UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-22704
Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda
(Address of principal executive offices)
Securities registered or to be registered pursuant to section 12(b) of the Act
Title of each class Name of each exchange
Common Shares, $1.00 Par Value New York Stock Exchange
--------------------------------- -------------------------
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Securities registered or to be registered pursuant to section 12(g) of the Act.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.
72,743,737 Common Shares, $1.00 Par Value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[X] Yes [ ] No
If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
[ ] Yes [X] No
Note - Checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ ] Item 17 [X] Item 18
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
[ ] Yes [X] No
INDEX TO REPORT ON FORM 20-F
PAGE
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS ........... 1
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE ......................... 1
ITEM 3. KEY INFORMATION ................................................. 1
ITEM 4. INFORMATION ON THE COMPANY ...................................... 16
ITEM 4A. UNRESOLVED STAFF COMMENTS ....................................... 34
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS .................... 34
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES ...................... 55
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS ............... 58
ITEM 8. FINANCIAL INFORMATION ........................................... 60
ITEM 9. THE OFFER AND LISTING ........................................... 61
ITEM 10. ADDITIONAL INFORMATION .......................................... 62
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ...... 76
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES .......... 76
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES ................. 77
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS ............................................. 77
ITEM 15. CONTROLS AND PROCEDURES ......................................... 77
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT ................................ 78
ITEM 16B. CODE OF ETHICS .................................................. 78
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES .......................... 78
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES ...... 79
ITEM 16E. PURCHASE OF EQUITY SECURITIES BY ISSUER AND AFFILIATED
PURCHASERS ...................................................... 79
PART III
ITEM 17. FINANCIAL STATEMENTS ............................................ 81
ITEM 18. FINANCIAL STATEMENTS ............................................ 81
ITEM 19. EXHIBITS ........................................................ 81
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Matters discussed in this document may constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts.
Ship Finance International Limited, or the Company, desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with this safe harbor legislation. This document and any other written or oral statements made by us or on our behalf may include forward-looking statements, which reflect our current views with respect to future events and financial performance. The words "believe," "anticipate," "intends," "estimate," "forecast," "project," "plan," "potential," "will," "may," "should," "expect" and similar expressions identify forward-looking statements.
The forward-looking statements in this document are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management's examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections.
In addition to these important factors and matters discussed elsewhere herein, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the strength of world economies, fluctuations in currencies and interest rates, general market conditions including fluctuations in charterhire rates and vessel values, changes in demand in the markets in which we operate, changes in demand resulting from changes in OPEC's petroleum production levels and world wide oil consumption and storage, changes in market demand in countries which import commodities and finished goods and changes in the amount and location of the production of those commodities and finished goods, changes in our operating expenses, including bunker prices, drydocking and insurance costs, performance of our charterers and other counterparties with whom we deal, timely delivery of vessels under construction within the contracted price, changes in governmental rules and regulations or actions taken by regulatory authorities, potential liability from pending or future litigation, general domestic and international political conditions, potential disruption of shipping routes due to accidents or political events, and other important factors described from time to time in the reports filed by the Company with the Securities and Exchange Commission.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable
ITEM 3. KEY INFORMATION
Throughout this report, the "Company," "we," "us" and "our" all refer to Ship Finance International Limited and its subsidiaries. We use the term deadweight ton, or dwt, in describing the size of the vessels. Dwt, expressed in metric tons, each of which is equivalent to 1,000 kilograms, refers to the maximum weight of cargo and supplies that a vessel can carry. Unless otherwise indicated, all references to "USD," "US$" and "$" in this report are to, and amounts are presented in, U.S. dollars.
A. SELECTED FINANCIAL DATA
The selected income statement data of the Company with respect to the fiscal years ended December 31, 2006, 2005 and 2004 and the selected balance sheet data of the Company with respect to the fiscal years ended December 31, 2006 and 2005 have been derived from the Company's Consolidated Financial Statements included in Item 18 of this annual report, prepared in accordance with United States generally accepted accounting principles.
The selected combined income statement data for the fiscal years ended December 31, 2003 and 2002 has been derived from our audited predecessor combined carve-out financial statements not included herein. The selected balance sheet data as of December 31, 2004, 2003 and 2002 have been derived from consolidated financial statements of the Company, and predecessor combined carve-out statements not included herein. The following table should be read in conjunction with Item 5. "Operating and Financial Review and Prospects" and the Company's Consolidated Financial Statements and Notes thereto included herein.
Predecessor combined
carve-out
Year Ended December 31, Year Ended December 31,
2006 2005 2004 2003 2002
----------- ----------- ----------- ----------- ----------
(in thousands of dollars except common share and per share data)
Income Statement Data:
Total operating revenues ..................... 424,658 437,510 492,069 695,068 365,174
Net operating income (loss) .................. 293,697 300,662 347,157 348,816 86,091
Net income (loss) ............................ 180,798 209,546 262,659 334,812 18,024
Earnings per share, basic and diluted ........ $ 2.48 $ 2.84 $ 3.52 $ 4.53 $ 0.24
Cash dividends paid .......................... 149,123 148,863 78,905 n/a n/a
Cash dividend paid per share ................. $ 2.05 $ 2.00 $ 1.05 n/a n/a
Balance Sheet Data (at end of period):
Cash and cash equivalents .................... 64,569 32,857 29,193 26,519 20,634
Vessels and equipment, net ................... 246,549 315,220 236,305 1,863,504 1,904,146
Investment in finance leases (including
current portion) .......................... 2,109,183 1,925,354 1,718,642 -- --
Total assets ................................. 2,553,677 2,393,913 2,152,937 2,156,348 2,123,607
Long term debt (including current portion) ... 1,915,200 1,793,657 1,478,894 991,610 1,106,847
Share capital................................. 72,744 73,144 74,901 n/a n/a
Stockholders' equity (deficit) ............... 600,530 561,522 660,982 822,026 485,605
Common shares outstanding .................... 72,743,737 73,143,737 74,900,837 n/a n/a
Weighted average common shares
outstanding(1) ............................ 72,764,287 73,904,465 74,610,946 n/a n/a
Cash Flow Data:
Cash provided by operating activities ........ 193,497 280,834 178,528 415,523 115,658
Cash provided by (used in) investing
activities ................................ (110,706) (269,573) 76,948 (51,632) (261,779)
Cash provided by (used in) financing
activities ................................ (51,079) (7,597) (226,283) (358,006) 140,714
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(1) For all periods presented prior to June 16, 2004, per share amounts are based on a denominator 73,925,837 common shares outstanding, which is the number of issued common shares outstanding on June 16, 2004, the date that the Company's shares were partially spun off. The Company's shares were listed on the New York Stock Exchange on June 17, 2004.
B. CAPITALIZATION AND INDEBTEDNESS
Not Applicable
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not Applicable
D. RISK FACTORS
Our assets are primarily engaged in transporting crude oil and oil products, drybulk and containerized cargos, and in offshore drilling and related activities. The following summarizes some of the risks that may materially affect our business, financial condition or results of operations. Unless otherwise indicated in this Annual Report on Form 20-F, all information concerning our business and our assets is as of June 15, 2007.
Risks Relating to Our Industry
The seaborne transportation industry is cyclical and volatile, and this may lead to reductions in our charter rates, vessel values and results of operations.
The international seaborne transportation industry is both cyclical and volatile in terms of charter rates and profitability. The degree of charter rate volatility for vessels has varied widely. Fluctuations in charter rates result from changes in the supply and demand for vessel capacity and changes in the supply and demand for energy resources, commodities, semi-finished and finished consumer and industrial products internationally carried at sea. The factors affecting the supply and demand for vessels are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable.
Factors that influence demand for vessel capacity include:
o supply and demand for energy resources, commodities, semi-finished and finished consumer and industrial products;
o changes in the production of energy resources, commodities, semi-finished and finished consumer and industrial products;
o the location of regional and global production and manufacturing facilities;
o the location of consuming regions for energy resources, commodities, semi-finished and finished consumer and industrial products;
o the globalization of production and manufacturing;
o global and regional economic and political conditions;
o developments in international trade;
o changes in seaborne and other transportation patterns, including the distance cargo is transported by sea;
o environmental and other regulatory developments;
o currency exchange rates;
o weather;
o the number of newbuilding deliveries;
o the scrapping rate of older vessels;
o the price of steel;
o changes in environmental and other regulations that may limit the useful lives of vessels;
o the number of vessels that are out of service; and
o port or canal congestion.
We anticipate that the future demand for our vessels and charter rates will be dependent upon continued economic growth in China, India and the rest of the world, seasonal and regional changes in demand and changes to the capacity of the world fleet. We believe the capacity of the world fleet is likely to increase and there can be no assurance that economic growth will continue at a rate sufficient to utilize this new capacity. Adverse economic, political, social or other developments could negatively impact charter rates and therefore have a material adverse effect on our business, results of operations and ability to pay dividends.
An acceleration of the current prohibition to trade deadlines for our non-double hull tankers could adversely affect our operations.
Our fleet includes eleven non-double hull tankers.
The United States, the European Union and the International Maritime Organization, or IMO, have all imposed limits or prohibitions on the use of these types of tankers in specified markets after certain target dates, depending on certain factors such as the size of the vessel and the type of cargo. In the case of our non-double hull tankers, these phase out dates range from 2010 to 2015. As of April 15, 2005, the Marine Environmental Protection Committee of the IMO has amended the International Convention for the Prevention of Pollution from Ships to accelerate the phase out of certain categories of single hull tankers, including the types of vessels in our fleet, from 2015 to 2010 unless the relevant flag states extend the date.
This change could result in some or all of our non-double hull tankers being unable to trade in many markets after 2010. In addition, single hull tankers are likely to be chartered less frequently and at lower rates. Additional regulations may be adopted in the future that could further adversely affect the useful lives of our non-double hull tankers, as well as our ability to generate income from them.
Safety, environmental and other governmental and other requirements expose us to liability, and compliance with current and future regulations could require significant additional expenditures, which could have a material adverse affect on our business and financial results.
Our operations are affected by extensive and changing international, national, state and local laws, regulations, treaties, conventions and standards in force in international waters, the jurisdictions in which our tankers and other vessels operate and the country or countries in which such vessels are registered, including those governing the management and disposal of hazardous substances and wastes, the cleanup of oil spills and other contamination, air emissions, and water discharges and ballast water management. These regulations include the U.S. Oil Pollution Act of 1990, or OPA, the International Convention on Civil Liability for Oil Pollution Damage of 1969, International Convention for the Prevention of Pollution from Ships, the IMO International Convention for the Safety of Life at Sea of 1974, or SOLAS, the International Convention on Load Lines of 1966 and the U.S. Marine Transportation Security Act of 2002.
In addition, vessel classification societies also impose significant safety and other requirements on our vessels. In complying with current and future environmental requirements, vessel owners and operators may also incur significant additional costs in meeting new maintenance and inspection requirements, in developing contingency arrangements for potential spills and in obtaining insurance coverage. Government regulation of vessels, particularly in the areas of safety and environmental requirements, can be expected to become stricter in the future and require us to incur significant capital expenditures on our vessels to keep them in compliance, or even to scrap or sell certain vessels altogether.
Many of these requirements are designed to reduce the risk of oil spills and other pollution, and our compliance with these requirements can be costly. These requirements also can affect the resale value or useful lives of our vessels, require a reduction in cargo-capacity, ship modifications or operational changes or restrictions, lead to decreased availability of insurance coverage for environmental matters or result in the denial of access to certain jurisdictional waters or ports, or detention in, certain ports.
Under local, national and foreign laws, as well as international treaties and conventions, we could incur material liabilities, including cleanup obligations, natural resource damages and third-party claims for personal injury or property damages, in the event that there is a release of petroleum or other hazardous substances from our vessels or otherwise in connection with our current or historic operations. We could also incur substantial penalties, fines and other civil or criminal sanctions, including in certain instances seizure or detention of our vessels, as a result of violations of or liabilities under environmental laws, regulations and other requirements. For example, OPA affects all vessel owners shipping oil to, from or within the United States. OPA allows for potentially unlimited liability without regard to fault for owners, operators and bareboat charterers of vessels for oil pollution in United States waters. Similarly, the International Convention on Civil Liability for Oil Pollution Damage, 1969, as amended, which has been adopted by most countries outside of the United States, imposes liability for oil pollution in international waters. OPA expressly permits individual states to impose their own liability regimes with regard to hazardous materials and oil pollution incidents occurring within their boundaries. Coastal states in the United States have enacted pollution prevention liability and response laws, many providing for unlimited liability.
An over-supply of container vessel capacity may lead to reductions in charter hire rates and profitability.
The market supply of container vessels has been increasing, and the number of container vessels on order have recently reached historic highs. An over-supply of container vessel capacity may result in a reduction of charter hire rates. If such a reduction occurs, the value of our container vessels may decrease and, under certain circumstances, affect the ability of our customers who charter our container vessels to make charterhire payments to us. This and other factors affecting the supply and demand for container vessels and the supply and demand for products shipped in containers are outside our control and the nature, timing and degree of changes in the industry may affect the ability of our charterers to make charterhire payments to us.
Our drill rig business depends on the level of activity in the offshore oil and gas industry, which is significantly affected by volatile oil and gas prices and other factors.
Our drill rig business depends on the level of activity in oil and gas exploration, development and production in market sectors worldwide, with the U.S. and international offshore areas being our primary market sectors. Oil and gas prices and market expectations of potential changes in these prices significantly affect this level of activity. However, higher commodity prices do not necessarily translate into increased drilling activity since our customers' expectations of future commodity prices typically drive demand for our rigs. Also, increased competition for our customers' drilling budgets could come from, among other areas, land-based energy markets in Africa, Russia, other former Soviet Union states, the Middle East and Alaska. The availability of quality drilling prospects, exploration success, relative production costs, the stage of reservoir development and political and regulatory environments also affect our customers' drilling campaigns. Worldwide military, political and economic events have contributed to oil and gas price volatility and are likely to do so in the future. Oil and gas prices are extremely volatile and are affected by numerous factors, including the following:
o worldwide demand for oil and gas;
o the ability of OPEC to set and maintain production levels and pricing;
o the level of production in non-OPEC countries;
o the policies of various governments regarding exploration and development of their oil and gas reserves;
o advances in exploration and development technology; and
o the worldwide military and political environment, including uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities or other crises in oil producing areas or further acts of terrorism in the United States, or elsewhere.
The drill rig business involves numerous operating hazards.
Our drilling operations are subject to the usual hazards inherent in the drilling of oil and gas wells, such as blowouts, reservoir damage, loss of production, loss of well control, punch-throughs, craterings, fires and natural disasters such as hurricanes and tropical storms could damage or destroy our drilling rigs. The occurrence of one or more of these events could result in the suspension of drilling operations, damage to or destruction of the equipment involved and injury or death to rig personnel. Operations also may be suspended because of machinery breakdowns, abnormal drilling conditions, and failure of subcontractors to perform or supply goods or services or personnel shortages. In addition, offshore drilling operations are subject to perils peculiar to marine operations, including capsizing, grounding, collision and loss or damage from severe weather. Damage to the environment could also result from our operations, particularly through oil spillage or extensive uncontrolled fires. We may also be subject to property, environmental and other damage claims by oil and gas companies. Similar to our vessel operating business our insurance policies and contractual rights to indemnity may not adequately cover losses, and we do not have insurance coverage or rights to indemnity for all risks.
Increased inspection procedures, tighter import and export controls and new security regulations could increase costs and cause disruption of our container shipping business.
International container shipping is subject to security and customs inspection and related procedures in countries of origin, destination and trans-shipment points. These security procedures can result in cargo seizure, delays in the loading, offloading, trans-shipment, or delivery of containers and the levying of customs duties, fines or other penalties against exporters or importers and, in some cases, carriers.
Since the events of September 11, 2001, U.S. authorities have more than doubled container inspection rates to approximately 5% of all imported containers. Government investment in non-intrusive container scanning technology has grown, and there is interest in electronic monitoring technology, including so-called "e-seals" and "smart" containers that would enable remote, centralized monitoring of containers during shipment to identify tampering with or opening of the containers, along with potentially measuring other characteristics such as temperature, air pressure, motion, chemicals, biological agents and radiation.
It is unclear what changes, if any, to the existing security procedures will ultimately be proposed or implemented, or how any such changes will affect the container shipping industry. These changes have the potential to impose additional financial and legal obligations on carriers and, in certain cases, to render the shipment of certain types of goods by container uneconomical or impractical. These additional costs could reduce the volume of goods shipped in containers, resulting in a decreased demand for container vessels. In addition, it is unclear what financial costs any new security procedures might create for container vessel owners and operators. Any additional costs or a decrease in container volumes could have an adverse impact on our customers that charter container vessels from us and, under certain circumstances, may affect their ability to make charterhire payments to us under the terms of our charters.
Our business has inherent operational risks, which may not be adequately covered by insurance.
Our vessels and their cargoes are at risk of being damaged or lost because of events such as marine disasters, bad weather, mechanical failures, human error, environmental accidents, war, terrorism, piracy and other circumstances or events. In addition, transporting cargoes across a wide variety of international jurisdictions creates a risk of business interruptions due to political circumstances in foreign countries, hostilities, labor strikes and boycotts, the potential for changes in tax rates or policies, and the potential for government expropriation of our vessels. Any of these events may result in loss of revenues, increased costs and decreased cash flows to our customers, which could impair their ability to make payments to us under our charters.
In the event of a casualty to a vessel or other catastrophic event, we will rely on our insurance to pay the insured value of the vessel or the damages incurred. Through our management agreements with our vessel managers, we procure insurance for the vessels in our fleet employed under time charters against those risks that we believe the shipping industry commonly insures against. These insurances include marine hull and machinery insurance, protection and indemnity insurance, which include pollution risks and crew insurances, and war risk insurance. Currently, the amount of coverage for liability for pollution, spillage and leakage available to us on commercially reasonable terms through protection and indemnity associations and providers of excess coverage is $1 billion per tanker per occurrence.
We cannot assure you that we will be adequately insured against all risks. Our vessel managers may not be able to obtain adequate insurance coverage at reasonable rates for our vessels in the future. For example, in the past more stringent environmental regulations have led to increased costs for, and in the future may result in the lack of availability of, insurance against risks of environmental damage or pollution. Additionally, our insurers may refuse to pay particular claims. For example, the circumstances of a spill, including non-compliance with environmental laws, could result in denial of coverage, protracted litigation and delayed or diminished insurance recoveries or settlements. Any significant loss or liability for which we are not insured could have a material adverse effect on our financial condition. Under the terms of our bareboat charters, the charterer is responsible for procuring all insurances for the vessel.
Maritime claimants could arrest our vessels, which could interrupt our customers or our cash flows.
Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against that vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt the relevant charterer's or our cash flow and require us to pay a significant amount of money to have the arrest lifted. In addition, in some jurisdictions, such as South Africa, under the "sister ship" theory of liability, a claimant may arrest both the vessel which is subject to the claimant's maritime lien and any "associated" vessel, which is any vessel owned or controlled by the same owner. Claimants could try to assert "sister ship" liability against vessels in our fleet managed by our vessel managers for claims relating to another vessel managed by that manager.
Governments could requisition our vessels during a period of war or emergency without adequate compensation, resulting in a loss of earnings.
A government could requisition for title or seize our vessels. Requisition for title occurs when a government takes control of a vessel and becomes her owner. Also, a government could requisition our vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes her charterer at dictated charter rates. This amount could be materially less than the charterhire that would have been payable otherwise. In addition, we would bear all risk of loss or damage to a vessel under requisition for hire.
As our fleet ages, the risks associated with older vessels could adversely affect our operations.
In general, the costs to maintain a vessel in good operating condition increase as the vessel ages. Due to improvements in engine technology, older vessels typically are less fuel-efficient than more recently constructed vessels. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers.
Governmental regulations, safety, environmental or other equipment standards related to the age of tankers and other types of vessels may require expenditures for alterations or the addition of new equipment to our vessels to comply with safety or environmental laws or regulations that may be enacted in the future. These laws or regulations may also restrict the type of activities in which our vessels may engage or the geographic regions in which they may operate. We cannot predict what alterations or modifications our vessels may be required to undergo in the future or that as our vessels age, market conditions will justify any required expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.
There may be risks associated with the purchase and operation of second-hand vessels.
Our current business strategy includes additional growth through the acquisition of both newbuildings and second-hand vessels. Although we generally inspect second-hand vessels prior to purchase, this does not normally provide us with the same knowledge about the vessels' condition that we would have had if such vessels had been built for and operated exclusively by us.
Therefore, our future operating results could be negatively affected if some of the vessels do not perform as we expect. Also, we do not receive the benefit of warranties from the builders if the vessels we buy are older than one year.
Risks relating to our Company
We depend on our charterers and principally the Frontline Charterers for all of our operating cash flows and for our ability to pay dividends to our shareholders.
Most of the tanker vessels and oil bulk ore carriers or OBOs in our fleet are chartered to Frontline Shipping Limited and Frontline Shipping II Limited or the Frontline Charterers, subsidiaries of Frontline Ltd, or Frontline, while our other vessels that have charters attached to them are chartered to our other customers under medium to long-term time and bareboat charters, except one which is on a short-term time charter through October 2007. The charter hire payments that we receive from our customers constitute substantially all of our operating cash flows. The Frontline Charterers have no business or sources of funds other than those related to the chartering of our tanker fleet to third parties.
The Frontline Charterers are, at June 15, 2007 capitalized with $197.0 and $35.0 million, respectively, which serves to support the Frontline Charterers' obligations to make charterhire payments to us. Neither Frontline nor any of its affiliates guarantees the payment of charterhire or is obligated to contribute additional capital to the Frontline Charterers at any time. Although there are restrictions on the Frontline Charterers' rights to use their cash to pay dividends or make other distributions, at any given time their available cash may be diminished or exhausted, and the Frontline Charterers may be unable to make charterhire payments to us. If the Frontline Charterers or any of our other charterers are unable to make charterhire payments to us, our results of operations and financial condition will be materially adversely affected and we may not have cash available to pay debt service or for distributions to our shareholders.
The amount of the profit sharing payment we receive under our charters with the Frontline Charterers, if any, and our ability to pay our ordinary quarterly dividend, may depend on prevailing spot market rates, which are volatile.
Most of our tanker vessels and our OBOs, operate under time charters to the Frontline Charterers. These charter contracts provide for base charterhire and profit sharing payments when the Frontline Charterers' earnings from deploying our vessels exceed certain levels. The majority of our vessels chartered to the Frontline Charterers are sub-chartered by the Frontline Charterers in the spot market, which is subject to greater volatility than the long-term time charter market. Accordingly, the amount of profit sharing payments that we receive, if any, is primarily dependant on the strength of the spot market and we cannot assure you that we will receive any profit sharing payments for any periods in the future. Furthermore, our quarterly dividend may depend on the Company receiving profit sharing payments or that we continue to expand our fleet so that, in either case, we receive cash flows in addition to the cash flows we receive from our base charterhire from the Frontline Charterers and charter payments from other customers. As a result, we cannot assure you that we will continue to pay quarterly dividends.
Volatility in the international shipping and offshore markets may cause our customers to be unable to pay charterhire to us.
Our customers are subject to volatility in the shipping market that affects their ability to operate the vessels they charter from us at a profit. Our customers' successful operation of our vessels and rigs in the charter market will depend on, among other things, their ability to obtain profitable charters. We cannot assure you that future charters will be available to our customers at rates sufficient to enable them to meet their obligations to make charterhire payments to us. As a result, our revenues and results of operations may be adversely affected. These factors include:
o global and regional economic and political conditions;
o supply and demand for oil and refined petroleum products, which is affected by, among other things, competition from alternative sources of energy;
o supply and demand for energy resources, commodities, semi-finished and finished consumer and industrial products;
o developments in international trade;
o changes in seaborne and other transportation patterns, including changes in the distances that cargoes are transported;
o environmental concerns and regulations;
o weather;
o the number of newbuilding deliveries;
o the phase-out of single hull tankers from certain markets pursuant to national and international laws and regulations;
o the scrapping rate of older vessels; and
o changes in production of crude oil, particularly by OPEC and other key producers.
Tanker charter rates also tend to be subject to seasonal variations, with demand (and therefore charter rates) normally higher in winter months in the northern hemisphere.
We depend on directors who are associated with affiliated companies which may create conflicts of interest.
Currently, the chairman of our Board of Directors, Tor Olav Troim, and Kate Blankenship, a member of our Board of Directors, are also directors of Frontline, Golden Ocean Group Limited ("Golden Ocean"), and Seadrill Limited ("Seadrill"). All of these companies are indirectly controlled by John Fredriksen who also controls our principal shareholders, Hemen Holding Limited and Farahead Investment Inc. (collectively "Hemen"). Svein Aaser, a member of our board of directors, acts as Executive Director for Seatankers Management Ltd ("Seatankers"), a company affiliated with Hemen. These three directors owe fiduciary duties to the shareholders of each company and may have conflicts of interest in matters involving or affecting us and our customers. In addition, due to their ownership of Frontline, Golden Ocean or Seadrill common shares, they may have conflicts of interest when faced with decisions that could have different implications for Frontline, Golden Ocean, Seadrill or Seatankers than they do for us. We cannot assure you that any of these conflicts of interest will be resolved in our favor.
The agreements between us and affiliates of Hemen may be less favorable to us than agreements that we could obtain from unaffiliated third parties.
The charters, management agreements, the charter ancillary agreements and the other contractual agreements we have with companies affiliated with Hemen were made in the context of an affiliated relationship and were not necessarily negotiated in arms-length transactions. The negotiation of these agreements may have resulted in prices and other terms that are less favorable to us than terms we might have obtained in arm's-length negotiations with unaffiliated third parties for similar services.
Hemen and its associated companies business activities may conflict with ours.
While Frontline has agreed to cause the Frontline Charterers to use their commercial best efforts to employ our vessels on market terms and not to give preferential treatment in the marketing of any other vessels owned or managed by Frontline or its other affiliates, it is possible that conflicts of interests in this regard will adversely affect us. Under our charter ancillary agreements with the Frontline Charterers and Frontline, we are entitled to receive annual profit sharing payments to the extent that the average time daily charter equivalent, or TCE, rates realized by the Frontline Charterers exceed specified levels. Because Frontline also owns or manages other vessels in addition to our fleet, which are not included in the profit sharing calculation, conflicts of interest may arise between us and Frontline in the allocation of chartering opportunities that could limit our fleet's earnings and reduce the profit sharing payments or charterhire due under our charters.
Our shareholders must rely on us to enforce our rights against our contract counterparties.
Holders of our common shares and other securities have no direct right to enforce the obligations of the Frontline Charterers, Frontline Management (Bermuda) Ltd., or Frontline Management, Frontline, Golden Ocean and Seadrill or any of our other customers under the charters, or any of the other agreements to which we are party, including our management agreement with Frontline Management. Accordingly, if any of those counterparties were to breach their obligations to us under any of these agreements, our shareholders would have to rely on us to pursue our remedies against those counterparties.
There is a risk that United States tax authorities could treat us as a "passive foreign investment company," which would have adverse United States federal income tax consequences to United States holders.
A foreign corporation will be treated as a "passive foreign investment company," or PFIC, for United States federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of "passive income" or (2) at least 50% of the average value of the corporation's assets produce or are held for the production of those types of "passive income." For purposes of these tests, "passive income" includes dividends, interest and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute "passive income."
United States shareholders of a PFIC are subject to a disadvantageous United States federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
Under these rules, we should not be considered to be a PFIC if our income from our time charters is considered to be income for the performance of services, but we will be considered to be a PFIC if such income is considered to be rental income. We have received an opinion from our counsel, Seward & Kissel LLP, that it is more likely than not that our income from time charters will not be treated as passive income for purposes of determining whether we are a PFIC. Based on this opinion and our current method of operations, we do not believe we are, nor do we expect to become, a PFIC with respect to any taxable year. Our belief and the opinion are based principally upon the positions that (1) time and voyage charter income constitutes services income, rather than rental income and (2) Frontline Management which provides services to our vessels that are chartered under time charters, will be respected as a separate entity from the Frontline Charterers, with which it is affiliated.
There is no direct legal authority under the PFIC rules addressing our proposed method of operation. In particular, there is no legal authority addressing the situation where the charterer of a majority of the vessels in a company's fleet is affiliated with the technical management provider for a majority of the company's vessels. Accordingly, no assurance can be given that the Internal Revenue Service, or IRS, or a court of law will accept our position, and there is a significant risk that the IRS or a court of law could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if the nature and extent of our operations were to change.
If the IRS were to find that we are or have been a PFIC for any taxable year, our United States shareholders will face adverse United States tax consequences. Individual shareholders will not be eligible for the 15% maximum tax rate on dividends that we pay, and other adverse tax consequences will arise.
We may have to pay tax on United States source income, which would reduce our earnings.
Under the United States Internal Revenue Code of 1986, or the Code, 50% of the
gross shipping income of a vessel owning or chartering corporation, such as
ourselves and our subsidiaries, that is attributable to transportation that
begins or ends, but that does not both begin and end, in the United States may
be subject to a 4% United States federal income tax without allowance for
deduction, unless that corporation qualifies for exemption from tax under
Section 883 of the Code and the applicable Treasury Regulations recently
promulgated thereunder.
We expect that we and each of our subsidiaries qualify for this statutory tax exemption and we will take this position for United States federal income tax return reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption and thereby become subject to United States federal income tax on our United States source income. For example, Hemen owned 41.4% of our outstanding stock at June 15, 2007. There is therefore a risk that we could no longer qualify for exemption under Code Section 883 for a particular taxable year if other shareholders with a five percent or greater interest in our stock were, in combination with Hemen, to own 50% or more of our outstanding shares of our stock on more than half the days during the taxable year. Due to the factual nature of the issues involved, we can give no assurances on our tax-exempt status or that of any of our subsidiaries.
If we, or our subsidiaries, are not entitled to exemption under Section 883 of the Code for any taxable year, we, or our subsidiaries, could be subject for those years to an effective 4% United States federal income tax on the gross shipping income these companies derive during the year that are attributable to the transport or cargoes to or from the United States. The imposition of this tax would have a negative effect on our business and would result in decreased earnings available for distribution to our shareholders.
Our Liberian subsidiaries may not be exempt from Liberian taxation, which would materially reduce our Liberian subsidiaries', and consequently our, net income and cash flow by the amount of the applicable tax.
The Republic of Liberia enacted an income tax law generally effective as of January 1, 2001, ("the New Act"), which repealed, in its entirety, the prior income tax law in effect since 1977, pursuant to which our Liberian subsidiaries, as non-resident domestic corporations, were wholly exempt from Liberian tax.
In 2004, the Liberian Ministry of Finance issued regulations, ("the New Regulations"), pursuant to which a non-resident domestic corporation engaged in international shipping, such as our Liberian subsidiaries, will not be subject to tax under the New Act retroactive to January 1, 2001. In addition, the Liberian Ministry of Justice issued an opinion that the New Regulations were a valid exercise of the regulatory authority of the Ministry of Finance. Therefore, assuming that the New Regulations are valid, our Liberian subsidiaries will be wholly exempt from tax as under prior law.
If our Liberian subsidiaries were subject to Liberian income tax under the New Act, our Liberian subsidiaries would be subject to tax at a rate of 35% on their worldwide income. As a result, their, and subsequently our, net income and cash flow would be materially reduced by the amount of the applicable tax. In addition, we, as a shareholder of the Liberian subsidiaries, would be subject to Liberian withholding tax on dividends paid by the Liberian subsidiaries at rates ranging from 15% to 20%.
If our long-term time or bareboat charters or management agreements with respect to our vessels employed on long-term time charters terminate, we could be exposed to increased volatility in our business and financial results, our revenues could significantly decrease and our operating expenses could significantly increase.
If any of our charters terminate, we may not be able to re-charter those vessels on a long-term basis with terms similar to the terms of our existing charters, or at all. While the terms of our current charters for our tanker vessels to the Frontline Charterers end between 2013 and 2027, the Frontline Charterers have the option to terminate the charters of our non double hull tanker vessels from 2010.
The charters for the other vessels in our current fleet, other than the Front Vanadis which is subject to a three and a half year hire-purchase contract, and our 1,700 twenty foot equivalent units, or TEUs, container vessels, one of which is on a time charter scheduled to terminate in May 2009 and the other of which is on a time charter scheduled to terminate in October 2007, are generally contracted to expire between six and 20 years, although we have granted some of these charterers purchase options that, if exercised, may effectively terminate our charters with these customers earlier. One or more of the charters with respect to our vessels may also terminate in the event of a requisition for title or a loss of a vessel.
In addition, under our vessel management agreements with Frontline Management, for a fixed management fee Frontline Management is responsible for all of the technical and operational management of the vessels chartered by the Frontline Charterers, and will indemnify us against certain loss of hire and various other liabilities relating to the operation of these vessels. We may terminate our management agreements with Frontline Management for any reason at any time on 90 days' notice or that agreement may be terminated if the relevant charter is terminated. We expect to acquire additional vessels in the future and we cannot assure you that we will be able to enter into similar fixed price management agreements with Frontline Management or another third party manager for those vessels.
Therefore, to the extent that we acquire additional vessels, our cash flow could be more volatile and we could be exposed to increases in our vessel operating expenses, each of which could materially and adversely affect our results of operations and business.
If the delivery of any of the vessels that we have agreed to acquire is delayed or are delivered with significant defects, our earnings and financial condition could suffer.
As at June 15, 2007, we have entered into agreements to acquire two additional Suezmax tankers, two Capesize drybulk carriers, five additional container vessels, one additional jack-up drilling rig and three seismic vessels. A delay in the delivery of any of these vessels or the failure of the contract counterparty to deliver any of these vessels could cause us to breach our obligations under related charter agreements that we have entered into and could adversely affect our revenues and results of operations. In addition, an acceptance of any of these vessels with substantial defects could have similar consequences.
Certain of our vessels are subject to purchase options held by the charterer of the vessel, which, if exercised, could reduce the size of our fleet and reduce our future revenues.
The market values of our vessels, which are currently at near historically high levels, is expected to change from time to time depending on a number of factors, including general economic and market conditions affecting the shipping industry, competition, cost of vessel construction, governmental or other regulations, prevailing levels of charter rates, and technological changes. We have granted fixed price purchase options to certain of our customers with respect to the vessels they have chartered from us, and these prices may be less than the respective vessel's market value at the time the option is exercised. In addition, we may not be able to obtain a replacement vessel for the price at which we sell the vessel. In such a case, we could incur a loss and a reduction in earnings.
We may incur losses when we sell vessels, which may adversely affect our earnings.
During the period a vessel is subject to a charter, we will not be permitted to sell it to take advantage of increases in vessel values without the charterers' agreement. On the other hand, if the charterers were to default under the charters due to adverse market conditions, causing a termination of the charters, it is likely that the fair market value of our vessels would also be depressed. If we were to sell a vessel at a time when vessel prices have fallen, we could incur a loss and a reduction in earnings.
An increase in interest rates could materially and adversely affect our financial performance.
As of December 31, 2006, we had approximately $1.5 billion in floating rate debt outstanding under our credit facilities. Although we use interest rate swaps to manage our interest rate exposure and have interest rate adjustment clauses in some of our chartering agreements, we are exposed to fluctuations in the interest rates. For a portion of our floating rate debt, if interest rates rise, interest payments on our floating rate debt that we have not swapped into effectively fixed rates would increase.
As of December 31, 2006, we have entered into interest rate swaps to fix the interest on $738.7 million of our outstanding and committed indebtedness. As of December 31, 2006, $166.4 million of these interest rate swaps relate to committed but not outstanding debt. In addition we had entered into total return bond swaps in respect of $52.0 million of our 8.5% senior notes as of December 31, 2006. The total return bond swaps effectively translate the underlying principal amount into floating rate debt.
An increase in interest rates could cause us to incur additional costs associated with our debt service, which may materially and adversely affect our results of operations. For example, our net income for the year ended December 31, 2006 was reduced by a $2.8 million unrealized loss, representing the net change in the fair value of these interest rate swaps. Our maximum exposure to interest rate fluctuations on our outstanding debt and our outstanding total return bond swaps at December 31, 2006 was $945.8 million. A one per cent change in interest rates would at most increase or decrease interest expense by $9.5 million per year as of December 31, 2006. The maximum figure does not take into account that certain of our charter contracts include interest adjustment clauses, whereby the charter rate is adjusted to reflect the actual interest paid on the outstanding debt related to the assets on charter. At December 31, 2006, $155.1 million of our floating rate debt was subject to such interest adjustment clauses.
We may have difficulty managing our planned growth properly.
Since our original acquisitions from Frontline we have expanded and diversified our fleet, and we have recently begun performing certain administrative services through a wholly owned subsidiary company that were previously contracted to Frontline.
The growth in the size and diversity of our fleet will continue to impose additional responsibilities on our management, and may require us to increase the number of our personnel. We may need to increase our customer base in the future as we continue to grow our fleet. We cannot assure that we will be successful in executing our growth plans or that we will not incur significant expenses and losses in connection with our future growth.
We are highly leveraged and subject to restrictions in our financing agreements that impose constraints on our operating and financing flexibility.
We have significant indebtedness outstanding under our senior notes. We have also entered into loan facilities that we have used to refinance existing indebtedness and to acquire additional vessels. We may need to refinance some or all of our indebtedness on maturity of our senior notes and to acquire additional vessels in the future. We cannot assure you we will be able to do so on terms that are acceptable to us or at all. If we cannot refinance our indebtedness, we will have to dedicate some or all of our cash flows, and we may be required to sell some of our assets, to pay the principal and interest on our indebtedness. In such a case, we may not be able to pay dividends to our shareholders and may not be able to grow our fleet as planned. We may also incur additional debt in the future.
Our loan facilities and the indenture for our senior notes subject us to limitations on our business and future financing activities, including:
o limitations on the incurrence of additional indebtedness, including issuance of additional guarantees;
o limitations on incurrence of liens;
o limitations on our ability to pay dividends and make other distributions; and
o limitations on our ability to renegotiate or amend our charters, management agreements and other material agreements.
Further, our loan facilities contain financial covenants that require us to, among other things:
o provide additional security under the loan facility or prepay an amount of the loan facility as necessary to maintain the fair market value of our vessels securing the loan facility at not less than specified percentages (ranging from 120% to 140%) of the principal amount outstanding under the loan facility;
o maintain available cash on a consolidated basis of not less than $25 million;
o maintain positive working capital on a consolidated basis; and
o maintain a ratio of shareholder equity to total assets of not less than 20%.
Under the terms of our loan facilities, we may not make distributions to our shareholders if we do not satisfy these covenants or receive waivers from the lenders. We cannot assure you that we will be able to satisfy these covenants in the future.
Due to these restrictions, we may need to seek permission from our lenders in order to engage in some corporate actions. Our lenders' interests may be different from ours and we cannot guarantee that we will be able to obtain our lenders' permission when needed. This may prevent us from taking actions that are in our best interest.
Our debt service obligations require us to dedicate a substantial portion of our cash flows from operations to required payments on indebtedness and could limit our ability to obtain additional financing, make capital expenditures and acquisitions, and carry out other general corporate activities in the future. These obligations may also limit our flexibility in planning for or reacting to, changes in our business and the shipping industry or detract from our ability to successfully withstand a downturn in our business or the economy generally. This may place us at a competitive disadvantage to other less leveraged competitors.
Risks Relating to Our Common Shares
We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial and other obligations.
We are a holding company, and have no significant assets other than the equity interests in our subsidiaries. Our subsidiaries own all of our vessels, and payments under our charter agreements are made to our subsidiaries. As a result, our ability to make distributions to our shareholders depends on the performance of our subsidiaries and their ability to distribute funds to us. The ability of a subsidiary to make these distributions could be affected by a claim or other action by a third party or by the law of their respective jurisdiction of incorporation which regulates the payment of dividends by companies. If we are unable to obtain funds from our subsidiaries, we will not be able to pay dividends to our shareholders.
Because we are a foreign corporation, you may not have the same rights that a shareholder in a United States corporation has.
We are a Bermuda exempted company. Bermuda law may not as clearly establish your rights and the fiduciary responsibilities of our directors as do statutes and judicial precedent in some United States jurisdictions. In addition, most of our directors and officers are not resident in the United States and the majority of our assets are located outside of the United States. As a result, investors may have more difficulty in protecting their interests and enforcing judgments in the face of actions by our management, directors or controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.
Our major shareholder, Hemen, may be able to influence us, including the outcome of shareholder votes with interests may be different from yours.
As of June 15, 2007, Hemen owned approximately 41.4% of our outstanding common shares. As a result of its ownership of our common shares, Hemen may influence our business, including the outcome of any vote of our shareholders. Hemen also currently beneficially owns substantial stakes in Frontline, Golden Ocean and Seadrill. The interests of Hemen may be different from your interests.
If Frontline were to become insolvent, there is a risk that a bankruptcy court could pool our or the Frontline Charterers' assets and liabilities with those of Frontline under the equitable doctrine of substantive consolidation which may adversely affect our future results.
Under United States bankruptcy law, the equitable doctrine of substantive consolidation can permit a bankruptcy court to disregard the separateness of related entities and to consolidate and pool the entities' assets and liabilities and treat them as though held and incurred by one entity where the interrelationship among the entities warrants such consolidation. Substantive consolidation is an equitable remedy in bankruptcy that results in the pooling of assets and liabilities of a debtor with one or more of its debtor affiliates or, in rare circumstances, non-debtor affiliates, for the purposes of administering claims and assets of creditors as part of the bankruptcy case, including treatment under a reorganization plan.
Not all jurisdictions that could potentially have jurisdiction over an insolvency or bankruptcy case involving Frontline, us, and/or any of our respective affiliates recognize the substantive consolidation doctrine. For example, we have been advised by our Bermuda counsel that Bermuda does not recognize this doctrine. However, if Frontline or its creditors were to assert claims of substantive consolidation or related theories in a Frontline bankruptcy proceeding in a jurisdiction that recognizes the doctrine of substantive consolidation, such as the United States, the bankruptcy court could make our assets or the Frontline Charterers' assets available to satisfy Frontline obligations to its creditors. This could have a material adverse effect on us.
Investor confidence and the market price of our common stock may be adversely impacted if we are unable to comply with Section 404 of the Sarbanes-Oxley Act of 2002.
We are subject to Section 404 of the Sarbanes-Oxley Act of 2002, which requires us to include in our annual report on Form 20-F our management's report on, and assessment of the effectiveness of, our internal controls over financial reporting. In addition, first effective in our annual report for the fiscal year ended December 31, 2007, our independent registered public accounting firm will be required to attest to and report on management's assessment of the effectiveness of our internal controls over financial reporting. If we fail to maintain the adequacy of our internal controls over financial reporting, we will not be in compliance with all of the requirements imposed by Section 404. Any failure to comply with Section 404 could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements, which ultimately could harm our business and could negatively impact the market price of our common stock. We believe the total cost of our initial compliance and the future ongoing costs of complying with these requirements may be substantial.
ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
The Company
We are Ship Finance International Limited, a Bermuda based shipping company that is engaged primarily in the ownership and operation of vessels and offshore related assets. We are also involved in the charter, purchase and sale of assets. We were incorporated in Bermuda on October 10, 2003 (Company No. EC-34296). Our registered and principal executive offices are located at Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda, and our telephone number is +1 (441) 295-9500.
We operate through subsidiaries and partnerships located in Bermuda, Cyprus, Isle of Man, Liberia, Norway, Delaware and Singapore.
We are an international ship owning company with one of the largest asset bases across the maritime and offshore industries. Our assets currently consist of 35 oil tankers, eight OBOs currently configured to carry drybulk cargo, and one drybulk carrier aggregating 10.7 million dwt, seven container vessels aggregating 17,520 TEUs, and one jack-up drilling rig.
Additionally we have contracted to purchase the following newbuild vessels:
o a second jack-up drilling rig scheduled for delivery in 2007;
o three seismic vessels, scheduled for delivery in 2008;
o two Capesize drybulk carriers, scheduled for delivery in 2008-09;
o two Suezmax oil tankers, scheduled for delivery in 2009; and
o five container vessels, scheduled for delivery in 2010.
We have secured charter arrangements for each of our new acquisitions apart from the two Suezmax tankers and the five container vessels, which we are currently marketing for medium to long-term employment.
Our principal strategy is to generate stable and increasing cash flows by chartering our assets under medium to long-term time or bareboat charters to customers across a diverse group of maritime and offshore segments.
Currently, these customers include Frontline, Horizon Lines Inc. ("Horizon Lines"), Golden Ocean, Seadrill, SCAN Geophyiscal ASA ("SCAN"), Great Elephant Corporation ("Great Elephant"), Gold Star Line Ltd, and Heung-A. For most of our vessels, our charters range from six to 20 years, providing us with significant, stable base cash flows and high asset utilization. Some of our charters include purchase options on behalf of the charterer, which if exercised would reduce our remaining charter coverage and contracted cash flow.
Our primary objective is to continue to grow our business through accretive acquisitions in diverse marine and offshore asset classes in order to increase our dividend per share.
History of the Company
We were formed as a wholly owned subsidiary of Frontline, which is one of the largest owners and operators of large crude oil tankers in the world. On May 28, 2004, Frontline announced the distribution of 25% of our common shares to its ordinary shareholders in a partial spin off. Our common shares commenced trading on the New York Stock Exchange under the ticker symbol "SFL" on June 17, 2004. Frontline has subsequently made several further dividends of our shares to its shareholders, including two distributions in 2004, two in 2005, one in 2006 and a final distribution in 2007. Following the latest distribution in March 2007, Frontline's ownership in our Company is less than 1%.
Pursuant to an agreement entered into in December 2003, we purchased from Frontline a fleet of 47 crude oil tankers, comprising 23 Very Large Crude Carriers, or VLCCs, including an option to acquire one VLCC, each having a capacity of 275,000 to 308,000 dwt, and 24 Suezmax tankers, including eight OBOs, each having a capacity of 142,000 to 169,000 dwt. We paid an aggregate purchase price of $950.0 million excluding working capital to acquire this initial fleet. We also assumed senior secured indebtedness with respect to this fleet in the amount of approximately $1.158 billion, which we subsequently refinanced with the proceeds of a senior notes issuance, a $1.058 billion credit facility and a deemed equity contribution of $525.0 million from Frontline.
Since January 1, 2005, we have diversified our asset base from two asset types, crude oil tankers and OBO carriers, to six asset types including container vessels, drybulk carriers, jack-up drilling rigs and seismic vessels.
All of our tankers and OBOs, with the exception of the two vessels contracted for delivery in 2009, and the VLCC Front Vanadis, are chartered to the Frontline Charterers under longer term time charters that have remaining terms that range from six to 20 years. The Frontline Charterers, in turn, charter our vessels to third parties. The daily base charter rates payable to us under the charters have been fixed in advance and will decrease as our vessels age, and the Frontline Charterers have the right to terminate the charter for non double hull vessels from 2010.
The daily charter rate that the Frontline Charterers pay to us is not dependant on the revenue that they receive from chartering our vessels to third parties. Frontline Shipping was initially capitalized with $250 million in cash provided by Frontline to support its obligation to make payments to us under the charters. Frontline Shipping II was capitalized with approximately $21.0 million in cash. Due to sales and acquisitions, the current capitalization of the Frontline Charterers is $197 million and $35 million, respectively.
We have entered into charter ancillary agreements with the Frontline Charterers, our vessel owning subsidiaries that own our vessels and Frontline, which remain in effect until the last long term charter with the relevant Frontline Charterer terminates in accordance with its terms. Frontline has guaranteed the Frontline Charterers' obligations under the charter ancillary agreements. Under the terms of the charter ancillary agreements, beginning with the final 11-month period in 2004 and for each calendar year after that, the Frontline Charterers have agreed to pay us a profit sharing payment equal to 20% of the charter revenues for the applicable period, calculated annually on a TCE basis, realized by that Frontline Charterer for our fleet in excess of the daily base charterhire. After 2010, all of our non-double hull vessels will be excluded from the annual profit sharing payment calculation. For purposes of calculating bareboat revenues on a TCE basis, expenses are assumed to equal $6,500 per day.
We have also entered into a fixed rate management agreement and an administrative services agreement with Frontline Management to provide for the operation and maintenance of our initial fleet of vessels and administrative support services.
We refer you to Item 10 C. - Material Contracts for further discussion of the agreements discussed above.
During the fourth quarter of 2006 and first quarter of 2007 we have reduced our non-double hull fleet from 18 vessels to 11 vessels. The 11 non-double hull vessels include the VLCC Front Vanadis which we have re-chartered on hire-purchase terms, where the charterer has a purchase obligation at the end of the charter. Five of the single hull vessels were sold to Frontline in connection with Frontline's spin-off of Sealift Ltd., a dedicated heavy-lift company, and the other vessels have been sold to unrelated third parties.
In addition, we also have a profit sharing arrangement for the vessels on charter to the Frontline Charterers where we receive profit sharing payments in times of relative market strength where the spot market rate exceeds our base charter rate. This profit sharing agreement is calculated on an annual basis, and in 2006 we received base charter payments of $437.2 million from the Frontline Charterers and accrued profit sharing revenues of $78.9 million.
There are also profit sharing agreements relating to the charters of the jack-up drilling rigs West Ceres and West Prospero, where we will receive profit shares calculated as a percentage of the annual earnings above specified thresholds relating to milestones set under the relevant charters.
The predictability and stability of our cash flows is enhanced by having substantially all of the vessel operating expenses of our tankers and OBO carriers fixed through our management services agreements with Frontline Management. Under these agreements, we make fixed payments to Frontline Management during the charter period to provide for the operation and maintenance of our vessels.
The charters for our two jack-up drilling rigs to Seadrill, our three drybulk carriers to Golden Ocean, our five container vessels to Horizon Lines and our three seismic vessels to SCAN are all on bareboat terms, under which the respective charterer will bear all operating and maintenance expenses.
Acquisitions and Disposals
We purchased our initial 46 vessel owning subsidiaries from Frontline on January 1, 2004 for a total purchase price of $1,061.8 million. The purchase price was calculated as the book value of vessels owned by the subsidiaries of $2,048.4 million less related debt balances and other liabilities of $986.6 million which we assumed. The purchase was partly funded by an equity contribution of $525.0 million from Frontline. Additionally we purchased Frontline's option to acquire an additional VLCC for $8.4 million. This price represents the book value of the option as recorded previously in Frontline's accounts.
Acquisitions
In the year ended December 31, 2005 the following vessels and vessel owning entities were acquired or delivered to us as discussed below:
o In January 2005, we exercised an option to acquire the VLCC Oscilla and the vessel was delivered to us on April 4, 2005. The purchase price paid to acquire the vessel was equal to the outstanding mortgage debt under the four loan agreements between lenders and the vessel's owning company. In addition, we made a payment of $14.6 million to Frontline to reflect the fact that the original purchase price was set assuming delivery to us on January 1, 2004, whereas delivery did not occur until April 4, 2005.
o Between January and March 2005, we acquired three additional double hull VLCCs from Frontline for an aggregate purchase price of $294 million.
o In May 2005, we entered into an agreement with parties affiliated with Hemen to acquire two vessel owning companies, each owning one 2005 built containership, for a total consideration of $98.6 million.
o In May 2005, we agreed to acquire three Suezmax tankers from Frontline, the Front Traveller, Front Transporter, and Front Target, for an aggregate amount of $92.0 million.
o In June 2005, we entered into an agreement with parties affiliated with Hemen to acquire two vessel owning companies, each owning one 2004 built VLCC, for total consideration of $184 million.
In the year ended December 31, 2006, the following vessels and vessel owning entities were acquired or delivered to us:
o In January 2006, we acquired the VLCC Front Tobago from Frontline for consideration of $40.0 million.
o In April 2006, we entered into an arrangement with Horizon Lines under which we acquired five 2,824 TEU container vessels built at Hyundai Mipo yard in Korea for consideration of approximately $280.0 million. Under this agreement the Horizon Hunter was delivered in November 2006, the Horizon Hawk in March 2007, Horizon Eagle and Horizon Falcon in April 2007 and the final vessel, Horizon Tiger in May 2007.
o In June 2006, we acquired, through our wholly owned subsidiary Rig Finance Ltd., or Rig Finance, the jack-up drilling rig West Ceres from SeaDrill Invest I Ltd., or SeaDrill Invest I, a wholly owned subsidiary of Seadrill, for total consideration of $210.0 million.
o In July 2006, we entered into an agreement to acquire, through our wholly owned subsidiary Front Shadow Inc., or Front Shadow, the Panamax drybulk carrier Golden Shadow from Golden Ocean for a total consideration of $28.4 million. The vessel was delivered to us in September 2006.
o In November 2006, we acquired two newbuilding Suezmax contracts from Frontline with delivery expected in the first quarter of 2009 and third quarter of 2009.
During 2007, we have so far agreed to acquire the following vessels or newbuildings:
o In January 2007, we entered into an agreement, via our wholly owned subsidiary Rig Finance II Ltd, or Rig Finance II, to acquire a newbuilding jack-up drilling rig currently under construction from SeaDrill Invest II Ltd., or SeaDrill Invest II, a wholly owned subsidiary of Seadrill. The purchase price will be $210.0 million and delivery is expected to take place at the end of June 2007.
o In February 2007, we agreed to acquire two newbuilding Capesize vessels contracts from Golden Ocean for a total delivered cost of $160.0 million. Delivery from the shipyard is scheduled in the fourth quarter of 2008 and first quarter of 2009.
o In March 2007, we entered into an agreement to acquire three newbuilding seismic vessels, including complete seismic equipment, from SCAN for an aggregate amount of $210.0 million. The vessels are scheduled to be delivered in 2008.
o In June 2007, we agreed to acquire five newbuilding container vessels with scheduled delivery in 2010 for an aggregate construction cost of approximately $190 million.
o In June 2007 we acquired 10% of the equity of Seachange Maritime LLC, a Miami based company that owns and charters containerships.
Disposals
In the year ended December 31, 2005, we sold vessels and vessel owning entities as discussed below:
o In January 2005, we sold a Suezmax tanker, the Front Fighter, to an unrelated third party for $68.3 million. The vessel was delivered to its new owner in March 2005.
o In May 2005, we sold the three Suezmax tankers, Front Lillo, Front Emperor and Front Spirit, for a total consideration of $92.0 million. These vessels were delivered to their new owners in June 2005.
o In August 2005, we sold a Suezmax tanker, the Front Hunter to an unrelated third party for net proceeds of $71.0 million.
o In November 2005, the bareboat charterer of the VLCC Navix Astral exercised an option to purchase the vessel for approximately $40.5 million. The vessel was delivered to its new owner in January 2006.
In the year ended December 31, 2006 we sold vessels as discussed below:
o In December 2006, we sold the VLCC Front Tobago to an unrelated third party for $45.0 million.
During 2007, we have so far sold the following vessels:
o In January 2007, we sold the single-hull Suezmax tanker Front Transporter for $38.0 million. The vessel was delivered to its new owner in March 2007.
o In January 2007, we sold a total of five single-hull Suezmax tankers to Frontline for an aggregate amount of $183.7 million. The vessels were delivered to Frontline in March 2007.
o In May 2007, we re-chartered the single-hull VLCC Front Vanadis to an unrelated third party. The new charter is in the form of a hire-purchase agreement, where the vessel is chartered to the buyer for a 3.5 year period, with a purchase obligation at the end of the charter.
B. BUSINESS OVERVIEW
Our Business Strategies
Our primary objectives are to profitably grow our business and increase distributable cash flow per share by pursuing the following strategies:
o Expand our asset base. We have increased, and intend to further increase, the size of our asset base through timely and selective acquisitions of additional assets that we believe will be accretive to long-term distributable cash flow per share. We will seek to expand our asset base through placing newbuilding orders, acquiring modern second-hand vessels and entering into medium or long-term charter arrangements. From time to time we may also acquire vessels with no or limited initial charter coverage. We believe that by entering into newbuilding contracts or acquiring modern second-hand vessels or rigs and leveraging the relationships with our existing customers, we can provide for long-term growth of our assets and continue to decrease the average age of our fleet. In addition, we will seek to enter into sale and lease back transactions with new customers, as we believe we can provide attractive alternatives for outsourcing of vessel ownership for these customers.
o Diversify our asset base. Since January 1, 2005, we have diversified our asset base from two asset types, crude oil tankers and OBO carriers, to six asset types including container vessels, drybulk carriers, jack-up drilling rigs and seismic vessels. We believe that there are several attractive markets that could provide us the opportunity to continue to diversify our asset base. These markets include vessels and assets that service the offshore oil exploration industry and vessels that are of long-term strategic importance to certain operators in the shipping industry. We believe that the expertise and relationships of our management and our relationship and affiliation with Mr. John Fredriksen could provide us with incremental opportunities to expand our asset base.
o Expand and diversify our customer relationships. Since January 1, 2005, we have increased our customer base from one to eight customers and have expanded our relationship with our original customer, Frontline, through the purchase of additional vessels. Of these eight customers, Frontline, Golden Ocean and Seadrill are directly or indirectly controlled by Mr. John Fredriksen. We intend to continue to expand our relationships with our existing customers, as well as add new customers, as companies that service the international shipping and offshore oil exploration markets continue to expand their use of chartered-in assets to add capacity.
o Pursue medium to long-term, fixed-rate charters. We intend to continue to pursue medium to long-term, fixed rate charters, which provide us with stable future cash flows. Our customers typically employ long-term charters for strategic expansion as most of their assets are typically of strategic importance to certain operating pools, established trade routes or dedicated oil-field installations. We believe that we will be well positioned to participate in their growth. In addition, in markets where lower relative long-term charter rates are available, we will also seek to enter into charter agreements that provide for profit sharing so that we can generate incremental revenue and share in the upside during strong markets.
Customers
During 2006 and 2005, Frontline, through its subsidiaries, was our principal customer with more than 80% of our operating revenues for the years ended December 31, 2006 and December 31, 2005, being derived from the Frontline Charterers. We anticipate the percentage of our business attributable to the Frontline Charterers to diminish as we continue to expand our business and our customer base.
Competition
We currently operate or will operate in several segments of the shipping and offshore industry, including crude oil transportation, drybulk shipments, container transportation, drilling rigs and seismic exploration.
The markets for international seaborne crude oil transportation services, drybulk transportation services and container transportation services are highly fragmented and competitive. Seaborne crude oil transportation services generally are provided by two main types of operators: major oil companies or captive fleets (both private and state-owned) and independent shipowner fleets. In addition, several owners and operators pool their vessels together on an ongoing basis, and such pools are available to customers to the same extent as independently owned and operated fleets. Many major oil companies and other oil trading companies also operate their own vessels and use such vessels not only to transport their own crude oil but also to transport crude oil for third party charterers in direct competition with independent owners and operators in the tanker charter market. Similarly, drybulk commodity owners or traders use such vessels not only to transport their own commodities but also to transport commodities for third party charterers in direct competition with independent owners and operators in the drybulk charter market.
Container vessels are generally operated by container logistics companies, where the vessels are used as an integral part of their services. Therefore, container vessels are typically chartered more on a period basis while single voyage chartering is less common. As the market has grown significantly over the last decades, we expect over time to see more vessels chartered by container logistics companies on shorter term basis, particularly in the smaller segments.
Our jack-up drilling rigs and our seismic exploration vessels are chartered out on long-term year charters to contractors, and we are therefore not directly exposed to the short term fluctuation in these markets. Normally, jack-up drilling rigs and seismic exploration vessels are charted by oil companies on a shorter term basis linked to area-specific well drilling or oil exploration activities, but there have also been longer period charters available when oil companies want to cover their longer term requirements for drilling rigs and/or seismic vessels. Seismic exploration vessels are self-propelled, and can therefore easily move between geographic areas. Jack-up drilling rigs are not self-propelled, but it is common to move these assets over long distances on heavy-lift vessels. Therefore, the markets and competition for these rigs are effectively world-wide.
Competition for charters in all the above segments is intense and is based upon price, location, size, age, condition and acceptability of the vessel/rig and its manager. Competition is also affected by the availability of other size vessels/rigs to compete in the trades in which we engage.
Risk of Loss and Insurance
Our business is affected by a number of risks, including mechanical failure, collisions, property loss to the vessels, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition, the operation of any ocean-going vessel is subject to the inherent possibility of catastrophic marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade.
Except for vessels whose charter specifies otherwise, Frontline Management and our third-party managers are responsible for arranging for the insurance of our vessels in line with standard industry practice. In accordance with that practice, we maintain marine hull and machinery and war risks insurance, which include the risk of actual or constructive total loss, and protection and indemnity insurance with mutual assurance associations. From time to time we carry insurance covering the loss of hire resulting from marine casualties in respect of some of our vessels. Currently, the amount of coverage for liability for pollution, spillage and leakage available to us on commercially reasonable terms through protection and indemnity associations and providers of excess coverage is $1 billion per vessel per occurrence. Protection and indemnity associations are mutual marine indemnity associations formed by shipowners to provide protection from large financial loss to one member by contribution towards that loss by all members.
We believe that our current insurance coverage is adequate to protect us against the accident-related risks involved in the conduct of our business and that we maintain appropriate levels of environmental damage and pollution insurance coverage, consistent with standard industry practice. However, there is no assurance that all risks are adequately insured against, that any particular claims will be paid or that we will be able to procure adequate insurance coverage at commercially reasonable rates in the future.
Environmental and Other Regulations
Government regulations and laws significantly affect the ownership and operation of our tankers, OBOs, drybulk carriers, rigs, containerships and seismic vessels. We are subject to various international conventions, laws and regulations in force in the countries in which our vessels may operate or are registered.
A variety of government, quasi-governmental and private organizations subject our assets to both scheduled and unscheduled inspections. These organizations include the local port authorities, national authorities, harbor masters or equivalent, classification societies, flag state and charterers, particularly terminal operators, oil companies and drybulk and commodity owners. Some of these entities require us to obtain permits, licenses and certificates for the operation of our assets. Our failure to maintain necessary permits or approvals could require us to incur substantial costs or temporarily suspend operation of one or more of the assets in our fleet.
We believe that the heightened levels of environmental and quality concerns among insurance underwriters, regulators and charterers have led to greater inspection and safety requirements on all tankers and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns have created a demand for tankers that conform to the stricter environmental standards. We are required to maintain operating standards for all of our vessels emphasizing operational safety, quality maintenance, continuous training of our officers and crews and compliance with applicable local, national and international environmental laws and regulations. We believe that the operation of our vessels will be in substantial compliance with applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations; however, because such laws and regulations are frequently changed and may impose increasingly stricter requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our tankers. In addition, a future serious marine incident that results in significant oil pollution or otherwise causes significant adverse environmental impact could result in additional legislation or regulation that could negatively affect our profitability.
International Maritime Organization
The International Maritime Organization, or IMO (the United Nations agency for maritime safety and the prevention of pollution by ships), has adopted the International Convention for the Prevention of Marine Pollution from Ships, 1973, as modified by the Protocol of 1978 relating thereto, which has been updated through various amendments, or the MARPOL Convention. The MARPOL Convention implements environmental standards including oil leakage or spilling, garbage management, as well as the handling and disposal of noxious liquids, harmful substances in packaged forms, sewage and air emissions. These regulations, which have been implemented in many jurisdictions in which our vessels operate, provide, in part, that:
o 25-year old tankers must be of double hull construction or of a mid-deck design with double-sided construction, unless:
(1) they have wing tanks or double-bottom spaces not used for the carriage of oil which cover at least 30% of the length of the cargo tank section of the hull or bottom; or
(2) they are capable of hydrostatically balanced loading (loading less cargo into a tanker so that in the event of a breach of the hull, water flows into the tanker, displacing oil upwards instead of into the sea);
o 30-year old tankers must be of double hull construction or mid-deck design with double-sided construction; and
o all tankers will be subject to enhanced inspections.
Also, under IMO regulations, a tanker must be of double hull construction or a mid-deck design with double-sided construction or be of another approved design ensuring the same level of protection against oil pollution if the tanker:
o is the subject of a contract for a major conversion or original construction on or after July 6, 1993;
o commences a major conversion or has its keel laid on or after January 6, 1994; or
o completes a major conversion or is a newbuilding delivered on or after July 6, 1996.
Our vessels are also subject to regulatory requirements, including the phase-out of single hull tankers, imposed by the IMO. Effective September 2002, the IMO accelerated its existing timetable for the phase-out of single hull oil tankers. At that time, these regulations required the phase-out of most single hull oil tankers by 2015 or earlier, depending on the age of the tanker and whether it has segregated ballast tanks.
Under the regulations, the flag state may allow for some newer single hull ships registered in its country that conform to certain technical specifications to continue operating until the 25th anniversary of their delivery. Any port state, however, may deny entry of those single hull tankers that are allowed to operate until their 25th anniversary to ports or offshore terminals. These regulations have been adopted by over 150 nations, including many of the jurisdictions in which our tankers operate.
As a result of the oil spill in November 2002 relating to the loss of the MT Prestige, which was owned by a company not affiliated with us, in December 2003, the Marine Environmental Protection Committee of the IMO, or MEPC, adopted an amendment to the MARPOL Convention, which became effective in April 2005. The amendment revised an existing regulation 13G accelerating the phase-out of single hull oil tankers and adopted a new regulation 13H on the prevention of oil pollution from oil tankers when carrying heavy grade oil. Under the revised regulation, single hull oil tankers were required to be phased out no later than April 5, 2005 or the anniversary of the date of delivery of the ship on the date or in the year specified in the following table:
Category of Oil Tankers Date or Year for Phase Out
----------------------- --------------------------
Category 1 oil tankers of 20,000 dwt and above
carrying crude oil, fuel oil, heavy diesel oil or April 5, 2005 for ships delivered on April 5, 1982
lubricating oil as cargo, and of 30,000 dwt and above or earlier; or
carrying other oils, which do not comply with the 2005 for ships delivered after April 5, 1982
requirements for protectively located segregated
ballast tanks
Category 2 - oil tankers of 20,000 dwt and above
carrying crude oil, fuel oil, heavy diesel oil or April 5, 2005 for ships delivered on April 5, 1977
lubricating oil as cargo, and of 30,000 dwt and above or earlier
carrying other oils, which do comply with the 2005 for ships delivered after April 5, 1977 but
protectively located segregated ballast tank before January 1, 1978
requirements 2006 for ships delivered in 1978 and 1979
2007 for ships delivered in 1980 and 1981
and 2008 for ships delivered in 1982
2009 for ships delivered in 1983
Category 3 - oil tankers of 5,000 dwt and above but 2010 for ships delivered in 1984 or later
less than the tonnage specified for Category 1 and 2
tankers.
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Under the revised regulations, the a flag state may permit continued operation of certain Category 2 or 3 tankers beyond their phase out date in accordance with the above schedule. Under regulation 13G, the flag state may allow for some newer single hull oil tankers registered in its country that conform to certain technical specifications to continue operating until the earlier of the anniversary of the date of delivery of the vessel in 2015 or the 25th anniversary of their delivery. Under regulation 13G and 13H, as described below, certain Category 2 and 3 tankers fitted only with double bottoms or double sides may be allowed by the flag state to continue operations until their 25th anniversary of delivery. Any port state, however, may deny entry of those single hull oil tankers that are allowed to operate until the earlier of their anniversary date of delivery in 2015 or the year in which the ship reaches 25 years of age after the date of its delivery, whichever is earlierunder any of the flag state exemptions.
The following table summarizes the impact of such regulations on the Company's single hull and double sided tankers:
Vessel Flag state
Vessel Name Vessel type Category(s) Year Built IMO phase out exemption
--------------- ----------- ----------- ---------- ------------- ----------
Front Birch Suezmax DS 1991 2010 2016
Front Maple Suezmax DS 1991 2010 2016
Edinburgh VLCC DS 1993 2010 2018
Front Ace VLCC SH 1993 2010 2015
Front Duchess VLCC SH 1993 2010 2015
Front Duke VLCC SH 1992 2010 2015
Front Highness VLCC SH 1991 2010 2015
Front Lady VLCC SH 1991 2010 2015
Front Lord VLCC SH 1991 2010 2015
Front Sabang VLCC SH 1990 2010 2015
Front Vanadis VLCC SH 1990 2010 2015
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Under regulation 13G and as described below, regulation 13H, category 2 and 3 tankers fitted only with double bottoms or double sides may be allowed to continue operations until their 25th anniversary.
In December 2003, the IMO adopted MARPOL Regulation 13H on the prevention of oil pollution from oil tankers when carrying heavy grade oil, or HGO. The new regulation bans the carriage of HGO in single hull oil tankers of 5,000 dwt and above after April 5, 2005, and in single hull oil tankers of 600 dwt and above but less than 5,000 dwt, no later than the anniversary of their delivery in 2008.
Under MARPOL Regulation 13H, HGO means any of the following:
1. crude oils having a density at 15(degree)C higher than 900 kg/m(3);
2. fuel oils having either a density at 15(degree)C higher than 900 kg/ m(3) or a kinematic viscosity at 50(degree)C higher than 180 mm(2)/s;
3. bitumen, tar and their emulsions.
Under MARPOL Regulation 13H, the flag state may allow continued operation of oil tankers of 5,000 dwt and above, carrying crude oil with a density at 15(degree)C higher than 900 kg/m(3) but lower than 945 kg/m(3), that conform to certain technical specifications and, in the opinion of the such state, the ship is fit to continue such operation, having regard to the size, age, operational area and structural conditions of the ship and provided that the continued operation shall not go beyond the date on which the ship reaches 25 years after the date of its delivery. The flag state may also allow continued operation of a single hull oil tanker of 600 dwt and above but less than 5,000 dwt, carrying HGO as cargo, if, in the opinion of the such state, the ship is fit to continue such operation, having regard to the size, age, operational area and structural conditions of the ship, provided that the operation shall not go beyond the date on which the ship reaches 25 years after the date of its delivery.
The IMO has also negotiated international conventions that impose liability for oil pollution in international waters and a signatory's territorial waters. In September 1997, the IMO adopted Annex VI to the International Convention for the Prevention of Pollution from Ships to address air pollution from ships. Annex VI was ratified in May 2004, and became effective in May 2005. Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from ship exhausts and prohibit deliberate emissions of ozone depleting substances, such as halons, chlorofluorocarbons, emissions of volatile compounds from cargo tanks and prohibition of shipboard incineration of specific substances. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions. We believe that we are in substantial compliance with the Annex VI regulations. Compliance with these regulations could require the installation of expensive emission control systems and could have a financial impact on the operation of our vessels. Additional or new conventions, laws and regulations may be adopted that could adversely affect our ability to manage our vessels.
The operation of our vessels is also affected by the requirements set forth in the IMO's Management Code for the Safe Operation of Ships and Pollution Prevention, or the ISM Code. The ISM Code requires ship owners and bareboat charterers to maintain an extensive "Safety Management System" that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for emergencies. The failure of a ship owner or a bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in certain ports. We rely on the safety management system that we and our third party technical managers have developed.
The ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by a vessel's management with the ISM Code requirements for a safety management system. No vessel can obtain a certificate unless its manager has been awarded a Document of Compliance, issued by each flag state, under the ISM Code. All of our vessels and their operators have received ISM certification. The Manager is required to renew these documents of compliance and safety management certificates annually.
Non-compliance with the ISM Code and other IMO regulations may subject the vessel owner or a bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in a tanker's denial of access to, or detention in, some ports. Both the United States Coast Guard and EU authorities have indicated that vessels not in compliance with the ISM Code will be prohibited from trading in U.S. and EU ports, as the case may be.
The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.
United States Requirements
In 1990, the United States Congress enacted OPA to establish an extensive regulatory and liability regime for environmental protection and cleanup of oil spills. OPA affects all owners and operators whose vessels trade with the United States or its territories or possessions, or whose vessels operate in the waters of the United States, which include the U.S. territorial sea and the 200 nautical mile exclusive economic zone around the United States. The Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, imposes liability for cleanup and natural resource damage from the release of hazardous substances (other than oil) whether on land or at sea. Both OPA and CERCLA impact our operations.
Under OPA, vessel owners, operators and bareboat charterers are responsible parties who are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from oil spills from their vessels. These other damages are defined broadly to include:
o natural resource damages and related assessment costs;
o real and personal property damages;
o net loss of taxes, royalties, rents, profits or earnings capacity; and
o net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards; and loss of subsistence use of natural resources.
OPA previously limited the liability of responsible parties to the greater of $1,200 per gross ton or $10.0 million per tanker that is over 3,000 gross tons (subject to possible adjustment for inflation). Amendments to OPA signed into law in July 2006 increased these limits on the liability of responsible parties to the greater of $1,900 per gross ton or $16.0 million per double hull tanker that is over 3,000 gross tons. The act specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters. In some cases, states which have enacted this type of legislation have not yet issued implementing regulations defining tanker owners' responsibilities under these laws. CERCLA, which applies to owners and operators of vessels, contains a similar liability regime and provides for cleanup, removal and natural resource damages. Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million.
These limits of liability do not apply, however, where the incident is caused by violation of applicable U.S. federal safety, construction or operating regulations, or by the responsible party's gross negligence or willful misconduct. These limits do not apply if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with the substance removal activities. OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law. We believe that we are in substantial compliance with OPA, CERCLA and all applicable state regulations in the ports where our vessels call.
OPA requires owners and operators of vessels to establish and maintain with the U.S. Coast Guard evidence of financial responsibility sufficient to meet the limit of their potential strict liability under the act. The U.S. Coast Guard has enacted regulations requiring evidence of financial responsibility in the amount of $1,500 per gross ton for tankers, coupling the former OPA limitation on liability of $1,200 per gross ton with the CERCLA liability limit of $300 per gross ton. The U.S. Coast Guard has indicated that it expects to adopt regulations requiring evidence of financial responsibility in amounts that reflect the higher limits of liability imposed by the July 2006 amendments to OPA, as described above. Under the regulations, evidence of financial responsibility may be demonstrated by insurance, surety bond, self-insurance or guaranty. Under OPA regulations, an owner or operator of more than one tanker is required to demonstrate evidence of financial responsibility for the entire fleet in an amount equal only to the financial responsibility requirement of the tanker having the greatest maximum strict liability under OPA and CERCLA.
We insure each of our vessels with pollution liability insurance in the maximum commercially available amount of $1.0 billion. A catastrophic spill could exceed the insurance coverage available, which could have a material adverse effect on our business.
Under OPA, with certain limited exceptions, all newly-built or converted vessels operating in U.S. waters must be built with double hulls, and existing vessels that do not comply with the double hull requirement will be prohibited from trading in U.S. waters over a 20-year period (1995-2015) based on size, age and place of discharge, unless retrofitted with double hulls. Notwithstanding the prohibition to trade schedule, the act currently permits existing single hull and double-sided tankers to operate until the year 2015 if their operations within U.S. waters are limited to discharging at the Louisiana Offshore Oil Port, or LOOP, or off-loading by lightering within authorized lightering zones more than 60 miles off-shore. Lightering is the process by which vessels at sea off-load their cargo to smaller vessels for ultimate delivery to the discharge port.
Owners or operators of tankers operating in the waters of the United States must file vessel response plans with the U.S. Coast Guard, and their tankers are required to operate in compliance with their U.S. Coast Guard approved plans. These response plans must, among other things:
o address a worst case scenario and identify and ensure, through contract or other approved means, the availability of necessary private response resources to respond to a worst case discharge;
o describe crew training and drills; and
o identify a qualified individual with full authority to implement removal actions.
We have obtained vessel response plans approved by Coast Guard for our vessels operating in the waters of the United States. In addition, the U.S. Coast Guard has announced it intends to propose similar regulations requiring certain vessels to prepare response plans for the release of hazardous substances.
In addition, the United States Clean Water Act prohibits the discharge of oil or hazardous substances in United States navigable waters and imposes strict liability in the form of penalties for unauthorized discharges. The Clean Water Act also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA, discussed above. The United States Environmental Protection Agency, or EPA, has exempted the discharge of ballast water and other substances incidental to the normal operation of vessels in U.S. ports from Clean Water Act permitting requirements. However, on March 31, 2005, a U.S. District Court ruled that the EPA exceeded its authority in creating an exemption for ballast water. On September 18, 2006, the court issued an order invalidating the exemption in EPA's regulations for all discharges incidental to the normal operation of a vessel as of September 30, 2008, and directing the EPA to develop a system for regulating all discharges from vessels by that date. The EPA filed a notice of appeal of this decision and, if the EPA's appeals are successful and exemption is repealed, our vessels may be subject to Clean Water Act permit requirements that could include ballast water treatment obligations that could increase the cost of operating in the United States. For example, this could require the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial cost, and/or otherwise restrict our vessels from entering U.S. waters.
Other Regulations
In July 2003, in response to the MT Prestige oil spill in November 2002, the European Union adopted legislation that prohibits all single hull tankers from entering into its ports or offshore terminals by 2010. The European Union has also banned all single hull tankers carrying heavy grades of oil from entering or leaving its ports or offshore terminals or anchoring in areas under its jurisdiction. Commencing in 2005, certain single hull tankers above 15 years of age will also be restricted from entering or leaving European Union ports or offshore terminals and anchoring in areas under European Union jurisdiction. The European Union has also adopted legislation that would: (1) ban manifestly sub-standard vessels (defined as those over 15 years old that have been detained by port authorities at least twice in a six month period) from European waters and create an obligation of port states to inspect vessels posing a high risk to maritime safety or the marine environment; and (2) provide the European Union with greater authority and control over classification societies, including the ability to seek to suspend or revoke the authority of negligent societies. The sinking of the MT Prestige has also led to the adoption of other environmental regulations by certain European Union nations, which could adversely affect the remaining useful lives of all of our vessels and our ability to generate income from them. It is impossible to predict what legislation or additional regulations, if any, may be promulgated by the European Union or any other country or authority.
In addition, most U.S. states that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law.
The U.S. Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and 1990, or the CAA, requires the U.S. Environmental Protection Agency, or EPA, to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. Our vessels that operate in such port areas with restricted cargoes are equipped with vapor recovery systems that satisfy these requirements. The CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in primarily major metropolitan and/or industrial areas. Several SIPs regulate emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment. As indicated above, our vessels operating in covered port areas are already equipped with vapor recovery systems that satisfy these requirements. Although a risk exists that new regulations could require significant capital expenditures and otherwise increase our costs, based on the regulations that have been proposed to date, we believe that no material capital expenditures beyond those currently contemplated and no material increase in costs are likely to be required.
The U.S. National Invasive Species Act, or NISA, was enacted in 1996 in response to growing reports of harmful organisms being released into U.S. ports through ballast water taken on by ships in foreign ports. The United States Coast Guard adopted regulations under NISA in July 2004 that impose mandatory ballast water management practices for all vessels equipped with ballast water tanks entering U.S. waters. These requirements can be met by performing mid-ocean ballast exchange, by retaining ballast water on board the ship, or by using environmentally sound alternative ballast water management methods approved by the United States Coast Guard. Mid-ocean ballast exchange is the primary method for compliance with the United States Coast Guard regulations, since holding ballast water can prevent ships from performing cargo operations upon arrival in the United States, and alternative methods are still under development. Vessels that are unable to conduct mid-ocean ballast exchange due to voyage or safety concerns may discharge minimum amounts of ballast water (in areas other than the Great Lakes and the Hudson River), provided that they comply with recordkeeping requirements and document the reasons they could not follow the required ballast water management requirements. The United States Coast Guard is developing a proposal to establish ballast water discharge standards, which could set maximum acceptable discharge limits for various invasive species, and/or lead to requirements for active treatment of ballast water.
Our operations occasionally generate and require the transportation, treatment and disposal of both hazardous and non-hazardous solid wastes that are subject to the requirements of the U.S. Resource Conservation and Recovery Act, or RCRA, or comparable state, local or foreign requirements. In addition, from time to time we arrange for the disposal of hazardous waste or hazardous substances at offsite disposal facilities. If such materials are improperly disposed of by third parties, we may be held liable for clean up costs under applicable laws.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security. On November 25, 2002, the U.S. Maritime Transportation Security Act of 2002, or MTSA, came into effect. To implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. Similarly, in December 2002, amendments to SOLAS created a new chapter of the convention dealing specifically with maritime security. The new chapter became effective in July 2004 and imposes various detailed security obligations on vessels and port authorities, most of which are contained in the International Ship and Port Facilities Security Code, or the ISPS Code. The ISPS Code is designed to protect ports and international shipping against terrorism. After July 1, 2004, to trade internationally, a vessel must attain an International Ship Security Certificate from a recognized security organization approved by the vessel's flag state. Among the various requirements are:
o on-board installation of automatic identification systems to provide a means for the automatic transmission of safety-related information from among similarly equipped ships and shore stations, including information on a ship's identity, position, course, speed and navigational status;
o on-board installation of ship security alert systems, which do not sound on the vessel but only alerts the authorities on shore;
o the development of vessel security plans;
o ship identification number to be permanently marked on a vessel's hull;
o a continuous synopsis record kept onboard showing a vessel's history including, name of the ship and of the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship's identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and
o compliance with flag state security certification requirements.
The U.S. Coast Guard regulations, intended to align with international maritime security standards, exempt from MTSA vessel security measures non-U.S. vessels that have on board, as of July 1, 2004, a valid ISSC attesting to the vessel's compliance with SOLAS security requirements and the ISPS Code. We have implemented the various security measures addressed by MTSA, SOLAS and the ISPS Code, and our fleet is in compliance with applicable security requirements.
C. ORGANIZATIONAL STRUCTURE
See Exhibit 8.1 for a list of our significant subsidiaries.
D. PROPERTY, PLANT AND EQUIPMENT
We own a substantially modern fleet of vessels. The following table sets forth the fleet that we own or have contracted for delivery as of June 15, 2007.
Approximate Charter
----------------- Termination
Vessel Built Dwt. Construction Flag Date
-------------------------- ----- --------- ------------ ---- -----------
VLCCs
Front Sabang 1990 286,000 Single-hull SG 2014 (1)
Front Vanadis 1990 286,000 Single-hull SG 2010 (2)
Front Highness 1991 284,000 Single-hull SG 2015 (1)
Front Lady 1991 284,000 Single-hull SG 2015 (1)
Front Lord 1991 284,000 Single-hull SG 2015 (1)
Front Duke 1992 284,000 Single-hull SG 2014 (1)
Front Duchess 1993 284,000 Single-hull SG 2014 (1)
Front Edinburgh 1993 302,000 Double-side LIB 2013 (1)
Front Ace 1993 276,000 Single-hull LIB 2014 (1)
Front Century 1998 311,000 Double-hull MI 2021
Front Champion 1998 311,000 Double-hull BA 2022
Front Vanguard 1998 300,000 Double-hull MI 2021
Front Vista 1998 300,000 Double-hull MI 2021
Front Circassia 1999 306,000 Double-hull MI 2021
Front Opalia 1999 302,000 Double-hull MI 2022
Front Comanche 1999 300,000 Double-hull FRA 2022
Golden Victory 1999 300,000 Double-hull MI 2022
Ocana (ex Front Commerce) 1999 300,000 Double-hull IoM 2022
Front Scilla (ex Oscilla) 2000 303,000 Double-hull MI 2023
Ariake (tbn Oliva) 2001 299,000 Double-hull BA 2023
Front Serenade 2002 299,000 Double-hull LIB 2024
Otina (ex Hakata) 2002 298,465 Double-hull IoM 2025
Front Stratus (tbn Ondina) 2002 299,000 Double-hull LIB 2025
Front Falcon 2002 309,000 Double-hull BA 2025
Front Page 2002 299,000 Double-hull LIB 2025
Front Energy 2004 305,000 Double-hull CYP 2027
Front Force 2004 305,000 Double-hull CYP 2027
Suezmax OBO Carriers
Front Breaker 1991 169,000 Double-hull MI 2015
Front Climber 1991 169,000 Double-hull SG 2015
Front Driver 1991 169,000 Double-hull MI 2015
Front Guider 1991 169,000 Double-hull SG 2015
Front Leader 1991 169,000 Double-hull SG 2015
Front Rider 1992 170,000 Double-hull SG 2015
Front Striver 1992 169,000 Double-hull SG 2015
Front Viewer 1992 169,000 Double-hull SG 2015
Suezmaxes
Front Birch 1991 150,000 Double-side MI 2014 (1)
Front Maple 1991 150,000 Double-side MI 2014 (1)
Front Pride 1993 150,000 Double-hull NIS 2017
Front Glory 1995 150,000 Double-hull NIS 2018
Front Splendour 1995 150,000 Double-hull NIS 2019
Front Ardenne 1997 153,000 Double-hull NIS 2020
Front Brabant 1998 153,000 Double-hull NIS 2021
Mindanao 1998 159,000 Double-hull SG 2021
SFL Heimdall (NB) 2009 156,000 Double-hull n/a n/a
SFL Baldur (NB) 2009 156,000 Double-hull n/a n/a
Panamax Drybulk Carrier
Golden Shadow 1997 73,732 n/a HK 2016 (2)
Containerships
Sea Alfa 2005 1,700 TEU n/a CYP 2009
Sea Beta 2005 1,700 TEU n/a CYP 2007
Horizon Hunter 2006 2,824 TEU n/a U.S. 2021 (2)
Horizon Hawk 2007 2,824 TEU n/a U.S. 2022 (2)
Horizon Falcon 2007 2,824 TEU n/a U.S. 2022 (2)
Horizon Eagle 2007 2,824 TEU n/a U.S. 2022 (2)
Horizon Tiger 2006 2,824 TEU n/a U.S. 2022 (2)
SFL Avon (NB) 2010 1,700 TEU n/a MI n/a
SFL Clyde (NB) 2010 1,700 TEU n/a MI n/a
SFL Dee (NB) 2010 1,700 TEU n/a MI n/a
SFL Humber (NB) 2010 2,500 TEU n/a MI n/a
SFL Tamar (NB) 2010 2,500 TEU n/a MI n/a
Capesize Drybulk Carrier
Golden Straits (NB) 2008 170,000 n/a n/a 2023 (2)
Golden Island (NB) 2009 170,000 n/a n/a 2024 (2)
Jack-Up Drilling Rigs
West Ceres 2006 300 ft n/a PAN 2021 (2)
West Prospero (NB) 2007 300 ft n/a PAN 2022 (2)
Seismic
To be named (NB) 2008 n/a n/a 2020 (2)
To be named (NB) 2008 n/a n/a 2020 (2)
To be named (NB) 2008 n/a n/a 2020 (2)
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NB - Newbuilding
Key to Flags:
BA - Bahamas, CYP - Cyprus, FRA - France, IoM - Isle of Man, HK - Hong Kong, LIB
- Liberia, MI - Marshall Islands, NIS - Norwegian International Ship Register,
PAN - Panama, SG - Singapore, U.S - United States of America.
(1) Charter subject to termination at the Frontline Charterer's option from 2010.
(2) Charterer has purchase options during the term of the charter.
Other than our interests in the vessels and jack-up drilling rigs described above, we do not own any material physical properties.
ITEM 4A UNRESOLVED STAFF COMMENTS
None
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion should be read in conjunction with Item 3 "Selected Financial Data", Item 4 "Information on the Company" and our audited Consolidated Financial Statements and Notes thereto included herein.
Overview
Following our spin-off from Frontline, and purchase of our original fleet in 2004, we have established ourselves as a leading international maritime asset owning company with one of the largest asset bases across the maritime and offshore industries. A full fleet list is provided in Item 4.D "Information on the Company" showing the assets that we currently own and charter to our customers.
Factors Affecting Our Current and Future Results
Principal factors that have affected our results since 2004 and are expected to affect our future results of operations and financial position include:
o the earnings of our vessels under time charters and bareboat charters to the Frontline Charterers;
o the amount we receive under the profit sharing arrangements with the Frontline Charters;
o the earnings and expenses related to any additional vessels that we acquire;
o vessel management fees and expenses;
o administrative expenses; and
o interest expenses.
Revenues
Our revenues since January 1, 2004 derive primarily from our long term, fixed rate time charters. Most of the vessels that we have acquired from Frontline, including vessels we have acquired since December 2003, are chartered to the Frontline Charterers under long term charters that are generally accounted for as finance leases.
We allocate $6,500 per day from each time charter payment from the Frontline Charters as finance lease service revenue relating to these vessels. The balance of each charter payment is allocated between finance lease interest income and finance lease repayment in order to produce a constant periodic return on the balance of our net investments in finance leases. As the balance of our net investments in finance leases decreases, we will allocate less of each charter payment as finance lease interest income and more as finance lease repayments.
Until April 2007, certain of our vessels acquired from Frontline remained on charter to third parties, under charters which commenced before January 1, 2004, (the date upon which our charter arrangements to the Frontline Charterers became economically effective). Our arrangement with Frontline is that while our vessels are completing performance of third party charters, we pay the Frontline Charterers all revenues we earn under third party charters in exchange for the Frontline Charterers paying us the agreed upon charterhire. We account for the revenues received from these third party charters as time charter, bareboat or voyage revenues, as applicable, and the subsequent payment of these amounts to the Frontline Charterers as deemed dividends paid. We account for the charter revenues received from the Frontline Charterers prior to the charters becoming effective for accounting purposes, as deemed dividends received.
In March 2007, we announced the agreement to cancel the previous charter for the single hull VLCC Front Vanadis. We have agreed to pay a $13.2 million compensation to Frontline for the cancellation of the charter. The new charterer, Great Elephant, a subsidiary of Taiwan Maritime Transportation, paid a gross upfront payment of $12.5 million, and will pay a daily gross bareboat charter hire of $25,000 per day for 42 months, starting May 2007. Great Elephant has quarterly purchase options, and also has a purchase obligation of $3 million at the end of the charter.
We have a profit sharing agreement for all vessels on charter to the Frontline Charterers. We recognize profit sharing revenue for VLCC's and Suezmaxes/Suezmax OBO's, respectively when the aggregate earnings on a TCE basis exceed the maximum amount of base charterhire that these vessels are scheduled to earn for the entire year. In 2006, this occurred in the second quarter of the year. We therefore generally do not expect to recognize any profit sharing revenue in the first quarter of any year. In addition, we expect stronger demand for crude oil tankers and increased oil trading activity in the winter months in the northern hemisphere to affect the amount and timing of our profit sharing revenue. We also have profit sharing agreements relating to the jack-up drilling rigs West Ceres and West Prospero, where we will receive 5% and 4%, respectively, of the earning above certain thresholds. These profit sharing agreements will not, however, become effective until 2009.
We own seven container vessels, of which three were in operation at December 31, 2006. Five of the seven vessels are vessels on long-term bareboat charters to Horizon Lines, of which one vessel was delivered in 2006, and the remaining four vessels have been delivered to us in 2007. Each vessel chartered to Horizon Lines has an initial charter period of 12 years, plus three year extension options for Horizon Lines. Horizon Lines also has purchase options for the vessels, exercisable for the first time after five years from commencement of the relevant charter.
Our two smaller container vessels are employed on short to medium time charters. One of the vessels, Sea Alfa, is on a time charter to the Korean operator Heung A until May 2009. The other vessel, Sea Beta, was on a bareboat charter to the Australian operator Pan Logistics, but this company went into administration in October 2006, and the charter was cancelled. Later in the year we secured a new six month time charter for the vessel, commencing in January 2007 with two three-month extension options for the charterer. The first of these extension options has been exercised by the charterer. Our charter to Pan Logistics was secured by a $2.7 million bank guarantee, and we have collected the full guarantee amount in 2007. This amount, net of an amount of approximately $800,000 to compensate the technical manager of the vessel, will be recognized in the year 2007.
In June 2007, we announced an agreement to acquire five newbuilding container vessels with scheduled delivery in 2010 for an aggregate construction cost of approximately $190 million. Consistent with our strategy, it is our intention to market these vessels for medium to long term contracts.
In September 2006, we took delivery of Golden Shadow, a Panamax drybulk carrier built in 1997. This vessel has been bareboat chartered to Golden Ocean for a period of 10 years. At the end of the charter we have a fixed price put option to Golden Ocean, and Golden Ocean also has purchase options, exercisable for the first time after three years. We have determined under FIN 46 (R) that we are not the primary beneficiary of the vessel owning subsidiary and have accounted for it using the equity method.
In February 2007, we announced an agreement to acquire two newbuilding Capesize drybulk carriers from Golden Ocean. The vessels are scheduled to be delivered in the fourth quarter of 2008 and first quarter of 2009, respectively, and will be chartered for 15 years to Golden Ocean. Golden Ocean will have a purchase option, starting after five years.
At the end of June 2006, we took delivery of the newbuilding jack-up drilling rig, West Ceres, acquired from SeaDrill Invest I, a wholly owned subsidiary of Seadrill. The rig has been bareboat chartered back to SeaDrill Invest I for a period of 15 years, and SeaDrill Invest I has purchase options, exercisable for the first time after three years. The charter is classified as a finance lease, similar to the charters to the Frontline Charterers.
In January 2007, we also announced the agreement to acquire a second jack-up drilling rig, the West Prospero, from SeaDrill Invest II, a wholly owned subsidiary of Seadrill. This rig is scheduled to be delivered from the shipyard at the end of June 2007, and will then commence a 15 year charter to SeaDrill Invest II. SeaDrill Invest II will have purchase options for the rig, exercisable for the first time after three years.
In March 2007, we announced the acquisition of three newbuilding seismic vessels, including complete seismic equipment, from SCAN. The vessels are scheduled to be delivered in 2008. Upon delivery the vessels will commence 12 year bareboat charters to SCAN. SCAN has been granted fixed purchase options for each of the vessels after six, 10 and 12 years from commencement of the relevant charters.
Expenses
Our expenses consist primarily of vessel management fees and expenses, administrative expenses and interest expense. With respect to vessel management fees and expenses, our vessel owning subsidiaries with vessels on charter to the Frontline Charterers have entered into fixed rate management agreements with Frontline Management under which Frontline Management is responsible for all technical management of the vessels. Each of these subsidiaries pays Frontline Management a fixed fee of $6,500 per day per vessel for all of the above services.
In addition to the vessels on charter to the Frontline Charterers, we also have two 1,700 TEU container vessels employed on time charters. We have outsourced the technical management for these vessels, and we pay operating expenses for these vessels as they are incurred. The remaining vessels we own that have charters attached to them are employed on bareboat charters, where the charterer pays all operating expenses, including maintenance, dry-docking and insurance.
We have entered into an administrative services agreement with Frontline Management under which Frontline Management provides us with certain administrative support services. For the year 2006, we and each of our vessel owning subsidiaries paid Frontline Management a fixed fee of $20,000 for its services under the agreement, and agreed to reimburse Frontline Management for reasonable third party costs, if any, advanced on our behalf by Frontline. For the year 2007, some of the compensation to Frontline Management will be based on cost sharing for the services rendered based on actual incurred costs plus a margin.
Other than the interest expense associated with our 8.5% senior notes, the amount of our interest expense will be dependent on our overall borrowing levels and may significantly increase when we acquire vessels or on the delivery of newbuildings. Interest incurred during the construction of a newbuilding is capitalized in the cost of the newbuilding. Interest expense may also change with prevailing interest rates, although the effect of these changes may be reduced by interest rate swaps or other derivative instruments that we enter into.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements and combined financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. The following is a discussion of the accounting policies we apply that are considered to involve a higher degree of judgment in their application. See Note 2 to our consolidated financial statements for details of all of our material accounting policies.
Revenue Recognition
Revenues are generated from time charter and bareboat charterhires and are recorded over the term of the charter as service is provided. Voyage charter revenues have been included for the period prior to our vessels commencing trading under their charters to Frontline. Under a voyage charter, the revenues and associated voyage costs are recognized ratably over the estimated duration of the voyage.
Profit sharing revenues are recorded when earned and realizable. We consider profit sharing revenues to be earned and realizable to the extent that a vessel's underlying earnings on a time charter equivalent basis exceed the maximum amount of base charterhire the vessel could earn during the period. This threshold is calculated as the number of days in the profit sharing period multiplied by the daily profit sharing threshold rates. These threshold rates represent the base charterhire rates specified in the individual time charter agreements.
Vessels and Depreciation
The cost of vessels and rigs less estimated residual value are depreciated on a straight line basis over their estimated remaining economic useful lives. The estimated economic useful life of our vessels is 25 years except for single hull tankers for which the useful life is either 25 years or the vessels' anniversary date in 2015. We depreciate our rigs over 30 years. These are common life expectancies applied in the shipping industry.
If the estimated economic useful life is incorrect, or circumstances change and the estimated economic useful life has to be revised, an impairment loss could result in future periods. We will continue to monitor the situation and revise the estimated useful lives of those vessels as appropriate when new regulations are implemented.
Leases
Leases of our vessels where we are the lessor are classified as either finance leases or operating leases based on an assessment of the terms of the lease. For the leases which have been classified as finance leases, the minimum lease payments (net of amounts representing estimated executory costs including profit thereon) plus the unguaranteed residual value are recorded as the gross investment in the lease. The difference between the gross investment in the lease and the sum of the present values of the two components of the gross investment is recorded as unearned income which is amortized to income over the lease term as finance lease interest income to produce a constant periodic rate of return on the net investment in the lease.
Classification of a lease involves the use of estimates or assumptions about fair values of leased vessels and expected future values of vessels. We generally base our estimates of fair value on the average of three independent broker valuations of a vessel. Our estimates of expected future values of vessels are based on current fair values amortized in accordance with our standard depreciation policy for owned vessels.
Deemed Dividends
Our charter arrangements with Frontline became effective on January 1, 2004. Certain of our vessels were on fixed term charters to third parties as at January 1, 2004 and the remainder were on spot voyages. As each of our vessels completes its original charter in place on January 1, 2004, the finance leases with Frontline become effective for accounting purposes. We account for the revenues received from these third party charters as time charter, bareboat or voyage revenues as applicable and the subsequent payment of these amounts to the Frontline Charterers as deemed dividends paid. We account for the charter revenues received from the Frontline Charterers prior to the charters becoming effective for accounting purposes, as deemed equity contributions received. This treatment has been applied due to the related party nature of the charter arrangements.
The Company has accounted for the acquisition of assets from entities under common control at the historical carrying value of the seller. The difference between the purchase price and historical carrying value has been recorded as a deemed dividend paid.
Deemed Equity Contributions
We have accounted for the difference between the historical cost of the vessels, originally transferred to us by Frontline at Frontline's historical carrying value, and the net investment in the lease as a deferred deemed equity contribution. This deferred deemed equity contribution is presented as a reduction in the net investment in finance leases in the balance sheet. This results from the related party nature of both the original transfer of the vessel and the subsequent finance lease. The deferred deemed equity contribution is amortized as a credit to contributed surplus over the life of the new lease arrangement as lease payments are applied to the principal balance of the lease receivable.
Impairment of Long-lived Assets
The vessels and rigs held and used by us are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In assessing the recoverability of carrying amounts, we must make assumptions regarding estimated future cash flows. These assumptions include assumptions about spot market rates, operating costs and the estimated economic useful life of these assets. In making these assumptions we refer to historical trends and performance as well as any known future factors. Factors we consider important which could affect recoverability and trigger impairment include significant underperformance relative to expected operating results, new regulations that change the estimated useful economic lives of our vessels and rigs and significant negative industry or economic trends.
Variable Interest Entities
A variable interest entity is a legal entity that lacks either (a) equity interest holders as a group that lack the characteristics of a controlling financial interest, including: decision making ability and an interest in the entity's residual risks and rewards or (b) the equity holders have not provided sufficient equity investment to permit the entity to finance its activities without additional subordinated financial support. FASB Interpretation 46 (R) requires a variable interest entity to be consolidated if any of its interest holders are entitled to a majority of the entity's residual return or are exposed to a majority of its expected losses.
In applying the provisions of Interpretation 46 (R), we must make assumptions in respect of, but not limited to, the sufficiency of the equity investment in the underlying entity. These assumptions include assumptions about the future revenues, operating costs and estimated economic useful lives of assets of the underlying entity.
In June 2006 we incorporated a wholly owned subsidiary, Rig Finance Ltd., for the purpose of holding the jack-up drilling rig West Ceres. In applying the provisions of FIN 46(R), we have determined that Rig Finance Ltd. meets the definition of a variable interest entity. We have concluded that we are the primary beneficiary. Accordingly we have consolidated the assets and liabilities of Rig Finance effective December 31, 2006.
In August 2006 we incorporated a wholly owned subsidiary, Front Shadow Inc. for the purpose of holding a Panamax drybulk carrier. In applying the provisions of FIN 46(R), we have determined that Front Shadow Inc. meets the definition of a variable interest entity. The vessel has been bareboat chartered to Golden Ocean and the terms of the agreement are such that Ship Finance is not the primary beneficiary. Accordingly we have equity accounted for our investment in Front Shadow effective December 31, 2006
Recent accounting pronouncements
In March 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 156 Accounting for Servicing of Financial Assets - an amendment to FAS 140 ("FAS 156"). FAS 156 requires that all separately recognized servicing rights be initially measured at fair value if practicable. The statement also permits an entity to choose between two measurement methods for each class of separately recognized servicing assets and liabilities. FAS 156 is effective for fiscal years beginning after September 15, 2006. The Company does not expect the adoption of FAS 156 to have an impact on its financial statements.
In July 2006, the FASB issued Interpretation No. 48 Accounting for Uncertainty in Income Taxes - an interpretation of FAS 109 ("FIN 48"). FIN 48 clarifies the application of FAS 109 by defining the criterion that an individual tax position must meet for any part of the benefit of that position to be recognized in an entity's financial statements and also provides guidance on measurement, de-recognition, classification, interest and penalties and disclosure. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company does not expect the adoption of FIN 48 to have an impact on its financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 Fair Value Measurements ("FAS 157"). FAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. FAS 157 applies under most other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. The Company has not yet determined the effect of adoption of FAS 157 on its financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158 Employers' Accounting for Defined Benefit Pension and Other Post Retirement Plans - an amendment of FAS 87, 88, 106, and 132R ("FAS 158"). FAS 158 requires that the funded status of defined benefit post retirement plans be recognized in the statement of financial position and changes in the funded status be reflected in comprehensive income. FAS 158 also requires the benefit obligations to be measured as of the same date of the financial statements and requires additional disclosures related to the effects of delayed recognition of gains or losses, prior service costs or credits and transition assets or obligation on net periodic benefit cost. FAS 158 is effective for fiscal years ending after December 15, 2006 for employers without publicly traded securities. The Company does not expect the adoption of FAS 158 to have an impact on its financial statements.
In September 2006, the United States Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 108 Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements ("SAB 108"), which provides interpretative guidance on how registrants should quantify financial statement misstatements. Under SAB 108 registrants are required to consider both a "rollover" method, which focuses primarily on the income statement impact of misstatements, and the "iron curtain" method, which focuses primarily on the balance sheet impact of misstatements. The effects of prior year uncorrected errors include the potential accumulation of improper amounts that may result in material misstatement on the balance sheet or the reversal of prior period errors in the current period that result in a material misstatement of the current period income statement amounts. Adjustments to current or prior period financial statements would be required in the event that after application of various approaches for assessing materiality of a misstatement in a current period financial statements and consideration of all relevant quantitative and qualitative factors, a misstatement is determined to be material. We adopted the provisions of SAB 108 as of December 31, 2006 and this did not have a material effect on the Company's results of operations or financial position.
Market Overview
The Oil Tanker Market
The tanker market strengthened in 2006 with demand having the greatest influence on rates. The seasonal patterns for the Suezmax and VLCC sectors were quite similar, though Suezmaxes witnessed more volatility. The year started at a TCE of approximately $81,000 for VLCCs and approximately $70,000 for Suezmaxes according to industry sources. Rates then followed the traditional seasonal pattern by softening to approximately $33,000 for the VLCCs and approximately $25,000 for Suezmaxes around the middle of April 2006. From this point, rates began to firm against market predictions at the time and rose to approximately $89,000 for VLCCs and approximately $75,000 for Suezmaxes by the end of August. The fear of another active hurricane season in the US Gulf, geopolitical uncertainty and increased risk of supply disruptions provided strong incentives for building oil reserves throughout the summer. On-land storage capacity was in some regions filled to capacity, driven by extraordinarily strong future rates, as compared to market rates, resulting in the wide use of tankers for storage purposes.
The build up in reserves triggered a sharp drop in crude prices, from $76 per barrel in early August to $56 per barrel in early October. This led to the market weakening with rates falling to approximately $45,000 for VLCCs and approximately $30,000 for Suezmaxes by the middle of December 2006. Depending on the source of information, the average TCE for the year was approximately $63,000 for a double hull VLCC and approximately $50,000 for a double hull Suezmax.
The increasing trend is for oil majors to discriminate against single hull tonnage. Oil traders with crude or fuel oil cargoes often require double hull tonnage in order to have full flexibility with regard to cargo delivery. Therefore, single hull ships appear no longer able to trade efficiently compared to double hull vessels, which implies a further gap in the already existing 'two tier market' between the double hull and single hull vessels.
We believe it is likely that more single hull tankers will be either converted or scrapped compared to recent years. We expect approximately 30 VLCCs and approximately 25 Suezmaxes to be delivered from shipyards during 2007.
The Drybulk Shipping Market
The drybulk shipping market continued its strong performance in 2006, mainly driven by Chinese imports and exports. Chinese iron ore, steam coal and grain imports were all running at record high levels during the second half of 2006. In addition to these trades, steel exports from China increased substantially during 2006, and China is now a major exporter of steel.
In line with the continued strong market, contracting for new drybulk vessels has increased in 2007. The increase in the orderbook is likely to put pressure on the current strong rates as vessels start getting delivered. Further, the development of the drybulk market is expected to be dependent on the development of the Chinese industrial economy. A slow-down in the Chinese industrial economy could result in a softening of the market.
The Containership Market
The strong demand growth for containerships since 2003 has been supported by the improving world economy and expanding world trade. Historically, demand for containerships has been highly sensitive to global economic growth.
Demand growth for containerships has been mainly driven by surging exports by Asian countries and increasing imports by Europe and North America, as well as more intra-Asian trade. With an expected healthy outlook for global economic growth, it is expected that demand for containerships will continue to grow steadily until 2010.
One concern, however, arises from the large orderbook for new ships entering the market over the next three to four years. Because of the many orders for new vessels, the orderbook currently stands at close to half of the existing fleet. Most of the new capacity is expected in the post-Panamax vessel segment. Industry sources expect that this will lead to an annual fleet growth of approximately 10% per annum until 2010, similar to the historic average growth rate for demand.
The Offshore Drilling Rig Market
The substantial oil price crash in 1998, caused by the Asian crisis, has for many years deterred global oil majors from making significant expansion of exploration and production budgets. However, with the strong upturn in oil prices since 2003, exploration and production budgets have been increased to meet growing oil demand and depletion of existing oil reserves in regions such as the North Sea and the U.S. Gulf of Mexico.
The increase in the average oil price from $30 per barrel in 2003 to $60 per barrel in 2006 is partly a result of the increased oil demand by Asian developing countries. Oil producers have encountered difficulties coping with growth in the increase in production required to meet this increase in demand. Depletion of North Sea and U.S. Gulf of Mexico oil reserves, rising costs and barriers to entry for foreign oil companies tapping into Russian oil reserves and geopolitical issues that constantly disrupt steady oil supplies in West Africa have led to increasing pressure on the limited spare capacity held by the Middle East OPEC producers. As a consequence, oil majors have taken serious efforts to increase their budgets for oil exploration and production.
According to industry experts, it is estimated that offshore oil production will continue to grow through 2010, with production from deepwater sources taking the lead. The focus of offshore services is on the North Sea, U.S. Gulf of Mexico, Brazil, West Africa and South East Asia.
Strong growth in offshore production volume has also significantly improved the demand outlook for offshore drilling rigs and supply vessels. The offshore services markets have experienced tight conditions with fleet utilization staying at over 90% for offshore drilling rigs in main areas. As a result, there has been an increase in the newbuilding market for offshore drilling units and supply vessels during the past two years. In particular, demand has increased for drilling rigs capable of operating in harsh environments such as the North Sea, boosting capacity utilization and consequently day rates.
With the estimated growth in demand and current orderbook, the offshore services market is expected to continue to enjoy the high levels of utilization seen to date in 2007. The market balance is expected to soften gradually as more newbuildings are delivered in 2008 and afterwards. Nevertheless according to industry sources, it is expected that the offshore market will continue to enjoy a healthy outlook over the next four to five years.
However, market developments cannot always be predicted and may well differ from our expectations.
Seasonality
Our tankers operate in markets that have historically exhibited seasonal variations in demand and, therefore, charter rates. Tanker markets are typically stronger in the winter months in the northern hemisphere due to increased oil consumption. In addition, unpredictable weather patterns in the winter months tend to disrupt vessel scheduling. The oil price volatility resulting from these factors has historically led to increased oil trading activities and demand for tankers. The change in demand for vessels may affect the charter rates that the Frontline Charterers receive for our vessels. Seasonality may also affect the amount and timing of our profit sharing revenues.
Inflation
Although inflation has had a moderate impact on our corporate overheads and our ship operating expenses, we do not consider inflation to be a significant risk to direct costs in the current and foreseeable economic environment. In addition, in a shipping downturn, costs subject to inflation can usually be controlled because shipping companies typically monitor costs to preserve liquidity and encourage suppliers and service providers to lower rates and prices in the event of a downturn.
Results of Operations
Year ended December 31, 2006 compared with the year ended December 31, 2005
Operating revenues
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(in thousands of $) 2006 2005
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Time charter revenues 53,087 62,605
Bareboat charter revenues 3,986 7,325
Voyage charter revenues (709) 9,745
Finance lease interest income 182,580 177,474
Finance lease service revenues 106,791 92,265
Profit sharing revenues 78,923 88,096
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Total operating revenues 424,658 437,510
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Total operating revenues decreased 3% in the year ended December 31, 2006 compared with 2005.
Time charter revenues consist mainly of revenues received as a result of incomplete third party charters on vessels acquired from Frontline. As at December 31, 2006 only two of the vessels originally acquired from Frontline remained on such third party charters. During 2006, four third party charters expired and the vessels commenced employment with the Frontline Charterers operating under the fixed rate charter arrangements and are accounted for as finance leases. During the period of third party employment, we recorded time charter, bareboat charter, and voyage charter revenue for the vessels. Subsequent to the completion of third party charters, vessels under finance leases provide earnings in the form of lease interest income, lease service revenue and profit share.
In 2005, two vessels accounted for a significant portion of voyage charter revenues due to lucrative spot market rates prior to their employment with Frontline.
Voyage charter revenues included demurrage, despatch, pool earnings and other operating income which are subject to various adjustments, e.g. loss of hire, vendor rebates and underperformance claims. These adjustments have resulted in a negative figure in 2006.
The increase in finance lease interest income from 2005 to 2006 results from the new leasing contracts with SeaDrill Invest I for the West Ceres jack-up drilling rig, which commenced June 30, 2006. In addition, during 2006, four vessels were redelivered following the completion of charters to third parties. On redelivery, each commenced time charter contracts with the Frontline Charterers.
Finance lease service revenues, which are based on a fixed daily rate, increased in 2006 because of the change in employment of the four above mentioned vessels.
At December 31, 2006 all but two of our tankers had completed their pre-acquisition charters to third parties. The remaining vessels on charter to third parties completed their charters during the first half of 2007. After these two charters completed in the second quarter of 2007, most revenues from the tankers in our current fleet is derived from finance leases and our profit sharing arrangement with the Frontline Charterers.
Each of the Frontline Charterers has agreed to pay us a profit sharing payment
equal to 20% of the charter revenues for the applicable period, calculated
annually on a TCE basis for the VLCCs Suezmaxes and OBOs, realized by that
Frontline Charterer for our vessels in excess of the base charterhire for those
vessels. For the year ended December 31, 2006 we earned total profit share
revenues from the Frontline Charterers in the amount of $78.9 million (2005:
$88.1 million). The decrease in profit sharing revenue is directly related to
decrease in average TCE earned by these vessels while employed by Frontline in
2006.
Cash flows arising from finance leases
The following table analyzes our cash flows from the charters to the Frontline Charterers and SeaDrill Invest I during 2006 and 2005 and how they are accounted for:
(in thousands of $)
2006 2005
Charterhire payments accounted for as:
Finance lease interest income 182,580 177,474
Finance lease service revenues 106,791 92,265
Finance lease repayments 136,701 94,777
Deemed equity contributions received 31,741 50,560
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Total charterhire paid 457,813 415,076
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We allocate $6,500 per day from each time charter payment from the Frontline Charterers as finance lease service revenue.
Certain of our vessels acquired as part of the original spin-off were on charter to third parties as at January 1, 2004 when our charter arrangements with the first of the Frontline Charterers became economically effective. Our charter arrangements with the Frontline Charterers become economically effective on the date of delivery of the vessel to Frontline Charterers. Our arrangement with the Frontline Charterers is that while our vessels are completing performance of third party charters, we pay the Frontline Charterers all revenues we earn under third party charters in exchange for the Frontline Charterers paying us the agreed upon charterhire rates. We account for the revenues received from these third party charters as time charter, bareboat or voyage revenues as applicable and the subsequent payment of these amounts to the Frontline Charterers as deemed dividends paid. We account for the charter revenues received from the Frontline Charterers prior to the charters becoming effective for accounting purposes, as deemed dividends received. For the year ended December 31, 2006 we paid deemed dividends in the amount of $7.2 million (2005: $16.5 million) to the Frontline Charterers. The decrease in deemed dividends paid is due to the fact that that all but two of our tankers had completed their respective third party charters as of December 31, 2006.
Voyage expenses
Voyage expenses are derived from vessels which were on charter to third parties on their delivery date to us. Voyage expenses have decreased in 2006 as fewer vessels are on voyage charter to third parties. We do not expect to report further significant voyage expenses.
Ship operating expenses
Ship operating expenses increased 7% from $110.2 million for the year ended December 31, 2005 to $118.0 million for the year ended December 31, 2006 primarily due to the change in employment of our tankers. In 2006 four of our tankers were redelivered from bareboat charters and resumed vessel management with Frontline Management.
Ship operating expenses in 2006 are primarily comprised of our payments to Frontline Management of $6,500 per day under the management contracts for our tankers and OBOs chartered to the Frontline Charterers. They also include ship operating expenses for two of our containerships that are managed by unrelated third parties.
Administrative expenses
Administrative expenses increased from $2.5 million in 2005 to $6.6 million in 2006. This increase is primarily due to the establishment of our own management organization in 2006 and consequent staff costs. Prior to 2006, all administrative activities were outsourced to Frontline Management in conjunction with our administrative services agreement and comprised a fee of $20,000 per vessel owning subsidiary plus $20,000 paid by us. Fees payable under this agreement amounted to $1.0 million in the year ended December 31, 2006 (December 31, 2005: $1.0 million). Frontline Management provides administrative services under this agreement, which include accounting, corporate secretarial and other services.
Additionally, we pay expenses that are not covered by this agreement which include audit and legal fees, listing fees and other professional charges. Commencing in 2007, some of the compensation to Frontline Management will be based on cost sharing for the services rendered based on actual incurred costs plus a margin.
Depreciation expense
Depreciation expenses for the year ended December 31, 2006 was $14.5 million compared to $19.9 million for the year ended December 31, 2005. Depreciation expenses relate to the vessels on charters accounted for as operating leases. In 2006, four such Frontline vessels were redelivered from third party charters and are now being accounted for as finance leases, thus contributing to the decrease in depreciation from 2005. We expect that our depreciation charge relating to our tankers on charter to the Frontline Charterers will continue to decrease as the remaining vessels have now completed their charters to third parties. However, those decreases are likely to be offset as we expand our fleet.
Interest income
Interest income has increased by $0.6 million for the year ended December 31, 2006. The increase is a result of the increase in funds on deposit during the year.
Interest expense
(in thousands of $) 2006 2005 Change (%)
Interest on floating rate loans 80,453 50,951 58%
Interest on 8.5% Senior Notes 38,881 41,614 (7%)
Swap interest (income) (8,815) 2,846 n/a
Amortization of deferred charges 3,069 16,524 (81%)
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113,588 111,935 1%
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At December 31, 2006, we had total debt outstanding of $1,915.2 million comprised of $449.1 million aggregate principal amount of 8.5% senior notes and $1,466.1 million under floating rate secured credit facilities. At December 31, 2005 we had total debt outstanding of $1,793.7 million, $457.1 million related to the 8.5% senior notes and $1,336.6 million of which was floating rate debt.
Overall, interest expense has increased due to increased underlying interest rates. This has been partially offset by swap interest income, and by the decrease in senior notes interest, as the Company repurchased and cancelled $8.0 million of the notes during 2006.
At December 31, 2006, we were party to interest rate swap contracts which effectively fix our interest rate on $738.7 million of floating rate debt at a weighted average rate of 4.15% per annum. At December 31, 2005 we were party to interest rate swap contracts with a notional principal amount of $568.3 million. Swap interest has decreased due to the increase in the three month LIBOR throughout 2006.
Amortization of deferred charges decreased 81% in 2006 to $3.1 million because 2005 included the write off of deferred charges associated with a refinancing of a $1,058.0 million credit facility
Other financial items
Other financial items consist of mark to market valuation changes on our interest rate swap contracts and our bond swap. In 2006 we recorded an expense of $2.8 million in relation to the mark to market as compared to income of $14.7 million in 2005. The significant change is primarily a result of five new swap contracts entered into in association with the Horizon Lines arrangement. The new swaps have a notional principal, at December 31, 2006, of $207.9 million and fix our LIBOR debt at 5.65% per annum, which is significantly higher than the weighted average of 3.56% per annum for the remaining swaps which bear a combined notional principal of $530.8 million.
Equity in earnings of unconsolidated subsidiaries
As of December 31, 2006, we have accounted for one investment under the equity method as discussed in Note 12 of the financial statements included herein.
Year ended December 31, 2005 compared with the year ended December 31, 2004
Operating revenues
(in thousands of $) 2005 2004
Time charter revenues 62,605 86,741
Bareboat charter revenues 7,325 27,453
Voyage charter revenues 9,745 49,707
Finance lease interest income 177,474 140,691
Finance lease service revenues 92,265 72,551
Profit sharing revenues 88,096 114,926
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Total operating revenues 437,510 492,069
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Total operating revenues decreased 11% in the year ended December 31, 2005 compared with 2004. The decrease in operating revenues in 2005 primarily reflects the change in employment of our vessels in addition to reduced profit share income received from the Frontline Charterers. In the first six months of 2004, the majority of our vessels were completing third party charters prior to commencing employment with the Frontline Charterers, whereas in 2005, all but six of our tankers had commenced full employment with the Frontline Charterers and are now operating under the fixed rate charter arrangements and are accounted for as finance leases.
As of December 31, 2005 18 of our 22 Suezmax tankers and 26 of our 28 VLCC tankers had commenced employment with the Frontline Charterers under long term charters that are accounted for as finance leases. Finance lease interest income and finance lease services revenues increased by 26% and 27% respectively in the year ended December 31, 2005. This increase is explained by the increase in the number of vessels accounted for as finance leases, 44 in 2005 compared with 40 at December 31, 2004.
At December 31, 2005 all but six of our tankers had completed their charters to third parties. The remaining vessels on charter to third parties completed their charters during the first half of 2007. After these charters are completed all revenues from our current fleet of tankers are derived from finance leases and our profit sharing arrangement with the Frontline Charterers.
In addition to operating revenues from our tankers we also recorded time charter revenues in connection with our two containerships which were on time charter to unrelated third parties.
The following table analyzes our cash flows from the charters to the Frontline Charterers during 2005 and 2004 and how they were accounted for:
(in thousands of $)
2005 2004
Frontline charterhire payments accounted for as:
Finance lease interest income 177,474 140,691
Finance lease service revenues 92,265 72,551
Finance lease repayments 94,777 61,990
Deemed equity contributions received 50,560 97,118
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Total charterhire paid 415,076 372,350
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For the year ended December 31, 2005 we paid deemed dividends in the amount of $16.5 million (2004: $59.0 million) to the Frontline Charterers. The significant decrease in deemed dividends paid was due to the fact that the majority of our fleet of tankers completed their respective third party charters in 2004.
Each of the Frontline Charterers has agreed to pay us a profit sharing payment equal to 20% of the charter revenues for the applicable period, calculated annually on a TCE basis, realized by that Frontline Charterer for our fleet in excess of the base charterhire. For the year ended December 31, 2005 we earned total profit share revenues from the Frontline Charterers in the amount of $88.1 million (2004: $114.9 million). The decrease in profit sharing revenue was directly related to decrease in average TCE earned by the fleet while employed by Frontline in 2005.
Voyage expenses
Voyage expenses of $3.6 million in 2005 were derived from vessels which were on charter to third parties on the delivery date to the Company. Voyage expenses have decreased 64% from $10.0 million for the year ended December 31, 2004, as fewer vessels were on charter to third parties during the period.
Ship operating expenses
Ship operating expenses have increased 14% from $96.5 million for the year ended December 31, 2004 to $110.2 million for the year ended December 31, 2005 primarily due to the increase in our fleet of tankers and the addition of two containerships. Ship operating expenses in 2005 were primarily comprised of our payments to Frontline Management of $6,500 per day under the management contracts for our tankers. They also included ship operating expenses for our two containerships that are managed by unrelated third parties. The management fees are payable on each of our vessels, except those that Frontline Charterers elect to bareboat charter from us. At December 31, 2005, five of our vessels were bareboat chartered.
Administrative expenses
Administrative expenses in 2005 comprised a fee of $20,000 per vessel owning subsidiary plus $20,000 paid by us to Frontline Management under the terms of our administrative service agreement. Fees payable under this agreement amounted to $1.0 million in the year ended December 31, 2005 (December 31, 2004: $0.9 million).
Depreciation expense
Depreciation expense for the year ended December 31, 2005 was $19.9 million compared to $34.6 million for the year ended December 31, 2004. Depreciation expenses relate to the vessels on charters to third parties that are accounted for as operating leases. The reduction in 2005 was due to the fact that in 2004 we recorded depreciation on vessels during the period before they commenced employment with the Frontline Charterers under long term charters. In 2005 we recorded the majority of depreciation on the six vessels trading on third party time charters.
Interest income
Interest income increased by $0.8 million for the year ended December 31, 2005 as a result of the increase in funds on deposit during the year.
Interest expense
(in thousands of $) 2005 2004 Change
Interest on floating rate loans 50,951 26,723 91%
Interest on 8.5% Senior Notes 41,614 47,180 (12%)
Swap interest 2,846 12,545 (77%)
Amortization of deferred charges 16,524 9,485 74%
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111,935 95,933 17%
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At December 31, 2005, we had total debt outstanding of $1,793.7 million comprised of $457.1 million aggregate principal amount of 8.5% senior notes and $1,336.6 million under floating rate secured credit facilities. At December 31, 2004 we had total debt outstanding of $1,478.9 million, $530.3 million related to the 8.5% senior notes and $948.6 million of which was floating rate debt. Interest costs related to floating rate debt increased in 2005 due to the rising LIBOR and also due to an increase in debt outstanding as the Company financed the purchase of five VLCC's during the period. The increase in floating rate interest costs was offset by the decrease in senior notes interest, as the Company bought back and cancelled $73.2 million of the notes during 2005.
At December 31, 2005, we were party to interest rate swap contracts which effectively fixed our interest rate on $568.3 million of floating rate debt at a weighted average rate of 3.7%. At December 31, 2004 we were party to interest rate swap contracts with a notional principal amount of $581.4 million. Swap interest decreased due to the increase in the three month LIBOR throughout 2005.
Amortization of deferred charges increased by $7.0 million in 2005 compared with 2004 due to the write off of deferred charges associated with the refinancing of the $1,058.0 million credit facility. In addition, deferred charges related to the repurchase of $73.2 million in senior notes were written off during the year.
Other financial items
In 2005 and 2004, other financial items primarily consisted of mark to market valuation changes on our interest rate swap contracts of $14.7 million and $9.3 million, respectively.
Liquidity and Capital Resources
We operate in a capital intensive industry. Our purchase of the tankers in the initial transaction with Frontline was financed through a combination of debt issuances, an equity contribution from Frontline and borrowings from commercial banks. Our subsequent transactions have been financed through a combination of our own equity and borrowings from commercial banks. Our liquidity requirements relate to servicing our debt, funding the equity portion of investments in vessels, funding working capital requirements and maintaining cash reserves against fluctuations in operating cash flows. Revenues from our time charters and bareboat charters are received monthly in advance, quarterly in advance or monthly in arrears. Management fees are payable monthly in advance.
Our funding and treasury activities are conducted within corporate policies to maximize investment returns while maintaining appropriate liquidity for our requirements. Cash and cash equivalents are held primarily in U.S. dollars, with minimal amounts held in Norwegian Kroner.
Our short-term liquidity requirements relate to servicing our debt and funding working capital requirements (including required payments under our management agreements and administrative services agreements). Sources of short-term liquidity include cash balances, restricted cash balances, short-term investments, available amounts under a revolving credit facility and receipts from our charters. We believe that our cash flow from the charters will be sufficient to fund our anticipated debt service and working capital requirements for the short and medium term.
Our long term liquidity requirements include funding the equity portion of investments in new vessels, and repayment of long term debt balances including those relating to our 8.5% senior notes due 2013, our $1,131.4 million secured credit facility due 2011, our $350.0 million secured term loan facility due 2012, our $165.0 million secured term loan facility due 2012, our $170.0 million secured term loan facility due 2013, our $120 million secured term loan facility due 2014, our $22.7 million secured term loan facility due 2016 and our $210.0 million secured term loan facility due 2019. To the extent we decide to acquire additional vessels, we may consider additional borrowings and equity and debt issuances.
At December 31, 2006, the Company had contractual commitments relating to newbuilding contracts and vessel acquisitions totaling $362.5 million.
We expect that we will require additional borrowings or issuances of equity in the long term to meet our capital requirements.
As of December 31, 2006 and December 31, 2005, we had cash and cash equivalents (including restricted cash) of $77.5 million and $34.4 million, respectively. In the year ended December 31, 2006, we generated cash from operations of $193.5 million, used $110.7 million in investing activities and used $51.1 million in financing activities.
During the year ended December 31, 2006 we paid cash dividends of $2.05 per common share (December 31, 2005: $2.00), or a total of $149.1 million. In the first half of 2007 we paid cash dividends of $0.54 and $0.55 per share for a total of $39.3 million, and $40.0 million respectively.
Borrowings
As of December 31, 2006 and December 31, 2005, we had total long term debt outstanding of $1,915.2 million and $1,793.7 million, respectively. In addition, our wholly owned subsidiary Front Shadow had long term debt of $22.7 million outstanding as of December 31, 2006. Front Shadow is accounted for using the equity method, and the outstanding long term debt does not appear in our consolidated balance sheet.
As at December 31, 2006, we had $449.1 million outstanding from our issue in 2003 of $580.0 million 8.5% senior notes due 2013.
In February 2005, we refinanced our existing $1,058.0 million secured credit facility with a new $1,131.4 million secured credit facility. This facility bears interest at LIBOR plus a margin of 0.70% per annum, is repayable over a term of six years and has similar security terms to the repaid facility. In September 2006, we signed an agreement whereby the existing debt facility which had been partially repaid, was increased by $219.7 million to the original outstanding amount of $1,131.4 million. The increase is available on a revolving basis. At December 31, 2006, the outstanding amount on this facility was $953.3 million. This facility contains a minimum value covenant, which requires that the aggregate value of our vessels secured as collateral exceed 140% of the outstanding amount of the facility. The new facility also contains covenants that require us to maintain certain minimum levels of free cash, working capital and equity ratios.
In June 2005, we entered into a combined $350.0 million senior and junior secured term loan facility with a syndicate of banks. At December 31, 2006, the outstanding amount on this facility was $316.1 million. The proceeds of the facility were used to partly fund the acquisition of five VLCCs. The facility bears interest at LIBOR plus a margin of 0.65% per annum for the senior loan and LIBOR plus a margin of 1.00% per annum for the junior loan. The facility is repayable over a term of seven years has similar security terms as the $1,131.4 million facility. This facility contains a minimum value covenant, which requires that the aggregate value of our vessels exceed 140% of the outstanding amount of the senior loan and, for as long as any amount is outstanding under the junior loan, 125% of the total outstanding loan. The facility also contains covenants that require us to maintain certain minimum levels of free cash, working capital and equity ratios.
In April 2006, five vessel owning subsidiaries entered into a $210 million secured term loan facility with a syndicate of banks. The facility is non recourse to Ship Finance International Limited, as the holding company does not guarantee this debt. The proceeds of the facility were used to partly fund the acquisition of five newbuilding container vessels in connection with our long-term bareboat charters to Horizon Lines. At December 31, 2006, the outstanding amount under this facility was $41.6 million relating to the first vessel, which was delivered during the fourth quarter 2006. The second vessel was delivered during the first quarter of 2007, and the remaining three vessels were delivered during the second quarter of 2007.
The facility bears interest at LIBOR plus a margin of 1.40% per annum, is repayable over a term of 12 years and is secured by the vessel owning subsidiaries' assets. The facility contains a minimum value covenant, which requires that the aggregate value of our vessels exceed 120% of the outstanding loan if there is a default under any of the charters. The vessel owning subsidiaries have entered into 12 year interest rate swaps with a combined notional principal amount of $207.9 million at rates of approximately 5.65% per annum.
In June 2006, our subsidiary Rig Finance, entered into a $165 million secured term loan facility with a syndicate of banks. The proceeds of the facility were used to partly fund the acquisition of a newbuilding jack-up drilling rig. At December 31, 2006, the outstanding amount under this facility was $155.1 million.
The facility bears interest of LIBOR plus a margin of 1.15% per annum as long as the rig is employed under an initial sub-charter to a third party, but in no event longer than the first 36 months, and LIBOR plus a margin of 1.20% per annum thereafter. The facility contains a minimum value covenant, which requires that the value of the rig exceed 120% of the outstanding loan during the period up to six months prior to expiry of the initial sub-charter to the third party, and 140% thereafter. The facility is repayable over six years and is secured by the rig owning subsidiary's assets. The lenders have limited recourse to Ship Finance International Limited as the holding company only guarantees $10 million of this debt. The facility contains covenants that require us to maintain certain minimum levels of free cash, working capital and equity ratios.
In June 2006, we entered into a $25 million secured revolving credit facility. The proceeds of the facility were used to partly fund a VLCC acquired in January 2006. The facility was repaid in full in December 2006, when the vessel was sold to an unrelated third party.
In September 2006, our subsidiary Front Shadow entered into a $22.7 million secured term loan facility. The proceeds of the facility were used to partly fund the acquisition of a 1997 built Panamax drybulk carrier. At December 31, 2006, the outstanding amount under this facility was $22.7 million. The facility bears interest of LIBOR plus a margin of 0.59% per annum. The facility contains a minimum value covenant, which requires that the value of the vessel exceed 110% of the outstanding loan during the first four years, and 125% thereafter. The facility is repayable over ten years and is secured by the vessel owning subsidiary's assets. The lenders have limited recourse to Ship Finance International Limited as the holding company guarantees $2.1 million of this debt.
In February 2007, our subsidiary, Rig Finance II, entered into a $170 million pre- and post-delivery secured term loan facility with a syndicate of banks. The proceeds of the facility will be used to partly fund the acquisition of a newbuilding jack-up drilling rig. $85.6 million of the facility is available for drawdown during the period before delivery of the rig from the yard, with the remaining $84.4 million being available for drawdown upon delivery of the rig. The facility bears interest of LIBOR plus a margin of 1.20% per annum up to and including the delivery date of the rig. Following delivery, the facility bears interest of LIBOR plus a margin based upon a grid between 0.90% per annum and 1.20% per annum depending on the ratio of the value of the rig to the outstanding loan under the facility. The facility contains a minimum value covenant, which requires that the value of the rig exceeds 120% of the outstanding loan during the period up to six months prior to expiry of an initial sub-charter to a third party, and 130% thereafter. The facility is repayable over six years and is secured by the rig owning subsidiary's assets. The lenders have limited recourse to Ship Finance International Limited as the holding company only guarantees $30 million of this debt until the delivery from the shipyard and $20 million thereafter. The facility contains covenants that require us to maintain certain minimum levels of free cash, working capital and equity ratios.
In March 2007, three vessel owning subsidiaries entered into a $120.0 million secured term loan and guarantee facility with a syndicate of banks. The facility is divided into a $48.5 million pre-delivery guarantee facility and a $120 million term loan facility, and will be used to partly fund the acquisition of three newbuilding seismic vessels. The guarantee facility is for the purpose of guaranteeing obligations under the construction contracts with the yard. The proceeds from the term loan facility will be used to partly fund the acquisition of the vessels upon delivery from the yard. The facility bears interest of LIBOR plus a margin of 1.50% per annum for the first two years from delivery of the first vessel, and thereafter bears interest of LIBOR plus a margin based upon a grid between 1.25% per annum and 1.50% per annum depending on the ratio of the aggregate value of the vessels to the outstanding loan under the facility. The facility contains a minimum value covenant, which requires that the aggregate value of our vessels, including seismic equipment, exceeds 130% of the outstanding loan. The facility is repayable over six years and is secured by the vessel owning subsidiaries' assets. The lenders have limited recourse to Ship Finance International Limited as the holding company has provided a guarantee of $48.5 million prior to delivery from the shipyard and $30 million of the debt thereafter. The facility contains covenants that require us to maintain certain minimum levels of free cash, working capital and equity ratios.
We were in compliance with all loan covenants at December 31, 2006. At December 31, 2006, three month LIBOR was 5.36%.
At December 31, 2006, we had entered into interest rate swap contracts with a combined notional principal amount of $738.7 million at rates between 3.32% per annum and 6.24% per annum. The overall effect of these swaps is to fix the interest rate on $738.7 million of floating rate debt at a weighted average interest of 4.15% per annum. At December 31, 2006, $166.4 million of the interest rate swaps relate to committed but not outstanding debt on vessels not yet delivered to us. Several of our charter contracts also contain interest adjustment clauses, whereby the charter rate is adjusted to reflect the actual interest paid on the outstanding loan, effectively transferring the interest rate exposure to the counterparty under the charter contract. At December 31, 2006, $155.1 million of our outstanding debt was subject to such interest adjustment clauses. At December 31, 2006, we had also entered into total return bond swaps in respect of $52 million of our 8.5% debentures, which effectively translates the underlying principle amount into floating rate debt
At December 31, 2006, our net exposure to interest rate fluctuations on our outstanding debt was $790.6 million, compared with $768.3 million at December 31, 2005. Our net exposure to interest fluctuations is based on our total floating rate debt outstanding at December 31, 2006, plus the outstanding under the bond swap line at December 31, 2006, less the outstanding floating rate debt subject to interest adjustment clauses and the notional principal of our floating to fixed interest rate swaps outstanding at December 31, 2006.
In addition, the outstanding debt of $22.7 million at December 31, 2006 in our subsidiary Front Shadow, which is accounted for using the equity method, is subject to an interest adjustment clause under the charter contract.
We use financial instruments to reduce the risk associated with fluctuations in interest rates. We do not currently hold or issue instruments for speculative or trading purposes.
In 2006 we repurchased and cancelled 8.5% senior notes with a total principal amount of $8.0 million. In February 2006 we entered into a total return bond swap line with a bank in which the bank buys our senior notes, and we compensate the bank for its funding cost plus a margin. Through this arrangement, we are able to realize profits, but guarantee against losses for the bank. During 2006 the bank acquired senior notes with a total principal amount of $52.0 million under this bond swap line. In February 2007, we entered into an additional bond swap line with a second bank and we hold bonds with a principal amount of $5.0 million under this arrangement as of June 15, 2007.
Equity
During 2006 we repurchased and cancelled 400,000 common shares. The shares were repurchased at an average price of $18.03 for a total amount of $7.2 million.
As each of the vessels acquired from Frontline during the initial spin-off completes the third party charters that were in place on January 1, 2004, the finance leases with the relevant Frontline Charterer, entered into on January 1, 2004, become effective for accounting purposes. We have accounted for the difference between the historical cost of the vessel and the net investment in the lease as a deferred deemed equity contribution. The difference is presented as a reduction in the net investment in finance leases in the balance sheet. This results from the related party nature of both the original transfer of the vessel and the subsequent sales type lease. The deferred deemed equity contribution is amortized as a credit to contributed surplus over the life of the new lease arrangement as lease payments are applied to the principal balance of the lease receivable. In the year ended December 31, 2006 we accounted for $30.0 million as amortization of such deemed equity contributions (2005: $9.2 million). The increase over 2005 is partially because the unamortized portion of the deferred equity contribution for Front Tobago ($7.5 million) was credited to contributed surplus because the Company sold the vessel to an unrelated third party in December 2006. Also in June 2006 Frontline decided not to exercise the right to sell a newbuilding VLCC to the Company to replace Front Hunter which was sold to an unrelated third party in 2005. As a result, we credited the remaining deferred equity contribution for this vessel ($6.1 million) to contributed surplus in 2006.
Following these transactions, as of December 31, 2006, our issued and fully paid share capital balance was $72.7 million and our contributed surplus balance was $464.5 million.
Contractual Commitments
At December 31, 2006, we had the following contractual obligations and commitments:
Payment due by period
Less than After
1 year 1-3 years 3-5 years 5 years Total
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(in thousands of $)
8.5% Senior Notes due 2013 -- -- -- 449,080 449,080
Floating rate debt 144,451 278,524 732,384 310,761 1,466,120
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Total contractual cash
obligations under existing loans 144,451 278,524 732,384 759,841 1,915,200
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Obligations under newbuilding
contracts and vessel
acquisitions 234,700 127,800 -- -- 362,500
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Total contractual cash
obligations 379,151 406,324 732,384 759,841 2,277,700
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Trend information
Our charters with the Frontline Charterers provide that daily rates decline over the terms of the charters as discussed in Item 4.B "Our Fleet".
We pay daily management fees, which are payable by us monthly in advance, for 365 days per year (366 days in a leap year) for each of our vessels on charter to the Frontline Charterers in the amount of $6,500.
Since December 31, 2006, we have entered into several new agreements for both the acquisition and sale of assets. In January 2007, we entered in to an agreement to acquire a newbuilding jack-up drilling rig currently under construction, with expected delivery at the end of June 2007. In February 2007, we entered into an agreement to acquire two newbuilding Capesize drybulk carriers, with expected delivery in 2008 and 2009. In March 2007, we entered into an agreement to acquire three newbuilding seismic vessels, including complete seismic equipment, with expected delivery in 2008. We have also rechartered one single hull VLCC tanker in a hire-purchase agreement and sold six single hull Suezmax tankers in 2007.
The trend is that prices for both second-hand vessels and newbuilding contracts are increasing. The same is the case for drilling rigs. This is in line with the current strong markets in most sectors in which we operate, and also reflects market expectations going forward. Available yard capacity for additional newbuildings over the next years is also limited. New contracts generally provide for delivery from the builder from 2010 and after.
Interest rates have increased since December 31, 2006, which will increase our interest expenses on our floating rate debt. We have effectively locked in part of our interest exposure on our floating rate debt through swap agreements with banks. Several of our charter contracts also include interest adjustment clauses, whereby the charter rate is adjusted to reflect the actual interest paid on the outstanding loan relating to the asset, effectively transferring the interest rate exposure to our counterparty under the charter contract.
So far in 2007, market rates for spot chartered tankers have on average generally decreased compared to the same period in 2006. Our tanker vessels on charter to the Frontline Charterers are subject to long term charters that provide for both a fixed base charterhire and a profit sharing payment that applies once the applicable Frontline Charterer earns daily rates from our vessels that exceed certain levels. If market rates for spot market chartered vessels decrease, our profit sharing revenues will likewise decrease for the vessels operated by the Frontline Charterers in the spot market. The charter contracts for the two jack-up drilling rigs on charter to Seadrill also include profit sharing payments above certain base levels from certain dates. The current market for jack-up rigs is strong, but should the market decrease, we may not receive any revenues from the profit sharing agreements once they commence.
Off balance sheet arrangements
At December 31, 2006 we were not party to any arrangements which are considered to be off balance sheet arrangements.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
The following table sets forth information regarding our executive officers and directors and certain key officers of our wholly owned subsidiary Ship Finance Management AS, ("SFMAS"), who are responsible for overseeing our management.
Name Age Position
---- --- --------
Tor Olav Troim ............ 44 Director and Chairman of the Board
Paul Leand ................ 40 Director of the Company
Svein Aaser ............... 60 Director of the Company
Kate Blankenship .......... 42 Director of the Company and Chairperson of
the Audit Committee
Lars Solbakken ............ 50 Chief Executive Officer of Ship Finance
Management AS
Ole B. Hjertaker .......... 40 Chief Financial Officer of Ship Finance
Management AS
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Under our constituent documents, we are required to have at least one independent director on our Board of Directors whose consent will be required to file for bankruptcy, liquidate or dissolve, merge or sell all or substantially all of our assets.
Certain biographical information about each of our directors and executive officers is set forth below.
Tor Olav Troim has been the Chairman of the Board since October 2003. He has been Vice-President and a director of Frontline since November 3, 1997. He previously served as Deputy Chairman of Frontline from July 4, 1997. Until April 2000, Mr. Troim was the Chief Executive Officer of Frontline Management AS, a company which supports the Company in the implementation of decisions made by the Board of Directors. Mr. Troim graduated as M.Sc Naval Architect from the University of Trondheim, Norway in 1985. His experience includes Portfolio Manager Equity in Storebrand ASA (1987-1990) and Chief Executive Officer for the Norwegian Oil Company DNO AS (1992-1995). Since 1995, Mr. Troim has been a director of SeaTankers Management in Cyprus. In this capacity, he has acted as Chief Executive Officer for the public companies Knightsbridge Tankers Limited and Golar LNG Limited (NASDAQ). Mr. Troim was also Chief Executive Officer of Seadrill until the takeover and integration of Smedvig ASA. Mr. Troim is currently Vice Chairman of these three companies and in addition is a member of the Boards in the public companies Golden Ocean Group Limited (OSE), Aktiv Kapital ASA (OSE) and Marine Harvest ASA (OSE).
Paul Leand Jr., serves as a Director of the Company. Mr. Leand is the Chief Executive Officer and Director of AMA Capital Partners LLC, or AMA, an investment bank specializing in the maritime industry. From 1989 to 1998 Mr. Leand served at the First National Bank of Maryland where he managed the Bank's Railroad Division and its International Maritime Division. He has worked extensively in the U.S. capital markets in connection with AMA's restructuring and mergers and acquisitions practices. Mr. Leand serves as a member of American Marine Credit LLC's Credit Committee and served as a member of the Investment Committee of AMA Shipping Fund I, a private equity fund formed and managed by AMA.
Svein Aaser, serves as a Director of the Company. Mr. Aaser is the former President and Chief Executive Officer of DnB NOR ASA. Prior to his position in DnB NOR, Mr Aaser had a long career as a top executive in several companies, including Nycomed Amersham plc., Storebrand Skade AS and Stabburet AS. Mr. Aaser currently serves as a director on several boards, including Marine Harvest ASA, Deep Sea Supply Plc and Laerdal Medical AS. Mr. Aaser acts as Executive Director for Seatankers, a company indirectly controlled by Mr. Fredriksen.
Kate Blankenship has been a director of the Company since October 2003. Ms. Blankenship served as the Company's Chief Accounting Officer and Company Secretary from October 2003 to October 2005. Ms. Blankenship has been a director of Frontline since August 2003, a director of Golar LNG Limited since 2003 and a director of Golden Ocean since October 2004. Ms. Blankenship has served as a director of Seadrill since May 2005.
Lars Solbakken has been employed as Chief Executive Officer of Ship Finance Management AS since May 1, 2006. In the period from June 1997 until April 2006, Mr. Solbakken was employed as General Manager of Fortis Bank in Norway and was also responsible for the bank's shipping and oil service activities in Scandinavia. From 1987 to 1997 Mr. Solbakken served in several positions in Nordea Bank Norge ASA (previously Christiania Bank). He was Senior Vice President and Deputy for the shipping, offshore and aviation group, head of equity issues and merger & acquisition activities and General Manager for the Seattle Branch. Prior to joining Nordea Bank Norge ASA, Mr. Solbakken worked five years in Wilh. Wilhelmsen ASA as Finance Manager.
Ole B. Hjertaker has served as Chief Financial Officer of Ship Finance Management AS since September 2006. Prior to joining Ship Finance, Mr. Hjertaker was a director in the Corporate Finance division of DnB NOR Markets, one of the world's leading shipping and offshore banks. Mr. Hjertaker has 12 years corporate and investment banking experience, mainly within the Maritime/Transportation industries.
B. COMPENSATION
During the year ended December 31, 2006, we paid to our directors and executive officers aggregate cash compensation of $3.1 million and an aggregate amount of $0.2 million for pension and retirement benefits. We reimburse directors for reasonable out of pocket expenses incurred by them in connection with their service to us.
In addition to cash compensation, during 2006 we also recognized an expense of $0.1 million related to the issue of 150,000 stock options to one of our executive officers. The options vest over a three year period, with the first of these options vesting in November 2007, and expire in November 2011. The exercise price of the options is $22.85 per share.
The employment contract for one of our executive officers contains a share-based bonus provision. Under the terms of the contract, the share based bonus is calculated based on the annual increase in the share price of the Company, plus any dividend per share paid, multiplied by a notional share holding of 200,000 shares. Any bonus related to the increase in share price is payable at the end of each calendar year, while any bonus linked to dividend payments is payable on the relevant dividend payment date. The share-based bonus fair value of $1.7 million at December 31, 2006 was recorded as a liability.
C. BOARD PRACTICES
In accordance with our Bye-laws the number of Directors shall be such number not less than two as the Company by Ordinary Resolution may from time to time determine and each Director shall hold office until the next annual general meeting following his election or until his successor is elected. We have four Directors.
We currently have an audit committee, which is responsible for overseeing the quality and integrity of the Company's financial statements and its accounting, auditing and financial reporting practices, the Company's compliance with legal and regulatory requirements, the independent auditor's qualifications, independence and performance and the Company's internal audit function.
As a foreign private issuer we are exempt from certain requirements of the New York Stock Exchange that are applicable to U.S. listed companies. For a listing and further discussion of how our corporate governance practices differ from those required of U.S. companies listed on the New York Stock Exchange, please visit the corporate governance section of our website at www.shipfinance.bm.
Our officers are elected by the Board of Directors as soon as possible following each Annual General Meeting and shall hold office for such period and on such terms as the Board may determine.
There are no service contracts between us and any of our Directors providing for benefits upon termination of their employment or service.
D. EMPLOYEES
We currently employ four persons. We have contracted with Frontline Management and other third parties for certain managerial responsibility for our fleet and with Frontline Management for some administrative services, including accounting and corporate services.
E. SHARE OWNERSHIP
The beneficial interests of our Directors and officers in our common shares as of June 15, 2007, were as follows:
Percentage of Common
Director or Officer Common Shares of $1.00 each Shares Outstanding
------------------- --------------------------- --------------------
Tor Olav Troim 203,132 *
Paul Leand -- --
Kate Blankenship 3,980 *
Svein Aaser 3,000 *
Lars Solbakken 10,000 *
Ole B Hjertaker 4,000 *
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* Less than one percent.
As of June 15, 2007, Ole B. Hjertaker holds 150,000 options to acquire common shares in the Company. The options were granted under the Ship Finance International Limited Share Option Scheme, which was approved by the board on November 27, 2006. The options begin to vest in November 2007 and expire in November 2011. The exercise price of the options is $22.85.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
The following table presents certain information regarding the current ownership of our Common Shares with respect to (i) each person who we know to own more than five percent of our outstanding Common Shares; and (ii) all directors and officers as a group as of June 15, 2007.
Owner Amount of Common Shares Percent of Common Shares
----- ----------------------- ------------------------
Hemen Holding Ltd. 18,128,176 24.92%
Farahead Investments Inc. 12,000,000 16.5%
All Directors and Officers
as a group (eight persons) 224,112 0.31%
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Hemen Holding Ltd. is a Cyprus holding company, and Farahead Investments Inc. is a Liberian company, both indirectly controlled by Mr. John Fredriksen.
The Company's major shareholders have the same voting rights as other shareholders of the Company.
As at June 15, 2007, the Company had 291 holders of record in the United States. We had a total of 72,743,737 of Commmon Shares and outstanding as of June 15, 2007.
We are not aware of any arrangements, the operation of which may at a subsequent date result in a change in control.
B. RELATED PARTY TRANSACTIONS
We have acquired the majority of our assets from Frontline. As of June 15, 2007 our fleet consists of 65 vessels, 13 of which are under construction. The majority of our operations are conducted through contractual relationships between us and parties indirectly controlled by Hemen. In addition, the majority of our directors are also directors of companies related to Hemen. We refer you to Item 10.C "Material Contracts" for discussion of the material contractual arrangements that we have with affiliates of Hemen.
As of June 15, 2006, we charter 42 of our vessels to the Frontline Charterers under long-term leases, most of which were given economic effect from January 1, 2004. In connection with these charters to the Frontline Charterers, we have recognized the inception of net investments in finance leases of $1,876.5 million, additions during 2006 of $137.0 million (2005: $647.8 million) and disposals during 2006 of $34.4 million (2005: $160.8 million). At December 31, 2006 the balance of net investments in finance leases to Frontline was $1,910.4 million (2005: $1,925.4 million) of which $126.9 million (2005: $107.0 million) represents short-term maturities.
We pay Frontline Management a management fee of $6,500 per day per vessel for all vessels chartered to the Frontline Charterers resulting in expenses of $116.1 million for the year ended December 31, 2006 (2005: $105.2 million). The management fees have been classified as ship operating expenses.
We have an administrative services agreement with Frontline Management under which Frontline Management provides us with certain administrative support services. For the year 2006, we and each of our vessel owning subsidiaries paid Frontline Management a fixed fee of $20,000 per year for its services under the agreement, and agree to reimburse Frontline Management for reasonable third party costs, if any, advanced on our behalf by Frontline. For the year 2007, some of the compensation to Frontline Management will be based on cost sharing for the services rendered based on actual incurred costs plus a margin.
The Frontline Charterers pay us profit sharing on 20% of earnings above average base charter rates for the 11 month period beginning February 1, 2004, and each year thereafter. During the year ended December 31, 2006, we earned and recognized revenue of $78.9 million (2005: $88.1 million) under this arrangement.
In June 2005, we sold the Suezmax Front Hunter to an unrelated third party for a net gain of $25.3 million which was deferred. The charter and management agreements with Frontline relating to this vessel were terminated, and we paid Frontline a $3.8 million termination fee, in addition to Frontline having the right to sell to Ship Finance a newbuilding VLCC and charter it back at reduced charter rates. In June 2006, the parties agreed to cancel the agreement, and to split the profit in accordance with the profit share agreement (80% to Frontline and 20% to us), but adjusted for the residual value belonging to us. The cancellation of this agreement resulted in net payment of $16.3 million to Frontline, in addition to the earlier termination payment of $3.8 million. We have booked a net gain of $9 million relating to the sale of Front Hunter and the cancellation of the option agreement in 2006.
In January 2006 we acquired the VLCC Front Tobago from Frontline for consideration of $40.0 million. The vessel was subsequently sold in December 2006 to an unrelated third party for $45.0 million. At the time of the sale the vessel was on lease with one of the Frontline Charterers, and we paid a termination fee of $9.6 million to Frontline to terminate the lease.
In April 2006, we entered into an agreement with Horizon Lines under which we acquired five 2,824 TEU container vessels under construction at Hyundai Mipo yard in Korea for consideration of approximately $280.0 million. The vessels have been chartered back to Horizon Lines under 12-year bareboat charters with three-year renewal options on the part of Horizon Lines. Horizon Lines has options to buy the vessels after five, eight, 12 and 15 years. As part of this transaction, Horizon Lines paid a commission to AMA for brokerage and financial advice. One of our board members is associated with AMA.
In June 2006, Rig Finance, our wholly owned subsidiary, purchased the newbuilding jack-up drilling rig West Ceres from SeaDrill Invest I, for a total consideration of $210 million. Upon delivery to Rig Finance the rig was immediately bareboat chartered back to SeaDrill Invest I for a period of 15 years. The charter party is fully guaranteed by Seadrill, the ultimate parent company of SeaDrill Invest I. SeaDrill Invest I has been granted fixed price purchase options after three, five, seven, 10, 12 and 15 years. The first purchase option after three years is at $135.5 million and the last purchase option after 15 years is at $60 million.
In July 2006, we entered into an agreement to acquire the 1997 built Panamax drybulk carrier Golden Shadow for $28.4 million from Golden Ocean. The vessel was chartered back to the seller for a period of 10 years upon delivery to us in September 2006. As part of the agreement, Golden Ocean has provided an interest free and non-amortizing seller's credit of $2.6 million. Golden Ocean has been granted fixed purchase options after three, five, seven and 10 years. At the end of the charter, we also have an option to sell the vessel back to Golden Ocean at an agreed fixed price of $10.4 million, including the $2.6 million seller's credit. We have secured a $22.7 million debt facility in connection with the acquisition, of which $2.1 million is guaranteed by Ship Finance.
In November 2006, we announced that we had assumed two newbuilding Suezmax tanker contracts from Frontline. The Suezmax vessels, of 156,000 dwt each, will be built at Jiangsu Rongsheng Heavy Industries Group Co. Ltd. in China with scheduled delivery in the first quarter of 2009 and third quarter of 2009. We expect to market these vessels for medium to long-term employment.
In January 2007, we announced that Rig Finance II, a wholly owned subsidiary of the Company had entered into an agreement to acquire the newbuilding jack-up drilling rig West Prospero, from SeaDrill Invest II Ltd., or SeaDrill Invest II. The purchase price for the drilling rig is $210.0 million and expected delivery from Keppel Fels in Singapore is at the end of June 2007. Upon delivery, the rig will be bareboat chartered back to SeaDrill Invest II for a period of 15 years. The charter party is fully guaranteed by Seadrill, the ultimate parent company of SeaDrill Invest II. SeaDrill Invest II has been granted fixed price purchase options after three, five, seven, 10, 12 and 15 years. The first purchase option after three years is at $142 million and the last purchase option after 15 years is at $60 million.
In February 2007, we entered into an agreement to acquire two newbuilding Capesize drybulk carriers from Golden Ocean. Delivery from the shipyard is scheduled in the fourth quarter of 2008 and first quarter of 2009. Upon delivery the vessels will commence fifteen year bareboat charter contracts to Golden Ocean. Golden Ocean has been granted fixed price purchase options after five, 10 and 15 years at $61 million, $44 million and $24 million respectively.
In January 2007, we sold five single hull Suezmax tankers to Frontline. The gross sales price for the vessels was $183.7 million, and the Company receiving approximately $119.2 million in cash after paying compensation of approximately $64.5 million to Frontline for the termination of the charters. The vessels were delivered to Frontline in March of 2007.
In January 2007, we sold the single-hull Suezmax tanker Front Transporter to an unrelated third party for a gross sales price of $38.0 million. The vessel was delivered to its new owner in March 2007, and we have agreed to pay a termination fee of $14.9 million to Frontline for the termination of the related charter.
In May 2007, we re-chartered the single-hull VLCC Front Vanadis to an unrelated third party. The new charter is in the form of a hire-purchase agreement, where the vessel is chartered to the buyer for a 3.5 year period, with a purchase obligation at the end of the charter. We have agreed to pay a compensation payment of approximately $13.2 million to Frontline for the termination of the charter.
C. INTERESTS OF EXPERTS AND COUNSEL
Not Applicable.
ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
See Item 18.
Legal Proceedings
Our shipowning subsidiaries are routinely party, as plaintiff or defendant, to claims and lawsuits in various jurisdictions for demurrage, damages, off hire and other claims and commercial disputes arising from the operation of their vessels, in the ordinary course of business or in connection with its acquisition activities. We believe that resolution of such claims will not have a material adverse effect on our operations or financial conditions.
Dividend Policy
Our Board of Directors adopted a policy in May, 2004, in connection with our public listing, whereby we would seek to have a regular quarterly dividend, the amount of which is based on our contracted revenues and growth prospects. Our goal is to increase our quarterly dividend as we grow the business, but the timing and amount of dividends, if any, is at the discretion of our Board of Directors and will depend upon our results of operations, financial condition, cash requirements, restrictions in financing arrangements and other relevant factors.
We have paid the following cash dividends since our public listing in June 2004:
Payment Date Amount per Share ------------ ---------------- 2004 July 9, 2004 $0.25 September 13, 2004 $0.35 December 7, 2004 $0.45 2005 March 18, 2005 $0.50 June 24, 2005 $0.50 September 20, 2005 $0.50 December 13, 2005 $0.50 2006 March 20, 2006 $0.50 June 26, 2006 $0.50 September 18, 2006 $0.52 December 21, 2006 $0.53 |
On February 27, 2007 the Board declared a dividend of $0.54 per share that was paid on March 22, 2007. On May 29, 2007, the Board declared a dividend of $0.55 per share that was paid on June 21, 2007.
B. SIGNIFICANT CHANGES
We were incorporated in Bermuda in October 2003 as a wholly owned subsidiary of Frontline for the purpose of acquiring certain of our shipping assets. During 2004, Frontline distributed approximately 48.3% of its shares in us to its shareholders and at December 31, 2004 held 50.8% in the Company. See Item 4. "Information on the Company."
In February and March 2005, Frontline spun off a further 35% of its shares in Ship Finance to its shareholders and at December 31 2005 Frontline held 16.2% of Ship Finance. In February 2006, a further 5% of Frontline's interest in Ship Finance was spun off after which Frontline held approximately 11.1% of our shares as at December 31, 2006. These shares were distributed by Frontline to its shareholders on March 22, 2007 following which Frontline holds a minimal number of shares in Ship Finance.
ITEM 9. THE OFFER AND LISTING
Not applicable except for Item 9.A. 4. and Item 9. C.
The Company's common shares were listed on the New York Stock Exchange, or NYSE, on June 15, 2004 and commenced trading on that date under the symbol "SFL".
The following table sets forth the fiscal years high and low prices for the common shares on the NYSE since the date of listing.
High Low
------ ------
Fiscal year ended December 31
2006 $23.80 $16.33
2005 $24.00 $16.70
2004 $26.16 $11.55
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The following table sets forth, for each full financial quarter for the two most recent fiscal years, the high and low prices of the common shares on the NYSE since the date of listing.
High Low
------ ------
Fiscal year ended December 31, 2006
First quarter $18.75 $16.70
Second quarter $17.64 $16.33
Third quarter $21.00 $17.91
Fourth quarter $23.80 $19.31
High Low
------ ------
Fiscal year ended December 31, 2005
First quarter $24.00 $18.41
Second quarter $20.79 $18.05
Third quarter $20.83 $17.67
Fourth quarter $20.25 $16.70
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The following table sets forth, for the most recent six months, the high and low prices for the common shares on the NYSE.
High Low
------ ------
May 2007 $31.07 $29.29
April 2007 $29.94 $27.44
March 2007 $27.90 $25.15
February 2007 $26.10 $23.86
January 2007 $23.86 $22.24
December 2006 $23.80 $22.22
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ITEM 10. ADDITIONAL INFORMATION
A. SHARE CAPITAL
Not Applicable
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
The Memorandum of Association of the Company has previously been filed as Exhibit 3.1 to the Company's Registration Statement on Form F-4/A, (Registration No. 333-115705) filed with the Securities and Exchange Commission on May 25, 2004, and is hereby incorporated by reference into this Annual Report.
At the 2006 Annual General Meeting of the Company the shareholders voted to amend the Company's Bye-Law 104. The purpose of this amendment was to provide for a change to the requirements for the form and signatories to the seal of the Company. These amended Bye-Laws of the Company as adopted by shareholders on December 1, 2006 are filed as Exhibit 1.4 to this Annual Report.
The purposes and powers of the Company are set forth in Items 6(1) and 7(a) through (h) of our Memorandum of Association and in the Second Schedule of the Bermuda Companies Act of 1981 which is attached as an exhibit to our Memorandum of Association. These purposes include exploring, drilling, moving, transporting and refining petroleum and hydro-carbon products, including oil and oil products; the acquisition, ownership, chartering, selling, management and operation of ships and aircraft; the entering into of any guarantee, contract, indemnity or suretyship and to assure, support, secure, with or without the consideration or benefit, the performance of any obligations of any person or persons; and the borrowing and raising of money in any currency or currencies to secure or discharge any debt or obligation in any manner.
Bermuda law permits the Bye-laws of a Bermuda company to contain a provision eliminating personal liability of a director or officer to the company for any loss arising or liability attaching to him by virtue of any rule of law in respect of any negligence default, breach of duty or breach of trust of which the officer or person may be guilty. Bermuda law also grants companies the power generally to indemnify directors and officers of the company if any such person was or is a party or threatened to be made a party to a threatened, pending or completed action, suit or proceeding by reason of the fact that he or she is or was a director and officer of the company or was serving in a similar capacity for another entity at the company's request.
Our shareholders have no pre-emptive, subscription, redemption, conversion or sinking fund rights. Shareholders are entitled to one vote for each share held of record on all matters submitted to a vote of our shareholders. Shareholders have no cumulative voting rights. Shareholders are entitled to dividends if and when they are declared by our Board of Directors, subject to any preferred dividend right of holders of any preference shares. Directors to be elected by shareholder require a plurality of votes cast at a meeting at which a quorum is present. For all other matters, unless a different majority is required by law or our bye-laws, resolutions to be approved by shareholders require approval by a majority of votes cast at a meeting at which a quorum is present.
Upon our liquidation, dissolution or winding up, shareholders will be entitled to receive, rateably, our net assets available after the payment of all our debts and liabilities and any preference amount owed to any preference shareholders. The rights of shareholders, including the right to elect directors, are subject to the rights of any series of preference shares we may issue in the future.
Under our bye-laws annual meetings of shareholders will be held at a time and place selected by our Board of Directors each calendar year. Special meetings of shareholders may be called by our Board of Directors at any time and must be called at the request of shareholders holding at least 10% of our paid-up share capital carrying the right to vote at general meetings. Under our bye-laws five days' notice of an annual meeting or any special meeting must be given to each shareholder entitled to vote at that meeting. Under Bermuda law accidental failure to give notice will not invalidate proceedings at a meeting. Our Board of Directors may set a record date at any time before or after any date on which such notice is dispatched.
Special rights attaching to any class of our shares may be altered or abrogated with the consent in writing of not less than 75% of the issued and shares of that class or with the sanction of a resolution passed at a separate general meeting of the holders of such shares voting in person or by proxy.
Our Bye-laws do not prohibit a director from being a party to, or otherwise having an interest in, any transaction or arrangement with the Company or in which the Company is otherwise interested. Our Bye-laws provide our Board of Directors the authority to exercise all of the powers of the Company to borrow money and to mortgage or charge all or any part of our property and assets as collateral security for any debt, liability or obligation. Our directors are not required to retire because of their age, and our directors are not required to be holders of our common shares. Directors serve for one year terms, and shall serve until re-elected or until their successors are appointed at the next annual general meeting.
Our Bye-laws provide that no director, alternate director, officer, person or member of a committee, if any, resident representative, or his heirs, executors or administrators, which we refer to collectively as an indemnitee, is liable for the acts, receipts, neglects, or defaults of any other such person or any person involved in our formation, or for any loss or expense incurred by us through the insufficiency or deficiency of title to any property acquired by us, or for the insufficiency of deficiency of any security in or upon which any of our monies shall be invested, or for any loss or damage arising from the bankruptcy, insolvency, or tortuous act of any person with whom any monies, securities, or effects shall be deposited, or for any loss occasioned by any error of judgment, omission, default, or oversight on his part, or for any other loss, damage or misfortune whatever which shall happen in relation to the execution of his duties, or supposed duties, to us or otherwise in relation thereto. Each indemnitee will be indemnified and held harmless out of our funds to the fullest extent permitted by Bermuda law against all liabilities, loss, damage or expense (including but not limited to liabilities under contract, tort and statute or any applicable foreign law or regulation and all reasonable legal and other costs and expenses properly payable) incurred or suffered by him as such director, alternate director, officer, person or committee member or resident representative (or in his reasonable belief that he is acting as any of the above). In addition, each indemnitee shall be indemnified against all liabilities incurred in defending any proceedings, whether civil or criminal, in which judgment is given in such indemnitee's favor, or in which he is acquitted. We are authorized to purchase insurance to cover any liability it may incur under the indemnification provisions of its Bye-laws.
C. MATERIAL CONTRACTS
Fleet Purchase Agreement
On December 11, 2003 we entered into a fleet purchase agreement with Frontline pursuant to which we acquired our initial fleet of 46 vessel owning subsidiaries and one subsidiary with an option to acquire an additional vessel. We paid an aggregate purchase price of $950.0 million, excluding working capital and other intercompany balances retained by us. We also assumed senior secured indebtedness with respect to its fleet in the amount of approximately $1.158 billion. The purchase price and the refinancing of the existing senior secured indebtedness on those vessels, which was completed in January of 2004, were financed through a combination of the net proceeds from our issuance of $580 million of 8.5% senior notes, due 2013, funds from a $1.058 billion senior secured credit facility and a deemed equity contribution of $525.0 million from Frontline.
Frontline Time Charters
We have chartered the tankers we acquired from Frontline to the Frontline Charterers under long term time charters, which will extend for various periods depending on the age of the vessels, ranging from approximately six to 20 years. We refer you to Item 4.B., "Our Fleet", for the relevant charter termination dates for each of our vessels. The daily base charter rates payable to us under the charters have been fixed in advance and will decrease as our vessels age, and the Frontline Charterers have the right to terminate a charter for a non double hull vessel beginning on each vessel's anniversary date in 2010.
With the exceptions described below, the daily base charter rates for our charters with the Frontline Charterers, which are payable to us monthly in advance for a maximum of 360 days per year (361 days per leap year), are as follows:
Year VLCC Suezmax ---- ------- ------- 2003 to 2006 .............................................. $25,575 $21,100 2007 to 2010 .............................................. $25,175 $20,700 2011 and beyond ........................................... $24,175 $19,700 |
The daily base charter rates for vessels that reach their 18th delivery date anniversary, in the case of non-double hull vessels, or their 20th delivery date anniversary, in the case of double hull vessels, will decline to $18,262 per day for VLCCs and $15,348 for Suezmax tankers after such dates, respectively.
The daily base charterhire for our vessels that are chartered to Frontline Shipping II, which is also payable to us monthly in advance for a maximum of 360 days per year (361 days per leap year), is as follows:
2019 and
Vessel 2005 to 2006 2007 to 2010 2011 to 2018 beyond
------- ------------ ------------ ------------ --------
Front Champion $31,340 $31,140 $30,640 $28,464
Front Century $31,501 $31,301 $30,801 $28,625
Golden Victory $33,793 $33,793 $33,793 $33,793
Front Energy $30,014 $30,014 $30,014 $30,014
Front Force $29,853 $29,853 $29,853 $29,853
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In addition, the base charter rate for our non-double hull vessels will decline to $7,500 per day on each vessels anniversary date in 2010, at which time the relevant Frontline Charterer will have the option to terminate the charters for those vessels. Each charter also provides that the base charter rate will be reduced if the vessel does not achieve the performance specifications set forth in the charter. The related management agreement provides that Frontline Management will reimburse us for any such reduced charter payments. The Frontline Charterers have the right under a charter to direct us to bareboat charter the related vessel to a third party. During the term of the bareboat charter, the Frontline Charterer will continue to pay us the daily base charter rate for the vessel, less $6,500 per day. The related management agreement provides that our obligation to pay the $6,500 fixed fee to Frontline Management will be suspended for so long as the vessel is bareboat chartered.
Under the charters we are required to keep the vessels seaworthy, and to crew and maintain them. Frontline Management performs those duties for us under the management agreements described below. If a structural change or new equipment is required due to changes in classification society or regulatory requirements, the Frontline Charterers may make them, at its expense, without our consent, but those changes or improvements will become our property. The Frontline Charterers are not obligated to pay us charterhire for off hire days in excess of five off hire days per year per vessel calculated on a fleet-wide basis, which include days a vessel is unable to be in service due to, among other things, repairs or drydockings. However, under the management agreements described below, Frontline Management will reimburse us for any loss of charter revenue in excess of five off hire days per vessel, calculated on a fleet-wide basis.
The terms of the charters do not provide the Frontline Charterers with an option to terminate the charter before the end of its term, other than with respect to our non-double hull vessels after the vessels anniversary dates in 2010. We may terminate any or all of the charters in the event of an event of default under the charter ancillary agreement that we describe below. The charters may also terminate in the event of (1) a requisition for title of a vessel or (2) the total loss or constructive total loss of a vessel. In addition, each charter provides that we may not sell the related vessel without relevant Frontline Charterers consent.
Charter Ancillary Agreement
We have entered into charter ancillary agreements with each of the Frontline Charterers, our relevant vessel owning subsidiaries and Frontline. The charter ancillary agreements remain in effect until the last long term charter with the Frontline Charterers terminates in accordance with its terms. Frontline has guaranteed the Frontline Charterers' obligations under the charter ancillary agreements, except for the Frontline Charterers' obligations to pay charterhire.
Charter Service Reserve. Frontline Shipping was initially capitalized with $250 million in cash provided by Frontline to support its obligation to make payments to us under the charters. Frontline Shipping II was initially capitalized with approximately $21.0 million in cash. Due to sales and acquisitions, the current capitalization in Frontline Shipping and Frontline Shipping II are $197.0 million and $35.0 million respectively. These funds are being held as a charter service reserve to support each Charterer's obligation to make charter payments to us under the charters. The Frontline Charterer's are entitled to use the charter service reserve only (1) to make charter payments to us and (2) for reasonable working capital to meet short term voyage expenses. The Frontline Charterers are required to provide us with monthly certifications of the balances of and activity in the charter service reserve.
Material Covenants. Pursuant to the terms of the charter ancillary agreement, each Frontline Charterer has agreed not to pay dividends or other distributions to its shareholders or loan, repay or make any other payment in respect of its indebtedness or any of its affiliates (other than us or our wholly owned subsidiaries), unless (1) the relevant Frontline Charterer is then in compliance with its obligations under the charter ancillary agreement, (2) after giving effect to the dividend or other distribution, (A) the Frontline Charterer remains in compliance with such obligations, (B) the balance of the charter service reserve equals at least $197.0 million, in the case of Frontline Shipping, or $35.0 million in the case of Frontline Shipping II (which threshold will be reduced by $5.3 million and $7.0 million in the case of Frontline Shipping and Frontline Shipping II, respectively, in each event that a charter to which the Frontline Charterer is a party is terminated other than by reason of a default by the Frontline Charterer), which we refer to as the "Minimum Reserve", and (C) it certifies to us that it reasonably believes that the charter service reserve will be equal to or greater than the Minimum Reserve level for at least 30 days after the date of that dividend or distribution, taking into consideration it's reasonably expected payment obligations during such 30-day period, (3) any charterhire payments deferred pursuant to the deferral provisions described below have been fully paid to us and (4) any profit sharing payments deferred pursuant to the profit sharing payment provisions described below have been fully paid to us. In addition, each Frontline Charterer has agreed to certain other restrictive covenants, including restrictions on its ability to, without our consent:
o amend its organizational documents in a manner that would adversely affect us;
o violate its organizational documents;
o engage in businesses other than the operation and chartering of our vessels (not applicable for Frontline Shipping II);
o incur debt, other than in the ordinary course of business;
o sell all or substantially all of its assets or the assets of the relevant Frontline Charterer and its subsidiaries taken as a whole, or enter into any merger, consolidation or business combination transaction;
o enter into transactions with affiliates, other than on an arm's-length basis;
o permit the incurrence of any liens on any of its assets, other than liens incurred in the ordinary course of business;
o issue any capital stock to any person or entity other than Frontline; and
o make any investments in, provide loans or advances to, or grant guarantees for the benefit of any person or entity other than in the ordinary course of business.
In addition, Frontline has agreed that it will cause the Frontline Charterers at all times to remain its wholly owned subsidiaries.
Deferral of Charter Payments. For any period during which the cash and cash equivalents held by Frontline Shipping are less than $75 million, Frontline Shipping is entitled to defer from the payments payable to us under each charter up to $4,600 per day for each of our vessels that is a VLCC and up to $3,400 per day for each of our vessels that is a Suezmax, in each case without interest. However, no such deferral with respect to a particular charter may be outstanding for more than one year at any given time. Frontline Shipping will be required to immediately use all revenues that Frontline Shipping receives that are in excess of the daily charter rates payable to us to pay any deferred amounts at such time as the cash and cash equivalents held by Frontline Shipping are greater than $75 million, unless Frontline Shipping reasonably believes that the cash and cash equivalents held by Frontline Shipping will not exceed $75 million for at least 30 days after the date of the payment.
Profit Sharing Payments. Under the terms of the charter ancillary agreements, beginning with the final 11-month period in 2004 and for each calendar year after that, the Frontline Charterers have agreed to pay us a profit sharing payment equal to 20% of the charter revenues for the applicable period, calculated annually on a TCE basis, realized by the relevant Frontline Charterer for our fleet in excess of the daily base charterhire. After 2010, all of our non-double hull vessels will be excluded from the annual profit sharing payment calculation. For purposes of calculating bareboat revenues on a TCE basis, expenses are assumed to equal $6,500 per day. Each of the Frontline Charterers has agreed to use its commercial best efforts to charter our vessels on market terms and not to give preferential treatment to the marketing of any other vessels owned or managed by Frontline or its affiliates.
The Frontline Charterers are entitled to defer, without interest, any profit sharing payment to the extent that, after giving effect to the payment, the charter service reserve would be less than the Minimum Reserve. The Frontline Charterers are required to immediately use all revenues that the Frontline Charterers receive that are in excess of the daily charter rates payable to us to pay any deferred profit sharing amounts at such time as the charter service reserve exceeds the minimum reserve, unless the relevant Frontline Charterer reasonably believes that the charter service reserve will not exceed the minimum reserve level for at least 30 days after the date of the payment. In addition, the Frontline Charterers will not be required to make any payment of deferred profit sharing amounts until the payment would be at least $2 million.
Collateral Arrangements. The charter ancillary agreements provides that the obligations of the Frontline Charterers to us under the charters and the charter ancillary agreements are secured by a lien over all of the assets of the Frontline Charterers and a pledge of the equity interests in the Frontline Charterers.
Default. An event of default shall be deemed to occur under the charter ancillary agreement if:
o the relevant Frontline Charterer materially breaches any of its obligations under any of the charters, including the failure to make charterhire payments when due, subject to Frontline Shipping's deferral rights explained above;
o the relevant Frontline Charterer or Frontline materially breaches any of its obligations under the applicable charter ancillary agreement or the Frontline performance guarantee;
o Frontline Management materially breaches any of its obligations under any of the management agreements; or
o Frontline Shipping and Frontline Shipping II fails at any time to hold at least $55 million or $7.5 million in cash and cash equivalents, respectively.
Upon the occurrence of any event of default under a charter ancillary agreement that continues for 30 days after we give the relevant Frontline Charterer notice of such default, we may elect to:
o terminate any or all of the relevant charters with the relevant Frontline Charterer; and
o foreclose on any or all of our security interests described above with respect to the relevant Frontline Charterer; and/or
o pursue any other available rights or remedies.
Frontline Performance Guarantee
Frontline has issued a performance guarantee with respect to the charters, the charter ancillary agreements, the management agreements and the administrative services agreement. Pursuant to the performance guarantee, Frontline has guaranteed the following obligations of the Frontline Charterers and Frontline Management:
o the performance of the obligations of the Frontline Charterers under the charters with the exception of payment of charter hire, which is not guaranteed;
o the performance of the obligations of the Frontline Charterers under the charter ancillary agreement;
o the performance of the obligations of Frontline Management under the management agreements, provided, however, that Frontline's obligations with respect to indemnification for environmental matters shall not extend beyond the protection and indemnity insurance coverage with respect to any vessel required by us under the management agreements; and
o the performance of the obligations of Frontline Management under the administrative services agreement.
Frontline's performance guarantee shall remain in effect until all obligations of the Frontline Charterers or Frontline Management, as the case may be, that have been guaranteed by Frontline under the performance guarantee have been performed and paid in full.
Vessel Management Agreements
Our tanker owning subsidiaries that we acquired from Frontline entered into fixed rate management agreements with Frontline Management effective January 1, 2004. Under the management agreements, Frontline Management is responsible for all technical management of the vessels, including crewing, maintenance, repair, certain capital expenditures, drydocking, vessel taxes and other vessel operating expenses. In addition, if a structural change or new equipment is required due to changes in classification society or regulatory requirements, Frontline Management will be responsible for making them, unless Frontline Shipping does so under the charters. Frontline Management outsources many of these services to third party providers.
Frontline Management is also obligated under the management agreements to maintain insurance for each of our vessels, including marine hull and machinery insurance, protection and indemnity insurance (including pollution risks and crew insurances) and war risk insurance. Frontline Management will also reimburse us for all lost charter revenue caused by our vessels being off hire for more than five days per year on a fleet-wide basis or failing to achieve the performance standards set forth in the charters. Under the management agreements, we will pay Frontline Management a fixed fee of $6,500 per day per vessel for all of the above services, for as long as the relevant charter is in place. If Frontline Shipping exercises its right under a charter to direct us to bareboat charter the related vessel to a third party, the related management agreement provides that our obligation to pay the $6,500 fixed fee to Frontline Management will be suspended for so long as the vessel is bareboat chartered. Both we and Frontline Management have the right to terminate any of the management agreements if the relevant charter has been terminated and in addition we have the right to terminate any of the management agreements upon 90 days prior written notice to Frontline Management.
Frontline has guaranteed to us Frontline Management's performance under these management agreements.
Administrative Services Agreement
We have an administrative services agreement with Frontline Management under which Frontline Management provides us with certain administrative support services. For the year 2006, we and each of our vessel owning subsidiaries paid Frontline Management a fixed fee of $20,000 per year for its services under the agreement, and agree to reimburse Frontline Management for reasonable third party costs, if any, advanced on our behalf by Frontline. For the year 2007, some of the compensation to Frontline Management will be based on cost sharing for the services rendered based on actual incurred costs plus a margin.
Frontline guarantees to us Frontline Management's performance under this administrative services agreement.
D. EXCHANGE CONTROLS
We are classified by the Bermuda Monetary Authority as a non-resident of Bermuda for exchange control purposes.
The transfer of Common Shares between persons regarded as resident outside Bermuda for exchange control purposes may be effected without specific consent under the Exchange Control Act of 1972 and regulations there under and the issuance of Common Shares to persons regarded as resident outside Bermuda for exchange control purposes may be effected without specific consent under the Exchange Control Act of 1972 and regulations there under. Issues and transfers of Common Shares involving any person regarded as resident in Bermuda for exchange control purposes require specific prior approval under the Exchange Control Act of 1972.
The owners of Common Shares who are ordinarily resident outside Bermuda are not subject to any restrictions on their rights to hold or vote their shares. Because we have been designated as a non-resident for Bermuda exchange control purposes, there are no restrictions on our ability to transfer funds in and out of Bermuda or to pay dividends to U.S. residents who are holders of Common Shares, other than in respect of local Bermuda currency.
E. TAXATION
United States Taxation
The following discussion is based upon the provisions of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed U.S. Treasury Department regulations, administrative rulings, pronouncements and judicial decisions, all as of the date of this Annual Report. Unless otherwise noted, references to the "Company" include the Company's Subsidiaries. This discussion assumes that we do not have an office or other fixed place of business in the United States.
Taxation of the Company's Shipping Income: In General
The Company anticipates that it will derive substantially all of its gross income from the use and operation of vessels in international commerce and that this income will principally consist of freights from the transportation of cargoes, hire or lease from time or voyage charters and the performance of services directly related thereto, which the Company refers to as "shipping income."
Shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States will be considered to be 50% derived from sources within the United States. Shipping income attributable to transportation that both begins and ends in the United States will be considered to be 100% derived from sources within the United States. The Company does not engage in transportation that gives rise to 100% U.S. source income.
Shipping income attributable to transportation exclusively between non-U.S. ports will be considered to be 100% derived from sources outside the United States. Shipping income derived from sources outside the United States will not be subject to U.S. federal income tax.
Based upon the Company's anticipated shipping operations, the Company's vessels will operate in various parts of the world, including to or from U.S. ports. Unless exempt from U.S. taxation under Section 883 of the Code, the Company will be subject to U.S. federal income taxation, in the manner discussed below, to the extent its shipping income is considered derived from sources within the United States.
Application of Code Section 883
Under the relevant provisions of Section 883 of the Code ("Section 883"), the Company will be exempt from U.S. taxation on its U.S. source shipping income if:
(i) It is organized in a qualified foreign country which is one that grants an equivalent exemption from tax to corporations organized in the United States in respect of the shipping income for which exemption is being claimed under Section 883 (a "qualified foreign country") and which the Company refers to as the "country of organization requirement"; and
(ii) It can satisfy any one of the following two (2) stock ownership requirements for more than half the days during the taxable year:
o the Company's stock is "primarily and regularly" traded on an established securities market located in the United States or a qualified foreign country, which the Company refers to as the "Publicly-Traded Test"; or
o more than 50% of the Company's stock, in terms of value, is beneficially owned by any combination of one or more individuals who are residents of a qualified foreign country or foreign corporations that satisfy the country of organization requirement and the Publicly-Traded Test, which the Company refers to as the "50% Ownership Test."
The U.S. Treasury Department has recognized Bermuda, the country of incorporation of the Company and certain of its subsidiaries, as a qualified foreign country. In addition, the U.S. Treasury Department has recognized Liberia, Panama, the Isle of Man, Singapore and Cyprus, the countries of incorporation of certain of the Company's subsidiaries, as qualified foreign countries. Accordingly, the Company and its vessel owning subsidiaries satisfy the country of organization requirement.
Therefore, the Company's eligibility to qualify for exemption under Section 883 is wholly dependent upon being able to satisfy one of the stock ownership requirements.
For the 2006 tax year, the Company satisfied the Publicly-Traded Test since, on more than half the days of the taxable year, the Company's stock was primarily and regularly traded on the New York Stock Exchange.
Final regulations interpreting Section 883 became effective for calendar year taxpayers such as the Company and its subsidiaries beginning with the calendar year 2005.
Taxation in Absence of Internal Revenue Code Section 883 Exemption
To the extent the benefits of Section 883 are unavailable with respect to any item of U.S. source income, the Company's U.S. source shipping income, would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions. Since under the sourcing rules described above, no more than 50% of the Company's shipping income would be treated as being derived from U.S. sources, the maximum effective rate of U.S. federal income tax on the Company's shipping income would never exceed 2% under the 4% gross basis tax regime.
Gain on Sale of Vessels
Regardless of whether we qualify for exemption under Section 883, we will not be subject to United States federal income taxation with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States under United States federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States. It is expected that any sale of a vessel by us will be considered to occur outside of the United States.
Taxation of U.S. Holders
The following is a discussion of the material United States federal income tax considerations relevant to an investment decision by a U.S. Holder, as defined below, with respect to the common stock. This discussion does not purport to deal with the tax consequences of owning common stock to all categories of investors, some of which may be subject to special rules. You are encouraged to consult your own tax advisors concerning the overall tax consequences arising in your own particular situation under United States federal, state, local or foreign law of the ownership of common stock.
As used herein, the term "U.S. Holder" means a beneficial owner of our common stock that (i) is a U.S. citizen or resident, a U.S. corporation or other U.S. entity taxable as a corporation, an estate, the income of which is subject to U.S. federal income taxation regardless of its source, or a trust if a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust and (ii) owns our common stock as a capital asset, generally, for investment purposes.
If a partnership holds our common stock, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding our common stock, you are encouraged to consult your own tax advisor on this issue.
Distributions
Subject to the discussion of passive foreign investment companies below, any distributions made by us with respect to our common stock to a U.S. Holder will generally constitute dividends, which may be taxable as ordinary income or "qualified dividend income" as described in more detail below, to the extent of our current or accumulated earnings and profits, as determined under United States federal income tax principles. Distributions in excess of our earnings and profits will be treated first as a nontaxable return of capital to the extent of the U.S. Holder's tax basis in his common stock on a dollar-for-dollar basis and thereafter as capital gain. Because we are not a United States corporation, U.S. Holders that are corporations will not be entitled to claim a dividends received deduction with respect to any distributions they receive from us.
Dividends paid on our common stock to a U.S. Holder who is an individual, trust or estate (a "U.S. Individual Holder") will generally be treated as "qualified dividend income" that is taxable to such U.S. Individual Holders at preferential tax rates (through 2010) provided that (1) the common stock is readily tradable on an established securities market in the United States (such as the New York Stock Exchange); (2) we are not a passive foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year (which we do not believe we are, have been or will be); and (3) the U.S. Individual Holder has owned the common stock for more than 60 days in the 121-day period beginning 60 days before the date on which the common stock becomes ex-dividend.
There is no assurance that any dividends paid on our common stock will be eligible for these preferential rates in the hands of a U.S. Individual Holder. Legislation has been recently introduced in the U.S. Congress which, if enacted in its present form, would preclude our dividends from qualifying for such preferential rates prospectively from the date of the enactment. Any dividends paid by the Company which are not eligible for these preferential rates will be taxed as ordinary income to a U.S. Individual Holder.
Sale, Exchange or other Disposition of Common Stock
Assuming we do not constitute a passive foreign investment company for any taxable year, a U.S. Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our common stock in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holder's tax basis in such stock. Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder's holding period is greater than one year at the time of the sale, exchange or other disposition. A U.S. Holder's ability to deduct capital losses is subject to certain limitations.
Passive Foreign Investment Company Status and Significant Tax Consequences
Special United States federal income tax rules apply to a U.S. Holder that holds stock in a foreign corporation classified as a passive foreign investment company, or a PFIC, for United States federal income tax purposes. In general, we will be treated as a PFIC with respect to a U.S. Holder if, for any taxable year in which such holder held our common stock, either at least 75% of our gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental business), or at least 50% of the average value of the assets held by the corporation during such taxable year produce, or are held for the production of, passive income.
For purposes of determining whether we are a PFIC, we will be treated as earning and owning our proportionate share of the income and assets, respectively, of any of our subsidiary corporations in which we own at least 25 percent of the value of the subsidiary's stock. Income earned, or deemed earned, by us in connection with the performance of services would not constitute passive income. By contrast, rental income would generally constitute "passive income" unless we were treated under specific rules as deriving our rental income in the active conduct of a trade or business.
Based on our current operations and future projections, we do not believe that we are, nor do we expect to become, a PFIC with respect to any taxable year. Although there is no legal authority directly on point, our belief is based principally on the position that, for purposes of determining whether we are a PFIC, the gross income we derive or are deemed to derive from the time chartering and voyage chartering activities of our wholly-owned subsidiaries should constitute services income, rather than rental income. Correspondingly, we believe that such income does not constitute passive income, and the assets that we or our wholly-owned subsidiaries own and operate in connection with the production of such income, in particular, the vessels, do not constitute passive assets for purposes of determining whether we are a PFIC. We believe there is substantial legal authority supporting our position consisting of case law and Internal Revenue Service pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, in the absence of any legal authority specifically relating to the statutory provisions governing passive foreign investment companies, the Internal Revenue Service or a court could disagree with our position. In addition, although we intend to conduct our affairs in a manner to avoid being classified as a PFIC with respect to any taxable year, we cannot assure you that the nature of our operations will not change in the future.
As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a U.S. Holder would be subject to different taxation rules depending on whether the U.S. Holder makes an election to treat us as a "Qualified Electing Fund," which election we refer to as a "QEF election." As an alternative to making a QEF election, a U.S. Holder should be able to make a "mark-to-market" election with respect to our common stock, as discussed below.
Taxation of U.S. Holders Making a Timely QEF Election
If a U.S. Holder makes a timely QEF election, which U.S. Holder we refer to as an "Electing Holder," the Electing Holder must report each year for United States federal income tax purposes his pro rata share of our ordinary earnings and our net capital gain, if any, for our taxable year that ends with or within the taxable year of the Electing Holder, regardless of whether or not distributions were received from us by the Electing Holder. The Electing Holder's adjusted tax basis in the common stock will be increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the common stock and will not be taxed again once distributed. An Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of our common stock.
Taxation of U.S. Holders Making a "Mark-to-Market" Election
Alternatively, if we were to be treated as a PFIC for any taxable year and, as we anticipate, our stock is treated as "marketable stock," a U.S. Holder would be allowed to make a "mark-to-market" election with respect to our common stock. If that election is made, the U.S. Holder generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of the common stock at the end of the taxable year over such holder's adjusted tax basis in the common stock. The U.S. Holder would also be permitted an ordinary loss in respect of the excess, if any, of the U.S. Holder's adjusted tax basis in the common stock over its fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holder's tax basis in his common stock would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our common stock would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the common stock would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the U.S. Holder.
Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election
Finally, if we were to be treated as a PFIC for any taxable year, a U.S. Holder who does not make either a QEF election or a "mark-to-market" election for that year, whom we refer to as a "Non-Electing Holder," would be subject to special rules with respect to (1) any excess distribution (i.e., the portion of any distributions received by the Non-Electing Holder on our common stock in a taxable year in excess of 125 percent of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder's holding period for the common stock), and (2) any gain realized on the sale, exchange or other disposition of our common stock. Under these special rules:
o the excess distribution or gain would be allocated ratably over the Non-Electing Holders' aggregate holding period for the common stock;
o the amount allocated to the current taxable year and any taxable years before the Company became a PFIC would be taxed as ordinary income; and
o the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.
These penalties would not apply to a pension or profit sharing trust or other tax-exempt organization that did not borrow funds or otherwise utilize leverage in connection with its acquisition of our common stock. If a Non-Electing Holder who is an individual dies while owning our common stock, such holder's successor generally would not receive a step-up in tax basis with respect to such stock.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within the United States to you will be subject to information reporting requirements. Such payments will also be subject to "backup withholding" if you are a non-corporate U.S. Holder and you:
o fail to provide an accurate taxpayer identification number;
o are notified by the Internal Revenue Service that you have failed to report all interest or dividends required to be shown on your federal income tax returns; or
o in certain circumstances, fail to comply with applicable certification requirements.
If you sell your common shares to or through a U.S. office or broker, the payment of the proceeds is subject to both U.S. backup withholding and information reporting unless you establish an exemption. If you sell your common shares through a non-U.S. office of a non-U.S. broker and the sales proceeds are paid to you outside the United States then information reporting and backup withholding generally will not apply to that payment. However, U.S. information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, including a payment made to you outside the United States, if you sell your common stock through a non-U.S. office of a broker that is a U.S. person or has some other contacts with the United States. Backup withholding is not an additional tax. Rather, you generally may obtain a refund of any amounts withheld under backup withholding rules that exceed your income tax liability by filing a refund claim with the U.S. Internal Revenue Service.
Bermuda Taxation
Bermuda currently imposes no tax (including a tax in the nature of an income, estate duty, inheritance, capital transfer or withholding tax) on profits, income, capital gains or appreciations derived by, or dividends or other distributions paid to U.S. Shareholders of Common Shares. Bermuda has undertaken not to impose any such Bermuda taxes on U.S. Shareholders of Common Shares prior to the year 2016 except in so far as such tax applies to persons ordinarily resident in Bermuda.
Liberian Taxation
The Republic of Liberia enacted a new income tax act effective as of January 1, 2001 (the "New Act"). In contrast to the income tax law previously in effect since 1977 (the "Prior Law"), which the New Act repealed in its entirety, the New Act does not distinguish between the taxation of a non-resident Liberian corporation, such as our Liberian subsidiaries, which conduct no business in Liberia and were wholly exempted from tax under the Prior Law, and the taxation of ordinary resident Liberian corporations.
In 2004, the Liberian Ministry of Finance issued regulations pursuant to which a non-resident domestic corporation engaged in international shipping, such as our Liberian subsidiaries, will not be subject to tax under the New Act retroactive to January 1, 2001 (the "New Regulations"). In addition, the Liberian Ministry of Justice issued an opinion that the New Regulations were a valid exercise of the regulatory authority of the Ministry of Finance. Therefore, assuming that the New Regulations are valid, our Liberian subsidiaries will be wholly exempt from Liberian income tax as under the Prior Law.
If our Liberian subsidiaries were subject to Liberian income tax under the New Act, our Liberian subsidiaries would be subject to tax at a rate of 35% on their worldwide income. As a result, their, and subsequently our, net income and cash flow would be materially reduced by the amount of the applicable tax. In addition, we, as shareholder of the Liberian subsidiaries, would be subject to Liberian withholding tax on dividends paid by the Liberian subsidiaries at rates ranging from 15% to 20%.
F. DIVIDENDS AND PAYING AGENTS
Not Applicable
G. STATEMENT BY EXPERTS
Not Applicable
H. DOCUMENTS ON DISPLAY
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended. In accordance with these requirements, we file reports and other information with the Securities and Exchange Commission. These materials, including this annual report and the accompanying exhibits, may be inspected and copied at the public reference facilities maintained by the Commission 100 Fifth Street, N.E., Room 1580 Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling 1 (800) SEC-0330, and you may obtain copies at prescribed rates from the public reference facilities maintained by the Commission at its principal office in Washington, D.C. 20549. The SEC maintains a website (http://www.sec.gov.) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. In addition, documents referred to in this annual report may be inspected at our principal executive offices at Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, Bermuda HM 08.
I. SUBSIDIARY INFORMATION
Not Applicable
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including interest rates and foreign currency fluctuations. We use interest rate swaps to manage interest rate risk. Several of our charter contracts also contain interest adjustment clauses, whereby the charter rate is adjusted to reflect the actual interest paid on the outstanding debt, effectively transferring the interest rate exposure on the counterparty under the charter contract. We may enter into derivative instruments from time to time for speculative purposes.
Our exposure to interest rate risk relates primarily to our debt and related interest rate swaps. The majority of this exposure derives from our floating rate debt, which totalled $1,466.1 million at December 31, 2006 (2005: $1,336.6 million). We have entered into interest rate swap agreements to manage this exposure to interest rate changes by swapping floating interest rates with fixed interest rates. At December 31, 2006, we had fourteen swaps with a total notional principal of $738.7 million (2005: $568.3 million). At December 31, 2006, $166.4 million (2005: $nil) of the interest rate swaps relate to committed, but not outstanding, debt on vessels not yet delivered to us. The swap agreements mature between February 2009 and May 2019, and we estimate that we would receive $9.1 million to terminate these agreements as of December 31, 2006 (2005: $18.4 million). At December 31, 2006, $155.1 million (2005: $nil) of our outstanding debt was also subject to interest adjustment clauses under charter contracts with the relevant charterers. At December 31, 2006, we had also entered into total return bond swaps in respect of $52 million (2005: $nil) of our 8.5% debentures, which effectively translates the underlying principal amount into floating rate debt.
At December 31, 2006, our net exposure to interest rate fluctuations on our outstanding debt was $790.6 million (2005: $768.3 million). Our net exposure to interest fluctuations is based on our total floating rate debt outstanding at December 31, 2006, plus the outstanding under the bond swap line at December 31, 2006, less the outstanding floating rate debt subject to interest adjustment clauses and the notional principal of our floating to fixed interest rate swaps outstanding at December 31, 2006. A one per cent change in interest rates would increase or decrease interest expense by $7.9 million per year as of December 31, 2006 (2005: $7.7 million). This net figure takes into account that we would be compensated for the increase or decrease in interest expenses under the related charter contracts that include interest adjustment clauses.
The fair market value of our fixed rate debt was $448.8 million as of December 31, 2006 (2005: $427.3 million). The majority of our transactions, assets and liabilities are denominated in U.S. dollars, our functional currency. One of our subsidiaries had charter contracts denominated in Yen. The charterer also had an option to buy the vessel for (Y)4,666 million in January 2006, this option was exercised. The option was settled on January 17, 2006. Since this date, we do not have any direct Yen exposure in the Company.
ITEM 12. DESCRIPTION OF SECURITIES
Not Applicable
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Neither we nor any of our subsidiaries have been subject to a material default in the payment of principal, interest, a sinking fund or purchase fund installment or any other material default that was not cured within 30 days. In addition, the payment of our dividends are not, and have not been in arrears or have not been subject to material delinquency that was not cured within 30 days.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None
ITEM 15. CONTROLS AND PROCEDURES
a) Disclosure Controls and Procedures
Management assessed the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-15(e) of the Securities Exchange Act of 1934, as of the end of the period covered by this annual report as of December 31, 2006. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures are effective as of the evaluation date.
b) Management's annual report on internal controls over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) promulgated under the Securities Exchange Act of 1934.
Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company's principal executive and principal financial officers and effected by the Company's Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
o Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
o Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of Company's management and directors; and
o Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
Management conducted the evaluation of the effectiveness of the internal controls over financial reporting using the control criteria framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) published in its report entitled Internal Control-Integrated Framework.
Our management with the participation of our Principal Executive Officer and Principal Financial Officer assessed the effectiveness of the design and operation of the Company's internal controls over financial reporting pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as of December 31, 2006. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the Company's internal controls over financial reporting are effective as of December 31, 2006.
This annual report does not include an attestation report of the Company's current registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's current registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
c) Changes in internal control over financial reporting
There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report that have materially effected or are reasonably likely to materially affect, the Company's internal control over financial reporting.
ITEM 16 A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that our Audit Committee has one Audit Committee Financial Expert. Kate Blankenship is an independent Director and is the Audit Committee Financial Expert.
ITEM 16 B. CODE OF ETHICS
We have adopted a Code of Ethics that applies to all entities controlled by us and our employees, directors, officers and agents of the Company. The Code of Ethics has previously been filed as Exhibit 11.1 to the our Annual Report on Form 20-F for the fiscal year ended December 31 2004, filed with the Securities and Exchange Commission on June 30, 2005, and is hereby incorporated by reference into this Annual Report.
We have posted a copy of our Code of Ethics on our website at www.shipfinance.bm We will provide any person, free of charge, a copy of our Code of Ethics upon written request to our registered office.
ITEM 16 C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our principal accountant for 2006 and 2005 was Moore Stephens, P.C. The following table sets forth the fees related to audit and other services provided by Moore Stephens, P.C.
2006 2005
--------- --------
Audit Fees (a) $300,000 $300,000
Audit-Related Fees (b) $ 43,771 $ 38,000
Tax Fees (c) -- --
All Other Fees (d) -- --
Total $343,771 $338,000
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(a) Audit Fees
Audit fees represent professional services rendered for the audit of our annual financial statements and services provided by the principal accountant in connection with statutory and regulatory filings or engagements.
(b) Audit-Related Fees
Audit-related fees consisted of assurance and related services rendered by the principal accountant related to the performance of the audit or review of our financial statements which have not been reported under Audit Fees above.
(c) Tax Fees
Tax fees represent fees for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning.
(d) All Other Fees
All other fees include services other than audit fees, audit-related fees and tax fees set forth above.
Our Board of Directors has adopted pre-approval policies and procedures in compliance with paragraph (c) (7)(i) of Rule 2-01 of Regulation S-X that require the Board to approve the appointment of our independent auditor before such auditor is engaged and approve each of the audit and non-audit related services to be provided by such auditor under such engagement by the Company. All services provided by the principal auditor in 2006 and 2005 were approved by the Board pursuant to the pre-approval policy.
ITEM 16 D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable
ITEM 16 E. PURCHASE OF EQUITY SECURITIES BY ISSUER AND AFFILIATED PURCHASERS
Average Price Total Number of Shares (or Maximum Number (or Approximate
Total Number of Paid per Units) Purchased as Part of Dollar Value) of Shares (or Units)
Shares (or Units) Share (or Publicly Announced Plans or that May Yet Be Purchased Under the
Period Purchased Units) Programs Plans or Programs
-------------------------------------------------------------------------------------------------------------------
06/01/05 to
06/30/05 300,000 (1) $19.58 -- --
10/01/05 to
10/31/05 336,400 (1) $19.43 -- --
11/01/05 to
11/30/05 520,700 (1) $18.95 -- --
12/01/05 to
12/31/05 600,000 (1) $18.01 -- --
01/10/06 to
01/20/06 400,000 (1) $18.03 -- --
Total 2,157,100 (1) $18.68 -- --
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(1) The shares repurchased in the period were not part of a publicly announced plan or program. The repurchases were made in open-market transactions.
PART III
ITEM 17. FINANCIAL STATEMENTS
Not Applicable
ITEM 18. FINANCIAL STATEMENTS
The following financial statements listed below and set forth on pages F-1 through F-27 are filed as part of this annual report: Report of Independent Registered Public Accounting Firm F-2 Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004 F-3 Consolidated Balance Sheets as of December 31, 2006 and 2005 F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004 F-5 Consolidated Statement of Changes in Stockholders' Equity and Comprehensive Income for the years ended December 31, 2006, 2005 and 2004 F-6 Notes to Consolidated Financial Statements F-7 |
ITEM 19. EXHIBITS
Number Description of Exhibit
1.1* Memorandum of Association of Ship Finance International Limited (the
"Company") incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement, SEC File No. 333-115705, filed on May 21,
2004 (the "Original Registration Statement").
1.4 Amended and Restated Bye-laws of the Company as adopted on
December 1, 2006.
2.1* Form of Common Stock Certificate of the Company incorporated by
reference to Exhibit 4.1 of the Company's Original Registration
Statement.
2.2 Share Option Scheme.
4.1* Indenture relating to 8.5% Senior Notes due 2013, dated December 18,
2003 incorporated by reference to Exhibit 4.4 of the Company's
Original Registration Statement.
4.2* Form of $1.058 billion Credit Facility incorporated by reference to
Exhibit 10.1 of the Company's Original Registration Statement.
4.3* Fleet Purchase Agreement dated December 11, 2003 incorporated by
reference to Exhibit 10.2 of the Company's Original Registration
Statement.
4.4* Form of Performance Guarantee issued by Frontline Ltd. incorporated
by reference to Exhibit 10.3 of the Company's Original Registration
Statement.
4.5* Form of Time Charter incorporated by reference to Exhibit 10.4 of
the Company's Original Registration Statement.
4.6* Form of Vessel Management Agreements incorporated by reference to
Exhibit 10.5 of the Company's Original Registration Statement.
4.7* Form of Charter Ancillary Agreement incorporated by reference to
Exhibit 10.6 of the Company's Original Registration Statement.
4.8* Form of Administrative Services Agreement incorporated by reference
to Exhibit 10.7 of the Company's Original Registration Statement.
4.9 $1.131 billion Term Loan Facility, dated February 5, 2005.
4.10 Amendment to $1.131 billion Term Loan Facility, dated September 18,
2006.
8.1 Subsidiaries of the Company.
11.1* Code of Ethics.
12.1 Certification of the Principal Executive Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as
amended.
12.2 Certification of the Principal Financial Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as
amended.
13.1 Certification of the Principal Executive Officer pursuant to 18 USC
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
13.2 Certification of the Principal Financial Officer pursuant to 18 USC
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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* Incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date July 2, 2007 By /s/ Ole B. Hjertaker
---------------------------
Ole B. Hjertaker
Principal Financial Officer
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Ship Finance International Limited
Report of Independent Registered Public Accounting Firm F-2 Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004 F-3 Consolidated Balance Sheets as of December 31, 2006 and 2005 F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004 F-5 Consolidated Statement of Changes in Stockholders' Equity and Comprehensive Income for the years ended December 31, 2006, 2005 and 2004 F-6 Notes to Consolidated Financial Statements F-7 |
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Ship Finance International Limited
We have audited the consolidated balance sheets of Ship Finance International Limited and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of operations, changes in stockholders' equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2006. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ship Finance International Limited and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.
Moore Stephens, P.C.
New York, New York
June 22, 2007
Ship Finance International Limited
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 2006, 2005 and 2004
(in thousands of $, except per share amounts)
2006 2005 2004
Operating revenues
Time charter revenues 53,087 62,605 86,741
Bareboat charter revenues 3,986 7,325 27,453
Voyage charter revenues (709) 9,745 49,707
Finance lease interest income from related parties 177,840 176,030 140,691
Finance lease interest income from non-related parties 4,740 1,444 --
-------------------------------
Total finance lease interest income 182,580 177,474 140,691
-------------------------------
Finance lease service revenues from related parties 106,791 92,265 72,551
Profit sharing revenues from related parties 78,923 88,096 114,926
--------------------------------------------------------------------------------------------------
Total operating revenues 424,658 437,510 492,069
Profit / (loss) on sale of assets 9,806 (654) --
Operating expenses
Voyage expenses and commission 1,736 3,600 9,978
Ship operating expenses to related parties 116,362 108,957 96,392
Ship operating expenses to non-related parties 1,595 1,283 113
Total ship operating expenses 117,957 110,240 96,505
Depreciation and amortization 14,490 19,907 34,617
Selling, general and administrative expenses
To related parties 1,184 1,013 2,852
To non-related parties 5,400 1,434 960
--------------------------------------------------------------------------------------------------
Net operating income 293,697 300,662 347,157
Non-operating income / (expense)
Interest income 3,978 3,343 2,567
Interest expense (113,588) (111,935) (95,933)
Other financial items, net (3,556) 17,476 8,868
--------------------------------------------------------------------------------------------------
Net income before equity in earnings of associated companies 180,531 209,546 262,659
Equity in earnings of unconsolidated subsidiaries 267 -- --
--------------------------------------------------------------------------------------------------
Net income 180,798 209,546 262,659
==================================================================================================
Per share information:
Basic and diluted earnings per share $ 2.48 $ 2.84 $ 3.52
Cash dividends paid $ 2.05 $ 2.00 $ 1.05
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The accompanying notes are an integral part of these consolidated financial statements.
Ship Finance International Limited
CONSOLIDATED BALANCE SHEETS
As of December 31, 2006 and December 31, 2005
(in thousands of $)
2006 2005
ASSETS
Current assets
Cash and cash equivalents 64,569 32,857
Restricted cash 12,937 1,575
Accounts receivable
Trade 491 382
Due from related parties 63,024 79,416
Other receivables 3,906 1,409
Inventories 331 185
Prepaid expenses and accrued income 180 106
Investment in finance leases to related parties, current portion 150,492 107,010
Other current assets 11,223 --
---------------------------------------------------------------------------------------------------
Total current assets 307,153 222,940
Property plant and equipment - at cost
Newbuilding contracts 7,658 --
Vessels and equipment 308,313 481,732
Accumulated depreciation and amortization (69,422) (166,512)
--------- ---------
246,549 315,220
Investment in finance leases with related parties, long-term portion 1,958,691 1,818,344
Investment in associated companies 3,698 -
Mark to market valuation of derivatives 20,738 19,563
Deferred charges 16,848 17,846
---------------------------------------------------------------------------------------------------
Total assets 2,553,677 2,393,913
===================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt and current portion of long-term debt 144,451 122,519
Trade accounts payable 533 978
Due to related parties 14,411 -
Accrued expenses 11,262 9,908
Other current liabilities 2,998 1,315
---------------------------------------------------------------------------------------------------
Total current liabilities 173,655 134,720
Long-term liabilities
Long-term debt 1,770,749 1,671,138
Mark to market valuation of derivatives 8,743 1,196
Other long-term liabilities -- 25,337
---------------------------------------------------------------------------------------------------
Total liabilities 1,953,147 1,832,391
Commitments and contingent liabilities
Stockholders' equity
Share capital 72,744 73,144
Contributed surplus 464,478 441,105
Accumulated other comprehensive loss (71) --
Retained earnings 63,379 47,273
---------------------------------------------------------------------------------------------------
Total stockholders' equity 600,530 561,522
---------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 2,553,677 2,393,913
===================================================================================================
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The accompanying notes are an integral part of these consolidated financial statements.
Ship Finance International Limited
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 2006, 2005 and 2004
(in thousands of $)
2006 2005 2004
Operating activities
Net income 180,798 209,546 262,659
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 14,490 19,907 34,617
Amortization of deferred charges 3,069 16,524 9,485
Share of results of associated companies (4,205) -- --
Unrealized foreign exchange (gain) -- -- (164)
(Gain)/ loss on sale of assets (26,469) 654 --
Adjustment of derivatives to market value 6,375 (14,732) (9,289)
Other (5,091) (4,708) (1,146)
Changes in operating assets and liabilities, net of effect of acquisitions
Trade accounts receivable 3,455 6,241 (256)
Other receivables 525 940 --
Inventories 352 3,191 --
Other current assets (12,245) 5,266 --
Prepaid expenses and accrued income (74) 129 199
Trade accounts payable (445) (1,291) 180
Accrued expenses 476 (2,139) 1,750
Amount due from parent company 30,803 40,374 (119,892)
Other current liabilities 1,683 932 385
-----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 193,497 280,834 178,528
Investing activities
Repayments from investments in finance leases 136,760 94,777 61,990
Acquisition of subsidiaries, net of cash acquired (34,810) (518,182) (536,793)
Additions to new buildings and vessel purchase options (7,658) -- (8,370)
Purchase of vessels (266,750) (79,772) --
Proceeds from sales of vessels 75,606 229,800 --
Investments in associated companies 508 -- --
Purchase of other investments (3,000) -- --
Net (placement)/maturity of restricted cash (11,362) 3,804 560,121
Short-term loan advances to parent company -- -- (55,254)
Short-term loan repayments from parent company -- -- 55,254
-----------------------------------------------------------------------------------------------------------------
Net cash (used in) /provided by investing activities (110,706) (269,573) 76,948
Financing activities
Proceeds from issuance of shares -- -- 24,696
Repurchases of shares (7,212) (33,083) (14,713)
Proceeds from issuance of long-term debt 312,588 1,571,429 1,017,100
Repayments of long-term debt (190,716) (1,253,503) (1,099,707)
Debt fees paid (1,047) (7,347) (15,760)
Cash dividends paid (149,123) (148,863) (78,905)
Deemed dividends paid (15,569) (136,230) (58,994)
-----------------------------------------------------------------------------------------------------------------
Net cash (used in) financing activities (51,079) (7,597) (226,283)
-----------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 31,712 3,664 29,193
Cash and cash equivalents at start of the year 32,857 29,193 --
-----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of the year 64,569 32,857 29,193
=================================================================================================================
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest 111,823 92,315 81,992
=================================================================================================================
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The accompanying notes are an integral part of these consolidated financial statements.
Ship Finance International Limited
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
for the years ended December 31, 2006, 2005 and 2004
(in thousands of $, except number of shares)
2006 2005 2004
Number of shares outstanding
At beginning of year 73,143,737 74,900,837 12,000
Shares issued from contributed surplus -- -- 73,913,837
Shares issued for cash -- -- 1,600,000
Shares repurchased and cancelled (400,000) (1,757,100) (625,000)
--------------------------------------------------------------------------------------------------
At end of year 72,743,737 73,143,737 74,900,837
--------------------------------------------------------------------------------------------------
Share capital
At beginning of year 73,144 74,901 12
Shares issued from contributed surplus -- -- 73,914
Shares issued for cash -- -- 1,600
Shares repurchased and cancelled (400) (1,757) (625)
--------------------------------------------------------------------------------------------------
At end of year 72,744 73,144 74,901
--------------------------------------------------------------------------------------------------
Contributed surplus
At beginning of year 441,105 463,261 --
Equity contribution from parent company -- -- 525,000
Shares issued from contributed surplus -- -- (73,914)
Shares issued for cash -- -- 23,096
Shares repurchased and cancelled (6,811) (31,327) (14,088)
Employee stock options issued 49 -- --
Amortization of deferred equity contributions 30,135 9,171 3,167
--------------------------------------------------------------------------------------------------
At end of year 464,478 441,105 463,261
--------------------------------------------------------------------------------------------------
Accumulated other comprehensive income (loss)
At beginning of year -- -- --
Other comprehensive income (loss) (71) -- --
--------------------------------------------------------------------------------------------------
At end of year (71) -- --
--------------------------------------------------------------------------------------------------
Retained earnings (deficit)
At beginning of year 47,273 122,820 (1,937)
Net income 180,798 209,546 262,659
Cash dividends paid (149,123) (148,863) (78,905)
Deemed dividends paid (15,569) (136,230) (58,997)
--------------------------------------------------------------------------------------------------
At end of year 63,379 47,273 122,820
--------------------------------------------------------------------------------------------------
Total Stockholders' Equity 600,530 561,522 660,982
--------------------------------------------------------------------------------------------------
Comprehensive income
Net income 180,798 209,546 262,659
--------------------------------------------------------------------------------------------------
Other comprehensive income (loss) (71) -- --
--------------------------------------------------------------------------------------------------
Comprehensive income 180,727 209,546 262,659
--------------------------------------------------------------------------------------------------
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The accompanying notes are an integral part of these consolidated financial statements.
SHIP FINANCE INTERNATIONAL LIMITED
Notes to the Consolidated Financial Statements
1. GENERAL
Ship Finance International Limited ("Ship Finance" or the "Company"), a publicly listed company on the New York Stock Exchange (ticker SFL), was incorporated in Bermuda in October 2003 as a subsidiary of Frontline Ltd. ("Frontline") for the purpose of acquiring certain of the shipping assets of Frontline. In December 2003, Ship Finance issued $580 million of 8.5% senior notes and in the first quarter of 2004, the Company used the proceeds of the notes issue, together with a refinancing of existing debt, to fund the acquisition of a fleet of 47 crude oil tankers (including one purchase option for a VLCC) from Frontline and has chartered each of the ships back to two Frontline subsidiaries, Frontline Shipping Limited and Frontline Shipping II Limited (the "Frontline Charterers") for most of their estimated remaining lives. The Company also entered into fixed rate management and administrative services agreements with Frontline to provide for the operation and maintenance of the Company's tankers and administrative support services. The charters and the management agreements were each given economic effect as of January 1, 2004 (See Note 17). Subsequently, the Company has acquired other assets.
As of December 31, 2006, the Company owned 27 very large crude oil carriers ("VLCCs"), 14 Suezmax crude oil carriers, eight oil/bulk/ore carriers ("OBOs"), one Panamax drybulk carrier, three container vessels and one jack-up drilling rig. In addition, as of December 31, 2006, the Company had contracted to acquire two Suezmax tankers and four container vessels. Subsequently, Ship Finance has contracted to acquire an additional jack-up drilling rig, two Capesize drybulk carriers, three seismic vessels and five container vessels. Further, the Company has sold six single-hull Suezmax tankers and entered into a hire purchase agreement for a single-hull VLCC.
Since its incorporation in 2003 and listing in 2004, Ship Finance has established itself as a leading international shipowning company, expanding both its asset and customer base. The Company's principal strategy is to generate stable and increasing cash flows by chartering its assets under medium to long-term time or bareboat charters to customers across a diverse group of maritime segments.
2. ACCOUNTING POLICIES
Basis of Accounting
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ("US GAAP"). The consolidated financial statements include the assets and liabilities of the Company and its subsidiaries. All inter-company balances and transactions have been eliminated on consolidation.
Consolidation of variable interest entities.
A variable interest entity is defined by Financial Accounting Standards Board Interpretation ("FIN") 46(R) as a legal entity where either (a) equity interest holders as a group lack the characteristics of a controlling financial interest, including: decision making ability and an interest in the entity's residual risks and rewards or (b) the equity holders have not provided sufficient equity investment to permit the entity to finance its activities without additional subordinated financial support, or where (c) the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both and substantially all of the entity's activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights.
FIN 46(R) requires a variable interest entity to be consolidated if any of its interest holders are entitled to a majority of the entity's residual return or are exposed to a majority of its expected losses.
We evaluate our subsidiaries, and any other entity in which we hold a variable interest in order to determine whether we are the primary beneficiary of the entity, and where it is determined that we are the primary beneficiary we fully consolidate the entity.
Investments in associated companies
Investments in companies over which the Company exercises significant influence but does not consolidate, are accounted for using the equity method. The Company records its investments in equity-method investees on the consolidated balance sheets as "Investments in associated companies" and its share of the investees' earnings or losses in the consolidated statements of operations as "Equity in earnings of unconsolidated subsidiaries". The excess, if any, of purchase price over book value of the Company's investments in equity method investees is included in the accompanying consolidated balance sheets in "Investment in associated companies".
Use of accounting estimates
The preparation of financial statements in accordance with generally accepted accounting principles requires that management make estimates and assumptions affecting the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Foreign currencies
The Company's functional currency is the U.S. dollar as the majority of revenues are received in U.S. dollars and a majority of the Company's expenditures are made in U.S. dollars. The Company's reporting currency is U.S. dollars. Most of the Company's subsidiaries report in U.S. dollars. Transactions in foreign currencies during the year are translated into U.S. dollars at the rates of exchange in effect at the date of the transaction. Foreign currency monetary assets and liabilities are translated using rates of exchange at the balance sheet date. Foreign currency non-monetary assets and liabilities are translated using historical rates of exchange. Foreign currency transaction gains or losses are included in the consolidated statements of operations.
Revenue and expense recognition
Revenues and expenses are recognized on the accrual basis. Revenues are generated from freight billings, time charter hire, bareboat charter hire, finance lease interest income, finance lease service revenues and profit sharing revenues. The operating results of voyages in progress are estimated and recorded pro-rata on a per day basis in the consolidated statements of operations. Probable losses on voyages are provided for in full at the time such losses can be estimated. Time charter and bareboat charter revenues are recorded over the term of the charter as service is provided.
Finance lease service revenues represent services provided to the lessee to operate vessels and are recognized on a daily accrual basis.
Profit sharing revenues are recorded when earned and realizable. The Company considers profit sharing revenues to be earned and realizable to the extent that the underlying earnings on a time charter equivalent basis exceed the profit sharing threshold for the profit sharing period. This threshold is calculated as the number of days in the profit sharing period multiplied by the daily profit sharing threshold rates for the applicable vessels. The Frontline Charterers have agreed to pay us a profit sharing payment equal to 20% of the charter revenues for the applicable period, calculated annually on an average daily time charter equivalent ("TCE") basis, realized by the relevant Frontline Charterer for our fleet, in excess of the daily base charterhire.
Cash and cash equivalents
For the purposes of the statement of cash flows, all demand and time deposits and highly liquid, low risk investments with original maturities of three months or less are considered equivalent to cash.
Vessels and equipment
The cost of fixed assets less estimated residual value is depreciated on a straight-line basis over the estimated remaining economic useful life of the asset. The estimated economic useful life of the Company's vessels is 25 years, but for single hull vessels it is either 25 years or the vessel's anniversary date in 2015. For the rigs it is 30 years.
Newbuildings
The carrying value of the vessels under construction ("newbuildings") represents the accumulated costs to the balance sheet date which the Company has had to pay by way of purchase installments and other capital expenditures together with capitalized loan interest and associated finance costs. During the year ended December 31, 2006, we capitalized $0.3 million of interest. No charge for depreciation is made until the vessel is put into operation.
Leases
Leases of our vessels where we are the lessor are classified as either finance leases or operating leases based on an assessment of the terms of the lease. For the long term charters classified as finance type leases the minimum lease payments (net of amounts representing estimate executory costs including profit thereon) plus the unguaranteed residual value are recorded as the gross investment in the lease. The difference between the gross investment in the lease and the sum of the present values of the two components of the gross investment is recorded as unearned income which is amortized to income over the lease term as finance lease interest income to produce a constant periodic rate of return on the net investment in the lease.
Deemed Dividends
Certain of the Company's vessels acquired in 2005 were on charter to third parties at the delivery date to the Company and certain of its vessels acquired as part of the original purchase of vessels from Frontline were on charter to third parties as at January 1, 2004 when the charter arrangements with the Frontline Charterers became economically effective. The Company's arrangement with the Frontline Charterers is that while the vessels are completing performance of third party charters, the Company pays the Frontline Charterers all revenues earned under third party charters in exchange for the Frontline Charterers paying the Company the charter rates under the charter agreements with the Frontline Charterers. The revenues received from these third party charters are accounted for as time charter, bareboat or voyage revenues as applicable and the subsequent payment of these amounts to the Frontline Charterers as deemed dividends paid. The Company accounts for the charter revenues received from the Frontline Charterers prior to the charters becoming effective for accounting purposes, as deemed equity contributions received. This treatment has been applied due to the related party nature of the charter arrangements.
The Company has accounted for the acquisition of vessels from Frontline at the historical carrying value of Frontline. The difference between the purchase price and historical carrying value has been recorded as a deemed dividend paid.
Deemed Equity Contributions
The Company has accounted for the difference between the historical cost of the vessels transferred to the Company from Frontline at Frontline's historical carrying value, and the net investment in the lease as a deferred deemed equity contribution. This deferred deemed equity contribution is presented as a reduction in the net investment in finance leases in the balance sheet. This results from the related party nature of both the transfer of the vessel and the subsequent finance lease. The deferred deemed equity contribution is amortized as a credit to contributed surplus over the life of the new lease arrangement, as lease payments are applied to the principal balance of the lease receivable.
Impairment of long-lived assets
The carrying value of long-lived assets that are held and used by the Company are reviewed whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company assesses recoverability of the carrying value of the asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value. In addition, long-lived assets to be disposed of are reported at the lower of carrying amount and fair value less estimated costs to sell.
Deferred charges
Loan costs, including debt arrangement fees, are capitalized and amortized on a straight line basis over the term of the relevant loan. The straight line basis of amortization approximates the effective interest method in the Company's statement of operations. Amortization of loan costs is included in interest expense. If a loan is repaid early, any unamortized portion of the related deferred charges is charged against income in the period in which the loan is repaid.
Financial Instruments
In determining fair value of its financial instruments, the Company uses a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. For the majority of financial instruments including most derivatives and long term debt, standard market conventions and techniques such as options pricing models are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.
Derivatives
The Company enters into interest rate swap transactions from time to time to hedge a portion of its exposure to floating interest rates. These transactions involve the conversion of floating rates into fixed rates over the life of the transactions without an exchange of underlying principal. The fair values of the interest rate swap contracts are recognized as assets or liabilities with changes in fair values recognized in the consolidated statements of operations.
When the interest rate swap qualifies for hedge accounting under Statement of Financial Accounting Standards ("FAS") 133, and the Company has formally designated the swap instrument to the underlying loan, and when the hedge is effective, the changes in the fair value of the swap will be recognized in other comprehensive income.
Drydocking provisions
Normal vessel repair and maintenance costs are charged to expense when incurred. The Company recognizes the cost of a drydocking at the time the drydocking takes place, that is, it applies the "expense as incurred" method. The expense as incurred method is considered an appropriate method of recognizing drydocking costs as it eliminates the uncertainty associated with estimating the cost and timing of future drydockings.
Earnings per share
Basic earnings per share ("EPS") is computed based on the income available to common stockholders and the weighted average number of shares outstanding for basic EPS. Diluted EPS includes the effect of the assumed conversion of potentially dilutive instruments.
Stock-based compensation
Effective January 1, 2006 the Company adopted FAS 123(R) Share-Based Payment. Under FAS 123(R) we are required to expense the fair value of stock options issued to employees over the period the options vest.
3. RECENTLY ISSUED ACCOUNTING STANDARDS
In March 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 156 Accounting for Servicing of Financial Assets - an amendment to FAS 140 ("SFAS 156"). SFAS 156 requires that all separately recognized servicing rights be initially measured at fair value if practicable. The statement also permits an entity to choose between two measurement methods for each class of separately recognized servicing assets and liabilities. SFAS 156 is effective for fiscal years beginning after September 15, 2006. The Company does not expect the adoption of SFAS 156 to have an impact on its financial statements.
In July 2006, the FASB issued Interpretation No. 48 Accounting for Uncertainty in Income Taxes - an interpretation of FAS 109 ("FIN 48"). FIN 48 clarifies the application of SFAS 109 by defining the criterion that an individual tax position must meet for any part of the benefit of that position to be recognized in an entity's financial statements and also provides guidance on measurement, de-recognition, classification, interest and penalties and disclosure. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company does not expect the adoption of FIN 48 to have an impact on its financial statements.
In September 2006, the FASB issued SFAS No. 157 Fair Value Measurements ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 applies under most other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company has not yet determined the effect of adoption of SFAS 157 on its financial statements.
In September 2006, the FASB issued SFAS No. 158 Employers' Accounting for Defined Benefit Pension and Other Post Retirement Plans - an amendment of SFAS 87, 88, 106, and 132R ("SFAS 158"). SFAS 158 requires that the funded status of defined benefit post retirement plans be recognized in the statement of financial position and changes in the funded status be reflected in comprehensive income. SFAS 158 also requires the benefit obligations to be measured as of the same date of the financial statements and requires additional disclosures related to the effects of delayed recognition of gains or losses, prior service costs or credits and transition assets or obligation on net periodic benefit cost. SFAS 158 is effective for fiscal years ending after December 15, 2006 for employers without publicly traded securities. The Company does not expect the adoption of SFAS 158 to have an impact on its financial statements.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements ("SAB 108"), which provides interpretative guidance on how registrants should quantify financial statement misstatements. Under SAB 108 registrants are required to consider both a "rollover" method, which focuses primarily on the income statement impact of misstatements, and the "iron curtain" method, which focuses primarily on the balance sheet impact of misstatements. The effects of prior year uncorrected errors include the potential accumulation of improper amounts that may result in material misstatement on the balance sheet or the reversal of prior period errors in the current period that result in a material misstatement of the current period income statement amounts. Adjustments to current or prior period financial statements would be required in the event that after application of various approaches for assessing materiality of a misstatement in a current period financial statements and consideration of all relevant quantitative and qualitative factors, a misstatement is determined to be material. The Company adopted the provisions of SAB 108 as of December 31, 2006. The adoption of SAB 108 did not have an effect on the Company's results of operations or financial position.
4. SEGMENT INFORMATION
The Company has only one reportable segment.
5. TAXATION
Bermuda
Under current Bermuda law, the Company is not required to pay taxes in Bermuda on either income or capital gains. The Company has received written assurance from the Minister of Finance in Bermuda that, in the event of any such taxes being imposed, the Company will be exempted from taxation until the year 2016.
United States
The Company does not accrue U.S. income taxes as, in the opinion of U.S. counsel, the Company is not engaged in a U.S. trade or business and is exempted from a gross basis tax under Section 883 of the U.S. Internal Revenue Code.
A reconciliation between the income tax expense resulting from applying the U.S. Federal statutory income tax rate and the reported income tax expense has not been presented herein as it would not provide additional useful information to users of the financial statements as the Company's net income is subject to neither Bermuda nor U.S. tax.
Other Jurisdictions
Certain of the Company's subsidiaries in Singapore are subject to taxation. The tax paid by subsidiaries of the Company that are subject to taxation is not material.
6. EARNINGS PER SHARE
The computation of basic EPS is based on the weighted average number of shares outstanding during the year. Diluted EPS includes the effect of the assumed conversion of potentially dilutive instruments.
The components of the numerator for the calculation of basic and diluted EPS are as follows:
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(in thousands of $) Year ended December 31,
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2006 2005 2004
Net income available to stockholders 180,798 209,546 262,659
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The components of the denominator for the calculation of basic diluted EPS are as follows:
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(in thousands) Year ended December 31
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2006 2005 2004
Weighted average number of common shares
outstanding 72,764 73,904 74,611
7. OPERATING LEASES
Rental income
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The minimum future revenues to be received under the Company's non-cancelable operating leases as of December 31, 2006 are as follows:
-------------------------------------------------------------------------- Year ending December 31, (in thousands of $) -------------------------------------------------------------------------- 2007 41,186 2008 42,383 2009 36,004 2010 32,035 2011 29,878 Thereafter 7,532 -------------------------------------------------------------------------- Total minimum lease revenues 189,018 -------------------------------------------------------------------------- |
The cost and accumulated depreciation of vessels leased to third parties on operating leases at December 31, 2006 and 2005 were as follows:
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(in thousands of $) 2006 2005
--------------------------------------------------------------------------
Cost 308,313 481,732
Accumulated depreciation 69,422 166,512
8. RESTRICTED CASH
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(in thousands of $) 2006 2005
--------------------------------------------------------------------------
Restricted cash 12,937 1,575
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Restricted cash is mainly comprised of deposits held as collateral by the relevant banks in connection to interest rate swap and bond swap arrangements. At December 31, 2006 restricted cash balance also contained a deposit held by courts in Australia in connection with settlement of a claim made by the technical manager of the Sea Beta, resulting from the bankruptcy of the charterer of the vessel.
9. TRADE ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES
Trade accounts receivable
Trade accounts receivable are presented net of allowances for doubtful accounts. There is no provision made for doubtful debt as of December 31, 2006 and 2005.
Other receivables
Other receivables are presented net of allowances for doubtful accounts. As of December 31, 2006 and 2005 there was no allowance.
10. VESSELS AND EQUIPMENT, NET
-------------------------------------------------------------------------- (in thousands of $) 2006 2005 -------------------------------------------------------------------------- Cost 308,313 481,732 Accumulated depreciation 69,422 166,512 -------------------------------------------------------------------------- Net book value 238,891 315,220 -------------------------------------------------------------------------- |
Depreciation expense was $14.5 million, $19.9 million and $34.6 million for the years ended December 31, 2006, 2005 and 2004, respectively.
11. INVESTMENTS IN FINANCE LEASES
Most of the Company's VLCCs, Suezmaxes and OBOs are chartered on long term, fixed rate charters to the Frontline Charterers which extend for various periods depending on the age of the vessels, ranging from approximately six to 20 years. The terms of the charters do not provide the Frontline Charterers with an option to terminate the charter before the end of its term, other than with respect to the Company's non-double hull vessels for which there are termination options commencing in 2010.
The Company's jack-up drilling rig West Ceres is chartered on a long term bareboat charter to SeaDrill Invest I Ltd ("SeaDrill Invest I"). The terms of the charter provide the charterer with various call options throughout the charter period which expires in 2021.
As of December 31, 2006, 48 of the Company's assets were accounted for as sales type leases. The following lists the components of the investments in finance leases as of December 31, 2006:
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(in thousands of $) 2006 2005
--------------------------------------------------------------------------
Total minimum lease payments to be received 4,330,607 4,060,056
Less: amounts representing estimated (1,165,139) (1,019,259)
executory costs including profit thereon,
included in total minimum lease payments
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Net minimum lease payments receivable 3,165,468 3,040,797
Estimated residual values of leased property 644,188 596,697
(unguaranteed)
Less: unearned income (1,425,740) (1,429,445)
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2,383,916 2,208,049
Less: deferred deemed equity contribution (237,208) (240,430)
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Less: unamortized gains (37,525) (42,265)
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2,109,183 1,925,354
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Current portion 150,492 107,010
Long-term portion 1,958,691 1,818,344
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2,109,183 1,925,354
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12. INVESTMENT IN ASSOCIATED COMPANIES
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At December 31, 2006, the Company has the following participation in an investment that is recorded using the equity method:
Summarized balance sheet information of the Company's equity method investee is as follows:
-------------------------------------------------------------------------- (in thousands of $) 2006 2005 -------------------------------------------------------------------------- Current assets 978 -- Non current assets 28,099 -- Current liabilities 8,170 -- Non current liabilities 20,640 -- |
Summarized statement of operations information of the Company's equity method investee is as follows:
-------------------------------------------------------------------------- (in thousands of $) 2006 2005 -------------------------------------------------------------------------- Net operating revenues 694 -- Net operating income 684 -- Net income 267 -- |
Front Shadow Inc. ("Front Shadow") is a 100% owned subsidiary of Ship Finance. This entity is being accounted for using the equity method as it has been determined that Ship Finance is not the primary beneficiary under FIN 46 (R).
Front Shadow was incorporated during 2006 for the purpose of holding a Panamax drybulk carrier, and leasing that vessel to Golden Ocean Group Limited ("Golden Ocean"), a related party.
13. ACCRUED EXPENSES
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(in thousands of $) 2006 2005
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Ship operating expenses 262 102
Voyage expenses 51 252
Administrative expenses 3,389 769
Interest expense 7,560 8,785
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11,262 9,908
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14. LONG-TERM DEBT
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(in thousands of $) 2006 2005
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8.5% Senior Notes due 2013 449,080 457,080
U.S. dollar denominated floating rate debt
(LIBOR plus 0.65% - 1.40%) due through 2018 1,466,120 1,336,577
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1,915,200 1,793,657
Less: short-term portion (144,451) (122,519)
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1,770,749 1,671,138
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The outstanding debt as of December 31, 2006 is repayable as follows:
-------------------------------------------------------------------------- Year ending December 31, (in thousands of $) -------------------------------------------------------------------------- 2007 144,451 2008 143,327 2009 135,196 2010 128,899 2011 603,485 Thereafter 759,842 -------------------------------------------------------------------------- Total debt 1,915,200 -------------------------------------------------------------------------- |
The weighted average interest rate for floating rate debt denominated in U.S. dollars was 5.34% per annum and 4.41% per annum for the years ended December 31, 2006 and December 31, 2005, respectively. These rates take into consideration the effect of related interest rate swaps.
$1,058.0 million senior secured credit facility
In February 2005, Ship Finance refinanced its existing $1,058.0 million senior secured credit facility with a new $1,131.4 million secured credit facility discussed in more detail below.
8.5% Senior Notes due 2013
On December 15, 2003 the Company issued $580 million of senior notes. Interest on the notes is payable in cash semi-annually in arrears on June 15 and December 15. The notes are not redeemable prior to December 15, 2008 except in certain circumstances. After that date the Company may redeem notes at redemption prices which reduce from 104.25% in 2008 to 100% in 2011 and thereafter.
In February 2006, the Company entered into a total return bond swap line with a bank for a term of 12 months. The bond swap line has been extended for a period up to August 2009. As of December 31, 2006, the Company held bonds with a principal amount of $52 million under this agreement. In February 2007, the Company entered into an additional bond swap line with a second bank for a term of 12 months. As of June 15, 2007, the Company holds bonds with a principal amount of $52.0 million and $5.0 million respectively under the two bond swap agreements.
In 2006 and 2005, the Company bought back and cancelled notes with principal amounts of $8.0 million and $73.2 million, respectively. $449.1 million was outstanding at December 31, 2006 (December 31, 2005: $457.1 million).
$1,131.4 million secured term loan facility
In February 2005, the Company entered into a $1,131.4 million term loan facility with a syndicate of banks. The proceeds from the facility were used to repay the $1,058.0 million syndicated senior secured credit facility and for general corporate purposes. The facility bears interest at LIBOR plus a margin of 0.70% per annum. The facility is repayable over a term of six years.
In September 2006, the Company signed an agreement whereby the existing debt facility, which had been partially repaid, was increased by $219.7 million to the original amount of $1,131.4 million. The increase is available on a revolving basis.
$350.0 million combined senior and junior secured term loan facility
In June 2005, the Company entered into a combined $350 million senior and junior secured term loan facility with a syndicate of banks. The proceeds from the facility were used to fund the acquisition of five VLCCs. The facility bears interest at LIBOR plus a margin of 0.65% per annum for the senior loan and LIBOR plus a margin of 1.00% per annum for the junior loan. The facility is repayable over a term of seven years.
$210 million secured term loan facility
In April 2006, five vessel owning subsidiaries entered into a $210 million secured term loan facility with a syndicate of banks to partly fund the acquisition of five new container vessels. The facility bears interest at LIBOR plus a margin of 1.40% per annum and is repayable over a term of 12 years.
$165 million secured term loan facility
In June 2006, the Company's subsidiary Rig Finance Limited ("Rig Finance") entered into a $165 million secured term loan facility with a syndicate of banks. The proceeds of the facility were used to partly fund the acquisition of the jack up drilling rig West Ceres. The facility currently bears interest at LIBOR plus a margin of 1.15% per annum and is repayable over a term of six years.
Agreements related to long-term debt provide limitations on the amount of total borrowings and secured debt, and acceleration of payment under certain circumstances, including failure to satisfy certain financial covenants.
As of December 31, 2006, the Company is in compliance with all of the covenants under its long-term debt facilities.
15. SHARE CAPITAL AND CONTRIBUTED SURPLUS
Authorized share capital is as follows:
----------------------------------------------------------------------- (in thousands of $, except share data) 2006 2005 ----------------------------------------------------------------------- 125,000,000 common shares of $1.00 par value each 125,000 125,000 ----------------------------------------------------------------------- Issued and fully paid share capital is as follows: ----------------------------------------------------------------------- (in thousands of $, except share data) 2006 2005 ----------------------------------------------------------------------- 72,743,737 common shares of $1.00 par value each 72,744 73,144 ----------------------------------------------------------------------- |
The Company's common shares are listed on the New York Stock Exchange.
The Company was formed in October 2003 with an authorized share capital of $12,000, divided into 12,000 common shares of $1.00 par value each. In connection with the partial spin-off from Frontline in May 2004, the authorized share capital was increased to 125,000,000 common shares, of which 73,925,837 were issued and outstanding immediately after the partial spin-off. In July 2004, the Company issued 1,600,000 common shares in a private placement for the price of $15.75 per share. In 2004 the Company repurchased and cancelled 625,000 shares at an average cost of $23.54 per share. In 2005 the Company repurchased and cancelled 1,757,100 shares at an average cost of $18.81 per share. In 2006, the Company repurchased and cancelled 400,000 shares at an average cost of $18.03 per share.
In connection with the purchase of the Company's original fleet from Frontline in January 2004, Ship Finance received an equity contribution of $525.0 million.
As each of the Company's vessels acquired from Frontline completes its original charter put in place prior to the acquisition date from Frontline, the finance leases with Frontline become effective for accounting purposes. The Company has accounted for the difference between the historical cost of the vessel transferred to the Company by Frontline at Frontline's historical carrying value, and the net investment in the lease as a deferred deemed equity contribution. The difference is presented as a reduction in the net investment in finance leases in the balance sheet. This results from the related party nature of both the transfer of the vessel and the subsequent finance lease. The deferred deemed equity contribution is amortized as a credit to equity over the life of the new lease arrangement as lease payments are applied to the principal balance of the lease receivable. In the year ended December 31, 2006 the Company has accounted for $30.1 million of such deemed equity contributions (December 31, 2005: $9.2 million).
16. SHARE OPTION PLAN
In November 2006, the board of directors approved the Ship Finance International Limited Share Option Scheme (the "Option Scheme"). The Option Scheme permits the board of directors, at its discretion, to grant options to employees and directors of the Company or its subsidiaries. The Option Scheme will expire in November 2016. The subscription price for all options granted under the scheme will be reduced by the amount of all dividends declared by the Company per share in the period from the date of grant until the date the option is exercised, provided the subscription price never shall be reduced below the par value of the share. Options granted under the scheme will vest at a date determined by the board at the date of the grant. The options granted under the plan to date vest over a period of one to three years. There is no maximum number of shares authorized for awards of equity share options, and authorized, unissued shares of Ship Finance International Limited will be used to satisfy exercised options.
The fair value of each option awarded in 2006 is estimated on the date of the grant using a Black Scholes option valuation model with the following assumptions: risk-free interest rate of 4.74%, volatility of 31%, a dividend yield of 0% and a weighted average expected option term of 3.5 years. The risk-free interest rate was estimated using the interest rate on three year US treasury zero coupon issues. The volatility was estimated using historical share price data. The dividend yield has been estimated at 0% as the exercise price is reduced by all dividends declared by the Company from the date of grant to the exercise date. It is assumed that all options granted under the plan will vest.
The following summarizes share option transactions related to the Option Scheme:
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(in thousands, except per share data) Shares Exercise Price
--------------------------------------------------------------------------
Options outstanding at December 31, 2005 -- --
Granted 150 $22.85
Exercised -- --
Cancelled -- --
Vested -- --
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Options outstanding at December 31, 2006 150 $22.85
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The weighted average grant-date fair value of options granted during 2006 is $6.67 per share.
As of December 31, 2006, there was $0.95 million in unrecognized compensation cost related to non-vested options granted under the Options Scheme. This cost will be recognized over a weighted average period of 1.5 years.
In 2007, an additional 10,000 options has been awarded to an employee in accordance with the Option Scheme.
Share-based bonus
The employment contract for one employee contains a share-based bonus provision. Under the terms of the contract, the share based bonus is calculated based on the annual increase in the share price of the Company, plus any dividend per share paid, multiplied by a notional share holding of 200,000 shares. Any bonus related to the increase in share price is payable at the end of each calendar year, while any bonus linked to dividend payments is payable on the relevant dividend payment date. The share-based bonus fair value of $1.7 million at December 31, 2006 was recorded as a liability.
17. RELATED PARTY TRANSACTIONS
Leasing and service contracts
As at December 31, 2006, 49 of the Company's vessels were leased to the Frontline Charterers. The jack-up drilling rig, West Ceres is leased to SeaDrill Invest I. These companies are related parties due to common significant shareholdings, held by Hemen Holding Limited and Farahead Investments Inc. (collectively "Hemen").
The Company has recognized the inception of net investments in finance leases of $1,876.5 million, additions during 2005 of $647.8 million and disposals during 2005 of $106.8 million, and additions during 2006 of $137.0 million and disposals during 2006 of $34 million.
At December 31, 2006 the balance of net investments in finance leases with the Frontline Charterers was $1,910.4 million (2005: $1,925.4 million) of which $126.9 million (2005: $107.0 million) represents short-term maturities.
A summary of leasing revenues earned from the Frontline Charterers and SeaDrill Invest I is as follows:
-------------------------------------------------------------------------- Payments (in millions of $) 2006 2005 -------------------------------------------------------------------------- Finance lease interest income 182.6 177.5 Finance lease service revenue 106.8 92.3 Finance lease repayments 136.8 94.8 Deemed dividends (net) (see Note 2) (15.6) (16.5) |
For each of the vessels leased to the Frontline Charterers, the Company pays a management fee to Frontline Management (Bermuda) Ltd, ("Frontline Management") of $6,500 per day, resulting in expenses of $116.1 million for the year ended December 31, 2006 (2005: $105.2 million, 2004: $94.6 million). The management fees have been classified as ship operating expenses in the consolidated statements of operations. As at December 31, 2006 the Company owes Frontline Management $3.9 million (2005: $0.03 million)
For the years 2004, 2005 and 2006, the Company paid a fee of $20,000 per year plus $20,000 per vessel per year to Frontline Management for the provision of management and administrative services. The Company paid $1.0 million in 2006 (2005: $1.0 million, 2004: $1.0 million) under this arrangement. These fees have been classified as administrative expenses in the consolidated statements of operations. As at December 31, 2006 the Company owes Frontline Management $3.9 million (2005: $0.03 million)
The Frontline Charterers pay the Company profit sharing of 20% of their earnings from their use of the Company's fleet above the average daily charter rates each fiscal year. During the year ended December 31, 2006, the Company earned and recognized revenue of $78.9 million (2005: $88.1 million, 2004: $114.9 million) under this arrangement.
During 2006, and 2007 to date, leases to the Frontline Charterers were cancelled on the following vessels that were agreed sold. Termination fees in respect of each of the sold vessels were agreed paid to Frontline as compensation for the cancellation of these leases to the Frontline Charterers as follows:
Termination Fee
Vessel Year Sold (in millions of $)
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Front Tobago 2006 9.6
Front Transporter 2007 14.9
Front Target 2007 14.6
Front Traveller 2007 13.6
Front Granite 2007 15.8
Front Comor 2007 13.3
Front Sunda 2007 7.2
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In addition, the VLCC Front Vanadis was re-chartered to an unrelated third party in 2007, whereby the Company agreed to pay a compensation of $13.2 million to Frontline for the cancellation of the lease to the relevant Frontline Charterer.
As at December 31, 2006 the Company was owed a total of $56.9 million (2005: $80.0 million) by the Frontline Charterers in respect of leasing contracts.
Purchase and sale of vessels - 2006
In January 2006, the Company acquired the VLCC Front Tobago from Frontline for consideration of $40.0 million. The vessel was chartered back to Frontline following the structure in place for the other vessels chartered to Frontline. The vessel was subsequently sold to an unrelated third party in December 2006 for approximately $45.0 million.
In June 2006, the Company purchased the jack up rig West Ceres from SeaDrill Invest I, a wholly owned subsidiary of Seadrill Limited ("Seadrill"), for a total consideration of $210.0 million. Both Seadrill and the Company have common principal shareholders. Upon delivery to the Company the rig was immediately chartered back to SeaDrill Invest I under a 15-year bareboat charter agreement, fully guaranteed by Seadrill. SeaDrill Invest I will have options to buy back the rig after three, five, seven, 10, 12 and 15 years.
In September 2006, Front Shadow, a wholly owned subsidiary of the Company, acquired the 1997 built Panamax Golden Shadow for $28.4 million from Golden Ocean, a related party. The vessel has been chartered back to Golden Ocean for a period of 10 years. As part of the agreement, Golden Ocean has provided an interest free and non-amortizing seller's credit of $2.6 million. Golden Ocean has been granted fixed purchase options after three, five, seven and 10 years. At the end of the charter, we have an option to sell the vessel back to Golden Ocean at an agreed fixed price of $10.4 million, including the $2.6 million seller's credit.
In November 2006 the Company announced that it had assumed two newbuilding Suezmax tanker contracts from Frontline. The Suezmax tankers, each 156,000 dwt, will be built at the Jiangsu Rongsheng Heavy Industries Group Co. Ltd. in China for delivery in the first quarter of 2009 and the third quarter of 2009.
As at December 31, 2006, the Company was owed a total of $6.1 million (2005: $nil) by Frontline as a result of vessel purchases and profit share.
Also at December 31, 2006 the Company owed a total of $10.4 million to a subsidiary of Frontline in respect of costs incurred on behalf of Frontline in respect of the vessel Front Sunda.
Purchase and sale of vessels - 2005
In the first quarter of 2005, the Company acquired three VLCCs from Frontline for total consideration of $294.0 million. The vessels were chartered back to Frontline following the structure in place for the other vessels chartered to Frontline. Frontline received discounted time charter rates for two of the new vessels, as compensation for the early termination of one Suezmax charter, when the vessel was sold to an unrelated third party.
In May 2005, the Company entered into an agreement with parties affiliated with Hemen to acquire two vessel owning companies, each owning a 2005 built containership, for a total consideration of $98.6 million. The vessels were delivered in 2005 and are currently chartered to unrelated third parties.
In June 2005, the Company acquired three Suezmax tankers from Frontline for total consideration of $92.0 million. The vessels were immediately chartered back to Frontline to replace time charters for three similar vessels whose charters were terminated upon their sale to an unrelated third party.
In June 2005, the Company entered into an agreement to acquire two 2004 built VLCCs from parties affiliated with Hemen for total consideration of $184.0 million. This transaction has been recorded at the fair value of $270.0 million, resulting in an additional equity contribution from Hemen of $85.0 million. The vessels were delivered in June 2005 and have been chartered to Frontline under long-term leases. The ensuing finance leases have been recorded based on the economic substance of the transaction, with the fair value of minimum lease payments approximating the purchase consideration. The resulting loss of $85.0 million on transfer of the vessels to finance leases has been recorded as a negative equity contribution. The overall effect of this transaction on the Company's stockholders' equity was nil.
In June 2005, the Company sold the Suezmax tanker Front Hunter to an unrelated third party as a result of which the charter and management agreements with Frontline relating to this vessel were terminated, and the Company paid Frontline a $3.8 million termination fee. In addition Frontline held a put option to sell a newbuilding VLCC to the Company and charter back at reduced charter rates. In June 2006, the parties agreed to cancel this agreement, and to split the profit in accordance with the profit share agreement (80% to Frontline and 20% to the Company), adjusted for the residual value belonging to the Company. The cancellation of this agreement resulted in a net payment of $16.3 million to Frontline, in addition to the earlier termination payment of $3.8 million. The Company recorded a net gain of $9.0 million in 2006 relating to the sale of the Front Hunter and the cancellation of the option agreement.
18. FINANCIAL INSTRUMENTS
Interest rate risk management
In certain situations, the Company may enter into financial instruments to reduce the risk associated with fluctuations in interest rates. The Company has a portfolio of swaps that swap floating rate interest to fixed rate, which from a financial perspective hedge interest rate exposure. The Company does not currently hold or issue instruments for speculative or trading purposes. The counterparties to such contracts are Nordea, Calyon, Deutsche Schiffsbank, HSH Nordbank, Fortis Bank, HBOS, NIBC, Citibank, Scotiabank, DnB NOR and Skandinaviska Enskilda Banken. Credit risk exists to the extent that the counterparties are unable to perform under the contracts, but this risk is considered remote.
The Company manages its debt portfolio with interest rate swap agreements in U.S. dollars to achieve an overall desired position of fixed and floating interest rates. For the purposes of the financial statements, interest rate swaps specific to debt have been included. At December 31, 2006, the Company, or subsidiaries of the Company, had entered into the following interest rate swap transactions involving the payment of fixed rates in exchange for LIBOR:
---------------------------------------------------------------------------------------------- (in thousands of $) Inception date Maturity date Fixed interest rate ---------------------------------------------------------------------------------------------- $50,000 Feb 2004 Feb 2009 3.49% $100,000 Feb 2004 Feb 2009 3.49% $50,000 Feb 2004 Feb 2009 3.35% $50,000 Feb 2004 Feb 2009 3.49% $50,000 Feb 2004 Feb 2009 3.35% $50,000 Feb 2004 Feb 2009 3.35% $50,000 Feb 2004 Feb 2009 3.37% $25,000 Feb 2004 Feb 2009 3.32% $25,000 Feb 2004 Feb 2009 3.32% $25,000 Feb 2004 Feb 2009 3.33% $25,000 Feb 2004 Feb 2009 3.32% $15,919 (reducing monthly to $10,294) Feb 2004 Aug 2008 6.24% $14,849 (reducing monthly to $8,763) Feb 2004 Aug 2008 6.24% $41,588 (reducing quarterly to $19,647) Apr 2006 Nov 2018 5.64% $41,588 (reducing quarterly to $19,654) Apr 2006 Mar 2019 5.65% $41,588 (reducing quarterly to $19,654) Apr 2006 Apr 2019 5.65% $41,588 (reducing quarterly to $19,657) Apr 2006 Apr 2019 5.65% $41,588 (reducing quarterly to $19,657) Apr 2006 May 2019 5.65% |
As at December 31, 2006, the notional principal amounts subject to such swap agreements was $738.7 million (2005: $568.3 million).
Forward freight contracts
The Company may enter into forward freight contracts and futures contracts in order to manage its exposure to the risk of movements in the spot market for certain trade routes and for speculative or trading purposes. Market risk exists to the extent that spot market fluctuations have a negative effect on the Company's cash flows and consolidated statements of operations.
At December 31, 2006, the Company was not party to any forward freight contracts or futures contracts.
Foreign currency risk
The majority of the Company's transactions, assets and liabilities are denominated in U.S. dollars, the functional currency of the Company. There is a risk that currency fluctuations will have a negative effect on the value of the Company's cash flows. The Company has not entered into forward contracts for either transaction or translation risk, which may have an adverse effect on the Company's financial condition and results of operations.
Fair Values
The carrying value and estimated fair value of the Company's financial instruments at December 31, 2006 and 2005 are as follows:
--------------------------------------------------------------------------------------------
2006 2006 2005 2005
(in thousands of $) Carrying value Fair value Carrying value Fair value
--------------------------------------------------------------------------------------------
Non-derivatives:
Cash and cash equivalents 64,569 64,569 32,857 32,857
Restricted cash 12,937 12,937 1,575 1,575
Floating rate debt 1,466,120 1,466,120 1,336,577 1,336,577
8.5% Senior Notes due 2013 449,080 448,799 457,080 427,370
Derivatives:
Interest rate swap contracts -
amounts receivable 17,807 17,807 19,563 19,563
Interest rate swap contracts -
amounts payable 8,743 8,743 1,196 1,196
Bond swap contract - amounts
receivable 2,931 2,931 -- --
|
The carrying value of cash and cash equivalents, which are highly liquid, is a reasonable estimate of fair value.
The estimated fair value for floating rate long-term debt is considered to be equal to the carrying value since it bears variable interest rates, which are reset on a quarterly basis. The estimated fair value for fixed rate long-term senior notes is based on the quoted market price.
The fair value of interest rate swaps is estimated by taking into account the cost of entering into interest rate swaps to offset the Company's outstanding swaps.
The fair value of the bond swap is estimated by taking into account the cost of entering into the bond swap to offset the Company's outstanding bond swap.
Concentrations of risk
There is a concentration of credit risk with respect to cash and cash equivalents to the extent that most of the amounts are carried with Skandinaviska Enskilda Banken, DnB NOR, Fortis Bank and Nordea. However, the Company believes this risk is remote as these banks are high credit quality financial institutions.
During the years ended December 31, 2006, and 2005 one customer, Frontline, accounted for more than 80% of our consolidated operating revenues.
19. COMMITMENTS AND CONTINGENT LIABILITIES
Assets Pledged ------------------------------------------------------------- (in thousands of $) 2006 ------------------------------------------------------------- Ship mortgages 2,427,060 |
Guarantees
In June 2006, the Company's wholly owned subsidiary Rig Finance entered into a $165 million secured term loan facility. The Company guarantees $10 million of this debt.
In September 2006, the Company's wholly owned subsidiary Front Shadow entered into a $22.7 million term loan facility. The Company guarantees $2.1 million of this debt.
In February 2007, the Company's wholly owned subsidiary Rig Finance II Limited ("Rig Finance II") entered into a $170 million pre-and post-delivery secured term loan facility.
The Company has provided a guarantee for $30.0 million of this debt until delivery of the rig and $20 million thereafter.
In March 2007, three of the Company's wholly owned subsidiaries entered into a $120.0 million term loan facility. The Company guarantees $48.5 million under this facility until the vessels are delivered (expected 2008) and $30 million of the outstanding debt thereafter.
Other Contractual Commitments
The Company has arranged insurance for the legal liability risks for its shipping activities with Assuranceforeningen SKULD, Assuranceforeningen Gard Gjensidig and Britannia Steam Ship Insurance Association Limited, all mutual protection and indemnity associations. On certain of the vessels insured, the Company is subject to calls payable to the associations based on the Company's claims record in addition to the claims records of all other members of the associations. A contingent liability exists to the extent that the claims records of the members of the associations in the aggregate show significant deterioration, which result in additional calls on the members.
In the ordinary course of the shipping business various claims and losses may arise from disputes with charterers, agents and other suppliers relating to the operations of the Company's vessels. Management believes that all such matters are either adequately covered by insurance or are not expected to have a material adverse effect on the Company's results from operations or financial condition.
At December 31, 2006 the Company had contractual commitments under newbuilding contracts and vessel acquisition agreements totaling $362.5 million.
20. SUBSEQUENT EVENTS
On January 8, 2007, the Company announced the sale of the single hull Suezmax tanker Front Transporter for a gross sales price of $38 million. The Company has agreed to pay Frontline $14.9 million for termination of the charter. The ship was delivered to the new owner on March 22, 2007.
On January 12, 2007, the Company announced that it had entered into an agreement with SeaDrill Invest II Ltd. ("SeaDrill Invest II"), a wholly owned subsidiary of Seadrill to acquire the newbuilding jack-up drilling rig West Prospero. The purchase price was agreed at $210 million and expected delivery from Keppel Fels in Singapore is at the end of June 2007. Upon delivery, the rig will be bareboat chartered back to SeaDrill Invest II for a period of 15 years, fully guaranteed by Seadrill. SeaDrill Invest II has been granted several fixed price purchase options with the first one being three years after the commencement of the charter for $142 million and the last one at the end of the charter for $60 million.
On January 12, 2007, the Company announced the appointment of Mr. Svein Aaser to the Board of Directors.
On January 18, 2007, the Company announced the sale of five single hull Suezmax tankers: Front Comor, Front Granite, Front Target, Front Traveller and Front Sunda to Frontline for a gross sales price of $183.7 million. The Company received a net amount of $119.2 million in March 2007, after compensation of $64.5 million to Frontline for termination of the charters.
On February 6, 2007, the Company announced the acquisition of two newbuilding Capesize drybulk vessels from Golden Ocean for a price of $160 million. The vessels are expected to be delivered from Daehan Shipbuilding Co. Ltd. in the fourth quarter of 2008 and the first quarter of 2009. Upon delivery, the vessels will commence 15 year bareboat charters back to Golden Ocean. Golden Ocean has been granted fixed price purchase options for each of the vessels after five, 10 and 15 years from commencement of the relevant charters at $61 million, $44 million and $24 million, respectively.
On February 27, 2007, the Board of Ship Finance declared a dividend of $0.54 per share which was paid on March 22, 2007.
On March 15, 2007, the Company announced the re-chartering of the single hull VLCC Front Vanadis to an unrelated third party in the form of a hire-purchase agreement. The vessel will be chartered out for 3.5 years, with a purchase obligation by the charterer at the end of the charter period. The charterer paid a gross upfront payment of $12.5 million and the purchase obligation at the end of the charter is $3 million. In addition, the charterer will have quarterly purchase options during the charter, starting at $27.9 million, and reducing gradually over the term of the charter. The Company has agreed to pay a compensation payment of approximately $13.2 million to Frontline for the termination of the previous charter. Delivery to the charterer took place in May 2007.
On March 20, 2007, the Company announced the acquisition of three newbuilding seismic vessels, including complete seismic equipment from SCAN Geophysical ASA ("SCAN") for a price of $210 million. The vessels will be constructed at the ABG Shipyard in India and delivery is expected in 2008. Upon delivery the vessels will commence 12 year bareboat charters to SCAN. SCAN has been granted fixed purchase options for each of the vessels after six, 10 and 12 years from commencement of the relevant charters at $20 million, $14 million and $9 million, respectively. The Company will finance the transaction by a senior loan facility of $120 million and an equity contribution of $30 million. SCAN will provide a non-interest bearing seller's credit of $60 million.
On May 30, 2007, the Board of Ship Finance declared a dividend of $0.55 per share which was paid on June 21, 2007.
On June 14, 2007, the Company announced that it had signed shipbuilding contracts for a total of five container vessels with scheduled delivery in 2010. Two 2,500 TEU container vessels will be built at Jiangsu Yangzijiang Shipbuilding Co. Ltd., China and three 1,700 TEU container vessels will be built at Guangzhou Wenchong Shipyard Co. Ltd., China. The aggregate construction cost for the five vessels will be approximately $190 million. The new vessels will be marketed for medium to long-term charter contracts.
EXHIBIT 1.4
B Y E - L A W S
OF
SHIP FINANCE INTERNATIONAL LIMITED
Amended and adopted on the 1st day of December, 2006
Bye-law Subject Page
------- ------- ----
1 Interpretation 1 & 2
2 Registered Office 2
3,4 Share Rights 2 & 3
5,6 Modification of Rights 3
7-9 Shares 3 & 4
10-12 Certificates 4
13-15 Lien 4 & 5
16-21 Calls on Shares 5 & 6
22-28 Forfeiture of Shares 6 & 7
29 Register of Shareholders 7
30 Register of Directors and Officers 7
31-34 Transfer of Shares 7 & 8
35-38 Transmission of Shares 8 & 9
39-41 Increase of Capital 9 & 10
42,43 Alteration of Capital 10
44,45 Reduction of Capital 10 & 11
46 General Meetings and Written Resolutions 11
47,48 Notice of General Meetings 11
49-55 Proceedings at General Meetings 12 & 13
56-67 Voting 13, 14 & 15
Bye-law Subject Page
------- ------- ----
68-73 Proxies and Corporate Representatives 15 & 16
74-76 Appointment and Removal of Directors 17
77 Resignation and Disqualification of Directors 17
78-80 Alternate Directors 18
81 Directors' Fees and Additional
Remuneration and Expenses 18 & 19
82 Directors' Interests 19 & 20
83-87 Powers and Duties of the Board 20 & 21
88-90 Delegation of the Board's Powers 21
91-99 Proceedings of the Board 21, 22 & 23
100 Officers 23
101 Minutes 23
102,103 Secretary and Resident Representative 24
104 The Seal 24
105-111 Dividends and Other Payments 24, 25 & 26
112 Reserves 26
113,114 Capitalisation of Profits 26 & 27
115 Record Dates 27
116-118 Accounting Records 27
119 Audit 28
120-122 Service of Notices and Other Documents 28
123 Winding Up 29
Bye-law Subject Page
------- ------- ----
124-131 Indemnity 29 & 30
132 Alteration of Bye-laws 31
|
B Y E - L A W S
of
Ship Finance International Limited
1. In these Bye-laws and any Schedule below unless the context otherwise requires:
"Alternate Director" means such person or persons as shall be appointed from time to time pursuant to Bye-law 78;
"Bermuda" means the Islands of Bermuda;
"Board" means the Board of Directors of the Company or the Directors present at a meeting of Directors at which there is a quorum;
"the Companies Acts" means every Bermuda statute from time to time in force concerning companies insofar as the same applies to the Company;
"Company" means the company incorporated in Bermuda under the name of Ship Finance International Limited on the 10th day of October , 2003;
"Director" means such person or persons as shall be elected or appointed to the Board from time to time pursuant to Bye-law 74, Bye-law 75 or the Companies Acts;
"Independent Director" means a duly appointed member of the Board of the Company who is not at the time of and during such appointment, and has not been during the immediately preceding 24 months, (a) an Officer, Director (other than of the Company) or employee, affiliate, associate, material supplier or material customer of the Company or any of its affiliates, or (b) a direct, indirect or shareholder or beneficial owner of the Company or any of its affiliates;
"Memorandum of Association" means the Memorandum of Association of the Company as amended from time to time;
"Officer" means such person or persons as shall be appointed from time to time by the Board pursuant to Bye-law 100;
"paid up" means paid up or credited as paid up;
"Register" means the Register of Shareholders of the Company;
"Registered Office" means the registered office for the time being of the Company;
"Resolution" means a resolution of the Shareholders or, where required, of a separate class or separate classes of Shareholders, adopted either in general meeting or by written resolution, in accordance with the provisions of these Bye-laws;
"Seal" means the common seal of the Company and includes any duplicate thereof;
"Secretary" includes a temporary or assistant Secretary and any person appointed by the Board to perform any of the duties of the Secretary;
"Shareholder" means a shareholder or member of the Company;
"these Bye-laws" means these Bye-laws in their present form or as from time to time amended;
for the purposes of these Bye-laws a corporation shall be deemed to be present in person if its representative duly authorised pursuant to the Companies Acts is present;
words importing only the singular number include the plural number and vice versa;
words importing only the masculine gender include the feminine and neuter genders respectively;
words importing persons include companies or associations or bodies of persons, whether corporate or un-incorporate wherever established;
reference to writing shall include typewriting, printing, lithography, photography and other modes of representing or reproducing words in a legible and non-transitory form;
unless otherwise defined herein, any words or expressions defined in the Companies Acts in force on the date when these Bye-laws, or any part thereof, are adopted shall bear the same meaning in these Bye-laws or such part (as the case may be); and
These Bye-laws shall be read subject to the provisions of the Memorandum of Association and in the event of any ambiguity or inconsistency, between the Memorandum of Association and these Bye-laws, the provisions of the Memorandum of Association shall prevail.
2. The Registered Office shall be at such place in Bermuda as the Board shall from time to time appoint.
3. Subject to any special rights conferred on the holders of any share or class of shares, any share in the Company may be issued with or have attached thereto such preferred, deferred, qualified or other special rights or such restrictions, whether in regard to dividend, voting, return of capital or otherwise, as the Company may by Resolution determine or, if there has not been any such determination or so far as the same shall not make specific provision, as the Board may determine.
4. Subject to the Companies Acts, any preference shares may, with the sanction of a Resolution, be issued on terms:
(a) that they are to be redeemed on the happening of a specified event or on a given date; and/or,
(b) that they are liable to be redeemed at the option of the Company; and/or,
(c) if authorised by the Memorandum of the Company, that they are liable to be redeemed at the option of the holder.
The terms and manner of redemption shall be provided for by way of amendment of these Bye-laws.
5. Subject to the Companies Acts, all or any of the special rights for the time being attached to any class of shares for the time being issued may from time to time (whether or not the Company is being wound up) be altered or abrogated with the consent in writing of the holders of not less than seventy five percent of the issued shares of that class or with the sanction of a resolution passed at a separate general meeting of the holders of such shares voting in person or by proxy. To any such separate general meeting, all the provisions of these Bye-laws as to general meetings of the Company shall mutatis mutandis apply, but so that the necessary quorum shall be two or more persons holding or representing by proxy any of the shares of the relevant class, that every holder of shares of the relevant class shall be entitled on a poll to one vote for every such share held by him and that any holder of shares of the relevant class present in person or by proxy may demand a poll; provided, however, that if the Company or a class of Shareholders shall have only one Shareholder, one Shareholder present in person or by proxy shall constitute the necessary quorum.
6. The special rights conferred upon the holders of any shares or class of shares shall not, unless otherwise expressly provided in the rights attaching to or the terms of issue of such shares, be deemed to be altered by the creation or issue of further shares ranking pari passu therewith.
7. Subject to the provisions of these Bye-laws and to any rights attaching to issued and outstanding shares, the unissued shares of the Company shall be at the disposal of the Board, which may issue, offer, allot, exchange or otherwise dispose of shares or options, warrants or other rights to purchase shares or securities convertible into or exchangeable for shares (including any employee benefit plan providing for the issuance of shares or options, warrants or other rights in respect thereof), at such times, for such consideration and on such terms and conditions as the Board may determine (including, without limitation, such preferred or other special rights or restrictions with respect to dividend, voting, liquidation or other rights of the shares).
8. The Board may in connection with the issue of any shares exercise all powers of paying commission and brokerage conferred or permitted by law.
9. Except as ordered by a court of competent jurisdiction or as required by law, no person shall be recognised by the Company as holding any share upon trust and the Company shall not be bound by or required in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any share or any interest in any fractional part of a share or (except only as otherwise provided in these Bye-laws or by law) any other right in respect of any share except an absolute right to the entirety thereof in the registered holder.
10. The preparation, issue and delivery of share certificates shall be governed by the Companies Acts. In the case of a share held jointly by several persons, delivery of a certificate to one of several joint holders shall be sufficient delivery to all.
11. If a share certificate is defaced, lost or destroyed it may be replaced without fee but on such terms (if any) as to evidence and indemnity and to payment of the costs and out of pocket expenses of the Company in investigating such evidence and preparing such indemnity as the Board may think fit and, in case of defacement, on delivery of the old certificate to the Company.
12. All certificates for share or loan capital or other securities of the Company (other than letters of allotment, scrip certificates and other like documents) shall, except to the extent that the terms and conditions for the time being relating thereto otherwise provide, be issued under the Seal. The Board may by resolution determine, either generally or in any particular case, that any signatures on any such certificates need not be autographic but may be affixed to such certificates by some mechanical means or may be printed thereon or that such certificates need not be signed by any persons.
13. The Company shall have a first and paramount lien on every share (not being a fully paid share) for all moneys, whether presently payable or not, called or payable, at a date fixed by or in accordance with the terms of issue of such share in respect of such share, and the Company shall also have a first and paramount lien on every share (other than a fully paid share) standing registered in the name of a Shareholder, whether singly or jointly with any other person, for all the debts and liabilities of such Shareholder or his estate to the Company, whether the same shall have been incurred before or after notice to the Company of any interest of any person other than such Shareholder, and whether the time for the payment or discharge of the same shall have actually arrived or not, and notwithstanding that the same are joint debts or liabilities of such Shareholder or his estate and any other person, whether a Shareholder or not. The Company's lien on a share shall extend to all dividends payable thereon. The Board may at any time, either generally or in any particular case, waive any lien that has arisen or declare any share to be wholly or in part exempt from the provisions of this Bye-law.
14. The Company may sell, in such manner as the Board may think fit, any share on which the Company has a lien but no sale shall be made unless some sum in respect of which the lien exists is presently payable nor until the expiration of fourteen days after a notice in writing, stating and demanding payment of the sum presently payable and giving notice of the intention to sell in default of such payment, has been served on the holder for the time being of the share.
15. The net proceeds of sale by the Company of any shares on which it has a lien shall be applied in or towards payment or discharge of the debt or liability in respect of which the lien exists so far as the same is presently payable, and any residue shall (subject to a like lien for debts or liabilities not presently payable as existed upon the share prior to the sale) be paid to the holder of the share immediately before such sale. For giving effect to any such sale the Board may authorise some person to transfer the share sold to the purchaser thereof. The purchaser shall be registered as the holder of the share and he shall not be bound to see to the application of the purchase money, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings relating to the sale.
16. The Board may from time to time make calls upon the Shareholders in respect of any moneys unpaid on their shares (whether on account of the par value of the shares or by way of premium) and not by the terms of issue thereof made payable at a date fixed by or in accordance with such terms of issue, and each Shareholder shall (subject to the Company serving upon him at least fourteen days notice specifying the time or times and place of payment) pay to the Company at the time or times and place so specified the amount called on his shares. A call may be revoked or postponed as the Board may determine.
17. A call may be made payable by installments and shall be deemed to have been made at the time when the resolution of the Board authorizing the call was passed.
18. The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof.
19. If a sum called in respect of the share shall not be paid before or on the day appointed for payment thereof the person from whom the sum is due shall pay interest on the sum from the day appointed for the payment thereof to the time of actual payment at such rate as the Board may determine, but the Board shall be at liberty to waive payment of such interest wholly or in part.
20. Any sum which, by the terms of issue of a share, becomes payable on allotment or at any date fixed by or in accordance with such terms of issue, whether on account of the nominal amount of the share or by way of premium, shall for all the purposes of these Bye-laws be deemed to be a call duly made, notified and payable on the date on which, by the terms of issue, the same becomes payable and, in case of non-payment, all the relevant provisions of these Bye-laws as to payment of interest, forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified.
21. The Board may on the issue of shares differentiate between the allottees or holders as to the amount of calls to be paid and the times of payment.
22. If a Shareholder fails to pay any call or installment of a call on the day appointed for payment thereof, the Board may at any time thereafter during such time as any part of such call or installment remains unpaid serve a notice on him requiring payment of so much of the call or installment as is unpaid, together with any interest which may have accrued.
23. The notice shall name a further day (not being less than 14 days from the date of the notice) on or before which, and the place where, the payment required by the notice is to be made and shall state that, in the event of non-payment on or before the day and at the place appointed, the shares in respect of which such call is made or installment is payable will be liable to be forfeited. The Board may accept the surrender of any share liable to be forfeited hereunder and, in such case, references in these Bye-laws to forfeiture shall include surrender.
24. If the requirements of any such notice as aforesaid are not complied with, any share in respect of which such notice has been given may at any time thereafter, before payment of all calls or installments and interest due in respect thereof has been made, be forfeited by a resolution of the Board to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited shares and not actually paid before the forfeiture.
25. When any share has been forfeited, notice of the forfeiture shall be served upon the person who was before forfeiture the holder of the share; but no forfeiture shall be in any manner invalidated by any omission or neglect to give such notice as aforesaid.
26. A forfeited share shall be deemed to be the property of the Company and may be sold, re-offered or otherwise disposed of either to the person who was, before forfeiture, the holder thereof or entitled thereto or to any other person upon such terms and in such manner as the Board shall think fit, and at any time before a sale, re-allotment or disposition the forfeiture may be cancelled on such terms as the Board may think fit.
27. A person whose shares have been forfeited shall thereupon cease to be a Shareholder in respect of the forfeited shares but shall, notwithstanding the forfeiture, remain liable to pay to the Company all moneys which at the date of forfeiture were presently payable by him to the Company in respect of the shares with interest thereon at such rate as the Board may determine from the date of forfeiture until payment, and the Company may enforce payment without being under any obligation to make any allowance for the value of the shares forfeited.
28. An affidavit in writing that the deponent is a Director or the Secretary and that a share has been duly forfeited on the date stated in the affidavit shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share. The Company may receive the consideration (if any) given for the share on the sale, re-allotment or disposition thereof and the Board may authorise some person to transfer the share to the person to whom the same is sold, re-allotted or disposed of, and he shall thereupon be registered as the holder of the share and shall not be bound to see to the application of the purchase money (if any) nor shall his title to the share be affected by any irregularity or invalidity in the proceedings relating to the forfeiture, sale, re-allotment or disposal of the share.
29. The Secretary shall establish and maintain the Register of Shareholders in the manner prescribed by the Companies Acts. Unless the Board otherwise determines, the Register of Shareholders shall be open to inspection in the manner prescribed by the Companies Acts between 10.00 a.m. and 12.00 noon on every working day. Unless the Board otherwise determines, no Shareholder or intending Shareholder shall be entitled to have entered in the Register any indication of any trust or any equitable, contingent, future or partial interest in any share or any interest in any fractional part of a share and if any such entry exists or is permitted by the Board it shall not be deemed to abrogate any of the provisions of Bye-law 9.
30. The Secretary shall establish and maintain a register of the Directors and Officers of the Company as required by the Companies Acts. The register of Directors and Officers shall be open to inspection in the manner prescribed by the Companies Acts between 10:00 a.m. and 12:00 noon on every working day.
31. Subject to the Companies Acts and to such of the restrictions contained in these Bye-laws as may be applicable, any Shareholder may transfer all or any of his shares by an instrument of transfer in the usual common form or in any other form which the Board may approve.
32. The instrument of transfer of a share shall be signed by or on behalf of the transferor and where any share is not fully-paid the transferee, and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the Register in respect thereof. All instruments of transfer when registered may be retained by the Company. The Board may, in its absolute discretion and without assigning any reason therefor, decline to register any transfer of any share which is not a fully-paid share.
The Board may also decline to register any transfer unless:-
(a) the instrument of transfer is duly stamped and lodged with the Company, accompanied by the certificate for the shares to which it relates, and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer,
(b) the instrument of transfer is in respect of only one class of share,
(c) where applicable, the permission of the Bermuda Monetary Authority with respect thereto has been obtained.
Subject to any directions of the Board from time to time in force, the Secretary may exercise the powers and discretions of the Board under this Bye-law and Bye-law 31.
33. If the Board declines to register a transfer it shall, within three months after the date on which the instrument of transfer was lodged, send to the transferee notice of such refusal.
34. No fee shall be charged by the Company for registering any transfer, probate, letters of administration, certificate of death or marriage, power of attorney, distringas or stop notice, order of court or other instrument relating to or affecting the title to any share, or otherwise making an entry in the Register relating to any share.
35. In the case of the death of a Shareholder, the survivor or survivors, where the deceased was a joint holder, and the estate representative, where he was sole holder, shall be the only person recognised by the Company as having any title to his shares; but nothing herein contained shall release the estate of a deceased holder (whether the sole or joint) from any liability in respect of any share held by him solely or jointly with other persons. For the purpose of this Bye-law, estate representative means the person to whom probate or letters of administration has or have been granted in Bermuda or, failing any such person, such other person as the Board may in its absolute discretion determine to be the person recognised by the Company for the purpose of this Bye-law.
36. Any person becoming entitled to a share in consequence of the death of a Shareholder or otherwise by operation of applicable law may, subject as hereafter provided and upon such evidence being produced as may from time to time be required by the Board as to his entitlement, either be registered himself as the holder of the share or elect to have some person nominated by him registered as the transferee thereof. If the person so becoming entitled elects to be registered himself, he shall deliver or send to the Company a notice in writing signed by him stating that he so elects. If he shall elect to have his nominee registered, he shall signify his election by signing an instrument of transfer of such share in favour of his nominee. All the limitations, restrictions and provisions of these Bye-laws relating to the right to transfer and the registration of transfer of shares shall be applicable to any such notice or instrument of transfer as aforesaid as if the death of the Shareholder or other event giving rise to the transmission had not occurred and the notice or instrument of transfer was an instrument of transfer signed by such Shareholder.
37. A person becoming entitled to a share in consequence of the death of a Shareholder or otherwise by operation of applicable law shall (upon such evidence being produced as may from time to time be required by the Board as to his entitlement) be entitled to receive and may give a discharge for any dividends or other moneys payable in respect of the share, but he shall not be entitled in respect of the share to receive notices of or to attend or vote at general meetings of the Company or, save as aforesaid, to exercise in respect of the share any of the rights or privileges of a Shareholder until he shall have become registered as the holder thereof. The Board may at any time give notice requiring such person to elect either to be registered himself or to transfer the share and if the notice is not complied with within sixty days the Board may thereafter withhold payment of all dividends and other moneys payable in respect of the shares until the requirements of the notice have been complied with.
38. Subject to any directions of the Board from time to time in force, the Secretary may exercise the powers and discretions of the Board under Bye-laws 35, 36 and 37.
39. The Company may from time to time increase its capital by such sum to be divided into shares of such par value as the Company by Resolution shall prescribe.
40. The Company may, by the Resolution increasing the capital, direct that the new shares or any of them shall be offered in the first instance either at par or at a premium or (subject to the provisions of the Companies Acts) at a discount to all the holders for the time being of shares of any class or classes in proportion to the number of such shares held by them respectively or make any other provision as to the issue of the new shares.
41. The new shares shall be subject to all the provisions of these Bye-laws with reference to lien, the payment of calls, forfeiture, transfer, transmission and otherwise.
42. The Company may from time to time by Resolution:-
(a) divide its shares into several classes and attach thereto respectively any preferential, deferred, qualified or special rights, privileges or conditions;
(b) consolidate and divide all or any of its share capital into shares of larger par value than its existing shares;
(c) sub-divide its shares or any of them into shares of smaller par value than is fixed by its memorandum, so, however, that in the sub-division the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived;
(d) make provision for the issue and allotment of shares which do not carry any voting rights;
(e) cancel shares which, at the date of the passing of the Resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled; and
(f) change the currency denomination of its share capital.
Where any difficulty arises in regard to any division, consolidation, or sub-division under this Bye-law, the Board may settle the same as it thinks expedient and, in particular, may arrange for the sale of the shares representing fractions and the distribution of the net proceeds of sale in due proportion amongst the Shareholders who would have been entitled to the fractions, and for this purpose the Board may authorise some person to transfer the shares representing fractions to the purchaser thereof, who shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings relating to the sale.
43. Subject to the Companies Acts and to any confirmation or consent required by law or these Bye-laws, the Company may by Resolution from time to time convert any preference shares into redeemable preference shares.
44. Subject to the Companies Acts, its memorandum and any confirmation or consent required by law or these Bye-laws, the Company may from time to time by Resolution authorise the reduction of its issued share capital or any capital redemption reserve fund or any share premium or contributed surplus account in any manner.
45. In relation to any such reduction, the Company may by Resolution determine the terms upon which such reduction is to be effected including in the case of a reduction of part only of a class of shares, those shares to be affected.
46. (a) The Board shall convene and the Company shall hold general meetings as Annual General Meetings in accordance with the requirements of the Companies Acts at such times and places as the Board shall appoint. The Board may, whenever it thinks fit, and shall, when required by the Companies Acts, convene general meetings other than Annual General Meetings which shall be called Special General Meetings.
(b) Except in the case of the removal of auditors and Directors, anything which may be done by resolution of the Company in general meeting or by resolution of a meeting of any class of the Shareholders of the Company may, without a meeting and without any previous notice being required, be done by resolution in writing, signed by all of the Shareholders or their proxies, or in the case of a Shareholder that is a corporation (whether or not a company within the meaning of the Companies Acts) on behalf of such Shareholder, being all of the Shareholders of the Company who at the date of the resolution in writing would be entitled to attend a meeting and vote on the resolution. Such resolution in writing may be signed by, or in the case of a Shareholder that is a corporation (whether or not a company within the meaning of the Companies Acts), on behalf of, all the Shareholders of the Company, or any class thereof, in as many counterparts as may be necessary.
(c) For the purposes of this Bye-law, the date of the resolution in writing is the date when the resolution is signed by, or in the case of a Shareholder that is a corporation (whether or not a company within the meaning of the Companies Acts), on behalf of, the last Shareholder to sign and any reference in any enactment to the date of passing of a resolution is, in relation to a resolution in writing made in accordance with this Bye-law, a reference to such date.
(d) A resolution in writing made in accordance with this Bye-law is as valid as if it had been passed by the Company in general meeting or, if applicable, by a meeting of the relevant class of Shareholders of the Company, as the case may be. A resolution in writing made in accordance with this Bye-law shall constitute minutes for the purposes of the Companies Acts and these Bye-laws.
47. An Annual General Meeting shall be called by not less than 5 days notice in writing and a Special General Meeting shall be called by not less than 5 days notice in writing. The notice shall be exclusive of the day on which it is served or deemed to be served and of the day for which it is given, and shall specify the place, day and time of the meeting, and, in the case of a Special General Meeting, the general nature of the business to be considered. Notice of every general meeting shall be given in any manner permitted by Bye-laws 120 and 121 to all Shareholders other than such as, under the provisions of these Bye-laws or the terms of issue of the shares they hold, are not entitled to receive such notice from the Company.
Notwithstanding that a meeting of the Company is called by shorter notice than that specified in this Bye-law, it shall be deemed to have been duly called if it is so agreed:-
(a) in the case of a meeting called as an Annual General Meeting, by all the Shareholders entitled to attend and vote thereat;
(b) in the case of any other meeting, by a majority in number of the Shareholders having the right to attend and vote at the meeting, being a majority together holding not less than 95 percent in nominal value of the shares giving that right;
provided that notwithstanding any provision of these Bye-Laws, no Shareholder shall be entitled to attend any general meeting unless notice in writing of the intention to attend and vote in person or by proxy signed by or on behalf of the Shareholder (together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof) addressed to the Secretary is deposited (by post, courier, facsimile transmission or other electronic means) at the Registered Office at least 48 hours before the time appointed for holding the general meeting or adjournment thereof.
48. The accidental omission to give notice of a meeting or (in cases where instruments of proxy are sent out with the notice) the accidental omission to send such instrument of proxy to, or the non-receipt of notice of a meeting or such instrument of proxy by, any person entitled to receive such notice shall not invalidate the proceedings at that meeting.
49. No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, but the absence of a quorum shall not preclude the appointment, choice or election of a chairman, which shall not be treated as part of the business of the meeting. Save as otherwise provided by these Bye-laws, the quorum at any general meeting shall be constituted by one or more shareholders, either present in person or by proxy, holding in aggregate shares carrying 33 1/3% of the voting rights entitled to be exercised at such meeting.
50. If within five minutes (or such longer time as the chairman of the meeting may determine to wait) after the time appointed for the meeting, a quorum is not present, the meeting, if convened on the requisition of Shareholders, shall be dissolved. In any other case, it shall stand adjourned to such other day and such other time and place as the chairman of the meeting may determine and at such adjourned meeting two Shareholders present in person or by proxy (whatever the number of shares held by them) shall be a quorum provided that if the Company shall have only one Shareholder, one Shareholder present in person or by proxy shall constitute the necessary quorum. The Company shall give not less than 5 days notice of any meeting adjourned through want of a quorum and such notice shall state that the sole Shareholder or, if more than one, two Shareholders present in person or by proxy (whatever the number of shares held by them) shall be a quorum.
51. A meeting of the Shareholders or any class thereof may be held by means of such telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously and participation in such a meeting shall constitute presence in person at such meeting.
52. Each Director shall be entitled to attend and speak at any general meeting of the Company.
53. The Chairman (if any) of the Board or, in his absence, the President shall preside as chairman at every general meeting. If there is no such Chairman or President, or if at any meeting neither the Chairman nor the President is present within five minutes after the time appointed for holding the meeting, or if neither of them is willing to act as chairman, the Directors present shall choose one of their number to act or if one Director only is present he shall preside as chairman if willing to act. If no Director is present, or if each of the Directors present declines to take the chair, the persons present and entitled to vote on a poll shall elect one of their number to be chairman.
54. The chairman of the meeting may, with the consent of any meeting at which a quorum is present (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place but no business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting from which the adjournment took place. When a meeting is adjourned for three months or more, notice of the adjourned meeting shall be given as in the case of an original meeting.
55. Save as expressly provided by these Bye-laws, it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting.
56. Save where a greater majority is required by the Companies Acts or these Bye-laws, any question proposed for consideration at any general meeting shall be decided on by a simple majority of votes cast.
57. At any general meeting, a resolution put to the vote of the meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded by:-
(a) the chairman of the meeting; or
(b) at least three Shareholders present in person or represented by proxy; or
(c) any Shareholder or Shareholders present in person or represented by proxy and holding between them not less than one tenth of the total voting rights of all the Shareholders having the right to vote at such meeting; or
(d) a Shareholder or Shareholders present in person or represented by proxy holding shares conferring the right to vote at such meeting, being shares on which an aggregate sum has been paid up equal to not less than one tenth of the total sum paid up on all such shares conferring such right.
Unless a poll is so demanded and the demand is not withdrawn, a declaration by the chairman that a resolution has, on a show of hands, been carried or carried unanimously or by a particular majority or not carried by a particular majority or lost shall be final and conclusive, and an entry to that effect in the minute book of the Company shall be conclusive evidence of the fact without proof of the number of votes recorded for or against such resolution.
58. If a poll is duly demanded, the result of the poll shall be deemed to be the resolution of the meeting at which the poll is demanded.
59. A poll demanded on the election of a chairman, or on a question of adjournment, shall be taken forthwith. A poll demanded on any other question shall be taken in such manner and either forthwith or at such time (being not later than three months after the date of the demand) and place as the chairman shall direct. It shall not be necessary (unless the chairman otherwise directs) for notice to be given of a poll.
60. The demand for a poll shall not prevent the continuance of a meeting for the transaction of any business other than the question on which the poll has been demanded and it may be withdrawn at any time before the close of the meeting or the taking of the poll, whichever is the earlier.
61. On a poll, votes may be cast either personally or by proxy.
62. A person entitled to more than one vote on a poll need not use all his votes or cast all the votes he uses in the same way.
63. In the case of an equality of votes at a general meeting, whether on a show of hands or on a poll, the chairman of such meeting shall not be entitled to a second or casting vote.
64. In the case of joint holders of a share, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the Register in respect of the joint holding.
65. A Shareholder who is a patient for any purpose of any statute or applicable law relating to mental health or in respect of whom an order has been made by any Court having jurisdiction for the protection or management of the affairs of persons incapable of managing their own affairs may vote, whether on a show of hands or on a poll, by his receiver, committee, curator bonis or other person in the nature of a receiver, committee or curator bonis appointed by such Court and such receiver, committee, curator bonis or other person may vote on a poll by proxy, and may otherwise act and be treated as such Shareholder for the purpose of general meetings.
66. No Shareholder shall, unless the Board otherwise determines, be entitled to vote at any general meeting unless all calls or other sums presently payable by him in respect of shares in the Company have been paid.
67. If (i) any objection shall be raised to the qualification of any voter or
(ii) any votes have been counted which ought not to have been counted or
which might have been rejected or (iii) any votes are not counted which
ought to have been counted, the objection or error shall not vitiate the
decision of the meeting or adjourned meeting on any resolution unless the
same is raised or pointed out at the meeting or, as the case may be, the
adjourned meeting at which the vote objected to is given or tendered or at
which the error occurs. Any objection or error shall be referred to the
chairman of the meeting and shall only vitiate the decision of the meeting
on any resolution if the chairman decides that the same may have affected
the decision of the meeting. The decision of the chairman on such matters
shall be final and conclusive.
68. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney authorised by him in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorised to sign the same.
69. Any Shareholder may appoint a standing proxy or (if a corporation) representative by depositing at the Registered Office a proxy or (if a corporation) an authorisation and such proxy or authorisation shall be valid for all general meetings and adjournments thereof or, resolutions in writing, as the case may be, until notice of revocation is received at the Registered Office. Where a standing proxy or authorisation exists, its operation shall be deemed to have been suspended at any general meeting or adjournment thereof at which the Shareholder is present or in respect to which the Shareholder has specially appointed a proxy or representative. The Board may from time to time require such evidence as it shall deem necessary as to the due execution and continuing validity of any such standing proxy or authorisation and the operation of any such standing proxy or authorisation shall be deemed to be suspended until such time as the Board determines that it has received the requested evidence or other evidence satisfactory to it.
70. Subject to Bye-law 69, the instrument appointing a proxy together with such other evidence as to its due execution as the Board may from time to time require, shall be delivered at the Registered Office (or at such place as may be specified in the notice convening the meeting or in any notice of any adjournment or, in either case or the case of a written resolution, in any document sent therewith) prior to the holding of the relevant meeting or adjourned meeting at which the person named in the instrument proposes to vote or, in the case of a poll taken subsequently to the date of a meeting or adjourned meeting, before the time appointed for the taking of the poll, or, in the case of a written resolution, prior to the effective date of the written resolution and in default the instrument of proxy shall not be treated as valid.
71. Instruments of proxy shall be in any common form or in such other form as the Board may approve and the Board may, if it thinks fit, send out with the notice of any meeting or any written resolution forms of instruments of proxy for use at that meeting or in connection with that written resolution. The instrument of proxy shall be deemed to confer authority to demand or join in demanding a poll and to vote on any amendment of a written resolution or amendment of a resolution put to the meeting for which it is given as the proxy thinks fit. The instrument of proxy shall unless the contrary is stated therein be valid as well for any adjournment of the meeting as for the meeting to which it relates.
72. A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal, or revocation of the instrument of proxy or of the authority under which it was executed, provided that no intimation in writing of such death, insanity or revocation shall have been received by the Company at the Registered Office (or such other place as may be specified for the delivery of instruments of proxy in the notice convening the meeting or other documents sent therewith) one hour at least before the commencement of the meeting or adjourned meeting, or the taking of the poll, or the day before the effective date of any written resolution at which the instrument of proxy is used.
73. Subject to the Companies Acts, the Board may at its discretion waive any of the provisions of these Bye-laws related to proxies or authorisations and, in particular, may accept such verbal or other assurances as it thinks fit as to the right of any person to attend and vote on behalf of any Shareholder at general meetings or to sign written resolutions.
74. The number of Directors shall be such number not less than two as the Company by Resolution may from time to time determine and, subject to the Companies Acts and these Bye-laws, shall serve until re-elected or their successors are appointed at the next Annual General Meeting. The Board of Directors shall include at least one Independent Director. If an Independent Director resigns, dies, or becomes incapacitated, or such position is otherwise vacant, and there are no other Independent Directors, no action requiring affirmative vote of the Independent Directors shall be taken until a successor Independent Director is elected and qualified and approves such action. A successor Independent Director shall be appointed by the remaining directors on the Board. No Independent Director may be removed unless and until his or her successor is appointed and has accepted such position.
75. The Company shall at the Annual General Meeting and may by Resolution determine the minimum and the maximum number of Directors and may by Resolution determine that one or more vacancies in the Board shall be deemed casual vacancies for the purposes of these Bye-laws. Without prejudice to the power of the Company by Resolution in pursuance of any of the provisions of these Bye-laws to appoint any person to be a Director, the Board, so long as a quorum of Directors remains in office, shall have power at any time and from time to time to appoint any individual to be a Director so as to fill a casual vacancy.
76. The Company may in a Special General Meeting called for that purpose remove a Director provided notice of any such meeting shall be served upon the Director concerned not less than 14 days before the meeting and he shall be entitled to be heard at that meeting. Any vacancy created by the removal of a Director at a Special General Meeting may be filled at the Meeting by the election of another Director in his place or, in the absence of any such election, by the Board.
77. The office of a Director shall be vacated upon the happening of any of the following events:
(a) if he resigns his office by notice in writing delivered to the Registered Office or tendered at a meeting of the Board;
(b) if he becomes of unsound mind or a patient for any purpose of any statute or applicable law relating to mental health and the Board resolves that his office is vacated;
(c) if he becomes bankrupt or compounds with his creditors;
(d) if he is prohibited by law from being a Director;
(e) if he ceases to be a Director by virtue of the Companies Acts or is removed from office pursuant to these Bye-laws.
78. The Company may by Resolution elect any person or persons to act as Directors in the alternative to any of the Directors or may authorise the Board to appoint such Alternate Directors and a Director may appoint and remove his own Alternate Director. Any appointment or removal of an Alternate Director by a Director shall be effected by depositing a notice of appointment or removal with the Secretary at the Registered Office, signed by such Director, and such appointment or removal shall become effective on the date of receipt by the Secretary. Any Alternate Director may be removed by Resolution of the Company and, if appointed by the Board, may be removed by the Board. Subject as aforesaid, the office of Alternate Director shall continue until the next annual election of Directors or, if earlier, the date on which the relevant Director ceases to be a Director. An Alternate Director may also be a Director in his own right and may act as alternate to more than one Director.
79. An Alternate Director shall be entitled to receive notices of all meetings of Directors, to attend, be counted in the quorum and vote at any such meeting at which any Director to whom he is alternate is not personally present, and generally to perform all the functions of any Director to whom he is alternate in his absence.
80. Every person acting as an Alternate Director shall (except as regards powers to appoint an alternate and remuneration) be subject in all respects to the provisions of these Bye-laws relating to Directors and shall alone be responsible to the Company for his acts and defaults and shall not be deemed to be the agent of or for any Director for whom he is alternate. An Alternate Director may be paid expenses and shall be entitled to be indemnified by the Company to the same extent mutatis mutandis as if he were a Director. Every person acting as an Alternate Director shall have one vote for each Director for whom he acts as alternate (in addition to his own vote if he is also a Director). The signature of an Alternate Director to any resolution in writing of the Board or a committee of the Board shall, unless the terms of his appointment provides to the contrary, be as effective as the signature of the Director or Directors to whom he is alternate.
81. The amount, if any, of Directors' fees shall from time to time be determined by the Company by Resolution and in the absence of a determination to the contrary in general meeting, such fees shall be deemed to accrue from day to day. Each Director may be paid his reasonable travelling, hotel and incidental expenses in attending and returning from meetings of the Board or committees constituted pursuant to these Bye-laws or general meetings and shall be paid all expenses properly and reasonably incurred by him in the conduct of the Company's business or in the discharge of his duties as a Director. Any Director who, by request, goes or resides abroad for any purposes of the Company or who performs services which in the opinion of the Board go beyond the ordinary duties of a Director may be paid such extra remuneration (whether by way of salary, commission, participation in profits or otherwise) as the Board may determine, and such extra remuneration shall be in addition to any remuneration provided for by or pursuant to any other Bye-law.
82. (a) A Director may hold any other office or place of profit with the Company (except that of auditor) in conjunction with his office of Director for such period and upon such terms as the Board may determine, and may be paid such extra remuneration therefor (whether by way of salary, commission, participation in profits or otherwise) as the Board may determine, and such extra remuneration shall be in addition to any remuneration provided for by or pursuant to any other Bye-law.
(b) A Director may act by himself or his firm in a professional capacity for the Company (otherwise than as auditor) and he or his firm shall be entitled to remuneration for professional services as if he were not a Director.
(c) Subject to the Companies Acts, a Director may notwithstanding his office be a party to, or otherwise interested in, any transaction or arrangement with the Company or in which the Company is otherwise interested; and be a Director or other officer of, or employed by, or a party to any transaction or arrangement with, or otherwise interested in, any body corporate promoted by the Company or in which the Company is interested. The Board may also cause the voting power conferred by the shares in any other company held or owned by the Company to be exercised in such manner in all respects as it thinks fit, including the exercise thereof in favour of any resolution appointing the Directors or any of them to be directors or officers of such other company, or voting or providing for the payment of remuneration to the directors or officers of such other company.
(d) So long as, where it is necessary, he declares the nature of his interest at the first opportunity at a meeting of the Board or by writing to the Directors as required by the Companies Acts, a Director shall not by reason of his office be accountable to the Company for any benefit which he derives from any office or employment to which these Bye-laws allow him to be appointed or from any transaction or arrangement in which these Bye-laws allow him to be interested, and no such transaction or arrangement shall be liable to be avoided on the ground of any interest or benefit.
(e) Subject to the Companies Acts and any further disclosure required thereby, a general notice to the Directors by a Director or officer declaring that he is a director or officer or has an interest in a person and is to be regarded as interested in any transaction or arrangement made with that person, shall be a sufficient declaration of interest in relation to any transaction or arrangement so made.
83. The Board shall manage the business of the Company in accordance with the requirements and limitations contained in Bye-laws 83(A) and 83(B) and in the event of any conflict between Bye-laws 83(A) and 83(B) and any other Bye-law, the provisions of Bye-laws 83(A) and 83(B) shall prevail. Subject to the provisions of the Companies Acts and to Bye-laws 83(A) and 83(B) and these Bye-laws and to any directions given by the Company by Resolution, responsibility for the management of the Company shall be vested in the Board of Directors. The Board may pay all expenses incurred in promoting and incorporating the Company and may exercise all the powers of the Company. No alteration of these Bye-laws and no such direction shall invalidate any prior act of the Board which would have been valid if that alteration had not been made or that direction had not been given. The powers given by this Bye-law shall not be limited by any special power given to the Board by these Bye-laws and a meeting of the Board at which a quorum is present shall be competent to exercise all the powers, authorities and discretions for the time being vested in or exercisable by the Board.
83(A) Notwithstanding anything to the contrary in these Bye-laws, the business of the Company shall be restricted to the business purposes set forth in the Memorandum of Association of the Company. The Board shall procure that the Company shall only transact the aforementioned business and any business necessary or incidental to the foregoing business purposes.
83(B) The Board shall procure that the Company shall at all times: (a) maintain
books and records separate from any other person or entity; (b) conduct its
own business in its own name; (c) maintain its accounts separate from any
other person or entity; (d) maintain separate financial statements; (e)
maintain its funds and assets separately from the assets of any other
person or entity; (f) not commingle its money, cheques, cash proceeds or
other assets with those of any other person or entity; (g) pay its own
liabilities out of its own funds; (h) observe all corporate formalities;
(i) use separate stationery, invoices, and cheques; (j) allocate fairly and
reasonably any overhead for shared office space; (k) hold itself out as a
separate entity; (l) correct any known misunderstanding regarding its
separate identity; (m) maintain adequate capital in light of its
contemplated business operations; and (n) hold appropriate and regular
meetings of the Board of Directors to authorize all corporate actions.
84. The Board may exercise all the powers of the Company to borrow money and to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company and to issue debentures and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company.
85. All cheques, promissory notes, drafts, bills of exchange and other instruments, whether negotiable or transferable or not, and all receipts for money paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner as the Board shall from time to time by resolution determine.
86. The Board on behalf of the Company may provide benefits, whether by the payment of gratuities or pensions or otherwise, for any person including any Director or former Director who has held any executive office or employment with the Company or with any body corporate which is or has been a subsidiary or affiliate of the Company or a predecessor in the business of the Company or of any such subsidiary or affiliate, and to any member of his family or any person who is or was dependent on him, and may contribute to any fund and pay premiums for the purchase or provision of any such gratuity, pension or other benefit, or for the insurance of any such person.
87. The Board may from time to time appoint one or more of its body to hold any other employment or executive office with the Company for such period and upon such terms as the Board may determine and may revoke or terminate any such appointments. Any such revocation or termination as aforesaid shall be without prejudice to any claim for damages that such Director may have against the Company or the Company may have against such Director for any breach of any contract of service between him and the Company which may be involved in such revocation or termination. Any person so appointed shall receive such remuneration (if any) (whether by way of salary, commission, participation in profits or otherwise) as the Board may determine, and either in addition to or in lieu of his remuneration as a Director.
88. The Board may by power of attorney appoint any company, firm or person or any fluctuating body of persons, whether nominated directly or indirectly by the Board, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Board under these Bye-laws) and for such period and subject to such conditions as it may think fit, and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney and of such attorney as the Board may think fit, and may also authorise any such attorney to sub-delegate all or any of the powers, authorities and discretions vested in him.
89. The Board may entrust to and confer upon any Director or officer any of the powers exercisable by it upon such terms and conditions with such restrictions as it thinks fit, and either collaterally with, or to the exclusion of, its own powers, and may from time to time revoke or vary all or any of such powers but no person dealing in good faith and without notice of such revocation or variation shall be affected thereby.
90. The Board may delegate any of its powers, authorities and discretions to any person or to committees, consisting of such person or persons (whether a member or members of its body or not) as it thinks fit. Any committee so formed shall, in the exercise of the powers, authorities and discretions so delegated, conform to any regulations which may be imposed upon it by the Board.
91. The Board may meet for the despatch of business, adjourn and otherwise regulate its meetings as it thinks fit. Questions arising at any meeting shall be determined by a majority of votes. In the case of an equality of votes the motion shall be deemed to have been lost. A Director may, and the Secretary on the requisition of a Director shall, at any time summon a meeting of the Board. Notwithstanding anything to the contrary contained in these Bye-laws, the prior approval of a resolution passed by a majority of Directors (which majority shall include the approval of a majority of the Independent Directors) or a unanimous written resolution of the Directors (which shall include the approval of the Independent Directors) shall be required in the following circumstances (a) to file a bankruptcy or insolvency petition or otherwise institute insolvency proceedings on behalf of the Company, (b) to consent to the institution of bankruptcy or insolvency proceedings against the Company, (c) to enter into any agreement or other arrangement conferring any authority or other entitlement on any person to appoint a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or a substantial part of the property of the Company, (d) to make any assignment for the benefit of the Company's creditors, (e) to propose, or consent to, a scheme of arrangement with creditors or shareholders; (f) to cause the Company to admit in writing its inability to pay its debts generally as they become due, (g) to dissolve, liquidate, consolidate, merge or sell all or substantially all of the assets of the Company; (h) to engage in any business activity other than the business purpose of the Company described in Bye-law 83, (i) to amend the Company's Memorandum of Association or these Bye-laws, or (j) to take any action, or cause the Company to take any action, in furtherance of any of the foregoing.
92. Notice of a meeting of the Board shall be deemed to be duly given to a Director if it is given to him personally or by word of mouth or sent to him by post, cable, telex, telecopier or other mode of representing or reproducing words in a legible and non-transitory form at his last known address or any other address given by him to the Company for this purpose. A Director may waive notice of any meeting either prospectively or retrospectively.
93. (a) The quorum necessary for the transaction of the business of the Board may be fixed by the Board and, unless so fixed at any other number, shall be two individuals. Any Director who ceases to be a Director at a meeting of the Board may continue to be present and to act as a Director and be counted in the quorum until the termination of the meeting if no other Director objects and if otherwise a quorum of Directors would not be present.
(b) A Director who to his knowledge is in any way, whether directly or indirectly, interested in a contract or proposed contract, transaction or arrangement with the Company and has complied with the provisions of the Companies Acts and these Bye-laws with regard to disclosure of his interest shall be entitled to vote in respect of any contract, transaction or arrangement in which he is so interested and if he shall do so his vote shall be counted, and he shall be taken into account in ascertaining whether a quorum is present.
94. So long as a quorum of Directors remains in office, the continuing Directors may act notwithstanding any vacancy in the Board but, if no such quorum remains, the continuing Directors or a sole continuing Director may act only for the purpose of calling a general meeting.
95. The Chairman (if any) of the Board or, in his absence, the President shall preside as chairman at every meeting of the Board. If there is no such Chairman or President, or if at any meeting the Chairman or the President is not present within five minutes after the time appointed for holding the meeting, or is not willing to act as chairman, the Directors present may choose one of their number to be chairman of the meeting.
96. The meetings and proceedings of any committee consisting of two or more members shall be governed by the provisions contained in these Bye-laws for regulating the meetings and proceedings of the Board so far as the same are applicable and are not superseded by any regulations imposed by the Board.
97. A resolution in writing signed by all the Directors for the time being entitled to receive notice of a meeting of the Board or by all the members of a committee for the time being shall be as valid and effectual as a resolution passed at a meeting of the Board or, as the case may be, of such committee duly called and constituted. Such resolution may be contained in one document or in several documents in the like form each signed by one or more of the Directors (or their Alternate Directors) or members of the committee concerned.
98. A meeting of the Board or a committee appointed by the Board may be held by means of such telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously and participation in such a meeting shall constitute presence in person at such meeting.
99. All acts done by the Board or by any committee or by any person acting as a Director or member of a committee or any person duly authorised by the Board or any committee, shall, notwithstanding that it is afterwards discovered that there was some defect in the appointment of any member of the Board or such committee or person acting as aforesaid or that they or any of them were disqualified or had vacated their office, be as valid as if every such person had been duly appointed and was qualified and had continued to be a Director, member of such committee or person so authorised.
100. The officers of the Company shall include a President and a Vice-President or a Chairman and a Deputy Chairman who shall be Directors and shall be elected by the Board as soon as possible after the statutory meeting and each Annual General Meeting. In addition, the Board may appoint any person whether or not he is a Director to hold such office as the Board may from time to time determine. Any person elected or appointed pursuant to this Bye-law shall hold office for such period and upon such terms as the Board may determine and the Board may revoke or terminate any such election or appointment. Any such revocation or termination shall be without prejudice to any claim for damages that such officer may have against the Company or the Company may have against such officer for any breach of any contract of service between him and the Company which may be involved in such revocation or termination. Save as provided in the Companies Acts or these Bye-laws, the powers and duties of the officers of the Company shall be such (if any) as are determined from time to time by the Board.
101. The Directors shall cause minutes to be made and books kept for the purpose of recording-
(a) all appointments of officers made by the Directors;
(b) the names of the Directors and other persons (if any) present at each meeting of Directors and of any committee;
(c) of all proceedings at meetings of the Company, of the holders of any class of shares in the Company, and of committees;
(d) of all proceedings of managers (if any).
102. The Secretary and Resident Representative, if necessary, shall be appointed by the Board at such remuneration (if any) and upon such terms as it may think fit and any Secretary so appointed may be removed by the Board.
The duties of the Secretary shall be those prescribed by the Companies Acts together with such other duties as shall from time to time be prescribed by the Board.
103. A provision of the Companies Acts or these Bye-laws requiring or authorising a thing to be done by or to a Director and the Secretary shall not be satisfied by its being done by or to the same person acting both as Director and as, or in the place of, the Secretary.
104. (a) The seal of the Company shall be in such form as the Board may determine. The Board may adopt one or more duplicate seals for use outside Bermuda.
(b) The seal of the Company shall not be affixed to any instrument except attested by the signature of a Director and the Secretary or any two Directors, or any person appointed by the Board for that purpose, provided that any Director, Officer or Resident Representative, may affix the seal of the Company attested by such Director, Officer or Resident Representative's signature to any authenticated copies of these Bye-Laws, the incorporating documents of the Company, the minutes of any meetings or any other documents required to be authenticated by such Director, Officer or Resident Representative.
105. The Board may from time to time declare cash dividends or distributions out of contributed surplus to be paid to the Shareholders according to their rights and interests including such interim dividends as appear to the Board to be justified by the position of the Company. The Board may also pay any fixed cash dividend which is payable on any shares of the Company half yearly or on such other dates, whenever the position of the Company, in the opinion of the Board, justifies such payment.
106. Except insofar as the rights attaching to, or the terms of issue of, any share otherwise provide:-
(a) all dividends or distributions out of contributed surplus may be declared and paid according to the amounts paid up on the shares in respect of which the dividend or distribution is paid, and an amount paid up on a share in advance of calls may be treated for the purpose of this Bye-law as paid-up on the share;
(b) dividends or distributions out of contributed surplus may be apportioned and paid pro rata according to the amounts paid-up on the shares during any portion or portions of the period in respect of which the dividend or distribution is paid.
107. The Board may deduct from any dividend, distribution or other moneys payable to a Shareholder by the Company on or in respect of any shares all sums of money (if any) presently payable by him to the Company on account of calls or otherwise in respect of shares of the Company.
108. No dividend, distribution or other moneys payable by the Company on or in respect of any share shall bear interest against the Company.
109. Any dividend, distribution, interest or other sum payable in cash to the holder of shares may be paid by cheque or warrant sent through the post addressed to the holder at his address in the Register or, in the case of joint holders, addressed to the holder whose name stands first in the Register in respect of the shares at his registered address as appearing in the Register or addressed to such person at such address as the holder or joint holders may in writing direct. Every such cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first in the Register in respect of such shares, and shall be sent at his or their risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company. Any one of two or more joint holders may give effectual receipts for any dividends, distributions or other moneys payable or property distributable in respect of the shares held by such joint holders.
110. Any dividend or distribution out of contributed surplus unclaimed for a period of six years from the date of declaration of such dividend or distribution shall be forfeited and shall revert to the Company and the payment by the Board of any unclaimed dividend, distribution, interest or other sum payable on or in respect of the share into a separate account shall not constitute the Company a trustee in respect thereof.
111. With the sanction of a Resolution the Board may direct payment or satisfaction of any dividend or distribution out of contributed surplus wholly or in part by the distribution of specific assets, and in particular of paid-up shares or debentures of any other company, and where any difficulty arises in regard to such distribution or dividend the Board may settle it as it thinks expedient, and in particular, may authorise any person to sell and transfer any fractions or may ignore fractions altogether, and may fix the value for distribution or dividend purposes of any such specific assets and may determine that cash payments shall be made to any Shareholders upon the footing of the values so fixed in order to secure equality of distribution and may vest any such specific assets in trustees as may seem expedient to the Board.
112. The Board may, before recommending or declaring any dividend or distribution out of contributed surplus, set aside such sums as it thinks proper as reserves which shall, at the discretion of the Board, be applicable for any purpose of the Company and pending such application may, also at such discretion, either be employed in the business of the Company or be invested in such investments as the Board may from time to time think fit. The Board may also without placing the same to reserve carry forward any sums which it may think it prudent not to distribute.
113. The Company may, upon the recommendation of the Board, at any time and from time to time pass a Resolution to the effect that it is desirable to capitalise all or any part of any amount for the time being standing to the credit of any reserve or fund which is available for distribution or to the credit of any share premium account or any capital redemption reserve fund and accordingly that such amount be set free for distribution amongst the Shareholders or any class of Shareholders who would be entitled thereto if distributed by way of dividend and in the same proportions, on the footing that the same be not paid in cash but be applied either in or towards paying up amounts for the time being unpaid on any shares in the Company held by such Shareholders respectively or in payment up in full of unissued shares, debentures or other obligations of the Company, to be allotted and distributed credited as fully paid amongst such Shareholders, or partly in one way and partly in the other, and the Board shall give effect to such Resolution, provided that for the purpose of this Bye-law, a share premium account and a capital redemption reserve fund may be applied only in paying up of unissued shares to be issued to such Shareholders credited as fully paid and provided further that any sum standing to the credit of a share premium account may only be applied in crediting as fully paid shares of the same class as that from which the relevant share premium was derived.
114. Where any difficulty arises in regard to any distribution under the last preceding Bye-law, the Board may settle the same as it thinks expedient and, in particular, may authorise any person to sell and transfer any fractions or may resolve that the distribution should be as nearly as may be practicable in the correct proportion but not exactly so or may ignore fractions altogether, and may determine that cash payments should be made to any Shareholders in order to adjust the rights of all parties, as may seem expedient to the Board. The Board may appoint any person to sign on behalf of the persons entitled to participate in the distribution any contract necessary or desirable for giving effect thereto and such appointment shall be effective and binding upon the Shareholders.
115. Notwithstanding any other provisions of these Bye-laws, the Company may by Resolution or the Board may fix any date as the record date for any dividend, distribution, allotment or issue and for the purpose of identifying the persons entitled to receive notices of general meetings. Any such record date may be on or at any time before or after any date on which such dividend, distribution, allotment or issue is declared, paid or made or such notice is despatched.
116. The Board shall cause to be kept accounting records sufficient to give a true and fair view of the state of the Company's affairs and to show and explain its transactions, in accordance with the Companies Acts.
117. The records of account shall be kept at the Registered Office or at such other place or places as the Board thinks fit, and shall at all times be open to inspection by the Directors: PROVIDED that if the records of account are kept at some place outside Bermuda, there shall be kept at an office of the Company in Bermuda such records as will enable the Directors to ascertain with reasonable accuracy the financial position of the Company at the end of each three month period. No Shareholder (other than an officer of the Company) shall have any right to inspect any accounting record or book or document of the Company except as conferred by law or authorised by the Board or by Resolution.
118. A copy of every balance sheet and statement of income and expenditure, including every document required by law to be annexed thereto, which is to be laid before the Company in general meeting, together with a copy of the auditors' report, shall be sent to each person entitled thereto in accordance with the requirements of the Companies Acts.
119. Save and to the extent that an audit is waived in the manner permitted by the Companies Acts, auditors shall be appointed and their duties regulated in accordance with the Companies Acts, any other applicable law and such requirements not inconsistent with the Companies Acts as the Board may from time to time determine.
120. Any notice or other document (including a share certificate) may be served on or delivered to any Shareholder by the Company either personally or by sending it through the post (by airmail where applicable) in a pre-paid letter addressed to such Shareholder at his address as appearing in the Register or by delivering it to or leaving it at such registered address. In the case of joint holders of a share, service or delivery of any notice or other document on or to one of the joint holders shall for all purposes be deemed as sufficient service on or delivery to all the joint holders. Any notice or other document if sent by post shall be deemed to have been served or delivered seven days after it was put in the post, and in proving such service or delivery, it shall be sufficient to prove that the notice or document was properly addressed, stamped and put in the post.
121. Any notice of a general meeting of the Company shall be deemed to be duly given to a Shareholder if it is sent to him by cable, telex, telecopier or other mode of representing or reproducing words in a legible and non-transitory form at his address as appearing in the Register or any other address given by him to the Company for this purpose. Any such notice shall be deemed to have been served twenty-four hours after its despatch.
122. Any notice or other document delivered, sent or given to a Shareholder in any manner permitted by these Bye-laws shall, notwithstanding that such Shareholder is then dead or bankrupt or that any other event has occurred, and whether or not the Company has notice of the death or bankruptcy or other event, be deemed to have been duly served or delivered in respect of any share registered in the name of such Shareholder as sole or joint holder unless his name shall, at the time of the service or delivery of the notice or document, have been removed from the Register as the holder of the share, and such service or delivery shall for all purposes be deemed as sufficient service or delivery of such notice or document on all persons interested (whether jointly with or as claiming through or under him) in the share.
123. If the Company shall be wound up, the liquidator may, with the sanction of a Resolution of the Company and any other sanction required by the Companies Acts, divide amongst the Shareholders in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for such purposes set such values as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the Shareholders or different classes of Shareholders. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trust for the benefit of the contributories as the liquidator, with the like sanction, shall think fit, but so that no Shareholder shall be compelled to accept any shares or other assets upon which there is any liability.
124. Subject to the provisions of Bye-law 130, no Director, Alternate Director, Officer, person or member of a committee authorised under Bye-law 90, Resident Representative of the Company or his heirs, executors or administrators shall be liable for the acts, receipts, neglects, or defaults of any other such person or any person involved in the formation of the Company, or for any loss or expense incurred by the Company through the insufficiency or deficiency of title to any property acquired by the Company, or for the insufficiency of deficiency of any security in or upon which any of the monies of the Company shall be invested, or for any loss or damage arising from the bankruptcy, insolvency, or tortious act of any person with whom any monies, securities, or effects shall be deposited, or for any loss occasioned by any error of judgment, omission, default, or oversight on his part, or for any other loss, damage or misfortune whatever which shall happen in relation to the execution of his duties, or supposed duties, to the Company or otherwise in relation thereto.
125. Subject to the provisions of Bye-law 130, every Director, Alternate Director, Officer, person or member of a committee authorised under Bye-law 90, Resident Representative of the Company and their respective heirs, executors or administrators shall be indemnified and held harmless out of the funds of the Company to the fullest extent permitted by Bermuda law against all liabilities, loss, damage or expense (including but not limited to liabilities under contract, tort and statute or any applicable foreign law or regulation and all reasonable legal and other costs and expenses properly payable) incurred or suffered by him as such Director, Alternate Director, Officer, person or committee member or Resident Representative and the indemnity contained in this Bye-law shall extend to any person acting as such Director, Alternate Director, Officer, person or committee member or Resident Representative in the reasonable belief that he has been so appointed or elected notwithstanding any defect in such appointment or election.
126. Every Director, Alternate Director, Officer, person or member of a committee duly authorised under Bye-law 90, Resident Representative of the Company and their respective heirs, executors or administrators shall be indemnified out of the funds of the Company against all liabilities incurred by him as such Director, Alternate Director, Officer, person or committee member or Resident Representative in defending any proceedings, whether civil or criminal, in which judgment is given in his favour, or in which he is acquitted, or in connection with any application under the Companies Acts in which relief from liability is granted to him by the court.
127. To the extent that any Director, Alternate Director, Officer, person or member of a committee duly authorised under Bye-law 90, Resident Representative of the Company or any of their respective heirs, executors or administrators is entitled to claim an indemnity pursuant to these Bye-laws in respect of amounts paid or discharged by him, the relative indemnity shall take effect as an obligation of the Company to reimburse the person making such payment or effecting such discharge.
128. The Board may arrange for the Company to be insured in respect of all or any part of its liability under the provision of these Bye-laws and may also purchase and maintain insurance for the benefit of any Directors, Alternate Directors, Officers, person or member of a committee authorised under Bye-law 90, employees or Resident Representatives of the Company in respect of any liability that may be incurred by them or any of them howsoever arising in connection with their respective duties or supposed duties to the Company. This Bye-law shall not be construed as limiting the powers of the Board to effect such other insurance on behalf of the Company as it may deem appropriate.
129. Each Member agrees to waive any claim or right of action he might have, whether individually or by or in the right of the Company, against any Director, Alternate Director, Officer of the Company, person or member of a committee authorised under Bye-law 90, Resident Representative of the Company or any of their respective heirs, executors or administrators on account of any action taken by any such person, or the failure of any such person to take any action in the performance of his duties, or supposed duties, to the Company or otherwise in relation thereto.
130. The restrictions on liability, indemnities and waivers provided for in Bye-laws 124 to 129 inclusive shall not extend to any matter which would render the same void pursuant to the Companies Acts.
131. The restrictions on liability, indemnities and waivers contained in Bye-laws 124 to 129 inclusive shall be in addition to any rights which any person concerned may otherwise be entitled by contract or as a matter of applicable Bermuda law.
132. The Company's Memorandum of Association and these Bye-laws may be amended from time to time in the manner provided for in the Companies Acts, but neither may be amended without consent of a majority of the votes cast by shareholders of the Company in general meeting and the consent of a majority of the Board (which consent must include the consent of the majority of the Independent Directors).
EXHIBIT 2.2
THE RULES
OF
SHIP FINANCE INTERNATIONAL LIMITED
SHARE OPTION SCHEME
(Approved by Ship Finance International Limited's Board on November 27, 2006)
SHIP FINANCE INTERNATIONAL LIMITED
RULES OF THE
SHARE OPTION SCHEME
1. DEFINITIONS
1.1 In this Scheme the following words and expressions shall, where the context so permits, have the following meanings:
"Adoption Date" means the date on which the Scheme is approved by the Board;
"Auditors" means the auditors of the Company (acting as experts and not as arbitrators) from time to time;
"Board" means the board of directors of the Company or the directors present at a duly convened meeting of the board of directors or of a duly constituted committee of the board of directors at which a quorum is present;
"Change of Control" means an event whereby another entity gains control over the Company (i) by imposing a merger or consolidation in which the Company is not the surviving company or (ii) by acquiring the majority of the shares in the Company or (iii) by the vote of its own shares or by acting in concert with other shareholders appoints a new majority of the Board;
"Company" means Ship Finance International Limited., registered in Bermuda;
"Date of Grant" means the date on which an Option is granted by the Board pursuant to Clause 2 hereof;
"Eligible Person" means an employee who is, or who becomes, contracted to work at least 20 hours per week in the service of one or more Participating Companies or a director or officer of a Participating Company;
"Group" means the Company and the Subsidiaries;
"Independent Expert" means either a firm of independent public accountants of recognised standing who may be the regular auditors of the Company or an internationally recognised investment bank to be selected by the Board;
"Market Value" means, on any day, the average of the middle market quotations of the price of the Shares as derived from the New York Stock Exchange (or any other stock exchange on which the Shares are traded, chosen by the Board) for the three immediately preceding dealing days on that stock exchange; or, if the Shares are not traded on any stock exchange, means the value of the Shares as determined by the Board.
"Option" means a right (but not an obligation) to subscribe for Shares granted to an Eligible Person pursuant to the Scheme;
"Option Certificate" means a certificate issued by the Company to the Option Holder evidencing the title of the Option Holder to the Option;
"Option Holder" means an Eligible Person or a former Eligible Person who is the holder of an Option which has neither been fully exercised nor ceased to be exercisable nor lapsed and, where the context so permits, a person entitled to rights under any such Option in consequence of the death of the original Option Holder;
"Option Shares" means Shares in respect of which an Option has been granted;
"Participating Company" means the Company and any Subsidiary;
"Rules" means these rules as varied from time to time in accordance with Clause 8 hereof;
"Scheme" means this share option scheme;
"Shares" means fully paid ordinary shares of par value US$2.50, each in the capital of the Company;
"Share Capital" means the fully paid issued share capital of the Company;
"Subscription Cost" means, in relation to the exercise of an Option, the product of the number of Option Shares in respect of which the Option is exercised and the Subscription Price of such Option Shares;
"Subscription Price" means such price as the Board shall from time to time at its discretion resolve shall apply to an Option when such Option is granted provided that such price is not lower than the nominal value of a Share;
"Subsidiary" means a company, which for the time being, is a subsidiary of the Company within the definition contained in Section 86 of the Companies Act 1981 of Bermuda;
"Subsisting Option" means an Option which has neither lapsed nor been exercised.
"Vesting Date" means the date on which an Option becomes exercisable and is the date the Board, in its discretion, may prescribe from time to time when an Option is granted, provided that such date cannot be earlier than one day after the Date of Grant.
1.2 In this Scheme except in so far as the context otherwise requires:
a. words denoting the singular number shall include the plural number and words denoting the masculine gender shall include the feminine gender;
b. any reference herein to any enactment or statutory provision shall be construed as a reference to that Bermudian enactment or provision as from time to time amended extended or re-enacted; and
c. references to the exercise of an Option shall include the exercise of an Option in part.
2. GRANT OF OPTION
2.1 At any time after the Adoption Date, and not later than the tenth anniversary thereof, the Board may, in its absolute discretion, resolve to grant an Option or Options to an Eligible Person or to Eligible Persons on the terms and conditions set out in the Rules and in its resolution.
2.2 Immediately following the Date of Grant the Board shall notify the relevant Eligible Persons that they have been granted Options.
2.3 The notice given by the Board pursuant to Clause 2.2 shall be in such form, not inconsistent with these Rules, as the Board may determine and shall specify the number of Shares comprised in the Option, any terms applicable thereto other than as set out herein, the Date of Grant and the Subscription Price.
2.4 Not later than twelve weeks following the Date of Grant, the Option Holder may, by a notice given in writing, renounce his rights to any Option granted pursuant to Clause 2.1 in which event such Option shall be deemed for all purposes never to have been granted.
2.5 As soon as possible after the expiry of the twelve week notice period referred to in Clause 2.4, the Board shall issue an Option Certificate in respect of each Option in such form, not inconsistent with these Rules, as the Board may determine.
3. LIMITATIONS
3.1 No Option shall be granted after the tenth anniversary of the Adoption Date.
3.2 No Option shall be granted to any person unless he is, at the Date of Grant, an Eligible Person.
4. MAIN TERMS
4.1 No consideration shall be payable to the Company for the grant of an Option.
4.2 The Option shall entitle the Option Holder to subscribe for Shares at a price per Share equal to the Subscription Price at the date the Option is exercised.
4.3 Any Option which has not lapsed may be exercised in whole or in part at any time provided the earliest of the following events has occurred:
a. the Vesting Date;
b. the death of the Option Holder;
c. a Change of Control.
4.4 An Option which has vested, shall lapse on the earliest of the following events:
a. such date as the Board in its discretion may prescribe at the date the Option is granted, provided that such date cannot be later than the tenth anniversary of the Date of Grant;
b. the first anniversary of the Option Holder's death;
c. the first anniversary of the Option Holder's retirement;
d. three months following the Option Holder's ceasing to be an Eligible Person, other than by reason of his death or retirement;
e. six months after the Option has become exercisable in accordance with Clause 7.1;
4.5 An Option which has not vested, shall lapse on the earliest of the following events:
a. the date of an Option Holder's retirement; and
b. the date an Option Holder ceasing to be an Eligible Person other than by reason of his death or retirement.
5. EXERCISE OF OPTIONS
5.1 Exercise of an Option shall be effected by the Option Holder giving notice in writing to the Company specifying the number of Option Shares (not being less than 500 Shares, and being a multiple of 100 Shares, except in the case of final exercise of all outstanding rights under the Option) in respect of which the Option is being exercised on that occasion and accompanied by the relevant Option Certificate and otherwise in such form and manner as the Board in its discretion may prescribe from time to time, provided that such notice shall be deemed to have been exercised and to take effect on the date on which payment of the Subscription Cost is received by the Company.
5.2 Subject to any necessary consents under regulations or enactments for the time being in force, compliance by the Option Holder with the Rules and receipt by the Company of the Subscription Cost, the Company shall, not later than thirty days after receipt of the notice referred to in Clause 5.1 above, allot and issue to the Option Holder the number of Shares specified in the notice. If the number of Shares over which the Option is exercised is less than that specified in the relevant Option Certificate then the Company will issue a balance Option Certificate in respect of the remainder of such Shares over which the Option is still capable of exercise.
5.3 Notwithstanding the provisions of Clause 5.1 and Clause 5.2, the Company reserves the right upon receipt of a notice of exercise of an Option to make a cash payment in lieu of issuing Shares that would be due on the exercise of the Option. The cash payment will be calculated as the positive difference between the highest market price of the Shares on the New York Stock Exchange (or any other stock exchange on which the Shares are traded, chosen by the Board), and the Subscription Price on the date the Company receives the notice of exercise of an Option.
5.4 Shares allotted under the Scheme in pursuance of the exercise of an Option shall rank pari passu in all respects with the Shares for the time being in issue save as regards any rights attaching by reference to a record date prior to the date on which the Option is exercised.
6. ADJUSTMENTS TO OPTION RIGHTS
6.1 In the event of any capitalisation or rights issue, any sub-division, consolidation or a reduction of the capital of the Company, the Board shall make appropriate adjustments with regard to:
a. the aggregate number of Shares subject to any Option;
b. the Subscription Price subject to any Option; or
c. the terms of any Option.
PROVIDED THAT:
d. any such adjustment has been confirmed in writing by an Independent Expert to be in their opinion fair and reasonable; and
e. the aggregate Subscription Cost payable by an Option Holder on the exercise of all his Options is not increased; and
f. the amount payable to subscribe for any Share subject to any Option shall not be reduced below its nominal value.
Further, the Subscription Price shall be reduced by the amount of all dividends declared by the Company per Share in the period from the Date of Grant until the date the Option(s) is exercised, always provided that the Subscription Price never shall be reduced below the par value of the Share.
6.2 The Board shall give notice in writing to each Option Holder affected by any adjustment made pursuant to Clause 6.1 and may, at its discretion, deliver to him a revised Option Certificate in respect of his Option.
Adjustments to the Subscription Price due to dividend payments shall be calculated as and when the Option(s) is exercised.
7. WINDING-UP
7.1 If notice is given by the Board to the shareholders in the Company of a members' resolution for the voluntary winding-up of the Company, notice of the same shall forthwith be given by the Board to the Option Holders.
Each of the Option Holders shall be entitled, within three months following such notice, to give notice in writing to the Company (such notice being accompanied by payment of the Subscription Cost) that such Option Holder wishes to be treated as if all or any of his Options had been exercised immediately before the commencement of the winding-up. In such event the Option Holder will be entitled to participate in the assets available in the winding-up pari passu with the shareholders in the Company as if he were a shareholder in relation to such number of Shares as he would have been entitled to had his Options been so exercised. Subject thereto all Options shall lapse on the commencement of the winding-up.
7.2 Option rights shall lapse immediately in the event of the Company being wound-up otherwise than in the event of a voluntary winding-up.
8. VARIATION OF THE SCHEME
8.1 Subject to Clause 9.2 the Board may at any time alter or add to the Rules in any respect, provided that:
a. the Board may not cancel an Option except where (i) the Option Holder has breached the provisions of Clause 9.5 or (ii) the Option Holder has previously agreed; and
b. (subject as herein provided) the Board may not modify the terms of an Option already granted otherwise than with the consent of the Option Holder.
8.2 Notwithstanding the provisions of Clause 8.1, no amendment may be made which would make the terms on which Options may be or have been granted materially more generous without the prior approval of the Company in a general meeting.
8.3 The Board shall give notice in writing to each Option Holder of any alteration or addition made pursuant to this Clause 8 and may, at its discretion, deliver to each Option Holder a revised Option Certificate in respect of his Option.
9. GENERAL PROVISIONS
9.1 The Company shall at all times keep available sufficient authorised but unissued Shares to satisfy the exercise in full of all Options for the time being capable of being exercised.
9.2 The Board may from time to time make and vary such regulations and establish such procedures for the administration and implementation of the Scheme as it thinks fit. In the event of any dispute or disagreement as to the interpretation of the Rules or as to the question of rights arising from or related to the Scheme, the decision of the Board shall (except as regards any matter required to be determined by the Auditors hereunder) be final and binding upon all persons.
9.3 The cost of the administration and implementation of the Scheme shall be borne by the Company.
9.4 The rights and obligations of an Eligible Person under the terms on which the Eligible Person holds his office or employment with a Participating Company shall not be affected by his participation in the Scheme or by any right he may have to participate therein, and the Scheme shall afford an Eligible Person no rights to compensation or damages in connection with the termination of such office or employment for any reason whatsoever.
9.5 The rights and obligations of an Option Holder shall be personal to the Option Holder and no Option nor the benefit thereof may be transferred, assigned, charged or otherwise alienated save that nothing in this sub-clause shall prohibit the transmission of an Option or the benefit thereof by operation of law.
9.6 For so long as the Shares are listed on the New York Stock Exchange or any other stock exchange, the Company shall apply to the appropriate authorities of such stock exchange(s) for all Shares subscribed for under the Scheme to be admitted for trading thereon on par with the other Shares.
9.7 Any notice or other document to be served by the Company under the Scheme on an Eligible Person or Option Holder may be served personally or by e-mail or by sending it through the post in a prepaid letter addressed to him at his address as last known to the Company.
Any notice or other document to be served on the Company under the Scheme may be served by an Eligible Person or Option Holder by leaving it at the registered office for the time being of the Company or by e-mail or by sending it through the post in a prepaid letter addressed to such registered office.
Where any notice or other document is served or sent by first class post
it shall be deemed to have been received at the expiration of seven days
(excluding Saturdays, Sundays or public holidays in Bermuda or Norway)
after the time when cover containing the same was put in the post
properly addressed and stamped. Any notice or document sent by e-mail
shall be deemed to have been received at the time of transmission to the
party to which it is addressed.
9.8 The Insider Trading Regulations of the Company are applicable to the Shares received as a consequence of the exercise of Options.
10. TERMINATION OF THE SCHEME
10.1 The Scheme shall terminate on the earlier of the following dates:
a. the date (if any) determined by the Board to be the date of
termination of the Scheme; and
b. the tenth anniversary of the Adoption Date.
10.2 Following termination of the Scheme pursuant to Clause 10.1 above, no
further Options shall be granted but the subsisting rights and
obligations of existing Option Holders will continue in force as if the
Scheme had not terminated.
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EXHIBIT 4.9
EXECUTION VERSION
USD 1,131,439,219
TERM LOAN FACILITY AGREEMENT
dated 3 February 2005
between
SHIP FINANCE INTERNATIONAL LIMITED
as borrower
THE OWNERS
listed in Schedule 1 as guarantors
DNB NOR BANK ASA,
NORDEA BANK NORGE ASA,
FORTIS BANK (Nederland) N.V.
CALYON S.A.
as mandated lead arrangers
THE PARTICIPATING LENDERS
listed in Schedule 2 as lenders
DNB NOR BANK ASA,
NORDEA BANK NORGE ASA,
as bookrunners
and
DNB NOR BANK ASA
as administrative agent and security agent
TABLE OF CONTENTS
1 DEFINITIONS AND INTERPRETATIONS.......................................1 1.1 DEFINITION........................................................1 1.2 CONSTRUCTION......................................................7 2 FACILITY AND PURPOSE..................................................8 2.1 FACILITY..........................................................8 2.2 LENDERS' RIGHTS AND OBLIGATIONS...................................8 2.3 PURPOSE...........................................................8 3 CONDITIONS PRECEDENT..................................................8 3.1 CONDITIONS PRECEDENT..............................................8 3.2 WAIVED CONDITIONS.................................................9 4 DRAWDOWN..............................................................9 4.1 DELIVERY OF A DRAWDOWN NOTICE.....................................9 4.2 COMPLETION OF THE DRAWDOWN NOTICE.................................9 4.3 LENDERS' PARTICIPATION............................................9 5 REPAYMENT.............................................................9 5.1 REPAYMENT OF LOAN.................................................9 5.2 NO RE-BORROWING..................................................10 6 PREPAYMENT...........................................................10 6.1 VOLUNTARY PREPAYMENT.............................................10 6.2 MANDATORY PREPAYMENT: SALE OR TOTAL LOSS.........................10 6.3 APPLICATION OF MANDATORY PREPAYMENTS.............................10 6.4 ILLEGALITY.......................................................10 6.5 RESTRICTIONS.....................................................11 7 INTEREST.............................................................11 7.1 CALCULATION OF INTEREST..........................................11 7.2 PAYMENT OF INTEREST..............................................11 7.3 INCREASED INTEREST...............................................11 8 INTEREST PERIODS.....................................................12 8.1 SELECTION OF INTEREST PERIODS....................................12 8.2 NON-BUSINESS DAYS................................................12 8.3 CONSOLIDATION....................................................12 9 CHANGES TO THE CALCULATION OF INTEREST...............................12 9.1 ABSENCE OF QUOTATIONS............................................12 9.2 MARKET DISRUPTION................................................13 9.3 ALTERNATIVE BASIS OF INTEREST OR FUNDING.........................13 9.4 BREAK COSTS......................................................13 10 FEES.................................................................13 10.1 COMMITMENT FEE...................................................13 10.2 OTHER FEES.......................................................13 11 TAX GROSS UP AND INDEMNITIES.........................................14 11.1 TAX GROSS-UP.....................................................14 11.2 TAX INDEMNITY....................................................14 11.3 TAX CREDIT.......................................................15 11.4 STAMP TAXES......................................................15 11.5 VALUE ADDED TAX..................................................15 12 INCREASED COSTS......................................................15 12.1 INCREASED COSTS..................................................15 12.2 INCREASED COST CLAIMS............................................16 13 OTHER INDEMNITIES....................................................16 13.1 CURRENCY INDEMNITY...............................................16 13.2 OTHER INDEMNITIES................................................16 13.3 INDEMNITY TO THE ADMINISTRATIVE AGENT............................16 14 COSTS AND EXPENSES...................................................17 14.1 TRANSACTION EXPENSES.............................................17 14.2 AMENDMENT COSTS..................................................17 14.3 ENFORCEMENT COSTS................................................17 15 SECURITY.............................................................17 15.1 SECURITY DOCUMENTS...............................................17 15.2 PRIORITY.........................................................17 15.3 SECURITY AGENT...................................................18 15.4 SET-OFF..........................................................18 16 REPRESENTATIONS......................................................18 16.1 STATUS...........................................................18 16.2 BINDING OBLIGATIONS..............................................18 16.3 NON-CONFLICT WITH OTHER OBLIGATIONS..............................18 16.4 POWER AND AUTHORITY..............................................18 16.5 VALIDITY AND ADMISSIBILITY IN EVIDENCE...........................18 16.6 GOVERNING LAW AND ENFORCEMENT....................................19 16.7 DEDUCTION OF TAX.................................................19 16.8 NO FILING OR STAMP TAXES.........................................19 16.9 NO DEFAULT OR NON-COMPLIANCE.....................................19 16.10 NO MISLEADING INFORMATION........................................19 16.11 FINANCIAL STATEMENTS.............................................20 16.12 PARI PASSU RANKING...............................................20 16.13 NO PROCEEDINGS PENDING OR THREATENED.............................20 16.14 INDEBTEDNESS/ENCUMBRANCES........................................20 16.15 OWNERSHIP........................................................20 16.16 REPETITION.......................................................20 17 INFORMATION UNDERTAKINGS.............................................20 17.1 FINANCIAL STATEMENTS.............................................21 17.2 COMPLIANCE CERTIFICATE...........................................21 17.3 REQUIREMENTS AS TO FINANCIAL STATEMENTS..........................21 17.4 INFORMATION: MISCELLANEOUS.......................................21 17.5 NOTIFICATION OF NON-COMPLIANCE...................................21 18 FINANCIAL COVENANTS..................................................22 18.1 MINIMUM VALUE....................................................22 18.2 FREE CASH........................................................22 18.3 WORKING CAPITAL..................................................22 18.4 MINIMUM EQUITY RATIO.............................................22 19 VESSEL UNDERTAKINGS..................................................22 19.1 REGISTRATION AND OWNERSHIP.......................................23 19.2 FLAG.............................................................23 19.3 CLASSIFICATION...................................................23 19.4 LAWS AND SAFETY MANAGEMENT.......................................23 19.5 MANAGEMENT AGREEMENT.............................................23 19.6 TECHNICAL CONDITION..............................................23 19.7 MAJOR STRUCTURAL ALTERATION......................................24 19.8 INSURANCES.......................................................24 19.9 ACCIDENT, TOTAL LOSS OR ARREST...................................25 19.10 RELEASE OF DISTRESS..............................................25 19.11 ENCUMBRANCES.....................................................25 19.12 COMMERCIAL MANAGEMENT............................................25 19.13 VALUATION........................................................25 20 CORPORATE UNDERTAKINGS...............................................26 20.1 NO CHANGE OF STATUS..............................................26 20.2 NO CHANGE OF CONTROL.............................................26 20.3 LISTING..........................................................26 20.4 NO CHANGE OF OWNERSHIP...........................................26 20.5 SCOPE OF BUSINESS................................................26 20.6 NO FURTHER BORROWING.............................................26 20.7 NO FURTHER INVESTMENTS...........................................27 20.8 NO DISTRIBUTION..................................................27 20.9 EARNINGS ACCOUNTS................................................27 20.10 AUTHORISATIONS...................................................27 20.11 COMPLIANCE WITH LAWS.............................................27 20.12 INTEREST HEDGING AGREEMENTS......................................27 20.13 MONEY LAUNDERING.................................................28 20.14 TRANSACTION DOCUMENTS............................................28 21 EVENTS OF NON-COMPLIANCE AND DEFAULT.................................28 21.1 EVENT OF NON-COMPLIANCE..........................................28 21.2 DEFAULT..........................................................30 21.3 ACCELERATION.....................................................30 21.4 REMEDY...........................................................30 22 GUARANTEE............................................................30 22.1 GUARANTEE AND INDEMNITY..........................................30 22.2 CONTINUING GUARANTEE.............................................31 22.3 REINSTATEMENT....................................................31 22.4 WAIVER OF DEFENCES...............................................31 22.5 IMMEDIATE RECOURSE...............................................32 22.6 APPROPRIATIONS...................................................32 22.7 DEFERRAL OF OWNERS' RIGHTS.......................................32 22.8 ADDITIONAL SECURITY..............................................33 22.9 OWNER'S RIGHT OF CONTRIBUTION....................................33 22.10 NO FRAUDULENT CONVEYANCE.........................................33 23 CHANGES TO THE LENDERS...............................................33 23.1 TRANSFERS BY THE LENDERS.........................................33 23.2 CONDITIONS OF TRANSFER...........................................33 23.3 LIMITATION OF RESPONSIBILITY OF EXISTING LENDERS.................34 23.4 PROCEDURE FOR TRANSFER...........................................34 24 CHANGES TO THE OBLIGORS..............................................35 25 ROLE OF THE ADMINISTRATIVE AGENT.....................................35 25.1 APPOINTMENT OF THE ADMINISTRATIVE AGENT..........................35 25.2 DUTIES OF THE ADMINISTRATIVE AGENT...............................35 25.3 NO FIDUCIARY DUTIES..............................................36 25.4 BUSINESS WITH THE OBLIGORS.......................................36 25.5 RIGHTS AND DISCRETIONS OF THE ADMINISTRATIVE AGENT...............36 25.6 MAJORITY LENDERS' INSTRUCTIONS...................................36 25.7 RESPONSIBILITY FOR DOCUMENTATION.................................37 25.8 EXCLUSION OF LIABILITY...........................................37 25.9 LENDER'S INDEMNITY TO THE ADMINISTRATIVE AGENT...................37 25.10 RESIGNATION OF THE ADMINISTRATIVE AGENT..........................38 25.11 CONFIDENTIALITY..................................................38 25.12 RELATIONSHIP WITH THE LENDERS....................................38 25.13 CREDIT APPRAISAL BY THE LENDERS..................................38 25.14 DEDUCTION FROM AMOUNTS PAYABLE BY THE ADMINISTRATIVE AGENT.......39 26 SHARING AMONG THE FINANCE PARTIES....................................39 26.1 PAYMENT TO FINANCE PARTIES.......................................39 26.2 REDISTRIBUTION OF PAYMENTS.......................................39 26.3 RECOVERING FINANCE PARTY'S RIGHTS................................39 26.4 REVERSAL OF REDISTRIBUTION.......................................40 26.5 EXCEPTIONS.......................................................40 27 PAYMENT MECHANICS....................................................40 27.1 PAYMENTS TO THE ADMINISTRATIVE AGENT.............................40 27.2 DISTRIBUTIONS BY THE ADMINISTRATIVE AGENT........................40 27.3 DISTRIBUTIONS TO THE BORROWER....................................41 27.4 CLAWBACK.........................................................41 27.5 PARTIAL PAYMENTS.................................................41 27.6 NO SET-OFF BY THE BORROWER.......................................41 27.7 BUSINESS DAYS....................................................42 28 NOTICES..............................................................42 28.1 COMMUNICATIONS IN WRITING........................................42 28.2 ADDRESSES........................................................42 28.3 NOTIFICATION OF ADDRESS AND FAX NUMBER...........................43 28.4 ENGLISH LANGUAGE.................................................43 29 CALCULATIONS AND CERTIFICATES........................................43 29.1 ACCOUNTS.........................................................43 29.2 CERTIFICATES AND DETERMINATIONS..................................44 29.3 DAY COUNT CONVENTION.............................................44 30 PARTIAL INVALIDITY...................................................44 31 AMENDMENTS...........................................................44 31.1 AMENDMENTS.......................................................44 31.2 CONSENT..........................................................44 31.3 TECHNICAL AMENDMENTS.............................................45 31.4 AMENDMENTS AFFECTING THE ADMINISTRATIVE AGENT....................45 32 REMEDIES AND WAIVERS.................................................45 33 GOVERNING LAW AND JURISDICTION.......................................45 33.1 GOVERNING LAW....................................................45 33.2 JURISDICTION.....................................................45 SCHEDULE 1...............................................................46 THE OWNERS AND THE VESSELS.............................................46 SCHEDULE 2...............................................................49 THE ORIGINAL LENDERS...................................................49 SCHEDULE 3...............................................................53 PART I...................................................................53 CONDITIONS PRECEDENT TO THE DELIVERY OF THE FIRST DRAWDOWN NOTICE......53 PART II..................................................................54 CONDITIONS PRECEDENT TO THE DELIVERY OF EACH DRAWDOWN NOTICE...........54 PART III.................................................................55 CONDITIONS PRECEDENT TO EACH DRAWDOWN DATE.............................55 SCHEDULE 4...............................................................56 FORM OF DRAWDOWN NOTICE................................................56 SCHEDULE 5...............................................................57 FORM OF SELECTION NOTICE...............................................57 SCHEDULE 6...............................................................58 FORM OF TRANSFER CERTIFICATE...........................................58 SCHEDULE 7...............................................................59 COMPLIANCE CERTIFICATE.................................................59 SCHEDULE 8...............................................................60 INTEREST NOTIFICATION..................................................60 SCHEDULE 9...............................................................61 SECURITY DOCUMENTS.....................................................61 SCHEDULE 10..............................................................63 GUARANTEE/SECURITY RELEASE LETTER......................................63 SCHEDULE 11..............................................................64 REPAYMENT..............................................................64 (COLUMN "REPAYMENT 1-23" CORRESPONDS TO THE AMOUNT REPAYABLE FOR EACH VESSEL ON EACH REPAYMENT DATE NO 1-23 - AND COLUMN "REPAYMENT 24" CORRESPONDS TO THE AMOUNT REPAYABLE FOR EACH VESSEL ON THE FINAL REPAYMENT DATE)........................................................64 (ALL AMOUNTS IN USD)...................................................64 34 SIGNATORIES..........................................................66 |
EXHIBITS:
Exhibit A: Form of Mortgages
-Liberia
-Bahamas
-Marshall Island
-NIS
-Panama
-Singapore
-Isle of Man
Exhibit B: Form of Owners' General Assignment
Exhibit C: Form of Owners' Contract Assignment
Exhibit D: Form of Earnings Account Charge
Exhibit E: Form of Pledge of Shares
Exhibit F: Form of Borrower's General Assignment
Exhibit G: Form of Charter Accounts Pledge Assignment
THIS TERM LOAN FACILITY AGREEMENT (the "Agreement") is made this 3rd day of February 2005
BETWEEN
(1) SHIP FINANCE INTERNATIONAL LIMITED of Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM08, Bermuda as borrower (the "Borrower"),
(2) THE OWNERS listed in Schedule 1 as guarantors (the "Owners"),
(3) DNB NOR BANK ASA, NORDEA BANK NORGE ASA, FORTIS BANK (NEDERLAND) N.V (Oslo
Branch) and CALYON S.A (the "Mandated Lead Arrangers"),
(4) THE PARTICIPATING LENDERS listed in Schedule 2 as lenders (the "Original Lenders"),
(5) DNB NOR BANK ASA and NORDEA BANK NORGE ASA as bookrunners (the "Bookrunners"),
(6) DNB NOR BANK ASA as administrative agent (the "Administrative Agent") and
(7) DNB NOR BANK ASA as security agent (the "Security Agent").
IT IS HEREBY AGREED as follows:
1 DEFINITIONS AND INTERPRETATIONS
1.1 Definition
In this Agreement:
"Administrative Services Agreement" means the administrative services agreement entered into on the 1 January 2004 as amended from time to time between the Borrower, the Owners and the Manager.
"Availability Period" means the period from and including the date hereof to and including 30 April 2005 or a later date to which the Agent (on behalf of the Majority Lenders) has consented in writing.
"Bareboat Charter" means each of the bareboat charter agreements as amended from time to time entered into between:
(a) Frontline Ltd and Shell Tankers UK dated 17 October 2003 in respect of "Front Opalia";
(b) Golden Current Ltd and Frontline Ltd dated 12 March 2004 in respect of "Front Opalia";
(c) Frontline Ltd and Shell Tankers UK dated 17 October 2003 in respect of "Ocana";
(d) Golden Fjord Corp. and Frontline Ltd dated 16 April 2004 in respect of "Ocana";
(e) Frontline Ltd and Shell Tankers UK dated 17 October 2003 in respect of "Omala";
(f) Golden Tide Corp. and Frontline Ltd dated 2 April 2004 in respect of "Omala";
(g) Frontline Ltd and Shell Tankers UK dated 17 October 2003 in respect of "Otina";
(h) Hitachi Hull 4983 Ltd .and Frontline Ltd dated 16 April 2004 in respect of "Otina"; and
(i) Golden Bayshore Shipping Corporation and Argent Shipping Corporation dated 13 March 1995; in respect of "Navix Astral".
"Borrower's General Assignment" means an assignment by the Borrower in respect of
(a) the Floating Charge;
(b) the Performance Guarantee;
(c) the Charter Ancillary Agreement;
(d) the Charterer Share Pledge; and
(e) the Administrative Services Agreement.
"Break Costs" means the amount (if any) by which:
(a) the interest which a Lender should have received less the Margin for the period from the date of receipt of all or any part of its participation in the Loan or an Unpaid Sum to the current Interest Payment Date in respect of the Loan or an Unpaid Sum, had the principal amount or Unpaid Sum received been paid on that Interest Payment Date;
exceeds:
(b) the amount which that Lender would be able to obtain by placing an amount equal to the principal amount or Unpaid Sum received by it on deposit with a leading bank in the London Interbank market for a period starting on the Business Day following receipt or recovery and ending on the next Interest Payment Date.
"Business Day" means a day (other than a Saturday or Sunday) on which banks are open for general business in London, New York, Oslo and/or such other places where disbursement of money will be made under this Agreement.
"Charter Accounts" means an account of the Charterer maintained (in respect of
(x) the Charter Service Reserve Deposit and (y) any charter hire paid pursuant
to third party charters) with (a) Nordea Bank Norge ASA under the number
6011.04.43628 and (b) (in respect of (x) exclusively) each account maintained
with another financial institution which has a rating of at least A from
Standard & Poor's Ratings Services and at least A2 from Moody's Investor's
Services, Inc. and is subject to an encumbrance in favour of the Security Agent
in form and substance satisfactory to it.
"Charter Accounts Pledge" means a pledge of the Charter Accounts between the Charterer as pledgor and the Borrower as pledgee.
"Charter Accounts Pledge Assignment" means an assignment of the Charter Accounts Pledge between the Borrower as pledgor and the Security Agent as pledgee.
"Charter Ancillary Agreement" means the charter ancillary agreement entered into on the 1 January 2004 as amended from time to time between the Borrower, Frontline Ltd., Bermuda, the Charterer and the Owners.
"Charterer" means Frontline Shipping Limited, a special purpose company incorporated in Bermuda.
"Charter Service Reserve Deposit" means the portion of the amount from time to time standing to the credit of the Charter Accounts which has been deposited pursuant to Article 2.1 (Charter Service Reserve) of the Charter Ancillary Agreement and which is to be maintained in accordance with the Transaction Documents.
"Charterer Share Pledge" means a share pledge in respect of the shares of the Charterer between Frontline Ltd., Bermuda as pledgor and the Borrower as pledgee.
"Commercial Management Agreement" means the commercial management agreement as amended from time to time between the Charterer and the Manager.
"Commitment" means the amount set opposite each Lender in Schedule 2 (The Original Lenders) (including any other Commitment transferred to it or a New Lender under this Agreement) which aggregates USD 1,131,439,219.
"Compliance Certificate" means a certificate substantially in the form set out in Schedule 7 (Form of Compliance Certificate).
"Default" means the situation occurring following the Administrative Agent's notification to the Borrower pursuant to Clause 21.2 (Default).
"DOC" means a Document of Compliance issued pursuant to the ISM Code.
"Drawdown Date" means a Business Day on which the Borrower has requested a drawdown of one or several Tranches pursuant to this Agreement or, as the context requires, the date on which a Tranche is actually advanced.
"Drawdown Notice" means a notice substantially in the form set out in Schedule 4.
"Earnings" means the Borrower's and/or the Owners' (as the case may be) right to all hire and other claim for moneys, net salvage and towage remuneration, detention moneys, damages and any other payments in respect of its Vessel.
"Earnings Account" means the Borrower's deposit account no. 5011.04.43215 with the Administrative Agent.
"Earnings Account Charge" means the charge of the Earnings Account as required by Schedule 9 (Security Documents) and as set out in Exhibit D.
"Environmental Approval" means any consent, authorisation, licence or approval of any governmental or public body or authorities or courts, applicable to the Vessels or their operation required under any Environmental Law.
"Environmental Laws" means all national, international and state laws, rules, regulations, treaties and conventions applicable to the Vessels, pertaining to the pollution or protection of human health or the environment including, without limitation, the carriage of oil and other pollutants and actual or threatened emissions, spills, releases or discharges of oil and other pollutants.
"Event of Non-compliance" means each of the events and/or circumstances described in Clause 21.1 (Event of Non-compliance).
"Finance Documents" means as amended from time to time, this Agreement, any Security Document, the Interest Hedging Agreements and any other document designated as such by the Administrative Agent and the Borrower.
"Finance Party" means the Administrative Agent, the Security Agent or a Lender.
"Floating Charge" means a floating charge between the Charterer as chargor and the Borrower as chargee.
"Free Cash" means:
(a) cash in hand or on freely available deposit with the Administrative Agent;
(b) freely available securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality of the United States (provided that the full faith and credit of the United States is pledged in support thereof), having maturities of not more than one year from the date of acquisition;
(c) freely available marketable general obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition and, at the time of acquisition, having a credit rating of "A" or better from either Standard & Poor's Ratings Services or Moody's Investors Service, Inc.;
(d) freely available certificates of deposit, time deposits, Eurodollar time deposits, overnight bank deposits or bankers' acceptances having maturities of not more than one year from the date of acquisition thereof issued by any bank or financial institution the long-term debt of which is rated at the time of acquisition thereof at least "A" or the equivalent thereof by Standard & Poor's Ratings Services, or "A" or the equivalent thereof by Moody's Investors Services, Inc., and having combined capital and surplus in excess of USD 500,000,000;
(e) freely available repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clauses
b), c) and d) entered into with any bank meeting the qualifications
specified in clause d) above;
(f) freely available commercial paper rated at the time of acquisition thereof at least "A-2" or the equivalent thereof by Standard & Poor's Ratings Services or "P-2" or the equivalent thereof by Moody's Investors Service, Inc., or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of investments, and in any case maturing within one year after the date of acquisition thereof; and
(g) freely available interests in any investment company or money market fund which only invests in instruments of the type specified in clauses (b) through (f) above.
"GAAP" means generally accepted accounting principles in the United States of America.
"Guarantee" means the guarantee executed by the Owners as set out in Clause 22.
"Hedge Counterparty" means each bank or financial institution which is a party to an Interest Hedging Agreement and "Hedge Counterparties" means all such banks and financial institutions.
"Insurance Report and Certificate" means, in relation to a Vessel:
(a) a report prepared by Marsh Marine & Energy AS confirming inter alia full details of the Insurance in place for such Vessel, the identity of each insurance company, underwriter and/or club providing such Insurance and further confirming that such Insurance is consistent with the terms of the Mortgage and/or the General Assignment (as applicable) entered into or to be entered into in relation to such Vessel pursuant to this Agreement, as well as (in each case) the terms of Clause 19.8 (Insurances) and
(b) a certificate signed by an authorised signatory of Marsh Marine & Energy AS confirming (in its professional judgement) that the contents of such report is accurate and that adequate Insurance is in place in respect of the relevant Vessel.
"Interest Hedging Agreements" means the interest swap agreements (with schedules and confirmations) as amended from time to time entered into between:
(a) Citibank N.A and the Borrower dated 18 February 2004;
(b) DnB NOR Bank ASA and the Borrower dated 11 February 2004;
(c) Fortis Bank (Nederland) N.V. and the Borrower dated 16 February 2004;
(d) HSH Nordbank AG and the Borrower dated 17 February 2004;
(e) Nordea Bank Finland Plc and the Borrower dated 10 February 2004;
(f) Scotiabank Europe plc. and the Borrower dated 18 February 2004; and
(g) Skandinaviska Enskilda Banken AB and the Borrower dated 19 February 2004.
"Interest Payment Date" means the last day of each Interest Period.
"Interest Period" means, in relation to the Loan, each period determined in accordance with Clause 8 (Interest Periods) and, in relation to an Unpaid Sum other than payment of any principal, each period determined in accordance with Clause 7.3 (b) (Default interest).
"ISM Code" means the International Safety Management Code as adopted by the International Maritime Organization's ("IMO").
"ISPS Code" means the International Ship and Port Facility Security (ISPS) Code as adopted by IMO.
"Lender" means:
(a) any Original Lender; and
(b) any bank, financial institution, trust, fund or other entity which has become a Party in accordance with Clause 23 (Changes to the Lenders),
which in each case has not ceased to be a Party in accordance with the terms of this Agreement.
"LIBOR" means, in relation to the Loan:
(a) the applicable Screen Rate; or
(b) (if no Screen Rate is available for USD for the Interest Period of the
Loan) the arithmetic mean of the rates as supplied to the Administrative
Agent at its request quoted by the Reference Banks to leading banks in
the London interbank market,
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not later than 11:00 GMT hours on the Quotation Day for the offering of deposits in USD and for a period comparable to the Interest Period for the Loan.
"Loan" means the loan made or to be made pursuant to this Agreement or the principal amount outstanding for the time being of the loan.
"Majority Lenders" means a Lender or Lenders whose participations in the Commitment and/or the Loan aggregate more than 66% of the Loan outstanding.
"Management Agreement" means each of the management agreements as amended from time to time entered into in relation to a Vessel between the Manager and the relevant Owner comprising of a "Shipman 98" Baltic and International Maritime Council standard ship management agreement together with the riders attached thereto.
"Manager" means Frontline Management (Bermuda) Limited, a company incorporated in Bermuda.
"Margin" means 0,70 per cent. per annum.
"Material Adverse Effect" means a material adverse effect on any Obligor's financial position, business, operation, its abilities to comply with the Finance Documents or the validity or enforceability of the Finance Documents.
"Mortgage" means a mortgage and (if relevant) the corresponding deed of covenants over a Vessel as required by Schedule 9 (Security Documents) and as set out in Exhibit A.
"Obligors" means the Borrower and the Owners and "Obligor" means any of them.
"Original Financial Statements" means the un-audited financial statements of the Borrower for the first 9 months of 2004, ended 30 September 2004.
"Owner" means a legal and registered owner of a Vessel according to Schedule 1.
"Owners' Contract Assignment" means an assignment executed by the Owners as required by Schedule 9 (Security Documents) and as set out in Exhibit C in respect of the following documents:
(a) each Management Agreement;
(b) the Administrative Services Agreement;
(c) the Charter Ancillary Agreement;
(d) each Time Charter Party;
(e) each Bareboat Charter; and
(f) the Performance Guarantee.
"Owners' General Assignment" means an assignment of the Earnings and the Insurances of a Vessel as required by Schedule 9 (Security Documents) and as set out in Exhibit B.
"Party" means a party to a Finance Document.
"Performance Guarantee" means the guarantee executed by Frontline Ltd., Bermuda for the performance of the obligations of the Charterer under the Time Charter Parties (other than the payment of charter hire) and the obligations of the Manager under the Management Agreements and the Administrative Service Agreement.
"Pledge of Shares" means the pledge of shares as required by Schedule 9 (Security Documents) and as set out in Exhibit E.
"Quotation Day" means, in relation to any period for which an interest rate is to be determined, two Business Days before the first day of that period.
"Reference Banks" means the Administrative Agent and such other banks or financial institutions as may be agreed between the Borrower and the Lenders.
"Repayment Date" means each date falling at three (3) monthly intervals after the first Drawdown Date.
"Screen Rate" means the British Bankers' Association Interest Settlement Rate for USD for the relevant period, displayed on page LIBOR01 and LIBOR02 of the Reuters screen. If the agreed page is replaced or service ceases to be available, the Administrative Agent may specify another page or service displaying the appropriate rate after consultation with the Borrower and the Lenders.
"Security Document" means all or any document as may be entered into from time to time pursuant to Schedule 9 (Security Documents).
"Selection Notice" means a notice substantially in the form set out in Schedule 5 given in accordance with Clause 8 (Interest Periods).
"Senior Note Default" means an event of default (however described and subject to any applicable grace periods) under the Senior Note Documents.
"Senior Note Documents" means any agreement or document entered into or executed in connection with the USD 580,000,000 senior unsecured notes due 2013 issued by the Borrower.
"Ship's Value" means the value of a Vessel calculated according to Clause 19.13 (Valuation).
"SMC" means a Safety Management Certificate issued pursuant to the ISM Code.
"Tax" means any tax, levy, impost, duty or other charge or withholding of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same).
"Time Charter Parties" means each of the time charter parties entered into between the Charterer (or, if applicable, any other charterer) and the relevant Owner in relation to the applicable Vessel.
"Total Loss" means the total loss of a Vessel as defined in Clause 19.9 (ii) (Accident, Total Loss or arrest).
"Tranche" means a portion of the Commitment set opposite each Vessel in Schedule 1.
"Transaction Documents" means:
(a) each Management Agreement;
(b) the Performance Guarantee;
(c) the Administrative Services Agreement;
(d) the Charter Ancillary Agreement;
(e) each Time Charter Party;
(f) the Commercial Management Agreement;
(g) the Floating Charge;
(h) the Charterer Share Pledge; and
(j) the Charter Accounts Pledge.
"Unpaid Sum" means any sum due and payable but unpaid by the Borrower under the Finance Documents.
"USD" means the lawful currency of the United States of America.
"Vessel" means a vessel listed in Schedule 1 as amended from time to time until or unless such vessel has been sold or becomes a Total Loss.
1.2 Construction
(a) Unless a contrary indication appears, any reference in this Agreement to:
(i) the "Administrative Agent", the Security Agent, any "Finance Party", any "Lender" or any "Party" shall be construed so as to include its successors in title, permitted assigns and permitted transferees;
(ii) a "Finance Document" or any other agreement or instrument is a reference to that Finance Document or other agreement or instrument as amended or novated;
(iii) "indebtedness" includes any obligation (whether incurred as principal or as surety) for the payment or repayment of money, whether present or future, actual or contingent;
(iv) a "regulation" includes any regulation, rule, official directive, request or guideline (whether or not having the force of law) of any governmental, intergovernmental or supranational body, agency, department or regulatory, self-regulatory or other authority or organisation;
(v) a provision of law is a reference to that provision as amended or re-enacted; and
(vi) a time of day is a reference to Oslo time, unless otherwise specified.
(b) Clause and Schedule headings are for ease of reference only.
(c) Unless a contrary indication appears, a term used in any other Finance Document or in any notice given under or in connection with any Finance Document has the same meaning in that Finance Document or notice as in this Agreement.
2 FACILITY AND PURPOSE
2.1 Facility
Subject to the terms of this Agreement, the Lenders shall make available to the Borrower, in the maximum of forty six (46) Tranches (one Tranche for each Vessel and each Tranche in the maximum amount as set out in Schedule 1), a term loan facility in the currency and in the aggregate amount of up to the Commitment.
2.2 Lenders' rights and obligations
(a) The obligations of each Lender under the Agreement are several. Failure by a Lender to perform its obligations under the Agreement does not affect the obligations of any other Party under the Finance Documents. No Lender is responsible for the obligations of any other Lender under the Agreement.
(b) The rights of each Lender under or in connection with the Finance Documents are separate and independent rights and any debt arising under the Finance Documents to a Finance Party from the Borrower shall be a separate and independent debt.
2.3 Purpose
The Borrower shall apply the amount borrowed by it under the Agreement to refinance the existing USD 1,058,000,000 credit facility agreement dated 17 February 2004 and general corporate purposes.
3 CONDITIONS PRECEDENT
3.1 Conditions precedent
The Lenders will only be obliged to make a Tranche available if on the requested Drawdown Date:
(a) the Administrative Agent has received and approved all of the documents and other evidence listed in Part I of Schedule 3 (Conditions precedent) prior to delivery of the first Drawdown Notice, the documents and other evidence listed in Part II of Schedule 3 (Conditions precedent) prior to delivery of each Drawdown Notice and the documents and other evidence listed in Part III of Schedule 3 (Conditions precedent) prior to each Drawdown Date, all in form and substance satisfactory to the Administrative Agent;
(b) no Event of Non-compliance is existing; and
(c) the repeating representations to be made by the Borrower in accordance with Clause 16.16 (Repetition) are true in all material respects.
3.2 Waived conditions
If the Lenders in their sole discretion permit the drawdown of a Tranche before all the conditions have been satisfied, the Borrower shall within one month from such Drawdown Date or such other period as the Administrative Agent may decide fulfil such conditions in form and substance satisfactory to the Administrative Agent.
4 DRAWDOWN
4.1 Delivery of a Drawdown Notice
The Borrower may only draw a Tranche by delivery to the Administrative Agent of a duly completed Drawdown Notice not later than 11:00 hours three Business Days prior to the relevant Drawdown Date. The Administrative Agent shall notify the Lenders promptly upon such notice being received.
4.2 Completion of the Drawdown Notice
A Drawdown Notice is irrevocable and will only be regarded as having been duly completed if:
(a) the requested Drawdown Date is a Business Day within the Availability Period;
(b) the requested amounts aggregated with the amounts requested in previous Drawdown Notices do not exceed the Commitment, and each Tranche does not exceed the amount set out in Schedule 1 and the Obligor complies with Clause 18.1 (Minimum Value); and
(c) the requested Interest Period complies with Clause 8 (Interest periods).
4.3 Lenders' participation
(a) If the conditions set out in this Agreement have been met, each Lender shall make its participation in the Loan available by the Drawdown Date.
(b) The amount of each Lender's participation in the Loan will be equal to the proportion that its Commitment bears to the total of the Commitment of all the Lenders according to Schedule 2.
5 REPAYMENT
5.1 Repayment of Loan
The Borrower shall repay the Loan on each Repayment Date by 24 consecutive quarterly instalments each in the amount equal to the aggregate of the amounts set opposite each Vessel for the relevant quarter from 1-24 in Schedule 11 (Repayment) (as the column "Repayment 1-23" in Schedule 11 represents each quarterly instalment from 1-23 and the column "Repayment 24" represents the 24th quarterly instalment for each Vessel), the first instalment falling due three months after the first Drawdown Date. Notwithstanding anything in this Agreement, all amounts outstanding hereunder shall be repaid within 72 months from the first Drawdown Date.
5.2 No re-borrowing
The Borrower may not re-borrow any repaid part of the Loan.
6 PREPAYMENT
6.1 Voluntary prepayment
The Borrower may prepay the Loan in whole or in part in multiples of USD 500,000 upon giving the Administrative Agent not less than three (3) Business Days irrevocable written notice of such prepayment. Voluntary prepaid amounts shall be applied pro rata to the remaining repayment instalments.
6.2 Mandatory prepayment: Sale or Total Loss
In the event of the sale or Total Loss of a Vessel:
(a) the Borrower shall prepay a sum equal to the aggregate amounts set opposite the Vessel involved in Schedule 11 that remains to be repaid just prior to the sale or the occurrence leading to the Total Loss; and
(b) the instalments in respect of the repayment of the Loan stipulated in Clause 5.1 (Repayment of Loan) shall be reduced with a corresponding amount in accordance with Schedule 11.
Prepayment shall take place upon the delivery of such Vessel in the event of a sale and the receipt of the insurance proceeds in the event of a Total Loss. Upon receipt of the prepaid amount according to this Clause, the Administrative Agent shall on behalf of the Lenders release the Owner of the Vessel involved from its guarantee responsibility, the Mortgage relative to the Vessel involved and the other Security Documents under this Agreement related to the Vessel and the relevant Owner in the form as set out in Schedule 10.
6.3 Application of Mandatory Prepayments
(a) Any prepayment made pursuant to Clause 6.2 (Mandatory prepayment: Sale or Total Loss) shall be applied in or towards the amount that remains to be repaid in connection with the Vessel involved in accordance with Schedule 11;
(b) Other mandatory prepayments made pursuant to this Agreement (on the basis of Clause 18.1 (Minimum Value) or otherwise) shall be applied pro rata in or towards the remaining installments.
6.4 Illegality
If it becomes unlawful in any applicable jurisdiction for a Lender to perform any of its obligations as contemplated by this Agreement or to fund or maintain its participation in the Loan:
(a) that Lender shall promptly notify the Administrative Agent upon becoming aware of that event;
(b) upon the Administrative Agent notifying the Borrower, the Commitment of that Lender will be immediately cancelled; and
(c) the Borrower shall repay that Lender's participation in the Loan on the Interest Payment Date occurring after the Administrative Agent has notified the Borrower or, if earlier, the date specified by that Lender in the notice delivered to the Administrative Agent (being no earlier than the last day of any applicable grace period permitted by law).
6.5 Restrictions
(a) Any notice of prepayment given by any Party under this Clause 6 shall be irrevocable and, unless a contrary indication appears in this Agreement, shall specify the date upon which the prepayment is to be made and the amount of the prepayment.
(b) Any prepayment under this Agreement shall be made together with accrued interest on the amount prepaid and, subject to any Break Costs, without premium or penalty.
(c) The Borrower may not re-borrow any prepaid part of the Loan.
7 INTEREST
7.1 Calculation of interest
The rate of interest on the Loan for each Interest Period is the percentage rate per annum which is the aggregate of the Margin and LIBOR.
For the purpose of the Norwegian Financial Contracts Act 1999 the Borrower has been informed of the nominal and effective interest rate by a letter from the Administrative Agent substantially in the form set out in Schedule 8.
7.2 Payment of interest
The Borrower shall pay accrued interest on the Loan on each Interest Payment Date and, if the Interest Period is longer than three months, on the dates falling at three monthly intervals after the first day of the Interest Period.
7.3 Increased interest
(a) If a Default has occurred and is continuing, interest shall accrue on the Loan from the date a notice as set forth in Clause 21.2 was received by the Borrower until the earlier of (i) the Administrative Agent (acting under the instruction of the Majority Lenders) declaring in writing to the Borrower that such Default no longer is considered in existence or waived (ii) the date all amounts due from the Borrower to the Finance Parties hereunder have been repaid at a rate which is two percentage points higher than the rate which would otherwise have been applicable.
(b) If there is an Unpaid Sum, interest shall accrue on such Unpaid Sum from the due date up to the date of actual payment (both before and after judgment) at a rate which is two percentage points higher than the rate which would have been payable if the Unpaid Sum had, during the period of non-payment, constituted a part of the Loan in the currency of the Unpaid Sum for successive Interest Periods, each of a duration selected by the Administrative Agent (acting reasonably). Any interest accruing under this Clause 7.3 (b) shall be immediately payable by the Borrower on demand by the Administrative Agent.
(c) Increased interest (if unpaid) arising on any Unpaid Sum will be compounded with the Unpaid Sum at the end of each Interest Period applicable to that Unpaid Sum but will remain immediately due and payable.
8 INTEREST PERIODS
8.1 Selection of Interest Periods
(a) The Borrower shall select an Interest Period for each Tranche in the Drawdown Notice or (if the Loan has already been borrowed) in a Selection Notice.
(b) Each Selection Notice for the Tranche is irrevocable and must be delivered to the Administrative Agent by the Borrower not later than 11:00 hours three Business Days prior to the expiry of the relevant Interest Period.
(c) If the Borrower fails to deliver a Selection Notice to the Administrative Agent in accordance with paragraph (b) above, the relevant Interest Period will be three months.
(d) The Borrower may select an Interest Period of one, three, six, nine or twelve months or any other period agreed between the Borrower and the Administrative Agent.
(e) An Interest Period shall not extend beyond the last Repayment Date.
(f) Each Interest Period shall start on the Drawdown Date or (if already made) on the preceding Interest Payment Date.
8.2 Non-Business Days
If an Interest Period would otherwise end on a day which is not a Business Day, that Interest Period will instead end on the next Business Day in that calendar month (if there is one) or the preceding Business Day (if there is not).
8.3 Consolidation
Following the first Drawdown Date, the Borrower shall select Interest Periods for the forthcoming Tranches which shall coincide and the Tranches will, unless the Administrative Agent specifies to the contrary, be consolidated into, and treated as, a single Loan.
9 CHANGES TO THE CALCULATION OF INTEREST
9.1 Absence of quotations
Subject to Clause 9.2 (Market disruption), if LIBOR is to be determined by reference to the Reference Banks but a Reference Bank does not supply a quotation not later than 11:00 hours on the Quotation Day, the applicable LIBOR shall be determined on the basis of the quotations of the remaining Reference Banks.
9.2 Market disruption
(a) If a Market Disruption Event occurs in relation to the Loan for any Interest Period, then the rate of interest on each Lender's participation in the Loan for that Interest Period shall be the rate per annum which is the sum of the Margin and the rate notified to the Administrative Agent by that Lender as soon as practicable and in any event before interest is due to be paid in respect of that Interest Period, to be that which expresses as a percentage rate per annum the cost to that Lender of funding the Loan from whatever source it may reasonably select.
(b) In this Agreement "Market Disruption Event" means at or about 11:00 hours GMT on the Quotation Day for the relevant Interest Period the Screen Rate is not available and none of the Reference Banks supplies a rate to the Administrative Agent to determine LIBOR for USD for the relevant Interest Period.
9.3 Alternative basis of interest or funding
(a) If a Market Disruption Event occurs and the Administrative Agent or the Borrower so requires, the Administrative Agent and the Borrower shall enter into negotiations (for a period of not more than thirty days) with a view to agreeing a substitute basis for determining the rate of interest.
(b) Any alternative basis agreed pursuant to the paragraph above shall, with the prior consent of all the Lenders and the Borrower, be binding on all Parties.
9.4 Break Costs
(a) The Borrower shall, within three Business Days of demand by a Lender, pay to that Lender its Break Costs attributable to all or any part of the Loan or an Unpaid Sum being paid by the Borrower on a day other than an Interest Payment Date for the Loan or the due date for payment of an Unpaid Sum.
(b) Each Lender shall, as soon as reasonably practicable after a demand by the Administrative Agent or the Borrower, provide a certificate confirming the amount of its Break Costs for any Interest Period in which they accrue.
10 FEES
10.1 Commitment fee
The Borrower shall pay to the Administrative Agent (for the account of the Lenders) a fee computed at the rate of 0,315 % per annum on any undrawn part of the Commitment from time to time during the Availability Period, payable on the last day of the Availability Period.
10.2 Other fees
The Borrower shall pay to the Mandated Lead Arrangers the other fees referred to in the fee letters in the amounts and at the times specified therein for distribution (if applicable) by the Administrative Agent in accordance with such letters.
11 TAX GROSS UP AND INDEMNITIES
11.1 Tax gross-up
(a) The Borrower shall make all payments to be made by it without any Tax
deduction, unless a Tax deduction is required by law.
(b) The Borrower shall promptly upon becoming aware that it must make a Tax
deduction (or that there is any change in the rate or the basis of a Tax
deduction) notify the Administrative Agent accordingly. Similarly, a
Lender shall notify the Administrative Agent on becoming so aware in
respect of a payment payable to that Lender. If the Administrative Agent
receives such notification from a Lender it shall notify the Borrower.
(c) If a Tax deduction is required by law to be made by the Borrower, the
amount of the payment due from the Borrower shall be increased to an
amount which (after making any Tax deduction) leaves an amount equal to
the payment which would have been due if no Tax deduction had been
required.
(d) If the Borrower is required to make a Tax deduction, it shall make that
Tax deduction and any payment required in connection with that Tax
deduction within the time allowed and in the minimum amount required by
law.
(e) Within thirty days of making either a Tax deduction or any payment
required in connection with that Tax deduction, the Borrower shall
deliver to the Administrative Agent for the Lender entitled to the
payment evidence reasonably satisfactory to that Lender that the Tax
deduction has been made or (as applicable) any appropriate payment paid
to the relevant taxing authority.
11.2 Tax indemnity
(a) The Borrower shall (within three Business Days of demand by the
Administrative Agent) pay to a Finance Party an amount equal to the loss,
liability or cost which that Finance Party determines will be or has been
(directly or indirectly) suffered for or on account of Tax by that
Finance Party in respect of a Finance Document.
(b) Paragraph (a) above shall not apply:
(i) with respect to any Tax assessed on a Finance Party under the law
of the jurisdiction in which that Finance Party is incorporated
or, if different, the jurisdiction (or jurisdictions) in which
that Finance Party is treated as resident for tax purposes if that
Tax is imposed on or calculated by reference to the net income
received or receivable (but not any sum deemed to be received or
receivable) by that Finance Party; or
(ii) to the extent a loss, liability or cost is compensated for by an
increased payment under Clause 11.1 (Tax gross-up).
(c) A Finance Party making, or intending to make a claim under paragraph (a)
above shall promptly notify the Administrative Agent of the event which
will give, or has given, rise to the claim, following which the
Administrative Agent shall notify the Borrower.
(d) A Finance Party shall, on receiving a payment from the Borrower under
this Clause 11.2, notify the Administrative Agent.
11.3 Tax Credit
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If the Borrower makes a Tax payment and the relevant Finance Party determines that:
(a) a Tax credit is attributable either to an increased payment of which that Tax payment forms part, or to that Tax payment; and
(b) that Finance Party has obtained, utilised and retained that Tax credit,
the Finance Party shall pay an amount to the Borrower which that Finance Party determines will leave it (after that payment) in the same after-Tax position as it would have been in had the Tax payment not been required to be made by the Borrower.
11.4 Stamp taxes
The Borrower shall pay and, within three Business Days of demand, indemnify each Finance Party against any cost, loss or liability that Finance Party incurs in relation to all stamp duty, registration and other similar Taxes payable in respect of any Finance Document.
11.5 Value added tax
(a) All consideration expressed to be payable under a Finance Document by the
Borrower to a Finance Party shall be deemed to be exclusive of any VAT.
If VAT is chargeable on any supply made by any Finance Party to the
Borrower in connection with a Finance Document, the Borrower shall pay to
the Finance Party (in addition to and at the same time as paying the
consideration) an amount equal to the amount of the VAT.
(b) Where a Finance Document requires the Borrower to reimburse a Finance
Party for any costs or expenses, the Borrower shall also at the same time
pay and indemnify the Finance Party against all VAT incurred by the
Finance Party in respect of the costs or expenses to the extent that the
Finance Party reasonably determines that it is not entitled to credit or
repayment of the VAT.
12 INCREASED COSTS
12.1 Increased costs
(a) The Borrower shall, within three Business Days of a demand by the
Administrative Agent, pay for the account of a Finance Party the amount
of any Increased Costs incurred by that Finance Party or any of its
affiliates as a result of (i) the introduction of or any change in (or in
the interpretation, administration or application of) any law or
regulation or (ii) compliance with any law or regulation made after the
date of this Agreement (including the implementation by the applicable
authorities of the matters set out in the statement of the Basle
Committee on Banking Regulations and Supervisory Practices).
(b) In this Agreement "Increased Costs" means:
(i) a reduction in the rate of return from the Loan or on a Finance
Party's (or its affiliate's) overall capital;
(ii) an additional or increased cost; or
(iii) a reduction of any amount due and payable under any Finance
Document, which is incurred or suffered by a Finance Party or any
of its affiliates to the extent that it is attributable to that
Finance Party having entered into its Commitment or funding or
performing its obligations under any Finance Document.
12.2 Increased cost claims
(a) A Finance Party intending to make a claim pursuant to Clause 12
(Increased costs) shall notify the Administrative Agent of the event
giving rise to the claim, following which the Administrative Agent shall
promptly notify the Borrower.
(b) Each Finance Party shall, as soon as practicable after a demand by the
Administrative Agent or the Borrower, provide a certificate confirming
the amount of its Increased Costs.
13 OTHER INDEMNITIES
13.1 Currency indemnity
(a) If any sum due from the Borrower under the Finance Documents (a "Sum"),
or any order, judgment or award given or made in relation to a Sum, has
to be converted from the currency (the "First Currency") in which that
Sum is payable into another currency (the "Second Currency") for the
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purpose of:
(i) making or filing a claim or proof against the Borrower; or
(ii) obtaining or enforcing an order, judgement or award in relation to any litigation or arbitration proceedings.
(b) the Borrower shall as an independent obligation, within three Business Days of demand, indemnify each Finance Party to whom that Sum is due against any cost, loss or liability arising out of or as a result of the conversion including any discrepancy between (A) the rate of exchange used to convert that Sum from the First Currency into the Second Currency and (B) the rate or rates of exchange available to that person at the time of its receipt of that Sum.
(c) the Borrower waives any right it may have in any jurisdiction to pay any amount under the Finance Documents in a currency or currency unit other than that in which it is expressed to be payable.
13.2 Other indemnities
The Borrower shall within three Business Days of demand from the Administrative Agent, indemnify each Finance Party against any direct cost, loss or liability incurred by that Finance Party as a result of:
(a) a Default; or
(b) the Loan (or part of the Loan) not being prepaid in accordance with a notice of prepayment given by the Borrower.
13.3 Indemnity to the Administrative Agent
The Borrower shall promptly indemnify the Administrative Agent against any cost, loss or liability incurred by the Administrative Agent (acting reasonably) as a result of:
(a) investigating any event which it reasonably believes may be an Event of Non-compliance; or
(b) acting or relying on any notice, request or instruction which it reasonably believes to be genuine, correct and appropriately authorised.
14 COSTS AND EXPENSES
14.1 Transaction expenses
The Borrower shall promptly on demand pay the Administrative Agent whether or not the Commitment is drawn the amount of all costs and expenses (including legal fees and any VAT payable thereon) reasonably incurred by it in connection with the negotiation, preparation, printing and execution of:
(a) this Agreement and any other documents referred to in this Agreement; and
(b) any other Finance Documents executed after the date of this Agreement.
14.2 Amendment costs
If the Borrower requests an amendment, waiver or consent, the Borrower shall, within three Business Days of demand, reimburse the Administrative Agent for the amount of all costs and expenses (including legal fees and any VAT payable thereon) reasonably incurred by the Administrative Agent in responding to, evaluating, negotiating or complying with that request.
14.3 Enforcement costs
The Borrower shall, within three Business Days of demand, pay to each Finance Party the amount of all costs and expenses (including legal fees and any VAT payable thereon) incurred by that Finance Party in connection with the enforcement of, or the preservation of any rights under, any Finance Document.
15 SECURITY
15.1 Security Documents
So long as any amount is owing to the Lenders, any Hedge Counterparty, the Security Agent and the Administrative Agent under the Finance Documents and unless otherwise provided herein, the Loan and any other obligation and liability that any Obligor has or may incur towards the Finance Parties under the Finance Documents shall be secured by the Security Documents as set out in Schedule 9 (Security Documents)
15.2 Priority
(a) All the Security Documents shall create security on first and sole
priority over the assets specified therein.
(b) In case of conflict between the provisions of this Agreement and the
provisions of the Security Documents, the terms and conditions of this
Agreement shall prevail.
15.3 Security agent
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The Security Agent shall act as security agent and receive, hold, administer and enforce the Security Documents on behalf of and for the benefit of the Lenders.
15.4 Set-off
Following the occurrence of a Default, each of the Security Agent, the Administrative Agent and the Lenders shall, to the extent permitted by applicable law and always subject to Clause 26.1 (Payment to Finance Parties), have a separate right of set-off in respect of any credit balance, in any currency, on any account that the Borrower might have with the Administrative Agent and the Lenders (branches included) against any matured obligations due from the Borrower to the Security Agent, the Administrative Agent and the Lenders under the Finance Documents.
16 REPRESENTATIONS
Each Obligor makes the representations and warranties set out in this Clause 16 to each Finance Party on the date of this Agreement.
16.1 Status
(a) It is a corporation, duly incorporated and validly existing under the
laws of its jurisdiction of incorporation.
(b) It has the power to own its assets and carry on its business as it is
being conducted.
16.2 Binding obligations
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The obligations expressed to be assumed by it in each Finance Document and Transaction Document are legal, valid, binding and enforceable obligations.
16.3 Non-conflict with other obligations
The entry into and performance by it of, and the transactions contemplated by, the Finance Documents do not and will not conflict with:
(a) any law or regulation applicable to it;
(b) its constitutional documents; or
(c) any agreement or instrument binding upon it or any of its assets.
16.4 Power and authority
It has the power to enter into, perform and deliver, and has taken all necessary action to authorise its entry into, performance and delivery of, the Finance Documents to which it is a party and the transactions contemplated by those Finance Documents.
16.5 Validity and admissibility in evidence
All authorisations required or desirable:
(a) to enable it lawfully to enter into, exercise its rights and comply with its obligations in the Finance Documents to which it is a party; and
(b) to make the Finance Documents to which it is a party admissible in evidence in its jurisdiction of incorporation,
have been obtained or effected and are in full force and effect.
16.6 Governing law and enforcement
(a) The choice of Norwegian law as the governing law of the Finance Documents
(other than the Mortgages not registered with Norwegian International
Shipregister, the Borrower General Assignment and the Owners' Contract
Assignment) will be recognised and enforced in its jurisdiction of
incorporation.
(b) Any judgment obtained in Norway in relation to a Finance Document will be
recognised and enforced in its jurisdiction of incorporation.
16.7 Deduction of Tax
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It is not required under the law of its jurisdiction of incorporation to make any deduction for or on account of Tax from any payment it may make under any Finance Document.
16.8 No filing or stamp taxes
Under the law of its jurisdiction of incorporation it is not necessary that the Finance Documents (other than the Mortgages) be filed, recorded or enrolled with any court or other authority in that jurisdiction or that any stamp, registration or similar tax be paid on or in relation to the Finance Documents or the transactions contemplated by the Finance Documents.
16.9 No default or non-compliance
(a) No Event of Non-compliance exists or may reasonably be expected to occur
as a consequence of the advance of the Loan to the Borrower;
(b) No event of default has occurred or is continuing under the Senior Note
Documents; and
(c) No other event or circumstance is outstanding which constitutes a default
under any other agreement or instrument which is binding on it or to
which its assets are subject which might have a Material Adverse Effect.
16.10 No misleading information
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In the case of the Borrower:
(a) Any factual information provided by the Borrower to any of the Finance Parties were true and accurate in all material respects as at the date it was provided or as at the date (if any) at which it is stated.
(b) The financial projections provided by the Borrower to any of the Finance Parties have been prepared on the basis of recent historical information and on the basis of reasonable assumptions.
(c) Nothing has occurred and no information has been given or withheld that results in the information provided by the Borrower to any of the Finance Parties being untrue or misleading in any material respect.
16.11 Financial statements
In the case of the Borrower:
(a) Its Original Financial Statements were prepared in accordance with GAAP consistently applied.
(b) Its Original Financial Statements represent its financial condition and operations during the relevant period.
(c) There has been no material adverse change in its business or financial condition since 30 September 2004.
16.12 Pari passu ranking
Its payment obligations under the Finance Documents rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law applying to companies and vessels generally.
16.13 No proceedings pending or threatened
No litigation, arbitration or administrative proceedings of or before any court, arbitral body or agency which, if adversely determined, might reasonably be expected to have a Material Adverse Effect have (to the best of its knowledge and belief) been started or threatened against it.
16.14 Indebtedness/encumbrances
Save as permitted under this Agreement and any Senior Note Documents, no Owner has any indebtedness or created any encumbrances over all or any of its assets.
16.15 Ownership
Each Owner is a wholly owned subsidiary of the Borrower, and each Owner is the legal and beneficial owner of the relevant Vessel as listed in Schedule 1.
16.16 Repetition
The representations are deemed to be repeated by each Obligor by reference to the facts and circumstances then existing on the first day of each Interest Period.
17 INFORMATION UNDERTAKINGS
The undertakings in this Clause 17 remain in force from the date of this Agreement for so long as the Commitment is in force or any amount is outstanding under the Finance Documents.
17.1 Financial statements
The Borrower shall supply to the Administrative Agent:
(a) as soon as the same become available, but in any event within 180 days
after the end of each financial year, its audited financial statements
for that financial year; and
(b) as soon as the same become available, but in any event within 60 days
after the end of each financial quarter its unaudited quarterly financial
statements; and
(c) such other financial and other information of any Obligor as the Lenders
shall reasonably require from time to time.
17.2 Compliance Certificate
(a) The Borrower shall supply to the Administrative Agent with each set of
financial statements delivered pursuant to Clause 17.1 (Financial
statements) a Compliance Certificate substantially in the form set out in
Schedule 7 setting out (in reasonable detail) computations as to
compliance with Clause 18 (Financial covenants) as at the date as at
which those financial statements were drawn up.
(b) Each Compliance Certificate shall be signed by a director of the
Borrower.
17.3 Requirements as to financial statements
(a) Each set of financial statements delivered by the Borrower pursuant to
Clause 17.1 (Financial statements) shall be certified by a director of
the Borrower as representing its financial condition as at the date as at
which those financial statements were drawn up.
(b) The Borrower shall procure that each set of financial statements
delivered pursuant to Clause 17.1 (Financial statements) is prepared
using GAAP or such other generally accepted accounting principles
acceptable to the Administrative Agent.
17.4 Information: miscellaneous
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The Borrower shall supply to the Administrative Agent:
(a) all documents dispatched by it to its shareholders or its creditors
generally at the same time as they are dispatched;
(b) promptly upon becoming aware of it, the details of any litigation,
arbitration or administrative proceedings which are current, threatened
or pending, and which might, if adversely determined, have a Material
Adverse Effect; and
(c) promptly, such further information regarding its, the Charterers or any
of the Owners' financial condition, business and operations as the
Administrative Agent may reasonably request.
17.5 Notification of non-compliance
(a) The Borrower shall notify the Administrative Agent of an Event of
Non-compliance (and the steps, if any, being taken to remedy it) promptly
upon becoming aware of its occurrence.
(b) Promptly upon a request by the Administrative Agent, the Borrower shall
supply to the Administrative Agent a certificate signed by two of its
directors certifying that no Event of Non-compliance is continuing (or if
an Event of Non-compliance is continuing, specifying the Event of
Non-compliance and the steps, if any, being taken to remedy it).
18 FINANCIAL COVENANTS
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The undertakings in this Clause 18 remain in force from the date of this Agreement for so long as the Commitment is in force or any amount is outstanding under the Finance Documents.
18.1 Minimum Value
If at any time the aggregate of the Ship's Value of the Vessels shall fall below 140 % of the Loan, the Borrower shall either (i) prepay the amount of the Loan necessary to restore such ratio or (ii) provide additional security for the Loan which in the reasonable opinion of all Lenders is deemed satisfactory for restoring such ratio.
18.2 Free Cash
The Borrower shall on a consolidated basis at any time maintain Free Cash of a minimum of USD 25,000,000.
18.3 Working capital
The Borrower shall on a consolidated basis at any time maintain a positive Working Capital.
For the purpose of this Clause "Working Capital" means Current Assets less Current Liabilities and "Current Assets" means at any time, in accordance with GAAP, the consolidated book value of the current assets of such Borrower and "Current Liabilities" means at any time, in accordance with GAAP, the consolidated book value of the current liabilities excluding the short term portion of the long term debt of such Borrower.
18.4 Minimum Equity Ratio
The Minimum Equity Ratio of the Borrower on a consolidated basis on the last day of each financial quarter shall be at least 20%.
For the purpose of this Clause "Minimum Equity Ratio" means the ratio (expressed as a percentage) of Shareholder Equity to Total Assets and "Shareholder Equity" means Total Assets less Total Liabilities and "Total Assets" means at any time, in accordance with GAAP, the consolidated book value of all assets (both tangible and intangible) owned by the Borrower at the relevant time and "Total Liabilities" means at any time, the consolidated book value of long term and short term debt and other liabilities which in accordance with GAAP shall be included in a balance sheet.
19 VESSEL UNDERTAKINGS
The undertakings in this Clause 19 remain in force from the date of this Agreement for so long as the Commitment is in force or any amount is outstanding under the Finance Documents.
19.1 Registration and ownership
Each Owner shall (and the Borrower shall procure that each Owner will) remain the sole owner of its Vessel and shall keep its Vessel registered in a ship register acceptable to the Majority Lenders provided, however, that an Owner shall have the right to sell its Vessel upon the Borrower giving the Administrative Agent not less than ten (10) calendar days irrevocable written notice prior to the transfer of such Vessel.
19.2 Flag
Each Owner shall (and the Borrower shall procure that each Owner will) maintain its Vessel with a flag acceptable to the Majority Lenders.
19.3 Classification
Each Owner shall (and the Borrower shall procure that each Owner will) maintain the classification of its Vessel with first class classification societies acceptable to the Majority Lenders free of overdue recommendations and shall allow the Administrative Agent or its representatives to inspect the original class and related records of such Vessel with such classification society and to take copies of them.
19.4 Laws and safety management
Each Owner shall (and the Borrower shall procure that each Owner will) maintain its Vessel and its management in compliance from time to time with:
(a) Environmental Laws;
(b) the ISM Code;
(c) the ISPS Code;
(d) laws, regulations and requirements of the flag state
and to obtain and comply with all applicable Environmental Approvals, and upon any Obligor or its manager becoming aware thereof, it shall promptly notify the Administrative Agent in writing of any breach or alleged breach of any of the above laws, approvals or regulations.
19.5 Management Agreement
The management agreement of each Vessel shall be with the Manager or with managers approved by the Majority Lenders, and the Manager shall be in possession of a DOC and shall at all times be acceptable to the Majority Lenders and each Owner shall (and the Borrower shall procure that each Owner will) not make or agree to any material change to the Management Agreement without the prior written consent of the Administrative Agent on behalf of the Majority Lenders which shall not be unreasonably withheld.
19.6 Technical condition
Each Owner shall (and the Borrower shall procure that each Owner will) maintain its Vessel in a technical condition consistent with first class ship ownership and management practice, and it shall arrange to have its Vessel submitted for technical inspection in form and substance satisfactory to the Majority Lenders by an independent surveyor appointed by the Administrative Agent and the Borrower shall reimburse the costs thereof limited however to one inspection per year. In the event such inspection does not conclude with a report satisfactory to the Majority Lenders, the Borrower shall procure that the technical condition of such Vessel is rectified and re-submit such Vessel for technical inspections in the same manner within three months and at their own expense.
19.7 Major structural alteration
No Owner shall (and the Borrower shall procure that no Owner will) without the prior written consent of the Administrative Agent on behalf of the Majority Lenders permit any major structural alteration or any other major change to be made to its Vessel or undertake, contract or otherwise make any investment in respect of its Vessel in excess of USD 1,000,000 per annum unless such investment is necessary to maintain such Vessel's class.
19.8 Insurances
(a) Each Owner shall (and the Borrower shall procure that each Owner will)
keep its Vessel insured for risks and at values as may at any time be
reasonably required by the Administrative Agent on behalf of the Majority
Lenders with first class underwriters and at terms acceptable to the
Administrative Agent and register and maintain the registration of the
Administrative Agent as mortgagee (on behalf of the Lenders) with first
priority in all insurance policies and certificates of entry.
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(b) The insurances shall include:
(i) Hull and Machinery,
(ii) Hull Interest and Freight Interest,
(iii) War Risks,
(iv) Protection and Indemnity,
(v) MAP (Additional Perils) Pollution
(c) The insured value for Hull and Machinery shall cover at least 80% of the
Ship's Value of each Vessel, (ii) the insured value for Hull and
Machinery as combined with Hull Interest and Freight Interest and for War
Risks shall always cover at least the Ship's Value of each Vessel and
(iii) the aggregate insured value for Hull and Machinery as combined with
Hull Interest and Freight Interest and for War Risks for all Vessels
shall cover at least 110 % of the Loan.
(d) Each Owner shall (and the Borrower shall procure that each Owner will) punctually pay all insurance premiums and calls in respect of its Vessel, timely renew the insurances and deliver to the Administrative Agent copies of cover notes and certificates of entry evidencing that such Vessel is insured and that the Administrative Agent is noted as mortgagee in the Vessel's insurance policies with first priority.
(e) Each Owner shall (and the Borrower shall procure that each Owner will) timely submit US Voyage Declarations in accordance with the P&I terms of cover and obtain a Certificate of Financial Responsibility (COFR) before its Vessel is trading to the United States.
(f) In the event the Administrative Agent after consultation with the Borrower has obtained MAP (Additional Perils) Pollution to secure the interest of the Finance Parties in the Vessels, the Borrower shall reimburse the Administrative Agent in full all the costs incurred by the Administrative Agent in this connection.
19.9 Accident, Total Loss or arrest
Each Owner shall (and the Borrower shall procure that each Owner will) promptly notify the Administrative Agent in writing (in case of urgency by telefax) of:
(i) any accident to its Vessel involving repairs where the cost is likely to exceed USD 1,000,000 (or the equivalent in any other currency);
(ii) any occurrence in consequence whereof its Vessel has become or is likely to become a total loss ("Total Loss") which expression shall include the actual, constructive or compromised total loss of such Vessel; and
(iii) any arrest of its Vessel or the exercise or purported exercise of any lien on such Vessel.
19.10 Release of distress
Each Owner shall (and the Borrower shall procure that each Owner will) promptly notify the Administrative Agent in writing of any distress or other similar charges against its Vessel that it or its manager should become aware of and if required by the Majority Lenders, it shall procure that any distress or other similar charges against its Vessel shall be released.
19.11 Encumbrances
No Owner shall (and the Borrower shall procure that no Owner will) register or grant or permit any mortgage or other encumbrance over its Vessel other than the Mortgages or any lien arising by operation of law or in the ordinary course of trading of its Vessel without the prior written consent of the Administrative Agent on behalf of the Majority Lenders.
19.12 Commercial management
The commercial management agreement of the Vessels shall be with the Manager or such other manager as approved by the Administrative Agent on behalf of the Majority Lenders and no Owner shall (and the Borrower shall procure that no Owner will) make or agree to any material change thereto without the prior written consent of the Administrative Agent on behalf of the Majority Lenders which shall not be unreasonably withheld.
19.13 Valuation
Each Owner shall (and the Borrower shall procure that each Owner shall) at any time required by the Majority Lenders arrange to have its Vessel valued at the Borrower's expense, but then limited to four times per year, by three independent and reputable ship broking firms approved by the Administrative Agent, such valuations to set the considered market value of a Vessel free of charter, the average of said three valuations being referred to in this Agreement as the "Ship's Value".
20 CORPORATE UNDERTAKINGS
The undertakings in this Clause 20 remain in force from the date of this Agreement for so long as the Commitment is in force or any amount is outstanding under the Finance Documents.
20.1 No change of status
No Obligor shall make any changes to its constitutive documents or merge, de-merge, consolidate or liquidate or in any other way make any amendments to its corporate status without the prior written consent of the Administrative Agent on behalf of the Majority Lenders.
20.2 No change of control
If at any time more than fifty per cent (50%) of the issued voting share capital of the Borrower or the right to control or direct the majority of the board of directors of the Borrower becomes held by one person or one company (or two or more persons/companies acting in concert) (a "Change of Control Event") the Borrower shall immediately upon becoming aware thereof give notice to the Administrative Agent. Unless the Administrative Agent (on behalf of the Majority Lenders) consent to the change of control, the Administrative Agent and the Borrower shall enter into negotiations for a period of not more than thirty days (counted from the date when the Borrower became aware of the Change of Control Event) with a view to agreeing any amendments or agreements in light of the consequences of the Change of Control Event. If the negotiation fails to reach an agreed outcome within the thirty days, the Administrative Agent may thereafter give notice to the Borrower requiring the Borrower to prepay the Loan and other amounts outstanding under the Finance Documents within 90 days and cancel the Commitment.
20.3 Listing
The Borrower shall remain listed at the New York Stock Exchange.
20.4 No change of ownership
The Borrower shall ensure that each Owner is a wholly-owned subsidiary of it and the Borrower shall not make (and no Owner shall permit) any disposal of its ownership and control without the prior written consent of the Administrative Agent on behalf of the Majority Lenders.
20.5 Scope of business
No Owner shall engage in any other business than that immediately related to the owning of the Vessels and the Borrower shall not engage in other business than what is connected with the owning of tanker vessels.
20.6 No further borrowing
No Owner shall make any further borrowing, enter into any guarantee liability and have any other indebtedness than the shareholders' loans (which shall be fully subordinated to the rights of the Finance Parties under this Agreement) its obligations under the Senior Note Documents and trade debt following the ordinary operation of its Vessel without the prior written consent of the Administrative Agent on behalf of the Majority Lenders.
20.7 No further investments
No Owner shall commit to any further investments or activities other than those related to the ownership and the regular operation of its Vessels and the Borrower shall not commit to any investments or activities other than those related to the nature of its business without the prior written consent of the Administrative Agent on behalf of the Majority Lenders.
20.8 No distribution
The Borrower shall not distribute any profit to, make any dividend payment to, repay or make any payment of interest on any loans from, or make any other distribution of any asset to its shareholders unless the aggregate of a) Free Cash and b) the Charter Service Reserve Deposit immediately after such distribution will be minimum USD 100,000,000 and no Event of Non-compliance has occurred or is continuing.
20.9 Earnings accounts The Borrower shall keep its Earnings Account with the Administrative Agent. 20.10 Authorisations |
Each Obligor shall promptly:
(a) obtain, comply with and do all that is necessary to maintain in full force and effect; and
(b) supply certified copies to the Administrative Agent of,
any authorisation required under any law or regulation of its jurisdiction of incorporation to enable it to perform its obligations under the Finance Documents and to ensure the legality, validity, enforceability or admissibility in evidence in its jurisdiction of incorporation of any Finance Document.
20.11 Compliance with laws
Each Obligor shall comply in all respects with all laws to which it may be subject, if failure so to comply would materially impair its ability to perform its obligations under the Finance Documents.
20.12 Interest Hedging Agreements
The Borrower shall not make any amendments to or terminate the Interest Hedging Agreements without the prior written consent of the Administrative Agent on behalf of the Majority Lenders which shall not be unreasonably withheld, and it shall fulfil all its obligations under the Interest Hedging Agreements.
20.13 Money laundering
The Borrower shall be acting for its own account in relation to the borrowing of the Loan, the performance and discharge of its obligations and liabilities under the Finance Documents and the transactions and other arrangements effected or contemplated by the Finance Documents to which it is a party and the foregoing shall not involve or lead to a contravention of any law, official requirement or other regulatory measure or procedure which has been implemented to combat "money laundering" (as defined in Article 1 of the Directive (91/308/EEC) of the council of the European Communities).
20.14 Transaction Documents
No Obligor shall (and the Borrower shall procure that neither the Charterer, Frontline Ltd. or other related companies will) make or agree to any changes to the Transaction Documents without the prior written consent of the Administrative Agent on behalf of the Majority Lenders which shall not be unreasonably withheld.
21 EVENTS OF NON-COMPLIANCE AND DEFAULT
21.1 Event of Non-compliance
Each of the events or circumstances set out in Clauses (a) to (h) below is an Event of Non-compliance:
(a) Non-payment
The Borrower does not pay on the due date any amount payable pursuant to a Finance Document at the place at and in the currency in which it is expressed to be payable unless:
(i) its failure to pay is caused by administrative or technical error; and
(ii) payment is received by the Administrative Agent within 5 Business Days of its due date.
(b) Non-compliance
Either the Borrower or any of the Owners does not comply in any material respect in its due performance or observance of any undertaking, covenant or other obligation or term contained in any of the Finance Documents other than as set forth in Clause 21.1 (a) (Non payment) and such non-compliance is not remedied (if, in the opinion of the Administrative Agent (acting on the instructions of the Majority Lenders) such non-compliance is capable of remedy) within 14 days from receipt by the Borrower of a request for remedy from the Administrative Agent always provided that no period of remedy will be accorded in respect of any non-compliance by the Borrower in relation to its obligations under Clauses 19.1 (Registration and ownership), 19.2 (Flag), 19.3 (Classification) and 19.8 (Insurances).
(c) Misrepresentation
Any representation or statement made or repeated in or in connection with the Finance Documents or any other document delivered by or on behalf of the Borrower or any of the Owners under or in connection with any Finance Document is or proves to have been incorrect or misleading in any material respect when made or deemed to be made.
(d) Cross default
(i) Any Financial Indebtedness above USD 10,000,000 in the case of the Borrower or above USD 3,000,000 in the case of an Owner is not paid when due nor within any originally applicable grace period.
(ii) For the purpose of this Clause, "Financial Indebtedness" means any indebtedness for or in respect of:
1. moneys borrowed;
2. any amount raised by acceptance under any acceptance credit facility;
3. any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;
4. the amount of any liability in respect of any lease or hire purchase contract which would, in accordance with GAAP, be treated as a finance or capital lease;
5. receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis);
6. any amount raised under any other transaction (including any forward sale or purchase agreement) having the commercial effect of a borrowing;
7. any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price (and, when calculating the value of any derivative transaction, only the marked to market value shall be taken into account);
8. any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution; and
9. the amount of any liability in respect of any guarantee or
indemnity for any of the items referred to in paragraphs
(1) to (8) above.
(e) Insolvency
(i) The Borrower or any of the Owners is unable or admits inability to pay its debts as they fall due, suspends making payments on any of its debts.
(ii) The value of the assets of the Borrower is less than its liabilities (taking into account contingent and prospective liabilities).
(iii) A moratorium is declared in respect of any indebtedness of the Borrower or any Owner.
(iv) Any insolvency proceedings or any analogous procedure is initiated against the Borrower or any Owner.
(f) Unlawfulness
It is or becomes unlawful for the Borrower or any of the Owners to perform any of its obligations under the Finance Documents.
(g) Senior Note Default
Any Senior Note Default is declared and is continuing.
(h) Event of default under a Transaction Document
There is an event of default under any Transaction Document and, save for the failure of the Charterer at any time to hold at least USD 55,000,000 in cash or cash equivalents (as defined in the Charter Ancillary Agreement), in the reasonable opinion of the Majority Lenders, such default will adversely affect the Borrower's or the Owners' ability to fulfil its obligations under the Finance Documents.
(i) Material adverse change
The Borrower, the Charterer or any of the Owners shall suffer a material adverse change in its financial position or its operation which in the reasonable opinion of the Majority Lenders will adversely affect the Borrower's or the Owners' ability to fulfil its obligations under the Finance Documents.
21.2 Default
At any time following the occurrence of an Event of Non-compliance and while it is continuing, the Administrative Agent may and if so directed by the Majority Lenders, shall by notice to the Borrower declare that a Default has occurred.
21.3 Acceleration
The Administrative Agent may and if so directed by the Majority Lenders, shall, either in the notice of default or at any time subsequent thereto while the circumstances having given rise to such Default continues:
(a) cancel the Commitment; and/or
(b) declare that all amounts outstanding from the Borrower to the Finance Parties hereunder at such time shall be immediately due and payable, whereafter the Borrower shall be obliged to pay the same.
21.4 Remedy
The Administrative Agent (acting under the instructions of the Majority Lenders) shall, if the circumstances having given rise to a Default have been remedied and the Borrower otherwise is in compliance with its obligations hereunder, notify the Borrower that the Default no longer exists.
22 GUARANTEE
22.1 Guarantee and indemnity
Each Owner hereby unconditionally and irrevocably:
(a) guarantees, jointly and severally, to the Security Agent, the Hedge Counterparties, the Administrative Agent and the Lenders punctual performance by each Obligor of its obligations under the Finance Documents;
(b) undertakes, jointly and severally, with the Security Agent, the Administrative Agent and the Lenders that whenever any Obligor does not pay any amount when due under or in connection with any Finance Document, any Owner shall immediately on demand pay that amount as if it was the principal obligor; and
(c) indemnifies, jointly and severally, each Finance Party immediately on demand against any cost, loss or liability suffered by that Finance Party if any obligation guaranteed by it is or becomes unenforceable, invalid or illegal. The amount of the cost, loss or liability shall be equal to the amount which that Finance Party would otherwise have been entitled to recover.
For the purpose of fulfilling the requirements of the Financial Contracts Act ss. 61, each Owners maximum liability secured by this Guarantee is USD 1,131,439,219. Each Owner is in addition liable for interest and costs in accordance with this Agreement.
22.2 Continuing guarantee
This Guarantee is a continuing guarantee and shall extend to the ultimate balance of sums payable by any Obligor under the Finance Documents, regardless of any intermediate payment or discharge in whole or in part.
22.3 Reinstatement
If any payment by an Obligor or any discharge given by a Finance Party (whether in respect of the obligations of any Obligor or any security for those obligations or otherwise) is avoided or reduced as a result of insolvency or any similar event:
(a) the liability of each Obligor shall continue as if the payment, discharge, avoidance or reduction had not occurred; and
(b) each Finance Party shall be entitled to recover the value or amount of that security or payment from each Obligor, as if the payment, discharge, avoidance or reduction had not occurred.
22.4 Waiver of defences
The obligations of any of the Owners shall not be affected by an act, omission,
matter or thing which would reduce, release or prejudice any of its obligations
(without limitation and whether or not known to it or any Finance Party)
including:
(a) any time, waiver or consent granted to, or composition with, any Obligor or other person;
(b) the release of any other Obligor or any other person under the terms of any composition or arrangement with any creditor of any Obligor;
(c) the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect, take up or enforce, any rights against, or security over assets of, any Obligor or other person or any non-presentation or non-observance of any formality or other requirement in respect of any instrument or any failure to realise the full value of any security;
(d) any incapacity or lack of power, authority or legal personality of or dissolution or change in the members or status of an Obligor or any other person;
(e) any amendment (however fundamental) or replacement of a Finance Document or any other document or security; (f) any unenforceability, illegality or invalidity of any obligation of any person under any Finance Document or any other document or security;
(g) any insolvency or similar proceedings; or
(h) the provisions of sections 62 (1), 63, 65, 66, 67, 70, 71, 72, 73 and 74 of the Norwegian Financial Contracts Act.
22.5 Immediate recourse
Each Owner waives any right it may have of first requiring any Finance Party (or any trustee or agent on its behalf) to proceed against or enforce any other rights or security or claim payment from any person before claiming from any of the Owners. This waiver applies irrespective of any law or any provision of a Finance Document to the contrary.
22.6 Appropriations
Until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full, each Finance Party (or any trustee or agent on its behalf) may:
(a) refrain from applying or enforcing any other moneys, security or rights held or received by that Finance Party (or any trustee or agent on its behalf) in respect of those amounts, or apply and enforce the same in such manner and order as it sees fit (whether against those amounts or otherwise) and none of the Owners shall be entitled to the benefit of the same; and
(b) hold in an interest-bearing suspense account any moneys received from any Owner or on account of the Owner's liability under this Guarantee.
22.7 Deferral of Owners' rights
Until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full and unless the Administrative Agent otherwise directs, no Owner shall exercise any rights which it may have by reason of performance by it of its obligations under the Finance Documents:
(a) to be indemnified by the Borrower;
(b) to claim any contribution from any Obligor under the Finance Documents; and/or
(c) to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Finance Parties under the Finance Documents or of any other guarantee or security taken pursuant to, or in connection with, the Finance Documents by any Finance Party.
22.8 Additional security
This Guarantee is in addition to and is not in any way prejudiced by any other guarantee or security now or subsequently held by any Finance Party.
22.9 Owner's right of contribution
Subject to Clause 22.7 (Deferral of Owners' rights), at any time a payment is made under the Guarantee each such Guarantor shall have a right of contribution against each other Guarantor who has made no payment or has made payments in respect of the Guarantee.
22.10 No Fraudulent Conveyance
The Borrower, each Owner and each Lender (by its signature hereto and the Security Agent's acceptance on its behalf of the benefits of the relevant Mortgage) hereby confirms that it is its intention that the provisions of the Guarantee and each Mortgage not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Code, the Uniform Fraudulent Conveyance Act or any similar United States Federal or state law or similar law of any other jurisdiction. To effectuate the foregoing intention, the Borrower, each Owner and each Lender (by its signature hereto and the Security Agent's acceptance of the benefits of the relevant Mortgage) hereby irrevocably agrees that the obligations secured under the Security Documents by each Owner shall be limited to such amount as will, after giving effect to such maximum amount and all other (contingent or otherwise) liabilities of such Owner that are relevant under such laws and after giving effect to any rights to contribution pursuant to any agreement providing for an equitable contribution among such Owner and the other Owners, result in the obligations secured under the Security Documents of such Owner in respect of such maximum amount not constituting a fraudulent transfer or conveyance.
23 CHANGES TO THE LENDERS
23.1 Transfers by the Lenders
Subject to this Clause 23, a Lender (the "Existing Lender") may transfer any of its rights and obligations under the Finance Documents to another bank or financial institution (the "New Lender").
23.2 Conditions of transfer
(a) The consent of the Borrower is required for transfer by a Lender, unless
the transfer is to another Lender or an affiliate of a Lender.
(b) The consent of the Borrower to a transfer must not be unreasonably
withheld or delayed. The Borrower shall be deemed to have given its
consent five Business Days after that Lender has requested it unless
consent is expressly refused by the Borrower within that time.
(c) An assignment shall only be effective on receipt by the Administrative
Agent of written confirmation from the New Lender (in form and substance
satisfactory to the Administrative Agent) that the New Lender shall
assume the same obligations to the other Finance Parties as it would have
been under if it was an Existing Lender.
(d) A transfer shall only be effective if the procedure set out in Clause
23.4 (Procedure for transfer) is complied with.
23.3 Limitation of responsibility of Existing Lenders
(a) Unless expressly agreed to the contrary, an Existing Lender makes no
representation or warranty and assumes no responsibility to a New Lender
for:
(i) the legality, validity, effectiveness, adequacy or enforceability
of the Finance Documents or any other documents;
(ii) the financial conditions of the Obligors;
(iii) the performance and observance by any Obligors of its obligations
under the Finance Documents or any other documents; or
(iv) the accuracy of any statements (whether written or oral) made in
or in connection with any Finance Document or any other document,
(v) and any representations or warranties implied by law are excluded.
(b) Each New Lender confirms to the Existing Lender and the other Finance
Parties that it:
(i) has made (and shall continue to make) its own independent
investigation and assessment of the financial condition and
affairs of the Borrower and the Owners and their related entities
in connection with its participation in this Agreement and has not
relied exclusively on any information provided to it by the
Existing Lender in connection with any Finance Document; and
(ii) will continue to make its own independent appraisal of the
creditworthiness of the Borrower and the Owners and their related
entities whilst any amount is or may be outstanding under the
Finance Documents.
(c) Nothing in any Finance Document obliges an Existing Lender to:
(i) accept a re-transfer from a New Lender of any of the rights and
obligations assigned or transferred under this Clause 23; or
(ii) support any losses directly or indirectly incurred by the New
Lender by reason of the non-performance by the Borrower of its
obligations under the Finance Documents or otherwise.
23.4 Procedure for transfer
(a) Subject to the conditions set out in Clause 23.2 (Conditions of transfer)
a transfer is effected in accordance with paragraph (b) below when the
Administrative Agent executes an otherwise duly completed Transfer
Certificate delivered to it by the Existing Lender and the New Lender.
The Administrative Agent shall, as soon as reasonably practicable after
receipt by it of a duly completed Transfer Certificate appearing on its
face to comply with the terms of this Agreement and delivered in
accordance with the terms of this Agreement, execute that Transfer
Certificate.
(b) On the Transfer Date:
(i) to the extent that in the Transfer Certificate the Existing Lender
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seeks to transfer its rights and obligations under the Finance Documents the Borrower and the Existing Lender shall be released from further obligations towards one another under the Finance Documents and their respective rights against one another under the Finance Documents shall be cancelled (being the "Discharged Rights and Obligations");
(ii) the Borrower and the New Lender shall assume obligations towards one another and/or acquire rights against one another which differ from the Discharged Rights and Obligations only insofar as the Borrower and the New Lender have assumed and/or acquired the same in place of the Borrower and the Existing Lender;
(iii) the Administrative Agent, the New Lender and other Lenders shall acquire the same rights and assume the same obligations between themselves as they would have acquired and assumed had the New Lender been an Existing Lender with the rights and/or obligations acquired or assumed by it as a result of the transfer and to that extent the Administrative Agent and the Existing Lender shall each be released from further obligations to each other under the Finance Documents; and
(iv) the New Lender shall become a Party as a "Lender".
24 CHANGES TO THE OBLIGORS
No Obligor may assign any of its rights or transfer any of its rights or obligations under the Finance Documents.
25 ROLE OF THE ADMINISTRATIVE AGENT
25.1 Appointment of the Administrative Agent
(a) Each other Lender appoints the Administrative Agent to act as its agent
under and in connection with the Finance Documents.
(b) Each other Lender authorises the Administrative Agent to exercise the
rights, powers, authorities and discretions specifically given to the
Administrative Agent under or in connection with the Finance Documents
together with any other incidental rights, powers, authorities and
discretions.
25.2 Duties of the Administrative Agent
(a) The Administrative Agent shall promptly forward to a Party the original
or a copy of any document which is delivered to the Administrative Agent
for that Party by any other Party.
(b) Except where a Finance Document specifically provides otherwise, the
Administrative Agent is not obliged to review or check the adequacy,
accuracy or completeness of any document it forwards to another Party.
(c) If the Administrative Agent receives notice from a Party referring to
this Agreement, describing an Event of Non-compliance and stating that
the circumstance described is an Event of Non-compliance, it shall
promptly notify the Lenders.
(d) If the Administrative Agent is aware of the non-payment of any principal,
interest, commitment fee or other fee payable to a Finance Party (other
than the Administrative Agent) under this Agreement it shall promptly
notify the other Finance Parties.
(e) The Administrative Agent's duties under the Finance Documents are solely
mechanical and administrative in nature.
25.3 No fiduciary duties
(a) Nothing in this Agreement constitutes the Administrative Agent as a
fiduciary of any other person.
(b) The Administrative Agent shall not be bound to account to any Lender for
any sum or the profit element of any sum received by it for its own
account.
25.4 Business with the Obligors
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The Administrative Agent may accept deposits from, lend money to and generally engage in any kind of banking or other business with any Obligor.
25.5 Rights and discretions of the Administrative Agent
(a) The Administrative Agent may rely on:
(i) any representation, notice or document believed by it to be
genuine, correct and appropriately authorised; and
(ii) any statement made by a director, authorised signatory or employee
of any person regarding any matters which may reasonably be
assumed to be within his knowledge or within his power to verify.
(b) The Administrative Agent may assume (unless it has received notice to the
contrary in its capacity as agent for the Lenders) that:
(i) no default has occurred (unless it has actual knowledge of a
default arising under Clause 21.1(a) (Non-payment)); and
(ii) any right, power, authority or discretion vested in any Party or
the Lenders has not been exercised.
(c) The Administrative Agent may engage, pay for and rely on the advice or
services of any lawyers, accountants, surveyors or other experts.
(d) The Administrative Agent may act in relation to the Finance Documents
through its personnel and agents.
(e) The Administrative Agent may disclose to any other Party any information
it reasonably believes it has received as agent under this Agreement.
(f) Notwithstanding any other provision of any Finance Document to the
contrary, the Administrative Agent is not obliged to do or omit to do
anything if it would or might in its reasonable opinion constitute a
breach of any law or regulation or a breach of a fiduciary duty or duty
of confidentiality.
25.6 Majority Lenders' instructions
(a) Unless a contrary indication appears in a Finance Document, the
Administrative Agent shall (i) exercise any right, power, authority or
discretion vested in it as Administrative Agent in accordance with any
instructions given to it by the Majority Lenders (or, if so instructed by
the Majority Lenders, refrain from exercising any right, power, authority
or discretion vested in it as Administrative Agent) and (ii) not be
liable for any act (or omission) if it acts (or refrains from taking any
action) in accordance with an instruction of the Majority Lenders.
(b) Unless a contrary indication appears in a Finance Document, any
instructions given by the Majority Lenders will be binding on all the
Finance Parties.
(c) The Administrative Agent may refrain from acting in accordance with the
instructions of the Majority Lenders (or, if appropriate, the Lenders)
until it has received such security as it may require for any cost, loss
or liability (together with any associated VAT) which it may incur in
complying with the instructions.
(d) In the absence of instructions from the Majority Lenders, (or, if
appropriate, the Lenders) the Administrative Agent may act (or refrain
from taking action) as it considers to be in the best interest of the
Lenders.
(e) The Administrative Agent is not authorised to act on behalf of a Lender
(without first obtaining that Lender's consent) in any legal or
arbitration proceedings relating to any Finance Document.
25.7 Responsibility for documentation
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The Administrative Agent:
(a) is not responsible for the adequacy, accuracy and/or completeness of any
information (whether oral or written) supplied by the Administrative
Agent, the Borrower or any other person given in or in connection with
any Finance Document; or
(b) is not responsible for the legality, validity, effectiveness, adequacy or
enforceability of any Finance Document or any other agreement,
arrangement or document entered into, made or executed in anticipation of
or in connection with any Finance Document.
25.8 Exclusion of liability
(a) Without limiting paragraph (b) below, the Administrative Agent shall not
be liable for any action taken by it under or in connection with any
Finance Document, unless directly caused by its gross negligence or
wilful misconduct.
(b) No Party (other than the Administrative Agent) may take any proceedings
against any officer, employee or agent of the Administrative Agent in
respect of any claim it might have against the Administrative Agent or in
respect of any act or omission of any kind by that officer, employee or
agent in relation to any Finance Document and any officer, employee or
agent of the Administrative Agent may rely on this Clause.
(c) The Administrative Agent shall not be liable for any delay (or any
related consequences) in crediting an account with an amount required
under the Finance Documents to be paid by the Administrative Agent if the
Administrative Agent has taken all necessary steps as soon as reasonably
practicable to comply with the regulations or operating procedures of any
recognised clearing or settlement system used by the Administrative Agent
for that purpose.
25.9 Lender's indemnity to the Administrative Agent
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Each Lender shall (in proportion with its participation in the Loan) indemnify the Administrative Agent within three Business Days of demand against any cost, loss or liability incurred by the Administrative Agent (otherwise than by reason of the Administrative Agent's gross negligence or wilful misconduct) in acting as Administrative Agent under the Finance Documents (unless the Administrative Agent has been reimbursed by the Borrower pursuant to a Finance Document).
25.10 Resignation of the Administrative Agent
The Administrative Agent may resign by giving notice to the Lenders and the Borrower, in which case the Lenders (after consultation with the Borrower) may appoint a successor Administrative Agent.
25.11 Confidentiality
(a) In acting as Administrative Agent for the Finance Parties, the
Administrative Agent shall be regarded as acting through its agency
division which shall be treated as a separate entity from any other of
its divisions or departments.
(b) If information is received by another division or department of the
Administrative Agent, it may be treated as confidential to that division
or department and the Administrative Agent shall not be deemed to have
notice of it.
25.12 Relationship with the Lenders
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The Administrative Agent may treat each Lender as a Lender entitled to payments under this Agreement and unless it has received not less than five Business Days prior notice from that Lender to the contrary in accordance with the terms of this Agreement.
25.13 Credit appraisal by the Lenders
Without affecting the responsibility of the Borrower for information supplied by it or on its behalf in connection with any Finance Document, each Lender confirms to the Administrative Agent that it has been, and shall continue to be, solely responsible for making its own independent appraisal and investigation of all risks arising under or in connection with any Finance Document including but not limited to:
(a) the financial condition, status and nature of the Borrower;
(b) the legality, validity, effectiveness, adequacy or enforceability of any Finance Document and any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document;
(c) whether that Lender has recourse, and the nature and extent of that recourse, against any Party or any of its respective assets under or in connection with any Finance Document, the transactions contemplated by the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document; and
(d) the adequacy, accuracy and/or completeness of any other information provided by the Administrative Agent, any Party or by any other person under or in connection with any Finance Document, the transactions contemplated by the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document.
25.14 Deduction from amounts payable by the Administrative Agent
If any Party owes an amount to the Administrative Agent under the Finance Documents the Administrative Agent may, after giving notice to that Party, deduct an amount not exceeding that amount from any payment to that Party which the Administrative Agent would otherwise be obliged to make under the Finance Documents and apply the amount deducted in or towards satisfaction of the amount owed. For the purposes of the Finance Documents that Party shall be regarded as having received any amount so deducted.
26 SHARING AMONG THE FINANCE PARTIES
26.1 Payment to Finance Parties
If a Finance Party (a "Recovering Finance Party") receives or recovers any amount from the Borrower (including by set-off) other than in accordance with Clause 27 (Payment mechanics) and applies that amount to a payment due under the Finance Documents then:
(a) the Recovering Finance Party shall, within three Business Days, notify details of the receipt or recovery, to the Administrative Agent;
(b) the Administrative Agent shall determine whether the receipt or recovery is in excess of the amount the Recovering Finance Party would have been paid had the receipt or recovery been received or made by the Administrative Agent and distributed in accordance with Clause 27 (Payment mechanics), without taking account of any Tax which would be imposed on the Administrative Agent in relation to the receipt, recovery or distribution; and
(c) the Recovering Finance Party shall, within three Business Days of demand by the Administrative Agent, pay to the Administrative Agent an amount (the "Sharing Payment") equal to such receipt or recovery less any amount which the Administrative Agent determines may be retained by the Recovering Finance Party as its share of any payment to be made, in accordance with Clause 27.5 (Partial payments).
26.2 Redistribution of payments
The Administrative Agent shall treat the Sharing Payment as if it had been paid by the Borrower and distribute it between the Finance Parties (other than the Recovering Finance Party) in accordance with Clause 27.5 (Partial payments).
26.3 Recovering Finance Party's rights
(a) On a distribution by the Administrative Agent under Clause 26.2
(Redistribution of payments), the Recovering Finance Party will be
subrogated to the rights of the Finance Parties which have shared in the
redistribution.
(b) If and to the extent that the Recovering Finance Party is not able to
rely on its rights under paragraph (a) above, each Borrower shall be
liable to the Recovering Finance Party for a debt equal to the Sharing
Payment which is immediately due and payable.
26.4 Reversal of redistribution
|
If any part of the Sharing Payment received or recovered by a Recovering Finance Party becomes repayable and is repaid by that Recovering Finance Party, then:
(a) each Finance Party which has received a share of the relevant Sharing
Payment pursuant to Clause 26.2 (Redistribution of payments) shall, upon
request of the Administrative Agent, pay to the Administrative Agent for
account of that Recovering Finance Party an amount equal to the
appropriate part of its share of the Sharing Payment (together with an
amount as is necessary to reimburse that Recovering Finance Party for its
proportion of any interest on the Sharing Payment which that Recovering
Finance Party is required to pay); and
(b) that Recovering Finance Party's rights of subrogation in respect of any
reimbursement shall be cancelled and each Borrower will be liable to the
reimbursing Finance Party for the amount so reimbursed.
26.5 Exceptions
(a) This Clause 26.5 shall not apply to the extent that the Recovering
Finance Party would not, after making any payment pursuant to this
Clause, have a valid and enforceable claim against the Borrower.
(b) A Recovering Finance Party is not obliged to share with any other Finance
Party any amount which the Recovering Finance Party has received or
recovered as a result of taking legal or arbitration proceedings, if:
(i) it notified that other Finance Party of the legal or arbitration
proceedings; and
(ii) that other Finance Party had an opportunity to participate in
those legal or arbitration proceedings but did not do so as soon
as reasonably practicable having received notice and did not take
separate legal or arbitration proceedings.
27 PAYMENT MECHANICS
27.1 Payments to the Administrative Agent
(a) On each date on which the Borrower or a Lender is required to make a
payment under a Finance Document, the Borrower or Lender shall make the
same available to the Administrative Agent (unless a contrary indication
appears in a Finance Document) for value on the due date at the time and
in such funds specified by the Administrative Agent as being customary at
the time for settlement of transactions in the relevant currency in the
place of payment.
(b) Payment shall be made to such account in the principal financial centre
of the country of that currency and with such bank as the Administrative
Agent specifies.
27.2 Distributions by the Administrative Agent
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Each payment received by the Administrative Agent under the Finance Documents for another Party shall, subject to Clause 27.3 (Distributions of the Borrower) and Clause 27.4 (Clawback) be made available by the Administrative Agent as soon as practicable after receipt to the Party entitled to receive payment in accordance with this Agreement, to such account as that Party may notify to the Administrative Agent by not less than five Business Days' notice with a bank in the principal financial centre of the country of that currency.
27.3 Distributions to the Borrower
The Administrative Agent may (with the consent of the Borrower or in accordance with Clause 15.4 (Set-off)) apply any amount received by it for the Borrower in or towards payment (on the date and in the currency and funds of receipt) of any amount due from the Borrower under the Finance Documents or in or towards purchase of any amount of any currency to be so applied.
27.4 Clawback
(a) Where a sum is to be paid to the Administrative Agent under the Finance
Documents for another Party, the Administrative Agent is not obliged to
pay that sum to that other Party (or to enter into or perform any related
exchange contract) until it has been able to establish to its
satisfaction that it has actually received that sum.
(b) If the Administrative Agent pays an amount to another Party and it proves
to be the case that the Administrative Agent had not actually received
that amount, then the Party to whom that amount (or the proceeds of any
related exchange contract) was paid by the Administrative Agent shall on
demand refund the same to the Administrative Agent together with interest
on that amount from the date of payment to the date of receipt by the
Administrative Agent, calculated by the Administrative Agent to reflect
its cost of funds.
27.5 Partial payments
(a) If the Administrative Agent receives a payment that is insufficient to
discharge all the amounts then due and payable by the Borrower under the
Finance Documents, the Administrative Agent shall apply that payment
towards the obligations of the Borrower under the Finance Documents in
the following order:
(i) first, in or towards payment pro rata of any unpaid fees, costs
and expenses of the Administrative Agent under the Finance
Documents;
(ii) secondly, in or towards payment pro rata of any accrued interest,
fee or commission due but unpaid under this Agreement;
(iii) thirdly, in or towards payment pro rata of any principal due but
unpaid under this Agreement; and
(iv) fourthly, in or towards payment pro rata of any other sum due but
unpaid under the Finance Documents.
(b) The Administrative Agent shall, if so directed by all Lenders, vary the
order set out in paragraphs (a)(ii) to (iv) above.
(c) Paragraphs (a) and (b) above shall override any appropriation made by the
Borrower.
27.6 No set-off by the Borrower
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All payments to be made by the Borrower under the Finance Documents shall be calculated and be made without (and free and clear of any deduction for) set-off or counterclaim.
27.7 Business Days
(a) Any payment which is due to be made on a day that is not a Business Day
shall be made on the next Business Day in the same calendar month (if
there is one) or the preceding Business Day (if there is not).
(b) During any extension of the due date for payment of any principal or
Unpaid Sum under this Agreement interest is payable on the principal or
Unpaid Sum at the rate payable on the original due date.
28 NOTICES
28.1 Communications in writing
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Any communication to be made under or in connection with the Finance Documents shall be made in writing and, unless otherwise stated, may be made by fax or letter.
28.2 Addresses
The address and fax number (and the department or officer, if any, for whose attention the communication is to be made) of each Party for any communication or document to be made or delivered under or in connection with the Finance Documents is:
(a) in the case of the Borrower:
Ship Finance International Limited
c/o Frontline Management AS
Att.: Finance Dept.
P.O. Box 1327 Vika
NO-0112 Oslo
Norway
Telefax: +47 23 11 40 44
(b) in the case of the Administrative Agent:
For credit matters:
DNB NOR Bank ASA,
Att.: Shipping Division
NO-0021 Oslo
Norway
Telefax: +47 22 48 20 20
For administrative matters:
DNB NOR Bank ASA,
Att.: Loan Administration Shipping
NO-0021 Oslo
Norway
Telefax: +47 22 48 28 94
(c) In the case of the Security Agent:
DNB NOR Bank ASA,
Att.: Collateral Department Shipping
NO-0021 Oslo
Norway
Telefax: +47 22 31 92 01
(d) to each Lender at its address and fax number specified in Schedule 2
or any substitute address or fax number or department or officer as the Party may notify to the Administrative Agent (or the Administrative Agent may notify to the other Parties, if a change is made by the Administrative Agent) by not less than five Business Days' notice.
28.3 Notification of address and fax number
Promptly upon receipt of notification of an address and fax number or change of address or fax number pursuant to Clause 28.2 (Addresses) or changing its own address or fax number, the Administrative Agent shall notify the other Parties.
28.4 English language
(a) Any notice given under or in connection with any Finance Document must be
in English.
(b) All other documents provided under or in connection with any Finance
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Document must be:
(i) in English; or
(ii) if not in English, and if so required by the Administrative Agent, accompanied by a certified English translation and, in this case, the English translation shall prevail unless the document is a constitutional, statutory or other official document.
29 CALCULATIONS AND CERTIFICATES
29.1 Accounts
In any litigation or arbitration proceedings arising out of or in connection with a Finance Document, the entries made in the accounts maintained by a Finance Party are prima facie evidence of the matters to which they relate.
29.2 Certificates and Determinations
Any certification or determination by a Finance Party of a rate or amount under any Finance Document is, in the absence of manifest error, conclusive evidence of the matters to which it relates.
29.3 Day count convention
Any interest, commission or fee accruing under a Finance Document shall accrue from day to day and is calculated on the basis of the actual number of days elapsed and a year of 360 days or, in any case where the practice in the London interbank market differs, in accordance with that market practice.
30 PARTIAL INVALIDITY
If, at any time, any provision of the Finance Documents is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired.
31 AMENDMENTS
31.1 Amendments
Except as otherwise provided herein, the Administrative Agent (acting on behalf of the Majority Lenders) may from time to time agree in writing to amend this Agreement or to waive, prospectively or retrospectively, any of the requirements of this Agreement and any amendments or waivers so agreed shall be binding on all the Finance Parties and the Obligors.
31.2 Consent
An amendment or waiver relating to the following matters shall not be made without the prior written consent of each Lender affected thereby:
a) any increase in the Commitment of such Lender;
b) a reduction in the proportion of any amount received or recovered (whether by way of set-off, combination of accounts or otherwise) in respect of any amount due from an Obligor under this Agreement to which any Lender is entitled;
c) a decrease in the Margin or any other interest payment, or fees or other amounts due under this Agreement to any Lender from an Obligor or any other party to this Agreement;
d) any change in the currency of account;
e) the deferral of the date for payment of any principal, interest, fee or any other amount due under this Agreement to any Lender from an Obligor or any other party to this Agreement;
f) the deferral of the term of the Loan;
g) the provisions of Clause 23.1 (Transfers by Lenders);
h) any changes to the definition of "Majority Lenders";
i) the waiver or release of any Security Document or any of the obligations of any Owner under Clause 22 (Guarantee) other than in accordance with the terms of Clause 6.2; and
j) a change to any provision which contemplates the need for the consent or approval of all the Lenders.
31.3 Technical Amendments
The Administrative Agent may determine administrative matters and make technical amendments arising out of manifest errors on the face of this Agreement, where such amendments would not prejudice or otherwise be adverse to the position of any Lender under this Agreement, without reference to the Lenders.
31.4 Amendments affecting the Administrative Agent
Notwithstanding any other provision of this Agreement, the Administrative Agent shall not be obliged to agree to any amendment or waiver if the same would amend or waive any of the Administrative Agent's rights under this Agreement or subject the Administrative Agent to any additional obligations under this Agreement.
32 REMEDIES AND WAIVERS
No failure to exercise, nor any delay in exercising, on the part of any Finance Party, any right or remedy under the Finance Documents shall operate as a waiver, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise or the exercise of any other right or remedy. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law.
33 GOVERNING LAW AND JURISDICTION
33.1 Governing law
This Agreement is governed by Norwegian law.
33.2 Jurisdiction
Oslo District Court (Oslo tingrett) has exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement, but this shall not prevent any Finance Party from taking proceedings against the Borrower in any other courts with jurisdiction including any jurisdiction where a Vessel may be found and the Borrower irrevocably submits to the jurisdiction of each such court. To the extent allowed by law, the Finance Parties may take concurrent proceedings in any number of jurisdictions.
SCHEDULE I
The Owners and the Vessels
Country of SH/ IMO Tranche
Owners Incorporation Vessel DH number Built Dwt. Flag (USD)
------ ------------- ------ --- ------ ----- ---- ---- -----
Langkawi Shipping Ltd. Liberia "Front Birch" SH 8915407 1991 152,000 MI 9,833,230
Sibu Shipping Ltd. Liberia "Front Maple" SH 8915392 1991 152,000 MI 9,833,230
Granite Shipping Company Ltd. Bahamas "Front Granite" SH 8902955 1991 142,031 MI 9,552,280
Puerto Reinosa Shipping Co. S.A. Panama "Front Lillo" SH 8809919 1991 147,143 MI 9,552,280
Front Tujuh Pte. Ltd. Singapore "Front Emperor" SH 8906987 1992 147,273 SING 9,973,704
Southwest Tankers Inc. Liberia "Front Sunda" SH 8918930 1992 142,031 MI 9,973,704
West Tankers Inc. Liberia "Front Comor" SH 8918942 1993 142,031 MI 10,535,603
Fourways Marine Limited Liberia "Front Spirit" SH 8906999 1993 147,273 MI 10,535,603
Front Pride Shipping Inc. Liberia "Front Pride" DH 9018464 1993 149,686 NIS 19,592,833
Front Splendour Shipping Inc. Liberia "Front Splendour" DH 9104885 1995 149,745 NIS 23,701,007
Front Glory Shipping Inc. Liberia "Front Glory" DH 9087972 1995 149,834| NIS 23,701,007
Front Ardenne Inc. Liberia "Front Ardenne" DH 9150834 1997 153,000 NIS 27,160,073
Patrio Shipping Ltd. Liberia "Front Hunter" DH 9157727 1998 153,344 NIS 28,560,781
Bolzano Pte. Ltd. Singapore "Mindanao" DH 9169421 1998 158,000 SING 28,560,781
Front Brabant Inc. Liberia "Front Brabant" DH 9155808 1998 153,000 NIS 28,560,781
Cirebon Shipping Pte. Ltd. Singapore "Front Vanadis" SH 8902412 1990 285,782 SING 11,394,505
Fox Maritime Pte. Ltd. Singapore "Front Sabang" SH 8716772 1990 285,715 SING 11,394,505
Front Empat Pte. Ltd. Singapore "Front Highness" SH 8920921 1991 284,420 SING 12,291,535
Front Lima Pte. Ltd. Singapore "Front Lady" SH 8906913 1991 284,420 SING 12,291,535
Front Enam Pte. Ltd. Singapore "Front Lord" SH 8906901 1991 284,420 SING 12,291,535
Front Tiga Pte. Ltd. Singapore "Front Duke" SH 9005273 1991 284,420 SING 12,923,671
Sea Ace Corporation Liberia "Front Ace" SH 9012824 1993 275,546 LIB 13,345,097
Front Dua Pte.Ltd. Singapore "Front Duchess" SH 9046019 1993 284,480 SING 13,345,097
Edinburgh Navigation S.A. Liberia "Edinburgh" SH 9005223 1993 302,493 LIB 14,117,708
Golden Bayshore Shipping Corporation Liberia "Navix Astral" SH 9172856 1996 275,644 PA 14,960,556
Golden Sound Corporation Liberia "Front Vista" DH 9153525 1998 300,149 MI 40,785,662
Golden Seaway Corporation Liberia "Front Vanguard" DH 9153513 1998 300,058 MI 40,785,662
Golden Fjord Corporation Liberia "Ocana" DH 9158264 1999 300,144 IOM 42,765,016
Golden Estuary Corporation Liberia "Front Comanche" DH 9172674 1999 300,133 FRA 42,765,016
Golden Current Limited Isle of Man "Opalia" DH 9172844 1999 302,193 IOM 42,765,016
Golden Tide Corporation Liberia "Omala" DH 9166742 1999 306,009 IOM 42,765,016
Oscilla Shipping Limited Isle of Man "Oscilla" DH 9172856 2000 302,193 IOM 44,500,000
Ariake Transport Corporation Liberia "Ariake" DH 9196606 2001 298,530 BS 46,381,850
Front Stratus Inc. Liberia "Front Stratus" DH 9248485 2002 298,500 LIB 48,019,355
Front Saga Inc. Liberia "Front Page" DH 9248497 2002 298,500 LIB 48,019,355
Front Serenade Inc. Liberia "Front Serenade" DH 9248473 2002 299,152 LIB 48,019,355
Front Falcon Corporation Liberia "Front Falcon" DH 9238856 2002 308,000 BS 48,019,355
Hitachi Hull 4983 Ltd. Liberia "Otina" DH 9196644 2002 296,000 IOM 48,019,355
Front Lapan Pte. Ltd. Singapore "Front Climber" DH 8906896 1991 169,178 SING 19,505,288
Transcorp Pte. Ltd. Singapore "Front Guider" DH 9002740 1991 169,142 SING 19,505,288
Bonfield Shipping Limited Liberia "Front Driver" DH 8906884 1991 169,177 MI 19,505,288
Front Sembilan Pte. Ltd. Singapore "Front Leader" DH 8906860 1991 169,381 SING 19,505,288
Katong Investments Limited Liberia "Front Breaker" DH 8906872 1991 169,381 MI 19,505,288
Aspinall Pte. Ltd. Singapore "Front Viewer" DH 9153513 1992 169,381 SING 20,773,375
Rettie Pte. Ltd. Singapore "Front Striver" DH 9002752 1992 169,204 SING 20,773,375
Blizana Pte. Ltd. Singapore "Front Rider" DH 9002764 1992 169,718 SING 20,773,375
|
SH = Single Hull DH = Double Hull MI = Marshall Island NIS = Norwegian International Shipregister SING = Singapore LIB = Liberia PA = Panama IOM = Isle of Man BS = Bahamas FRA = France |
SCHEDULE 2
The Original Lenders
Original Lenders Title Commitment
---------------- ----- ----------
DnB NOR Bank ASA Mandated lead arranger USD 100,109,804.75
NO-0021 Oslo
Norway
Att: Ms Solveig Nuland Knoff
Fax: +47 22 48 28 94
Nordea Bank Norge ASA Mandated lead arranger USD 100,109,804.75
Middelthuns gate 17
P.O.Box 1166 Sentrum
NO-0107 Oslo
Norway
Att: Ms Tine Jellum
Fax: +47 22 48 42 78
Fortis Bank (Nederland) N.V. Mandated lead arranger USD 100,109,804.75
Haakon VIIs gate 10
NO-0161 Oslo
Norway Administrative contact:
Coolsingel 93
NL-3012 AE Rotterdam
The Netherlands
Att: Mr Tom van Vonderen
Fax: +31 10 401 53 23
Calyon S.A. Mandated lead arranger USD 100,109,804.75
9 Quai Du President Paul Doumer
FR-92920 Paris La Defence Cedex
France
Att: Ms Sylvie Godet-Couery
Fax: +33 141 89 1934
Danish Ship Finance Lead arranger USD 50,000,000.00
(Danmarks Skibskreditfond)
Sankt Annae Plads 3
DK-1250 K0benhavn K
Denmark
Att: Loan Administration
Fax: +45 33 33 96 66
Deutsche Bank AG in Hamburg / Lead arranger USD 50,000,000.00
Schiffshypothekenbank zu Lubeck AG
Brandstwiete 1
DE-20457 Hamburg
Germany
Att: Ms Anne-Juliane Jurss
Fax: +49 40 3701 4649
Deutsche Schiffsbank Lead arranger USD 50,000,000.00
Aktiengesellschaft
Domshof 17
DE-28195 Bremen
Germany
Att: Ms Tanje Lauerer / Ms Anja Perrey
Fax: +49 421 36 09 329
HSH Nordbank AG Lead arranger USD 50,000,000.00
Gerhart-Hauptmann-Platz 50
DE-20095 Hamburg
Germany
Att: Ms Irena Franke
Fax: +49 40 33 33 342 69
ING Bank N.V., London Branch Lead arranger USD 50,000,000.00
60 London Wall
GB-London EC2M 5TO
United Kingdom
Att: Mr Patrick Young
Fax: +44 20 7767 7252
Lloyds TSB Bank plc Lead arranger USD 50,000,000.00
Bank House, Wine Street
GB-Bristol BS1 2AN
United Kingdom
Att: Mr Paul Hellings / Mr Bob Martyn
Fax: +44 117 923 3367
Scotiabank Europe plc. Lead arranger USD 50,000,000.00
c/o The Bank of Nova Scotia
WBO - Loan Administration &
Agency Operations
4th Floor,
720 King St. West,
Toronto, Ontario
Canada
Att: M Savi Rampat
Fax: +1 416 350 5150
Skandinaviska Enskilda Banken Lead arranger USD 50,000,000.00
AB (publ.)
Rissneleden 110 RB8
SE-106 40 Stockholm
Sweden
Att: Ms Tiina Norberg
Fax: +46 8 611 03 84
Sumitomo Mitsui Banking Corporation Lead arranger USD 50,000,000.00
Avenue des Arts, 58 - Boite 18
BE-1000 Bruxelles
Belgium
Att: Mr Philippe Devos, CBDE2
Fax: +32 2 502 0780
Swedbank (ForeningsSparbanken Lead arranger USD 50,000,000.00
AB (publ))
SE-105 34 Stockholm
Sweden
Att: Shipping Loan Administration, E7,
Ms. Nina Kytta / Mr Richard Lonnqvist
Fax: +46 8 700 7980
Bayerische Hypo- und Vereinsbank AG Lead arranger USD 50,000,000.00
Alter Wall 22
DE-20457 Hamburg
Germany
Att: Ms Eike Wilde
Fax: +49 40 3692 3696
The Governor and Company of the Arranger USD 40,000,000.00
Bank of Ireland
Hume House
IE-Dublin 4
Ireland
Att: Ms Anne Marie Dodd
Fax: +353 1 6187489/ +353 1 6187490
The Governor and Company of the Arranger USD 40,000,000.00
Bank of Scotland
Corporate
New Uberior House
11 Earl Grey Street
GB-Edinburgh EH3 9BN
United Kingdom
Att: Marine Finance
Fax: +44 131 659 0387
BNP Paribas Oslo Branch Arranger USD 40,000,000.00
P.O. Box 106 Sentrum
NO-0102 Oslo Norway
Att: Mr Pierre De Fontenay
Fax: +47 22 41 08 44
NIB Capital Bank N.V. Co-Arranger USD 30,500,000.00
Carnegieplein 4
NL-2517 KJ The Hague
The Netherlands
Att: Mr Maurice Wilmans
Fax: +31 70 342 5577
Citibank N.A. Co-Arranger USD 30,500,000.00
2nd Floor, 4 Harbour Exchange,
Isle of Dogs
GB-London E14 9GE
United Kingdom
Att: UK Loans Processing Unit
Fax: +44 207 942 7512
|
SCHEDULE 3
Part I
Conditions precedent to the delivery of the first Drawdown Notice
(a) a copy of the articles of incorporation of the Borrower together with its complete by-laws up to date or other relevant document which verifies its constitution under the relevant jurisdiction, certified by an officer or representative of the Borrower;
(b) a copy of a resolution of the board of directors of the Borrower:
(i) approving the terms of, and the transactions contemplated by, the Finance Documents to which it is a party and resolving that it execute the Finance Documents to which it is a party;
(ii) authorising a specified person or persons to execute the Finance Documents to which it is a party on its behalf; and
(iii) authorising a specified person or persons, on its behalf, to sign and/or despatch all documents and notices (including, the Drawdown Notice and any Selection Notice) to be signed and/or despatched by it under or in connection with the Finance Documents to which it is a party.
(c) the Insurance Report and Certificate;
(d) a copy of the Transaction Documents;
(e) evidence that the Free Cash of the Charterer is minimum USD 244,700,000;
(f) a written confirmation from the Borrower that no event of default has occurred or is continuing under the Senior Note Documents;
(g) the DOC of the Manager;
(h) certified copies of the passports of the directors and the authorised representatives of the Borrower and the Owners together with proof of their address and any other identification or similar document any Lender may reasonably require on the basis of mandatory regulatory laws of the country of such Lender; and
(i) the satisfactory legal opinion from Seward & Kissel confirming that the Finance Documents will not violate or be in conflict with the Senior Note Documents.
Part II
Conditions precedent to the delivery of each Drawdown Notice
(a) a copy of the articles of incorporation of the Owner(s) relative to the Vessel(s) listed in the Drawdown Notice together with its complete by-laws up to date or other relevant document which verifies its constitution under the relevant jurisdiction, certified by an officer or representative of the Borrower
(b) a copy of a resolution of the board of directors of such Owner:
(i) approving the terms of, and the transactions contemplated by, the Finance Documents to which it is a party and resolving that it execute the Finance Documents to which it is a party;
(ii) authorising a specified person or persons to execute the Finance Documents to which it is a party on its behalf; and
(iii) authorising a specified person or persons, on its behalf, to sign and/or despatch all documents and notices (including, the Drawdown Notice and any Selection Notice) to be signed and/or despatched by it under or in connection with the Finance Documents to which it is a party.
(c) a copy of the relevant Vessel's SMCs;
(d) a certified copy of the classification certificate of the relevant Vessel as required by Clause 19.3 (Classification);
(e) the Compliance Certificate duly executed by the Borrower;
(f) a technical survey of the relevant Vessel if required by the Administrative Agent by surveyors approved by the Administrative Agent at the cost of the Borrower;
(g) evidence that the insurances on the relevant Vessel as required by Clause
19.8 (Insurances) have been taken out and are in full force and effect on
the Drawdown Date; and
(h) a valuation of the relevant Vessel(s) in accordance with Clause 19.13 (Valuation) if required by the Administrative Agent.
Part III
Conditions precedent to each Drawdown Date
(a) the certificates of ownership and encumbrances for the Vessel(s) corresponding to the Tranche(s) requested evidencing the Owner's ownership of its Vessel free from other encumbrances than the Mortgages;
(b) the Security Documents (but in respect of the Mortgages and the General Assignments, only the documents connected to the Vessels involved in the particular Drawdown) properly executed with evidence of the perfection of the security rights created there under according to Clause 15 (Security);
(c) evidence of the Borrower's payment of any fees and costs due; and
(d) the satisfactory legal opinions of the following law firms on the laws
involved at the relevant Drawdown Dates: FIRM LAWS OF ---- ------- Mello Jones & Martin Bermuda Seward & Kissel Marshall Island Seward & Kissel Liberia Higgs Johnson Bahamas Dickinson Cruickshank Isle of Man Arias Fabrega & Fabrega Panama Khattar Wong & Partners Singapore Simonsen F0yen Advokatfirma DA Norway |
SCHEDULE 4
Form of Drawdown Notice
To: DNB NOR BANK ASA
Date: [o]
USD 1,131,439,219 term loan facility agreement dated [o] (the "Loan Agreement")
We refer to Clause 4.1 (Delivery of the Drawdown Notice) of the Loan Agreement. Capitalized terms defined in the Loan Agreement shall have the same meaning when being used in this Drawdown Notice.
You are hereby irrevocably notified that we wish to make the following drawdown of Tranche(s) pursuant to the terms and conditions of the Loan Agreement:
Requested Drawdown Date: [ ] Principal Amount: [ ] Interest Period: [ ] Name of vessel(s) to be refinanced: [ ] |
The proceeds of the Loan should be credited to [o] [insert name and number of account].
We confirm that, as of the date hereof (i) each condition specified in Clause 3 (Conditions precedent) of the Loan Agreement is satisfied; (ii) each of the representations and warranties set out in Clause 16 (Representations) of the Loan Agreement is true and correct; and (iii) no event or circumstances has occurred and is continuing which constitute or may constitute an Event of Non-compliance.
Yours sincerely
for and on behalf of
Ship Finance International Limited
By: __________________________________
Name:
Title: [authorised officer]
SCHEDULE 5
Form of Selection Notice
To: DNB NOR BANK ASA
Date: [o]
[USD 1,131,439,219 term loan facility agreement dated [o] (the "Loan Agreement")]
1. We refer to the Loan Agreement. Capitalised terms defined in the Loan Agreement shall have the same meaning when being used in this Selection Notice.
2. We refer to the Interest Period ending on [o].
3. We request that the next Interest Period for the Loan is [o].
4. We confirm that (i) each of the representations and warranties set out in Clause 16 (Representations) of the Loan Agreement is true and correct; and that (ii) no event or circumstances has occurred and is continuing which constitute or may constitute an Event of Non-compliance.
5. This Selection Notice is irrevocable.
Yours sincerely
for and on behalf of
Ship Finance International Limited
By: __________________________________
Name:
Title: [authorised officer]
SCHEDULE 6
Form of Transfer Certificate
To: DNB NOR BANK ASA as Agent
From: [The Existing Lender] (the "Existing Lender") and [The New Lender] (the "New Lender") Dated:
[USD 1,131,439,219 term loan facility agreement dated [o] (the "Agreement")]
1. We refer to the Agreement. This is a Transfer Certificate. Terms defined in the Agreement have the same meaning in this Transfer Certificate unless given a different meaning in this Transfer Certificate.
2. We refer to Clause 23.4 (Procedure for transfer):
(a) The Existing Lender and the New Lender agree to the Existing Lender transferring to the New Lender by novation all or part of the Existing Lender's Commitment, rights and obligations referred to in the Schedule in accordance with Clause 23.4 (Procedure for transfer).
(b) The proposed Transfer Date is [o].
(c) The Facility Office and address, fax number and attention details for notices of the New Lender for the purposes of Clause 28.2 (Addresses) are set out in the Schedule.
3. The New Lender expressly acknowledges the limitations on the Existing Lender's obligations set out in paragraph (c) of Clause 23.3 (Limitation of responsibility of Existing Lenders).
4. This Transfer Certificate is governed by Norwegian law.
THE SCHEDULE
Commitment/rights and obligations to be transferred
[insert relevant details: Address, fax number and attention details for notices and account details for payments,]
[Existing Lender] [New Lender] By: ________________________ By:________________________ This Transfer Certificate is accepted by the Administrative Agent and the Transfer Date is confirmed as [o]. DNB NOR BANK ASA |
By:
SCHEDULE 7
Compliance Certificate
To: DNB NOR BANK ASA
Date: [o]
USD 1,131,439,219 term loan facility agreement dated [o] (the "Loan Agreement")
We refer to the above Loan Agreement. Capitalised terms defined in the Loan Agreement shall have the same meaning when being used in this Compliance Certificate.
With reference to Clauses 17.2 (Compliance Certificate) and 18 (Financial covenants) of the Loan Agreement, we confirm that as at [o] [insert relevant quarterly date]:
(a) The aggregate Ship Value of all Vessels was USD [o]: The aggregate Ship Value of all Vessels shall be minimum 140% of the Loan and the covenant in Clause 18.1 is thus [not] satisfied.
(b) The Available Cash was [o]: The Available Cash shall be minimum USD 25,000,000 and the covenant in Clause 18.2 is thus [not] satisfied.
(c) The Working Capital was [o]: The Working Capital shall be positive and the covenant in Clause 18.3 is thus [not] satisfied.
(d) The Minimum Equity Ratio was [o]: The Minimum Equity Ratio shall be at least 20% and the covenant in Clause 18.34 is thus [not] satisfied.
(e) The Charter Service Reserve Deposit was [o]: The Charter Service Reserve
Deposit shall never be less than USD 55,000,000 and the Borrower is thus
[not] in an Event of Non-compliance according to Clause 21.1 (h).
We confirm that as of [insert relevant quarterly date] and the date of this Compliance Certificate no Event of Non-compliance has occurred and is continuing.
Yours sincerely
for and on behalf of
Ship Finance International Limited
By: __________________________________
Name:
Title: [authorised officer]
SCHEDULE 8
Interest Notification
To: Ship Finance International Limited
[o]
USD 1,131,439,219 term loan facility agreement dated [o] (the "Loan Agreement")
For the purpose of the Norwegian Financial Contracts Act, we inform you that the nominal interest rate for the Loan stated below is based upon the aggregate of the current LIBOR and the Margin for a three months Interest Period. The calculation of the effective interest rate for the Loan is based upon the aggregate of the nominal interest rate, fees, costs and expenses (to be accrued) for three months Interest Periods. Furthermore, the calculation is based upon linear repayment.
As per [o] these interest rates were:
Nominal interest rate: [o] p.a.
Effective interest rate: [o] p.a.
We emphasise that these interest rates are to be regarded as examples due to the variation of interest rates of USD in the Eurocurrency market from time to time, variations of interest rates between optional Interest Periods, and furthermore, in respect of effective interest rates, variations as a result of the accrued fees, costs and expenses from time to time and variations in case of non-linear repayment or prepayment.
This letter is supplemental to the Loan Agreement and terms used herein shall have the same meaning as defined in the Loan Agreement.
Yours faithfully,
DNB NOR BANK ASA
We hereby acknowledge receipt of this letter.
Ship Finance International Limited
By:_______________________
SCHEDULE 9
Security Documents
So long as any amount is owing to the Lenders, any Hedge Counterparty, the Security Agent and the Administrative Agent under the Finance Documents and unless provided herein, the Loan and any other obligation and liability that any Obligor has or may incur towards the Finance Parties under the Finance Documents shall be secured by the following documents, instruments and actions in form and substance acceptable to the Agent:
1. Owners' Security Documents
(a) the Mortgage relative to each Vessel executed by the relevant Owner in favour of the Security Agent substantially in the form as set out in Exhibit A and registered over the relevant Vessel in the ship register approved by all the Lenders;
(b) the Owners' General Assignments executed by each of the Owners in favour of the Security Agent in the form as set out in Exhibit B in respect of
(i) the Insurances
(ii) the Earnings of the relevant Time Charter Party, or if relevant, the Earnings of the relevant Bareboat Charter
(c) the Owners' Contract Assignment executed by each of the Owners in favour of the Security Agent in the form as set out in Exhibit C in respect of the assignment of
(i) each Management Agreement
(ii) the Administrative Services Agreement
(iii) the Charter Ancillary Agreement
(iv) each Time Charter Party
(v) each Bareboat Charter
(vi) the Performance Guarantee
2. Borrower's Security Documents
(a) The Earnings Account Charge executed by the Borrower in favour of the Security Agent in the form as set out in Exhibit D in respect of the Earnings Account.
(b) the Pledge of Shares in respect of all shares of each Owner executed by the Borrower in favour of the Security Agent substantially in the form set out in Exhibit E and the security of which shall be perfected as set out therein.
3. Sub-Security Documents
(a) The Borrower's General Assignment executed by the Borrower in favour of the Security Agent in the form as set out in Exhibit F in respect of the assignment of:
(i) The Floating Charge
(ii) The Performance Guarantee
(iii) The Charterer Share Pledge
(iv) The Charter Ancillary Agreement
(v) the Administrative Services Agreement.
(b) The Charter Accounts Pledge Assignment executed by the Borrower in favour of the Security Agent in the form as set out in Exhibit G.
SCHEDULE 10
Guarantee/Security release letter
To: [insert name]
Date: [o]
Dear Sirs,
RE: "[o]" (the "Vessel")
We hereby give you notice that all moneys due and to become due to the Finance Parties under a term loan facility agreement dated [o] (the "Loan Agreement") in relation to the Vessel have been prepaid, and you are hereby released from your guarantee responsibility in connection with the Loan Agreement and you are further released from the following Security Documents (as defined in the Loan Agreement):
[ ]
Yours faithfully
By:__________________
For and on behalf of
DnB NOR Bank ASA
SCHEDULE 11
Repayment
(Column "Repayment 1-23" corresponds to the amount repayable for each Vessel on each Repayment Date no 1-23 - and Column "Repayment 24" corresponds to the amount repayable for each Vessel on the final Repayment Date) (all amounts in USD) Repayment Repayment
Vessel name Hull Built Dwt Tranche 1-23 24
----------- ---- ----- --- ------- ---- --
Suezmaxes
Front Birch SH 1991 152,000 9,833,230 409,718 409,716
Front Maple SH 1991 152,000 9,833,230 409,718 409,716
Front Granite SH 1991 142,031 9,552,280 398,012 398,004
Front Lillo SH 1991 147,143 9,552,280 398,012 398,004
Front Emperor SH 1992 147,273 9,973,704 415,571 415,571
Front Sunda SH 1992 142,031 9,973,704 415,571 415,571
Front Comor SH 1993 142,031 10,535,603 438,983 438,994
Front Spirit SH 1993 147,273 10,535,603 438,983 438,994
Front Pride DH 1993 149,683 19,592,833 542,100 7,124,533
Front Splendour DH 1995 149,745 23,701,007 536,921 11,351,824
Front Glory DH 1995 149,834 23,701,007 536,921 11,351,824
Front Ardenne DH 1997 153,000 27,160,073 520,882 15,179,787
Front Brabant DH 1998 153,000 28,560,781 508,720 16,860,221
Front Hunter DH 1998 153,344 28,560,781 508,720 16,860,221
Mindanao DH 1998 158,000 28,560,781 508,720 16,860,221
Suezmax OBOs
Front Breaker DH 1991 169,381 19,505,288 693,091 3,564,195
Front Climber DH 1991 169,178 19,505,288 693,091 3,564,195
Front Driver DH 1991 169,177 19,505,288 693,091 3,564,195
Front Guider DH 1991 169,142 19,505,288 693,091 3,564,195
Front Leader DH 1991 169,381 19,505,288 693,091 3,564,195
Front Rider DH 1992 169,718 20,773,375 646,291 5,908,682
Front Strider DH 1992 169,204 20,773,375 646,291 5,908,682
Front Viewer DH 1992 169,381 20,773,375 646,291 5,908,682
VLCCs
Front Sabang SH 1990 285,715 11,394,505 474,771 474,772
Front Vanadis SH 1990 285,782 11,394,505 474,771 474,772
Front Highness SH 1991 284,420 12,291,535 512,147 512,154
Front Lady SH 1991 284,420 12,291,535 512,147 512,154
Front Lord SH 1991 284,420 12,291,535 512,147 512,154
Front Duke SH 1992 284,420 12,923,671 538,486 538,493
Front Duchess SH 1993 284,420 13,345,097 556,046 556,039
Front Ace SH 1993 275,546 13,345,097 556,046 556,039
Edinburgh SH 1993 302,493 14,117,708 588,238 588,234
Navix Astral SH 1996 275,644 14,960,556 623,357 623,345
Front Vanguard DH 1998 300,058 40,785,662 726,467 24,076,921
Front Vista DH 1998 300,149 40,785,662 726,467 24,076,921
Omala DH 1999 306,009 42,765,016 711,062 26,410,590
Opalia DH 1999 302,193 42,765,016 711,062 26,410,590
Ocana DH 1999 300,144 42,765,016 711,062 26,410,590
Front Comanche DH 1999 300,133 42,765,016 711,062 26,410,590
Oscilla DH 2000 302,193 44,500,000 695,312 28,507,824
Ariake DH 2001 298,530 46,381,850 680,660 30,726,670
Front Serenade DH 2002 299,152 48,019,355 665,618 32,710,141
Otina DH 2002 296,000 48,019,355 665,618 32,710,141
Front Stratus DH 2002 298,500 48,019,355 665,618 32,710,141
Front Falcon DH 2002 308,000 48,019,355 665,618 32,710,141
Front Page DH 2002 298,500 48,019,355 665,618 32,710,141
--------------------------------------------------------------------------------
1,131,439,219 26,741,280 516,389,779
--------------------------------------------------------------------------------
|
34 SIGNATORIES
SHIP FINANCE INTERNATIONAL LIMITED
By: __________________________________
Name:
Title:
DNB NOR BANK ASA
By: __________________________________
Name:
Title:
NORDEA BANK NORGE ASA
By: __________________________________
Name:
Title:
FORTIS BANK (NEDERLAND) N.V.
By: __________________________________
Name:
Title:
CALYON S.A.
By: __________________________________
Name:
Title:
DANISH SHIP FINANCE (DANMARKS SKIBSKREDITFOND)
By: __________________________________
Name:
Title:
DEUTSCHE BANK AG IN HAMBURG/ SCHIFFSHYPOTHEKENBANK ZU LUBECK AG
By: __________________________________
Name:
Title:
DEUTSCHE SCHIFFSBANK AKTIENGESELLSCHAFT
By: __________________________________
Name:
Title:
HSH NORDBANK AG
By: __________________________________
Name:
Title:
ING BANK N.V., LONDON BRANCH
By: __________________________________
Name:
Title:
LLOYDS TSB BANK PLC
By: __________________________________
Name:
Title:
SCOTIABANK EUROPE PLC.
By: __________________________________
Name:
Title:
SKANDINAVISKA ENSKILDA BANKEN AB (PUBL.)
By: __________________________________
Name:
Title:
SUMITOMO MITSUI BANKING CORPORATION
By: __________________________________
Name:
Title:
SWEDBANK (FORENINGSSPARBANKEN AB (PUBL.))
By: __________________________________
Name:
Title:
BAYERISCHE HYPO- UND VEREINSBANK AG
By: __________________________________
Name:
Title:
THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND
By: __________________________________
Name:
Title:
THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND
By: __________________________________
Name:
Title:
BNP PARIBAS OSLO BRANCH
By: __________________________________
Name:
Title:
NIB CAPITAL BANK N.V.
By: __________________________________
Name:
Title:
CITIBANK N.A.
By: __________________________________
Name:
Title:
DNB NOR BANK ASA
By: __________________________________
Name:
Title:
For and on behalf of each of:
LANGKAWI SHIPPING LTD.
SIBU SHIPPING LTD.
GRANITE SHIPPING COMPANY LTD.
PUERTO REINOSA SHIPPING S.A.
FRONT TUJUH PTE. LTD.
SOUTWEST TANKERS INC.
WEST TANKERS INC.
FOURWAYS MARINE LIMITED
FRONT PRIDE SHIPPING INC.
FRONT SPLENDOUR SHIPPING INC.
FRONT GLORY SHIPPING INC.
FRONT ARDENNE INC.
PATRIO SHIPPING LTD.
BOLZANO PTE. LTD..
FRONT BRABANT INC.
CIREBON SHIPPING PTE. LTD.
FOX MARINE PTE. LTD.
FRONT EMPAT PTE. LTD.
FRONT LIMA PTE.LTD.
FRONT ENAM PTE. LTD.
FRONT TIGA PTE.LTD
SEA ACE CORP.
FRONT DUA PTE. LTD
EDINBURGH NAVIGATION S.A.
GOLDEN BAYSHORE SHIPPING CORPORATION
GOLDEN SOUND CORP.
GOLDEN SEAWAY CORP.
GOLDEN FJORD CORP.
GOLDEN ESTUARY CORP.
GOLDEN CURRENT LIMITED
GOLDEN TIDE CORP.
OSCILLA SHIPPING LIMITED
ARIAKE TRANSPORT CORP.
FRONT STRATUS INC.
FRONT SAGA INC.
FRONT SERENADE INC.
FRONT FALCON CORP.
HITACHI HULL 4983 LTD.
FRONT LAPAN PTE. LTD.
TRANSCORP PTE. LTD.
BONFIELD SHIPPING LIMITED
FRONT SEMBILAN PTE. LTD.
KATONG INVESTMENTS LIMITED
ASPINALL PTE. LTD.
RETTIE PTE. LTD.
BLIZANA PTE. LTD.
By: __________________________________
Name:
Title:
EXHIBIT 4.10
EXECUTION VERSION
AMENDMENT AGREEMENT
dated 18 September 2006
between
SHIP FINANCE INTERNATIONAL LIMITED
as borrower
THE OWNERS
listed in Schedule 1 as guarantors
DNB NOR BANK ASA,
NORDEA BANK NORGE ASA,
FORTIS BANK (Nederland) N.V.
CALYON S.A.
as mandated lead arrangers
THE PARTICIPATING LENDERS
listed in Schedule 2 as lenders
DNB NOR BANK ASA,
NORDEA BANK NORGE ASA,
as bookrunners
and
DNB NOR BANK ASA
as administrative agent and security agent
relating to the
USD 1,131,439,219
TERM LOAN FACILITY AGREEMENT
dated 3 February 2005
SIMONSEN
THIS AGREEMENT (the "Agreement") is made this 18 day of September 2006
BETWEEN
(1) SHIP FINANCE INTERNATIONAL LIMITED of Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM08, Bermuda (the "Borrower"),
(2) THE OWNERS listed in Schedule 1 of the Restated Agreement (the "Owners"),
(3) DNB NOR BANK ASA, NORDEA BANK NORGE ASA, FORTIS BANK (NEDERLAND) N.V.
(Oslo Branch) and CALYON S.A (the "Mandated Lead Arrangers"),
(4) THE PARTICIPATING LENDERS listed in Schedule 2 of the Restated Agreement (the "Lenders"),
(5) DNB NOR BANK ASA and NORDEA BANK NORGE ASA in their capacity as bookrunners (the "Bookrunners"),
(6) DNB NOR BANK ASA in its capacity as administrative agent (the "Administrative Agent") and
(7) DNB NOR BANK ASA in its capacity as security agent (the "Security Agent").
WHEREAS:
(A) By an agreement dated 3 February 2005, amended by an addendum no. 1 dated 30 March 2005, an addendum no. 2 dated 27 May 2005 and an addendum no. 3 dated 9 March 2006 (as amended the "Original Facility Agreement") and made between the parties to this Agreement (other than the change to certain Lenders and the substitution or deletion of certain Owners in accordance with the Original Facility Agreement), the Lenders have made available to the Borrower a term loan facility of up to USD 1,131,439,219.
(B) The principal amount outstanding under the Original Facility Agreement on 9 August 2006 was USD 911,716,473.
(C) The Borrower has requested the Lenders to amend the Original Facility Agreement by increasing the amount currently available under the facility by USD 219,722,746.
(D) The Lenders have agreed to such increase by way of incorporating a reducing revolving credit facility in the Original Facility Agreement .
(E) This Agreement amends and restates the Original Facility Agreement and sets out the terms and conditions of this Agreement.
IT IS AGREED as follows:
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
Unless the context otherwise requires, words and expressions defined in the Original Facility Agreement shall have the same meaning when used in this Agreement.
1.2 Definitions
"Effective Date" means the date on which the Administrative Agent confirms to the Lenders and the Borrower that it has received each of the documents listed in Schedule 1 (Conditions Precedent).
"Restated Agreement" means the Original Facility Agreement, as amended by this Agreement, the terms of which are set out in Appendix A (Amended and restated loan agreement).
"Security Document Amendments" means any of the amendments to the Security Documents listed in Clause 2.3 .
1.3 Incorporation of Defined Terms
(a) Unless a contrary indication appears, a term used in any other Finance Document or in any notice given under or in connection with any Finance Document has the same meaning in that Finance Document or notice as in this Agreement.
(b) The principles of construction set out in the Original Facility Agreement shall have effect as if set out in this Agreement.
1.4 Clauses
(a) In this Agreement any reference to a "Clause", "Schedule" or "Appendix" is, unless the context otherwise requires, a reference to a Clause, Schedule or Appendix of this Agreement.
(b) Clause, Schedule and Appendix headings are for ease of reference only.
2. AMENDMENTS
2.1 Amendment and restatement of Original Facility Agreement
With effect from the Effective Date, the Original Facility Agreement shall be amended and restated so that it shall be read and construed in accordance with the form as set out in Appendix A (Amended and restated loan agreement).
2.2 General amendments of Security Documents
With effect from the Effective Date, any references in the Original Facility Agreement and any Security Documents to:
(a) the "Loan Agreement" or any other term meaning the Original Facility Agreement shall be construed as references to the Original Facility Agreement as amended and restated by this Agreement; and
(b) any other Security Document shall be construed as references to such other Security Document as amended or supplemented by this Agreement and any Security Document Amendments.
2.3 Specific amendments of Security Documents
With effect from the Effective Date, any references in the Original Facility Agreement, in any Security Documents and in the Restated Agreement to:
(a) a "Mortgage" shall be construed as references to such Mortgage as amended or supplemented by the relevant mortgage amendment in the form as set out in Part 1 to 4 of Appendix B;
(b) the "Owners' Contract Assignment" shall be construed as references to the Owners' Contract Assignment as amended or supplemented by the amendment in the form as set out in Appendix C;
(c) the "Pledge of Shares" in respect of the shares in Granite Shipping Company Ltd. shall be construed as references to such Pledge of Shares as amended or supplemented by the amendment in the form as set out in Appendix D; and
(d) the "Borrower's Contract Assignment" shall be construed as references to the Borrower's Contract Assignment as amended or supplemented by the amendment in the form as set out in Appendix E.
3. REPRESENTATIONS
The Borrower makes the representations in Clause 16 (Representations) of the Original Facility Agreement as if each reference in those representations to "this Agreement" or "the Finance Documents" includes a reference to (a) this Agreement and (b) the Restated Agreement.
4. CONTINUITY AND FURTHER ASSURANCE
4.1 Continuing obligations
The provisions of the Finance Documents shall, save as amended in this Agreement, continue in full force and effect.
4.2 Further assurance
The Borrower shall, at the request of the Administrative Agent and at its own expense, do all such acts and things necessary or desirable to give effect to the amendments effected or to be effected pursuant to this Agreement.
5. FEES, COSTS AND EXPENSES
The Borrower shall promptly on demand pay the Administrative Agent the amount of all costs and expenses (including legal fees) reasonably incurred by it in connection with the negotiation, preparation, printing and execution of this Agreement and any other documents referred to in this Agreement.
6. MISCELLANEOUS
6.1 Incorporation of terms
The provisions of Clause 33 (Governing Law and Jurisdiction) of the Original Facility Agreement shall be incorporated into this Agreement as if set out in full in this Agreement and as if references in that clause to "this Agreement" are references to this Agreement.
6.2 Designation as Finance Document
The Borrower and the Administrative Agent designate this Agreement as a Finance Document by execution of this Agreement for the purposes of the definition of Finance Document in the Original Facility Agreement.
THIS AGREEMENT has been entered into on the date stated at the beginning of this Agreement.
SCHEDULE 1
CONDITIONS PRECEDENT TO THE EFFECTIVE DATE
(a) a certificate from an officer or representative of the Borrower confirming that there have been no changes to any documents which contain or establish or relate to the constitution of the Borrower and the Owners delivered in relation to the Original Facility Agreement;
(b) a copy of a resolution of the board of directors of the Borrower and each Owner:
(i) approving the terms of, and the transactions contemplated by, this Agreement and any amendments to other Finance Documents to which it is a party and resolving that it execute this Agreement and any amendments to other Finance Documents to which it is a party;
(ii) authorising a specified person or persons to execute this Agreement and any amendments to other Finance Documents to which it is a party on its behalf; and
(iii) authorising a specified person or persons, on its behalf, to sign and/or despatch all documents and notices (including in respect of the Borrower, Drawdown Notices and Selection Notices) to be signed and/or despatched by it under or in connection with this Agreement and any other Finance Documents to which it is a party.
(c) certified copies of the passports of the directors and the authorised representatives of the Borrower and the Owners together with proof of their address and any other identification or similar document any Lender may reasonably require on the basis of mandatory regulatory laws of the country of such Lender or a certificate from an officer or representative of the Borrower confirming that there have been no changes to such documents since they were delivered under the Original Facility Agreement;
(d) evidence that the Free Cash of the Charterer is minimum USD 218,200,000;
(e) a written confirmation from the Borrower that no event of default has occurred or is continuing under the Senior Note Documents;
(f) the satisfactory legal opinion from Seward & Kissel confirming that this Agreement and any amendments of the other Finance Documents will not violate or be in conflict with the Senior Note Documents;
(g) the Security Document Amendments properly executed with evidence of the
perfection of the security rights created there under according to Clause
15 (Security) of the Restated Agreement;
(h) evidence of the Borrower's payment of any fees and costs due; and
(i) the satisfactory legal opinions of the following law firms on the laws involved:
------------------------------------------------------------------------- FIRM LAWS OF ------------------------------------------------------------------------- Mello Jones & Martin Bermuda Seward & Kissel Marshall Island Seward & Kissel Liberia Higgs Johnson Bahamas Rodyk & Davidson Singapore Simonsen Advokatfirma DA Norway ------------------------------------------------------------------------- |
Appendix A
AMENDED AND RESTATED LOAN AGREEMENT
dated 18 September 2006
in respect of a
USD 1,131,439,219
TERM LOAN FACILITY AGREEMENT
dated 3 February 2005
between
SHIP FINANCE INTERNATIONAL LIMITED
as borrower
THE OWNERS
listed in Schedule 1 as guarantors
DNB NOR BANK ASA,
NORDEA BANK NORGE ASA,
FORTIS BANK (Nederland) N.V.
CALYON S.A.
as mandated lead arrangers
THE PARTICIPATING LENDERS
listed in Schedule 2 as lenders
DNB NOR BANK ASA,
NORDEA BANK NORGE ASA,
as bookrunners
and
DNB NOR BANK ASA
as administrative agent and security agent
SIMONSEN
TABLE OF CONTENTS
1 DEFINITIONS AND INTERPRETATIONS.......................................1 1.1 DEFINITION........................................................1 1.2 CONSTRUCTION......................................................8 2 FACILITY AND PURPOSE..................................................9 2.1 FACILITY..........................................................9 2.2 LENDERS' RIGHTS AND OBLIGATIONS...................................9 2.3 PURPOSE...........................................................9 3 CONDITIONS PRECEDENT..................................................9 3.1 CONDITIONS PRECEDENT..............................................9 3.2 FURTHER CONDITIONS PRECEDENT.....................................10 3.3 WAIVED CONDITIONS................................................10 4 DRAWDOWN.............................................................10 4.1 DELIVERY OF A DRAWDOWN NOTICE....................................10 4.2 COMPLETION OF THE DRAWDOWN NOTICE................................10 4.3 MAXIMUM NUMBER OF TRANCHE B LOANS................................10 4.4 LENDERS' PARTICIPATION...........................................10 5 REPAYMENT AND REDUCTION..............................................11 5.1 REPAYMENT OF TRANCHE A LOAN......................................11 5.2 REPAYMENT OF TRANCHE B LOANS.....................................11 5.3 REDUCTION OF TRANCHE B COMMITMENTS...............................11 5.4 FINAL REPAYMENT..................................................11 6 PREPAYMENT AND CANCELLATION..........................................11 6.1 VOLUNTARY PREPAYMENT OF THE LOAN.................................11 6.2 VOLUNTARY CANCELLATION OF TRANCHE B..............................11 6.3 MANDATORY PREPAYMENT AND CANCELLATION: SALE OR TOTAL LOSS........12 6.4 APPLICATION OF OTHER MANDATORY PREPAYMENTS.......................12 6.5 ILLEGALITY.......................................................12 6.6 RIGHT OF REPAYMENT AND CANCELLATION IN RELATION TO A SINGLE LENDER12 6.7 RESTRICTIONS.....................................................13 7 INTEREST.............................................................13 7.1 CALCULATION OF INTEREST..........................................13 7.2 PAYMENT OF INTEREST..............................................13 7.3 INCREASED INTEREST...............................................13 8 INTEREST PERIODS.....................................................14 8.1 SELECTION OF INTEREST PERIODS....................................14 8.2 NON-BUSINESS DAYS................................................14 9 CHANGES TO THE CALCULATION OF INTEREST...............................14 9.1 ABSENCE OF QUOTATIONS............................................14 9.2 MARKET DISRUPTION................................................15 9.3 ALTERNATIVE BASIS OF INTEREST OR FUNDING.........................15 9.4 BREAK COSTS......................................................15 10 FEES.................................................................15 10.1 ARRANGEMENT FEE..................................................15 10.2 HANDLING FEE.....................................................15 10.3 COMMITMENT FEE...................................................16 11 TAX GROSS UP AND INDEMNITIES.........................................16 11.1 TAX GROSS-UP.....................................................16 11.2 TAX INDEMNITY....................................................16 11.3 TAX CREDIT.......................................................17 11.4 STAMP TAXES......................................................17 11.5 VALUE ADDED TAX..................................................17 12 INCREASED COSTS......................................................17 12.1 INCREASED COSTS..................................................17 12.2 INCREASED COST CLAIMS............................................18 13 OTHER INDEMNITIES....................................................18 13.1 CURRENCY INDEMNITY...............................................18 13.2 OTHER INDEMNITIES................................................18 13.3 INDEMNITY TO THE ADMINISTRATIVE AGENT............................19 14 COSTS AND EXPENSES...................................................19 14.1 TRANSACTION EXPENSES.............................................19 14.2 AMENDMENT COSTS..................................................19 14.3 ENFORCEMENT COSTS................................................19 15 SECURITY.............................................................19 15.1 SECURITY DOCUMENTS...............................................19 15.2 PRIORITY.........................................................20 15.3 SECURITY AGENT...................................................20 15.4 SET-OFF..........................................................20 16 REPRESENTATIONS......................................................20 16.1 STATUS...........................................................20 16.2 BINDING OBLIGATIONS..............................................20 16.3 NON-CONFLICT WITH OTHER OBLIGATIONS..............................20 16.4 POWER AND AUTHORITY..............................................21 16.5 VALIDITY AND ADMISSIBILITY IN EVIDENCE...........................21 16.6 GOVERNING LAW AND ENFORCEMENT....................................21 16.7 DEDUCTION OF TAX.................................................21 16.8 NO FILING OR STAMP TAXES.........................................21 16.9 NO DEFAULT OR NON-COMPLIANCE.....................................21 16.10 NO MISLEADING INFORMATION........................................22 16.11 FINANCIAL STATEMENTS.............................................22 16.12 PARI PASSU RANKING...............................................22 16.13 NO PROCEEDINGS PENDING OR THREATENED.............................22 16.14 INDEBTEDNESS/ENCUMBRANCES........................................22 16.15 OWNERSHIP........................................................22 16.16 REPETITION.......................................................23 17 INFORMATION UNDERTAKINGS.............................................23 17.1 FINANCIAL STATEMENTS.............................................23 17.2 COMPLIANCE CERTIFICATE...........................................23 17.3 REQUIREMENTS AS TO FINANCIAL STATEMENTS..........................23 17.4 INFORMATION: MISCELLANEOUS.......................................23 17.5 NOTIFICATION OF NON-COMPLIANCE...................................24 18 FINANCIAL COVENANTS..................................................24 18.1 MINIMUM VALUE....................................................24 18.2 FREE CASH........................................................24 18.3 WORKING CAPITAL..................................................24 18.4 MINIMUM EQUITY RATIO.............................................24 19 VESSEL UNDERTAKINGS..................................................25 19.1 REGISTRATION AND OWNERSHIP.......................................25 19.2 FLAG.............................................................25 19.3 CLASSIFICATION...................................................25 19.4 LAWS AND SAFETY MANAGEMENT.......................................25 19.5 MANAGEMENT AGREEMENT.............................................25 19.6 TECHNICAL CONDITION..............................................26 19.7 MAJOR STRUCTURAL ALTERATION......................................26 19.8 INSURANCES.......................................................26 19.9 ACCIDENT, TOTAL LOSS OR ARREST...................................27 19.10 RELEASE OF DISTRESS..............................................27 19.11 ENCUMBRANCES.....................................................27 19.12 COMMERCIAL MANAGEMENT............................................27 19.13 VALUATION........................................................28 20 CORPORATE UNDERTAKINGS...............................................28 20.1 NO CHANGE OF STATUS..............................................28 20.2 NO CHANGE OF CONTROL.............................................28 20.3 LISTING..........................................................28 20.4 NO CHANGE OF OWNERSHIP...........................................28 20.5 SCOPE OF BUSINESS................................................29 20.6 NO FURTHER BORROWING.............................................29 20.7 NO FURTHER INVESTMENTS...........................................29 20.8 NO DISTRIBUTION..................................................29 20.9 EARNINGS ACCOUNTS................................................29 20.10 AUTHORISATIONS...................................................29 20.11 COMPLIANCE WITH LAWS.............................................29 20.12 INTEREST HEDGING AGREEMENTS......................................30 20.13 MONEY LAUNDERING.................................................30 20.14 TRANSACTION DOCUMENTS............................................30 21 EVENTS OF NON-COMPLIANCE AND DEFAULT.................................30 21.1 EVENT OF NON-COMPLIANCE..........................................30 21.2 DEFAULT..........................................................32 21.3 ACCELERATION.....................................................32 21.4 REMEDY...........................................................32 22 GUARANTEE............................................................33 22.1 GUARANTEE AND INDEMNITY..........................................33 22.2 CONTINUING GUARANTEE.............................................33 22.3 REINSTATEMENT....................................................33 22.4 WAIVER OF DEFENCES...............................................33 22.5 IMMEDIATE RECOURSE...............................................34 22.6 APPROPRIATIONS...................................................34 22.7 DEFERRAL OF OWNERS' RIGHTS.......................................34 22.8 ADDITIONAL SECURITY..............................................35 22.9 OWNER'S RIGHT OF CONTRIBUTION....................................35 22.10 NO FRAUDULENT CONVEYANCE.........................................35 23 CHANGES TO THE LENDERS...............................................35 23.1 TRANSFERS BY THE LENDERS.........................................35 23.2 CONDITIONS OF TRANSFER...........................................35 23.3 LIMITATION OF RESPONSIBILITY OF EXISTING LENDERS.................36 23.4 PROCEDURE FOR TRANSFER...........................................36 24 CHANGES TO THE OBLIGORS..............................................37 25 ROLE OF THE ADMINISTRATIVE AGENT.....................................37 25.1 APPOINTMENT OF THE ADMINISTRATIVE AGENT..........................37 25.2 DUTIES OF THE ADMINISTRATIVE AGENT...............................37 25.3 NO FIDUCIARY DUTIES..............................................38 25.4 BUSINESS WITH THE OBLIGORS.......................................38 25.5 RIGHTS AND DISCRETIONS OF THE ADMINISTRATIVE AGENT...............38 25.6 MAJORITY LENDERS' INSTRUCTIONS...................................39 25.7 RESPONSIBILITY FOR DOCUMENTATION.................................39 25.8 EXCLUSION OF LIABILITY...........................................39 25.9 LENDER'S INDEMNITY TO THE ADMINISTRATIVE AGENT...................40 25.10 RESIGNATION OF THE ADMINISTRATIVE AGENT..........................40 25.11 CONFIDENTIALITY..................................................40 25.12 RELATIONSHIP WITH THE LENDERS....................................40 25.13 CREDIT APPRAISAL BY THE LENDERS..................................40 25.14 DEDUCTION FROM AMOUNTS PAYABLE BY THE ADMINISTRATIVE AGENT.......41 26 SHARING AMONG THE FINANCE PARTIES....................................41 26.1 PAYMENT TO FINANCE PARTIES.......................................41 26.2 REDISTRIBUTION OF PAYMENTS.......................................41 26.3 RECOVERING FINANCE PARTY'S RIGHTS................................42 26.4 REVERSAL OF REDISTRIBUTION.......................................42 26.5 EXCEPTIONS.......................................................42 27 PAYMENT MECHANICS....................................................42 27.1 PAYMENTS TO THE ADMINISTRATIVE AGENT.............................42 27.2 DISTRIBUTIONS BY THE ADMINISTRATIVE AGENT........................43 27.3 DISTRIBUTIONS TO THE BORROWER....................................43 27.4 CLAWBACK.........................................................43 27.5 PARTIAL PAYMENTS.................................................43 27.6 NO SET-OFF BY THE BORROWER.......................................44 27.7 BUSINESS DAYS....................................................44 28 NOTICES..............................................................44 28.1 COMMUNICATIONS IN WRITING........................................44 28.2 ADDRESSES........................................................44 28.3 NOTIFICATION OF ADDRESS AND FAX NUMBER...........................45 28.4 ENGLISH LANGUAGE.................................................45 29 CALCULATIONS AND CERTIFICATES........................................46 29.1 ACCOUNTS.........................................................46 29.2 CERTIFICATES AND DETERMINATIONS..................................46 29.3 DAY COUNT CONVENTION.............................................46 30 PARTIAL INVALIDITY...................................................46 31 AMENDMENTS...........................................................46 31.1 AMENDMENTS.......................................................46 31.2 CONSENT..........................................................46 31.3 TECHNICAL AMENDMENTS.............................................47 31.4 AMENDMENTS AFFECTING THE ADMINISTRATIVE AGENT....................47 32 REMEDIES AND WAIVERS.................................................47 33 GOVERNING LAW AND JURISDICTION.......................................47 33.1 GOVERNING LAW....................................................47 33.2 JURISDICTION.....................................................47 SCHEDULE 1...............................................................49 OWNERS AND VESSELS.....................................................49 SCHEDULE 2...............................................................51 THE ORIGINAL LENDERS...................................................51 SCHEDULE 4...............................................................55 FORM OF DRAWDOWN NOTICE................................................55 SCHEDULE 5...............................................................56 FORM OF SELECTION NOTICE...............................................56 SCHEDULE 6...............................................................57 FORM OF TRANSFER CERTIFICATE...........................................57 SCHEDULE 7...............................................................58 COMPLIANCE CERTIFICATE.................................................58 SCHEDULE 8...............................................................59 INTEREST NOTIFICATION..................................................59 SCHEDULE 9...............................................................60 SECURITY DOCUMENTS.....................................................60 SCHEDULE 10..............................................................62 GUARANTEE/SECURITY RELEASE LETTER......................................62 SCHEDULE 11..............................................................63 34 SIGNATORIES..........................................................65 |
EXHIBITS:
Exhibit A:..Form of Mortgages
-Liberia
-Bahamas
-Marshall Island
-NIS
-Panama (intentionally omitted)
-Singapore
-Isle of Man (intentionally omitted)
Exhibit B:..Form of Owners' General Assignment
Exhibit C:..Form of Owners' Contract Assignment
Exhibit D:..Form of Earnings Account Charge
Exhibit E:..Form of Pledge of Shares
Exhibit F:..Form of Borrower's Contract Assignment
Exhibit G:..Form of Charter Accounts Pledge Assignment
The term loan facility agreement dated 3 February 2005 is amended and restated by this TERM LOAN AND REDUCING REVOLVING CREDIT FACILITY AGREEMENT dated 18 September 2006 (the "Agreement") and made
BETWEEN
(1) SHIP FINANCE INTERNATIONAL LIMITED of Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM08, Bermuda as borrower (the "Borrower"),
(2) THE OWNERS listed in Schedule 1 as guarantors (the "Owners"),
(3) DNB NOR BANK ASA, NORDEA BANK NORGE ASA, FORTIS BANK (NEDERLAND) N.V.
(Oslo Branch) and CALYON S.A (the "Mandated Lead Arrangers"),
(4) THE PARTICIPATING LENDERS listed in Schedule 2 as lenders (the "Original Lenders"),
(5) DNB NOR BANK ASA and NORDEA BANK NORGE ASA as bookrunners (the "Bookrunners"),
(6) DNB NOR BANK ASA as administrative agent (the "Administrative Agent") and
(7) DNB NOR BANK ASA as security agent (the "Security Agent").
IT IS HEREBY AGREED as follows:
1 DEFINITIONS AND INTERPRETATIONS
1.1 Definition
In this Agreement:
"Administrative Services Agreement" means the administrative services agreement entered into on the 1 January 2004 as amended from time to time between the Borrower, the Owners and the Manager.
"Advance" means the principal amount of each borrowing by the Borrower under the Facility.
"Allocation" means a portion of the Total Commitments set opposite a Vessel in column "Allocation Tranche A" or "Allocation Tranche B" of Schedule 11 as reduced by repayments, prepayments, reductions and cancellations in accordance with this Agreement from time to time.
"Availability Period" means the period from and including the date hereof to and including the date falling 71 months after the First Drawdown Date.
"Available Commitment" means a Lender's Commitment minus:
(a) the amount of its participation in the Loan; and
(b) in relation to any requested Advance, the amount of its participation in the Loan that are due to be made on or before the requested Drawdown Date,
other than that Lender's participation in the Loan that is due to be repaid or prepaid on or before the requested Drawdown Date.
"Available Facility" means the aggregate for the time being of each Lender's Available Commitment.
"Bareboat Charter" means each of the bareboat charter agreements as amended from time to time entered into between:
(a) Frontline Ltd and Shell Tankers UK dated 17 October 2003 in respect of "Ocana";
(b) Golden Fjord Corp. and Frontline Ltd dated 16 April 2004 in respect of "Ocana";
(c) Frontline Ltd and Shell Tankers UK dated 17 October 2003 in respect of "Otina"; and
(d) Hitachi Hull 4983 Ltd .and Frontline Ltd dated 16 April 2004 in respect of "Otina".
"Borrower's Contract Assignment" means an assignment by the Borrower in respect of
(a) the Floating Charge;
(b) the Performance Guarantee;
(c) the Charter Ancillary Agreement;
(d) the Charterer Share Pledge; and
(e) the Administrative Services Agreement.
"Break Costs" means the amount (if any) by which:
(a) the interest which a Lender should have received less the Margin for the period from the date of receipt of all or any part of its participation in the Loan or an Unpaid Sum to the current Interest Payment Date in respect of the Loan or an Unpaid Sum, had the principal amount or Unpaid Sum received been paid on that Interest Payment Date;
exceeds:
(b) the amount which that Lender would be able to obtain by placing an amount equal to the principal amount or Unpaid Sum received by it on deposit with a leading bank in the London Interbank market for a period starting on the Business Day following receipt or recovery and ending on the next Interest Payment Date.
"Business Day" means a day (other than a Saturday or Sunday) on which banks are open for general business in London, New York, Oslo and/or such other places where disbursement of money will be made under this Agreement.
"Charter Accounts" means an account of the Charterer maintained (in respect of
(x) the Charter Service Reserve Deposit and (y) any charter hire paid pursuant
to third party charters) with (a) Nordea Bank Norge ASA under the number
6011.04.43628 and (b) (in respect of (x) exclusively) each account maintained
with another financial institution which has a rating of at least A from
Standard & Poor's Ratings Services and at least A2 from Moody's Investor's
Services, Inc. and is subject to an encumbrance in favour of the Security Agent
in form and substance satisfactory to it.
"Charter Accounts Pledge" means a pledge of the Charter Accounts between the Charterer as pledgor and the Borrower as pledgee.
"Charter Accounts Pledge Assignment" means an assignment of the Charter Accounts Pledge between the Borrower as pledgor and the Security Agent as pledgee.
"Charter Ancillary Agreement" means the charter ancillary agreement entered into on the 1 January 2004 as amended from time to time between the Borrower, Frontline Ltd., Bermuda, the Charterer and the Owners.
"Charterer" means Frontline Shipping Limited, a special purpose company incorporated in Bermuda.
"Charter Service Reserve Deposit" means the portion of the amount from time to time standing to the credit of the Charter Accounts which has been deposited pursuant to Article 2.1 (Charter Service Reserve) of the Charter Ancillary Agreement and which is to be maintained in accordance with the Transaction Documents.
"Charterer Share Pledge" means a share pledge in respect of the shares of the Charterer between Frontline Ltd., Bermuda as pledgor and the Borrower as pledgee.
"Commercial Management Agreement" means the commercial management agreement as amended from time to time between the Charterer and the Manager.
"Commitment" means a Tranche A Commitment and/or a Tranche B Commitment. "Compliance Certificate" means a certificate substantially in the form set out in Schedule 7 (Form of Compliance Certificate).
"Default" means the situation occurring following the Administrative Agent's notification to the Borrower pursuant to Clause 21.2 (Default).
"DOC" means a Document of Compliance issued pursuant to the ISM Code.
"Drawdown Date" means a Business Day on which the Borrower has requested a drawdown of one or several Advances pursuant to this Agreement or, as the context requires, the date on which an Advance is actually made.
"Drawdown Notice" means a notice substantially in the form set out in Schedule 4 (Drawdown Notice).
"Earnings" means the Borrower's and/or the Owners' (as the case may be) right to all hire and other claim for moneys, net salvage and towage remuneration, detention moneys, damages and any other payments in respect of its Vessel.
"Earnings Account" means the Borrower's deposit account no. 5011.04.43215 with the Administrative Agent.
"Earnings Account Charge" means the charge of the Earnings Account as required by Schedule 9 (Security Documents) and as set out in Exhibit D.
"Environmental Approval" means any consent, authorisation, licence or approval of any governmental or public body or authorities or courts, applicable to the Vessels or their operation required under any Environmental Law.
"Environmental Laws" means all national, international and state laws, rules, regulations, treaties and conventions applicable to the Vessels, pertaining to the pollution or protection of human health or the environment including, without limitation, the carriage of oil and other pollutants and actual or threatened emissions, spills, releases or discharges of oil and other pollutants.
"Event of Non-compliance" means each of the events and/or circumstances described in Clause 21.1 (Event of Non-compliance).
"Facility" means Tranche A and/or Tranche B.
"Finance Documents" means as amended from time to time, this Agreement, any Security Document, the Interest Hedging Agreements and any other document designated as such by the Administrative Agent and the Borrower.
"Final Maturity Date" means 9 February 2011.
"Finance Party" means the Administrative Agent, the Security Agent or a Lender.
"First Drawdown Date" means 9 February 2005.
"Floating Charge" means a floating charge between the Charterer as chargor and the Borrower as chargee.
"Free Cash" means:
(a) cash in hand or on freely available deposit with the Administrative Agent;
(b) freely available securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality of the United States (provided that the full faith and credit of the United States is pledged in support thereof), having maturities of not more than one year from the date of acquisition;
(c) freely available marketable general obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition and, at the time of acquisition, having a credit rating of "A" or better from either Standard & Poor's Ratings Services or Moody's Investors Service, Inc.;
(d) freely available certificates of deposit, time deposits, Eurodollar time deposits, overnight bank deposits or bankers' acceptances having maturities of not more than one year from the date of acquisition thereof issued by any bank or financial institution the long-term debt of which is rated at the time of acquisition thereof at least "A" or the equivalent thereof by Standard & Poor's Ratings Services, or "A" or the equivalent thereof by Moody's Investors Services, Inc., and having combined capital and surplus in excess of USD 500,000,000;
(e) freely available repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses b), c) and d) entered into with any bank meeting the qualifications specified in clause d) above;
(f) freely available commercial paper rated at the time of acquisition thereof at least "A-2" or the equivalent thereof by Standard & Poor's Ratings Services or "P-2" or the equivalent thereof by Moody's Investors Service, Inc., or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of investments, and in any case maturing within one year after the date of acquisition thereof; and
(g) freely available interests in any investment company or money market fund which only invests in instruments of the type specified in clauses (b) through (f) above.
"GAAP" means generally accepted accounting principles in the United States of America.
"Guarantee" means the guarantee executed by the Owners as set out in Clause 22.
"Hedge Counterparty" means each bank or financial institution which is a party to an Interest Hedging Agreement and "Hedge Counterparties" means all such banks and financial institutions.
"Insurance Report and Certificate" means, in relation to a Vessel:
(a) a report prepared by Marsh Marine & Energy AS confirming inter alia full details of the Insurance in place for such Vessel, the identity of each insurance company, underwriter and/or club providing such Insurance and further confirming that such Insurance is consistent with the terms of the Mortgage and/or the General Assignment (as applicable) entered into or to be entered into in relation to such Vessel pursuant to this Agreement, as well as (in each case) the terms of Clause 19.8 (Insurances) and
(b) a certificate signed by an authorised signatory of Marsh Marine & Energy AS confirming (in its professional judgement) that the contents of such report is accurate and that adequate Insurance is in place in respect of the relevant Vessel.
"Interest Hedging Agreements" means the interest swap agreements (with schedules and confirmations) as amended from time to time entered into between:
(a) Citibank N.A and the Borrower dated 18 February 2004;
(b) DnB NOR Bank ASA and the Borrower dated 11 February 2004;
(c) Fortis Bank (Nederland) N.V. and the Borrower dated 16 February 2004;
(d) HSH Nordbank AG and the Borrower dated 17 February 2004;
(e) Nordea Bank Finland Plc and the Borrower dated 10 February 2004;
(f) Scotiabank Europe plc. and the Borrower dated 18 February 2004; and
(g) Skandinaviska Enskilda Banken AB and the Borrower dated 19 February 2004.
"Interest Payment Date" means the last day of each Interest Period.
"Interest Period" means, in relation to the Loan and each Advance, a period determined in accordance with Clause 8 (Interest Periods) and, in relation to an Unpaid Sum other than payment of any principal, each period determined in accordance with Clause 7.3 (b) (Increased interest).
"ISM Code" means the International Safety Management Code as adopted by the International Maritime Organization's ("IMO").
"ISPS Code" means the International Ship and Port Facility Security (ISPS) Code as adopted by IMO.
"Lender" means:
(a) any Original Lender; and
(b) any bank, financial institution, trust, fund or other entity which has become a Party in accordance with Clause 23 (Changes to the Lenders),
which in each case has not ceased to be a Party in accordance with the terms of this Agreement.
"LIBOR" means, in relation to the Loan and each Advance:
(a) the applicable Screen Rate; or
(b) (if no Screen Rate is available for USD for the Interest Period of an Advance) the arithmetic mean of the rates as supplied to the Administrative Agent at its request quoted by the Reference Banks to leading banks in the London interbank market,
not later than 11:00 GMT hours on the Quotation Day for the offering of deposits in USD and for a period comparable to the Interest Period for such Advance.
"Loan" means the aggregate of the Tranche A Loan and all of the Tranche B Loans.
"Majority Lenders" means Lenders whose Commitments aggregate more than 66% of the Total Commitments.
"Management Agreement" means each of the management agreements as amended from time to time entered into in relation to a Vessel between the Manager and the relevant Owner comprising of a "Shipman 98" Baltic and International Maritime Council standard ship management agreement together with the riders attached thereto.
"Manager" means Frontline Management (Bermuda) Limited, a company incorporated in Bermuda.
"Margin" means 0.70 per cent. per annum.
"Material Adverse Effect" means a material adverse effect on any Obligor's financial position, business, operation, its abilities to comply with the Finance Documents or the validity or enforceability of the Finance Documents.
"Mortgage" means a mortgage and (if relevant) the corresponding deed of covenants over a Vessel as required by Schedule 9 (Security Documents) and as set out in Exhibit A.
"Obligors" means the Borrower and the Owners and "Obligor" means any of them.
"Original Financial Statements" means the un-audited financial statements of the Borrower for the first 9 months of 2004, ended 30 September 2004.
"Owner" means a legal and registered owner of a Vessel according to Schedule 1.
"Owners' Contract Assignment" means an assignment executed by the Owners as required by Schedule 9 (Security Documents) and as set out in Exhibit C in respect of the following documents:
(a) each Management Agreement;
(b) the Administrative Services Agreement;
(c) the Charter Ancillary Agreement;
(d) each Time Charter Party;
(e) each Bareboat Charter; and
(f) the Performance Guarantee.
"Owners' General Assignment" means an assignment of the Earnings and the Insurances of a Vessel as required by Schedule 9 (Security Documents) and as set out in Exhibit B.
"Party" means a party to a Finance Document.
"Performance Guarantee" means the guarantee executed by Frontline Ltd., Bermuda for the performance of the obligations of the Charterer under the Time Charter Parties (other than the payment of charter hire) and the obligations of the Manager under the Management Agreements and the Administrative Service Agreement.
"Pledge of Shares" means the pledge of shares as required by Schedule 9 (Security Documents) and as set out in Exhibit E.
"Quotation Day" means, in relation to any period for which an interest rate is to be determined, two Business Days before the first day of that period.
"Reduction Date" means 9 November 2009 and each date falling at three monthly intervals thereafter until and including the Final Maturity Date.
"Reference Banks" means the Administrative Agent and such other banks or financial institutions as may be agreed between the Borrower and the Lenders.
"Repayment Date" means each date falling at three monthly intervals after the First Drawdown Date.
"Screen Rate" means the British Bankers' Association Interest Settlement Rate for USD for the relevant period, displayed on page LIBOR01 and LIBOR02 of the Reuters screen. If the agreed page is replaced or service ceases to be available, the Administrative Agent may specify another page or service displaying the appropriate rate after consultation with the Borrower and the Lenders.
"Security Document" means all or any document as may be entered into from time to time pursuant to Schedule 9 (Security Documents).
"Selection Notice" means a notice substantially in the form set out in Schedule 5 given in accordance with Clause 8 (Interest Periods).
"Senior Note Default" means an event of default (however described and subject to any applicable grace periods) under the Senior Note Documents.
"Senior Note Documents" means any agreement or document entered into or executed in connection with the USD 580,000,000 senior unsecured notes due 2013 issued by the Borrower.
"Ship's Value" means the value of a Vessel calculated according to Clause 19.13 (Valuation).
"SMC" means a Safety Management Certificate issued pursuant to the ISM Code.
"Tax" means any tax, levy, impost, duty or other charge or withholding of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same).
"Time Charter Parties" means each of the time charter parties entered into between the Charterer (or, if applicable, any other charterer) and the relevant Owner in relation to the applicable Vessel.
"Total Commitments" means the aggregate of the Commitments, initially being USD 1,131,439,219.
"Total Loss" means the total loss of a Vessel as defined in Clause 19.9 (ii) (Accident, Total Loss or arrest).
"Tranche A" means the term loan facility made available under this Agreement as described in Clause 2 (Facility and purpose).
"Tranche A Commitment" means:
(a) in relation to an Original Lender, the amount set opposite its name under the heading "Tranche A Commitment " in Schedule 2 (The Original Lenders) and the amount of any other Tranche A Commitment transferred to it under this Agreement; and
(b) in relation to any other Lender, the amount of any Tranche A Commitment transferred to it under this Agreement,
to the extent not repaid, prepaid, cancelled, reduced or transferred by it under this Agreement.
"Tranche A Loan" means the loan made under the Tranche A or the principal amount outstanding for the time being of that loan.
"Tranche B" means the reducing revolving credit facility made available under this Agreement as described in Clause 2 (Facility and purpose).
"Tranche B Commitment" means:
(a) in relation to an Original Lender, the amount set opposite its name under the heading "Tranche B Commitment " in Schedule 2 (The Original Lenders) and the amount of any other Tranche B Commitment transferred to it under this Agreement; and
(b) in relation to any other Lender, the amount of any Tranche B Commitment transferred to it under this Agreement,
to the extent not repaid, prepaid, cancelled, reduced or transferred by it under this Agreement.
"Tranche B Loan" means the loan or loans made under the Tranche B or the aggregate principal amount outstanding for the time of these loans.
"Transaction Documents" means:
(a) each Management Agreement;
(b) the Performance Guarantee;
(c) the Administrative Services Agreement;
(d) the Charter Ancillary Agreement;
(e) each Time Charter Party;
(f) the Commercial Management Agreement;
(g) the Floating Charge;
(h) the Charterer Share Pledge; and
(j) the Charter Accounts Pledge.
"Unpaid Sum" means any sum due and payable but unpaid by the Borrower under the Finance Documents.
"USD" means the lawful currency of the United States of America.
"Vessel" means a vessel listed in Schedule 1 as amended from time to time until or unless such vessel has been sold or becomes a Total Loss.
1.2 Construction
(a) Unless a contrary indication appears, any reference in this Agreement to:
(i) the "Administrative Agent", the "Security Agent", any "Finance Party", any "Lender" or any "Party" shall be construed so as to include its successors in title, permitted assigns and permitted transferees;
(ii) a "Finance Document" or any other agreement or instrument is a reference to that Finance Document or other agreement or instrument as amended or novated;
(iii) "indebtedness" includes any obligation (whether incurred as principal or as surety) for the payment or repayment of money, whether present or future, actual or contingent;
(iv) a "regulation" includes any regulation, rule, official directive, request or guideline (whether or not having the force of law) of any governmental, intergovernmental or supranational body, agency, department or regulatory, self-regulatory or other authority or organisation;
(v) a provision of law is a reference to that provision as amended or re-enacted; and
(vi) a time of day is a reference to Oslo time, unless otherwise specified.
(b) Clause and Schedule headings are for ease of reference only.
(c) Unless a contrary indication appears, a term used in any other Finance Document or in any notice given under or in connection with any Finance Document has the same meaning in that Finance Document or notice as in this Agreement.
2 FACILITY AND PURPOSE
2.1 Facility
Subject to the terms of this Agreement, the Lenders shall make (and continue to make) available to the Borrower:
(a) a term loan facility in the currency and in the aggregate amount equal to the Tranche A Commitment which has been drawn down in full at the date hereof and
(b) a reducing revolving loan facility in the currency and in the aggregate amount equal to the Tranche B Commitment which is undrawn at the date hereof.
2.2 Lenders' rights and obligations
(a) The obligations of each Lender under the Agreement are several. Failure by a Lender to perform its obligations under the Agreement does not affect the obligations of any other Party under the Finance Documents. No Lender is responsible for the obligations of any other Lender under the Agreement.
(b) The rights of each Lender under or in connection with the Finance Documents are separate and independent rights and any debt arising under the Finance Documents to a Finance Party from the Borrower shall be a separate and independent debt.
2.3 Purpose
(a) The Borrower has applied the amounts borrowed by it under Tranche A as agreed between the parties hereto.
(b) The Borrower may apply any amount borrowed by it under Tranche B for general corporate purposes.
3 CONDITIONS PRECEDENT
3.1 Conditions precedent
The Lenders will only be obliged to make an Advance available if on the requested Drawdown Date:
(a) the Administrative Agent has received and approved all of the documents and other evidence listed in Part I of Schedule 3 (Conditions precedent) prior to delivery of the first Drawdown Notice, the documents and other evidence listed in Part II of Schedule 3 (Conditions precedent) prior to delivery of each Drawdown Notice and the documents and other evidence listed in Part III of Schedule 3 (Conditions precedent) prior to each Drawdown Date, all in form and substance satisfactory to the Administrative Agent;
(b) no Event of Non-compliance is existing; and
(c) the repeating representations to be made by the Borrower in accordance with Clause 16.16 (Repetition) are true in all material respects.
3.2 Further conditions precedent
The Lenders will only be obliged to make an Advance available if the Loan upon such Advance being made represents sixty per cent (60 %) or less of the aggregate of all the Ship's Values in accordance with the last supplied Compliance Certificate.
3.3 Waived conditions
If the Lenders in their sole discretion permit the drawdown of an Advance before all the conditions have been satisfied, the Borrower shall within one month from such Drawdown Date or such other period as the Administrative Agent may decide fulfil such conditions in form and substance satisfactory to the Administrative Agent.
4 DRAWDOWN
4.1 Delivery of a Drawdown Notice
The Borrower may only draw an Advance by delivery to the Administrative Agent of a duly completed Drawdown Notice not later than 11:00 hours three Business Days prior to the requested Drawdown Date. The Administrative Agent shall notify the Lenders promptly upon such notice being received.
4.2 Completion of the Drawdown Notice
A Drawdown Notice is irrevocable and will only be regarded as having been duly completed if:
(a) the requested Drawdown Date is a Business Day within the Availability Period;
(b) the amount of the requested Advance is an amount in USD which is not higher than the Available Facility, which shall be USD 10,000,000 or any larger sum which is a multiple of USD 1,000,000 or, if less, equal to the Available Facility; and
(c) the requested Interest Period complies with Clause 8 (Interest Periods).
4.3 Maximum number of Tranche B Loans
The Borrower may not deliver a Drawdown Notice if as a result of the requested Advance 5 or more Tranche B Loans would be outstanding.
4.4 Lenders' participation
(a) If the conditions set out in this Agreement have been met, each Lender shall make its participation in the Advance available by the Drawdown Date.
(b) The amount of each Lender's participation in the Advance will be equal to the proportion that its Commitment bears to the Total Commitment according to Schedule 2.
5 REPAYMENT AND REDUCTION
5.1 Repayment of Tranche A Loan
The Borrower shall repay the Tranche A Loan on each Repayment Date by 18 consecutive quarterly instalments, the first 17 instalments in the amount equal to the aggregate of the amounts set opposite each Vessel in the column "Quarterly Repayment Tranche A" of Schedule 11 (Repayment) and the 18th and final instalment in the amount equal to the aggregate of the amounts set opposite each Vessel in the column "Final Repayment Tranche A" of Schedule 11 (Repayment). Repaid parts of the Tranche A Loan may not be reborrowed.
5.2 Repayment of Tranche B Loans
The Borrower shall repay each Tranche B Loan on the last day of its Interest Period. Unless a contrary indication appears in this Agreement, any part of the Tranche B which is repaid may be reborrowed in accordance with the terms of this Agreement. 5.3 Reduction of Tranche B Commitments
The aggregate of the Tranche B Commitments shall be reduced on each Reduction Date by the amount equal to the aggregate of the amounts set opposite each Vessel in the column "Quarterly Reductions Tranche B" of Schedule 11 (Repayment).
5.4 Final repayment
Notwithstanding anything in this Agreement, the Loan shall be repaid in full on the Final Maturity Date.
6 PREPAYMENT AND CANCELLATION
6.1 Voluntary prepayment of the Loan
The Borrower may prepay the Loan in whole or in part (being USD 10,000,000 or any larger sum which is a multiple of USD 1,000,000) upon giving the Administrative Agent not less than three Business Days irrevocable written notice of such prepayment. Voluntary prepaid amounts shall be applied pro rata to the Tranche A Loan and the remaining instalments thereunder and to the Tranche B Loans and the Allocations under Tranche A and Tranche B shall be reduced rateably.
6.2 Voluntary cancellation of Tranche B
The Borrower may, if it gives the Administrative Agent not less than five Business Days' (or such shorter period as the Majority Lenders may agree) prior notice, cancel the whole or any part (being USD 10,000,000 or any larger sum which is a multiple of USD 1,000,000) of the Tranche B. Any partial cancellation under this Clause 6.2 shall reduce the Allocations under Tranche B rateably.
6.3 Mandatory prepayment and cancellation: Sale or Total Loss
(a) In the event of the sale or Total Loss of a Vessel, the Borrower shall prepay the Loan with a sum equal to the aggregate of the Allocations set opposite that Vessel in Schedule 11 that remains to be repaid just prior to the sale or the occurrence leading to the Total Loss and any portion of the Allocation under Tranche B which has not been drawn shall be cancelled.
(b) Prepayment and cancellation shall take place upon the delivery of such Vessel in the event of a sale and the receipt of the insurance proceeds in the event of a Total Loss. Upon receipt of the prepaid amount according to this Clause, the Administrative Agent shall on behalf of the Lenders release the Owner of the Vessel involved from its guarantee responsibility, the Mortgage relative to the Vessel involved and the other Security Documents under this Agreement related to the Vessel and the relevant Owner in the form as set out in Schedule 10.
6.4 Application of other mandatory prepayments and cancellations
(a) Other mandatory prepayments made pursuant to this Agreement (on the basis of Clause 18.1 (Minimum Value) or otherwise) shall be applied pro rata (i) to the Tranche A Loan and the remaining instalments thereunder and (ii) to the Tranche B Loans and the Allocations under Tranche A and Tranche B shall be reduced rateably.
(b) Other mandatory cancellations pursuant to this Agreement shall reduce the Allocations under Tranche B rateably.
6.5 Illegality
If it becomes unlawful in any applicable jurisdiction for a Lender to perform any of its obligations as contemplated by this Agreement or to fund or maintain its participation in the Loan:
(a) that Lender shall promptly notify the Administrative Agent upon becoming aware of that event;
(b) upon the Administrative Agent notifying the Borrower, the Commitment of that Lender will be immediately cancelled; and
(c) the Borrower shall repay that Lender's participation in the Loan on the Interest Payment Date occurring after the Administrative Agent has notified the Borrower or, if earlier, the date specified by that Lender in the notice delivered to the Administrative Agent (being no earlier than the last day of any applicable grace period permitted by law).
6.6 Right of repayment and cancellation in relation to a single Lender
(a) If:
(i) any sum payable to any Lender by the Borrower is required to be increased under paragraph (c) of Clause 11.1 (Tax gross-up); or
(ii) any Lender claims indemnification from the Borrower under Clause
11.2 (Tax indemnity) or Clause 12.1 (Increased costs),
the Borrower may, whilst the circumstance giving rise to the requirement or indemnification continues, give the Administrative Agent notice of cancellation of the Commitment of that Lender and its intention to procure the repayment of that Lender's participation in the Loan.
(b) On receipt of a notice referred to in paragraph (a) above, the Commitment of that Lender shall immediately be reduced to zero.
(c) On the last day of each Interest Period which ends after the Borrower has given notice under paragraph (a) above (or, if earlier, the date specified by the Borrower in that notice), the Borrower shall repay that Lender's participation in the Loan.
6.7 Restrictions
(a) Any notice of prepayment given by any Party under this Clause 6 shall be irrevocable and, unless a contrary indication appears in this Agreement, shall specify the date upon which the prepayment is to be made and the amount of the prepayment.
(b) Any prepayment under this Agreement shall be made together with accrued interest on the amount prepaid and, subject to any Break Costs, without premium or penalty.
(c) The Borrower may not re-borrow any prepaid part of the Tranche A Loan.
(d) Any amount of the Available Facility which has been cancelled by the Borrower pursuant to Clause 6.2 may not be reinstated.
7 INTEREST
7.1 Calculation of interest
(a) The rate of interest on the Loan for each Interest Period is the percentage rate per annum which is the aggregate of the Margin and LIBOR.
(b) For the purpose of the Norwegian Financial Contracts Act 1999 the Borrower has been informed of the nominal and effective interest rate by a letter from the Administrative Agent substantially in the form set out in Schedule 8.
7.2 Payment of interest
The Borrower shall pay accrued interest on the Loan on each relevant Interest Payment Date and, if the Interest Period is longer than three months, on the dates falling at three monthly intervals after the first day of the Interest Period.
7.3 Increased interest
(a) If a Default has occurred and is continuing, interest shall accrue on the Loan from the date a notice as set forth in Clause 21.2 (Default) was received by the Borrower until the earlier of (i) the Administrative Agent (acting under the instruction of the Majority Lenders) declaring in writing to the Borrower that such Default no longer is considered in existence or waived (ii) the date all amounts due from the Borrower to the Finance Parties hereunder have been repaid at a rate which is two percentage points higher than the rate which would otherwise have been applicable.
(b) If there is an Unpaid Sum, interest shall accrue on such Unpaid Sum from the due date up to the date of actual payment (both before and after judgment) at a rate which is two percentage points higher than the rate which would have been payable if the Unpaid Sum had, during the period of non-payment, constituted a part of the Loan in the currency of the Unpaid Sum for successive Interest Periods, each of a duration selected by the Administrative Agent (acting reasonably). Any interest accruing under this Clause 7.3 (b) shall be immediately payable by the Borrower on demand by the Administrative Agent.
(c) Increased interest (if unpaid) arising on any Unpaid Sum will be compounded with the Unpaid Sum at the end of each Interest Period applicable to that Unpaid Sum but will remain immediately due and payable.
8 INTEREST PERIODS
8.1 Selection of Interest Periods
(a) The Borrower shall select an Interest Period for each Advance under Tranche B in the Drawdown Notice and for the Tranche A Loan in a Selection Notice.
(b) Each Selection Notice is irrevocable and must be delivered to the Administrative Agent by the Borrower not later than 11:00 hours three Business Days prior to the expiry of the relevant Interest Period.
(c) If the Borrower fails to deliver a Selection Notice to the Administrative Agent in accordance with paragraph (b) above, the relevant Interest Period will be three months.
(d) The Borrower may select an Interest Period under the Facility of one, three, six, nine or twelve months or any other period agreed between the Borrower and the Administrative Agent if this is necessary (i) to consolidate Tranche B Loans or (ii) to meet a Repayment Date or a Reduction Date.
(e) An Interest Period shall not extend beyond a Repayment Date or a Reduction Date if the portion of the Loan relating to such Interest Period is due to be repaid on such date.
(f) An Interest Period shall not extend beyond the Final Maturity Date.
(g) Each Interest Period shall start on the respective Drawdown Date or (in respect of the Tranche A Loan) on the preceding Interest Payment Date.
8.2 Non-Business Days
If an Interest Period would otherwise end on a day which is not a Business Day, that Interest Period will instead end on the next Business Day in that calendar month (if there is one) or the preceding Business Day (if there is not).
9 CHANGES TO THE CALCULATION OF INTEREST
9.1 Absence of quotations
Subject to Clause 9.2 (Market disruption), if LIBOR is to be determined by reference to the Reference Banks but a Reference Bank does not supply a quotation not later than 11:00 hours on the Quotation Day, the applicable LIBOR shall be determined on the basis of the quotations of the remaining Reference Banks.
9.2 Market disruption
(a) If a Market Disruption Event occurs in relation to the Loan for any Interest Period, then the rate of interest on each Lender's participation in the Loan for that Interest Period shall be the rate per annum which is the sum of the Margin and the rate notified to the Administrative Agent by that Lender as soon as practicable and in any event before interest is due to be paid in respect of that Interest Period, to be that which expresses as a percentage rate per annum the cost to that Lender of funding the Loan from whatever source it may reasonably select.
(b) In this Agreement "Market Disruption Event" means at or about 11:00 hours GMT on the Quotation Day for the relevant Interest Period the Screen Rate is not available and none of the Reference Banks supplies a rate to the Administrative Agent to determine LIBOR for USD for the relevant Interest Period.
9.3 Alternative basis of interest or funding
(a) If a Market Disruption Event occurs and the Administrative Agent or the Borrower so requires, the Administrative Agent and the Borrower shall enter into negotiations (for a period of not more than thirty days) with a view to agreeing a substitute basis for determining the rate of interest.
(b) Any alternative basis agreed pursuant to the paragraph above shall, with the prior consent of all the Lenders and the Borrower, be binding on all Parties.
9.4 Break Costs
(a) The Borrower shall, within three Business Days of demand by a Lender, pay to that Lender its Break Costs attributable to all or any part of the Loan or an Unpaid Sum being paid by the Borrower on a day other than an Interest Payment Date for the Loan or the due date for payment of an Unpaid Sum.
(b) Each Lender shall, as soon as reasonably practicable after a demand by the Administrative Agent or the Borrower, provide a certificate confirming the amount of its Break Costs for any Interest Period in which they accrue.
10 FEES
10.1 Arrangement fee
The Borrower shall pay to the Administrative Agent (for the account of the Lenders) an arrangement fee of 0.20 per cent on each Lender's Tranche B Commitment payable on the date hereof.
10.2 Handling fee
The Borrower shall pay to the Administrative Agent (for the account of the Lenders) a handling fee of USD 10,000 to each Lender payable on the date hereof.
10.3 Commitment fee
(a) The Borrower shall pay to the Administrative Agent (for the account of the Lenders) a fee computed at the rate of 0.25 per cent on each Lender's Available Commitment.
(b) The accrued commitment fee is payable (i) quarterly on the last day of each successive period of three months which ends during the Availability Period, (ii) on the last day of the Availability Period and (iii), if cancelled in full, on the cancelled amount of the relevant Lender's Commitment at the time the cancellation is effective.
11 TAX GROSS UP AND INDEMNITIES
11.1 Tax gross-up
(a) The Borrower shall make all payments to be made by it without any Tax
deduction, unless a Tax deduction is required by law.
(b) The Borrower shall promptly upon becoming aware that it must make a Tax
deduction (or that there is any change in the rate or the basis of a Tax
deduction) notify the Administrative Agent accordingly. Similarly, a
Lender shall notify the Administrative Agent on becoming so aware in
respect of a payment payable to that Lender. If the Administrative Agent
receives such notification from a Lender it shall notify the Borrower.
(c) If a Tax deduction is required by law to be made by the Borrower, the
amount of the payment due from the Borrower shall be increased to an
amount which (after making any Tax deduction) leaves an amount equal to
the payment which would have been due if no Tax deduction had been
required.
(d) If the Borrower is required to make a Tax deduction, it shall make that
Tax deduction and any payment required in connection with that Tax
deduction within the time allowed and in the minimum amount required by
law.
(e) Within thirty days of making either a Tax deduction or any payment
required in connection with that Tax deduction, the Borrower shall deliver
to the Administrative Agent for the Lender entitled to the payment
evidence reasonably satisfactory to that Lender that the Tax deduction has
been made or (as applicable) any appropriate payment paid to the relevant
taxing authority.
11.2 Tax indemnity
(a) The Borrower shall (within three Business Days of demand by the
Administrative Agent) pay to a Finance Party an amount equal to the loss,
liability or cost which that Finance Party determines will be or has been
(directly or indirectly) suffered for or on account of Tax by that Finance
Party in respect of a Finance Document.
(b) Paragraph (a) above shall not apply:
(i) with respect to any Tax assessed on a Finance Party under the law of
the jurisdiction in which that Finance Party is incorporated or, if
different, the jurisdiction (or jurisdictions) in which that Finance
Party is treated as resident for tax purposes if that Tax is imposed
on or calculated by reference to the net income received or
receivable (but not any sum deemed to be received or receivable) by
that Finance Party; or
(ii) to the extent a loss, liability or cost is compensated for by an
increased payment under Clause 11.1 (Tax gross-up).
(c) A Finance Party making, or intending to make a claim under paragraph (a)
above shall promptly notify the Administrative Agent of the event which
will give, or has given, rise to the claim, following which the
Administrative Agent shall notify the Borrower.
(d) A Finance Party shall, on receiving a payment from the Borrower under this
Clause 11.2, notify the Administrative Agent.
11.3 Tax Credit
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If the Borrower makes a Tax payment and the relevant Finance Party determines that:
(a) a Tax credit is attributable either to an increased payment of which that Tax payment forms part, or to that Tax payment; and
(b) that Finance Party has obtained, utilised and retained that Tax credit,
the Finance Party shall pay an amount to the Borrower which that Finance Party determines will leave it (after that payment) in the same after-Tax position as it would have been in had the Tax payment not been required to be made by the Borrower.
11.4 Stamp taxes
The Borrower shall pay and, within three Business Days of demand, indemnify each Finance Party against any cost, loss or liability that Finance Party incurs in relation to all stamp duty, registration and other similar Taxes payable in respect of any Finance Document.
11.5 Value added tax
(a) All consideration expressed to be payable under a Finance Document by the
Borrower to a Finance Party shall be deemed to be exclusive of any VAT. If
VAT is chargeable on any supply made by any Finance Party to the Borrower
in connection with a Finance Document, the Borrower shall pay to the
Finance Party (in addition to and at the same time as paying the
consideration) an amount equal to the amount of the VAT.
(b) Where a Finance Document requires the Borrower to reimburse a Finance
Party for any costs or expenses, the Borrower shall also at the same time
pay and indemnify the Finance Party against all VAT incurred by the
Finance Party in respect of the costs or expenses to the extent that the
Finance Party reasonably determines that it is not entitled to credit or
repayment of the VAT.
12 INCREASED COSTS
12.1 Increased costs
(a) The Borrower shall, within three Business Days of a demand by the
Administrative Agent, pay for the account of a Finance Party the amount of
any Increased Costs incurred by that Finance Party or any of its
affiliates as a result of (i) the introduction of or any change in (or in
the interpretation, administration or application of) any law or
regulation or (ii) compliance with any law or regulation made after the
date of this Agreement (including the implementation by the applicable
authorities of the matters set out in the statement of the Basle Committee
on Banking Regulations and Supervisory Practices).
(b) In this Agreement "Increased Costs" means:
(i) a reduction in the rate of return from the Loan or on a Finance
Party's (or its affiliate's) overall capital;
(ii) an additional or increased cost; or
(iii) a reduction of any amount due and payable under any Finance
Document, which is incurred or suffered by a Finance Party or any of
its affiliates to the extent that it is attributable to that Finance
Party having entered into its Commitment or funding or performing
its obligations under any Finance Document.
12.2 Increased cost claims
(a) A Finance Party intending to make a claim pursuant to Clause 12 (Increased
costs) shall notify the Administrative Agent of the event giving rise to
the claim, following which the Administrative Agent shall promptly notify
the Borrower.
(b) Each Finance Party shall, as soon as practicable after a demand by the
Administrative Agent or the Borrower, provide a certificate confirming the
amount of its Increased Costs.
13 OTHER INDEMNITIES
13.1 Currency indemnity
(a) If any sum due from the Borrower under the Finance Documents (a "Sum"), or
any order, judgment or award given or made in relation to a Sum, has to be
converted from the currency (the "First Currency") in which that Sum is
payable into another currency (the "Second Currency") for the purpose of:
(i) making or filing a claim or proof against the Borrower; or
(ii) obtaining or enforcing an order, judgement or award in relation to
any litigation or arbitration proceedings.
(b) the Borrower shall as an independent obligation, within three Business
Days of demand, indemnify each Finance Party to whom that Sum is due
against any cost, loss or liability arising out of or as a result of the
conversion including any discrepancy between (A) the rate of exchange used
to convert that Sum from the First Currency into the Second Currency and
(B) the rate or rates of exchange available to that person at the time of
its receipt of that Sum.
(c) the Borrower waives any right it may have in any jurisdiction to pay any
amount under the Finance Documents in a currency or currency unit other
than that in which it is expressed to be payable.
13.2 Other indemnities
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The Borrower shall within three Business Days of demand from the Administrative Agent, indemnify each Finance Party against any direct cost, loss or liability incurred by that Finance Party as a result of:
(a) a Default; or
(b) the Loan (or part of the Loan) not being prepaid in accordance with a notice of prepayment given by the Borrower.
13.3 Indemnity to the Administrative Agent
The Borrower shall promptly indemnify the Administrative Agent against any cost, loss or liability incurred by the Administrative Agent (acting reasonably) as a result of:
(a) investigating any event which it reasonably believes may be an Event of Non-compliance; or
(b) acting or relying on any notice, request or instruction which it reasonably believes to be genuine, correct and appropriately authorised.
14 COSTS AND EXPENSES
14.1 Transaction expenses
The Borrower shall promptly on demand pay the Administrative Agent whether or not the Commitment is drawn the amount of all costs and expenses (including legal fees and any VAT payable thereon) reasonably incurred by it in connection with the negotiation, preparation, printing and execution of:
(a) this Agreement and any other documents referred to in this Agreement; and
(b) any other Finance Documents executed after the date of this Agreement.
14.2 Amendment costs
If the Borrower requests an amendment, waiver or consent, the Borrower shall, within three Business Days of demand, reimburse the Administrative Agent for the amount of all costs and expenses (including legal fees and any VAT payable thereon) reasonably incurred by the Administrative Agent in responding to, evaluating, negotiating or complying with that request.
14.3 Enforcement costs
The Borrower shall, within three Business Days of demand, pay to each Finance Party the amount of all costs and expenses (including legal fees and any VAT payable thereon) incurred by that Finance Party in connection with the enforcement of, or the preservation of any rights under, any Finance Document.
15 SECURITY
15.1 Security Documents
So long as any amount is owing to the Lenders, any Hedge Counterparty, the Security Agent and the Administrative Agent under the Finance Documents and unless otherwise provided herein, the Loan and any other obligation and liability that any Obligor has or may incur towards the Finance Parties under the Finance Documents shall be secured by the Security Documents as set out in Schedule 9 (Security Documents)
15.2 Priority
(a) All the Security Documents shall create security on first and sole
priority over the assets specified therein.
(b) In case of conflict between the provisions of this Agreement and the
provisions of the Security Documents, the terms and conditions of this
Agreement shall prevail.
15.3 Security agent
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The Security Agent shall act as security agent and receive, hold, administer and enforce the Security Documents on behalf of and for the benefit of the Lenders.
15.4 Set-off
Following the occurrence of a Default, each of the Security Agent, the Administrative Agent and the Lenders shall, to the extent permitted by applicable law and always subject to Clause 26.1 (Payment to Finance Parties), have a separate right of set-off in respect of any credit balance, in any currency, on any account that the Borrower might have with the Administrative Agent and the Lenders (branches included) against any matured obligations due from the Borrower to the Security Agent, the Administrative Agent and the Lenders under the Finance Documents.
16 REPRESENTATIONS
Each Obligor makes the representations and warranties set out in this Clause 16 to each Finance Party on the date of this Agreement.
16.1 Status
(a) It is a corporation, duly incorporated and validly existing under the laws
of its jurisdiction of incorporation.
(b) It has the power to own its assets and carry on its business as it is
being conducted.
16.2 Binding obligations
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The obligations expressed to be assumed by it in each Finance Document and Transaction Document are legal, valid, binding and enforceable obligations.
16.3 Non-conflict with other obligations
The entry into and performance by it of, and the transactions contemplated by, the Finance Documents do not and will not conflict with:
(a) any law or regulation applicable to it;
(b) its constitutional documents; or
(c) any agreement or instrument binding upon it or any of its assets.
16.4 Power and authority
It has the power to enter into, perform and deliver, and has taken all necessary action to authorise its entry into, performance and delivery of, the Finance Documents to which it is a party and the transactions contemplated by those Finance Documents.
16.5 Validity and admissibility in evidence
All authorisations required or desirable:
(a) to enable it lawfully to enter into, exercise its rights and comply with its obligations in the Finance Documents to which it is a party; and
(b) to make the Finance Documents to which it is a party admissible in evidence in its jurisdiction of incorporation,
have been obtained or effected and are in full force and effect.
16.6 Governing law and enforcement
(a) The choice of Norwegian law as the governing law of the Finance Documents
(other than the Mortgages not registered with Norwegian International
Shipregister, the Borrower's Contract Assignment and the Owners' Contract
Assignment) will be recognised and enforced in its jurisdiction of
incorporation.
(b) Any judgment obtained in Norway in relation to a Finance Document will be
recognised and enforced in its jurisdiction of incorporation.
16.7 Deduction of Tax
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It is not required under the law of its jurisdiction of incorporation to make any deduction for or on account of Tax from any payment it may make under any Finance Document.
16.8 No filing or stamp taxes
Under the law of its jurisdiction of incorporation it is not necessary that the Finance Documents (other than the Mortgages) be filed, recorded or enrolled with any court or other authority in that jurisdiction or that any stamp, registration or similar tax be paid on or in relation to the Finance Documents or the transactions contemplated by the Finance Documents.
16.9 No default or non-compliance
(a) No Event of Non-compliance exists or may reasonably be expected to occur
as a consequence of the advance of the Loan to the Borrower;
(b) No event of default has occurred or is continuing under the Senior Note
Documents; and
(c) No other event or circumstance is outstanding which constitutes a default
under any other agreement or instrument which is binding on it or to which
its assets are subject which might have a Material Adverse Effect.
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16.10 No misleading information
In the case of the Borrower:
(a) Any factual information provided by the Borrower to any of the Finance Parties were true and accurate in all material respects as at the date it was provided or as at the date (if any) at which it is stated.
(b) The financial projections provided by the Borrower to any of the Finance Parties have been prepared on the basis of recent historical information and on the basis of reasonable assumptions.
(c) Nothing has occurred and no information has been given or withheld that results in the information provided by the Borrower to any of the Finance Parties being untrue or misleading in any material respect.
16.11 Financial statements
In the case of the Borrower:
(a) Its Original Financial Statements were prepared in accordance with GAAP consistently applied.
(b) Its Original Financial Statements represent its financial condition and operations during the relevant period.
(c) There has been no material adverse change in its business or financial condition since 30 September 2004.
16.12 Pari passu ranking
Its payment obligations under the Finance Documents rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law applying to companies and vessels generally.
16.13 No proceedings pending or threatened
No litigation, arbitration or administrative proceedings of or before any court, arbitral body or agency which, if adversely determined, might reasonably be expected to have a Material Adverse Effect have (to the best of its knowledge and belief) been started or threatened against it.
16.14 Indebtedness/encumbrances
Save as permitted under this Agreement and any Senior Note Documents, no Owner has any indebtedness or created any encumbrances over all or any of its assets.
16.15 Ownership
Each Owner is a wholly owned subsidiary of the Borrower, and each Owner is the legal and beneficial owner of the relevant Vessel as listed in Schedule 1.
16.16 Repetition
The representations are deemed to be repeated by each Obligor by reference to the facts and circumstances then existing on the first day of each Interest Period.
17 INFORMATION UNDERTAKINGS
The undertakings in this Clause 17 remain in force from the date of this Agreement for so long as any Commitment is in force or any amount is outstanding under the Finance Documents.
17.1 Financial statements
The Borrower shall supply to the Administrative Agent:
(a) as soon as the same become available, but in any event within 180 days
after the end of each financial year, its audited financial statements for
that financial year; and
(b) as soon as the same become available, but in any event within 60 days
after the end of each financial quarter its unaudited quarterly financial
statements; and
(c) such other financial and other information of any Obligor as the Lenders
shall reasonably require from time to time.
17.2 Compliance Certificate
(a) The Borrower shall supply to the Administrative Agent with each set of
financial statements delivered pursuant to Clause 17.1 (Financial
statements) a Compliance Certificate substantially in the form set out in
Schedule 7 setting out (in reasonable detail) computations as to
compliance with Clause 18 (Financial covenants) as at the date as at which
those financial statements were drawn up.
(b) Each Compliance Certificate shall be signed by a director of the Borrower.
17.3 Requirements as to financial statements
(a) Each set of financial statements delivered by the Borrower pursuant to
Clause 17.1 (Financial statements) shall be certified by a director of the
Borrower as representing its financial condition as at the date as at
which those financial statements were drawn up.
(b) The Borrower shall procure that each set of financial statements delivered
pursuant to Clause 17.1 (Financial statements) is prepared using GAAP or
such other generally accepted accounting principles acceptable to the
Administrative Agent.
17.4 Information: miscellaneous
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The Borrower shall supply to the Administrative Agent:
(a) all documents dispatched by it to its shareholders or its creditors
generally at the same time as they are dispatched;
(b) promptly upon becoming aware of it, the details of any litigation,
arbitration or administrative proceedings which are current, threatened or
pending, and which might, if adversely determined, have a Material Adverse
Effect; and
(c) promptly, such further information regarding its, the Charterers or any of
the Owners' financial condition, business and operations as the
Administrative Agent may reasonably request.
17.5 Notification of non-compliance
(a) The Borrower shall notify the Administrative Agent of an Event of
Non-compliance (and the steps, if any, being taken to remedy it) promptly
upon becoming aware of its occurrence.
(b) Promptly upon a request by the Administrative Agent, the Borrower shall
supply to the Administrative Agent a certificate signed by two of its
directors certifying that no Event of Non-compliance is continuing (or if
an Event of Non-compliance is continuing, specifying the Event of
Non-compliance and the steps, if any, being taken to remedy it).
18 FINANCIAL COVENANTS
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The undertakings in this Clause 18 remain in force from the date of this Agreement for so long as any Commitment is in force or any amount is outstanding under the Finance Documents.
18.1 Minimum Value
If at any time the aggregate of the Ship's Value of the Vessels shall fall below 140 % of the Loan, the Borrower shall either (i) prepay the amount of the Loan necessary to restore such ratio or (ii) provide additional security for the Loan which in the reasonable opinion of all Lenders is deemed satisfactory for restoring such ratio.
18.2 Free Cash
The Borrower shall on a consolidated basis at any time maintain Free Cash of a minimum of USD 25,000,000.
18.3 Working capital
The Borrower shall on a consolidated basis at any time maintain a positive Working Capital.
For the purpose of this Clause "Working Capital" means Current Assets less Current Liabilities and "Current Assets" means at any time, in accordance with GAAP, the consolidated book value of the current assets of such Borrower and "Current Liabilities" means at any time, in accordance with GAAP, the consolidated book value of the current liabilities excluding the short term portion of the long term debt of such Borrower.
18.4 Minimum Equity Ratio
The Minimum Equity Ratio of the Borrower on a consolidated basis on the last day of each financial quarter shall be at least 20%.
For the purpose of this Clause "Minimum Equity Ratio" means the ratio (expressed as a percentage) of Shareholder Equity to Total Assets and "Shareholder Equity" means Total Assets less Total Liabilities and "Total Assets" means at any time, in accordance with GAAP, the consolidated book value of all assets (both tangible and intangible) owned by the Borrower at the relevant time and "Total Liabilities" means at any time, the consolidated book value of long term and short term debt and other liabilities which in accordance with GAAP shall be included in a balance sheet.
19 VESSEL UNDERTAKINGS
The undertakings in this Clause 19 remain in force from the date of this Agreement for so long as any Commitment is in force or any amount is outstanding under the Finance Documents.
19.1 Registration and ownership
Each Owner shall (and the Borrower shall procure that each Owner will) remain the sole owner of its Vessel and shall keep its Vessel registered in a ship register acceptable to the Majority Lenders provided, however, that an Owner shall have the right to sell its Vessel upon the Borrower giving the Administrative Agent not less than ten (10) calendar days irrevocable written notice prior to the transfer of such Vessel.
19.2 Flag
Each Owner shall (and the Borrower shall procure that each Owner will) maintain its Vessel with a flag acceptable to the Majority Lenders.
19.3 Classification
Each Owner shall (and the Borrower shall procure that each Owner will) maintain the classification of its Vessel with first class classification societies acceptable to the Majority Lenders free of overdue recommendations and shall allow the Administrative Agent or its representatives to inspect the original class and related records of such Vessel with such classification society and to take copies of them.
19.4 Laws and safety management
Each Owner shall (and the Borrower shall procure that each Owner will) maintain its Vessel and its management in compliance from time to time with:
(a) Environmental Laws;
(b) the ISM Code;
(c) the ISPS Code;
(d) laws, regulations and requirements of the flag state
and to obtain and comply with all applicable Environmental Approvals, and upon any Obligor or its manager becoming aware thereof, it shall promptly notify the Administrative Agent in writing of any breach or alleged breach of any of the above laws, approvals or regulations.
19.5 Management Agreement
The management agreement of each Vessel shall be with the Manager or with managers approved by the Majority Lenders, and the Manager shall be in possession of a DOC and shall at all times be acceptable to the Majority Lenders and each Owner shall (and the Borrower shall procure that each Owner will) not make or agree to any material change to the Management Agreement without the prior written consent of the Administrative Agent on behalf of the Majority Lenders which shall not be unreasonably withheld.
19.6 Technical condition
Each Owner shall (and the Borrower shall procure that each Owner will) maintain its Vessel in a technical condition consistent with first class ship ownership and management practice, and it shall arrange to have its Vessel submitted for technical inspection in form and substance satisfactory to the Majority Lenders by an independent surveyor appointed by the Administrative Agent and the Borrower shall reimburse the costs thereof limited however to one inspection per year. In the event such inspection does not conclude with a report satisfactory to the Majority Lenders, the Borrower shall procure that the technical condition of such Vessel is rectified and re-submit such Vessel for technical inspections in the same manner within three months and at their own expense.
19.7 Major structural alteration
No Owner shall (and the Borrower shall procure that no Owner will) without the prior written consent of the Administrative Agent on behalf of the Majority Lenders permit any major structural alteration or any other major change to be made to its Vessel or undertake, contract or otherwise make any investment in respect of its Vessel in excess of USD 1,000,000 per annum unless such investment is necessary to maintain such Vessel's class.
19.8 Insurances
(a) Each Owner shall (and the Borrower shall procure that each Owner will)
keep its Vessel insured for risks and at values as may at any time be
reasonably required by the Administrative Agent on behalf of the Majority
Lenders with first class underwriters and at terms acceptable to the
Administrative Agent and register and maintain the registration of the
Administrative Agent as mortgagee (on behalf of the Lenders) with first
priority in all insurance policies and certificates of entry.
(b) The insurances shall include:
(i) Hull and Machinery,
(ii) Hull Interest and Freight Interest,
(iii) War Risks,
(iv) Protection and Indemnity,
(v) MAP (Additional Perils) Pollution
(c) The insured value for Hull and Machinery shall cover at least 80% of the
Ship's Value of each Vessel, (ii) the insured value for Hull and Machinery
as combined with Hull Interest and Freight Interest and for War Risks
shall always cover at least the Ship's Value of each Vessel and (iii) the
aggregate insured value for Hull and Machinery as combined with Hull
Interest and Freight Interest and for War Risks for all Vessels shall
cover at least 110 % of the Loan.
(d) Each Owner shall (and the Borrower shall procure that each Owner will)
punctually pay all insurance premiums and calls in respect of its Vessel,
timely renew the insurances and deliver to the Administrative Agent copies
of cover notes and certificates of entry evidencing that such Vessel is
insured and that the Administrative Agent is noted as mortgagee in the
Vessel's insurance policies with first priority.
(e) Each Owner shall (and the Borrower shall procure that each Owner will)
timely submit US Voyage Declarations in accordance with the P&I terms of
cover and obtain a Certificate of Financial Responsibility (COFR) before
its Vessel is trading to the United States.
(f) In the event the Administrative Agent after consultation with the Borrower
has obtained MAP (Additional Perils) Pollution to secure the interest of
the Finance Parties in the Vessels, the Borrower shall reimburse the
Administrative Agent in full all the costs incurred by the Administrative
Agent in this connection.
19.9 Accident, Total Loss or arrest
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Each Owner shall (and the Borrower shall procure that each Owner will) promptly notify the Administrative Agent in writing (in case of urgency by telefax) of:
(i) any accident to its Vessel involving repairs where the cost is likely to exceed USD 1,000,000 (or the equivalent in any other currency);
(ii) any occurrence in consequence whereof its Vessel has become or is likely to become a total loss ("Total Loss") which expression shall include the actual, constructive or compromised total loss of such Vessel; and
(iii) any arrest of its Vessel or the exercise or purported exercise of any lien on such Vessel.
19.10 Release of distress
Each Owner shall (and the Borrower shall procure that each Owner will) promptly notify the Administrative Agent in writing of any distress or other similar charges against its Vessel that it or its manager should become aware of and if required by the Majority Lenders, it shall procure that any distress or other similar charges against its Vessel shall be released.
19.11 Encumbrances
No Owner shall (and the Borrower shall procure that no Owner will) register or grant or permit any mortgage or other encumbrance over its Vessel other than the Mortgages or any lien arising by operation of law or in the ordinary course of trading of its Vessel without the prior written consent of the Administrative Agent on behalf of the Majority Lenders.
19.12 Commercial management
The commercial management agreement of the Vessels shall be with the Manager or such other manager as approved by the Administrative Agent on behalf of the Majority Lenders and no Owner shall (and the Borrower shall procure that no Owner will) make or agree to any material change thereto without the prior written consent of the Administrative Agent on behalf of the Majority Lenders which shall not be unreasonably withheld.
19.13 Valuation
Each Owner shall (and the Borrower shall procure that each Owner shall) at any time required by the Majority Lenders arrange to have its Vessel valued at the Borrower's expense, but then limited to four times per year, by three independent and reputable ship broking firms approved by the Administrative Agent, such valuations to set the considered market value of a Vessel free of charter, the average of said three valuations being referred to in this Agreement as the "Ship's Value".
20 CORPORATE UNDERTAKINGS
The undertakings in this Clause 20 remain in force from the date of this Agreement for so long as any Commitment is in force or any amount is outstanding under the Finance Documents.
20.1 No change of status
No Obligor shall make any changes to its constitutive documents or merge, de-merge, consolidate or liquidate or in any other way make any amendments to its corporate status without the prior written consent of the Administrative Agent on behalf of the Majority Lenders.
20.2 No change of control
If at any time more than fifty per cent (50%) of the issued voting share capital of the Borrower or the right to control or direct the majority of the board of directors of the Borrower becomes held by one person or one company (or two or more persons/companies acting in concert) (a "Change of Control Event") the Borrower shall immediately upon becoming aware thereof give notice to the Administrative Agent. Unless the Administrative Agent (on behalf of the Majority Lenders) consent to the change of control, the Administrative Agent and the Borrower shall enter into negotiations for a period of not more than thirty days (counted from the date when the Borrower became aware of the Change of Control Event) with a view to agreeing any amendments or agreements in light of the consequences of the Change of Control Event. If the negotiation fails to reach an agreed outcome within the thirty days, the Administrative Agent may thereafter give notice to the Borrower requiring the Borrower to prepay the Loan and other amounts outstanding under the Finance Documents within 90 days and cancel the Total Commitments.
20.3 Listing
The Borrower shall remain listed at the New York Stock Exchange.
20.4 No change of ownership
The Borrower shall ensure that each Owner is a wholly-owned subsidiary of it and the Borrower shall not make (and no Owner shall permit) any disposal of its ownership and control without the prior written consent of the Administrative Agent on behalf of the Majority Lenders.
20.5 Scope of business
No Owner shall engage in any other business than that immediately related to the owning of the Vessels and the Borrower shall not engage in other business than what is connected with maritime transportation and/or the owning of vessels.
20.6 No further borrowing
No Owner shall make any further borrowing, enter into any guarantee liability and have any other indebtedness than the shareholders' loans (which shall be fully subordinated to the rights of the Finance Parties under this Agreement) its obligations under the Senior Note Documents and trade debt following the ordinary operation of its Vessel without the prior written consent of the Administrative Agent on behalf of the Majority Lenders.
20.7 No further investments
No Owner shall commit to any further investments or activities other than those related to the ownership and the regular operation of its Vessels and the Borrower shall not commit to any investments or activities other than those related to the nature of its business without the prior written consent of the Administrative Agent on behalf of the Majority Lenders.
20.8 No distribution
The Borrower shall not distribute any profit to, make any dividend payment to, repay or make any payment of interest on any loans from, or make any other distribution of any asset to its shareholders unless the aggregate of a) Free Cash and b) the Charter Service Reserve Deposit immediately after such distribution will be minimum USD 100,000,000 and no Event of Non-compliance has occurred or is continuing.
20.9 Earnings accounts
The Borrower shall keep its Earnings Account with the Administrative Agent.
20.10 Authorisations
Each Obligor shall promptly:
(a) obtain, comply with and do all that is necessary to maintain in full force and effect; and
(b) supply certified copies to the Administrative Agent of,
any authorisation required under any law or regulation of its jurisdiction of incorporation to enable it to perform its obligations under the Finance Documents and to ensure the legality, validity, enforceability or admissibility in evidence in its jurisdiction of incorporation of any Finance Document.
20.11 Compliance with laws
Each Obligor shall comply in all respects with all laws to which it may be subject, if failure so to comply would materially impair its ability to perform its obligations under the Finance Documents.
20.12 Interest Hedging Agreements
The Borrower shall not make any amendments to or terminate the Interest Hedging Agreements without the prior written consent of the Administrative Agent on behalf of the Majority Lenders which shall not be unreasonably withheld, and it shall fulfil all its obligations under the Interest Hedging Agreements.
20.13 Money laundering
The Borrower shall be acting for its own account in relation to the borrowing of the Loan, the performance and discharge of its obligations and liabilities under the Finance Documents and the transactions and other arrangements effected or contemplated by the Finance Documents to which it is a party and the foregoing shall not involve or lead to a contravention of any law, official requirement or other regulatory measure or procedure which has been implemented to combat "money laundering" (as defined in Article 1 of the Directive (91/308/EEC) of the council of the European Communities).
20.14 Transaction Documents
No Obligor shall (and the Borrower shall procure that neither the Charterer, Frontline Ltd. or other related companies will) make or agree to any changes to the Transaction Documents without the prior written consent of the Administrative Agent on behalf of the Majority Lenders which shall not be unreasonably withheld.
21 EVENTS OF NON-COMPLIANCE AND DEFAULT
21.1 Event of Non-compliance
Each of the events or circumstances set out in Clauses (a) to (h) below is an Event of Non-compliance:
(a) Non-payment
The Borrower does not pay on the due date any amount payable pursuant to a Finance Document at the place at and in the currency in which it is expressed to be payable unless:
(i) its failure to pay is caused by administrative or technical error; and
(ii) payment is received by the Administrative Agent within five Business Days of its due date.
(b) Non-compliance
Either the Borrower or any of the Owners does not comply in any material respect in its due performance or observance of any undertaking, covenant or other obligation or term contained in any of the Finance Documents other than as set forth in Clause 21.1 (a) (Non payment) and such non-compliance is not remedied (if, in the opinion of the Administrative Agent (acting on the instructions of the Majority Lenders) such non-compliance is capable of remedy) within 14 days from receipt by the Borrower of a request for remedy from the Administrative Agent always provided that no period of remedy will be accorded in respect of any non-compliance by the Borrower in relation to its obligations under Clauses 19.1 (Registration and ownership), 19.2 (Flag), 19.3 (Classification) and 19.8 (Insurances).
(c) Misrepresentation
Any representation or statement made or repeated in or in connection with the Finance Documents or any other document delivered by or on behalf of the Borrower or any of the Owners under or in connection with any Finance Document is or proves to have been incorrect or misleading in any material respect when made or deemed to be made.
(d) Cross default
(i) Any Financial Indebtedness above USD 10,000,000 in the case of the Borrower or above USD 3,000,000 in the case of an Owner is not paid when due nor within any originally applicable grace period.
(ii) For the purpose of this Clause, "Financial Indebtedness" means any indebtedness for or in respect of:
1. moneys borrowed;
2. any amount raised by acceptance under any acceptance credit facility;
3. any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;
4. the amount of any liability in respect of any lease or hire purchase contract which would, in accordance with GAAP, be treated as a finance or capital lease;
5. receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis);
6. any amount raised under any other transaction (including any forward sale or purchase agreement) having the commercial effect of a borrowing;
7. any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price (and, when calculating the value of any derivative transaction, only the marked to market value shall be taken into account);
8. any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution; and
9. the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (1) to (8) above.
(e) Insolvency
(i) The Borrower or any of the Owners is unable or admits inability to pay its debts as they fall due, suspends making payments on any of its debts.
(ii) The value of the assets of the Borrower is less than its liabilities (taking into account contingent and prospective liabilities).
(iii) A moratorium is declared in respect of any indebtedness of the Borrower or any Owner.
(iv) Any insolvency proceedings or any analogous procedure is initiated against the Borrower or any Owner.
(f) Unlawfulness
It is or becomes unlawful for the Borrower or any of the Owners to perform any of its obligations under the Finance Documents.
(g) Senior Note Default
Any Senior Note Default is declared and is continuing.
(h) Event of default under a Transaction Document
There is an event of default under any Transaction Document and, save for the failure of the Charterer at any time to hold at least USD 55,000,000 in cash or cash equivalents (as defined in the Charter Ancillary Agreement), in the reasonable opinion of the Majority Lenders, such default will adversely affect the Borrower's or the Owners' ability to fulfil its obligations under the Finance Documents.
(i) Material adverse change
The Borrower, the Charterer or any of the Owners shall suffer a material adverse change in its financial position or its operation which in the reasonable opinion of the Majority Lenders will adversely affect the Borrower's or the Owners' ability to fulfil its obligations under the Finance Documents.
21.2 Default
At any time following the occurrence of an Event of Non-compliance and while it is continuing, the Administrative Agent may and if so directed by the Majority Lenders, shall by notice to the Borrower declare that a Default has occurred.
21.3 Acceleration
The Administrative Agent may and if so directed by the Majority Lenders, shall, either in the notice of default or at any time subsequent thereto while the circumstances having given rise to such Default continues:
(a) cancel the Available Facility; and/or
(b) declare that all amounts outstanding from the Borrower to the Finance Parties hereunder at such time shall be immediately due and payable, whereafter the Borrower shall be obliged to pay the same.
21.4 Remedy
The Administrative Agent (acting under the instructions of the Majority Lenders) shall, if the circumstances having given rise to a Default have been remedied and the Borrower otherwise is in compliance with its obligations hereunder, notify the Borrower that the Default no longer exists.
22 GUARANTEE
22.1 Guarantee and indemnity
Each Owner hereby unconditionally and irrevocably:
(a) guarantees, jointly and severally, to the Security Agent, the Hedge Counterparties, the Administrative Agent and the Lenders punctual performance by each Obligor of its obligations under the Finance Documents;
(b) undertakes, jointly and severally, with the Security Agent, the Administrative Agent and the Lenders that whenever any Obligor does not pay any amount when due under or in connection with any Finance Document, any Owner shall immediately on demand pay that amount as if it was the principal obligor; and
(c) indemnifies, jointly and severally, each Finance Party immediately on demand against any cost, loss or liability suffered by that Finance Party if any obligation guaranteed by it is or becomes unenforceable, invalid or illegal. The amount of the cost, loss or liability shall be equal to the amount which that Finance Party would otherwise have been entitled to recover.
For the purpose of fulfilling the requirements of the Financial Contracts Act ss. 61, each Owners maximum liability secured by this Guarantee is USD 1,131,439,219. Each Owner is in addition liable for interest and costs in accordance with this Agreement.
22.2 Continuing guarantee
This Guarantee is a continuing guarantee and shall extend to the ultimate balance of sums payable by any Obligor under the Finance Documents, regardless of any intermediate payment or discharge in whole or in part.
22.3 Reinstatement
If any payment by an Obligor or any discharge given by a Finance Party (whether in respect of the obligations of any Obligor or any security for those obligations or otherwise) is avoided or reduced as a result of insolvency or any similar event:
(a) the liability of each Obligor shall continue as if the payment, discharge, avoidance or reduction had not occurred; and
(b) each Finance Party shall be entitled to recover the value or amount of that security or payment from each Obligor, as if the payment, discharge, avoidance or reduction had not occurred.
22.4 Waiver of defences
The obligations of any of the Owners shall not be affected by an act, omission,
matter or thing which would reduce, release or prejudice any of its obligations
(without limitation and whether or not known to it or any Finance Party)
including:
(a) any time, waiver or consent granted to, or composition with, any Obligor or other person;
(b) the release of any other Obligor or any other person under the terms of any composition or arrangement with any creditor of any Obligor;
(c) the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect, take up or enforce, any rights against, or security over assets of, any Obligor or other person or any non-presentation or non-observance of any formality or other requirement in respect of any instrument or any failure to realise the full value of any security;
(d) any incapacity or lack of power, authority or legal personality of or dissolution or change in the members or status of an Obligor or any other person;
(e) any amendment (however fundamental) or replacement of a Finance Document or any other document or security;
(f) any unenforceability, illegality or invalidity of any obligation of any person under any Finance Document or any other document or security;
(g) any insolvency or similar proceedings; or
(h) the provisions of sections 62 (1), 63, 65, 66, 67, 70, 71, 72, 73 and 74 of the Norwegian Financial Contracts Act.
22.5 Immediate recourse
Each Owner waives any right it may have of first requiring any Finance Party (or any trustee or agent on its behalf) to proceed against or enforce any other rights or security or claim payment from any person before claiming from any of the Owners. This waiver applies irrespective of any law or any provision of a Finance Document to the contrary.
22.6 Appropriations
Until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full, each Finance Party (or any trustee or agent on its behalf) may:
(a) refrain from applying or enforcing any other moneys, security or rights held or received by that Finance Party (or any trustee or agent on its behalf) in respect of those amounts, or apply and enforce the same in such manner and order as it sees fit (whether against those amounts or otherwise) and none of the Owners shall be entitled to the benefit of the same; and
(b) hold in an interest-bearing suspense account any moneys received from any Owner or on account of the Owner's liability under this Guarantee.
22.7 Deferral of Owners' rights
Until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full and unless the Administrative Agent otherwise directs, no Owner shall exercise any rights which it may have by reason of performance by it of its obligations under the Finance Documents:
(a) to be indemnified by the Borrower;
(b) to claim any contribution from any Obligor under the Finance Documents; and/or
(c) to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Finance Parties under the Finance Documents or of any other guarantee or security taken pursuant to, or in connection with, the Finance Documents by any Finance Party.
22.8 Additional security
This Guarantee is in addition to and is not in any way prejudiced by any other guarantee or security now or subsequently held by any Finance Party.
22.9 Owner's right of contribution
Subject to Clause 22.7 (Deferral of Owners' rights), at any time a payment is made under the Guarantee each such Guarantor shall have a right of contribution against each other Guarantor who has made no payment or has made payments in respect of the Guarantee.
22.10 No Fraudulent Conveyance
The Borrower, each Owner and each Lender (by its signature hereto and the Security Agent's acceptance on its behalf of the benefits of the relevant Mortgage) hereby confirms that it is its intention that the provisions of the Guarantee and each Mortgage not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Code, the Uniform Fraudulent Conveyance Act or any similar United States Federal or state law or similar law of any other jurisdiction. To effectuate the foregoing intention, the Borrower, each Owner and each Lender (by its signature hereto and the Security Agent's acceptance of the benefits of the relevant Mortgage) hereby irrevocably agrees that the obligations secured under the Security Documents by each Owner shall be limited to such amount as will, after giving effect to such maximum amount and all other (contingent or otherwise) liabilities of such Owner that are relevant under such laws and after giving effect to any rights to contribution pursuant to any agreement providing for an equitable contribution among such Owner and the other Owners, result in the obligations secured under the Security Documents of such Owner in respect of such maximum amount not constituting a fraudulent transfer or conveyance.
23 CHANGES TO THE LENDERS
23.1 Transfers by the Lenders
Subject to this Clause 23, a Lender (the "Existing Lender") may transfer any of its rights and obligations under the Finance Documents to another bank or financial institution (the "New Lender").
23.2 Conditions of transfer
(a) The consent of the Borrower is required for transfer by a Lender, unless
the transfer is to another Lender or an affiliate of a Lender.
(b) The consent of the Borrower to a transfer must not be unreasonably
withheld or delayed. The Borrower shall be deemed to have given its
consent five Business Days after that Lender has requested it unless
consent is expressly refused by the Borrower within that time.
(c) An assignment shall only be effective on receipt by the Administrative
Agent of written confirmation from the New Lender (in form and substance
satisfactory to the Administrative Agent) that the New Lender shall assume
the same obligations to the other Finance Parties as it would have been
under if it was an Existing Lender.
(d) A transfer shall only be effective if the procedure set out in Clause 23.4
(Procedure for transfer) is complied with.
(e) Any partial transfer of a Commitment shall apply rateably to the Tranche A
Commitment and the Tranche B Commitment.
23.3 Limitation of responsibility of Existing Lenders
(a) Unless expressly agreed to the contrary, an Existing Lender makes no
representation or warranty and assumes no responsibility to a New Lender
for:
(i) the legality, validity, effectiveness, adequacy or enforceability of
the Finance Documents or any other documents;
(ii) the financial conditions of the Obligors;
(iii) the performance and observance by any Obligors of its obligations
under the Finance Documents or any other documents; or
(iv) the accuracy of any statements (whether written or oral) made in or
in connection with any Finance Document or any other document,
(v) and any representations or warranties implied by law are excluded.
(b) Each New Lender confirms to the Existing Lender and the other Finance
Parties that it:
(i) has made (and shall continue to make) its own independent
investigation and assessment of the financial condition and affairs
of the Borrower and the Owners and their related entities in
connection with its participation in this Agreement and has not
relied exclusively on any information provided to it by the Existing
Lender in connection with any Finance Document; and
(ii) will continue to make its own independent appraisal of the
creditworthiness of the Borrower and the Owners and their related
entities whilst any amount is or may be outstanding under the
Finance Documents.
(c) Nothing in any Finance Document obliges an Existing Lender to:
(i) accept a re-transfer from a New Lender of any of the rights and
obligations assigned or transferred under this Clause 23; or
(ii) support any losses directly or indirectly incurred by the New Lender
by reason of the non-performance by the Borrower of its obligations
under the Finance Documents or otherwise.
23.4 Procedure for transfer
(a) Subject to the conditions set out in Clause 23.2 (Conditions of transfer)
a transfer is effected in accordance with paragraph (b) below when the
Administrative Agent executes an otherwise duly completed Transfer
Certificate delivered to it by the Existing Lender and the New Lender. The
Administrative Agent shall, as soon as reasonably practicable after
receipt by it of a duly completed Transfer Certificate appearing on its
face to comply with the terms of this Agreement and delivered in
accordance with the terms of this Agreement, execute that Transfer
Certificate.
(b) On the Transfer Date:
(i) to the extent that in the Transfer Certificate the Existing Lender
|
seeks to transfer its rights and obligations under the Finance Documents the Borrower and the Existing Lender shall be released from further obligations towards one another under the Finance Documents and their respective rights against one another under the Finance Documents shall be cancelled (being the "Discharged Rights and Obligations");
(ii) the Borrower and the New Lender shall assume obligations towards one another and/or acquire rights against one another which differ from the Discharged Rights and Obligations only insofar as the Borrower and the New Lender have assumed and/or acquired the same in place of the Borrower and the Existing Lender;
(iii) the Administrative Agent, the New Lender and other Lenders shall acquire the same rights and assume the same obligations between themselves as they would have acquired and assumed had the New Lender been an Existing Lender with the rights and/or obligations acquired or assumed by it as a result of the transfer and to that extent the Administrative Agent and the Existing Lender shall each be released from further obligations to each other under the Finance Documents; and
(iv) the New Lender shall become a Party as a "Lender".
24 CHANGES TO THE OBLIGORS
No Obligor may assign any of its rights or transfer any of its rights or obligations under the Finance Documents.
25 ROLE OF THE ADMINISTRATIVE AGENT
25.1 Appointment of the Administrative Agent
(a) Each other Lender appoints the Administrative Agent to act as its agent
under and in connection with the Finance Documents.
(b) Each other Lender authorises the Administrative Agent to exercise the
rights, powers, authorities and discretions specifically given to the
Administrative Agent under or in connection with the Finance Documents
together with any other incidental rights, powers, authorities and
discretions.
25.2 Duties of the Administrative Agent
(a) The Administrative Agent shall promptly forward to a Party the original or
a copy of any document which is delivered to the Administrative Agent for
that Party by any other Party.
(b) Except where a Finance Document specifically provides otherwise, the
Administrative Agent is not obliged to review or check the adequacy,
accuracy or completeness of any document it forwards to another Party.
(c) If the Administrative Agent receives notice from a Party referring to this
Agreement, describing an Event of Non-compliance and stating that the
circumstance described is an Event of Non-compliance, it shall promptly
notify the Lenders.
(d) If the Administrative Agent is aware of the non-payment of any principal,
interest, commitment fee or other fee payable to a Finance Party (other
than the Administrative Agent) under this Agreement it shall promptly
notify the other Finance Parties.
(e) The Administrative Agent's duties under the Finance Documents are solely
mechanical and administrative in nature.
25.3 No fiduciary duties
(a) Nothing in this Agreement constitutes the Administrative Agent as a
fiduciary of any other person.
(b) The Administrative Agent shall not be bound to account to any Lender for
any sum or the profit element of any sum received by it for its own
account.
25.4 Business with the Obligors
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The Administrative Agent may accept deposits from, lend money to and generally engage in any kind of banking or other business with any Obligor.
25.5 Rights and discretions of the Administrative Agent
(a) The Administrative Agent may rely on:
(i) any representation, notice or document believed by it to be genuine,
correct and appropriately authorised; and
(ii) any statement made by a director, authorised signatory or employee
of any person regarding any matters which may reasonably be assumed
to be within his knowledge or within his power to verify.
(b) The Administrative Agent may assume (unless it has received notice to the
contrary in its capacity as agent for the Lenders) that:
(i) no default has occurred (unless it has actual knowledge of a default
arising under Clause 21.1(a) (Non-payment)); and
(ii) any right, power, authority or discretion vested in any Party or the
Lenders has not been exercised.
(c) The Administrative Agent may engage, pay for and rely on the advice or
services of any lawyers, accountants, surveyors or other experts.
(d) The Administrative Agent may act in relation to the Finance Documents
through its personnel and agents.
(e) The Administrative Agent may disclose to any other Party any information
it reasonably believes it has received as agent under this Agreement.
(f) Notwithstanding any other provision of any Finance Document to the
contrary, the Administrative Agent is not obliged to do or omit to do
anything if it would or might in its reasonable opinion constitute a
breach of any law or regulation or a breach of a fiduciary duty or duty of
confidentiality.
25.6 Majority Lenders' instructions
(a) Unless a contrary indication appears in a Finance Document, the
Administrative Agent shall (i) exercise any right, power, authority or
discretion vested in it as Administrative Agent in accordance with any
instructions given to it by the Majority Lenders (or, if so instructed by
the Majority Lenders, refrain from exercising any right, power, authority
or discretion vested in it as Administrative Agent) and (ii) not be liable
for any act (or omission) if it acts (or refrains from taking any action)
in accordance with an instruction of the Majority Lenders.
(b) Unless a contrary indication appears in a Finance Document, any
instructions given by the Majority Lenders will be binding on all the
Finance Parties.
(c) The Administrative Agent may refrain from acting in accordance with the
instructions of the Majority Lenders (or, if appropriate, the Lenders)
until it has received such security as it may require for any cost, loss
or liability (together with any associated VAT) which it may incur in
complying with the instructions.
(d) In the absence of instructions from the Majority Lenders, (or, if
appropriate, the Lenders) the Administrative Agent may act (or refrain
from taking action) as it considers to be in the best interest of the
Lenders.
(e) The Administrative Agent is not authorised to act on behalf of a Lender
(without first obtaining that Lender's consent) in any legal or
arbitration proceedings relating to any Finance Document.
25.7 Responsibility for documentation
|
The Administrative Agent:
(a) is not responsible for the adequacy, accuracy and/or completeness of any
information (whether oral or written) supplied by the Administrative
Agent, the Borrower or any other person given in or in connection with any
Finance Document; or
(b) is not responsible for the legality, validity, effectiveness, adequacy or
enforceability of any Finance Document or any other agreement, arrangement
or document entered into, made or executed in anticipation of or in
connection with any Finance Document.
25.8 Exclusion of liability
(a) Without limiting paragraph (b) below, the Administrative Agent shall not
be liable for any action taken by it under or in connection with any
Finance Document, unless directly caused by its gross negligence or wilful
misconduct.
(b) No Party (other than the Administrative Agent) may take any proceedings
against any officer, employee or agent of the Administrative Agent in
respect of any claim it might have against the Administrative Agent or in
respect of any act or omission of any kind by that officer, employee or
agent in relation to any Finance Document and any officer, employee or
agent of the Administrative Agent may rely on this Clause.
(c) The Administrative Agent shall not be liable for any delay (or any related
consequences) in crediting an account with an amount required under the
Finance Documents to be paid by the Administrative Agent if the
Administrative Agent has taken all necessary steps as soon as reasonably
practicable to comply with the regulations or operating procedures of any
recognised clearing or settlement system used by the Administrative Agent
for that purpose.
25.9 Lender's indemnity to the Administrative Agent
|
Each Lender shall (in proportion with its participation in the Loan) indemnify the Administrative Agent within three Business Days of demand against any cost, loss or liability incurred by the Administrative Agent (otherwise than by reason of the Administrative Agent's gross negligence or wilful misconduct) in acting as Administrative Agent under the Finance Documents (unless the Administrative Agent has been reimbursed by the Borrower pursuant to a Finance Document).
25.10 Resignation of the Administrative Agent
The Administrative Agent may resign by giving notice to the Lenders and the Borrower, in which case the Lenders (after consultation with the Borrower) may appoint a successor Administrative Agent.
25.11 Confidentiality
(a) In acting as Administrative Agent for the Finance Parties, the Administrative Agent shall be regarded as acting through its agency division which shall be treated as a separate entity from any other of its divisions or departments.
(b) If information is received by another division or department of the Administrative Agent, it may be treated as confidential to that division or department and the Administrative Agent shall not be deemed to have notice of it.
25.12 Relationship with the Lenders
The Administrative Agent may treat each Lender as a Lender entitled to payments under this Agreement and unless it has received not less than five Business Days prior notice from that Lender to the contrary in accordance with the terms of this Agreement.
25.13 Credit appraisal by the Lenders
Without affecting the responsibility of the Borrower for information supplied by it or on its behalf in connection with any Finance Document, each Lender confirms to the Administrative Agent that it has been, and shall continue to be, solely responsible for making its own independent appraisal and investigation of all risks arising under or in connection with any Finance Document including but not limited to:
(a) the financial condition, status and nature of the Borrower;
(b) the legality, validity, effectiveness, adequacy or enforceability of any Finance Document and any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document;
(c) whether that Lender has recourse, and the nature and extent of that recourse, against any Party or any of its respective assets under or in connection with any Finance Document, the transactions contemplated by the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document; and
(d) the adequacy, accuracy and/or completeness of any other information provided by the Administrative Agent, any Party or by any other person under or in connection with any Finance Document, the transactions contemplated by the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document.
25.14 Deduction from amounts payable by the Administrative Agent
If any Party owes an amount to the Administrative Agent under the Finance Documents the Administrative Agent may, after giving notice to that Party, deduct an amount not exceeding that amount from any payment to that Party which the Administrative Agent would otherwise be obliged to make under the Finance Documents and apply the amount deducted in or towards satisfaction of the amount owed. For the purposes of the Finance Documents that Party shall be regarded as having received any amount so deducted.
26 SHARING AMONG THE FINANCE PARTIES
26.1 Payment to Finance Parties
If a Finance Party (a "Recovering Finance Party") receives or recovers any amount from the Borrower (including by set-off) other than in accordance with Clause 27 (Payment mechanics) and applies that amount to a payment due under the Finance Documents then:
(a) the Recovering Finance Party shall, within three Business Days, notify details of the receipt or recovery, to the Administrative Agent;
(b) the Administrative Agent shall determine whether the receipt or recovery is in excess of the amount the Recovering Finance Party would have been paid had the receipt or recovery been received or made by the Administrative Agent and distributed in accordance with Clause 27 (Payment mechanics), without taking account of any Tax which would be imposed on the Administrative Agent in relation to the receipt, recovery or distribution; and
(c) the Recovering Finance Party shall, within three Business Days of demand by the Administrative Agent, pay to the Administrative Agent an amount (the "Sharing Payment") equal to such receipt or recovery less any amount which the Administrative Agent determines may be retained by the Recovering Finance Party as its share of any payment to be made, in accordance with Clause 27.5 (Partial payments).
26.2 Redistribution of payments
The Administrative Agent shall treat the Sharing Payment as if it had been paid by the Borrower and distribute it between the Finance Parties (other than the Recovering Finance Party) in accordance with Clause 27.5 (Partial payments).
26.3 Recovering Finance Party's rights
(a) On a distribution by the Administrative Agent under Clause 26.2
(Redistribution of payments), the Recovering Finance Party will be
subrogated to the rights of the Finance Parties which have shared in the
redistribution.
(b) If and to the extent that the Recovering Finance Party is not able to rely
on its rights under paragraph (a) above, each Borrower shall be liable to
the Recovering Finance Party for a debt equal to the Sharing Payment which
is immediately due and payable.
26.4 Reversal of redistribution
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If any part of the Sharing Payment received or recovered by a Recovering Finance Party becomes repayable and is repaid by that Recovering Finance Party, then:
(a) each Finance Party which has received a share of the relevant Sharing
Payment pursuant to Clause 26.2 (Redistribution of payments) shall, upon
request of the Administrative Agent, pay to the Administrative Agent for
account of that Recovering Finance Party an amount equal to the
appropriate part of its share of the Sharing Payment (together with an
amount as is necessary to reimburse that Recovering Finance Party for its
proportion of any interest on the Sharing Payment which that Recovering
Finance Party is required to pay); and
(b) that Recovering Finance Party's rights of subrogation in respect of any
reimbursement shall be cancelled and each Borrower will be liable to the
reimbursing Finance Party for the amount so reimbursed.
26.5 Exceptions
(a) This Clause 26.5 shall not apply to the extent that the Recovering Finance
Party would not, after making any payment pursuant to this Clause, have a
valid and enforceable claim against the Borrower.
(b) A Recovering Finance Party is not obliged to share with any other Finance
Party any amount which the Recovering Finance Party has received or
recovered as a result of taking legal or arbitration proceedings, if:
(i) it notified that other Finance Party of the legal or arbitration
proceedings; and
(ii) that other Finance Party had an opportunity to participate in those
legal or arbitration proceedings but did not do so as soon as
reasonably practicable having received notice and did not take
separate legal or arbitration proceedings.
27 PAYMENT MECHANICS
27.1 Payments to the Administrative Agent
(a) On each date on which the Borrower or a Lender is required to make a
payment under a Finance Document, the Borrower or Lender shall make the
same available to the Administrative Agent (unless a contrary indication
appears in a Finance Document) for value on the due date at the time and
in such funds specified by the Administrative Agent as being customary at
the time for settlement of transactions in the relevant currency in the
place of payment.
(b) Payment shall be made to such account in the principal financial centre of
the country of that currency and with such bank as the Administrative
Agent specifies.
27.2 Distributions by the Administrative Agent
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Each payment received by the Administrative Agent under the Finance Documents for another Party shall, subject to Clause 27.3 (Distributions of the Borrower) and Clause 27.4 (Clawback) be made available by the Administrative Agent as soon as practicable after receipt to the Party entitled to receive payment in accordance with this Agreement, to such account as that Party may notify to the Administrative Agent by not less than five Business Days' notice with a bank in the principal financial centre of the country of that currency.
27.3 Distributions to the Borrower
The Administrative Agent may (with the consent of the Borrower or in accordance with Clause 15.4 (Set-off)) apply any amount received by it for the Borrower in or towards payment (on the date and in the currency and funds of receipt) of any amount due from the Borrower under the Finance Documents or in or towards purchase of any amount of any currency to be so applied.
27.4 Clawback
(a) Where a sum is to be paid to the Administrative Agent under the Finance
Documents for another Party, the Administrative Agent is not obliged to
pay that sum to that other Party (or to enter into or perform any related
exchange contract) until it has been able to establish to its satisfaction
that it has actually received that sum.
(b) If the Administrative Agent pays an amount to another Party and it proves
to be the case that the Administrative Agent had not actually received
that amount, then the Party to whom that amount (or the proceeds of any
related exchange contract) was paid by the Administrative Agent shall on
demand refund the same to the Administrative Agent together with interest
on that amount from the date of payment to the date of receipt by the
Administrative Agent, calculated by the Administrative Agent to reflect
its cost of funds.
27.5 Partial payments
(a) If the Administrative Agent receives a payment that is insufficient to
discharge all the amounts then due and payable by the Borrower under the
Finance Documents, the Administrative Agent shall apply that payment
towards the obligations of the Borrower under the Finance Documents in the
following order:
(i) first, in or towards payment pro rata of any unpaid fees, costs and
expenses of the Administrative Agent under the Finance Documents;
(ii) secondly, in or towards payment pro rata of any accrued interest,
fee or commission due but unpaid under this Agreement;
(iii) thirdly, in or towards payment pro rata of any principal due but
unpaid under this Agreement; and
(iv) fourthly, in or towards payment pro rata of any other sum due but
unpaid under the Finance Documents.
(b) The Administrative Agent shall, if so directed by all Lenders, vary the
order set out in paragraphs (a)(ii) to (iv) above.
(c) Paragraphs (a) and (b) above shall override any appropriation made by the
Borrower.
27.6 No set-off by the Borrower
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All payments to be made by the Borrower under the Finance Documents shall be calculated and be made without (and free and clear of any deduction for) set-off or counterclaim.
27.7 Business Days
(a) Any payment which is due to be made on a day that is not a Business Day
shall be made on the next Business Day in the same calendar month (if
there is one) or the preceding Business Day (if there is not).
(b) During any extension of the due date for payment of any principal or
Unpaid Sum under this Agreement interest is payable on the principal or
Unpaid Sum at the rate payable on the original due date.
28 NOTICES
28.1 Communications in writing
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Any communication to be made under or in connection with the Finance Documents shall be made in writing and, unless otherwise stated, may be made by fax or letter.
28.2 Addresses
The address and fax number (and the department or officer, if any, for whose attention the communication is to be made) of each Party for any communication or document to be made or delivered under or in connection with the Finance Documents is:
(a) in the case of the Borrower:
Ship Finance International Limited
c/o Ship Finance Management AS
P.O. Box 1327 Vika
NO-0112 Oslo
Norway
Telefax: +47 23 11 40 40
(b) in the case of the Administrative Agent:
For credit matters:
DNB NOR Bank ASA,
Att.: Shipping Division
NO-0021 Oslo
Norway
Telefax: +47 22 48 20 20
For administrative matters:
DNB NOR Bank ASA,
Att.: Loan Administration Shipping
NO-0021 Oslo
Norway
Telefax: +47 22 48 28 94
(c) In the case of the Security Agent:
DNB NOR Bank ASA,
Att.: Collateral Department Shipping
NO-0021 Oslo
Norway
Telefax: +47 22 31 92 01
(d) to each Lender at its address and fax number specified in Schedule 2
or any substitute address or fax number or department or officer as the Party may notify to the Administrative Agent (or the Administrative Agent may notify to the other Parties, if a change is made by the Administrative Agent) by not less than five Business Days' notice.
28.3 Notification of address and fax number
Promptly upon receipt of notification of an address and fax number or change of address or fax number pursuant to Clause 28.2 (Addresses) or changing its own address or fax number, the Administrative Agent shall notify the other Parties.
28.4 English language
(a) Any notice given under or in connection with any Finance Document must be
in English.
(b) All other documents provided under or in connection with any Finance
Document must be:
(i) in English; or
(ii) if not in English, and if so required by the Administrative Agent,
accompanied by a certified English translation and, in this case,
the English translation shall prevail unless the document is a
constitutional, statutory or other official document.
29 CALCULATIONS AND CERTIFICATES
29.1 Accounts
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In any litigation or arbitration proceedings arising out of or in connection with a Finance Document, the entries made in the accounts maintained by a Finance Party are prima facie evidence of the matters to which they relate.
29.2 Certificates and Determinations
Any certification or determination by a Finance Party of a rate or amount under any Finance Document is, in the absence of manifest error, conclusive evidence of the matters to which it relates.
29.3 Day count convention
Any interest, commission or fee accruing under a Finance Document shall accrue from day to day and is calculated on the basis of the actual number of days elapsed and a year of 360 days or, in any case where the practice in the London interbank market differs, in accordance with that market practice.
30 PARTIAL INVALIDITY
If, at any time, any provision of the Finance Documents is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired.
31 AMENDMENTS
31.1 Amendments
Except as otherwise provided herein, the Administrative Agent (acting on behalf of the Majority Lenders) may from time to time agree in writing to amend this Agreement or to waive, prospectively or retrospectively, any of the requirements of this Agreement and any amendments or waivers so agreed shall be binding on all the Finance Parties and the Obligors.
31.2 Consent
An amendment or waiver relating to the following matters shall not be made without the prior written consent of each Lender affected thereby:
a) any increase in the Commitment of such Lender;
b) a reduction in the proportion of any amount received or recovered (whether by way of set-off, combination of accounts or otherwise) in respect of any amount due from an Obligor under this Agreement to which any Lender is entitled;
c) a decrease in the Margin or any other interest payment, or fees or other amounts due under this Agreement to any Lender from an Obligor or any other party to this Agreement;
d) any change in the currency of account;
e) the deferral of the date for payment of any principal, interest, fee or any other amount due under this Agreement to any Lender from an Obligor or any other party to this Agreement;
f) the deferral of the term of the Loan;
g) the provisions of Clause 23.1 (Transfers by the Lenders);
h) any changes to the definition of "Majority Lenders";
i) the waiver or release of any Security Document or any of the obligations of any Owner under Clause 22 (Guarantee) other than in accordance with the terms of Clause 6.3 (Mandatory prepayment and cancellation: Sale or Total Loss); and
j) a change to any provision which contemplates the need for the consent or approval of all the Lenders.
31.3 Technical Amendments
The Administrative Agent may determine administrative matters and make technical amendments arising out of manifest errors on the face of this Agreement, where such amendments would not prejudice or otherwise be adverse to the position of any Lender under this Agreement, without reference to the Lenders.
31.4 Amendments affecting the Administrative Agent
Notwithstanding any other provision of this Agreement, the Administrative Agent shall not be obliged to agree to any amendment or waiver if the same would amend or waive any of the Administrative Agent's rights under this Agreement or subject the Administrative Agent to any additional obligations under this Agreement.
32 REMEDIES AND WAIVERS
No failure to exercise, nor any delay in exercising, on the part of any Finance Party, any right or remedy under the Finance Documents shall operate as a waiver, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise or the exercise of any other right or remedy. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law.
33 GOVERNING LAW AND JURISDICTION
33.1 Governing law
This Agreement is governed by Norwegian law.
33.2 Jurisdiction
Oslo District Court (Oslo tingrett) has exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement, but this shall not prevent any Finance Party from taking proceedings against the Borrower in any other courts with jurisdiction including any jurisdiction where a Vessel may be found and the Borrower irrevocably submits to the jurisdiction of each such court. To the extent allowed by law, the Finance Parties may take concurrent proceedings in any number of jurisdictions.
SCHEDULE 1
Owners and Vessels
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IMO
Owners Registered Vessel Hull number Built Dwt. Flag
------------------------------------------------------------------------------------------------------------
Langkawi Liberia "Front Birch" SH 8915407 1991 152,000 MI
Shipping Ltd.
------------------------------------------------------------------------------------------------------------
Sibu Liberia "Front Maple" SH 8915392 1991 152,000 MI
Shipping Ltd.
------------------------------------------------------------------------------------------------------------
Granite Shipping Bahamas "Front Granite" SH 8902955 1991 142,031 MI
Company Ltd.
------------------------------------------------------------------------------------------------------------
Southwest Liberia "Front Sunda" SH 8918930 1992 142,031 MI
Tankers Inc.
------------------------------------------------------------------------------------------------------------
West Liberia "Front Comor" SH 8918942 1993 142,031 MI
Tankers Inc.
------------------------------------------------------------------------------------------------------------
Front Pride Liberia "Front Pride" DH 9018464 1993 149,686 NIS
Shipping Inc.
------------------------------------------------------------------------------------------------------------
Front Splendour Liberia "Front Splendour" DH 9104885 1995 149,745 NIS
Shipping Inc.
------------------------------------------------------------------------------------------------------------
Front Glory Liberia "Front Glory" DH 9087972 1995 149,834 NIS
Shipping Inc.
------------------------------------------------------------------------------------------------------------
Front Ardenne Liberia "Front Ardenne" DH 9150834 1997 153,000 NIS
Inc.
------------------------------------------------------------------------------------------------------------
Bolzano Singapore "Mindanao" DH 9169421 1998 158,000 SING
Private Limited
------------------------------------------------------------------------------------------------------------
Front Brabant Liberia "Front Brabant" DH 9155808 1998 153,000 NIS
Inc.
------------------------------------------------------------------------------------------------------------
Cirebon Shipping Singapore "Front Vanadis" SH 8902412 1990 285,782 SING
Private Limited
------------------------------------------------------------------------------------------------------------
Fox Maritime Singapore "Front Sabang" SH 8716772 1990 285,715 SING
Private Limited
------------------------------------------------------------------------------------------------------------
Front Empat Singapore "Front Highness" SH 8920921 1991 284,420 SING
Private Limited
------------------------------------------------------------------------------------------------------------
Front Lima Singapore "Front Lady" SH 8906913 1991 284,420 SING
Private Limited
------------------------------------------------------------------------------------------------------------
Front Enam Singapore "Front Lord" SH 8906901 1991 284,420 SING
Private Limited
------------------------------------------------------------------------------------------------------------
Front Tiga Singapore "Front Duke" SH 9005273 1991 284,420 SING
Private Limited
------------------------------------------------------------------------------------------------------------
Sea Ace Liberia "Front Ace" SH 9012824 1993 275,546 LIB
Corp.
------------------------------------------------------------------------------------------------------------
Front Dua Singapore "Front Duchess" SH 9046019 1993 284,480 SING
Private Limited
------------------------------------------------------------------------------------------------------------
Edinburgh Liberia "Edinburgh" SH 9005223 1993 302,493 LIB
Navigation S.A.
------------------------------------------------------------------------------------------------------------
Golden Sound Liberia "Front Vista" DH 9153525 1998 300,149 MI
Corp.
------------------------------------------------------------------------------------------------------------
Golden Seaway Corp. Liberia "Front Vanguard" DH 9153513 1998 300,058 MI
------------------------------------------------------------------------------------------------------------
Golden Fjord Liberia "Ocana" DH 9158264 1999 300,144 IOM
Corp. LIB*
------------------------------------------------------------------------------------------------------------
Golden Estuary Corp. Liberia "Front Comanche" DH 9172674 1999 300,133 FRA
LIB*
------------------------------------------------------------------------------------------------------------
Front Opalia Liberia "Front Opalia" DH 9172844 1999 302,193 MI
Inc.
------------------------------------------------------------------------------------------------------------
Golden Tide Liberia "Front Circassia" DH 9166742 1999 306,009 MI
Corp.
------------------------------------------------------------------------------------------------------------
Front Scilla Liberia "Front Scilla" DH 9172856 2000 302,193 MI
Inc.
------------------------------------------------------------------------------------------------------------
Ariake Transport Liberia "Ariake" DH 9196606 2001 298,530 BS
Corporation
------------------------------------------------------------------------------------------------------------
Front Stratus Liberia "Ondina" DH 9248485 2002 298,500 LIB
Inc.
------------------------------------------------------------------------------------------------------------
Front Saga Liberia "Front Page" DH 9248497 2002 298,500 LIB
Inc.
------------------------------------------------------------------------------------------------------------
Front Serenade Liberia "Front Serenade" DH 9248473 2002 299,152 LIB
Inc.
------------------------------------------------------------------------------------------------------------
Front Falcon Liberia "Front Falcon" DH 9238856 2002 308,000 BS
Corp.
------------------------------------------------------------------------------------------------------------
Hitachi Hull 4983 Ltd. Liberia "Otina" DH 9196644 2002 296,000 IOM
BS*
------------------------------------------------------------------------------------------------------------
Front Lapan Singapore "Front Climber" DH 8906896 1991 169,178 SING
Private Limited
------------------------------------------------------------------------------------------------------------
Transcorp Singapore "Front Guider" DH 9002740 1991 169,142 SING
Pte Ltd
------------------------------------------------------------------------------------------------------------
Bonfield Liberia "Front Driver" DH 8906884 1991 169,177 MI
Shipping Limited
------------------------------------------------------------------------------------------------------------
Front Sembilan Singapore "Front Leader" DH 8906860 1991 169,381 SING
Private Limited
------------------------------------------------------------------------------------------------------------
Katong Investments Liberia "Front Breaker" DH 8906872 1991 169,381 MI
Limited
------------------------------------------------------------------------------------------------------------
Aspinall Pte Singapore "Front Viewer" DH 9153513 1992 169,381 SING
Ltd
------------------------------------------------------------------------------------------------------------
Rettie Singapore "Front Striver" DH 9002752 1992 169,204 SING
Pte Ltd
------------------------------------------------------------------------------------------------------------
Blizana Singapore "Front Rider" DH 9002764 1992 169,718 SING
Pte Ltd
------------------------------------------------------------------------------------------------------------
SH = Single Hull
DH = Double Hull
MI = Marshall Island
NIS = Norwegian International Shipregister
SING = Singapore
LIB = Liberia
IOM = Isle of Man
BS = Bahamas
FRA = France
* = Primary (mortgage) register
|
SCHEDULE 2
The Original Lenders
Tranche A Tranche B
Original Lenders Title Commitment (USD) Commitment (USD)
---------------- ----- ---------------- ----------------
DnB NOR Bank ASA Mandated lead 80,668,724.03 19,441,080.72
NO-0021 Oslo arranger
Norway
Att: Ms Solveig Nuland Knoff
Fax: +47 22 48 28 94
Nordea Bank Norge ASA Mandated lead 80,668,724.02 19,441,080.73
Middelthuns gate 17 arranger
P.O.Box 1166 Sentrum
NO-0107 Oslo
Norway
Att: Ms Tine Jellum
Fax: +47 22 48 42 78
Fortis Bank (Nederland) N.V. Mandated lead 80,668,724.02 19,441,080.73
Haakon VIIs gate 10 arranger
NO-0161 Oslo
Norway
Administrative contact:
Coolsingel 93
NL-3012 AE Rotterdam
The Netherlands
Att: Mr Tom van Vonderen
Fax: +31 10 401 53 23
Calyon S.A. Mandated lead 80,668,724.02 19,441,080.73
9 Quai Du President Paul Doumer arranger
FR-92920 Paris La Defense Cedex
France
Att: Ms Sylvie Godet-Couery
Fax: +33 141 89 1934
Danish Ship Finance A/S Lead arranger 40,290,121.54 9,709,878.46
(Danmarks Skibskredit A/S)
Sankt Annae Plads
3 DK-1250 K0benhavn K
Denmark Att: Loan Administration
Fax: +45 33 33 96 66
Deutsche Bank AG in Hamburg Lead arranger 40,290,121.54 9,709,878.46
Ludwig-Erhard-Strasse 1
20459 Hamburg
Germany
Att: Ms Anne-Juliane Jurss
Fax: +49 40 3701 4649
Deutsche Schiffsbank Aktiengesellschaft Lead arranger 40,290,121.54 9,709,878.46
Domshof 17
DE-28195 Bremen
Germany
Att: Ms Tanja Lauerer / Ms Petra von Luehrte
Fax: +49 421 36 09 329
HSH Nordbank AG Lead arranger 40,290,121.54 9,709,878.46
Gerhart-Hauptmann-Platz 50
DE-20095 Hamburg
Germany
Att: Ms Irena Franke
Fax: +49 40 33 33 342 69
ING Bank N.V., London Branch Lead arranger 40,290,121.54 9,709,878.46
60 London Wall
GB-London EC2M 5TO
United Kingdom
Att: Mr Patrick Young
Fax: +44 20 7767 7252
Lloyds TSB Bank plc Lead arranger 40,290,121.54 9,709,878.46
Bank House, Wine Street
GB-Bristol BS1 2AN
United Kingdom
Att: Mr Paul Hellings / Mr Bob Martyn
Fax: +44 117 923 3367
Scotiabank Europe plc Lead arranger 64,867,095.68 15,632,904.32
c/o The Bank of Nova Scotia
WBO - Loan Administration
& Agency Operations
4th Floor, 720 King St. West,
Toronto, Ontario
Canada
Att: M Savi Rampat
Fax: +1 416 350 5150
Skandinaviska Enskilda Banken AB (publ) Lead arranger 40,290,121.54 9,709,878.46
Rissneleden 110 RB8
SE-106 40 Stockholm
Sweden
Att: Ms Tiina Norberg
Fax: +46 8 611 03 84
Sumitomo Mitsui Banking Corporation Lead arranger 40,290,121.54 9,709,878.46
Avenue des Arts, 58 - Boite 18
BE-1000 Bruxelles
Belgium
Att: Mr Philippe Devos, CBDE2
Fax: +32 2 502 0780
Swedbank AB (publ) Lead arranger 40,290,121.54 9,709,878.46
SE-105 34 Stockholm
Sweden
Att: Shipping Loan Administration, E7,
Ms. Nina Kytta / Mr Richard Lonnqvist
Fax: +46 8 700 7980
Bayerische Hypo- und Vereinsbank AG Lead arranger 40,290,121.54 9,709,878.46
Alter Wall 22
DE-20457 Hamburg
Germany
Att: Ms Eike Wilde
Fax: +49 40 3692 3696
The Governor and Company Arranger 32,232,097.23 7,767,902.77
of the Bank of Ireland
Lower Baggot Street
IE-Dublin 2
Ireland
Att: Ms Anne Marie Dodd
Fax: +353 1 6044796
The Governor and Company Arranger 32,232,097.23 7,767,902.77
of the Bank of Scotland
Corporate
Pentland House
8 Lochside Avenue
GB-Edinburgh EH12 9DJ
United Kingdom
Att: Marine Finance
Fax: +44 131 658 3220
BNP Paribas Arranger 32,232,097.23 7,767,902.77
P.O. Box 106 Sentrum
NO-0102 Oslo
Norway
Att: Mr Pierre De Fontenay
Fax: +47 22 41 08 44
Citibank N.A. Co-Arranger 24,576,974.14 5,923,025.86
2nd Floor, 4 Harbour Exchange,
Isle of Dogs
GB-London E14 9GE
United Kingdom
Att: UK Loans Processing Unit
Fax: +44 207 942 7512
Total Commitments 911,716,473 219,722,746.00
|
SCHEDULE 3
INTENTIONALLY DELETED
SCHEDULE 4
Form of Drawdown Notice
To: DNB NOR BANK ASA
Date: [o]
Tranche B of the USD 1,131,439,219 amended and restated loan facility agreement dated 18 September 2006 (the "Loan Agreement")
We refer to Clause 4.1 (Delivery of the Drawdown Notice) of the Loan Agreement. Capitalized terms defined in the Loan Agreement shall have the same meaning when being used in this Drawdown Notice.
You are hereby irrevocably notified that we wish to make the following drawdown pursuant to the terms and conditions of the Loan Agreement:
Facility: Tranche B -------------------------------------------------------------------- Requested Drawdown Date: [o] Principal Amount: [o] Interest Period: [o] |
The proceeds of the Advance should be credited to [o] [insert name and number of account].
We confirm that, as of the date hereof (i) each condition specified in Clause 3 (Conditions precedent) of the Loan Agreement is satisfied; (ii) each of the representations and warranties set out in Clause 16 (Representations) of the Loan Agreement is true and correct; and (iii) no event or circumstances has occurred and is continuing which constitute or may constitute an Event of Non-compliance.
Yours sincerely
for and on behalf of
Ship Finance International Limited
By: __________________________________
Name:
Title: [authorised officer]
SCHEDULE 5
Form of Selection Notice
To: DNB NOR BANK ASA
Date: [o]
Tranche A of the USD 1,131,439,219 amended and restated loan facility agreement dated 18 September 2006 (the "Loan Agreement")
1. We refer to the Loan Agreement. Capitalised terms defined in the Loan Agreement shall have the same meaning when being used in this Selection Notice.
2. We refer to the Interest Period ending on [o].
3. We request that the next Interest Period for the Tranche A Loan is [o].
4. We confirm that (i) each of the representations and warranties set out in Clause 16 (Representations) of the Loan Agreement is true and correct; and that (ii) no event or circumstances has occurred and is continuing which constitute or may constitute an Event of Non-compliance.
5. This Selection Notice is irrevocable.
Yours sincerely
for and on behalf of
Ship Finance International Limited
By: __________________________________
Name:
Title: [authorised officer]
SCHEDULE 6
Form of Transfer Certificate
To: DNB NOR BANK ASA as Agent
From: [The Existing Lender] (the "Existing Lender") and [The New Lender] (the "New Lender")
Dated: [o]
USD 1,131,439,219 amended and restated loan facility agreement dated 18 September 2006 (the "Agreement")
1. We refer to the Agreement. This is a Transfer Certificate. Terms defined in the Agreement have the same meaning in this Transfer Certificate unless given a different meaning in this Transfer Certificate.
2. We refer to Clause 23.4 (Procedure for transfer):
(a) The Existing Lender and the New Lender agree to the Existing Lender transferring to the New Lender by novation all or part of the Existing Lender's Commitment, rights and obligations referred to in the Schedule in accordance with Clause 23.4 (Procedure for transfer).
(b) The proposed Transfer Date is [o].
(c) The Facility Office and address, fax number and attention details for notices of the New Lender for the purposes of Clause 28.2 (Addresses) are set out in the Schedule.
3. The New Lender expressly acknowledges the limitations on the Existing Lender's obligations set out in paragraph (c) of Clause 23.3 (Limitation of responsibility of Existing Lenders).
4. This Transfer Certificate is governed by Norwegian law.
THE SCHEDULE
Commitment/rights and obligations to be transferred
[Insert relevant details]
[Address, fax number and attention details for notices and account details for payments]
[Existing Lender] [New Lender] By: By:
This Transfer Certificate is accepted by the Administrative Agent and the Transfer Date is confirmed as [o].
DNB NOR BANK ASA
By:
SCHEDULE 7
Compliance Certificate
To: DNB NOR BANK ASA
Date: [o]
USD 1,131,439,219 amended and restated loan facility agreement dated 18 September 2006 (the "Loan Agreement")
We refer to the above Loan Agreement. Capitalised terms defined in the Loan Agreement shall have the same meaning when being used in this Compliance Certificate.
With reference to Clauses 17.2 (Compliance Certificate) and 18 (Financial covenants) of the Loan Agreement, we confirm that as at [o] [insert relevant quarterly date]:
(a) The aggregate Ship Value of all Vessels was USD [o]: The aggregate Ship Value of all Vessels shall be minimum 140% of the Loan and the covenant in Clause 18.1 is thus [not] satisfied.
(b) The Available Cash was [o]: The Available Cash shall be minimum USD 25,000,000 and the covenant in Clause 18.2 is thus [not] satisfied.
(c) The Working Capital was [o]: The Working Capital shall be positive and the covenant in Clause 18.3 is thus [not] satisfied.
(d) The Minimum Equity Ratio was [o]: The Minimum Equity Ratio shall be at least 20% and the covenant in Clause 18.4 is thus [not] satisfied.
(e) The Charter Service Reserve Deposit was [o]: The Charter Service Reserve
Deposit shall never be less than USD 55,000,000 and the Borrower is thus
[not] in an Event of Non-compliance according to Clause 21.1 (h).
We confirm that as of [insert relevant quarterly date] and the date of this Compliance Certificate no Event of Non-compliance has occurred and is continuing.
Yours sincerely
for and on behalf of
Ship Finance International Limited
By: __________________________________
Name:
Title: [authorised officer]
SCHEDULE 8
Interest Notification
To: Ship Finance International Limited
[__________________]
USD 1,131,439,219 amended and restated loan facility agreement dated 18 September 2006 (the "Loan Agreement")
For the purpose of the Norwegian Financial Contracts Act, we inform you that the nominal interest rate for the Loan stated below is based upon the aggregate of the current LIBOR and the Margin for a three months Interest Period. The calculation of the effective interest rate for the Loan is based upon the aggregate of the nominal interest rate, fees, costs and expenses (to be accrued) for three months Interest Periods. Furthermore, the calculation is based upon linear repayment.
As per [o] these interest rates were:
Nominal interest rate: [o] p.a.
Effective interest rate: [o] p.a.
We emphasise that these interest rates are to be regarded as examples due to the variation of interest rates of USD in the Eurocurrency market from time to time, variations of interest rates between optional Interest Periods, and furthermore, in respect of effective interest rates, variations as a result of the accrued fees, costs and expenses from time to time and variations in case of non-linear repayment or prepayment.
This letter is supplemental to the Loan Agreement and terms used herein shall have the same meaning as defined in the Loan Agreement.
Yours faithfully,
DNB NOR BANK ASA
We hereby acknowledge receipt of this letter.
Ship Finance International Limited
By:_______________________
SCHEDULE 9
Security Documents
So long as any amount is owing to the Lenders, any Hedge Counterparty, the Security Agent and the Administrative Agent under the Finance Documents and unless provided herein, the Loan and any other obligation and liability that any Obligor has or may incur towards the Finance Parties under the Finance Documents shall be secured by the following documents, instruments and actions in form and substance acceptable to the Administrative Agent:
1. Owners' Security Documents
(a) The Mortgage relative to each Vessel executed by the relevant Owner in favour of the Security Agent substantially in the form as set out in Exhibit A and registered over the relevant Vessel in the ship register approved by all the Lenders.
(b) The Owners' General Assignments executed by each of the Owners in favour of the Security Agent in the form as set out in Exhibit B in respect of:
(i) the Insurances; and
(ii) the Earnings of the relevant Time Charter Party, or if relevant, the Earnings of the relevant Bareboat Charter.
(c) The Owners' Contract Assignment executed by each of the Owners in favour of the Security Agent in the form as set out in Exhibit C in respect of the assignment of:
(i) each Management Agreement;
(ii) the Administrative Services Agreement;
(iii) the Charter Ancillary Agreement;
(iv) each Time Charter Party;
(v) each Bareboat Charter; and
(vi) the Performance Guarantee.
2. Borrower's Security Documents
(a) The Earnings Account Charge executed by the Borrower in favour of the Security Agent in the form as set out in Exhibit D in respect of the Earnings Account.
(b) The Pledge of Shares in respect of all shares of each Owner executed by the Borrower in favour of the Security Agent substantially in the form set out in Exhibit E and the security of which shall be perfected as set out therein.
3. Sub-Security Documents
(a) The Borrower's Contract Assignment executed by the Borrower in favour of the Security Agent in the form as set out in Exhibit F in respect of the assignment of:
(i) the Floating Charge;
(ii) the Performance Guarantee;
(iii) the Charterer Share Pledge;
(iv) the Charter Ancillary Agreement; and
(v) the Administrative Services Agreement.
(b) The Charter Accounts Pledge Assignment executed by the Borrower in favour of the Security Agent in the form as set out in Exhibit G.
SCHEDULE 10
Guarantee/Security release letter
To: [insert name]
Date: [o]
Dear Sirs,
RE: "[o]" (the "Vessel")
We hereby give you notice that all moneys due and to become due to the Finance Parties under a amended and restated loan facility agreement dated 18 September 2006 (the "Loan Agreement") in relation to the Vessel have been prepaid, and you are hereby released from your guarantee responsibility in connection with the Loan Agreement and you are further released from the following Security Documents (as defined in the Loan Agreement):
[o]
Yours faithfully
By:__________________
For and on behalf of
DnB NOR Bank ASA
SCHEDULE 11
Allocations and repayment
(all amounts in USD)
Quarterly Final Quarterly Final
Allocation Repayment Repayment Allocation Reductions Reduction
Vessel name Hull Tranche A Tranche A Tranche A Tranche B Tranche B Tranche B
---------------------------------------------------------------------------------------------------------------------------
Suezmaxes
Front Birch SH 7,374,922.00 409,718.00 409,716.00 - - -
Front Maple SH 7,374,922.00 409,718.00 409,716.00 - - -
Front Granite SH 7,164,208.00 398,012.00 398,004.00 - - -
Front Sunda SH 7,480,278.00 415,571.00 415,571.00 - - -
Front Comor SH 7,901,705.00 438,983.00 438,994.00 - - -
---------------------------------------------------------------------------------------------------------------------------
Front Pride DH 16,340,233.00 542,100.00 7,124,533.00 4,548,313.81 529,088.62 1,902,869.78
Front Splendour DH 20,479,481.00 536,921.00 11,351,824.00 5,700,476.01 524,034.11 3,080,305.47
Front Glory DH 20,479,481.00 536,921.00 11,351,824.00 5,700,476.01 524,034.11 3,080,305.47
Front Ardenne DH 24,034,781.00 520,882.00 15,179,787.00 6,690,095.93 508,380.07 4,148,195.59
Front Brabant DH 25,508,461.00 508,720.00 16,860,221.00 7,100,295.66 496,509.97 4,617,745.79
Mindanao DH 25,508,461.00 508,720.00 16,860,221.00 7,100,295.66 496,509.97 4,617,745.79
---------------------------------------------------------------------------------------------------------------------------
Suezmax OBOs
Front Breaker DH 15,346,742.00 693,091.00 3,564,195.00 4,271,774.98 676,455.80 889,495.99
Front Climber DH 15,346,742.00 693,091.00 3,564,195.00 4,271,774.98 676,455.80 889,495.99
Front Driver DH 15,346,742.00 693,091.00 3,564,195.00 4,271,774.98 676,455.80 889,495.99
Front Guider DH 15,346,742.00 693,091.00 3,564,195.00 4,271,774.98 676,455.80 889,495.99
Front Leader DH 15,346,742.00 693,091.00 3,564,195.00 4,271,774.98 676,455.80 889,495.99
Front Rider DH 16,895,629.00 646,291.00 5,908,682.00 4,702,908.62 630,779.07 1,549,013.28
Front Strider DH 16,895,629.00 646,291.00 5,908,682.00 4,702,908.62 630,779.07 1,549,013.28
Front Viewer DH 16,895,629.00 646,291.00 5,908,682.00 4,702,908.62 630,779.07 1,549,013.28
---------------------------------------------------------------------------------------------------------------------------
VLCCs
Front Sabang SH 8,545,879.00 474,771.00 474,772.00 - - -
Front Vanadis SH 8,545,879.00 474,771.00 474,772.00 - - -
Front Highness SH 9,218,653.00 512,147.00 512,154.00 - - -
Front Lady SH 9,218,653.00 512,147.00 512,154.00 - - -
Front Lord SH 9,218,653.00 512,147.00 512,154.00 - - -
Front Duke SH 9,692,755.00 538,486.00 538,493.00 - - -
Front Duchess SH 10,008,821.00 556,046.00 556,039.00 - - -
Front Ace SH 10,008,821.00 556,046.00 556,039.00 - - -
Edinburgh SH 10,588,280.00 588,238.00 588,234.00 - - -
---------------------------------------------------------------------------------------------------------------------------
Front Vanguard DH 36,426,860.00 726,467.00 24,076,921.00 10,139,438.67 709,030.73 6,594,285.98
Front Vista DH 36,426,860.00 726,467.00 24,076,921.00 10,139,438.67 709,030.73 6,594,285.04
Front Circassia DH 38,498,644.00 711,062.00 26,410,590.00 10,716,121.01 693,995.47 7,246,143.66
Front Opalia DH 38,498,644.00 711,062.00 26,410,590.00 10,716,121.01 693,995.47 7,246,143.66
Ocana DH 38,498,644.00 711,062.00 26,410,590.00 10,716,121.01 693,995.47 7,246,143.66
Front Comanche DH 38,498,644.00 711,062.00 26,410,590.00 10,716,121.01 693,995.47 7,246,143.66
Front Scilla DH 40,328,128.00 695,312.00 28,507,824.00 11,225,358.99 678,623.49 7,832,241.53
Ariake DH 42,297,890.00 680,660.00 30,726,670.00 11,773,643.45 664,323.16 8,452,027.64
Front Serenade DH 44,025,647.00 665,618.00 32,710,141.00 12,254,565.66 649,642.19 9,006,354.70
Otina DH 44,025,647.00 665,618.00 32,710,141.00 12,254,565.66 649,642.19 9,006,354.70
Ondina DH 44,025,647.00 665,618.00 32,710,141.00 12,254,565.66 649,642.19 9,006,354.70
Front Falcon DH 44,025,647.00 665,618.00 32,710,141.00 12,254,565.66 649,642.19 9,006,354.70
Front Page DH 44,025,647.00 665,618.00 32,710,141.00 12,254,565.66 649,642.19 9,006,354.70
---------------------------------------------------------------------------------------------------------------------------
Total 911,716,473.00 24,356,637.00 497,653,644.00 219,722,746.00 17,138,374.00 134,030,876.00
---------------------------------------------------------------------------------------------------------------------------
|
34 SIGNATORIES
INTENTIONALLY DELETED
Appendix B
Part 1
FORM OF LIBERIA MORTGAGE AMENDMENT
[to be inserted]
Appendix B
Part 2
FORM OF BAHAMAS DEED OF COVENANTS AMENDMENT
[to be inserted]
Appendix B
Part 3
FORM OF MARSHALL ISLANDS MORTGAGE AMENDMENT
[to be inserted]
Appendix B
Part 4
FORM OF NIS MORTGAGE AMENDMENT
[to be inserted]
Appendix C
FORM OF OWNERS' CONTRACT ASSIGNMENT BERMUDA AMENDMENT
[to be inserted]
Appendix D
FORM OF BAHAMAS PLEDGE OF SHARES AMENDMENT
[to be inserted]
Appendix E
FORM OF BORROWER'S CONTRACT ASSIGNMENT BERMUDA AMENDMENT
[to be inserted]
Execution Page
SHIP FINANCE INTERNATIONAL LIMITED
By: __________________________________
Name:
Title:
DNB NOR BANK ASA
By: __________________________________
Name:
Title:
NORDEA BANK NORGE ASA
By: __________________________________
Name:
Title:
FORTIS BANK (NEDERLAND) N.V.
By: __________________________________
Name:
Title:
CALYON S.A.
By: __________________________________
Name:
Title:
DANISH SHIP FINANCE A/S (DANMARKS SKIBSKREDIT A/S)
By: __________________________________
Name:
Title:
DEUTSCHE BANK AG IN HAMBURG
By: __________________________________
Name:
Title:
DEUTSCHE SCHIFFSBANK AKTIENGESELLSCHAFT
By: __________________________________
Name:
Title:
HSH NORDBANK AG
By: __________________________________
Name:
Title:
ING BANK N.V., LONDON BRANCH
By: __________________________________
Name:
Title:
LLOYDS TSB BANK PLC
By: __________________________________
Name:
Title:
SCOTIABANK EUROPE PLC
By: __________________________________
Name:
Title:
SKANDINAVISKA ENSKILDA BANKEN AB (PUBL)
By: __________________________________
Name:
Title:
SUMITOMO MITSUI BANKING CORPORATION
By: __________________________________
Name:
Title:
SWEDBANK AB (PUBL)
By: __________________________________
Name:
Title:
BAYERISCHE HYPO- UND VEREINSBANK AG
By: __________________________________
Name:
Title:
THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND
By: __________________________________
Name:
Title:
THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND
By: __________________________________
Name:
Title:
BNP PARIBAS
By: __________________________________
Name:
Title:
CITIBANK N.A.
By: __________________________________
Name:
Title:
DNB NOR BANK ASA
By: __________________________________
Name:
Title:
For and on behalf of each of:
LANGKAWI SHIPPING LTD.
SIBU SHIPPING LTD.
GRANITE SHIPPING COMPANY LTD.
SOUTWEST TANKERS INC.
WEST TANKERS INC.
FRONT PRIDE SHIPPING INC.
FRONT SPLENDOUR SHIPPING INC.
FRONT GLORY SHIPPING INC.
FRONT ARDENNE INC.
BOLZANO PRIVATE LIMITED
FRONT BRABANT INC.
CIREBON SHIPPING PRIVATE LIMITED
FOX MARINE PRIVATE LIMITED
FRONT EMPAT PRIVATE LIMITED
FRONT LIMA PRIVATE LIMITED
FRONT ENAM PRIVATE LIMITED
FRONT TIGA PRIVATE LIMITED
SEA ACE CORP.
FRONT DUA PRIVATE LIMITED
EDINBURGH NAVIGATION S.A.
GOLDEN SOUND CORP.
GOLDEN SEAWAY CORP.
GOLDEN FJORD CORP.
GOLDEN ESTUARY CORP.
FRONT OPALIA INC.
GOLDEN TIDE CORP.
FRONT SCILLA INC..
ARIAKE TRANSPORT CORP.
FRONT STRATUS INC.
FRONT SAGA INC.
FRONT SERENADE INC.
FRONT FALCON CORP.
HITACHI HULL 4983 LTD.
FRONT LAPAN PRIVATE LIMITED
TRANSCORP PTE LTD
BONFIELD SHIPPING LIMITED
FRONT SEMBILAN PRIVATE LIMITED
KATONG INVESTMENTS LIMITED
ASPINALL PTE LTD
RETTIE PTE LTD
BLIZANA PTE LTD
By: __________________________________
Name:
Title:
EXHIBIT 8.1
Significant Subsidiaries
------------------------
Ownership
Name Vessel/Activity Incorporation Percentage
---- --------------- ------------- ----------
SFL Geo I Ltd. To be named (NB) Bermuda 100%
SFL Geo II Ltd. To be named (NB) Bermuda 100%
SFL Geo III Ltd. To be named (NB) Bermuda 100%
Rig Finance II Limited West Prospero (NB) Bermuda 100%
Rig Finance Ltd. West Ceres Bermuda 100%
Benmore Shipping Company Limited Sea Alfa Cyprus 100%
Newbond Shipping Company Limited Front Energy Cyprus 100%
Hudson Bay Marine Company Limited Front Force Cyprus 100%
Jaymont Shipping Company Limited Sea Beta Cyprus 100%
SFL Hunter LLC Horizon Hunter Delaware 100%
SFL Hawk LLC Horizon Hawk Delaware 100%
SFL Eagle LLC Horizon Eagle Delaware 100%
SFL Falcon LLC Horizon Falcon Delaware 100%
SFL Tiger LLC Horizon Tiger Delaware 100%
SFL Holdings LLC Intermediate
holding company Delaware 100%
Front Opalia Inc. Front Opalia Liberia 100%
Ariake Transport Corporation Ariake Liberia 100%
Bonfield Shipping Ltd. Front Driver Liberia 100%
Edinburgh Navigation SA Edinburgh Liberia 100%
Front Ardenne Inc. Front Ardenne Liberia 100%
Front Brabant Inc. Front Brabant Liberia 100%
Front Falcon Inc. Front Falcon Liberia 100%
Front Glory Shipping Inc. Front Glory Liberia 100%
Front Pride Shipping Inc. Front Pride Liberia 100%
Front Saga Inc. Front Page Liberia 100%
Front Scilla Inc. Front Scilla Liberia 100%
Front Serenade Inc. Front Serenade Liberia 100%
Front Shadow Inc. Golden Shadow Liberia 100%
Front Splendour Shipping Inc. Front Splendour Liberia 100%
Front Stratus Inc. Front Stratus Liberia 100%
Golden Estuary Corporation Front Comanche Liberia 100%
Golden Fjord Corporation Ocana Liberia 100%
Golden Narrow Corporation Golden Victory Liberia 100%
Golden Seaway Corporation Front Vanguard Liberia 100%
Golden Sound Corporation Front Vista Liberia 100%
Golden Tide Corporation Front Circassia Liberia 100%
Hitachi Hull # 4983 Corporation Otina Liberia 100%
Katong Investments Ltd. Front Breaker Liberia 100%
Langkawi Shipping Ltd. Front Birch Liberia 100%
Millcroft Maritime SA Front Champion Liberia 100%
Sea Ace Corporation Front Ace Liberia 100%
Sibu Shipping Ltd. Front Maple Liberia 100%
Front Heimdall Inc. SFL Heimdall (NB) Liberia 100%
Front Baldur Inc. SFL Baldur (NB) Liberia 100%
Golden Straits Inc. Golden Straits (NB) Liberia 100%
Golden Island Inc. Golden Island (NB) Liberia 100%
Madeira International Corp. Intermediate
holding company Liberia 100%
SFL Clyde Inc. SFL Clyde (NB) Liberia 100%
SFL Avon Inc. SFL Avon (NB) Liberia 100%
SFL Dee Inc. SFL Dee (NB) Liberia 100%
SFL Humber Inc. SFL Humber (NB) Liberia 100%
SFL Tamar Inc. SFL Tamar (NB) Liberia 100%
Ultimate Shipping Ltd. Front Century Liberia 100%
Ship Finance Management AS Management company Norway 100%
Aspinall Pte Ltd. Front Viewer Siingapore 100%
Blizana Pte Ltd. Front Rider Singapore 100%
Bolzano Pte Ltd. Mindanao Singapore 100%
Cirebon Shipping Pte Ltd. Front Vanadis Singapore 100%
Fox Maritime Pte Ltd. Front Sabang Singapore 100%
Front Dua Pte Ltd. Front Duchess Singapore 100%
Front Empat Pte Ltd. Front Highness Singapore 100%
Front Enam Pte Ltd. Front Lord Singapore 100%
Front Lapan Pte Ltd. Front Climber Singapore 100%
Front Lima Pte Ltd. Front Lady Singapore 100%
Front Tiga Pte Ltd. Front Duke Singapore 100%
Front Sembilan Pte Ltd. Front Leader Singapore 100%
Rettie Pte Ltd. Front Striver Singapore 100%
Transcorp Pte Ltd. Front Guider Singapore 100%
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EXHIBIT 12.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) AND 15d-14(a), AS AMENDED
I, Lars Solbakken, certify that:
1. I have reviewed this annual report on Form 20-F of Ship Finance International Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Company and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the Company's internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
5. The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.
Date: July 2, 2007
/s/ Lars Solbakken
---------------------------
Lars Solbakken
Principal Executive Officer
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EXHIBIT 12.2
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) AND 15d-14(a), AS AMENDED
I, Ole Hjertaker, certify that:
1. I have reviewed this annual report on Form 20-F of Ship Finance International Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Company and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the Company's internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
5. The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.
Date: July 2, 2007
/s/ Ole Hjertaker
----------------------------
Ole Hjertaker
Principal Financial Officer
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EXHIBIT 13.1
PRINCIPAL EXECUTIVE OFFICER CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with this Annual Report of Ship Finance International Limited (the "Company") on Form 20-F for the annual period ended December 31, 2006, as filed with the Securities and Exchange Commission (the "SEC") on or about the date hereof (the "Report"), I, Lars Solbakken, the Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.
Date: July 2, 2007
/s/ Lars Solbakken
----------------------------
Lars Solbakken
Principal Executive Officer
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EXHIBIT 13.2
PRINCIPAL FINANCIAL OFFICER CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with this Annual Report of Ship Finance International Limited
(the "Company") on Form 20-F for the annual period ended December 31, 2006, as
filed with the Securities and Exchange Commission (the "SEC") on or about the
date hereof (the "Report"), I, Ole Hjertaker, the Principal Financial Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.
Date: July 2, 2007
/s/ Ole Hjertaker
----------------------------
Ole Hjertaker
Principal Financial Officer
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