petroleum products mainly by marine transportation. The areas are often referred to as different “PADDs”, a system dividing the country into five areas where PADD 1 is the East Coast (blue), PADD 2 is the Midwest (red), PADD 3 is the Gulf Coast (grey), PADD 4 is the Rocky Mountain (light blue) and PADD 5 is the West Coast including Alaska and Hawaii (purple), as shown on the map below.
Source: AMSC
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Within Jones Act AMSC considers the following main trade routes to be relevant for AMSC, OSG and other product carrier players: Clean – U.S. Gulf Coast, which historically has been the trade route from gulf refineries to Florida (Tampa, Port Everglades) and Lower Atlantics (Savannah, Jacksonville), with the route towards Tampa being seen as key with significant volumes at 325kbblspd. For this trade the main product is gasoline, given the lack of pipeline access in Tampa. Crude oil, is mainly movement of U.S. Shale Oil to U.S. Gulf Coast and Mid-Atlantic refineries and has increased significantly in volume and importance in recent years, with Texas based Eagle Ford and Permian being big contributors. This category also includes crude from offshore Gulf of Mexico which falls outside the existing offshore pipeline system. West Coast, which is divided into two main routes being crude from Alaska to refineries in the Pacific Northwest and crude/product from Pacific Northwest to California. Historically, movement of products from refineries in Washington to San Francisco or Long Beach was the main focus, however also here a shift has occurred as a result of increased U.S. Shale Oil volumes being transported from primarily Bakken. Chemicals, which involves chemicals and specialty products transportation primarily between U.S. Gulf and Atlantic Coast, seen by many as a ‘niche-within-a-niche’ trade. Military Sealift Command, which involves charters of commercial Jonas Act vessels by the military. 11.3 The Types of Vessels in the Jones Act Product Carrier Industry There are three main types of units in the Jones Act product carrier industry: Product tankers. These are self-propelled vessels that carry crude oil or other liquid product cargo in bulk in integrated tanks. Jones Act tankers range in size from 30,000 to 52,000 dwt capacity with cargo carrying capacity of 240,000 to 340,000 barrels. Larger Jones Act tankers, ranging from 125,000 to 188,000 dwt, are used exclusively in the ANS trade (which is not part of AMSC’s definition of the Jones Act fleet). Articulated tug barges. Articulated tug barges, or ATBs, are tank barges that are mechanically linked with a paired tug. The tug fits into a notch at the stern of the barge with a mechanical connection to lock the two together. The tug can separate from the barge when desired. ATBs are fully ocean-going vessels. Jones Act ATBs in the coastal product trades range in size from 50,000 barrels to 330,000 barrels. Inland tank barges. These are smaller tank barges, which typically range in size from 10,000 to 25,000 barrels, and are used exclusively on inland waterways such as the Mississippi River and the Gulf and Intercostal Waterway (GIWW). One tug may operate in a three barge arrangement (called a unit tow) or in a line-haul fashion, which involves pushing multiple barges wired together. Inland tank barges cannot travel outside of a protected waterway and, therefore, do not compete with Jones Act coastwise tankers. Product tankers and large ATBs (i.e. those with over 140,000 barrel capacity) compete in similar markets. The two types of vessels compare as follows: Product tankers are more expensive to build than ATBs, and are from 1/1/2016 required to be built under the North American Emission Control Area Standards (ECA), which according to Navigistics will increase the cost for a new Jones Act Tier III 50,000 DWT MR product tanker to between USD145 and USD 150 million. It can also be assumed that fuel consumption for the Tier III will increase by one ton per day on a MR tanker. ATBs typically have lower operating costs primarily driven by lower manning requirements as ATBs can be crewed using a two-watch system, in which crews work six-hour shifts, with six hours off between each shift. The U.S. Coast Guard requires that product tankers operate with a three-watch system, in which crews work four-hour shifts, with eight hours off between each shift. The typical operating costs for a product tanker is approximately USD24,000 per day. By comparison, typical operating costs for a 250,000-barrel capacity ATB ranges from approximately USD 11,000 to USD 13,000 per day. These operating costs include crew, insurance, maintenance and repair expenses, but exclude fuel costs, port charges and capital costs. Product tankers have significantly better deliverability. Tankers are generally larger, faster, more flexible and more capable of operating at their maximum capabilities in a wider range of adverse weather conditions, providing better delivered costs in most Jones Act petroleum trades than are provided by ATBs. Product tankers have significantly better fuel economy due to better hull hydrodynamics and propulsion efficiency than ATBs.
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11.4 The Supply of Vessels in the Jones Act Product Carrier Industry As mentioned, the Jones Act product carrier fleet has declined since its peak in 2009, however there has been seen an uptick in recent years as the market is taking delivery of tonnage ordered when the oil price was reaching its previous high. The fleet currently comprises 42 product tankers and 49 ATBs. Below is a detailed breakdown of the current fleet according to Navigistics. Please note Navigistics does not include the military sealift command “Lawrence Gianella”.
Jones Act Vessels Tankers Barges Total Number 42 49 91 Total Capacity (Barrels in thousands) 13,989 9,751 23,740 Minimum Capacity (Barrels in thousands) 238 143 143 Maximum Capacity (Barrels in thousands) 570 335 570 Average Capacity (Barrels in thousands) 339 199 261
Source: Navigistic’s Wilson Gillette Report, December 2016 Note: Excludes the Lawrence Gianella, a T-5 product tanker owned by the U.S. Government. Furthermore, additional new tonnage will be added to the fleet as deliveries will be made from current orders of 5 tankers and 4 ATBs throughout 2017. There are no new newbuild orders for Jones Act tankers or ATBs and no deliveries after 2017. Below is an overview of the delivery schedule for current orders.
Source: Navigistic’s Wilson Gillette Report, December 2016 The Jones Act market is a small shipping market compared to the major commodity segments, with a relative consolidated ownership structure. Key market players in the U.S. flag product carrier market include Crowley, OSG, American Shipping Company, US Shipping, Kinder Morgan, Bouchard, Seacor, among others. The graph below depicts the distribution of the entire current fleet.
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Source: Navigistics’ Wilson Gillette Report. MSC’s Lawrence Gianellais included whereas one ATB under construction is excluded due to uncertainty about owner. OSG's ATB fleet includes two lightering vessels (illustrated separately in OSG's own fleet reports) Going forward the Jones Act fleet development is impacted by a range of factors, including the ones described in more details below: Scrapping: As older vessels come off charters owners will have to consider the required high investments costs (maintenance, repair, drydock, etc.) to continue trading compared to current rates and earnings environment, with the expectation that at current rates the owners are better off with scrapping older vessels. At the same time, if there is an uptick in charter rates, owners are likely to try to increase the lifetime of the vessels and delay scrapping. The current fleet includes several vessels with age above 30 years. A rule of thumb is that product carriers can trade for 30 years, whereas vessels having been converted from single- to double-hull can trade for a total lifetime of 40 years. The below graphs depict the Jones Act fleet age profile. As highlighted 6 tankers and 16 ATBs are 30 years or older and is considered to be of an age where scrapping will be considered when these vessels come off contract over the next couple of years.
Source: Navigistic’s Wilson Gillette Report, December 2016 The fleet has been reduced as a result of OPA 90, which required all vessels with single hulls by phased out by 2015. A total of 22 vessels, including the Lawrence Gianella, were built more than 30 years ago. Some of these vessels were converted to double hulls several years after delivery. Vetting requirements: Major oil company vetting requirements, which place a strong emphasis on the age of the vessel, will continue to have an impact on the Jones Act product carrier fleet going forward. Some major oil companies use a risk-based vetting system in which age is one component of the analysis. Other major oil companies have more explicit policies regarding age and prefer vessels below certain thresholds such as 20 or 25 years. However, from our knowledge BP is the only major oil company having published a firm 20-year age limitation also for its Jones Act product carriers, with other major oil companies being more pragmatic and evaluate different situations as and when they occur. Newbuilds capacity: It takes around three years from the time the order is made until the vessel is delivered and Philly Shipyard and General Dynamics Nassco Shipyard are both booked through 2019. A full orderbook could potentially flood the market, but this is considered by AMSC as highly unlikely as the owners expect a higher risk adjusted return than what is being offered in today’s market. It is considered unlikely by AMSC that General Dynamics NASSCO or Philly Shipyard would build vessels on speculation given the excess supply of vessels. Philly Shipyard only built ships upon speculation until recently to fulfill Government requirements to receive governmental subsidies, but those requirements have now been fully fulfilled. Both General Dynamics NASSCO and Philly Shipyard have signed recent orders for Jones Act container vessels and more such container vessel orders are likely to take precedence over product tankers due to the old age profile of that fleet.
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11.5 The Deployment of the Jones Act Fleet The deployment of the Jones Act product carrier fleet is depicted in the following charts, showing substantial part of the fleet is deployed, where Clean U.S. Gulf has gained activity recently on the expense of Crude Oil:
Source: Navigistic’s Wilson Gillette Report, December 2016 and AMSC analysis The categories are explained as follows: Clean USG. Intra U.S. Gulf Coast and U.S. Gulf Coast to Atlantic Coast Clean Product trade. Chemicals. Chemical and Specialty Products trade along U.S. Gulf Coast and Atlantic Coast. Crude Oil. This category encompasses movement of crude oil and lease condensates in the U.S. Gulf Coast, the Atlantic Coast, deepwater Gulf of Mexico and Jones Act vessels employed in the Philadelphia lightering service. West Coast. This category encompasses the Intra West Clean Product trade and the Intra West Dirty Product trade, as well as Alaskan crude oil moves by product tankers under 55,000 dwt and the emerging movement of LTO in the Pacific Northwest. This category recognizes that West Coast Jones Act tankers often switch service on a voyage-to- voyage basis.
MSC. Military Sealift Command service. 11.6 Demand for Jones Act Product Carriers The diagram below shows projected demand from the various categories between 2015 and 2025. In aggregate, demand for U.S. Jones Act tankers over the next ten year period is expected to grow with an annual compounded growth rate of 1.4% according to Navigistics.
1.4% 25,000 MSC 20,000 West Coast 15,000 Crude Oil 10,000 Chemicals Clean USG 5,000
0 Demand, Demand, of kBBLs Capacity 15 16 17 18 19 20 21 22 23 24 25 years
Source: Navigistic’s Wilson Gillette Report, December 2016
Below are set out some factors which can impact demand going forward: Gasoline demand: U.S. demand for gasoline remains a key driver for Jones Act charters.
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U.S. Shale Oil demand: Rystad Energy published a report on recoverable oil worldwide based upon three years of research concluding the U.S. holds the second largest oil reserves due to U.S. shale oil (50% of U.S. reserves), only beaten by Venezuela (ft., 2016.) With some shale oil producers pushing break-even prices close to USD30 dollars, the shale oil revolution can potentially put upward pressure on the Jones Act vessel market and continue stimulating growth as the current price competition in the oil market makes the players fight for share and survival (Bloomberg, 2016.) As illustrated below in the chart from Rystad Energy, the U.S. shale production is expected to increase by 50% over the next four years.
Source: Rystad Energy
Import: Uncertain long-term European refinery economics may decline import of clean petroleum products to Florida, which would have a positive effect on the Jones Act market. Crude export: The export overseas market is still in unchartered territory, and although current economics are uncertain any changes can lead to increased volumes being shipped overseas. Crude-by-rail terminals: West Coast will benefit from new terminals under construction, which will increase volumes of U.S. Shale Oil (mainly from Bakken) available to move by sea from west coast ports. Pipeline capacity: The Colonial pipeline continues to operate at maximum capacity on its Line 1, which transports gasoline from Houston, Texas to Greensboro, North Carolina and is pro-rationing shipments. The Plantation pipeline is experiencing the same situation, keeping operation at maximum capacity. Navigistcs forecast this to continue into the near future, which means that any increased demand going forward could be shifted towards the Jones Act market. The map below illustrate the Jones Act routes and the pipelines and barges. Other factors influencing the Jones Act carrier trades include: Continued imbalances in refinery production and consumption along the U.S. West Coast, in which the Los Angeles area is a net importer of petroleum products and the San Francisco Bay and Puget Sound (Seattle) areas are net exporters continues to drive demand in the West Coast trade. Hawaii's refinery situation has been clarified with Tesoro Corporation's sale of its refinery to Par Energy and the reopening of that facility. Trade in the petrochemical commodities is heavily driven by the economy and the anticipated continuing recovery of the U.S. economy will maintain demand for Jones Act product carriers serving this segment. The availability of low cost natural gas in the United States (also as a result of the hydraulic fracturing and horizontal drilling/production technology) is further strengthening the U.S. chemical industry. Employment of Jones Act product tankers in Lower 48 Crude Oil trade is likely to increase over the forecast horizon. Pipelines and railroad routings will certainly change as will the use of waterborne transport. Navigistics' believes that these changes will likely place upward pressure on demand for Jones Act product tankers in the Lower 48 Crude Oil trade. The movement of LTO from the Bakken formation by rail to the Pacific Northwest has commenced with some direct rail shipments to two major refineries in that region. Other Puget Sound (Seattle) area refineries either do not have direct rail connections or lack the space for "unit" train offloading facilities and are served indirectly by Jones Act tankers. Tesoro and Savage Services, a major terminal operator, plan to construct a 120,000 bbl/d rail to tanker facility in Vancouver, Washington, which is expected to serve both Puget Sound and San Francisco Bay area refineries.
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11.7 Charter Rates in the Jones Act Product Tanker Industry Vessels in the Jones Act tanker market are typically chartered for 5 or 3 years at a time. At the very peak of the market vessels were chartered for shorter spot periods of time (i.e.: up to 1 year) at rates in the $ 100,000 to $ 120,000 per day range. Similarly, in a softer market vessels are fixed at for periods of less than one year at rates ranging from $ 35,000 to $ 45,000 a day. AMSC believes that these shorter spot rates, whether at peak or trough, are not representative for the traditional 3 to 5 year time charter market which has typically been in the $ 55,000 to 75,000 per day range. According to the Wilson Gillette report by Navigistic’s a fully compensatory charter rate for Jones Act tankers are around $ 65,000 per day. Such compensatory rate assumes a $ 40,000 a day bareboat element (which includes debt service and reasonable return to equity holders) and an OPEX element of approximately $ 24,000 a day. As of December 2016, contracted daily spot hire rates in the Jones Act product tanker industry for modern 46,000 dwt to 49,000 dwt product tankers is USD38,000 per day for Jones Act Veteran and or State Class MR Tanker, whereas they are USD 27,000 per day for a new 185k BBL capacity ATB according to Navigistics. This is lower than rates seen in recent years, caused by increased supply of vessels and reduced crude movements.
Source: Navigistic’s Wilson Gillette Report, December 2016 and AMSC analysis
The charterers of Jones Act product tankers include major oil companies and refiners, such as BP, Exxon Mobil Corporation, Chevron, Citgo Petroleum Corporation, Shell, Tesoro Corporation, Philadelphia Energy Solutions (excluding Sunoco), Phillips 66 Company, Valero Energy Corporation, Koch Industries, Inc., Petróleo Brasileiro S.A. and Marathon. Other charterers include MSC, major chemical companies and oil traders.
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12. INDEPENDENT AUDITORS 12.1 Names and Addresses The Group's independent auditor for the twelve months ended 31 December 2015 and 2016 was KPMG AS (“KPMG”), which has their registered address at Sørkedalsveien 6, 0306 Oslo, Norway. The partners of KPMG are members of the Norwegian Institute of Public Accountants (Nw. Den Norske Revisorforening).
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13. DOCUMENTS ON DISPLAY For twelve months from the date of this Prospectus, copies of the following documents will be available for inspection at the Issuer’s business address during normal business hours from Monday through Friday each week (except public holidays): The Articles of Association of the Issuer and the Guarantors.
All reports, letters, and other documents, historical financial information, valuations and statements prepared by any expert at the request of the Issuer or the Guarantors any part of which is included or referred to in the Prospectus.
The Ultimate Parent’s consolidated financial statements as of and for the twelve months ending 31 December 2016 and 2015, and the related auditor reports thereto.
The Issuer’s financial statements as of and for the twelve months ending 31 December 2016 and 2015, and the related auditor reports thereto.
This Prospectus.
Potential investors may visit the website of the Ultimate Parent (www.americanshippingco.com) to obtain access to the Ultimate Parent’s historical financial statements and other relevant information.
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14. MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS The following is a summary of the material U.S. federal income tax consequences of the ownership, sale or other disposition of the Bonds by a holder that acquires the Bonds on original issuance at the price indicated on the cover of this Prospectus and holds the Bonds as "capital assets" under Section 1221 of the Internal Revenue Code (IRC). This summary is based upon the IRC, the regulations promulgated by the U.S. Treasury, rulings and other administrative pronouncements issued by the Internal Revenue Service ("IRS"), and judicial decisions, all as currently in effect and all of which are subject to differing interpretations or to change, possibly with retroactive effect. No assurance can be given that the IRS would not assert, or that a court would not sustain a position contrary to any of the tax consequences described below. The summary is also based upon the assumption that the Ultimate Parent, the Company and its subsidiaries and affiliated entities will operate in accordance with their applicable organizational documents. This summary is for general information only and is not tax advice. It does not discuss any state, local or non-U.S. tax consequences relevant to us or an investment in the Bonds, and it does not purport to discuss all aspects of U.S. federal income taxation that may be important to a particular investor in light of its investment or tax circumstances or to investors subject to special tax rules, such as: financial institutions; insurance companies; broker-dealers; regulated investment companies; passive foreign investment companies; controlled foreign corporations; companies that accumulate earnings to avoid U.S. federal income tax; U.S. expatriates; former long-term permanent residents of the United States; partnerships, other pass-through entities and trusts; persons who hold our stock on behalf of other persons as nominees; persons who receive our stock in connection with employment or other performance of services; persons holding our stock as part of a "straddle," "hedge," "conversion transaction," "synthetic security" or other integrated investment; real estate investment trusts; and tax-exempt organizations.
For purposes of this summary, a "U.S. Holder" is any beneficial owner of the Bonds that is, for U.S. federal income tax purposes: an individual who is a citizen or resident of the United States; a corporation (or entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, or of any state thereof, or the District of Columbia; an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source; or a trust (i) if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. fiduciaries have the authority to control all substantial decisions of the trust or (ii) that has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person.
A "Non-U.S. Holder" is any beneficial holder of the Bonds that is not a partnership or U.S. Holder. If a partnership, including for this purpose any entity or arrangement that is treated as a partnership for U.S. federal income tax purposes, is a beneficial owner of the Bonds, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. An investor that is a partnership and the partners in such partnership should consult their tax advisors about the U.S. federal income tax consequences of the acquisition, ownership and disposition of the Bonds. A “Non-U.S. Holder” does not include a foreign entity that is disregarded as separate from its U.S. owner for U.S. federal income tax purposes (DRE).
The U.S. federal income tax treatment of holders of the Bonds depends in some instances on determinations of fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. In addition, the tax consequences to any particular holder of the Bonds will depend on the holder's particular tax circumstances. The following discussion is for general information only and is not tax advice, and you are urged to consult your tax advisor regarding the U.S. federal, state, local, and non-U.S. income and other tax consequences to you in light of your particular investment or tax circumstances of acquiring, holding, exchanging, or otherwise disposing of the Bonds.
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Taxation of Holders of the Bonds
U.S. Holders Interest. Generally, stated interest on the Bonds will be taxable to a U.S. Holder as ordinary interest income (in accordance with the holder's regular method of accounting) at the time such payments are accrued or received.
In certain circumstances, including as a result of an early or optional redemption or Change of Control Event as described above, the Company may be obligated to pay amounts on the Bonds that are in excess of stated interest/principal on the Bonds. The Company does not intend to treat the possibility of paying such additional amounts as causing the Bonds to be treated as contingent payment debt instruments subject to special rules. However, you will recognize additional income or gain if any such additional payment is made. It is possible that the IRS may take a different position, in which case a holder might be required to accrue interest income at a higher rate than the stated interest rate and to treat as ordinary interest income any gain realized on the taxable disposition of the Bonds. The remainder of this discussion assumes that the Bonds will not be treated as contingent payment debt instruments. Investors should consult their own tax advisors regarding the possible application of the contingent payment debt instrument rules to the Bonds.
Sale, Exchange, Retirement or Other Disposition of the Bonds. Upon a sale, exchange, retirement or other taxable disposition of the Bonds, a U.S. Holder generally will recognize gain or loss in an amount equal to the difference between the amount realized on the disposition (other than an amount attributable to accrued but unpaid interest, which will be taxable as ordinary income to the extent not previously included in income) and the U.S. Holder's adjusted tax basis in such Bonds. A U.S. Holder's tax basis in a Bond generally will be equal to the cost of the Bond to such holder. Any such gain or loss generally will be capital gain or loss, and will be long term capital gain or loss if the U.S. Holder's holding period for the Bonds is more than one year at the time of disposition. For non-corporate U.S. Holders, long-term capital gains generally will be subject to reduced rates of taxation. The deductibility of capital losses is subject to certain limitations.
Medicare Tax. Certain U.S. Holders that are individuals, estates or trusts are subject to a 3.8% tax on all or a portion of their “net investment income,” which may include all or a portion of their interest income and net gains from the disposition of the Bonds.
Information Reporting and Backup Withholding. Payments of interest on, or the proceeds of the sale or other disposition of, the Bonds are generally subject to information reporting unless the U.S. Holder is an exempt recipient (such as a corporation). Such payments may also be subject to U.S. federal backup withholding tax at the applicable rate if the recipient of such payment fails to supply a taxpayer identification number, certified under penalties of perjury, as well as certain other information or otherwise fails to establish an exemption from backup withholding. Any amounts withheld under the backup withholding rules will be allowed as a refund or credit against that U.S. Holder's U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
Non-U.S. Holders Interest. Subject to the discussion below concerning backup withholding and FATCA (as defined below), all payments of interest on the Bonds made to a Non-U.S. Holder will as the starting point be subject to withholding tax under Chapter 3 and Chapter 4 of the IRC, unless an exception applies. Payments of interest on the Bonds made to a Non-U.S. Holder will be exempt from U.S. federal income and withholding tax, provided that: (i) such Non-U.S. Holder does not own, actually or constructively, 10% or more of the total combined voting power of all classes of our stock entitled to vote, (ii) such Non- U.S. Holder is not a controlled foreign corporation related, directly or indirectly, to us through stock ownership, (iii) such Non-U.S. Holder is not a bank receiving certain types of interest and (iv) such Non-U.S. Holder certifies, under penalties of perjury, to the Ultimate Parent or the Company or its paying agent on applicable IRS Form such as W-8BEN or W-8BEN- E (or other forms in the W-8 series), as applicable (or appropriate substitute form), that it is not a U.S. person and certifies its Chapter 4 (FATCA) status, and provides its name, address and certain other required information or certain other certification requirements are satisfied, and further provided that neither the Ultimate Parent nor the Company nor its paying agent has actual knowledge or reason to know that you are a U.S. person or that the conditions of any other exceptions are not in fact satisfied.
If a Non-U.S. Holder cannot satisfy the requirements described above, payments of interest will be subject to the 30% U.S. federal withholding tax, unless such Non-U.S. Holder provides us or our paying agent with a properly executed (i) IRS Form W-8BEN or IRS Form W-8BEN-E or other W-8 series form, as applicable (or appropriate substitute form), claiming an exemption from or reduction in withholding under the benefit of an applicable income tax treaty or (ii) IRS Form W-
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8ECI (or appropriate substitute form) stating that interest paid or accrued on the Bonds is not subject to withholding tax because it is effectively connected with the conduct of a trade or business in the United States (see "—Income Effectively Connected with a U.S. Trade or Business" below).
Sale, Exchange, Retirement or Other Disposition of the Bonds. Subject to the discussion below concerning backup withholding and FATCA, and except with respect to accrued but unpaid interest, which will be taxable as described above under "—Interest," a Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on the receipt of payments of principal on the Bonds, or on any gain recognized upon the sale, exchange, retirement or other disposition of the Bonds, unless (i) such gain is effectively connected with the conduct by such Non-U.S. Holder of a trade or business within the United States (see "—Income Effectively Connected with a U.S. Trade or Business" below) or (ii) such Non- U.S. Holder is an individual who is present in the United States on at least 31 days during the current year and 183 days during the three-year period that includes the current year and the two years immediately before that, counting: (a) all the days such individual was present in the current year; (b) 1/3 of the days such individual was present in the first year before the current year; and (c) 1/6 of the days such individual was present in the second year before the current year, in which case such Non-U.S. Holder will be subject to U.S. federal income tax on such gain (which may be offset by certain U.S. source losses).
Income Effectively Connected with a U.S. Trade or Business. If a Non-U.S. Holder of the Bonds is engaged in a trade or business in the United States, and if interest on the Bonds, or gain realized on the sale, exchange, retirement or other disposition of the Bonds is effectively connected with the conduct of such trade or business, the Non-U.S. Holder generally will be subject to regular U.S. federal income tax on such income or gain in the same manner as if the Non-U.S. Holder were a U.S. Holder. If the Non-U.S. Holder is eligible for the benefits of an income tax treaty between the United States and the holder's country of residence, any "effectively connected" income or gain generally will be subject to U.S. federal income tax only if it is also attributable to a permanent establishment or fixed base maintained by the holder in the United States. Payments of interest that are effectively connected with a U.S. trade or business (and, if an income tax treaty applies, attributable to a permanent establishment or fixed base), and therefore included in the gross income of a Non-U.S. Holder, will not be subject to the 30% withholding tax provided that the holder provides us or our paying agent with a properly executed IRS Form W-8ECI (or appropriate substitute form) stating that interest paid or accrued on the Bonds is not subject to withholding tax because it is effectively connected with the conduct of a trade or business in the United States. In addition, if such a Non-U.S. Holder is a foreign corporation, such holder may also be subject to a branch profits tax equal to 30% (or such lower rate provided by an applicable treaty) of its effectively connected earnings and profits for the taxable year, subject to certain adjustments.
Information Reporting and Backup Withholding. A Non-U.S. Holder may be required to comply with certain certification procedures to establish that the holder is not a U.S. person in order to avoid backup withholding tax with respect to our payment of principal and interest on, or the proceeds of the sale or other disposition of, the Bonds. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against that Non-U.S. Holder's U.S. federal income tax liability, provided the required information is furnished to the IRS. In certain circumstances, the name and address of the beneficial owner and the amount of interest paid on the Bonds, as well as the amount, if any, of tax withheld, may be reported to the IRS. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides.
The Foreign Account Tax Compliance Act Legislation commonly referred to as the Foreign Account Tax Compliance Act ("FATCA") generally imposes a 30% U.S. federal withholding tax on interest income paid on the Bonds or, after December 31, 2018, on the gross proceeds from a disposition of the Bonds paid to certain non-U.S. entities (whether or not such non-U.S. entity is a beneficial owner or an intermediary), including certain foreign financial institutions, unless such non-U.S. entity provides sufficient documentation evidencing either (i) an exemption from FATCA, or (ii) its compliance with certain reporting and disclosure obligations (or deemed compliance pursuant to an intergovernmental agreement with the United States). You should consult your own tax advisor regarding the possible implications of FATCA on your ownership of the Bonds. FATCA (Chapter 4) withholding tax will take precedence over Chapter 3 withholding tax. Hence, a U.S. entity interest payment that is subject to FATCA withholding tax will not be subject to additional withholding tax under Chapter 3. Such payment may therefore not be subject to more than 30% withholding tax for U.S. federal income tax purposes.
A foreign financial institution generally is a foreign entity that (i) accepts deposits in the ordinary course of a banking or similar business, (ii) as a substantial portion of its business, holds financial assets for the benefit of one or more other persons, or (iii) is an investment entity that, in general, primarily conducts as a business on behalf of customers trading in
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certain financial instruments, individual or collective portfolio management or otherwise investing, administering, or managing funds, money or certain financial assets on behalf of other persons. In addition, FATCA generally imposes a 30% withholding tax on the same types of payments to a non-financial foreign entity unless the entity certifies that it does not have any substantial U.S. owners, furnishes identifying information regarding each substantial U.S. owner, or otherwise qualifies for an exemption from these rules. In either case, such payments would include U.S.-source interest and the gross proceeds from the sale or other disposition of Bonds that can produce U.S.-source interest.
The final Treasury regulations and subsequent guidance provide detailed guidance regarding the reporting, withholding and other obligations under FATCA. Holders should consult their tax advisors regarding the possible impact of the FATCA rules on their investment in the Bonds, including, without limitation, the process and deadlines for meeting the applicable requirements to prevent the imposition of the 30% withholding tax under FATCA.
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15. DEFINITIONS Capitalized terms used throughout this Prospectus shall have the meaning ascribed to such terms as set out below, unless the context require otherwise.
AMSC ...... American Shipping Company ASA and its consolidated subsidiaries. ATHC ...... American Tanker Holding Company, Inc. ANS Trade ...... The transportation of Alaskan North Slope crude oil from Valdez, Alaska to Nikiski, Alaska. Anti-Money Laundering Legislation ...... The Norwegian Money Laundering Act no. 11 of 6 March 2009 and the Norwegian Money Laundering Regulations no. 302 of 13 March 2009 taken together. APPS ...... The U.S. Act to Prevent Pollution from Ships. ASA ...... Public limited liability company (Nw. allmennaksjeselskap). ATB ...... Articulated Tug Barges. ATI ...... American Tanker, Inc. Bank Facilities ...... Each of the CIT Facility and the BNP Paribas Facility. bbl/d ...... Barrels per day. BNP Paribas Facility ...... Shall have the meaning ascribed to it in Section 6.13 (Group Financing). Bonds ...... The bonds issued under the Bond Issue Bond Agreement ...... The bond agreement related to the Bond Issue entered into between American Tanker, Inc. and Nordic Trustee ASA on 17 February 2017. Bond Issue ...... The Bonds issued on 22 February 2017 Bond Trustee ...... Nordic Trustee CAA ...... The U.S. Clean Air Act. CEO ...... Chief Executive Officer. CET ...... Central European Time. CFO ...... Chief Financial Officer. CIT Facility ...... Shall have the meaning ascribed to it in Section 6.13 (Group Financing). Company ...... The Issuer Co-Manager ...... Sparebank 1 Markets CWA ...... The U.S. Clean Water Act. DPO ...... Deferred principal obligation, the long-term receivables owing by a subsidiary of OSG to certain subsidiaries of the Company as further described in Section 6.16. dwt ...... Deadweight tonnage, a measure of how much weight a ship is carrying or can safely carry.
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EBITDA ...... As used herein means earnings before financial items, taxes, depreciation, amortization.6 ECA ...... Emission Control Area. EPA ...... Environmental Protection Agency. EU ...... European Union. Euroclear ...... Euroclear Bank SA/NV. Existing Bond ...... The Ultimate Parent's senior unsecured bond issue, "FRN Aker American Shipping ASA Senior Unsecured Callable PIK Bond issue 2007/2012, with ISIN NO 001 069987.9". Forward-looking Statements ...... Has the meaning ascribed to it in Section 4.1. Group ...... The Ultimate Parent taken together with its consolidated subsidiaries. Guarantors ...... The Ultimate Parent and American Tanker Holding Company, Inc. Guarantees ...... The guarantees described in the Bond Agreement. IAS ...... International Accounting Standards. IFRS ...... International Financial Reporting Standards as adopted by the EU. IMO ...... International Maritime Organization. Issuer ...... American Tanker, Inc. LIBOR ...... London Interbank Offered Rate. LTO ...... Light Tight Oil, also referred to as shale oil. Joint Lead Managers ...... Arctic Securities, Clarksons Platou Securities, Pareto Securities and SEB. Jones Act ...... Means, collectively, the laws principally contained in 46 U.S.C. § 50501 and 46 U.S.C. Chapter 551 that impose
certain restrictions on ownership and operation of vessels in the Jones Act Trade Jones Act Citizen ...... Means a U.S.-organized company that is controlled and at least 75% owned by U.S. citizens within the meaning of the Jones Act and otherwise satisfies the requirements to own and operate U.S.-flag vessels in the Jones Act Trade Jones Act Trade ...... Means the United States domestic coastwise trade (marine transportation of cargo and passengers between points in the
United States) Lease Finance Law ...... Means 46 U.S.C. § 12119, which provides an exception to the Jones Act Citizen requirements for owning a U.S-flag vessel operated in the Jones Act Trade that is bareboat chartered to a Jones Act Citizen MARPOL ...... The International Convention for the Prevention of Pollution From Ships, 1973 as modified by the Protocol of 1978. Maturity Date ...... 22 February 2022.
6 The Company's definition of EBITDA differs from the definition common in the U.S. marketplaces which is "Earnings before interest, taxes, depreciation, and amortization"
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NIBD ...... Interest -bearing debt minus cash-on-hand NISA ...... The U.S. National Invasive Species Act. NOK ...... Norwegian Kroner, the lawful currency of Norway. Nordic Trustee ...... Nor dic Trustee ASA Norwegian Code of Practice for Corporate Governance ...... The Norwegian Code of Practice for Corporate Governance, recommended by Norsk Utvalg for Eierstyring og Selskapsledelse (NUES) on October, 2014. Norwegian Public Limited Liability Companies Act ...... The Norwegian Public Limited Liability Companies Act (Nw. Allmennaksjeloven) of 13 June , 1997, no. 45. Norwegian Securities Trading Act ...... The Norwegian Securities Trading Act (Nw. Verdipapirhandelloven) of 28 June, 2007, no. 75. Ocean Yield ...... Ocean Yield ASA Prospectus ...... This Prospectus dated 12 June 2017 OPA 90 ...... The U.S. Oil Pollution Act of 1990. OSG ...... Overseas Shipholding Group Inc. and its subsidiaries. OSG Credit ...... Shall have the meaning ascribed to it in section 6.10 (Material operational contracts of AMSC – OSG Profit Sharing Agreement). PIK ...... Payment -in-kind. Profit Sharing Agreement ...... The profit sharing agreement between the Issuer, OSG and OSP. QIBs ...... Qualified institutional buyers as defined in Rule 144A. RCRA ...... The U.S. Resource Conservation and Recovery Act. Regulation S ...... Regulation S under the U.S. Securities Act. Securities Act or US Securities Act ...... The United States Securities Act of 1933, as amended. Ultimate Parent ...... American Shipping Company ASA USD ...... U.S. Dollar, the lawful currency of United States. VPS ...... The Norwegian Central Securities Depository (Nw. Verdipapirsentralen).
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APPENDIX A AMERICAN TANKER, INC. – 2015 AND 2016 FINANCIAL STATEMENTS, INCLUDING AUDIT REPORTS
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American Tanker, Inc. Statement of Financial Position as of 31 December
Amounts in USD thousands Note 2016 2015
Assets
Fixed Assets and other non-current assets Deferred tax assets 5 $9,715 $8,189 Intercompany loan 10 $94,790 $85,852 Shares in Subsidiaries 9 $324,247 $361,236
Total Fixed Assets & other non-current assets 428,752 455,277
Current Assets Cash & Cash Equivalents $7,486 $8,748 Receivables 6 $1,077 $1,077 Tax Receivable 5 $0 $15 Other Current Assets 6 $229 $196
Total Current Assets 8,792 10,036
Total Assets 437,544 465,313
Liabilities & Equity
Equity Share capital 8 $0 $0 Additional Paid in capital 8 $325,147 $350,136 Retained Earnings ($9,574) ($13,326) YTD Net income ($2,834) $3,752
Total Equity 312,739 340,562
Long-Term Liabilities Intercompany loan 10 $120,491 $120,519
Total Long-Term Liabilities 120,491 120,519
Current Liabilities Accounts Payable - Internal 12 $4,103 $4,066 Accrued Liabilities 12 $211 $166
Total Current Liabilities 4,314 4,232
Total Liabilities & Equity 437,544 465,313
10 May 2017
Leigh Jaros, CEO American Tanker, Inc. Income Statement for the years ended
Amounts in USD thousands Note 2016 2015 Total Revenues $0 $0
Operating Expenses Indirect OH 2,3 (1,333) (1,355)
Total Operating Expenses (1,333) (1,355)
Op Profit/(Loss) before Depr - EBITDA (1,333) (1,355)
Depreciation 0 0
Operating Profit/(Loss) - EBIT (1,333) (1,355)
Other Income/(Expense) Interest income - bank 4 8 14 Interest income/(expense) intercomp net 4 (3,034) (3,168) Net Financial Items (3,027) (3,155)
Profit/(Loss) before tax (4,360) (4,510)
Income tax benefit/(expense) 5 1,526 8,262
Net Profit/(Loss) for the period (1) (2,834) 3,752
American Tanker, Inc. Statement of profit or loss and other comprehensive income for the years ended
Amounts in USD thousands Note 2016 2015 Net income/(loss) for the year (2,834) 3,752 Other comprehensive income for the period, net of tax 0 0 Total comprehensive income/(loss) for the year (1) (2,834) 3,752
Basic and diluted earnings per share 7 (2.83) 3.75
(1) Applicable to common shareholders of ATI Statement of changes in equity
Share Share Accumulated Total Amounts in USD thousands capital premium deficit equity
Balance at 31 December 2014 0.01 350,109 (13,326) 336,784
Total comprehensive income for the year 3,752 3,752
Capital from parent 27 27
Balance at 31 December 2015 0.01 350,136 (9,574) 340,562
Total comprehensive income for the year (2,834) (2,834)
Dividends paid / return of capital (24,989) (24,989)
Balance at 31 December 2016 0.01 325,147 (12,408) 312,739 American Tanker, Inc. Cash flow for the years ended
Amounts in USD thousands Note 2016 2015
Net profit/(loss) before tax (4,360) (4,510) Add back: Non-cash interest expense/(income) 4 3,034 2,863 (Increase)/Decrease in: Short term receivables 6 Other current assets 6 (18) (136) Increase/(Decrease) in: Accounts payable 12 37 - Accrued liabilities 12 45 61
Net cash from/(used in) operating activities (1,262) (1,722)
Equity investment 9 36,989 (150) Long term note receivable 10 - (52,125)
Net cash from/(used in) investing activities 36,989 (52,275)
Proceeds from long term interest-bearing debt 10 - 51,740 Repayment of long term interest-bearing debt and debt fees 10 (12,000) - Dividends paid / return of capital 8 (24,989) 27
Net cash from/(used in) financing activities (36,989) 51,767
Net increase/(decrease) in cash (1,262) (2,231)
Cash at beginning of period 8,748 10,979 Cash at end of period 7,486 8,748 CORPORATE INFORMATION American Tanker, Inc. (the Company or ATI) is incorporated Delaware. The address of the main office is 415 McFarlan Road, Suite 205, Kennett Square, PA 19348. ATI is wholly owned by American Tanker Holding Company, Inc. The principle activity of the business is to purchase and bareboat charter out product tankers, shuttle tankers and other vessels to operators and end users in the U.S. Jones Act market through its wholly owned subsidiaries.
The purpose of the preparation of these financial statements of ATI is for the listing of the bond issued in February 2017 on the Oslo Stock Exchange.
STATEMENT OF COMPLIANCE The stand alone financial statements of American Tanker, Inc. (ATI) have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS).
USE OF ESTIMATES The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts in the financial statements. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revision affects that period or in the period of revision and future periods if the revision affects both current and future periods.
SUBSIDIARIES Subsidiaries are valued by the cost method in the company accounts. The investment is valued at the cost of acquiring shares in the subsidiary, providing that a write down is not required. A write down to fair value will be carried out if the reduction in value is caused by circumstances which may not be regarded as incidental, and deemed necessary by generally accepted accounting principles. Write downs are reversed when the cause of the initial write down is no longer present. If dividends exceed withheld profits after acquisition, the exceeding amount represents reimbursement of invested capital, and the distribution will be subtracted from the value of the acquisition in the balance sheet. Investments in associates are valued by the equity method. The investment is valued at the cost of acquiring the shares, with an adjustment for the Company’s share of the associate’s profit or loss.
FUNCTIONAL CURRENCY The financial statements are presented in United States dollars (USD), which is the functional and reporting currency of the company. INCOME TAXES Current income taxes Income tax receivable and payable for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax law as used to compute the amount are those that are enacted or substantively enacted at the balance sheet date. Deferred income taxes Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilized. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Expected utilization of tax losses are not discounted when calculating the deferred tax asset. Deferred income tax assets are recognized when it is probable that they will be realized. Determining probability requires the Company to estimate the sources of future taxable income from operations and reversing taxable temporary differences. Determining these amounts is subject to uncertainty and is based primarily on expected earnings from existing contracts and expected profit sharing participation. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
RELATED PARTY TRANSACTIONS All transactions, agreements and business activities with related parties are, in the Company's opinion, conducted on an arm’s length basis according to ordinary business terms and conditions.
FINANCIAL RISK MANAGEMENT The Company is part of the American Shipping Company Group, which activities exposes the Group to a variety of financial risks: market risk (including currency risk, fair value interest risk and price risk), credit risk, cash-flow interest-rate risk and foreign exchange risk. The Group’s overall risk management program, which also includes risk handling in ATI, focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures. Risk-management is carried out under policies approved by the Board of Directors. The Board of Directors provides principles for overall financial risk management as well as policies covering specific areas such as foreign exchange risk, interest-rate risk, credit risk, and use of derivative financial instruments and non-derivative financial instruments. Exposure to credit, interest rate and currency risk arises in the normal course of the Group’s business. Derivative financial instruments are used from time to time to hedge exposure to fluctuations in foreign exchange rates and interest rates for business purposes. NOTE 2: WAGES AND OTHER PERSONNEL EXPENSES
Wages and other personnel expenses consist of:
Amounts in USD thousands 2016 2015 Wages and bonuses 158 199 Social security contributions 11 11 Pension costs 2 2 Other expenses 16 15 Total expense 186 227 Average number of employees 1 1 Number of employees at year-end 1 1
The Company has a defined contribution plan for its employees which provides for a contribution based upon a fixed matching amount plus discretionary percentage of salaries. This expense is included in pension costs above.
NOTE 3: OTHER OPERATING EXPENSES
Other operating expenses consist of:
Amounts in USD thousands 2016 2015 Rent and leasing expenses 47 45 Other operating expenses 1,100 1,083 Total other operating expenses 1,147 1,128
Other operating expenses primarily relate to selling, general and administrative expenses including legal and outside consulting costs and fees to auditors for the Company. \ NOTE 4: FINANCIAL ITEMS
Amounts in USD thousands 2016 2015
Financial income Interest income 8 14 Financial income 8 14
Financial expenses Interest expense (3,035) (3,169) Financial expenses (3,035) (3,169)
NET FINANCIAL ITEMS (3,027) (3,155)
Interest income in 2016 and 2015 includes interest received on bank deposits.
Interest expense in 2016 and 2015 includes net interest income and expense on intercompany loans. See note 10 for further details. NOTE 5: TAX
INCOME TAX EXPENSE Recognized in the income statement
Amounts in USD thousands 2016 2015 Current tax expense/(benefit): Current year - (73) Total current tax expense/(benefit) - (73)
Deferred tax expense/(benefit): Origination and reversal of temporary differences (1,526) (8,189) Total deferred tax expense/(benefit) (1,526) (8,189) Total income tax expense/(benefit) in income statement (1,526) (8,262)
Reconciliation of effective tax rate
Amounts in USD thousands 2016 2015 Profit/(loss) before tax (4,360) (4,510) 41.5% 41.5% Expected tax expense/(benefit) using nominal US tax rate of 41.5% (1,809) (1,872)
Tax losses for which no deferred income tax asset was recognised, net of benefit recognized 284 143 Valuation allowance released - (6,533) Total income tax expense/(benefit) in income statement (1,526) (8,262)
DEFERRED TAX ASSETS AND LIABILITIES
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority, which through 31 December 2016 for the Company was primarily the U.S. and the Commonwealth of Pennsylvania.
Deferred tax assets and (liabilities) were as follows at 31 December:
United States
Amounts in USD thousands 2016 2015 Net operating losses 5,344 2,591 Financial derivatives - - Vessels - - Other 4,370 5,598 Net deferred tax assets/(liabilities) 9,715 8,189 Net deferred tax assets not recorded - - Net deferred tax assets/(liabilities) 9,715 8,189
The Company has federal tax losses carryforward as of 31 December 2016 of USD 15.3 million in the U.S., the last of which expires in 2036. On 3 January 2014, American Tanker Holding Company, Inc. (ATHC) and subsidiaries experienced a change of ownership in the U.S. as defined by Internal Revenue Code Section 382 due to a greater than 50% shift in owners of AMSC stock. The utilization of the tax losses carryforward as of that date are subject to annual limitations. USD 0.3 million of net tax losses carryforward as of that date are estimated to be recovered and useable per year from 2014 through 2033 (subject to certain exceptions). Any net tax losses recovered but not used in a year will carry over to the following year.
The Company's U.S. Federal tax losses carryforward are comprised of the IRC 382 losses of USD 5.4 million and the losses through 31 December 2016 of USD 9.9 million. There are no restrictions on the use of the USD 9.9 million net operating loss, the last of which expires in 2036. In 2016, the Company recognized a deferred tax benefit of USD 1.5 million (USD 8.2 million in 2015) related to U.S. Federal income taxes.
For the Commonwealth of Pennsylvania, ATI has USD 13.2 million of state NOLs. Deferred tax assets have not been recognized in respect of these NOLs because it is not probable hat future taxable profit in the short term will be available against which the Company can utilize the benefits therefrom. For state tax reporting, ATI is reported as a stand-alone company, and not consolidated within the ATHC Group. NOTE 6: RECEIVABLES AND OTHER CURRENT ASSETS
Trade and other receivables consist of the following items:
Amounts in USD thousands 2016 2015 Intercompany receivables 1,077 1,077 Advance payments to suppliers 229 196 Total 1,306 1,273
Intercompany receivables relate to management fees billed to subsidiaries. Advance payments to suppliers as of 31 December 2016 and 2015 include prepaid fees. NOTE 7: EARNINGS PER SHARE
Basic and diluted earnings/(loss) per share are calculated by dividing the profit/(loss) attributable to equity holders of the Company by the weighted average number of ordinary shares.
Amounts in USD thousands (except number of shares) 2016 2015
Profit/(loss) attributable to equity holders of the Company for the period for determination of earnings per shar (2,834) 3,752
Weighted average number of ordinary shares in issue 1,000 1,000
Basic and diluted earnings per share (2.83) 3.75
NOTE 8: PAID IN CAPITAL
The current authorized share capital of ATI is 2,000 ordinary shares. The issued share capital of AMSC as of 31 December 2016 is 1,000 ordinary shares, each with a par value of USD 0.01. No common shares were issued in 2016.
The changes in equity are: Common shares of equity holders of the parent Share Share Total Amounts in USD thousands Capital premium paid in equity
1 January 2015 0.01 350,109 350,109
Capital investment from parent - 27 27
31 December 2015 0.01 350,136 350,136
Dividends paid / return of capital - (24,989) (24,989)
31 December 2016 0.01 325,147 325,147 NOTE 9: SHARES IN SUBSIDIARIES
The subsidiaries included in American Tanker Inc.'s Group were as follows. American Tanker, Inc. directly owns American Shipping Corporation (ASC), which wholly owns the ten leasing companies.
ATI's common ATI's Principal Historical Book 31 December 2016 holding % voting share % place of business Country Cost Value American Shipping Corporation (ASC) 100% 100% Kennett Square, PA USA 324,247 324,247 ASC Leasing I - X, Inc. (10 legal entities) 100% 100% Kennett Square, PA USA
ATI's common ATI's Principal Historical Book 31 December 2015 holding % voting share % place of business Country Cost Value American Shipping Corporation (ASC) 100% 100% Kennett Square, PA USA 361,236 361,236 ASC Leasing I - X, Inc. (10 legal entities) 100% 100% Kennett Square, PA USA
American Shipping Company ASA ("AMSC ASA") is the ultimate Norwegian parent company of ATI and is listed on Oslo Børs. AMSC ASA owns American Tanker Holding Company, Inc. (ATHC) 100%. ATHC owns ATI 100%. ATHC, ATI and ASC are intermediary holding companies. Each of the Group's ten vessels are owned by an individual leasing company, ASC Leasing I - X, Inc. Each of the individual leasing companies have contracts directly with Overseas Shipholding Group and vessel debt directly with BNP Paribas or CIT Bank which are covered by overall agreements that tie the arrangements together through either a framework agreement and/or guarantees.
During 2016, USD 37 million was paid from ASC to ATI as a return of capital and corresponding reduction in ATI's investment in subsidiaries. The funds were used as a return of capital to ATHC and to repay interest on ATI's loan from AMSC. NOTE 10: INTEREST-BEARING LOANS AND LIABILITIES
The ATI Group and its ultimate parent, AMSC, use intercompany loans from time to time. Below are the outstanding amounts, including accrued interest for the years then ending.
Amounts in USD thousands 2016 2015
Non-current liabilities (Due to) AMSC (84,148) (87,603) (Due to) Leasing companies (36,343) (32,916) Due from Leasing companies 94,790 85,852 Intercompany loan - net (liability) (25,701) (34,667)
As of 31 December 2016, AMSC holds a USD 26.4 million loan to ATI. The loan from AMSC is unsecured and bears interest at the higher of 9.5% or LIBOR plus 7% (9.5% at 31 December 2016) and is paid in kind semi-annually. The ATI note is payable on demand by AMSC.
During 2016, ATI repaid USD 12 million of accrued and paid-in-kind interest to AMSC.
During 2015, in connection with vessel debt refinancing, AMSC made a second loan of USD 52.2 million loan to ATI. The loan from AMSC is unsecured and bears interest at 10%, which is paid in kind each quarter. The balance as of 31 December 2016 is USD 57.7 million. The ATI note is payable on demand by AMSC, provided that demand may not be made prior to the maturity date of the secured vessel debt.
ATI used the proceeds from the second loan to issue a loan to eight of the ten leasing companies on the same terms as the loan from AMSC.
In connection with the vessel debt refinancing, two of the ten leasing companies received more cash at closing that the outstanding loan that was refinanced. The excess cash was loaned to ATI, and subsequently loaned to the other eight leasing companies on the same terms as the other refinancing intercompany loans. NOTE 11: OPERATING LEASES
Non-cancellable operating lease rentals for office space are payable as follows:
Amounts in USD thousands 2016 2015
Less than one year 44 43 Between one and five years 15 59 More than five years - - Total 59 102
In 2013 ATI signed a lease for office space in Kennett Square, Pennsylvania through April 2016. In 2015 ATI extended the lease for the Kennett Square office by two years to April 2018. NOTE 12: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Trade and other payables comprise the following items:
Amounts in USD thousands 2016 2015
Intercompany accounts payable 4,103 4,066 Other short-term interest free liabilities 211 166 Total 4,314 4,232
Intercompany accounts payable relate to the borrowing of Federal NOLs within the group companies. Other short-term interest free liabilities at 31 December 2016 and 2015 include accruals for overhead costs such as legal fees, audit fees and payroll liabilities. NOTE 13: TRANSACTIONS AND AGREEMENTS WITH RELATED PARTIES
ATI's only shareholder is a ATHC, which is wholly owned by AMSC. AMSC's largest shareholder is a subsidiary of Aker ASA which holds 19.1 percent of AMSC's shares.
As part of the bank debt refinancing, the Company entered into intercompany loans amongst the group companies. See note 10 for further details.
The Copmany has a service agreement with Aker US Services, LLC which provides tax services. The cost of these services was not significant, however they are important to the Company's operations.
The Company believes that related party transactions are made on terms equivalent to those that prevail in arm's length transactions. NOTE 14: EVENTS AFTER THE BALANCE SHEET DATE
On 9 February 2017, ATI completed the placement of a USD 220 million senior unsecured bond. The bond issue was significantly oversubscribed and received strong demand from Nordic as well as international investors. Settlement was on 22 February 2017 with final maturity date on 22 February 2022. The new bond issue has a fixed coupon of 9.25%. An application will be made for the bonds to be listed on the Oslo Stock Exchange.
The net proceeds from the bond were used to refinance the existing bond that was issued by the ultimate parent, maturing February 2018.
American Tanker, Inc. Statement of Financial Position as of 31 December
Amounts in USD thousands Note 2015 2014
Assets
Fixed Assets and other non-current assets Deferred tax assets 5 $8,189 $0 Intercompany loan 10 $85,852 $0 Shares in Subsidiaries 9 $361,236 $361,086
Total Fixed Assets & other non-current assets 455,277 361,086
Current Assets Cash & Cash Equivalents $8,748 $10,979 Receivables 6 $1,077 $1,077 Tax Receivable 5 $15 $25 Other Current Assets 6 $196 $50
Total Current Assets 10,036 12,130
Total Assets 465,313 373,216
Liabilities & Equity
Equity Share capital 8 $0 $0 Additional Paid in capital 8 $350,136 $350,109 Retained Earnings ($13,326) ($9,006) YTD Net income $3,752 ($4,320)
Total Equity 340,562 336,784
Long-Term Liabilities Intercompany loan 10 $120,519 $32,188
Total Long-Term Liabilities 120,519 32,188
Current Liabilities Accounts Payable - Internal 12 $4,066 $4,139 Accrued Liabilities 12 $166 $105
Total Current Liabilities 4,232 4,244
Total Liabilities & Equity 465,313 373,216
10 May 2017
Leigh Jaros, CEO American Tanker, Inc. Income Statement for the years ended
Amounts in USD thousands Note 2015 2014 Total Revenues $0 $0
Operating Expenses Indirect OH 2,3 (1,355) (1,109)
Total Operating Expenses (1,355) (1,109)
Op Profit/(Loss) before Depr - EBITDA (1,355) (1,109)
Depreciation 0 0
Operating Profit/(Loss) - EBIT (1,355) (1,109)
Other Income/(Expense) Interest income - bank 4 14 16 Interest income/(expense) intercomp net 4 (3,168) (2,890) Other Financial expenses/income 4 0 (336) Net Financial Items (3,155) (3,211)
Profit/(Loss) before tax (4,510) (4,320)
Income tax benefit/(expense) 5 8,262 0
Net Profit/(Loss) for the period (1) 3,752 (4,320)
American Tanker, Inc. Statement of profit or loss and other comprehensive income for the years ended
Amounts in USD thousands Note 2015 2014 Net income/(loss) for the year 3,752 (4,320) Other comprehensive income for the period, net of tax 0 0 Total comprehensive income/(loss) for the year (1) 3,752 (4,320)
Basic and diluted earnings per share 7 3.75 (4.32)
(1) Applicable to common shareholders of ATI Statement of changes in equity
Share Share Accumulated Total Amounts in USD thousands capital premium deficit equity
Balance at 31 December 2013 0.01 349,470 (9,006) 340,465
Total comprehensive income for the year (4,320) (4,320)
Capital from parent 639 639
Balance at 31 December 2014 0.01 350,109 (13,326) 336,784
Total comprehensive income for the year 3,752 3,752
Capital from parent 27 27
Balance at 31 December 2015 0.01 350,136 (9,574) 340,562 American Tanker, Inc. Cash flow for the years ended
Amounts in USD thousands Note 2015 2014
Net profit/(loss) before tax (4,510) (4,320) Add back: Non-cash interest expense/(income) 4 2,863 2,890 (Increase)/Decrease in: Short term receivables 6 ‐ 302 Other current assets 6 (136) 16 Increase/(Decrease) in: Accounts payable 12 ‐ 178 Accrued liabilities 12 61 29
Net cash from/(used in) operating activities (1,722) (905)
Equity investment 9 (150) (838) Long term note receivable 10 (52,125) ‐
Net cash from/(used in) investing activities (52,275) (838)
Proceeds from long term interest-bearing debt 10 51,740 ‐ Capital from parent 827 639
Net cash from/(used in) financing activities 51,767 639
Net increase/(decrease) in cash (2,231) (1,104)
Cash at beginning of period 10,979 12,083 Cash at end of period 8,748 10,979 CORPORATE INFORMATION American Tanker, Inc. (the Company or ATI) is incorporated Delaware. The address of the main office is 415 McFarlan Road, Suite 205, Kennett Square, PA 19348. ATI is wholly owned by American Tanker Holding Company, Inc. The principle activity of the business is to purchase and bareboat charter out product tankers, shuttle tankers and other vessels to operators and end users in the U.S. Jones Act market through its wholly owned subsidiaries.
The purpose of the preparation of these financial statements of ATI is for the listing of the bond issued in February 2017 on the Oslo Stock Exchange.
STATEMENT OF COMPLIANCE The stand alone financial statements of American Tanker, Inc. (ATI) have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS).
USE OF ESTIMATES The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts in the financial statements. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revision affects that period or in the period of revision and future periods if the revision affects both current and future periods.
SUBSIDIARIES Subsidiaries are valued by the cost method in the company accounts. The investment is valued at the cost of acquiring shares in the subsidiary, providing that a write down is not required. A write down to fair value will be carried out if the reduction in value is caused by circumstances which may not be regarded as incidental, and deemed necessary by generally accepted accounting principles. Write downs are reversed when the cause of the initial write down is no longer present. If dividends exceed withheld profits after acquisition, the exceeding amount represents reimbursement of invested capital, and the distribution will be subtracted from the value of the acquisition in the balance sheet. Investments in associates are valued by the equity method. The investment is valued at the cost of acquiring the shares, with an adjustment for the Company’s share of the associate’s profit or loss.
FUNCTIONAL CURRENCY The financial statements are presented in United States dollars (USD), which is the functional and reporting currency of the company.
INCOME TAXES Current income taxes Income tax receivable and payable for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax law as used to compute the amount are those that are enacted or substantively enacted at the balance sheet date. Deferred income taxes Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilized. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Expected utilization of tax losses are not discounted when calculating the deferred tax asset. Deferred income tax assets are recognized when it is probable that they will be realized. Determining probability requires the Company to estimate the sources of future taxable income from operations and reversing taxable temporary differences. Determining these amounts is subject to uncertainty and is based primarily on expected earnings from existing contracts and expected profit sharing participation. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. RELATED PARTY TRANSACTIONS All transactions, agreements and business activities with related parties are, in the Company's opinion, conducted on an arm’s length basis according to ordinary business terms and conditions.
FINANCIAL RISK MANAGEMENT The Company is part of the American Shipping Company Group, which activities exposes the Group to a variety of financial risks: market risk (including currency risk, fair value interest risk and price risk), credit risk, cash-flow interest-rate risk and foreign exchange risk. The Group’s overall risk management program, which also includes risk handling in ATI, focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures. Risk-management is carried out under policies approved by the Board of Directors. The Board of Directors provides principles for overall financial risk management as well as policies covering specific areas such as foreign exchange risk, interest-rate risk, credit risk, and use of derivative financial instruments and non-derivative financial instruments. Exposure to credit, interest rate and currency risk arises in the normal course of the Group’s business. Derivative financial instruments are used from time to time to hedge exposure to fluctuations in foreign exchange rates and interest rates for business purposes.