UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
 
FORM 20-F
 
(Mark One)
 
o
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, 2007
                                          
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
 
OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the transition period from _________________ to _________________
 
OR
 
o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
   
Date of event requiring this shell company report       _______________________________
 
For the transition period from
 
Commission file number
001-16601

 
Frontline Ltd
(Exact name of Registrant as specified in its charter)
 
Frontline Ltd
(Translation of Registrant’s name into English)
 
Bermuda
(Jurisdiction of incorporation or organization)
Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda
(Address of principal executive offices)

 
 


 
Georgina Sousa, (1) 441 295 3494, Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 
Securities registered or to be registered pursuant to section 12(b) of the Act
 
Title of each class
 
Name of each exchange on which registered
     
Ordinary Shares, $2.50 Par Value
 
New York Stock Exchange
     
     
Securities registered or to be registered pursuant to section 12(g) of the Act.
 
None
(Title of Class)
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
 
Ordinary Shares, $2.50 Par Value
(Title of Class)
 
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.
 
74,825,169 Ordinary Shares, $2.50 Par Value
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
Yes x        No o
 
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 o        No x
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes x        No o
 
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   x
Accelerated filer   o
Non-accelerated filer   o
     
Indicate by check mark which financial statement item the registrant has elected to follow.
 
Item 17 o        Item 18 x
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP x
International Financial Reporting Standings o
Other o
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes o        No x
 
 
 
 
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
14
Item 4A.
Unresolved Staff Comments
35
Item 5.
Operating and Financial Review and Prospects
35
Item 6.
Directors, Senior Management and Employees
57
Item 7.
Major Shareholders and Related Party Transactions
60
Item 8.
Financial Information
63
Item 9.
The Offer and Listing
64
Item 10.
Additional Information
65
Item 11.
Quantitative and Qualitative Disclosures about Market Risk
78
Item 12.
Description of Securities other than Equity Securities
79
PART II
   
Item 13.
Defaults, Dividend Arrearages and Delinquencies
80
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
80
Item 15.
Controls and Procedures
80
Item 16.
Reserved
81
Item 16A.
Audit Committee Financial Expert
81
Item 16B.
Code of Ethics
81
Item 16C.
Principal Accountant Fees and Services
81
Item 16D.
Exemptions from the Listing Standards for Audit Committees
81
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
81
PART III
   
Item 17.
Financial Statements
82
Item 18.
Financial Statements
82
Item 19.
Exhibits
82



 
 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
Matters discussed in this report 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.
 
Frontline Ltd, 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 report 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. When used in this report, the words “believe,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “plan,” “potential,” “will,” “may,” “should,” “expect” and similar expressions identify forward-looking statements.
 
The forward-looking statements in this report 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 and in the documents incorporated by reference 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 tanker market, including changes in demand resulting from changes in OPEC’s petroleum production levels and world wide oil consumption and storage, changes in the Company’s operating expenses, including bunker prices, drydocking and insurance costs, 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, political events or acts by terrorists, 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 Frontline Ltd and its subsidiaries. We use the term deadweight ton, or dwt, in describing the size of 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. The Company operates tankers of two sizes: very large crude carriers, or VLCCs, which are between 200,000 and 320,000 deadweight tons, or dwt, and Suezmaxes, which are vessels between 120,000 and 170,000 dwt. We also operate oil/bulk/ore or OBO carriers which can be used to carry oil or dry cargo on any voyage. Unless otherwise indicated, all references to “USD,”“US$” and “$” in this report are U.S. dollars.
 
A. SELECTED FINANCIAL DATA
 
The selected income statement data of the Company with respect to the fiscal years ended December 31, 2007, 2006 and 2005 and the selected balance sheet data of the Company with respect to the fiscal years ended December 31, 2007 and 2006 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 income statement data with respect to the fiscal years ended December 31, 2004 and 2003 and the selected balance sheet data with respect to the fiscal years ended December 31, 2005, 2004 and 2003 have been derived from consolidated financial statements of the Company 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.
 

 
1
 


   
Fiscal year ended December 31,
 
   
2007
   
2006
   
2005
   
2004
   
2003
 
   
(in thousands of $, except ordinary shares, per share data and ratios)
 
Income Statement Data 1 :
                             
Total operating revenues 2
    1,299,927       1,558,369       1,495,975       1,842,923       1,159,439  
Total operating expenses 2
    898,904       850,623       713,919       737,389       683,515  
Net operating income
    519,191       803,401       858,137       1,125,108       480,984  
Net income from continuing operations before income taxes, minority interest and cumulative effect of change in accounting principle
    503,991       661,330       761,078       970,936       439,518  
Net income from continuing operations before cumulative effect of change in accounting principle
    564,976       502,486       592,743       905,763       439,515  
Discontinued operations 3
    5,442       13,514       14,096       117,619       3,612  
Cumulative effect of change in accounting principle 4
    —       —       —       —       (33,767 )
Net income
    570,418       516,000       606,839       1,023,382       409,360  
Earnings from continuing operations before cumulative effect of change in accounting principle per Ordinary Share
                                       
- basic
  $ 7.55     $ 6.72     $ 7.92     $ 12.21     $ 5.87  
- diluted
  $ 7.55     $ 6.72     $ 7.92     $ 12.21     $ 5.86  
Net income per Ordinary Share
                                       
- basic
  $ 7.62     $ 6.90     $ 8.11     $ 13.79     $ 5.47  
- diluted
  $ 7.62     $ 6.90     $ 8.11     $ 13.79     $ 5.45  
Cash dividends declared per share
  $ 8.30     $ 7.00     $ 10.10     $ 13.60     $ 4.55  
                                         
Balance Sheet Data (at end of year) 1 :
                                       
Cash and cash equivalents
    168,432       197,181       92,782       96,879       112,000  
Newbuildings and vessel purchase options
    160,298       166,851       15,927       24,231       8,370  
Vessels and equipment, net
    208,516       2,446,278       2,584,847       2,254,361       2,165,239  
Vessels under capital lease, net
    2,324,789       626,374       672,608       718,842       765,126  
Investments in associated companies
    5,633       17,825       15,783       28,881       179,416  
Total assets
    3,762,091       4,589,937       4,454,817       4,211,160       4,319,345  
Short-term debt and current portion of long-term debt
    96,811       281,409       228,135       137,332       174,826  
Current portion of obligations under capital lease
    179,604       28,857       25,142       21,498       20,138  
Long-term debt
    376,723       2,181,885       2,101,061       1,879,598       1,966,471  
Obligations under capital lease
    2,318,794       723,073       706,279       732,153       753,823  
Share capital
    187,063       187,063       187,063       187,063       184,120  
Stockholders’ equity
    445,969       668,560       715,166       917,968       1,255,417  
Ordinary Shares outstanding
    74,825,169       74,825,169       74,825,169       74,825,169       73,647,930  
                                         
Weighted average Ordinary Shares outstanding
    74,825,169       74,825,169       74,825,169       74,192,939       74,901,900  
                                         
Other Financial Data:
                                       
Equity to assets ratio (percentage) 5
    11.8 %     14.6 %     16.1 %     21.8 %     29.1 %
Debt to equity ratio 6
    6.7       4.8       4.3       3.0       2.3  
Price earnings ratio 7
    6.3       4.6       4.7       3.2       4.7  
Time charter equivalent revenue 8
    938,960       1,154,029       1,155,135       1,477,537       832,950  


 
2
 

Notes:
 
1.
The Company distributed the majority of its remaining shareholding in Ship Finance International Limited (“Ship Finance”) in March 2007 and no longer consolidates Ship Finance as of March 31, 2007. A summary of the major changes to the financial statements is as follows;
 
a.
Vessels leased from Ship Finance, which were previously reported as wholly owned are reported as vessels held under capital lease.
 
b.
Capital lease obligations with Ship Finance, which were previously eliminated on consolidation are reported as liabilities with the related interest recorded in the income statement.
 
c.
Debt incurred by Ship Finance, which was previously reported as debt of the Company is no longer reported.
 
d.
Derivative instruments held by Ship Finance are no longer reported.
 
e.
Minority interest expense relating to Ship Finance is no longer reported.
 
f.
Profit share expense relating to amounts due to Ship Finance is shown in the income statement.
 
g.
Results from Ship Finance’s container ships, jack-up rigs and Panamax vessels are no longer reported in the Company’s consolidated results

 
2.
Previously we reported net operating revenues in our income statement data. Effective December 31, 2003 we reclassified voyage expenses and commission as a component of total operating expenses and now report total operating revenues and total operating expenses.
 
 
3.
The Company disposed of the container vessel and rig operations of Ship Finance in the first quarter of 2007 as a result of the spin off of Ship Finance. These operations have been recorded as discontinued operations in 2007 and 2006. The results from container vessels have also been recorded in discontinued operations in 2005. These operations have been recorded as discontinued operations for all applicable years presented, which are 2007, 2006 and 2005. During the years ended December 31, 2005 and 2004 the Company disposed of portions of its dry-bulk operations, which have been recorded as discontinued operations in the years ended December 31, 2005, 2004 and 2003.
 
 
4.
In 2003, the Company adopted FIN 46R “Consolidation of Variable Interest Entities” and recorded a charge of $33.7 million as a result of this change in accounting principle.
 
 
5.
Equity to assets ratio is calculated as total stockholders’ equity divided by total assets.
 
 
6.
Debt to equity ratio is calculated as total interest bearing current and long-term liabilities, including obligations under capital leases, divided by stockholders’ equity.
 
 
7.
Price earnings ratio is calculated by dividing the closing year end share price by basic earnings per share.
 
 
8.
A reconciliation of time charter equivalent revenues to total operating revenues as reflected in the consolidated statements of operations is as follows:
 
   
2007
   
2006
   
2005
   
2004
   
2003
 
(in thousands of $)
                             
Total operating revenues
    1,299,927       1,558,369       1,495,975       1,842,923       1,159,439  
Less:
                                       
Other revenue
    (8,516 )     (5,294 )     (3,877 )     (3,777 )     (3,111 )
Voyage expense
    (352,451 )     (399,046 )     (336,963 )     (361,609 )     (323,378 )
Time charter equivalent revenue
    938,960       1,154,029       1,155,135       1,477,537       832,950  

Our vessels are operated under time charters, bareboat charters, voyage charters, pool arrangements and contracts of affreightment, or COAs. Under a time charter, the charterer pays substantially all of the vessel voyage costs which are primarily fuel and port charges. Under a bareboat charter the charterer pays substantially all of the vessel voyage and operating costs. Under a voyage charter, the vessel owner pays such costs. Under contracts of affreightment, the owner carries an agreed upon quantity of cargo over a specified route and time period. Accordingly, charter income from a voyage charter would be greater than that from an equally profitable time charter to take account of the
 

 
3
 

owner’s payment of vessel voyage costs, and charter income from a bareboat charter would be lower than that from an equally profitable time charter, to take account of the charterer’s payment of vessel operating costs. In order to compare vessels trading under different types of charters, it is standard industry practice to measure the revenue performance of a vessel in terms of time charter equivalent revenue, or TCE. Total TCE is the sum of time charter, voyage charter and bareboat charter revenues, less voyage expenses. Total TCE, which is not covered by generally accepted accounting principles, or GAAP, provides more meaningful information to us than total operating revenues, the most directly comparable GAAP measure. Average daily TCEs are also widely used by investors and analysts in the shipping industry for comparing financial performance between companies and to industry averages. Other companies may calculate TCE using a different method.
 
B. CAPITALIZATION AND INDEBTEDNESS
 
Not Applicable
 
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
 
Not Applicable
 
D. RISK FACTORS
 
We are engaged primarily in transporting crude oil and oil products. The following summarizes some of the risks that may materially affect our business, financial condition or results of operations.
 
Risks Related to Our Industry
 
The cyclical nature of the tanker industry may lead to volatile changes in charter rates and vessel values which may adversely affect our earnings
 
Historically, the tanker industry has been highly cyclical, with volatility in profitability and asset values resulting from changes in the supply of and demand for tanker capacity. If the tanker market is depressed in the future our earnings and available cash flow may decrease. Our ability to re-charter our vessels on the expiration or termination of their current spot and time and bareboat charters and the charter rates payable under any renewal or replacement charters will depend upon, among other things, economic conditions in the tanker market. Fluctuations in charter rates and vessel values result from changes in the supply and demand for tanker capacity and changes in the supply and demand for oil and oil products.
 
The factors affecting the supply and demand for oil tankers are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable. The factors that influence demand for tanker capacity include:
 
·  
demand for oil and oil products;
·  
global and regional economic and political conditions;
·  
changes in oil production and refining capacity;
·  
environmental and other regulatory developments;
·  
the distance oil and oil products are to be moved by sea; and
·  
changes in seaborne and other transportation patterns.

The factors that influence the supply of tanker capacity include:
 
·  
the number of newbuilding deliveries;
·  
the scrapping rate of older vessels;
·  
port or canal congestion
·  
vessel casualties;
·  
price of steel;
·  
potential conversion of vessels to alternative use;

 
4
 


·  
the number of vessels that are out of service; and
·  
changes in environmental and other regulations that may effectively cause reductions in the carrying capacity of vessels or early obsolescence of tonnage.

The international tanker industry has experienced historically high charter rates and vessel values in the recent past and there can be no assurance that these historically high charter rates and vessel values will be sustained
 
Charter rates in the tanker industry are volatile. We anticipate that future demand for our vessels, and in turn our future charter rates, will be dependent upon continued economic growth in the world’s economy as well as seasonal and regional changes in demand and changes in the capacity of the world’s fleet. We believe that these charter rates are the result of continued economic growth in the world economy that exceeds growth in global vessel capacity. There can be no assurance that economic growth will not stagnate or decline leading to a decrease in vessel values and charter rates. A decline in charter rates could have an adverse effect on our business, financial condition, results of operation and ability to pay dividends.
 
Any decrease in shipments of crude oil may adversely affect our financial performance
 
The demand for our oil tankers derives primarily from demand for Arabian Gulf and West African crude oil, along with crude oil from the former Soviet Union, or the FSU, which, in turn, primarily depends on the economies of the world’s industrial countries and competition from alternative energy sources. A wide range of economic, social and other factors can significantly affect the strength of the world’s industrial economies and their demand for crude oil from the mentioned geographical areas. One such factor is the price of worldwide crude oil. The world’s oil markets have experienced high levels of volatility in the last 25 years. If oil prices were to rise dramatically, the economies of the world’s industrial countries may experience a significant downturn.
 
Any decrease in shipments of crude oil from the above mentioned geographical areas would have a material adverse effect on our financial performance. Among the factors which could lead to such a decrease are:
 
·  
increased crude oil production from other areas;
·  
increased refining capacity in the Arabian Gulf, West Africa or the FSU;
·  
increased use of existing and future crude oil pipelines in the Arabian Gulf, West Africa and FSU;
·  
a decision by Arabian Gulf, West African and FSU oil-producing nations to increase their crude oil prices or to further decrease or limit their crude oil production;
·  
armed conflict in the Arabian Gulf and West Africa and political or other factors; and
·  
the development and the relative costs of nuclear power, natural gas, coal and other alternative sources of energy.

An increase in the supply of vessel capacity without an increase in demand for vessel capacity would likely cause charter rates and vessel values to decline, which could have a material adverse effect on our results of operations and financial condition.
 
The supply of vessels generally increases with deliveries of new vessels and decreases with the scrapping of older vessels, conversion of vessels to other uses, such as floating production and storage facilities, and loss of tonnage as a result of casualties. Currently there is significant newbuilding activity with respect to virtually all sizes and classes of vessels. If the amount of tonnage delivered exceeds the number of vessels being scrapped, vessel capacity will increase. If the supply of vessel capacity increases and the demand for vessel capacity does not, the charter rates paid for our vessels as well as the value of our vessels could materially decline. Such a decline in charter rates and vessel values would likely have an adverse effect on our revenues and profitability.
 

 
5
 

Risks involved with operating ocean-going vessels could affect our business and reputation, which could have a material adverse effect on our results of operations and financial condition
 
The operation of an ocean-going vessel carries inherent risks. These risks include the possibility of:
 
·  
a marine disaster;
·  
piracy;
·  
environmental accidents;
·  
cargo and property losses or damage; and
·  
business interruptions caused by mechanical failure, human error, war, terrorism, piracy, political action in various countries, labor  strikes, or adverse weather conditions.
 
Any of these circumstances or events could increase our costs or lower our revenues. The involvement of our vessels in an oil spill or other environmental disaster may harm our reputation as a safe and reliable tanker operator.
 
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, or CLC, 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 can also 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, CLC, 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.
 

 
6
 


 
Maritime claimants could arrest our tankers, which could have a material adverse effect on our results of operations and financial condition
 
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 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 one vessel in our fleet for claims relating to another of our ships.
 
Governments could requisition our vessels during a period of war or emergency, which could have a material adverse effect on our results of operations and financial condition
 
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. Generally, requisitions occur during a period of war or emergency. 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. Government requisition of one or more of our vessels would negatively impact our revenues.
 
Risks Related to Our Business
 
We are highly dependent on spot voyage charters. Any decrease in spot charter rates in the future may adversely affect our earnings
 
A significant portion of our vessels currently operate on a spot charter basis or under contracts of affreightment under which we carry an agreed upon quantity of cargo over a specified route and time period. Although spot chartering is common in the tanker industry, the spot charter market is highly competitive and spot charter rates may fluctuate significantly based upon tanker and oil supply and demand. The successful operation of our vessels in the spot charter market depends upon, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling unladen to pick up cargo. We cannot assure you that future spot charters will be available at rates sufficient to enable our vessels trading in the spot market to operate profitably. In addition, bunkering, or fuel charges, which account for a substantial portion of the operating costs, and generally reflect prevailing oil prices, are subject to sharp fluctuations.
 
Our revenues experience seasonal variations that may affect our income
 
We operate our tankers in markets that have historically exhibited seasonal variations in demand and, therefore, charter rates. Historically, oil trade and therefore charter rates increased in the winter months and eased in the summer months as demand for oil in the Northern Hemisphere rose in colder weather and fell in warmer weather. In addition, unpredictable weather patterns in the winter months tend to disrupt vessel scheduling. The tanker industry in general is less dependent on the seasonal transport of heating oil than a decade ago as new uses for oil and oil products have developed, spreading consumption more evenly over the year. Most apparent is a higher seasonal demand during the summer months due to energy requirements for air conditioning and motor vehicles. The oil price volatility resulting from these factors has historically led to increased oil trading activities and demand for vessels. The change in demand for vessels may affect the charter rates that we receive.
 

 
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As of February 29, 2008, we charter 40 vessels from Ship Finance at fixed rates on long-term charters. In addition, we charter 16 vessels under fixed rate medium term charters from third parties. We are obliged to make fixed rate charterhire payments even though our income may decrease to levels that make these charters unprofitable
 
Our long term time charters with Ship Finance extend for various periods depending on the age of the vessels, ranging from approximately five to 21 years subject to certain exceptions discussed below in Item 10C. The daily base charter rates, which are payable by us for very large crude carriers, or VLCCs, range from $25,575 in 2006 to $24,175 in 2011 and beyond and from $21,100 in 2006 to $19,700 from 2011 and beyond for Suezmaxes. Our third party medium-term charters extend from one to eleven years. The daily base charter rates, which are payable by us for Suezmaxes range from $15,295 to $25,948 and from $15,500 to $37,750 for VLCCs.
 
If our earnings from these vessels fall below these rates we will incur losses.
 
Because the market value of our vessels may fluctuate significantly, we may incur losses when we sell vessels which may adversely affect our earnings
 
The fair market value of vessels may increase and decrease depending on but not limited to the following factors:
 
·  
general economic and market conditions affecting the shipping  industry;
·  
competition from other shipping companies;
·  
types and sizes of vessels;
·  
other modes of transportation;
·  
cost of newbuildings;
·  
shipyard capacity;
·  
governmental or other regulations;
·  
age of vessels;
·  
prevailing level of charter rates; and
·  
technological advances.
 
 
If we sell a vessel at a time when ship prices have fallen, the sale may be at less than the vessel’s carrying amount on our financial statements, with the result that we could incur a loss and a reduction in earnings. In addition, if we determine at any time that a vessel’s future limited useful life and earnings require us to impair its value on our financial statements, that could result in a charge against our earnings and a reduction of our shareholders’ equity. It is possible that the market value of our vessels will decline in the future.
 
An acceleration of the current prohibition to trade deadlines for our non-double hull tankers could adversely affect our operations
 
As at February 29, 2008 our tanker fleet includes nine non-double hull tankers. The United States, the European Union and the International Maritime Organization, or the 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. In 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 a number of our vessels being unable to trade in many markets after 2010. The phase out of single hull tankers may therefore reduce the demand for single hull tankers, and force the remaining single hull tankers into employment on less desirable trading routes and increase the number of tankers trading on those routes. As a result, single hull tankers may be chartered less frequently and at lower rates. Moreover, 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.
 

 
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We may be unable to successfully compete with other tanker operators for charters
 
The operation of tankers and transportation of crude and petroleum products and the other businesses in which we operate are extremely competitive. Through our operating subsidiaries we compete with other oil tanker owners (including major oil companies as well as independent companies), and, to a lesser extent, owners of other size vessels. The tanker market is highly fragmented. It is possible that our competitive position will erode in the future.
 
Our revenues may be adversely affected if we do not successfully employ our tankers
 
As of February 29, 2008, 31 of our vessels were contractually committed to time or bareboat charters, with the charters for five vessels expiring in 2008 and the remaining 26 vessel charters expiring between 2009 and 2013. Additionally, we have two vessels on time charters and four vessels on bareboat charters, all of which are based on spot market rates rather than fixed rate. Although these time charters generally provide reliable revenues, they also limit the portion of our fleet available for spot market voyages during an upswing in the tanker industry cycle, when spot market voyages might be more profitable. We also cannot assure you that we will be able to successfully employ our tankers in the future or renew our existing charters at rates sufficient to allow us to operate our business profitably or meet our obligations.  A decline in charter or spot rates or a failure to successfully charter our tankers could have an adverse effect on our business, financial condition, results of operation and ability to pay dividends.
 
The spot charter market is highly competitive, and spot market voyage charter rates may fluctuate dramatically based on tanker and oil supply and demand and other factors. We cannot assure you that future spot market voyage charters will be available at rates that will allow us to operate our tankers profitably.
 
Delays or defaults by the shipyards in the construction of our new vessels could increase our expenses and diminish our net income and cash flows
 
We have entered into newbuilding contracts for the construction of a total of eight VLCC and eight Suezmax vessels with Jiangnan Shipyard (Group) Company Ltd., or Jiangnan, Jiangsu Rongsheng Heavy Industries Group Co. Ltd., or Rongsheng, and Zhoushan Jinhaiwan Shipyard Co. Ltd, or Jinhaiwan, in China. These projects are subject to the risk of delay or defaults by the shipyards caused by, among other things, unforeseen quality or engineering problems, work stoppages, weather interference, unanticipated cost increases, delays in receipt of necessary equipment, and inability to obtain the requisite permits or approvals. In accordance with industry practice, in the event the shipyards are unable or unwilling to deliver the vessels, we may not have substantial remedies. Failure to construct or deliver the ships by the shipyards or any significant delays could increase our expenses and diminish our net income and cash flows.
 
As we expand our fleet, we may not be able to recruit suitable employees and crew for our vessels which may limit our growth and cause our financial performance to suffer
 
As we expand our fleet, we will need to recruit suitable crew, shoreside, administrative and management personnel.  We may not be able to continue to hire suitable employees as we expand our fleet of vessels.  If we are unable to recruit suitable employees and crews, we may not be able to provide our services to customers, our growth may be limited and our financial performance may suffer.
 
We may not be able to renew time charters when they expire or enter into new time charters for newbuildings
 
There can be no assurance that any of our existing time charters will be renewed or that we will be successful in entering into new time charters on  the newbuildings that will be delivered to the Company or if renewed or entered into, that they will be at favorable rates. If, upon expiration of the existing time charters or delivery of newbuildings, we are unable to obtain time charters or voyage charters at desirable rates, the Company's profitability may be adversely affected.
 

 
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Rising fuel prices may adversely affect our profits
 
Fuel is a significant, if not the largest, operating expense for many of our shipping operations when our vessels are not under period charter. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. As a result, an increase in the price of fuel may adversely affect our profitability. Further, fuel may become much more expensive in the future, which may reduce the profitability and competitiveness of our business versus other forms of transportation, such as truck or rail.
 
Our vessels may suffer damage and we may face unexpected drydocking costs, which could affect our cash flow and financial condition
 
If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and can be substantial. We may have to pay drydocking costs that our insurance does not cover. The inactivity of these vessels while they are being repaired and repositioned, as well as the actual cost of these repairs, would decrease our earnings. In addition, space at drydocking facilities is sometimes limited and not all drydocking facilities are conveniently located. We may be unable to find space at a suitable drydocking facility or we may be forced to move to a drydocking facility that is not conveniently located to our vessels’ positions. The loss of earnings while our vessels are forced to wait for space or to relocate to drydocking facilities that are farther away from the routes on which our vessels trade would decrease our earnings.
 
Increased inspection procedures and tighter import and export controls could increase costs and disrupt our business
 
International shipping is subject to various security and customs inspection and related procedures in countries of origin and destination. Inspection procedures can result in the seizure of contents of our vessels, delays in the loading, offloading or delivery and the levying of customs duties, fines or other penalties against us.
 
It is possible that changes to inspection procedures could impose additional financial and legal obligations on us. Furthermore, changes to inspection procedures could also impose additional costs and obligations on our customers and may, in certain cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may have an adverse effect on our business, financial condition, results of operations and ability to pay dividends.
 
Our financing obligations could affect our ability to incur additional indebtedness or engage in certain transactions
 
Our existing and future financing agreements impose operational and financing restrictions on us which may significantly limit or prohibit, among other things, our ability to incur additional indebtedness, create liens, sell capital shares of subsidiaries, make certain investments, engage in mergers and acquisitions, purchase and sell vessels, enter into time or consecutive voyage charters or pay dividends without the consent of our lenders. In addition, our lenders may accelerate the maturity of indebtedness under our financing agreements and foreclose on the collateral securing the indebtedness upon the occurrence of certain events of default, including our failure to comply with any of the covenants contained in our financing agreements, not rectified within the permitted time. For instance, declining vessel values could lead to a breach of covenants under our financing agreements. If we are unable to pledge additional collateral or obtain waivers from our lenders, our lenders could accelerate our debt and foreclose on our vessels. In addition, if the lenders accelerate the debt outstanding under one facility in default, it could result in a default on our other facilities.
 

 
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We may not be able to finance our newbuilding program
 
As of December 31, 2007, we had a newbuilding program with an aggregate contract cost of approximately $984 million and had outstanding commitments of approximately $880 million with respect to our contracted newbuildings at that date. In April 2008, we entered into contracts for an additional four newbuildings with an aggregate cost of $540 million. We intend to fund approximately 80% of our newbuilding commitments with borrowings under new credit facilities, which may contain terms and covenants that restrict our financial and operating flexibility. Our liquidity position may be adversely affected if we are unable to attract financing for our newbuilding program.
 
We may be unable to attract and retain key management personnel in the tanker industry, which may negatively impact the effectiveness of our management and our results of operation
 
Our success depends to a significant extent upon the abilities and efforts of our senior executives, and particularly John Fredriksen, our Chairman and Chief Executive Officer, for the management of our activities and strategic guidance. While we believe that we have an experienced management team, the loss or unavailability of one or more of our senior executives, and particularly Mr. Fredriksen, for any extended period of time could have an adverse effect on our business and results of operations.
 
We may not have adequate insurance to compensate us if our vessels are damaged or lost
 
We procure insurance for our fleet against those risks that we believe the shipping industry commonly insures against. These insurances include hull and machinery insurance, protection and indemnity insurance, which include environmental damage and pollution insurance coverage, and war risk insurance. We can give no assurance that we are adequately insured against all risks. We may not be able to obtain adequate insurance coverage at reasonable rates for our fleet in the future. Additionally, our insurers may not pay particular claims. Our insurance policies contain deductibles for which we will be responsible, limitations and exclusions which, although we believe are standard in the shipping industry, may nevertheless increase our costs or lower our revenue.
 
Our operations outside the United States expose us to global risks that may interfere with the operation of our vessels
 
We are an international company and primarily conduct our operations outside of the United States. Changing economic, regulatory, political and governmental conditions in the countries where we are engaged in business or where our vessels are registered affect us. Hostilities or other political instability in regions where our vessels trade could affect our trade patterns and adversely affect our operations and performance. The terrorist attacks against targets in the United States on September 11, 2001 and the military response by the United States has increased the likelihood of acts of terrorism worldwide. Acts of terrorism, regional hostilities or other political instability, as shown by the attack on the Limburg in Yemen in October 2002, attacks on oil pipelines during and subsequent to the Iraq war in 2003 and attacks on expatriate workers in the Middle East could adversely affect the oil trade and reduce our revenue or increase our expenses.
 
Because we are a foreign corporation, you may not have the same rights that a shareholder in a U.S. corporation may have
 
We are a Bermuda corporation. Our memorandum of association and bye-laws and the Bermuda Companies Act 1981, as amended, govern our affairs. Investors may have more difficulty in protecting their interests in the face of actions by management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction. Under Bermuda law a director generally owes a fiduciary duty only to the company; not to the company’s shareholder. Our shareholders may not have a direct course of action against our directors. In addition, Bermuda law does not provide a mechanism for our shareholders to bring a class action lawsuit under Bermuda law. Further, our Bye-laws provide for the indemnification of our directors or officers against any liability arising out of any act or omission except for an act or omission constituting fraud, dishonesty or illegality.
 

 
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Because our offices and most of our assets are outside the United States, you may not be able to bring suit against us, or enforce a judgment obtained against us in the United States
 
Our executive offices, administrative activities and assets are located outside the United States. As a result, it may be more difficult for investors to effect service of process within the United States upon us, or to enforce both in the United States and outside the United States judgments against us in any action, including actions predicated upon the civil liability provisions of the federal securities laws of the United States.
 
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 will 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. Therefore, 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, or 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, or 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%.
 
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
 

 
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financial reporting. In addition, our independent registered public accounting firm is required to attest to and report on management’s assessment of the effectiveness of our internal controls over financial reporting. If we fail to achieve and 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 that future ongoing costs of complying with these requirements may be substantial.
 

 
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ITEM 4.
INFORMATION ON THE COMPANY
 
A. HISTORY AND DEVELOPMENT OF THE COMPANY
 
The Company
 
We are Frontline Ltd, a Bermuda based shipping company and we were incorporated in Bermuda on June 12, 1992 (Company No. EC-17460). 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) 295-6935.
 
We are engaged primarily in the ownership and operation of oil tankers, including oil/bulk/ore, or OBO carriers. We operate tankers of two sizes: VLCCs, which are between 200,000 and 320,000 dwt, and Suezmaxes, which are vessels between 120,000 and 170,000 dwt. We operate through subsidiaries and partnerships located in the Bahamas, Bermuda, the Cayman Islands, the Isle of Man, Liberia, Norway, the United Kingdom and Singapore. We are also involved in the charter, purchase and sale of vessels. Since 1996, we have emerged as a leading tanker company within the VLCC and Suezmax size sectors of the market.
 
We have our origin in Frontline AB, which was founded in 1985, and which was listed on the Stockholm Stock Exchange from 1989 to 1997. In May 1997, Frontline AB was redomiciled from Sweden to Bermuda and its shares were listed on the Oslo Stock Exchange. The change of domicile was executed through a share for share exchange offer from the then newly formed Bermuda company, Frontline Ltd (“Old Frontline”). In September 1997, Old Frontline initiated an amalgamation with London & Overseas Freighters Limited (“LOF”), also a Bermuda company. This process was completed in May 1998. As a result of this transaction, Frontline became listed on the London Stock Exchange and on the NASDAQ National Market (in the form of American Depositary Shares, or ADSs, represented by American Depositary Receipts, or ADRs) in addition to its listing on the Oslo Stock Exchange.
 
The ADR program was terminated on October 5, 2001 and the ADSs were delisted from the NASDAQ National Market on August 3, 2001. The Company’s Ordinary Shares began trading on the NYSE on August 6, 2001.
 
Vessel Acquisitions, Disposals and Other Significant Transactions
 
We entered into the following acquisitions and disposals in 2005, 2006 and 2007:
 
Newbuilding and Option Contracts
 
In February and March 2006, we entered into newbuilding contracts with Jiangnan to purchase four VLCCs and subsequently sold two of these newbuilding contracts in June 2006 for a net gain of $9.8 million. In June 2006, we entered into two newbuilding contracts with Jiangnan for the purchase of two VLCCs with an option to purchase two additional VLCC newbuildings. In September 2006, we exercised our option for the two VLCC newbuilding contracts and simultaneously sold these newbuilding contracts to a third party for a net gain of $6.2 million. As of December 31, 2006, we had contracts to purchase four VLCCs.
 
In July 2006, we entered into newbuilding contracts with Rongsheng, in China for the delivery of two Suezmaxes and simultaneously entered into options for four further similar Suezmax newbuildings. In August 2006, we entered into newbuilding contracts for four Suezmaxes at Rongsheng and sold two of these Suezmax newbuilding contracts to Ship Finance. At December 31, 2006, we had newbuilding contracts for four Suezmaxes and options for four further Suezmaxes.
 
In March and April 2007, we exercised our options with Rongsheng for four Suezmax newbuildings. At the end of 2007, we had newbuilding contracts for the purchase of four VLCCs and eight Suezmaxes with contracted delivery dates between the end of 2008 and 2010. In 2007, we paid $35.1 million in newbuilding installments and had future commitments of approximately $880 million as of December 31, 2007. We expect to finance approximately 80% of our future commitments with new credit facilities.
 

 
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In April 2008, we entered into a contract with Jinhaiwan in China for the delivery of four VLCC newbuildings. These vessels are scheduled for delivery in the second half of 2011. We have also secured fixed price options for two similar VLCC newbuildings.


Acquisitions and Disposals
In 2005, we acquired seven VLCC tankers for an aggregate cost of $460.0 million and two containerships for an aggregate cost of $98.6 million. We sold five Suezmax tankers for total proceeds of $231.3 million. We also sold one VLCC for total proceeds of $40.5 million. We also sold our last dry bulk carrier the Cos Hero for total proceeds of $20.7 million.
 
In March 2006, we purchased the Aframax tanker “Gerrita” (renamed “Front Puffin”) for $35.9 million. This vessel was converted to a Floating, Production, Storage and Offloading vessel, or FPSO, and was sold as part of the spin off of the Sea Production Ltd, or Sea Production.
 
In March 2006, we sold the VLCC Golden Stream for gross proceeds of $53.1 million.
 
In July 2006, we took delivery of the VLCC Front Beijing, which we subsequently sold for gross proceeds of $141.5 million. We also purchased and took delivery of the VLCC Front Shanghai for approximately $81.0 million in September 2006
 
Consistent with our strategy to reduce our exposure to chartering single hull vessels, we have entered into a number of transactions to reduce the number of single hull vessels in our fleet;
 
 
·
In September 2006, Ship Finance announced the sale of the VLCC Front Tobago to a third party for gross proceeds of $45.0 million and Frontline received a compensation payment of $9.6 million from Ship Finance, which was eliminated on consolidation, in connection with the sale.
 
 
·
In January 2007, Ship Finance sold its single hull Suezmax tanker Front Transporter to an unrelated third party for a gross sales price of $38.0 million. We received a compensation payment of $14.8 million from Ship Finance, which was eliminated on consolidation, on termination of the charter. The vessel was delivered to her new owner in March 2007.
 
 
·
In March 2007, the single hull VLCC Front Vanadis was sold and delivered to an unrelated third party in May 2007. Upon delivery, our long-term charter party contract with Ship Finance was terminated early, and Frontline received a compensation payment in the amount of $13.2 million.
 
 
·
In August 2007, we sold the single hull Suezmax tanker Front Horizon to a subsidiary of Farahead Holdings Limited, a company subject to significant influence or indirect control of our Chairman, John Fredriksen for net proceeds of $28.0 million resulting in a net gain of $6.2 million.
 
 
·
In October 2007, we mutually agreed with Ship Finance to terminate the long-term charter party contract for the single hull VLCC Front Duchess. This termination was cancelled in March 2008.
 
 
·
In December 2007, we agreed with Ship Finance to terminate the long term charter parties between the companies for the double sided, single bottom Suezmax vessels Front Birch and Front Maple. Ship Finance simultaneously sold the vessels. Delivery of the Front Birch and Front Maple took place in December 2007 and January 2008, respectively. We received compensation payments of approximately $32.8 million for the early termination of the current charter parties, which will be recognized at the time of delivery to the new owners.
 
 
·
Additionally, in March 2008, we agreed with Ship Finance to terminate the long term charter party between the companies for the single hull VLCC Front Sabang. Ship Finance simultaneously sold the vessel. We will receive a compensation payment of approximately $25 million for the early termination of the current charter party, which will be recognized at the time of delivery to the new owners, which is expected to take place in the second quarter of 2008.
 

 
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Ship Finance
 
In June 2006, Ship Finance purchased a jack up rig for $210.0 million. In September 2006, Ship Finance purchased the Panamax vessel, Front Shadow, for $28.4 million.
 
Spin-Off of Ship Finance
 
In October 2003, we formed Ship Finance as our wholly-owned subsidiary for the purpose of acquiring certain of our shipping assets. In December 2003, Ship Finance issued $580.0 million of 8.5% Senior Notes due 2013, which we refer to as the Notes. In the first quarter of 2004, Ship Finance used the proceeds of the Notes, together with a refinancing of existing debt, to fund the acquisition from us of a fleet of 46 crude oil tankers and an option to purchase one additional tanker from a third party.  We have chartered each of the vessels back from Ship Finance for most of their remaining lives through our wholly owned subsidiary Frontline Shipping Limited which we refer to as Frontline Shipping. We also entered into fixed rate management and administrative services agreements with Ship Finance to provide for the operation and maintenance of the Company’s vessels and administrative support services. The charters and the management agreements were each given economic effect as of January 1, 2004.
 
In May 2004, we announced the distribution of 25% of Ship Finance’s Ordinary Shares to our Ordinary Shareholders in a partial spin off.  In June 2004, each Frontline shareholder received one share of Ship Finance for every four Frontline shares held. In June 2004, the Ship Finance common shares commenced trading on the New York Stock Exchange under the ticker symbol “SFL”. Two further dividends of shares of Ship Finance were distributed in 2004. In September 2004, every Frontline shareholder received one share of Ship Finance for every 10 shares of ours that they held and in December 2004, every Frontline shareholder received two shares of Ship Finance for every 15 shares of ours that they held. At December 31, 2004, our remaining shareholding in Ship Finance was approximately 50.8%.
 
In January 2005 and February 2005 our board of directors, or Board, approved further spin offs of the shares of Ship Finance. In February 2005, each shareholder of Frontline received one share of Ship Finance for every four shares of ours held and in March 2005 each shareholder of Frontline received one share of Ship Finance for every ten shares of ours held. Following these transactions our shareholding in Ship Finance was approximately 16.2% at December 31, 2005.
 
In February 2006, our Board approved a further spin off of the shares of Ship Finance. In March 2006, each shareholder of Frontline received one share of Ship Finance for every twenty shares of ours held. Following these transactions our shareholding in Ship Finance was approximately 11.1% at December 31, 2006 and Ship Finance remained consolidated under the provisions of FASB Interpretation 46(R) “Consolidation of Variable Interest Entities”.
 
In February 2007, our Board approved a further spin off of our remaining interest in the shares of Ship Finance and this occurred in March 2007. As a result of this spin off, we currently hold 73,383 shares in Ship Finance, which represents 0.01% of Ship Finance’s total outstanding shares and as of March 31, 2007, we no longer consolidate Ship Finance and its subsidiaries in our financial statements.
 
Spin-Off of Golden Ocean Group Limited
 
In November 2004, we established Golden Ocean Group Limited, or Golden Ocean, as a wholly owned subsidiary in Bermuda for the purpose of transferring, by way of contribution, certain of our dry bulk shipping interests. Three of our subsidiaries and cash equal to the difference between $22.45 million and the historical net book value of those subsidiaries was transferred to Golden Ocean on December 1, 2004. On the same date, our Board resolved to distribute all of our shares of Golden Ocean to our shareholders in proportion to their ownership in Frontline. On December 13, 2004 we distributed 76.0% of the shares of Golden Ocean to our shareholders in a three for one stock
 

 
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dividend.  Certain of our U.S. shareholders were excluded from the distribution and received a cash payment in lieu of shares equal to $0.60 per Golden Ocean share, which represents the average price per share of the Golden Ocean shares during their first five days of trading on the Oslo Stock Exchange. Golden Ocean was listed on the Oslo Stock Exchange on December 15, 2004. The Company sold 30 million Golden Ocean shares, equivalent to 13.3%, to provide funds for the cash payment and the Company retained a 10.7% interest in Golden Ocean which was subsequently sold in February 2005. The Company has not retained any significant continuing involvement in these dry bulk operations.
 
At the time of the spin off of Golden Ocean, we granted Golden Ocean options to acquire newbuilding contracts for two Panamax vessels. In 2005 Golden Ocean exercised these options to acquire from us the shares in two single purpose companies each owning a newbuilding contract for a Panamax vessel. These options were exercised at a total price of $16.8 million.
 
Establishment and Spin-Off of Sealift Ltd
 
In January 2007, we established a separate entity named Sealift Ltd, or Sealift, to develop our heavy lift business. Sealift completed a private placement in the amount of $180.0 million and its shares have been listed on the Norwegian over-the-counter (OTC) market since January 2007. We invested $60.0 million in the company and following the initial private placement in January and we became a 33.3% shareholder. Sealift acquired four single-hull Suezmax vessels from Frontline, which Frontline is obligated to convert to heavy lift vessels for $100.0 million each. Sealift also acquired two Suezmax vessels from Frontline for $38.0 million each and option contracts with a shipyard to convert these two additional Suezmax vessels into heavy lift vessels.  The total consideration for all six vessels acquired by Sealift is $476.0 million, of which $396.0 million was received in cash and $80.0 million in an interest free note.  $40.0 million of the interest free note is payable on the delivery of each of the final two converted vessels.  Five of the vessels sold to Sealift were first acquired by Frontline from Ship Finance. In May 2007, Sealift received delivery of a converted heavy lift vessel and the second converted heavy lift vessel was delivered in December 2007. As of December 31, 2007, our commitment for the two remaining heavy lift conversions is $49.5 million. We expect to deliver the third converted heavylift vessel in early June 2008, which will result in us being liable for damages in the amount of approximately $0.4 million for the late delivery.  If Frontline’s delivery of a converted vessel to Sealift (later renamed Dockwise Ltd as described below) is delayed more than six months beyond the agreed delivery date for the vessel, Sealift has the option to cancel its purchase of the vessel. We expect that the delivery of the fourth and final vessel will take place in the middle of May 2008 in accordance with the purchase and sale agreement.
 
In May 2007, Sealift completed a reorganization with the Dockwise group of companies. As part of the transaction, Sealift completed a private placement of 39.8 million shares of which we purchased five million shares. Sealift also issued 94.1 million shares to the former Dockwise Ltd, or Dockwise, shareholders. Sealift was renamed Dockwise Ltd in July 2007. In October 2007, we sold our entire shareholding of 34,976,500 shares in Dockwise.
 
Establishment and Spin-Off of Sea Production Ltd
 
In February 2007, the Company’s wholly owned subsidiary, Frontline Floating Production Ltd (“FFP”), sold its assets to Sea Production.  The assets of FFP included a 70% investment in Puffin Ltd, the entity who ultimately owns the vessel Front Puffin.  Sea Production was incorporated in January 2007 as a wholly owned subsidiary of the Company. Also in February 2007, Sea Production raised $180.0 million in equity in a private placement. The shares have been listed on the Norwegian OTC market.  We held 28.33% of the shares in Sea Production following the private placement. In June 2007, we sold our entire holding in Sea Production in line with our strategy to remain a pure crude oil transportation company and our previously announced strategy to either sell or spin off the Sea Production shares.
 
Acquisition and spin-off of Independent Tankers Corporation
 
On July 1, 2003, we purchased a call option for $10.0 million to acquire all of the shares of Independent Tankers Corporation, or ITC from Hemen Holdings Ltd., or Hemen for a total consideration of $4.0 million plus 4% interest per year.  Hemen is indirectly controlled by our Chairman, John Fredriksen. On May 27, 2004, we exercised this purchase option and acquired all of the shares of ITC. ITC operates a total of six VLCCs and four Suezmax tankers, which are on long-term charters to subsidiaries of BP Plc and Chevron Corporation, or Chevron. In 2006, the Front Voyager was redelivered from Chevron and is on bareboat charter to Frontline. The initial fixed terms of the charters
 

 
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range from eight to 10 years.  After the initial fixed term the charterers have options to extend the charters of the vessels for further periods of between eight to twelve years. ITC is financed by Term and Serial Notes.  These notes mature between 2006 and 2021 and are secured by ITC’s vessels and long-term charters. Interest is payable on the Notes at fixed rates which range between 6.5% and 8.52%.
 
In January 2008, we established Independent Tankers Corporation Limited (“ITCL”), a Bermuda corporation and our wholly owned subsidiary for the purpose of holding, by way of contribution, our interests in ITC. On February 20, 2008, our Board declared the distribution of a special dividend of 20% of the capital stock of ITCL to our shareholders. On February 28, 2008, we distributed to our shareholders one share of ITCL for every five shares of Frontline.  Certain of our U.S. shareholders were excluded from the distribution and received a cash payment in lieu of shares equal to $0.34 per Frontline share. ITCL listed its shares on the Oslo OTC Market on March 7, 2008.
 
B. BUSINESS OVERVIEW
 
As of February 29, 2008, we operate a tanker fleet consisting of 76 vessels, which is one of the largest in the world.  The fleet consists of 42 VLCCs which are either owned or chartered in, 20 Suezmax tankers which are either owned or chartered in, eight Suezmax OBOs which are chartered in, and five VLCCs and one Aframax tanker under our commercial management. We also had four VLCC newbuildings and eight Suezmax newbuildings on order as of February 29, 2008.
 
As of February 29, 2008, the fleet that we operate has a total tonnage of approximately 18.6 million dwt, including the 1.6 million dwt under commercial management. Our tanker vessels have an average age of approximately 10.9 years compared with an estimated industry average of approximately 9.5 years. We believe that our vessels comply with the most stringent of generally applicable environmental regulations for tankers.
 
We own various vessel owning and operating subsidiaries. Our operations take place substantially outside of the United States. Our subsidiaries, therefore, own and operate vessels which may be affected by changes in foreign governments and other economic and political conditions. We are engaged primarily in transporting crude oil and, in addition, raw materials like coal and iron ore and our vessels operate in the spot and time charter markets.  As of January 2008, we charter in six double hull Suezmaxes from Nordic American Tanker Shipping Limited on a floating time charter rate, which is based on the average earnings of those vessels and eight of our Suezmax tankers. Our VLCCs are specifically designed for the transportation of crude oil and, due to their size, are primarily used to transport crude oil from the Middle East Gulf to the Far East, Northern Europe, the Caribbean and the Louisiana Offshore Oil Port, or LOOP. Our Suezmax tankers are similarly designed for worldwide trading, but the trade for these vessels is mainly in the Atlantic Basin and Middle East to South East Asia.
 
Historically, the tanker industry has been highly cyclical, with attendant volatility in profitability and asset values resulting from changes in the supply of and demand for tanker capacity. Our OBO carriers are specifically designed to carry oil or dry cargo and may be used to transport either oil or dry cargo on any voyage. When freight rates in both the oil and dry cargo markets are equivalent OBO carriers are operated most profitably transporting oil on one leg of the voyage and dry cargo on the other leg of a voyage. Currently, our eight Suezmax OBOs are configured to carry dry bulk cargo and are fixed on long-term charters.
 
The supply of tanker and OBO capacity is influenced by the number of new vessels built, the number of older vessels scrapped, converted, laid up and lost, the efficiency of the world tanker or OBO fleet and government and industry regulation of maritime transportation practices. The demand for tanker and OBO capacity is influenced by global and regional economic conditions, increases and decreases in industrial production and demand for crude oil and petroleum products, the proportion of world oil output supplied by Middle Eastern and other producers, political changes and armed conflicts (including wars in the Middle East) and changes in seaborne and other transportation patterns. The demand for OBO capacity is, in addition, influenced by increases and decreases in the production and demand for raw materials such as iron ore and coal. In particular, demand for our tankers and our services in transporting crude oil and petroleum products   and dry cargoes has been dependent upon world and regional markets. Any decrease in shipments of crude oil or raw materials in world markets could have a material adverse effect on our earnings. Historically, these markets have been volatile as a result of, among other things, general economic conditions, prices, environmental concerns, weather and competition from alternative energy sources. Because many factors influencing the supply of and demand for tankers and OBO carriers are unpredictable, the nature, timing and degree of changes in industry conditions are also unpredictable.
 

 
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We are committed to providing quality transportation services to all of our customers and to developing and maintaining long-term relationships with the major charterers of tankers. Increasing global environmental concerns have created a demand in the petroleum products/crude oil seaborne transportation industry for vessels that are able to conform to the stringent environmental standards currently being imposed throughout the world.
 
The tanker industry is highly cyclical, experiencing volatility in profitability, vessel values and freight rates. Freight rates are strongly influenced by the supply of tanker vessels and the demand for oil transportation. Refer to Item 5 “Operating and Financial Review and Prospects” for a discussion of the tanker market in 2007 and 2008.
 
Similar to structures commonly used by other shipping companies, our vessels are all owned by, or chartered to, separate subsidiaries or associated companies. Frontline Management AS, and Frontline Management (Bermuda) Limited which we refer to as Frontline Management, both wholly-owned subsidiaries, support us in the implementation of our decisions. Frontline Management is responsible for the commercial management of our shipowning subsidiaries, including chartering and insurance. Each of our vessels is registered under the Bahamas, French, Liberian, Panamanian, Cypriot, Singaporean, Norwegian, Isle of Man, Marshall Islands, Hong Kong or Maltese flag.
 
Frontline has a strategy of extensive outsourcing. Ship management, crewing and accounting services are provided by a number of independent and competing suppliers. Our vessels are managed by independent ship management companies. Pursuant to management agreements, each of the independent ship management companies provides operations, ship maintenance, crewing, technical support, shipyard supervision and related services to Frontline. A central part of our strategy is to benchmark operational performance and cost level amongst our ship managers. Independent ship managers provide crewing for our vessels. Currently, our vessels are crewed with Russian, Ukrainian, Croatian, Romanian, Indian and Filipino officers and crews, or combinations of these nationalities. Accounting services for each of our shipowning subsidiaries are also provided by the ship managers.
 
Strategy
 
Our strategy is to maintain our position as a world leading operator and charterer of modern, high quality oil tankers with flexibility to adjust our exposure to the tanker market depending on existing factors such as charter rates, newbuilding costs, vessel resale and scrap values and vessel operating expenses resulting from, among other things, changes in the supply of and demand for tanker capacity. Our principal focus is the transportation of crude oil and oil product cargoes for major integrated oil companies and other customers employing a fleet of VLCCs, Suezmaxes and OBOs. We may adjust our exposure through time charters, bareboat charters, sale and leasebacks, straight sales and purchases of vessels, newbuilding contracts and acquisitions.
 
Spot market vessels, after delivering their cargo, typically operate in ballast until they are re-chartered. We seek to minimize the time element associated with these ballast legs by efficiently chartering OBO carriers and tankers that we operate.  Our strategies to minimize time spent on ballast legs include allocating cargoes among our vessels to minimize the total time spent on ballast legs across our fleet. We believe that the size of our fleet is important in negotiating terms with our major clients and charterers. We believe that our large, high-quality VLCC and Suezmax fleet enhances our ability to obtain competitive terms from suppliers and shipbuilders and to produce cost savings in chartering and operations.
 
Our business strategy is primarily based upon the following principles:
 
·  
emphasizing operational safety and quality maintenance for all of our vessels;
·  
complying with all current and proposed environmental regulations;
·  
outsourcing technical operations and crewing;
·  
continuing to achieve competitive operational costs;
·  
operating a modern and homogeneous fleet of tankers;
·  
achieving high utilization of our vessels;

 
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·  
achieving competitive financing arrangements;
·  
achieving a satisfactory mix of term charters, contracts of affreightment and spot voyages; and
·  
developing and maintaining relationships with major oil companies and industrial charterers.
 
We currently have newbuilding contracts for eight VLCCs and eight Suezmaxes, which we believe are favorably priced relative to current newbuilding prices. We also have fixed price purchase options for two additional VLCC newbuildings. We order new tonnage to renew our fleet consistent with our opportunistic investment approach. Our order book reaffirms our position as a leading operator of modern, quality Suezmax and VLCC tonnage.
 
We continue to evaluate opportunities in the time charter market.  On the basis of the strength of the drybulk market in 2007, all of our eight OBO carriers have been fixed on medium to long term charters at an average daily rate of approximately $39,700 in 2007 and approximately $44,000 in 2008. As of February 29, 2008 approximately 57% of our remaining operating days for our total fleet for 2008 were on fixed time charter and bareboat charter.
 
We expect to reduce our exposure to single hull tonnage by investigating opportunities to terminate long-term charters involving single hull vessels.
 
Although there has been a trend towards consolidation over the past 15 years, the tanker market remains highly fragmented. We estimate, based on available industry data that we currently own or operate approximately 9.9% of the world VLCC fleet and 7.9% of the world Suezmax tanker fleet.  We intend to use our strong operational cash flow together with our available financing to continue the consolidation of the tanker market.  We always look opportunistically for attractive investments and acquisitions and will finance such investments through a combination of debt and equity. Our role in the consolidation of the tanker market may include the acquisition of new vessels and second-hand vessels and we may also engage in business acquisitions and strategic transactions such as marketing joint ventures. In the ordinary course of our business, we engage in the evaluation of potential candidates for acquisitions and strategic transactions.

In February 2008, we invested $20.0 million in exchange for a 15.8% interest in NAVIG8 LIMITED (“Navig8”), a company that controls approximately 30 tankers, including newbuildings on order. Navig8 actively trades a time-charter fleet, owns and invests in tonnage, commercially and technically manages vessels for third parties and trades in the freight-derivatives market.  Although this investment is purely financial, it gives us a foothold in the Clean Petroleum Product market. 

In March 2008, we spun off 20% of ITCL to our shareholders. ITCL's business is mainly concentrated around the ownership and operation of tankers on long-term bareboat contracts to major oil companies, with such contracts including certain cancellation options.  All vessels are financed through bonds and some of the vessels are also subject to financial lease arrangements.  ITCL purchases all necessary management related services from Frontline. The Company intends to cause ITCL to take steps to enhance shareholder value and liquidity and has listed ITCL shares on the Oslo OTC Market. We will consider making further distributions of ITCL shares. 
 
In March 2008, we announced that the Company and companies indirectly controlled by Mr. John Fredriksen, our Chairman and principal shareholder, together held an aggregate of 1,628,300 shares in Overseas Shipholding Group, Inc. (“OSG”), or 5.2% of the total outstanding shares of OSG. In addition to this holding, we have entered into a forward contract for an additional 1,366,600 shares in OSG, or an additional 4.4% of the total outstanding shares of OSG.  If we should decide to take delivery of the shares under the forward contract, the Company and the group companies will control 9.6% of the total outstanding shares of OSG. We are making this investment together with our largest shareholder to mitigate the potential reduction of our short and medium-term dividend capacity.  This investment reflects the fact that only approximately 41% of OSG's total fleet, in terms of number of vessels, is exposed to the market for crude oil transportation, which is our core market.
 
Our goal is to generate competitive returns for our shareholders with quarterly dividend payments. Our dividend payments are based on present earnings, market prospects, current capital expenditure programs as well as investment opportunities.
 

 
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Seasonality
 
Historically, oil trade and therefore charter rates increased in the winter months and eased in the summer months as demand for oil in the Northern Hemisphere rose in colder weather and fell in warmer weather. The tanker industry in general is less dependent on the seasonal transport of heating oil than a decade ago as new uses for oil and oil products have developed, spreading consumption more evenly over the year. Most apparent is a higher seasonal demand during the summer months due to energy requirements for air conditioning and motor vehicles.
 
Customers
 
Our customers include major oil companies, petroleum products traders, government agencies and various other entities. During the year ended December 31, 2007, one customer (2006: one customer) accounted for more than 10% of our consolidated operating revenues.
 
Competition
 
The market for international seaborne crude oil transportation services is highly fragmented and competitive. Seaborne crude oil transportation services generally are provided by two main types of operators: major oil company captive fleets (both private and state-owned) and independent ship-owner 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, the primary charterers of the vessels owned or controlled by us, 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. Competition for charters is intense and is based upon price, location, size, age, condition and acceptability of the vessel and its manager. Competition is also affected by the availability of other size vessels to compete in the trades in which the Company engages.   Charters are to a large extent brokered through international independent brokerage houses that specialize in finding the optimal ship for any particular cargo based on the aforementioned criteria. Brokers may be appointed by the cargo shipper or the ship owner.
 
Environmental Regulation and Other Regulations
 
Government regulations and laws significantly affect the ownership and operation of our tankers.  We are subject to various international conventions, laws and regulations in force in the countries in which our vessels may operate or are registered.
 
Our tankers are subject to both scheduled and unscheduled inspections by a variety of government, quasi-governmental and private organizations each of which may have unique requirements.  These organizations include the local port authorities, national authorities, harbor masters or equivalent, classification societies, flag state and charterers, particularly terminal operators and oil companies.  Some of these entities require us to obtain permits, licenses and certificates for the operation of our tankers.  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 vessels 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
 

 
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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:
 
·  
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);
 
·  
30-year old tankers must be of double hull construction or mid-deck design with double-sided construction; and
 
·  
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:
 
·  
is the subject of a contract for a major conversion or original construction on or after July 6, 1993;
 
·  
commences a major conversion or has its keel laid on or after January 6, 1994; or
 
·  
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,
 

 
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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 lubricating oil as cargo, and of 30,000 dwt and above carrying other oils, which do not comply with the requirements for protectively located segregated ballast tanks
 
 
April 5, 2005 for ships delivered on April 5, 1982 or earlier; or
2005 for ships delivered after April 5, 1982
Category 2 - oil tankers of 20,000 dwt and above carrying crude oil, fuel oil, heavy diesel oil or lubricating oil as cargo, and of 30,000 dwt and above carrying other oils, which do comply with the protectively located segregated ballast tank requirements
and
Category 3 - oil tankers of 5,000 dwt and above but less than the tonnage specified for Category 1 and 2 tankers.
 
 
April 5, 2005 for ships delivered on April 5, 1977 or earlier
2005 for ships delivered after April 5, 1977 but before January 1, 1978
2006 for ships delivered in 1978 and 1979
2007 for ships delivered in 1980 and 1981
2008 for ships delivered in 1982
2009 for ships delivered in 1983
2010 for ships delivered in 1984 or later
 
Under the revised regulations, a flag state may permit continued operation of certain Category 2 or 3 tankers beyond their phase 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 regulations 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 under any of the flag state exemptions.
 
The following table summarizes the impact of such regulations on the Company’s single hull (SH) and double sided (DS) tankers:
 
Vessel Name
 
Vessel type
 
Vessel
Category
 
Year
Built
 
IMO phase out
 
Flag state
 Exemption
 
                       
Front Voyager
 
Suezmax
 
SH
 
1992
 
2010
 
2015
 
Edinburgh(*)
 
VLCC
 
DS
 
1993
 
2018
 
n/a
 
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
 

 
 (*) Vessel chartered in from Ship Finance and not consolidated after March 31, 2007. In March 2008, Ship Finance sold the Front Sabang and simultaneously terminated its related long-term charter party contract with us. Ship Finance expects to deliver the Front Sabang to its buyers in the second quarter of 2008.
 
The MEPC, in October 2004, adopted a unified interpretation to regulation 13G that clarified the date of delivery for tankers that have been converted. Under the interpretation, where an oil tanker has undergone a major conversion
 

 
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that has resulted in the replacement of the fore-body, including the entire cargo carrying section, the major conversion completion date of the oil tanker shall be deemed to be the date of delivery of the ship, provided that:
 
·  
the oil tanker conversion was completed before July 6, 1996;
 
·  
the conversion included the replacement of the entire cargo section and fore-body and the tanker complies with all the relevant provisions of MARPOL Convention applicable at the date of completion of the major conversion; and
 
·  
the original delivery date of the oil tanker will apply when considering the 15 years of age threshold relating to the first technical specifications survey to be completed in accordance with MARPOL Convention.
 
In December 2003, the MEPC adopted a new regulation 13H on the prevention of oil pollution from oil tankers when carrying heavy grade oil, or HGO, which includes most of the grades of marine fuel.  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 regulation 13H, HGO means any of the following:
 
·  
crude oils having a density at 15ºC higher than 900 kg/m 3 ;
 
·  
fuel oils having either a density at 15ºC higher than 900 kg/m 3 or a kinematic viscosity at 50ºC higher than 180 mm 2 /s; or
 
·  
bitumen, tar and their emulsions.
 
Under the 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 15ºC higher than 900 kg/m3 but lower than 945 kg/m3, that conform to certain technical specifications and, in the opinion of the such flag 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 flag 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 flag state may also exempt an oil tanker of 600 dwt and above carrying HGO as cargo if the ship is either engaged in voyages exclusively within an area under the its jurisdiction, or is engaged in voyages exclusively within an area under the jurisdiction of another party, provided the party within whose jurisdiction the ship will be operating agrees.  The same applies to vessels operating as floating storage units of HGO.
 
Any port state, however, can deny entry of single hull tankers carrying HGO which have been allowed to continue operation under the exemptions mentioned above, into the ports or offshore terminals under its jurisdiction, or deny ship-to-ship transfer of HGO in areas under its jurisdiction except when this is necessary for the purpose of securing the safety of a ship or saving life at sea.
 
Revised Annex I to the MARPOL Convention entered into force in January 2007.  Revised Annex I incorporates various amendments adopted since the MARPOL Convention entered into force in 1983, including the amendments to regulation 13G (regulation 20 in the revised Annex) and regulation 13H (regulation 21 in the revised Annex).  Revised Annex I also impose construction requirements for oil tankers delivered on or after January 1, 2010.  A further amendment to revised Annex I includes an amendment to the definition of heavy grade oil that will broaden the scope of regulation 21. On August 1, 2007, regulation 12A (an amendment to Annex I) came into force requiring oil fuel tanks to be located inside the double hull in all ships with an aggregate oil fuel capacity of 600 cubic meters
 

 
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and above, which are delivered on or after August 1, 2010 including ships for which the building contract is entered into on or after August 1, 2007, or in the absence of a contract, which keel is laid on or after February 1, 2008.
 
Air Emissions
 
On August 1, 2007, regulation 12A (an amendment to Annex I) came into force requiring oil fuel tanks to be located inside the double hull in all ships with an aggregate oil fuel capacity of 600 m 3 and above, which are delivered on or after August 1, 2010 including ships for which the building contract is entered into on or after August 1, 2007, or in the absence of a contract, which keel is laid on or after February 1, 2008.

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 May 19, 2005. Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from ship exhausts and prohibits deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. 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 all our vessels are currently compliant in all material respects with these regulations. Additional or new conventions, laws and regulations may be adopted that could adversely affect our business, cash flows, results of operations and financial condition.
 
In February 2007, the United States proposed a series of amendments to Annex VI regarding particulate matter, NOx and SOx emission standards.  The proposed emission program would reduce air pollution from ships by establishing a new tier of performance-based standards for diesel engines on all vessels and stringent emission requirements for ships that operate in coastal areas with air-quality problems.  On June 28, 2007, the World Shipping Council announced its support for these amendments.  If these amendments are implemented, we may incur costs to comply with the proposed standards.
 
Recent scientific studies have suggested that emissions of certain gases, commonly referred to as “greenhouse gases,” may be contributing to warming of the Earth’s atmosphere.  According to the IMO’s study of greenhouse gases emissions from the global shipping fleet, greenhouse emissions from ships are predicted to rise by 38% to 72% due to increased bunker consumption by 2020 if corrective measures are not implemented.  Any passage of climate control legislation or other regulatory initiatives by the IMO or individual countries where we operate that restrict emissions of greenhouse gases could require us to make significant financial expenditures we cannot predict with certainty at this time.
 
Safety Requirements
 
The IMO has also adopted the International Convention for the Safety of Life at Sea, or SOLAS Convention, and the International Convention on Load Lines, 1966, or LL Convention, which impose a variety of standards to regulate design and operational features of ships. SOLAS Convention and LL Convention standards are revised periodically. We believe that all our vessels are in substantial compliance with SOLAS Convention and LL Convention standards.
 
Under Chapter IX of SOLAS, the requirements contained in the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, or ISM Code, promulgated by the IMO, also affect our operations. The ISM Code requires the party with operational control of a vessel to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We intend to rely upon the safety management system that the appointed ship managers have developed.
 
The ISM Code requires that vessel ship manager or operators obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by a vessel’s management with the ISM code requirements for a safety management system. No vessel can obtain a safety management certificate unless its manager has been awarded a document of compliance, issued by each flag state, under the ISM Code. The appointed ship managers have obtained documents of compliance for their offices and safety management certificates for all of our vessels for which the certificates are required by the IMO. The document of compliance (“DOC”) and ship management certificate (“SMC”) are renewed every five years but DOC is subject to audit verification annually and the SMC every 2.5 years.
 

 
25
 


 
Noncompliance with the ISM Code and other IMO regulations may subject the shipowner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports. The U.S. Coast Guard and European Union authorities have indicated that vessels not in compliance with the ISM Code by the applicable deadlines will be prohibited from trading in U.S. and European Union ports, as the case may be.
 
The IMO has negotiated international conventions that impose liability for oil pollution in international waters and a signatory’s territorial waters. Additional or new conventions, laws and regulations may be adopted which could limit our ability to do business and which could have a material adverse effect on our business and results of operations.
 
Ballast Water Requirements
 
The IMO adopted an International Convention for the Control and Management of Ships’ Ballast Water and Sediments, or the BWM Convention, in February 2004. The BWM Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements (beginning in 2009), to be replaced in time with mandatory concentration limits. The BWM Convention will not enter into force until 12 months after it has been adopted by 30 states the combined merchant fleets of which represent not less than 35% of the gross tonnage of the world’s merchant shipping.
 
The flag state, as defined by the United Nations Convention on Law of the Sea, has overall responsibility for the implementation and enforcement of international maritime regulations for all ships granted the right to fly its flag. The “Shipping Industry Guidelines on Flag State Performance” evaluates flag states based on factors such as sufficiency of infrastructure, ratification of international maritime treaties, implementation and enforcement of international maritime regulations, supervision of surveys, casualty investigations and participation at IMO meetings. Our vessels are flagged in the Marshall Islands, Liberia, Isle of Man, Singapore and the Bahamas, which all generally receive a good assessment in the shipping industry.
 
Oil Pollution Liability
 
Although the United States is not a party to these conventions, many countries have ratified and follow the liability plan adopted by the IMO and set out in the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended in 2000, or the CLC. Under this convention and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel’s registered owner is strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain complete defenses.  The limits on liability outlined in the 1992 Protocol use the International Monetary Fund currency unit of Special Drawing Rights, or SDR. Under an amendment to the 1992 Protocol that became effective on November 1, 2003, for vessels of 5,000 to 140,000 gross tons (a unit of measurement for the total enclosed spaces within a vessel), liability will be limited to approximately 4.51 million SDR plus 631 SDR for each additional gross ton over 5,000. For vessels of over 140,000 gross tons, liability will be limited to 89.77 million SDR.  The exchange rate between SDRs and U.S. dollars was 0.613863 SDR per U.S. dollar on March 20, 2008. As the convention calculates liability in terms of a basket of currencies, these figures are based on currency exchange rates on March 13, 2007. The right to limit liability is forfeited under the International Convention on Civil Liability for Oil Pollution Damage where the spill is caused by the owner’s actual fault and under the 1992 Protocol where the spill is caused by the owner’s intentional or reckless conduct. Vessels trading to states that are parties to these conventions must provide evidence of insurance covering the liability of the owner. In jurisdictions where the International Convention on Civil Liability for Oil Pollution Damage has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or in a manner similar to that convention. We believe that our P&I insurance will cover the liability under the plan adopted by the IMO.
 
United States
 
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
 

 
26
 

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:
 
·  
natural resource damages and related assessment costs;
 
·  
real and personal property damages;
 
·  
net loss of taxes, royalties, rents, profits or earnings capacity; and
 
·  
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 have provided such evidence and received certificates of financial responsibility from the U.S. Coast Guard for each of our vessels required to have one.
 
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.
 

 
27
 


 
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 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:
 
·  
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;
 
·  
describe crew training and drills; and
 
·  
identify a qualified individual with full authority to implement removal actions.
 
We have obtained vessel response plans approved by the U.S. 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 Clean Water Act prohibits the discharge of oil or hazardous substances in 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 Environmental Protection Agency, or EPA, has exempted the discharge of ballast water and other substances incidental to the normal operation of vessels in 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 EPA to develop a system for regulating all discharges from vessels by that date.  EPA filed a notice of appeal of this decision and, if EPA’s appeals are unsuccessful and the exemption is repealed, we 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 waters. On June 21, 2007, the EPA provided notice of its intention to develop a permit program for discharge of ballast water incidental to the normal operations of vessels and solicited comments.
 
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 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
 

 
28
 

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. (However, mid-ocean ballast exchange is mandatory for ships heading to the Great Lakes or Hudson Bay, or vessels engaged in the foreign export of Alaskan North Slope crude oil). 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 still be held liable for clean up costs under applicable laws.
 
Other Regulations
 
European Union
 
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 and resulting oil spill in November 2002 has 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 2005, the European Union adopted a directive on ship-source pollution, imposing criminal sanctions for intentional, reckless or negligent pollution discharges by ships.  The directive could result in criminal liability for pollution from vessels in waters of European countries that adopt implementing legislation.  Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims.
 

 
29
 


 
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 Facility 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, or ISSC, from a recognized security organization approved by the vessel’s flag state. Among the various requirements are:
 
·  
on-board installation of automatic identification systems to provide a means for the automatic transmission of safety-related information from among similarly equipped ships and shore stations, including information on a ship’s identity, position, course, speed and navigational status;
 
·  
on-board installation of ship security alert systems, which do not sound on the vessel but only alerts the authorities on shore;
 
·  
the development of vessel security plans;
 
·  
ship identification number to be permanently marked on a vessel’s hull;
 
·  
a continuous synopsis record kept onboard showing a vessel’s history including, name of the ship and of the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship’s identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and
 
·  
compliance with flag state security certification requirements.
 
The U.S. Coast Guard regulations, intended to align with international maritime security standards, exempt 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.
 
Inspection by Classification Societies
 
Classification societies certify that the vessel is “in-class,” signifying that the vessel has been built and maintained in accordance with the rules of the classification society and complies with applicable rules and regulations of the vessel’s country of registry and the international conventions of which that country is a member. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned.
 
The classification society also undertakes on request other surveys and checks that are required by regulations and requirements of the flag state. These surveys are subject to agreements made in each individual case and/or to the regulations of the country concerned.
 

 
30
 


 
For maintenance of the class, regular and extraordinary surveys of hull, machinery, including the electrical plant, and any special equipment classed are required to be performed as follows:
 
·  
Annual Surveys. For seagoing ships, annual surveys are conducted for the hull and the machinery, including the electrical plant and where applicable for special equipment classed, at intervals of 12 months from the date of commencement of the class period indicated in the certificate.
 
·  
Intermediate Surveys. Extended annual surveys are referred to as intermediate surveys and typically are conducted two and one-half years after commissioning and each class renewal. Intermediate surveys may be carried out on the occasion of the second or third annual survey.
 
·  
Class Renewal Surveys. Class renewal surveys, also known as special surveys, are carried out for the ship’s hull, machinery, including the electrical plant and for any special equipment classed, at the intervals indicated by the character of classification for the hull. At the special survey the vessel is thoroughly examined, including audio-gauging to determine the thickness of the steel structures. Should the thickness be found to be less than class requirements, the classification society would prescribe steel renewals. The classification society may grant a one year grace period for completion of the special survey. Substantial amounts of money may have to be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear. In lieu of the special survey every four or five years, depending on whether a grace period was granted, a ship owner has the option of arranging with the classification society for the vessel’s hull or machinery to be on a continuous survey cycle, in which every part of the vessel would be surveyed within a five year cycle. At an owner’s application, the surveys required for class renewal may be split according to an agreed schedule to extend over the entire period of class. This process is referred to as continuous class renewal.
 
All areas subject to survey as defined by the classification society are required to be surveyed at least once per class period, unless shorter intervals between surveys are prescribed elsewhere. The period between two subsequent surveys of each area must not exceed five years.
 
Our vessels, which are less than 15 years old are drydocked every 60 months, while vessels which are more than 15 years old are drydocked every 30-36 months for inspection of the underwater parts and for repairs related to the inspection. If any defects are found, the classification surveyor will issue a recommendation which must be rectified by the ship owner within prescribed time limits.
 
Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as “in-class” by a classification society which is a member of the International Association of Classification Societies. All our vessels are certified as being “in-class” by a recognized classification society.
 
In addition to the classification inspections, many of our customers regularly inspect our vessels as a precondition to chartering them for voyages. We believe that our well-maintained, high-quality vessels provide us with a competitive advantage in the current environment of increasing regulation and customer emphasis on quality.
 
Risk of loss and insurance
 
The operation of any ocean-going vessel carries an inherent risk of catastrophic marine disasters and property losses caused by adverse weather conditions, mechanical failures, human error, war, terrorism and other circumstances or events. In addition, the transportation of crude oil is subject to the risk of spills, and business interruptions due to political circumstances in foreign countries, hostilities, labor strikes and boycotts. OPA has made liability insurance more expensive for ship owners and operators imposing potentially unlimited liability upon owners, operators and bareboat charterers for oil pollution incidents in the territorial waters of the United States. We believe that our current insurance coverage is adequate to protect us against the principal accident-related risks that we face in the conduct of our business.
 

 
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Our protection and indemnity insurance, or P&I insurance, covers third-party liabilities and other related expenses from, among other things, injury or death of crew, passengers and other third parties, claims arising from collisions, damage to cargo and other third-party property and pollution arising from oil or other substances. Our current P&I insurance coverage for pollution is the maximum commercially available amount of $1.05 billion per tanker per incident and is provided by mutual protection and indemnity associations. Each of the vessels currently in our fleet is entered in a protection and indemnity association which is a member of the International Group of Protection and Indemnity Mutual Assurance Associations. The 13 protection and indemnity associations that comprise the International Group insure approximately 90% of the world’s commercial tonnage and have entered into a pooling agreement to reinsure each association’s liabilities. Each protection and indemnity association has capped its exposure to this pooling agreement at $4.3 billion. As a member of protection and indemnity associations, which are, in turn, members of the International Group, we are subject to calls payable to the associations based on its claim records as well as the claim records of all other members of the individual associations and members of the pool of protection and indemnity associations comprising the International Group.
 
Our hull and machinery insurance covers actual or constructive total loss from covered risks of collision, fire, heavy weather, grounding and engine failure or damages from same. Our war risk insurance covers risks of confiscation, seizure, capture, vandalism, sabotage and other war-related risks. Our loss-of-hire insurance covers loss of revenue for not less than 90 days resulting from an accident covered by the terms of our hull and machinery insurance for each of our vessels, with a 20 day deductible.
 
C. ORGANIZATIONAL STRUCTURE
 
See Exhibit 8.1 for a list of our significant subsidiaries.
 
D. PROPERTY, PLANT AND EQUIPMENT
 
The Company’s Vessels
 
The following table sets forth the fleet that we operate as of February 29, 2008 (including contracted newbuildings not yet delivered):
 
Vessel
Built
Approximate Dwt.
Construction
Flag
Type of Employment
Tonnage Owned Directly
         
           
VLCCs
         
Antares Voyager
1998
310,000
Double-hull
BA
Bareboat charter
Phoenix Voyager
1999
308,500
Double-hull
BA
Bareboat charter
Hull 2396 (Newbuilding)
2009
297,000
Double-hull
n/a
n/a
Hull 2397 (Newbuilding)
2009
297,000
Double-hull
n/a
n/a
Hull 2419 (Newbuilding)
2010
297,000
Double-hull
n/a
n/a
Hull 2420 (Newbuilding)
2010
297,000
Double-hull
n/a
n/a
Front Shanghai
2006
298,500
Double-hull
HK
Spot market
           
Suezmax Tankers
         
Hull 1017 (Newbuilding)
2008
156,000
Double-hull
n/a
n/a
Hull 1018 (Newbuilding)
2009
156,000
Double-hull
n/a
n/a
Hull 1019 (Newbuilding)
2008
156,000
Double-hull
n/a
n/a
Hull 1026 (Newbuilding)
2009
156,000
Double-hull
n/a
n/a
Hull 1056 (Newbuilding)
2010
156,000
Double-hull
n/a
n/a
Hull 1057 (Newbuilding)
2010
156,000
Double-hull
n/a
n/a
Hull 1060 (Newbuilding)
2010
156,000
Double-hull
n/a
n/a

 
32
 


Vessel
Built
Approximate Dwt.
Construction
Flag
Type of Employment
Tonnage Owned Directly
         
           
Hull 1061 (Newbuilding)
2010
156,000
Double-hull
n/a
n/a
Front Voyager
1992
155,000
Single-hull
BA
Spot market
Cygnus Voyager
1993
157,000
Double-hull
BA
Bareboat charter
Altair Voyager
1993
136,000
Double-hull
BA
Bareboat charter
Sirius Voyager
1994
156,000
Double-hull
BA
Bareboat charter
           
 
Tonnage chartered in from Ship Finance
 
 
           
VLCCs
         
Front Sabang (*)
1990
286,000
Single-hull
SG
Time charter
Front Highness
1991
284,000
Single-hull
SG
Time charter
Front Lady
1991
284,000
Single-hull
SG
Time charter
Front Lord
1991
284,000
Single-hull
SG
Time charter
Front Duke
1992
284,000
Single-hull
SG
Time charter
Front Duchess
1993
284,000
Single-hull
SG
Spot market
Edinburgh
1993
302,000
Double-side
LIB
Time charter
Front Ace
1993
276,000
Single-hull
LIB
Time charter
Front Vanguard
1998
300,000
Double-hull
MI
Spot market
Front Century
1998
311,000
Double-hull
MI
Time charter
Front Champion
1998
311,000
Double-hull
BA
Spot market
Front Vista
1998
300,000
Double-hull
MI
Spot market
Front Comanche
1999
300,000
Double-hull
FRA
Time charter
Golden Victory
1999
300,000
Double-hull
MI
Time charter
Front Circassia
1999
306,000
Double-hull
MI
Spot market
Front Opalia
1999
302,000
Double-hull
MI
Spot market
Ocana (Ex Front Commerce)
1999
300,000
Double-hull
IoM
Bareboat charter
Front Scilla
2000
303,000
Double-hull
MI
Spot market
Oliva (Ex Ariake)
2001
299,000
Double-hull
IoM
Bareboat charter
Front Serenade
2002
299,000
Double-hull
LIB
Time charter
Otina (Ex Hakata)
2002
298,000
Double-hull
IoM
Bareboat charter
Ondina (Ex Front Stratus)
2002
299,000
Double-hull
IoM
Bareboat charter
Front Falcon
2002
309,000
Double-hull
BA
Spot market
Front Page
2002
299,000
Double-hull
LIB
Time charter
Front Energy
2004
305,000
Double-hull
CYP
Spot market
Front Force
2004
305,000
Double-hull
CYP
Spot market
           
Suezmax OBO Carriers
         
Front Breaker
1991
169,000
Double-hull
MI
Time charter
Front Climber
1991
169,000
Double-hull
SG
Time charter
Front Driver
1991
169,000
Double-hull
MI
Time charter
Front Guider
1991
169,000
Double-hull
SG
Time charter
Front Leader
1991
169,000
Double-hull
SG
Time charter
Front Rider
1992
169,000
Double-hull
SG
Time charter
Front Striver
1992
169,000
Double-hull
SG
Time charter
Front Viewer
1992
169,000
Double-hull
SG
Time charter
           
Suezmax Tankers
         
Front Pride
1993
150,000
Double-hull
NIS
Spot market
Front Glory
1995
150,000
Double-hull
NIS
Spot market
Front Splendour
1995
150,000
Double-hull
NIS
Spot market

 
33
 


Suezmax Tankers
         
Front Ardenne
1997
150,000
Double-hull
NIS
Spot market
Front Brabant
1998
150,000
Double-hull
NIS
Spot market
Mindanao
1998
150,000
Double-hull
SG
Spot market
           
 
 
Tonnage chartered in from Third Parties
           
VLCCs
         
Front Chief
1999
311,000
Double-hull
BA
Spot market
Front Commander
1999
311,000
Double-hull
BA
Spot market
Front Crown
1999
311,000
Double-hull
BA
Spot market
British Pioneer
1999
307,000
Double-hull
IoM
Bareboat charter
British Pride
2000
307,000
Double-hull
IoM
Bareboat charter
British Progress
2000
307,000
Double-hull
IoM
Bareboat charter
British Purpose
2000
307,000
Double-hull
IoM
Bareboat charter
Front Tina
2000
299,000
Double-hull
LIB
Spot market
Front Commodore
2000
299,000
Double-hull
LIB
Time charter
Front Eagle
2002
309,000
Double-hull
BA
Spot market
Cosglory Lake
2003
299,145
Double-hull
PAN
Spot market
Hampstead
1996
298,000
Double-hull
IoM
Time charter
Kensington
1995
298,000
Double-hull
IoM
Time charter
           
Suezmax Tankers
         
Front Warrior
1998
153,000
Double-hull
BA
Spot market
Front Melody
2001
150,000
Double-hull
LIB
Spot market
Front Symphony
2001
150,000
Double-hull
LIB
Time charter
Marble
1992
150,000
Single-hull
MI
Spot market
Nordic Apollo (**)
2003
149,997
Double-hull
MI
Spot market
Nordic Discovery (**)
1998
149,999
Double-hull
NIS
Spot market
Nordic Fighter (**)
1998
149,999
Double-hull
NIS
Spot market
Nordic Hawk (**)
1997
151,475
Double-hull
BA
Spot market
Nordic Hunter (**)
1997
151,400
Double-hull
BA
Spot market
Nordic Saturn (**)
1998
157,332
Double-hull
MI
Spot market
           
Tonnage under Commercial Management
       
VLCC
         
Mayfair
1995
298,405
Double-hull
MI
Time charter
Camden
1995
298,306
Double-hull
MI
Time charter
Songa Chelsea
1995
298,432
Double-hull
MI
Spot market
Bunga Kasturi Dua
2005
300,542
Double-hull
MAL
Spot market
Universal Queen
2005
309,373
Double-hull
PAN
Spot market
           
Aframax
         
Sea Leopard
1990
94,993
Double-hull
MI
Time charter

 
(*) In March 2008, we agreed with Ship Finance to terminate the long term charter party between the companies for Front Sabang and Ship Finance and simultaneously sold the vessel with expected delivery to the buyers in the second quarter of 2008.
 
(**) Vessel is chartered in on a floating time charter.
 

 
34
 


 
Our chartered in fleet is contracted to us under leasing arrangements with fixed terms of between eight and twenty four years. Lessors have options to extend nine of these leases by up to an additional five years from expiry of the initial fixed term.  We have fixed purchase price options to buy nine of these vessels at certain future dates and the lessors have fixed options to sell nine of these vessels to us at the end of the lease period.  Four of the lease agreements may not be terminated by us without the agreement of the end-user of the vessel.
 
Key to Flags:
 
BA – Bahamas, IoM – Isle of Man, LIB - Liberia, MAL – Malta, NIS - Norwegian International Ship Register, PAN – Panama,  SG - Singapore, FRA – France, MI – Marshall Islands, CYP – Cyprus, HK – Hong Kong.
 
Other than our interests in the vessels described above, we do not own any material physical properties. We lease office space in Hamilton, Bermuda from an unaffiliated third party. Frontline Management AS leases office space, at market rates, in Oslo, Norway from Bryggegata AS, a company indirectly affiliated with Hemen, our principal shareholder.
 
ITEM 4A.               UNRESOLVED STAFF COMMENTS
 
None
 
ITEM 5.                  OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 
Overview
 
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.
 
Our principal focus and expertise is the transportation of crude oil and oil product cargoes for major integrated oil companies and other customers. As of December 31, 2007, our tanker fleet consisted of 29 VLCCs, four VLCC newbuilding contracts and 24 Suezmax tankers, of which eight are Suezmax OBOs and eight Suezmax newbuilding contracts. We also charter in thirteen modern VLCCs from third parties. A full fleet list is provided in Item 4.D. “Information on the Company” showing the vessels that we currently own and charter in.
 
Fleet Changes
 
Refer to Item 4 for discussion on acquisitions and disposals of vessels. A summary of our fleet changes for the years ended December 31, 2007, 2006 and 2005 is as follows:
 
   
2007
   
2006
   
2005
 
VLCCs
                 
At start of period
    41       43       38  
Acquisitions
    2       2       5  
Dispositions
    1       4       —  
At end of period
    42       41       43  
                         
VLCCs owned by equity investees
                       
At start of period
    —       —       1  
Acquisitions
    —       —       —  
Dispositions
    —       —       1  
At end of period
    —       —       —  

 
35
 


   
2007
   
2006
   
2005
 
                   
Suezmax
                 
At start of period
    23       23       28  
Acquisitions
    —       —       —  
Dispositions
    7       —       5  
At end of period
    16       23       23  
                         
Suezmax OBOs
                       
At start and end of period
    8       8       8  
                         
Aframax
                       
At start of period
    1       —       —  
Acquisitions
    —       1       —  
Dispositions
    1       —       —  
At end of period
    —       1       —  
                         
Drybulk
                       
At start of period
    —       —       1  
Dispositions
    —       —       1  
At end of period
    —       —       —  
                         
Total fleet
                       
At start of period
    73       74       76  
Acquisitions
    2       3       5  
Dispositions
    9       4       7  
At end of period
    66       73       74  

 
Summary of Fleet Employment
 
As discussed below, our vessels are operated under time charters, bareboat charters, voyage charters, pool arrangements and COAs.
 
   
As of December 31,
 
   
2007
   
2006
   
2005
 
   
Number of vessels
   
Percentage of fleet
   
Number of vessels
   
Percentage of fleet
   
Number of vessels
   
Percentage of fleet
 
VLCCs
                                   
Spot or pool
    17       40 %     18       44 %     29       67 %
Time charter
    15       36 %     13       32 %     9       21 %
Bareboat charter
    10       24 %     10       24 %     5       12 %
Total
    42       100 %     41       100 %     43       100 %
                                                 
Suezmax
                                               
Spot or pool
    12       75 %     16       70 %     22       96 %
Time charter
    1       6 %     3       13 %     1       4 %
Bareboat charter
    3       19 %     3       13 %     —       —  
Under Conversion
    —       —       1       4 %     —       —  
Total
    16       100 %     23       100 %     23       100 %
                                                 
Aframax
                                               
Under Conversion
    —       —       1       100 %     —       —  
Total
    —       —       1       100 %     —       —  

 
36
 


   
As of December 31,
 
   
2007
   
2006
   
2005
 
   
Number of vessels
   
Percentage of fleet
   
Number of vessels
   
Percentage of fleet
   
Number of vessels
   
Percentage of fleet
 
                                     
Suezmax OBOs
                                   
Time charter
    8       100 %     8       100 %     8       100 %
Total
    8       100 %     8       100 %     8       100 %
                                                 
Total fleet
                                               
Spot or pool
    29       44 %     34       47 %     51       69 %
Time charter
    24       36 %     24       32 %     18       24 %
Bareboat charter
    13       20 %     13       18 %     5       7 %
Under Conversion
    —       —       2       3 %     —       —  
Total
    66       100 %     73       100 %     74       100 %
 
Market Overview and Trend Information
 
In the beginning of 2007, the daily TCE was approximately $47,000 for VLCCs and approximately $70,700 for the Suezmaxes. The VLCC segment strengthened in the first quarter of 2007 from weakness at the end of 2006, while the Suezmax segment was weak in the first quarter of 2007. A strike at Lavera, France, in late March, delayed a large number of Suezmaxes from discharging their respective cargoes, which caused Suezmax earnings to spike. VLCC earnings increased but not to the same extent as the Suezmaxes. Ultimately, the earnings for both VLCCs and Suezmaxes gradually declined throughout the second and third quarters of 2007. The primary reasons for the decline can be attributed to reduced global oil production in the summer months, the price structure on oil turning from contango to backwardation, which initiated a significant draw on crude stocks worldwide. Volatility, the trademark of these tanker segments, disappeared until the sharp increase in VLCC rates in mid-November.

This sharp increase in VLCC rates was created in part by the discounting of crude prices by Saudi Aramco in late November to mainly U.S. refiners. This resulted in the increased demand for VLCCs between the last week in November and the third week in December, and had the effect of upsetting the balance of supply and demand in owners’ favor, which resulted in increased rates which shipowners successfully exploited. Additionally, the market was not hurt by the December oil spill caused by a Chinese owned single hull vessel off the coast of South Korea. Another important factor which contributed to the increase in rates was the joint decision by several major owners to reduce laden and ballast speeds in order to save bunkers and reduce costs. In a low demand market when bunkers cost as much as an additional $50,000 per day, the reduction of speed from 15 to 12 knots saved an estimated $20,000 per day and reduced the overall ‘market capacity’ by approximately 10%.

The increased number of VLCCs marked for conversions also contributed to the increase in rates. At the end of 2007, it is estimated that somewhere between 10 and 15 units had been removed from the market, reducing single hull availability in locations such as the Arabian Gulf.

Vessels have, in connection with the increased rates and volatility towards the end of the year been fixed on more speculative short-term time charters than we have seen in the past. According to Clarksons, the average TCE for the year was approximately $57,000 per day for a double hulled VLCC and approximately $44,800 per day for a double hulled Suezmax.

The current trend is for oil majors to avoid employing single hull tonnage when transporting persistent oils because non-single hull vessels are less likely to be inspected. Oil traders with crude or fuel oil cargoes often require double hull tonnage in order to have full flexibility regarding cargo delivery. Thus, single hull ships are no longer able to trade to their full capacity compared to the double hull vessels. This implies a further gap in the already existing ’two tier market’ between the double and the single hull vessels.

 
37
 


Bunker prices followed the price fluctuations in the oil market closely in 2007 with Fujairah’s lowest bunker quote for the year set early January at $256 per metric ton and the highest set early November at $513 per metric ton. The average bunker price in 2007 was estimated to be approximately $374 per metric ton.

It was reported by the International Energy Agency, or IEA, in March 2008 that average OPEC Oil production, including Iraq but not Angola, was approximately 29.1 million barrels per day during 2007, a 0.7 million barrel per day decrease from 2006. Saudi Arabia and Venezuela contributed the most to the reduced crude oil productions by approximately 0.65 million barrels per day while Iran and Iraq offset this to a certain degree with increased production by approximately 0.26 million barrels per day. The balance stems from minor changes in all remaining OPEC countries. On December 1, 2007, the Republic of Ecuador became the thirteenth member of OPEC and thereby rejoined the Organization after an absence of a decade and a half. The inclusion of the Republic of Ecuador could strengthen the capability of OPEC in fulfilling its objectives and help to further stabilize the market.

OPEC-12 and Iraq are expected to reach a production capacity of 35.8 million barrels per day in 2008 according to IEA. Production could accelerate in 2008 as capacity at the start of the year was at 32 million barrels per day. The growth is expected to be heavily skewed towards Saudi Arabia, Nigeria and UAE together accounting for approximately 75% of the net increase.

The IEA further estimates that the average world oil demand was 85.8 million barrels per day in 2007, a 1.1% increase from 2006. For 2008 a 2.0% or 1.7 million barrels per day growth is forecasted in world oil demand with China, Latin America and the Middle East as the main drivers.

The International Monetary Fund, or IMF, expect global growth to moderate to 4.1% in 2008, 0.8 % lower than in 2007 according to their February 2008 update. In the United States, growth is expected to come down to 1.5% this year, from 2.2% in 2007. Growth is also expected to ease in Europe, Japan and in emerging markets and developing countries. China’s growth is projected to remain rapid in 2008, albeit a little below the torrid pace in 2007 of 11.4%.

The total Suezmax fleet increased by 2.4% in 2007 to 348 vessels according to Fearnleys’ Fleet Update from December 31, 2007. The report furthermore states that a total of 25 new vessels were delivered to owners during 2007 while 37 new orders were made. The total order book amounted to 134 vessels at the end of the year which represented approximately 38% of the existing fleet. Half the order book is set to be delivered in 2009.

The total VLCC fleet increased by 1.9% in 2007 to 489 vessels with a total of 28 new vessels delivered to owners during 2007 with 28 new orders made. The total order book amounted to 176 vessels at the end of the year, which represented approximately 36% of the existing fleet.

Industry sources expect 40 VLCCs and 19 Suezmaxes to be delivered from shipyards during 2008.

We believe it is likely that more tankers will be either converted or scrapped compared to recent years. Frontline estimates that approximately 40 VLCCs will be converted for non-trading purposes in 2008, approximately 90% to VLOC and the balance to FSO/FPSO. It is also likely that parts of the order book will be delayed as a function of the uncertainty of the delivery schedule for several yards due to financing issues. It is expected that these elements together will cushion the fleet growth.

Accounting Changes
 
In December 2003 we implemented the provisions of FIN 46.  The effect of our implementation of FIN 46 was to require consolidation of certain entities in which we held interests but which had not previously been consolidated.  This resulted in us recording a cumulative effect of a change in accounting principle of $33.7 million effective December 31, 2003.
 
With effect from December 2003, the IMO implemented new regulations that result in the accelerated phase-out of single hull vessels. As a result of this, we have re-evaluated the estimated useful life of our single hull vessels and determined this to be either 25 years or the vessel’s anniversary date in 2015 whichever comes first. As a result, the estimated useful lives of fourteen of our wholly owned vessels and two vessels owned by associated companies were
 

 
38
 

reduced in the fourth quarter of 2003. A change in accounting estimate was recognized to reflect this decision, resulting in an increase in depreciation expense and consequently decreasing net income by $1.3 million and basic and diluted earnings per share by $0.02, for 2003.
 
Following the dividend of most of our remaining interest in Ship Finance on March 22, 2007, we re-evaluated the basis of our consolidation of Ship Finance under FIN 46(R) and determined that consolidation of Ship Finance and its subsidiaries was no longer appropriate and that the vessels chartered in from Ship Finance should be accounted for as assets held under capital leases. A summary of the major changes to the financial statements is as follows;
 
·  
Vessels leased from Ship Finance, which were previously reported as wholly owned are reported as vessels held under capital lease.
 
·  
Capital lease obligations with Ship Finance, which were previously eliminated on consolidation are reported as liabilities with the related interest recorded in the income statement.
 
·  
Debt incurred by Ship Finance, which was previously reported as debt of the Company is no longer reported.
 
·  
Derivative instruments held by Ship Finance are no longer reported.
 
·  
Minority interest expense relating to Ship Finance is no longer reported.
 
·  
Profit share expense relating to amounts due to Ship Finance is shown in the income statement.
 
·  
Results from Ship Finance’s container ships, jack-up rigs and Panamax vessels are no longer reported in the Company’s consolidated results
 
Discontinued Operations
 
In November 2004, we established Golden Ocean as a wholly owned subsidiary in Bermuda for the purpose of transferring, by way of contribution, certain dry bulk shipping interests. We will not have any significant continuing involvement in these dry bulk operations and as a result, the financial results from our dry bulk operations transferred to Golden Ocean have been reported under “discontinued operations” for 2004 and 2003. We have accounted for the spin off of Golden Ocean at fair value and have recorded a gain of $99.5 million in the year ended December 31, 2004.
 
In 2005, we disposed of our last remaining dry bulk carrier which has been accounted for as discontinued operations as we do not plan on having any continued involvement in dry bulk operations. Discontinued operations also includes a portion of the gain on sale of shares of Golden Ocean in February 2005 representing the difference between the cost of the shares sold and the fair value of the shares at the date of the spin off of Golden Ocean.
 
As a result of the spin off of Ship Finance in March 2007, we disposed of the container vessel and rig operations of Ship Finance. These operations have been recorded as discontinued operations in 2007 and 2006. The results of the container vessels have also been recorded as discontinued operations in 2005.
 
Critical Accounting Policies and Estimates
 
The preparation of our financial statements in accordance with accounting principles generally accepted in the United States 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.
 
Management believes that the following accounting policies are the most critical in fully understanding and evaluating our reported financial results as they require a higher degree of judgment in their application resulting
 

 
39
 

from the need to make estimates about the effect of matters that are inherently uncertain. See Note 2 to our audited Consolidated Financial Statements included herein for details of all of our material accounting policies.
 
Revenue Recognition
 
Revenues are generated from freight billings, time charter and bareboat charter hires. Time charter and bareboat charter revenues are recorded over the term of the charter as service is provided. Under a voyage charter the revenues and associated voyage costs are recognized rateably over the estimated duration of the voyage, which is measured from completion of discharge to completion of discharge. Voyage revenues and expenses are recognized ratably over the estimated length of each voyage and, therefore, are allocated between reporting periods based on the relative transit time in each period. The impact of recognizing voyage expenses ratably over the length of each voyage is not materially different on a quarterly and annual basis from a method of recognizing such costs as incurred. Probable losses on voyages are provided for in full at the time such losses can be estimated. Amounts receivable or payable arising from profit sharing arrangements are accrued based on the estimated results of the voyage recorded as at the reporting date. Profit share income represents vessel earnings earned by the Company’s customers in excess of market rates. Profit share expense represents amounts due to Ship Finance based on 20% of the excess of vessel revenues earned by the Company over the base hire paid to Ship Finance for chartering in the vessels.
 
Revenues and voyage expenses of the vessels operating in pool arrangements are pooled and the resulting net pool revenues, calculated on a time charter equivalent basis, are allocated to the pool participants according to an agreed formula.  Formulae used to allocate net pool revenues vary among different pools but generally allocate revenues to pool participants on the basis of the number of days a vessel operates in the pool with weighting adjustments made to reflect vessels’ differing capacities and performance capabilities.  The same revenue and expenses principles stated above are applied in determining the pool’s net pool revenues.  Certain pools are responsible for paying voyage expenses and distribute net pool revenues to the participants.  We account for the net pool revenues allocated by these pools as “pool revenues” which are included in voyage revenues in our statements of operations.  Certain pools require the participants to pay and account for voyage expenses, and distribute gross pool revenues to the participants such that the participants’ resulting net pool revenues are equal to net pool revenues calculated according to the agreed formula.  We account for gross pool revenues allocated by these pools as “pool revenues” which are included in voyage revenues in our statements of operations.
 
Vessels and equipment
 
The cost of the vessels less estimated residual value is depreciated on a straight-line basis over the vessels’ estimated remaining economic useful lives. The estimated economic useful life of the Company’s double hull vessels is 25 years and for single hull vessels is either 25 years or the vessel’s anniversary date in 2015, whichever comes first. Other equipment is depreciated over its estimated remaining useful life, which approximates five years.
 
Vessels and equipment under capital lease
 
The Company charters in certain vessels under agreements that are classified as capital leases. Depreciation of vessels under capital lease is included within depreciation and amortisation expense in the consolidated statement of operations. Vessels under capital lease are depreciated on a straight-line basis over the vessels’ remaining economic useful lives or on a straight-line basis over the term of the lease. The method applied is determined by the criteria by which the lease has been assessed to be a capital lease.
 
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. FIN 46 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.
 

 
40
 


 
In applying the provisions of Interpretation 46, 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.
 
We initially applied the provisions of Interpretation 46 to all special purpose entities and other entities created after January 31, 2003 on December 31, 2003. We initially applied its provisions to entities that are not considered to be special purpose entities that were created before January 31, 2003 as of March 31, 2004. The impact on the results of operations and financial position of the Company is explained above in “Accounting Changes”.
 
Leases
 
Leases are classified as either capital leases or operating leases based on an assessment of the terms of the lease.  Classification of leases involves the use of estimates or assumptions about fair values of leased vessels, expected future values of vessels and, if lessor’s rates of return are not known, lessee’s cost of capital.  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.  Lessee’s cost of capital is estimated using an average which includes estimated return on equity and estimated incremental borrowing cost.  The classification of leases in our accounts as either capital leases or operating leases is sensitive to changes in these underlying estimates and assumptions.
 
Factors Affecting our Results
 
The principal factors which affect our results of operations and financial position include:
 
·  
the earnings of our vessels in the charter market;
 
·  
gains from the sale of assets;
 
·  
vessel operating expenses;
 
·  
profit share expense;
 
·  
administrative expenses;
 
·  
depreciation;
 
·  
interest expense;
 
We have derived our earnings from bareboat charters, time charters, voyage charters, pool arrangements and contracts of affreightment.
 
As of December 31, 2007 2006 and 2005, 28, 34 and 51, respectively, of our vessels operated in the voyage charter market. The tanker industry has historically been highly cyclical, experiencing volatility in profitability, vessel values and freight rates. In particular, freight and charter rates are strongly influenced by the supply of tanker vessels and the demand for oil transportation services.
 
Gains from the sale of assets relates to gains from the sale of vessels and marketable securities and payments received on the termination of leases.
 
Operating costs are the direct costs associated with running a vessel and include crew costs, vessel supplies, repairs and maintenance, drydockings, lubricating oils and insurance.
 

 
41
 


 
Profit share expense relates to the vessels amounts due to Ship Finance based on 20% of the excess of vessel revenues earned by the Company over the base hire paid to Ship Finance for chartering in the vessels.
 
Administrative expenses are composed of general corporate overhead expenses, including personnel costs, property costs, legal and professional fees and other general administrative expenses. Personnel costs include, among other things, salaries, pension costs, fringe benefits, travel costs and health insurance.
 
Depreciation, or the periodic cost charged to our income for the reduction in usefulness and long-term value of our vessels, is also related to the number of vessels we own or lease. We depreciate the cost of vessels we own, less their estimated residual value, over their estimated useful life on a straight-line basis. We depreciate the cost of vessels held under capital lease over the term of the lease. No charge is made for depreciation of vessels under construction until they are delivered.
 
Interest expense relates to vessel specific debt facilities, corporate debt and capital leases. Interest expense depends 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.
 
Inflation
 
Although inflation has had a moderate impact on our vessel operating expenses and corporate overheads, management does not consider inflation to be a significant risk to direct costs in the current and foreseeable economic environment other than potentially in relation to insurance costs and crew costs. It is anticipated that insurance costs, which have risen considerably over the last three years, may well continue to rise over the next few years. Oil transportation is a specialized area and the number of vessels is increasing. There will therefore be an increased demand for qualified crew and this has and will continue to put inflationary pressure on crew costs. However, 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.
 
Year ended December 31, 2007 compared with the year ended December 31, 2006
 
Total operating revenues and voyage expenses and commission
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2007
   
2006
      $       %  
Voyage charter revenues
    801,546       1,114,531       (312,985 )     (28 )
Time charter revenues
    432,813       352,575       80,238       23  
Bareboat charter revenues
    57,052       85,969       (28,917 )     (34 )
Other income
    8,516       5,294       3,222       61  
Total operating revenues
    1,299,927       1,558,369       (258,442 )     (17 )

Our vessels are operated under time charters, bareboat charters, voyage charters, pool arrangements and contracts of affreightment, or COAs. Under a time charter, the charterer pays substantially all of the vessel voyage costs which are primarily fuel and port charges. Under a bareboat charter the charterer pays substantially all of the vessel voyage and operating costs. Under a voyage charter, the vessel owner pays such costs. Under contracts of affreightment, the owner carries an agreed upon quantity of cargo over a specified route and time period. Accordingly, charter income from a voyage charter would be greater than that from an equally profitable time charter to take account of the owner’s payment of vessel voyage costs, and charter income from a bareboat charter would be lower than that from an equally profitable time charter, to take account of the charterer’s payment of vessel operating costs.

 
42
 


Total operating revenues decreased in 2007 primarily because of a decrease in voyage charter revenues. Voyage charter revenues decreased primarily due to the following reasons:
 
·  
A reduction in trading days due to the sale of three vessels in 2006 and three vessels in 2007, which resulted in a decrease of $68.4 million in 2007.
 
·  
Switching  the employment of four VLCCs from the spot voyage market to time charters in the second quarter of 2006 resulted in a decrease of $49.2 million in 2007.
 
·  
The Aframax Front Puffin stopped trading at the end of 2006 when conversion into an FPSO commenced. Front Puffin spot voyage revenue in 2006 was $2.8 million.
 
·  
The sale of a single hull Suezmax in March 2007 and the delivery of three single hull Suezmaxes to shipyards for conversion to heavy lift vessels during 2007. The single hull Suezmax Front Sunda was delivered for conversion in 2006. These transactions resulted in a decrease in spot voyage revenues of $33.0 million.
 
·  
During 2007, seven vessels (three Suezmax double hulls, one Suezmax single hull and three VLCC double hulls) changed employment from spot voyage to time charter resulting in a decrease in voyage charter revenues of $71.2 million.
 
·  
TCE rates decreased in 2007 compared to 2006 contributing to a general decrease in voyage charter revenues.  The TCE earned in 2007 for our double hull Suezmaxes was approximately $41,100 compared to $49,900 in 2006 and single hull Suezmax average daily rate earned in 2007 was $22,900 compared to $29,100 in 2006.  The average daily rate earned for our double hull VLCCs in 2007 was $48,200 compared to $67,600 in 2006 and the single hull VLCC average daily rate earned in 2007 was $37,600 compared to $54,100 in 2006. The rates earned highlight a continuing differential in market rates for single and double hull vessels.
 
Time charter revenues have increased primarily due to the following reasons:
 
·  
Our OBO’s were fixed on new time charters with higher prevailing rates resulting in an increase in revenues of $25.0 million.
 
·  
During 2007, we chartered in two VLCCs and subsequently chartered these vessels out on time charters which contributed to an increase in revenues of $17.6 million.
 
·  
Two VLCCs which were previously employed on bareboat charters and four VLCCs which were previously employed on spot voyages began time charters during the first six months of 2006 resulting in an increase in time charter revenues of $20.4 million.  The earnings on these time charters are based on the vessels’ actual earnings by the charterer.
 
·  
During the year, seven vessels changed employment from spot voyage to time charter resulting in an increase in time charter revenues of $25.2 million.
 
Bareboat charter revenues have decreased primarily due to the change in employment of four vessels during 2006 to voyage and time charter. We also sold a vessel in 2006 that was previously employed on a bareboat charter.

Voyage charter revenues include pool revenues. Certain pools are responsible for paying voyage expenses and distribute net pool revenues to the participants while other pools require the participants to pay and account for voyage expenses, and distribute gross pool revenues to the participants such that the participants’ resulting net pool revenues are equal to net pool revenues calculated according to the agreed formula. Our pool earnings in 2007 allocated on a gross basis were $34.4 million (2006: 131.1 million).
 

 
43
 


 
In order to compare vessels trading under different types of charters, it is standard industry practice to measure the revenue performance of a vessel in terms of time charter equivalent revenue, or TCE. Total TCE is the sum of time charter, voyage charter and bareboat charter revenues, less voyage expenses. Total TCE, which is not covered by generally accepted accounting principles, or GAAP, provides more meaningful information to us than total operating revenues, the most directly comparable GAAP measure. Average daily TCEs are also widely used by investors and analysts in the shipping industry for comparing financial performance between companies and to industry averages. Other companies may calculate TCE using a different method. A summary of average time charter equivalent earnings per day for our fleet is as follows:
 
 (in $ per day)
 
2007
   
2006
   
2005
   
2004
   
2003
 
VLCC
    45,700       56,800       57,400       78,000       42,300  
Suezmax
    33,000       37,800       40,300       57,900       33,900  
Suezmax OBO
    39,700       31,700       34,900       27,900       31,900  

 
Gain on sale of assets
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2007
   
2006
    $     %  
Gain on sale of assets
    118,168       95,655       22,513       24  

 
The gain on sale of assets in 2007 comprises gains of $21.3 million and $6.2 million from the sale of the single hull vessels Front Transporter and Front Horizon, respectively, a gain $60.7 million from the delivery of two converted heavylift vessels and gains of $13.3 million and $16.6 million resulting from the termination of the long-term charter party agreements for Front Vanadis and Front Birch, respectively.

The gain on sale of assets in 2006 includes gains of $11.0 million, $58.9 million and $14.3 million relating to the sales of Golden Stream, Front Beijing and Front Tobago, respectively. In addition, the Company sold two newbuilding contracts for a profit of $9.8 million
 
Ship operating expenses
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2007
   
2006
      $       %  
Suezmax OBO
    24,064       32,111       (8,047 )     (25 )
Suezmax
    52,642       63,068       (10,426 )     (17 )
VLCC
    119,552       97,274       22,278       23  
Aframax
    -       2,182       (2,182 )     (100 )
      196,258       194,635       1,623       1  
 
Ship operating expenses are the direct costs associated with running a vessel and include crew costs, vessel supplies, repairs and maintenance, drydockings, lubricating oils and insurance.
 
OBO operating costs have decreased primarily as a result of drydocking related costs. In 2007, one OBO was drydocked compared with six OBOs in 2006 resulting in an overall decrease in drydocking, repairs and maintenance and spares of $8.2 million.

Suezmax operating costs have decreased primarily as a result of the following:
 
·  
In 2007, five Suezmaxes (two single hull and three double hull) were drydocked compared with seven Suezmaxes (five single hulls and two double hulls) in 2006 which resulted in a decrease of $7.5 million in drydock related expenses.
 

 
44
 

·  
We sold a single hull Suezmax in March 2007 and delivered three single hull Suezmaxes to shipyards for conversion to heavy lift vessels during 2007. All of these vessels reported a full year’s operating expenses in 2006 which resulted in a decrease of $4.0 million in 2007. The single hull Suezmax Front Sunda was delivered for conversion in 2006 resulting in a decrease in operating costs of $2.1 million in 2007.
 
VLCC operating costs have increased primarily as a result of the following:
 
·  
In 2007, nine VLCCs were drydocked (six double hulls and three single hulls) compared to six in 2006 (three double hulls and three single hulls). Operating costs for the vessels drydocked in 2007 increased by $22.7 million of which, $15.1 million relates to single hull vessels and $7.6 million relates to double hull vessels. This increase is partially offset by a decrease in operating costs of $9.5 million for vessels drydocked in 2006.
 
·  
In early 2006, four vessels that were on bareboat charters were redelivered and subsequently chartered out on time charters which contributed to an increase in operating expenses of $3.3 million in 2007.
 
·  
One VLCC was delivered in the third quarter of 2006 resulting in an increase in costs of $1.5 million in 2007.
 
·  
We sold three VLCCs during 2006 which has resulted in a decrease in operating costs of $5.3 million. We sold another VLCC in June 2007 which has resulted in only six months of operating costs being reported in 2007 compared to a full year in 2006 which contributed to a $1.3 million decrease in operating costs
 

In 2006, we purchased an Aframax vessel, Front Puffin, which commenced conversion to an FPSO vessel in the fourth quarter of 2006. We subsequently sold our FPSO activities in 2007 and therefore no longer report any associated operating costs.

 
Profit share expense
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2007
   
2006
      $       %  
Profit share expense
    37,279       —       37,279       —  

 
Profit share expense relates to the vessels leased from Ship Finance and is calculated as 20% of TCE in excess of daily base charter hire. Profit share expense of $37.3 million recorded in the income statement excludes $15.2 million relating to the first quarter, which was eliminated on consolidation of Ship Finance. The full amount of profit share expense in 2006 of $78.9 million was eliminated on consolidation. The decrease compared in 2007 compared with 2006 was due to the lower TCE rates as described above.
 
Charterhire expenses
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2007
   
2006
      $       %  
Charterhire expenses
    56,868       24,923       31,945       128  
                                 
Number of vessels chartered in and accounted for
as operating leases:
    2007         2006      
 
   
 
 
VLCC
     3        1                  
Suezmax
     6        1                  
       9        2                  

 

 
45
 

The increase in charterhire expense in 2007 is due to nine vessels under operating lease in 2007 compared to two vessels under operating lease in 2006.
 
Administrative expenses
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2007
   
2006
      $     %  
Administrative expenses
    36,410       32,143       4,267       13  
 
The increase in administrative expenses in 2007 compared to 2006 is primarily due to an increase of $6.4 million in salary costs as the result of an increase in total employees and performance related bonuses, which has been offset by a reduction in audit costs and other professional fees following the implementation of the requirements of the Sarbanes-Oxley Act of 2002 in 2006.
 
Interest income
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2007
   
2006
    $       %  
Interest income
    54,316       47,612       6,704       14  
 
Interest income has increased primarily as a result of an increase in average cash balances held during the year resulting from the sale of investments and vessels, which has been offset by a decrease in interest rates.
 
Interest expense
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2007
   
2006
    $     %  
Interest expense
    204,535       200,396       4,139       2  

 
The Company no longer consolidates the results of Ship Finance from the end of March 2007 and as a result the bank interest expense incurred by Ship Finance has significantly decreased. This decrease in bank interest has been offset by an increase in lease interest expense. This lease interest expense was eliminated in the first quarter of 2007.
 
Equity earnings of unconsolidated subsidiaries and associated companies
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2007
   
2006
      $       %  
Share of results of associated companies
    573       1,118       (545 )     (49 )

As of December 31, 2007, we account for five investees (2006: seven) under the equity method. During 2007, we sold our entire investment in International Maritime Exchange ASA (“IMAREX”) resulting in a gain of $41.9 million, which has been reported in gain on sale of securities. As a result of the deconsolidation of Ship Finance, Front Shadow is no longer reported by the Company.
 
Other
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2007
   
2006
    $       %  
Foreign currency exchange gains
    3,312       1,056       2,256       214  
Mark to market adjustments for financial derivatives
    3,541       (2,735 )     6,276       —  
Gains and losses from freight forward agreements
    (11 )     (8,162 )     (8,151 )     —  
Dividends received
    533       13,317       (12,784 )     —  
Gain on sale of securities
    122,120       9,782       112,338       —  
Other financial items, net
    4,951       (3,663 )     8,614       —  

 

 
46
 


 
The favorable movement in marked to market adjustments relates primarily to interest rate swaps held by Ship Finance.
 
Dividend income in 2006 was primarily dividends received on the shares of General Maritime Corporation, or Genmar, that we held.
 
The gain on sale of securities in 2007 comprises the gains arising on the sale of our remaining shares in Dockwise, IMAREX and Sea Production of $48.7 million, $41.9 million and $31.2 million, respectively. The 2006 gain on sale of securities represents the gain on sale of the remainder of our holding in General Maritime shares.
 
Minority interest
 
Minority interest represents minority investors’ interests in the net income of Ship Finance for the first quarter of 2007 based on the 88.9% of the shares of Ship finance held by the minority investors. There is no minority interest expense after March 31, 2007 as we no longer consolidate the results of Ship Finance. The minority interest expense in 2006 is also based on 88.9% but is for the full year.
 
Gain on issuance of shares by associate
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2007
   
2006
      $       %  
Gain on issuance of shares by associate
    83,566       —       83,566       —  

 
The gain on issuance of shares comprises a gain on the issuance of shares in Sea Production of $39.8 million and a gain on the issuance of shares in Sealift of $43.7 million in connection with the business combination with Dockwise. Based on the information currently available to us, we do not expect to record any gains on the issuance of shares by associates in 2008.
 
Discontinued operations
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2007
   
2006
    $       %  
Discontinued operations
    5,442       13,514       (8,072)       (60)  

 
Discontinued operations in 2007 and 2006 are the results of the containerships and jack up rig of Ship Finance. We no longer consolidate the results of Ship Finance following the spin off in March 2007.
 
Year ended December 31, 2006 compared with the year ended December 31, 2005
 
Total operating revenues and voyage expenses and commission
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2006
   
2005
      $     %  
Voyage charter revenues
    1,114,531       1,152,245       (37,714 )     (3 )
Time charter revenues
    352,575       197,291       155,284       79  
Bareboat charter revenues
    85,969       142,562       (56,593 )     (40 )
Other income
    5,294       3,877       1,417       37  
Total operating revenues
    1,558,369       1,495,975       62,394       4  

 

 
47
 


 
Total operating revenues were relatively stable between 2005 and 2006 due to similar market conditions. During 2006 there was a change in fleet employment from the spot market to the time charter market in order to reduce exposure to the spot market, especially in the case of non-double hull vessels. The change in fleet employment has resulted in an increase in total time charter revenues and a decrease in voyage charter revenues. See the table above “Summary of Fleet Employment” for more details of our fleet employment during 2006.  Bareboat charter revenues declined due to the redelivery from bareboat charters of four vessels in the first and second quarters of 2006.
 
Voyage charter revenues include pool revenues. Certain pools are responsible for paying voyage expenses and distribute net pool revenues to the participants while other pools require the participants to pay and account for voyage expenses, and distribute gross pool revenues to the participants such that the participants’ resulting net pool revenues are equal to net pool revenues calculated according to the agreed formula. An analysis of our pool revenues included in voyage revenues is as follows:
 
(in thousands of $)
 
2006
   
2005
 
Pool earnings allocated on gross basis
    131,099       128,726  
Pool earnings allocated on net basis
    —       25,015  
Total pool earnings
    131,099       153,741  
 
Ship operating expenses
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2006
   
2005
      $       %  
Suezmax OBO
    32,111       17,658       14,453       82  
Suezmax
    63,068       53,935       9,133       17  
VLCC
    97,274       75,931       21,343       28  
Aframax
    2,182       —       2,182       —  
      194,635       147,524       47,111       32  

Ship operating expenses are the direct costs associated with running a vessel and include crew costs, vessel supplies, repairs and maintenance, drydockings, lubricating oils and insurance. Overall, ship operating expenses have increased in 2006 compared with 2005 due to fleet changes and increased drydockings.
 
Major movements between 2006 and 2005 are as follows:
 
·  
An increase in drydockings during the year from 10 vessels in 2005 to 19 vessels in 2006.  This resulted in an operating expense increase of $27.8 million.
 
·  
Costs associated with the newly acquired Aframax vessel Front Puffin were $2.1 million before we started the conversion of this vessel to an FPSO vessel.
 
·  
Increased commercial management fees of $3.4 million in relation to certain charters beginning in 2006.
 
·  
General increase of $15.9 million due to vessels acquired and delivered from bareboat during 2006.
 
·  
Vessel sales did not result in a significant decline in ship operating expenses due to vessels sold during the year being primarily bareboat vessels.
 

 
48
 

Charterhire expenses
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2006
   
2005
      $       %  
Charterhire expenses
    24,923       11,711       13,212       113  
                                 
Number of vessels chartered in and accounted for
as operating leases:
    2006         2005    
 
   
 
 
VLCC
     1         —                  
Suezmax
     1        1                  
       2        1                  
The increase in charterhire expense in 2006 is due to two vessels under operating lease in 2006 compared to one vessel under operating lease in 2005.
 
Administrative expenses
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2006
   
2005
      $       %  
Administrative expenses
    32,143       21,049       11,094       53  
 
The increase in administrative expenses in 2006 compared to 2005 is primarily due to the following items:
 
·  
$6.0 million due to increased salary costs as the result of an increase in total employees and performance related bonuses,
 
·  
$3.4 million due to an increase in professional fees in relation to corporate transactions and Sarbanes-Oxley section 404 compliance,
 
·  
$0.3 million due to increased rent costs, and
 
·  
$0.7 million due to increased travel costs.
 
Interest income
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2006
   
2005
      $       %  
Interest income
    47,612       40,840       6,772       17  
 
Interest income has increased primarily as a result of an increase in interest earned on bank deposits due to a combination of increased interest rates and an increase in average cash balances held.
 
Interest expense
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2006
   
2005
      $       %  
Interest expense
    200,396       205,937       (5,541)       (3)  
 
Interest expense increased in 2006 compared to 2005 due to rising LIBOR rates on a relatively stable average debt balance. This was partially offset by favorable movements in Ship Finance’s interest rate swaps and lower amortization of deferred charges. In 2005, we had high amortization of deferred charges due to write offs as a result of repayment of debt on vessels sold during the year and the repurchase of Ship Finance 8.5% Senior Notes.
 

 
49
 

Equity earnings of unconsolidated subsidiaries and associated companies
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2006
   
2005
      $       %  
Share of results of associated companies
    1,118       3,379       (2,261)       (67)  

As of December 31, 2006, we account for seven investees (2005: seven) under the equity method. There was an overall decrease in share of results in associated companies because of decreased earnings from Tobago, as, after the sale of this vessel to Ship Finance, we began consolidation of this vessel. Also, we began consolidation of CalPetro Tankers (Bahamas III) Limited in 2006, which resulted in a further decrease. These decreases were partially offset by earnings from the new investee, Front Shadow.
 
Foreign currency exchange gains
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2006
   
2005
    $       %  
Foreign currency exchange gains
    1,056       18,829       (17,773)       (94)  

Our foreign currency exchange gains are principally due to forward currency exchange contracts which are denominated in Yen. As of December 31, 2005 we were party to five Yen denominated forward currency exchange contracts with a notional principal of ¥ 8.7 billion. In the year ended December 31, 2005, we recorded realized gains of $16.7 million in relation to these forward currency exchange contracts. The gains were due to the weakening of the Yen against the U.S. Dollar. All of our Yen denominated forward currency exchange contracts expired during the fourth quarter of 2006.  The gain on these contracts during 2006 was much lower than 2005 due to less movement in the Yen against the U.S. dollar.
 
Other
 
   
Year ended December 31,
   
Change
 
(in thousands of $)
 
2006
   
2005
    $       %  
Mark to market adjustments for financial derivatives
    (2,735 )     16,068       (18,803 )     (117 )
Gains and losses from freight forward agreements
    (8,162 )     (1,569 )     (6,593 )     (420 )
Dividends received
    13,317       1,540       11,777       765  
Gain on sale of securities
    9,782       28,035       (18,253 )     (65 )
Other financial items, net
    (3,663 )     1,756       (5,419 )     (309 )

The unfavorable movement in market to market adjustments relates primarily to interest rate swaps held by Ship Finance and is due to new interest rate swaps fixing interest at a higher rate in 2006.
 
Dividend income in 2006 was primarily dividends received on the shares of Genmar that we held.
 
The 2005 gain on sale of securities represents the gain on sale of Golden Ocean and Genmar shares. The 2006 gain on sale of securities represents the gain on sale of the remainder of our holding in General Maritime shares.
 
Minority interest
 
Minority interest represents minority investors’ interests in the net income of Ship Finance. As of December 31, 2006 minority investors owned 88.9% (2005: 83.83%) of the shares of Ship Finance.
 
  Recent accounting pronouncements
 
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard No. 157, Fair Value Measurements (“FAS 157”). FAS 157 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value

 
50
 

measurement under other accounting pronouncements that require or permit fair value measurements. Accordingly, this statement does not require any new fair value measurements. FAS 157 is effective for fiscal years beginning after December 15, 2007 and interim periods within such years. In February 2008, the FASB issued a staff position that delays the effective date of FAS 157 for all nonfinancial assets and liabilities except for those recognised or disclosed at least annually with the revised effective date being fiscal years beginning after November 15, 2008. Adoption of FAS 157 is not expected to have a material effect on the Company’s consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standard No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115 (“FAS 159”). FAS 159 allows  entities to choose to measure many financial instruments and certain other items at fair value, with unrealised gains and losses related to these financial instruments being reported in earnings at each subsequent reporting date. FAS 159 is effective for fiscal years beginning after November 15, 2007. Adoption of FAS 159 on January 1, 2008 is not expected to have a material effect on the Company’s consolidated financial statements.  

In December 2007, the FASB issued Statement of Financial Accounting Standard No. 141 (revised 2007), Business Combinations (“FAS 141(R)”). FAS 141(R) establishes the principles and requirements for how an acquirer recognises and measures the identifiable assets acquired, the liabilities assumed, the noncontrolling interest in the acquiree and the goodwill acquired. FAS 141(R) requires the acquirer in a business combination to:
 
·  
recognise 100% of the fair values of acquired assets, including goodwill, and assumed liabilities even if the acquirer has not acquired 100% of the target entity
 
·  
apply fair value to contingent consideration arrangements at the acquisition date
 
·  
expense transaction costs as incurred rather than including as part of the fair value of an acquirer’s interest
 
·  
fair value certain pre-acquisition contingencies such as environmental or legal issues
 
·  
limit the accrual of the costs for a restructuring plan in purchase accounting
 

FAS 141(R) is effective prospectively to business combinations where the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption is not permitted. Adoption of FAS 141(R) is not expected to have a material effect on the Company’s consolidated financial statements.

  In December 2007, the FASB issued Statement of Financial Accounting Standard  No. 160, Non controlling Interest in Consolidated Financial Statements, an amendment of ARB No. 51 (“FAS 160”). FAS 160 clarifies the classification of non controlling interests (i.e. minority owners’ interests in subsidiaries) in consolidated balance sheets and the accounting for and reporting of transactions between the reporting entity and holders of such non controlling interests. FAS 160 requires that:
 
·  
non controlling interests are reported as an element of consolidated equity, thereby removing the current practice of classifying minority interest within the mezzanine section of the balance sheet
 
·  
reported net income will consist of the total income of all consolidated subsidiaries, with separate disclosure on the face of the income statement of the split of that income between the controlling and non controlling interests
 
·  
movements in the non controlling ownership interest amount will be accounted for as equity transactions. If the controlling interest loses control and deconsolidates a subsidiary, full gain or loss on the transition will be recognised
 

 
51
 

SFAS 160 is effective prospectively for fiscal years beginning after December 15, 2008. Early adoption is not permitted. The following provisions are required to be adopted retrospectively:
 
·  
non controlling interests are required to be reclassified from the mezzanine section to equity in the consolidated balance sheet
 
·  
consolidated net income must be recast to include net income attributable to both controlling and non controlling interests.
 
Adoption of FAS 160 is not expected to have a material effect on the Company’s consolidated financial statements.
 
Liquidity and Capital Resources
 
Liquidity
 
We operate in a capital intensive industry and have historically financed our purchase of tankers and other capital expenditures through a combination of cash generated from operations, equity capital and borrowings from commercial banks. Our ability to generate adequate cash flows on a short and medium term basis depends substantially on the trading performance of our vessels in the market.  Market rates for charters of our vessels have been volatile historically.  Periodic adjustments to the supply of and demand for oil tankers causes the industry to be cyclical in nature.  We expect continued volatility in market rates for our vessels in the foreseeable future with a consequent effect on our short and medium term liquidity.
 
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 some balances held in British Pounds and Norwegian Kroner.
 
Our short-term liquidity requirements relate to servicing our debt, payment of operating costs, lease payments for our chartered in fleet, funding working capital requirements and maintaining cash reserves against fluctuations in operating cash flows. Sources of short-term liquidity include cash balances, restricted cash balances, short-term investments and receipts from our customers. Revenues from time charters and bareboat charters are generally received monthly or fortnightly in advance while revenues from voyage charters are received upon completion of the voyage.
 
As of December 31, 2007, we estimated cash breakeven average daily TCE rates of approximately $22,500 for our Suezmax tankers and approximately $31,400 for our VLCCs. These are the daily rates our vessels must earn to cover payment of budgeted operating costs (including corporate overheads), estimated interest and scheduled loan principal repayments.  These rates do not take into account loan balloon repayments at maturity, which we expect to refinance with new loans.
 
Our medium and long-term liquidity requirements include funding the equity portion of investments in new or replacement vessels, repayment of long-term debt balances and funding any payments we may be required to make due to lessor put options on certain vessels we charter in.  Sources of funding our long-term liquidity requirements include new loans or equity issues, vessel sales and sale and leaseback arrangements.
 
As of December 31, 2007, 2006 and 2005, we had cash and cash equivalents of $168.4 million, $197.2 million and $92.8 million, respectively. As of December 31, 2007, 2006 and 2005, we had restricted cash balances of $651.4 million, $677.5 million and $636.8 million, respectively. Our restricted cash balances contribute to our total short and medium term liquidity as they are used to fund payment of certain loans and lease payments which would otherwise be paid out of our cash balances.  $226.7 million of our restricted cash as of December 31, 2007 serves to support our obligations to make charterhire payments to Ship Finance, and is subject to adjustment based on the number of charters that we are a party to.  We are entitled to use these funds only (1) to make charterhire payments (including profit sharing payments) to Ship Finance and (2) for reasonable working capital purposes to meet short term voyage expenses.
 

 
52
 


 
At December 31, 2007, ITC’s assets included $422.8 million (2006: $390.9 million) of restricted cash deposits which are held for the benefit of the holders of the Notes issued on behalf of ITC subsidiaries. This restricted cash also included deposits, which can only be used to meet liabilities under the lease agreements
 
We currently have eight VLCC and eight Suezmax vessels under construction with an aggregate contract cost of approximately $1.5 billion. We paid $35.1 million in newbuilding installments in 2007 in respect of these newbuilding contracts and have paid $31.6 million so far in 2008. The remaining installments of approximately $1.4 billion will be financed through a combination of bank loans, other financing sources and existing liquidity. In addition to the newbuilding commitment, we also have commitments with respect to the delivery of two heavy lift vessels to Sealift. The remaining heavy lift conversion commitments as of December 31, 2007 are approximately $63 million and are likely to be financed from the proceeds from the sale of the vessels to Sealift. Of the total sales proceeds from this transaction, $80 million seller’s credit has not yet been received and is payable in two equal installments upon delivery of the remaining two converted vessels.
 
During the year ended December 31, 2007 we paid total cash dividends of $656.0 million.  In the first quarter of 2008, we declared a cash dividend of $2.00 per share for the fourth quarter of 2007 representing a total cash payment of $149.7 million.
 
Borrowing activities
 
In October 2004, we entered into a $20.0 million secured term loan facility. The facility bore interest at LIBOR plus a margin. The loan was repaid in full in February 2007.

In January 2005, we entered into a $20 million secured term loan facility. The proceeds were used to finance the acquisition of a 1988 built Suezmax tanker. The facility bore interest at LIBOR plus a margin of 0.80%. The facility was repaid in full in July 2007.
 
In December 2005, we entered into a $69.0 million loan facility with DnB NOR Bank ASA. The facility bore interest at LIBOR plus 120 basis points secured by certain marketable securities and cash deposits. The facility was repaid in full in August 2006.
 
In June 2006, we entered into an $80.0 million secured term loan facility. The proceeds were used to finance the acquisition of a 2006 built VLCC tanker. The facility bears interest at LIBOR plus a margin of 0.50%. The facility is due in June 2008, and is expected to be refinanced. The facility contains a minimum value covenant and covenants that require the Company to maintain a minimum level of free cash and positive working capital.
 
In September 2006, we entered into a $24.0 million secured term loan facility. The proceeds were used to finance the acquisition of a 1990 built Aframax tanker. The facility bore interest at LIBOR plus a margin of 0.90%. The facility was repaid in April 2007.
 
In 2006, Ship Finance repurchased and cancelled 8.5%, senior notes with a total principal amount of $8.0 million. In February 2006, Ship Finance entered into a total return bond swap line with a bank in which the bank buys their senior notes, and they compensate the bank for its funding cost plus a margin.  Through this arrangement, Ship Finance is 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. As at December 31, 2006, Ship Finance had $449.1 million outstanding on its issue in 2003 of $580.0 million 8.5% Senior Notes due 2013.
 
In February 2005, Ship Finance refinanced their 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, Ship Finance 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
 

 
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value covenant, which requires that the aggregate value of Ship Finance vessels secured as collateral exceed 140% of the outstanding amount of the facility. The new facility also contains covenants that require Ship Finance to maintain certain minimum levels of free cash, working capital and equity ratios.
 
In June 2005, Ship Finance 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 Ship Finance 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 Ship Finance to maintain certain minimum levels of free cash, working capital and equity ratios.
 
In April 2006, five vessel owning subsidiaries of Ship Finance entered into a $210 million secured term loan facility with a syndicate of banks. The facility is non recourse to Ship Finance, 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 Ship Finance’s 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 Ship Finance 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, Ship Finance’s 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 as the holding company only guarantees $10 million of this debt. The facility contains covenants that require Ship Finance to maintain certain minimum levels of free cash, working capital and equity ratios.
 
In June 2006, Ship Finance 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, Ship Finance’s 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 dry bulk carrier.  At December 31, 2006, the outstanding amount under this facility was $22.7 million.  Front Shadow is accounted for using the equity method.  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 as the holding company guarantees $2.1 million of this debt.
 

 
54
 

As of December 31, 2007, we were in compliance with all loan covenants.
 
Acquisitions and Disposals
 
Ship Finance
 
In 2004, we distributed 48.2% of the common shares of Ship Finance to our Ordinary Shareholders. On January 28, 2005 and February 22, 2005 our Board approved further spin-offs of the shares in Ship Finance. On February 18, 2005, each of our shareholders received one share of Ship Finance for every four shares of ours held and on March 24, 2005 each of our shareholders received one share of Ship Finance for every ten shares of ours held. Following these transactions our shareholding in Ship Finance was approximately 16.2% at December 31, 2005.
 
On February 17, 2006, our Board approved a further spin-off of the shares in Ship Finance. On March 20, 2006, each of our shareholders received one share of Ship Finance for every twenty shares of ours held. Following this transaction our shareholding in Ship Finance was approximately 11.1% at December 31, 2006.
 
On February 27, 2007, our Board approved a final spin-off of our remaining shares in Ship Finance.  On March 22, 2007, each of our shareholders received three shares of Ship Finance for every twenty-eight shares of ours held.  All of these share distributions have had no effect on our liquidity.
 
Golden Ocean
 
In the fourth quarter of 2004, the Company completed the non pro-rata spin off of its subsidiary Golden Ocean. In connection with the spin off, total cash of $32.1 million was paid to non qualifying U.S. shareholders who received a cash equivalent of $1.80 ($0.60 per Golden Ocean share) per Frontline share held. The spin off resulted in the recognition of a gain of $99.5 million. We retained 10.7% of the shares of Golden Ocean as of December 31, 2004. These shares were subsequently sold in February 2005 for proceeds of NOK 100.5 million, equivalent to approximately $16.5 million.
 
In 2005, Golden Ocean exercised its options to acquire from us the shares in two single purpose companies each owing a newbuilding contract for a Panamax vessel. These options were at a price equal to our costs, including installments paid to date, plus our funding expenses. These options were exercised at a total price of $16.8 million.
 
Independent Tankers Corporation
 
On July 1, 2003, we purchased a call option for $10.0 million to acquire all of the shares of ITC from Hemen for a total consideration of $4.0 million plus 4% interest per year.  On May 27, 2004 we exercised this purchase option and paid $14.1 million.
 
Chevron redelivered the Suezmax vessel Front Voyager to us in April 2006 and pursuant to the terms of the charter paid us a termination fee in the amount of $5.05 million.
 
General Maritime
 
As of January 1, 2005 we held a total of 1,584,700 shares in Gen mar . During 2005 we acquired a total of 5,209,000 Genmar shares and sold 2,933,700 Genmar shares and as of December 31, 2005 held 3,860,000 Genmar shares which was equivalent to 9.98% of their total shares outstanding.
 
In August 2006, we sold our entire holding of 3,860,000 shares in Genmar for $40 per share.
 
Tsakos Shipping and Trading SA
 
In March 2007, we sold our entire holding of 32,000 shares in Tsakos for approximately $1.5 million.
 

 
55
 

Sealift
 
In January 2007, we subscribed for 30.0 million shares issued by Sealift in a private placement at a cost of $60.0 million.  In May 2007, Sealift completed the combination of its businesses with the Dockwise group of companies. As part of the transaction, Sealift completed another private placement of 39.8 million shares and Frontline subscribed for five million of these additional shares.  Sealift also issued 94.1 million shares to the former Dockwise shareholders.  After completion of this transaction Frontline owns 17.1% of Sealift. In October 2007, we sold our entire holdings of 34,976,500 shares in Dockwise for a gross price of NOK 25 per share, generating net proceeds of approximately $157.0 million.
 
Sea Production
 
In February 2007, we subscribed for approximately 28% of the equity issued in a private placement by Sea Production at a cost of $51 million. In June 2007, we sold our entire holding of 25,500,000 shares in Sea Production for a net price of NOK 15.75 per share, equivalent to approximately $67.0 million.
 
International Maritime Exchange ASA
 
In November 2007, we sold our entire holdings of 1,714,544 shares in International Maritime Exchange ASA (“IMAREX”) for a price of NOK 160 per share, generating proceeds of $50.5 million.
 
Navig8 Limited
 
In February 2008, we invested $20.0 million in Navig8 against the issue of new share capital representing approximately 15.8% of the company.
 
Overseas Shipholding Group, Inc.
 
In March 2008, we purchased a forward contract for 1,366,600 shares in OSG, corresponding to 4.4% of the total outstanding shares in OSG, for $92.2 million, which will be paid on the settlement date of May 29, 2008.
 
Equity
 
During 2005, Ship Finance repurchased and cancelled 1,757,100 of its common shares. The shares were repurchased at an average price of $18.81 for a total amount of $33.1 million.
 
In January 2006, Ship Finance repurchased and cancelled an additional 400,000 of its common shares. The shares were repurchased at an average price of $18.03 for a total amount of $7.2 million, which resulted in an increase in Frontline’s shareholding from 16.2% to 16.3%.
 
Derivative Activities
 
Ship Finance used financial instruments to reduce the risk associated with fluctuations in interest rates. Ship Finance had a portfolio of interest rate swaps that swap floating rate interest to fixed rate, which from a financial perspective hedge interest rate exposure. As at December 31, 2006 Ship Finance’s interest rate swap arrangements effectively fix interest rate exposure on $738.7 million of floating rate debt. These interest rate swap agreements expire between August 2008 and May 2019. We no longer consolidate Ship Finance as March 31, 2007 and do not report their derivative activities as of December 31, 2007. As of December 31, 2007, we do not hold any financial instruments for speculative or trading purposes. In 2008, we have entered a limited number of Forward Freight Agreements, or FFAs, with an objective to utilize them as economic hedging instruments that reduce our exposure to changes in the spot market rates earned by some of our vessels or for trading purposes to take advantage of short term fluctuations in the market. As of March 31, 2008 none of the FFAs have qualified as cash flow hedges for accounting purposes and are recorded in the balance sheet at fair value of $1.9 million. In the first quarter of 2008, realized gains of $0.4 million have been recorded in the income statement. The change in fair value during the period was minimal.
 

 
56
 


 
Tabular disclosure of contractual obligations
 
At December 31 2007, we had the following contractual obligations and commitments:
 
   
Payment due by period
 
(In thousands of $)
 
Less than
 1 year
   
1 – 3 years
   
3 – 5 years
   
After 5 years
   
Total
 
Serial notes (6.5% to 6.68%)
    10,800       6,300       -       -       17,100  
Term notes (7.84% to 8.04%)
    5,765       18,715       37,905       302,475       364,860  
Term notes (8.52%)
    -       1,174       1,640       8,514       11,328  
Other long-term debt
    80,246       -       -       -       80,246  
Operating lease obligations
    38,857       69,853       36,586       5,928       151,224  
Capital lease obligations
    345,231       903,456       584,514       1,726,150       3,559,351  
Heavylift commitments
    49,538       -       -       -       49,538  
Newbuilding commitments
    243,390       636,798       -       -       880,188  
Total
    773,827       1,636,296       660,645       2,043,067       5,113,835  
                                         
The newbuilding commitments as of December 31, 2007 consist of four VLCC and eight Suezmax vessels.
 
As of December 31, 2007, the Company leased in 56 vessels on long-term time charters and bareboat charters from third parties and related parties.  Three of these leases are classified as operating leases and 53 as capital leases.   With the exception of the Company’s long-term leases with Ship Finance, the Company’s long-term leases of vessels generally contain optional renewal periods and purchase and put options.

 
Off balance sheet financing
 
Charter hire payments to third parties for certain contracted-in vessels are accounted for as operating leases. We are also committed to make rental payments under operating leases for office premises. The future minimum rental payments under our non-cancellable operating leases are disclosed above in “Tabular disclosure of contractual obligations”.
 
Forward-looking information discussed in this Item 5 includes assumptions, expectations, projections, intentions and beliefs about future events. These statements are intended as “forward-looking statements.” We caution that assumptions, expectations, projections, intentions and beliefs about future events may and often do vary from actual results and the differences can be material. Please see “Cautionary Statement Regarding Forward-Looking Statements” in this Report.
 
Safe harbor

Forward-looking information discussed in this Item 5 includes assumptions, expectations, projections, intentions and beliefs about future events. These statements are intended as “forward-looking statements.” We caution that assumptions, expectations, projections, intentions and beliefs about future events may and often do vary from actual results and the differences can be material. Please see “Cautionary Statement Regarding Forward-Looking Statements” in this report.

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, Frontline Management AS, who are responsible for overseeing our management.
 

 
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Name
Age
Position
 
John Fredriksen
63
Chairman, Chief Executive Officer, President and  Director
Katherine Fredriksen
24
Director
Kate Blankenship
43
Director and Audit Committee Chairman
Frixos Savvides
56
Director and Audit Committee member
Bj ø rn Sjaastad
50
Chief Executive Officer of Frontline Management AS
Inger M. Klemp
45
Chief Financial Officer of Frontline Management AS

 
Certain biographical information about each of our directors and executive officers is set forth below.
 
John Fredriksen has been the Chairman of the Board, Chief Executive Officer, President and a director of the Company since November 3, 1997. He was previously the Chairman and Chief Executive Officer of Old Frontline. Mr. Fredriksen has served for over nine years as a director of SeaTankers Management Co. Ltd, or SeaTankers, a ship operating company and an affiliate of the Company’s principal shareholder. Mr. Fredriksen indirectly controls Hemen. Mr. Fredriksen is a director of and indirectly controls Golar LNG Limited, a Bermuda company listed on the Oslo Stock Exchange and the NASDAQ National Market and has been a director of Golden Ocean, a Bermuda company on the Oslo Stock Exchange, since November 2004. Mr. Fredriksen has served as a director and the chairman of Seadrill Limited, a Bermuda company listed on the Oslo Stock Exchange, since May 2005.
 
Katherine Fredriksen has been a director since February, 2008. Ms. Fredriksen is employed at the oil trading company Arcadia Petroleum and is a graduate of the Wang Handels Gymnas in Norway and has studied at the European Business School in London. Ms. Fredriksen is the daughter of Mr. John Fredriksen, the Chairman, CEO and a principal shareholder of Frontline
 
Kate Blankenship has been a director since August, 2003. Mrs. Blankenship joined the Company in 1994 and served as the Company’s Chief Accounting Officer and Company Secretary until October 2005. Mrs. Blankenship served as Chief Financial Officer of Knightsbridge Tankers Limited from April 2000 to September 2007 and Secretary of Knightsbridge from December 2000 to March 2007. Mrs. Blankenship has been a Director of Ship Finance since October 2003.  Mrs. Blankenship has served as a director of Golar LNG Limited since July 2003 and Golden Ocean since November 2004. Mrs. Blankenship has served as a director of Seadrill Limited since May 2005. She is a member of the Institute of Chartered Accountants in England and Wales.
 
Frixos Savvides a Chartered Accountant, is a Fellow of the Institute of Chartered Accountants of England and Wales. He was the founder of the audit firm PKF Savvides and Partners in Cyprus and held the position of Managing Partner until 1999 when he became Minister of Health of the Republic of Cyprus. He held this office until 2003. Mr. Savvides is currently a senior independent business consultant and holds several Board positions. Mr. Savvides was appointed to the Board of Directors of Frontline in July 2005.
 
Bjørn Sjaastad has served as Chief Executive Officer of Frontline Management AS since October 2006.  Mr. Sjaastad was appointed a director of Knightsbridge Tankers Limited in September 2007. From 2004 to 2006 Mr. Sjaastad ran his own consultancy business.  From 1990 to 2004, Mr. Sjaastad was the Chief Executive Officer of Odfjell ASA, a Norwegian based, stock listed, international chemical tanker operator.  From 1981 to 1989 Mr. Sjaastad served as a lending officer of DnB NOR ASA (previously Bergen Bank AS), heading up the banks shipping and offshore department in Bergen.  Mr. Sjaastad has, over the years, been a member of the boards of a range of companies and has also been the President of the Norwegian Shipowners Association.  Please see Item 8.A. “Consolidated Statements and Other Financial Items – Legal Proceedings” for a description of proceedings involving Mr. Sjaastad not involving us. Mr. Sjaastad resigned as Chief Executive Officer on Frontline Management AS on April 2, 2008 and is expected to leave the company before the end of June 2008.
 

 
58
 


 
Inger M. Klemp has served as Chief Financial Officer of Frontline Management AS since June 1, 2006. Mrs. Klemp has served as Chief Financial Officer of Knightsbridge Tankers Limited since September 2007. Mrs. Klemp served as Vice President Finance from August 2001 until she was promoted in May 2006. Mrs. Klemp graduated as MSc in Business and Economics from the Norwegian School of Management (BI) in 1986. Mrs. Klemp served as Assistant Director Finance in Color Group ASA from 1998 to 2001 and as Group Financial Manager in Color Line ASA from 1992 to 1998, a Norwegian based cruise operator which was stock listed up to October 1999. From 1989 to 1992 Mrs. Klemp served as Assistant Vice President in Nordea Bank Norge ASA handling structuring and syndication of loan facilities in the international banking market. From 1986 to 1989, Mrs. Klemp served as a lending officer of Fokus Bank ASA.
 
B. COMPENSATION
 
During the year ended December 31, 2007, we paid to our directors and executive officers (six persons) aggregate cash compensation of $1,373,275 and an aggregate amount of $66,104 for pension and retirement benefits.  
 
In addition to cash compensation, during 2007 we also recognized an expense of $0.9 million relating to 100,000 options granted to Bjorn Sjaastad in November 2006.
 
C. BOARD PRACTICES
 
In accordance with our Bye-laws the number of Directors shall be such number not less than two as our shareholders 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 currently have four Directors.
 
We currently have an audit committee, which is responsible for overseeing the quality and integrity of our financial statements and its accounting, auditing and financial reporting practices, our compliance with legal and regulatory requirements, the independent auditor’s qualifications, independence and performance and our internal audit function. Our audit committee consists of two members, Mr. Savvides and Mrs. Blankenship.
 
In lieu of a compensation committee comprised of independent directors, our Board of Directors is responsible for establishing the executive officers’ compensation and benefits.  In lieu of a nomination committee comprised of independent directors, our Board of Directors is responsible for identifying and recommending potential candidates to become board members and recommending directors for appointment to board committees. 
 
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.
 
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.frontline.bm .
 
D. EMPLOYEES
 
As of December 31, 2007, Frontline and its subsidiaries employed approximately 51 people in their respective offices in Bermuda, London, Oslo and Singapore. We contract with independent ship managers to manage and operate our vessels.
 

 
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E. SHARE OWNERSHIP
 
The beneficial interests of our Directors and officers in the Ordinary Shares of Frontline as of February 29, 2008, were as follows:

 
 
Director or Officer
 
Ordinary
Shares
 of $2.50 each
   
% of Ordinary
 Shares Outstanding
   
Options for Ordinary Shares of $2.50 each
 
                   
John Fredriksen*
    26,079,053       34.85%        100,000   
Katherine Fredriksen
    -       **        30,000   
Kate Blankenship
    2,000       **        30,000   
Frixos Savvides
    -       **        30,000   
Inger M. Klemp
    16,000       **        50,000   
Bjorn Sjaastad***
    43,333       **        141,667   
 
 
 *   Includes Ordinary Shares held by Hemen Holding Ltd. and other companies indirectly controlled by Mr. John Fredriksen.
   
 **    Less than one per cent
   
 ***    The number of Ordinary Shares includes 33,333 options to acquire Ordinary Shares that have vested.
 
The options were granted under the Frontline Ltd Share Option Scheme, which was approved by the board on November 16, 2006.
 
·  
All options, with the exception of 100,000 held by Bjorn Sjaastad, vest over a three year period beginning in February 2009 and expire in February 2013. The exercise price of these options is NOK 243.00, which is reduced by the amount of dividends paid after the date of grant.
 
·  
100,000 of the options held by Bjorn Sjaastad began to vest in November 2007 and expire in November 2011. 33,333 have vested at February 29, 2008. These 100,000 options had an exercise price of NOK 238.50 at the date of grant. This exercise price is reduced by the amount of dividends paid after the date of grant. The exercise price at December 31, 2007 of the options which have vested is NOK162.36.
 
ITEM 7.                      MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 
A. MAJOR SHAREHOLDERS
 
Frontline is indirectly controlled by another corporation (see below). The following table presents certain information as of December 31, 2007 regarding the ownership of our Ordinary Shares with respect to each shareholder, who we know to beneficially own more than five percent of our outstanding Ordinary Shares.
 
 
        Ordinary Shares
 
Owner
Amount
 
 
  %
             
Hemen Holding Ltd. and associated companies (1)
 
26,079,053
   
34.85
%
Barclays Global Investors, NA.
 
5,768,112
   
7.71
%
 
 
(1)
Hemen Holding Ltd is a Cyprus holding company indirectly controlled by Mr. John Fredriksen, who is our Chairman and Chief Executive Officer.
 

 
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In June 2007 and December 2007, Hemen and associated companies held 34.85% of the Company’s Ordinary Shares.
 
As of February 26, 2008, 46,238,888 of our Ordinary Shares were held by 76,302 holders of record in the United States.
 
Our major shareholders have the same voting rights as our other shareholders. No corporation or foreign government owns more than 50% of our outstanding Ordinary Shares. We are not aware of any arrangements, the operation of which may at a subsequent date result in a change in control of Frontline.
 
B. RELATED PARTY TRANSACTIONS
 
In June 2006, Ship Finance purchased the jack-up rig West Ceres from a subsidiary of Seadrill Limited, or Seadrill, for a total consideration of $210.0 million. Upon delivery to Ship Finance, the rig was immediately chartered back to the subsidiary under a 15-year bareboat charter agreement, fully guaranteed by Seadrill, who has options to buy back the rig after three, five, seven, 10, 12 and 15 years.
 
In September 2006, Ship Finance acquired the Panamax Golden Shadow for $28.4 million from Golden Ocean. The vessel was chartered back to Golden Ocean for a period of 10 years.  As part of the agreement, Golden Ocean 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, Ship Finance has 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 August 2007, the Company sold the single hull vessel Front Horizon to a subsidiary of Farahead Holdings Limited for net proceeds of $28.0 million resulting in a net gain of $6.2 million.
 
As of March 31, 2007, the Company is no longer consolidating the results of Ship Finance. The majority of the Company’s leased vessels are leased from Ship Finance and under a Charter Ancillary Agreement, Ship Finance is entitled to a share of the Company’s earnings on these leased vessels. A summary of leasing transactions with Ship Finance during the year ended 31 December 2007 (excluding amounts prior to deconsolidation) is as follows:

(in thousands of $)
 
2007
 
Charterhire paid (principal and interest)
    273,239  
Payments received for termination of leases
    29,343  
Profit share expense
    37,279  
Remaining lease obligation
    1,767,758  


 
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  A summary of net amounts earned and balances with related parties excluding charterhire is as follows:

Net amounts earned from related parties
 
Year ended December 31,
 
(in thousands of $)
 
2007
   
2006
   
2005
 
Seatankers Management Co. Ltd
    582       432       265  
Golar LNG Limited
    284       180       255  
Ship Finance International Limited
    1,525       -       -  
Norse Energy Group ASA (formerly Northern Oil ASA)
    -       -       6  
Golden Ocean Group Limited
    2,099       597       362  
Individual related to John Fredriksen
    -       12       -  
Aktiv Kapital First Investment Ltd
    -       -       10  
Greenwich Holdings Ltd
    69       -       -  
Bryggegata AS
    (1,430 )     (1,021 )     (692 )
Seadrill Limited
    (52 )     545       (24 )
CalPetro Tankers (Bahamas I) Limited
    40       40       38  
CalPetro Tankers (Bahamas II) Limited
    40       40       38  
CalPetro Tankers (Bahamas III) Limited
    -       -       38  
CalPetro Tankers (IOM) Limited
    40       40       38  

Net amounts earned from related parties comprise office rental income and management, technical and commercial advisory, newbuilding supervision, corporate and administrative service income. Net expenses paid to related parties comprise primarily of rental for office space.

Receivables (payables) with related parties
 
As of December 31,
 
(in thousands of $)
 
2007
   
2006
 
Ship Finance International Limited
    (36,718 )     -  
Seatankers  Management Co. Ltd
    (900 )     275  
Golar LNG Limited
    93       (553 )
Northern Offshore Ltd
    13       49  
Golden Ocean Group Limited
    1,160       942  
Seadrill Limited
    73       30  
Greenwich Holdings
    51       -  
CalPetro Tankers (Bahamas I) Limited
    13       10  
CalPetro Tankers (Bahamas II) Limited
    13       10  
CalPetro Tankers (IOM) Limited
    13       10  

Receivables and payables with related parties comprise unpaid management, technical advisory, newbuilding supervision, administrative service and rental charges.  In addition, certain payables and receivables arise when the Company pays an invoice on behalf of a related party and vice versa.  The payable with Ship Finance also includes unpaid profit share due to Ship Finance. Receivables and payables with related parties are generally settled quarterly in arrears with the exception of profit share due to Ship Finance which is settled annually.

Ship Finance, Golar LNG Limited, Northern Offshore Ltd, Norse Energy Group ASA, Aktiv Kapital First Investment Ltd, Seadrill, Bryggegata AS, Golden Ocean, Greenwich Holdings Ltd, Farahead Holdings Limited and SeaTankers Management Co. Ltd are each subject to the significant influence or indirect control of John Fredriksen.  CalPetro BI, CalPetro BII, CalPetro BIII and CalPetro IOM were all equity accounted until March 31, 2006 at which point, the Company began consolidating CalPetro BIII.

 
62
 


During the year ended December 31, 2007, the Company held investments in Sea Production and Dockwise and earned income from these companies in the form of rental income and income earned from the provision of accounting services totaling $1.0 million. During the year, the Company disposed of its entire investments in these companies and they are no longer considered to be related parties.

The Company also entered into bareboat contracts with Dockwise for five of the vessels sold with the charters expiring when the vessels entered the yard for conversion. As of December 31, 2007, charters for the two Suezmax vessels were still in place with termination expected in the second quarter of 2008. The Company is not responsible for the conversion of these two vessels. Charterhire paid to Dockwise in the year ended December 31, 2007 was $13.5 million.
 
 
C. INTERESTS OF EXPERTS AND COUNSEL
 
Not Applicable
 
ITEM 8.                      FINANCIAL INFORMATION
 
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
 
See Item 18.
 
Legal Proceedings
 
We are a party, as plaintiff or defendant, to several lawsuits in various jurisdictions for demurrage, damages, off-hire and other claims and commercial disputes arising from the operation of its vessels, in the ordinary course of business or in connection with its acquisition activities. We believe that the resolution of such claims will not have a material adverse effect on the Company’s operations or financial condition.
 
In January 2008, Golden President Shipping Corporation, a wholly-owned subsidiary of Golden Ocean,  had a full and final win in the court case against Bocimar N.V., or Bocimar, on the Channel Alliance Time Charter Party and was awarded $14.7 million plus interest thereon in an amount of $2.3 million. The amount of $14.7 million was originally guaranteed by Frontline to Golden Ocean in connection with the spin-off in December 2004, and was later paid to Golden Ocean as it became due according to the charter party.  The full settlement from Bocimar is, therefore, due to Frontline. $16.6 million was received from Bocimar on April 30, 2008. These proceeds will be recognized in the second quarter.

 
In his capacity as President and Chief Executive Officer of Odfjell ASA, an operator of chemical tankers, Mr. Sjaastad entered into an agreement with the U.S. Department of Justice in September 2003 pursuant to which he pled guilty to one count of violating the Sherman Act.  This plea was part of a global agreement with the US Department of Justice involving Odfjell ASA and Odfjell Seachem AS.  The matter did not involve Frontline Ltd or its affiliates.
 
Dividend Policy
 
The level of dividend will be guided by present earnings, market prospects, current capital expenditure programs as well as investment opportunities. We have paid the following cash dividends in 2005, 2006 and 2007.
 

 
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Payment Date
 
Amount per Share
 
       
2005
     
March 18, 2005
  $
3.50
 
June 24, 2005
  $
3.10
 
September 20, 2005
  $
2.00
 
December 13, 2005
  $
1.50
 
         
2006
       
March 20, 2006
  $
1.50
 
June 26, 2006
  $
1.50
 
September 18, 2006
  $
1.50
 
December 21, 2006
  $
2.50
 
         
2007
       
March 22, 2007
  $
2.05
 
June 22, 2007
  $
1.50
 
October 24, 2007
  $
1.50
 
October 24, 2007
  $
1.75
 
December 12 2007
  $
1.50
 

On February 13, 2008 the Board declared a cash dividend of $2.00 per share for the fourth quarter of 2007 which was paid on March 10, 2008.
 
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.
 
B. SIGNIFICANT CHANGES
 
None
 
ITEM 9.                      THE OFFER AND LISTING
 
The Company’s Ordinary Shares are traded on the New York Stock Exchange (“NYSE”), the Oslo Stock Exchange (“OSE”) and on the London Stock Exchange (“LSE”) under the symbol “FRO”.
 
The New York Stock Exchange is the Company’s “primary listing”. As an overseas company with a secondary listing on the LSE, the Company is not required to comply with certain listing rules applicable to companies with a primary listing on the LSE. The listing on the OSE is also a secondary listing. The Company’s Ordinary Shares have been thinly traded on the London Stock Exchange since 1999.
 
The following table sets forth, for the five most recent fiscal years, the high and low prices for the Ordinary Shares on the NYSE and OSE.
 
   
NYSE
 
OSE
   
High
   
Low
   
High
 
Low
Fiscal year ended December 31,
               
2007
  $ 53.09     $ 29.35  
NOK306.00
NOK183.75
2006
  $ 44.65     $ 28.80  
NOK280.00
NOK184.00
2005
  $ 57.97     $ 35.89  
NOK355.00
NOK230.00
2004
  $ 62.33     $ 24.36  
NOK367.81
NOK158.06
2003
  $ 27.69     $ 8.93  
NOK185.00
NOK61.00

 



 
64
 

The following table sets forth, for each full financial quarter for the two most recent fiscal years, the high and low prices of the Ordinary Shares on the NYSE and the OSE.
 
   
NYSE
 
OSE
   
High
   
Low
   
High
 
Low
Fiscal year ended December 31,2007
               
First quarter
  $ 36.55     $ 29.35  
NOK224.75
NOK183.75
Second quarter
  $ 47.94     $ 34.26  
NOK286.00
NOK205.75
Third quarter
  $ 53.09     $ 38.25  
NOK306.00
NOK232.00
Fourth quarter
  $ 51.06     $ 37.49  
NOK278.00
NOK204.00
                     
Fiscal year ended December 31, 2006
                   
First quarter
  $ 41.29     $ 32.70  
NOK270.50
NOK218.00
Second quarter
  $ 38.25     $ 28.80  
NOK237.50
NOK184.00
Third quarter
  $ 44.65     $ 36.32  
NOK280.00
NOK228.50
Fourth quarter
  $ 39.76     $ 31.63  
NOK254.50
NOK196.75

The following table sets forth, for the most recent six months, the high and low prices for the Ordinary Shares on the NYSE and OSE.
 
   
NYSE
 
OSE
   
High
   
Low
   
High
 
Low
April 2008    $  56.70    
$
46.34
 
NOK287.50
 NOK231.50
March 2008
  $ 47.05     $ 41.15  
NOK239.75
NOK214.00
February 2008
  $ 49.33     $ 40.00  
NOK263.50
NOK218.50
January 2008
  $ 49.66     $ 34.00  
NOK268.00
NOK180.00
December 2007
  $ 49.00     $ 42.67  
NOK272.00
NOK232.00
November 2007
  $ 48.96     $ 37.49  
NOK268.00
NOK204.00

 
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-1, (Registration No. 33-70158) filed with the Securities and Exchange Commission on October 13, 1993, and is hereby incorporated by reference into this Annual Report.
 
At the 2007 Annual General Meeting of the Company, our shareholders voted to amend the Company’s Bye-laws to ensure conformity with recent revisions to the Bermuda Companies Act 1981, as amended.  These amended Bye-laws of the Company as adopted on September 28, 2007, are filed as Exhibit 1.2 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.
 

 
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The Company’s Bye-laws provide that its board of directors shall convene and the Company shall hold annual general meetings in accordance with the requirements of the Bermuda Companies Act of 1981 at such times and places (other than Norway) as the Board shall decide.  The board of directors may call special meetings at its discretion or as required by the Bermuda Companies Act of 1981.
 
Bermuda law permits the Bye-laws of a Bermuda company to contain provisions excluding personal liability of a director, alternate director, officer, member of a committee authorized under Bye-law 104, resident representative or their respective heirs, executors or administrators 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, alternate directors and officers of the Company and any members of a committee authorized under Bye-law 104, resident representatives or their respective heirs, executors or administrators 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, alternate director or officer of the Company or member of a committee authorized under Bye-law 104, resident representative or their respective heirs, executors or administrators or was serving in a similar capacity for another entity at the company’s request.
 
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.
 
The Company’s 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.  The Company’s Bye-laws provide that a director who has an interest in any transaction or arrangement with the Company and who has complied with the provisions of the Companies Acts and with its Bye-Laws with regard to disclosure of such interest shall be taken into account in ascertaining whether a quorum is present, and will be entitled to vote in respect of any transaction or arrangement in which he is so interested.  The Company’s Bye-laws provide its 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.  The Company’s directors are not required to retire because of their age, and the directors are not required to be holders of the Company’s Ordinary 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.
 
The Company’s 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 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 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.  The Company is authorized to purchase insurance to cover any liability it may incur under the indemnification provisions of its Bye-laws.
 

 
66
 

There are no pre-emptive, redemption, conversion or sinking fund rights attached to our Ordinary Shares.  Holders of Ordinary Shares are entitled to one vote per share on all matters submitted to a vote of holders of Ordinary Shares.  Unless a different majority is required by law or by our bye-laws, resolutions to be approved by holders of Ordinary Shares require approval by a simple majority of votes cast at a meeting at which a quorum is present.
 
In the event of our liquidation, dissolution or winding up, the holders of Ordinary Shares are entitled to share in our assets, if any, remaining after the payment of all of our debts and liabilities, subject to any liquidation preference on any outstanding preference shares.
 
The Company’s Bye-laws provide that its board of directors may, from time to time, declare and pay dividends out of contributed surplus.  Each Ordinary Share is entitled to dividends if and when dividends are declared by the board of directors, subject to any preferred dividend right of the holders of any preference shares.
 
There are no limitations on the right of non-Bermudians or non-residents of Bermuda to hold or vote our Ordinary Shares.
 
The Company’s Bye-laws provide that any person, other than its registrar, who acquires or disposes of an interest in shares which triggers a notice requirement of the Oslo Stock Exchange must notify the Company’s registrar immediately of such acquisition or disposal and the resulting interest of that person in shares.
 
The Company’s Bye-laws laws require the Company to provide notice to the Oslo Stock Exchange if a person resident for tax purposes in Norway (or such other jurisdiction as the Board may nominate from time to time) is found to hold 50% or more of the Company’s aggregate issued share capital, or holds shares with 50% or more of the outstanding voting power, other than the Company’s registrar.  The Company’s Bye-laws also require it to comply with requirements that the Oslo Stock Exchange may impose from time to time relating to notification of the Oslo Stock Exchange in the event of specified changes in the ownership of the Company’s Ordinary Shares.
 
C. MATERIAL CONTRACTS
 
Ship Finance
 
Charter Ancillary Agreement
 
Frontline has entered into charter ancillary agreements with Ship Finance, its vessel owning subsidiaries that own the vessels and our wholly owned and consolidated subsidiaries Frontline Shipping Limited (“Frontline Shipping”) and Frontline Shipping II Limited (“Frontline Shipping II”), which remain in effect until the last long term charter with Ship Finance terminates in accordance with its terms. Throughout this section Frontline Shipping and Frontline Shipping II are collectively referred to as the Charterers. Frontline has guaranteed the Charterers’ obligations under the charters, except for the Charterers’ obligations to pay charterhire. Frontline has guaranteed the Charterers’ obligations under the charter ancillary agreements.
 
Charter Terms
 
The long term time charters to us extend for various periods depending on the age of the vessels, ranging from approximately five to 19 years. With certain exceptions, the daily base charter rates, which are payable by Frontline Shipping monthly in advance for a maximum of 360 days per year (361 days per leap year), are as follows:
 
Year
 
VLCC
   
Suezmax
 
             
2007 to 2010
  $ 25,175     $ 20,700  
2011 and beyond
  $ 24,175     $ 19,700  

 

 
67
 

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.
 
In addition, the base charter rate for Ship Finance’s non-double hull vessels will decline to $7,500 per day on each vessels anniversary date in 2010.  At which time we will have the option to terminate the charters for those vessels.
 
The daily base charterhire for our vessels that are chartered to Frontline Shipping II, which is also payable monthly in advance for a maximum of 360 days per year (361 days per leap year), is as follows:
 
Vessel
 
2007 to 2010
   
2011 to 2018
   
2019 and beyond
 
                   
Front Champion
  $ 31,140     $ 30,640     $ 28,464  
Front Century
  $ 31,301     $ 30,801     $ 28,625  
Golden Victory
  $ 33,793     $ 33,793     $ 33,793  
Front Energy
  $ 30,014     $ 30,014     $ 30,014  
Front Force
  $ 29,853     $ 29,853     $ 29,853  

Under the charters, Ship Finance is required to keep the vessels seaworthy, and to crew and maintain them. We perform those duties for Ship Finance under the management agreements. If a structural change or new equipment is required due to changes in classification society or regulatory requirements, we may make them, at our expense, without Ship Finance’s consent, but those changes or improvements will become Ship Finance’s property. We are not obligated to pay Ship Finance 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, we will reimburse Ship Finance 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 us with an option to terminate the charter before the end of its term, other than with respect to non-double hull vessels on each vessels anniversary date in 2010. Ship Finance may terminate any or all of the charters in the event of an event of default under a charter ancillary agreement. 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 Ship Finance may not sell the related vessel without our consent.
 
Charter Service Reserve
 
We made initial capital contributions to Frontline Shipping and Frontline Shipping II in the amount of $250 million and $21 million in cash respectively. Due to sales and acquisitions, the capitalization of  the Charterers as of February 29, 2008 is $186.4 million and $35.0 million respectively. These amounts serve to support our obligations to make charterhire payments to Ship Finance, and are subject to adjustment based on the number of charters that we are a party to. The Charterers are entitled to use the charter service reserve only (1) to make charter payments to Ship Finance and (2) for reasonable working capital to meet short term voyage expenses. The Charterers are required to provide Ship Finance with monthly certifications of the balances of and activity in the charter service reserve.
 
Material Covenant
 
Pursuant to the terms of the charter ancillary agreement, the Charterers have agreed not to pay dividends or other distributions to its shareholders or loan, repay or make any other payment in respect their indebtedness or of any of their affiliates (other than Ship Finance or its wholly owned subsidiaries), unless (1) the Charterers are then in compliance with its obligations under the charter ancillary agreements, (2) after giving effect to the dividend or other distribution, (A) they remain in compliance with such obligations, (B) the balance of the charter service reserves equal at least $197 million in the case of Frontline Shipping and $35 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, upon the termination of other than by reason of a default by Frontline Shipping or Frontline Shipping II
 

 
68
 

which we refer to as the “Minimum Reserve”, and (C) they certify to Ship Finance that they reasonably believe that the charter service reserves 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 their reasonably expected payment obligations during such 30-day period, (3) any charter payments deferred pursuant to the deferral provisions described below have been fully paid to Ship Finance and (4) any profit sharing payments deferred pursuant to the profit sharing payments provisions described below have been fully paid. In addition, the Charterers have agreed to certain other restrictive covenants, including restrictions on their ability to, without the consent of Ship Finance:
 
·  
amend its organizational documents in a manner that would adversely affect Ship Finance;
 
·  
violate its organizational documents;
 
·  
engage in businesses other than the operation and chartering of Ship Finance vessels;  (not
 
 
applicable for Frontline Shipping II)
 
·  
incur debt, other than in the ordinary course of business;
 
·  
sell all or substantially all of its assets or the assets of any of its subsidiaries or enter into any merger, consolidation or business combination transaction;
 
·  
enter into transactions with affiliates, other than on an arm’s-length basis;
 
·  
permit the incurrence of any liens on any of its assets, other than liens incurred in the ordinary course of business;
 
·  
issue any capital stock to any person or entity other than Frontline; and
 
·  
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, we have agreed that we will cause the Charterers at all times to remain our wholly owned subsidiaries.
 
Deferral of Charter Payments
 
For any period during which the cash and cash equivalents held by Frontline Shipping is less than $75 million, Frontline Shipping is entitled to defer from the payments payable to Ship Finance 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 it receives that are in excess of the daily charter rates payable to Ship Finance 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 it will not exceed $75 million for at least 30 days after the date of the payment. In addition, Frontline Shipping will not be required to make any payment of deferred charter amounts until the payment would be at least $2 million.
 
Profit Sharing Payments
 
Under the terms of the charter ancillary agreement, beginning with the final 11-month period in 2004 and for each calendar year after that, the Charterers have agreed to pay Ship Finance a profit sharing payment equal to 20% of the charter revenues for the applicable period, calculated annually on a TCE basis, realized by them for the Ship Finance fleet in excess of the daily base charterhire. After 2010, all of Ship Finance’s 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 Charterer has agreed to use its commercial best efforts to charter the Ship Finance vessels on market terms and not to give preferential treatment to the marketing of any other vessels owned or managed by us or our affiliates.
 

 
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Frontline Shipping and Frontline Shipping II 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. Frontline Shipping and Frontline Shipping II are required to immediately use all revenues that it receives that are in excess of the daily charter rates payable to Ship Finance to pay any deferred profit sharing amounts at such time as the charter service reserve exceeds the minimum reserve, unless Frontline Shipping and Frontline Shipping II reasonably believe 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, Frontline Shipping and Frontline Shipping II 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 Charterers to Ship Finance under the charters and the charter ancillary agreements are secured by a lien over all of the assets of the Charterers and a pledge of the equity interests in the Charterers.
 
Default
 
An event of default shall be deemed to occur under the charter ancillary agreement if:
 
·  
the relevant 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,
 
·  
the relevant Charterer or Frontline materially breaches any of its obligations under the charter ancillary agreement or the Frontline performance guarantee,
 
·  
Frontline Management materially breaches any of its obligations under any of the management agreements or
 
·  
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.
 
On the occurrence of any event of default under the charter ancillary agreements that continues for 30 days after notice, Ship Finance may elect to:
 
·  
terminate any or all of the charters with the relevant Charterer,
 
·  
foreclose on any or all of our security interests described above with respect to the relevant charterer and/or
 
·  
pursue any other available rights or remedies.
 
Vessel Management Agreements
 
Ship Finance’s vessel owning subsidiaries entered into fixed rate management agreements with Frontline Management. 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 the Charterer 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 Ship Finance’s vessels, including marine hull and machinery insurance, protection and indemnity insurance (including
 

 
70
 

pollution risks and crew insurances) and war risk insurance. Frontline Management will also reimburse Ship Finance 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, Ship Finance pays 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 bareboat charter the related vessel to a third party, the related management agreement provides that Ship Finance’s obligation to pay the $6,500 fixed fee to Frontline Management will be suspended for so long as the vessel is bareboat chartered. Both Ship Finance and Frontline Management have the right to terminate any of the management agreements if the relevant charter has been terminated and in addition Ship Finance has the right to terminate any of the management agreements upon 90 days prior written notice to Frontline Management.
 
Frontline has guaranteed to Ship Finance Frontline Management’s performance under these management agreements.
 
Administrative Services Agreement
 
We have an administrative services agreement with Ship Finance under which Frontline Management provides certain administrative support services.  Frontline guarantees Frontline Management's performance under this administrative services agreement.
 
Sealift Ltd.
 
Purchase of Vessels and Option Agreements
 
During January 2007, we agreed with Ship Finance that we should acquire five single purpose companies from them, each being the owner of one single hull Suezmax tanker vessel. All of the five vessels were subject to long-term charters to our subsidiaries, Frontline Shipping Ltd. and Frontline Shipping II Ltd. Four of the vessels were furthermore parties to conversion contracts with Cosco Shipyard Group Co. Ltd. (“Cosco”) setting out the terms and conditions subject to which Cosco would convert their respective vessels to specially designed heavy lift vessels. In addition to the acquisition of the five companies we agreed with Ship Finance that we would acquire their rights and obligations under an option agreement with Cosco pursuant to which Ship Finance had a right to conclude conversion contracts for a further two vessels (the “Option Agreement”).
 
Purchase Agreement with Sealift
 
In January 2007, we also agreed with Sealift that they would purchase six single purpose companies from us, each being the owner of one single hull Suezmax tanker vessel together with our rights and obligations under the Option Agreement. Five of the companies to be sold were the same companies we had agreed to purchase from Ship Finance while the sixth was an existing subsidiary owning one single hull Suezmax tanker vessel. The long-term charters with Frontline Shipping Ltd. and Frontline Shipping II Ltd. were agreed to be replaced with bareboat charters and time charters with our subsidiary Key Chartering Inc., covering the period until each vessel was delivered to Cosco for conversion. The terms of the agreement included an obligation on us to take responsibility for the completion of the conversion of the four vessels subject to the conversion contracts with Cosco. This responsibility would include both the financing and payment of the work to be performed by Cosco and the supervision thereof throughout the conversion period.  We are liable for certain damages if the converted vessels are delivered after certain agreed times.  In addition, if delivery is delayed more than six months beyond the agreed delivery date, Sealift has the option to cancel the purchase of the vessel.
 
Sealift’s Financing
 
Completion of the purchase agreement between Sealift and us was subject to Sealift being able to obtain the required financing. This was done by way of the taking up by Sealift of a senior bank loan of $240 million, a bond issue by Sealift of $110 million and a private placement of shares in Sealift raising in total $180 million. We agreed to subscribe for one third of the shares in Sealift issued at a cost of $60 million. The transaction between Sealift and ourselves closed in March, 2007, whereafter we became a minority shareholder in Sealift.
 

 
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Sealift subsequently made an agreement to purchase all of the shares in Delphi Acquisition Holding (which was the owner of Dockwise Transport B.V., an established operator in the heavy lift market). This was financed by another share issue which diluted our ownership share in Sealift to 17.1%. We subsequently sold all our shares in Sealift and have no financial interest in the company.
 
Sea Production Ltd
 
On February 14, 2007 our subsidiary Frontline Floating Production Ltd. (“FFP”) entered into an agreement for the sale and purchase of assets with Sea Production whereby FFP agreed to sell to Sea Production; (i) 70% of its shares in Puffin Ltd., the company indirectly holding the ownership of the vessel “Front Puffin” under conversion to an FPSO, (ii) our outstanding inter-company loans relating to the purchase and conversion of “Front Puffin”, and (iii) all the shares of Sea Production Management AS, a Norwegian subsidiary where the floating production organization and expertise are employed. Also on February 14, 2007 Sea Production entered into a share purchase agreement with KSI Production Ltd. to acquire the remaining 30% of the shares of Puffin Ltd.
 
On February 15, 2007 Sea Production entered into two share purchase agreements with Greenwich Holdings Limited to acquire all the shares of Langford Shipping Company Limited and Melrose Shipping Company Limited respectively. Langford Shipping Company owned the Aframax tanker “Sea Cat”, and Melrose Shipping Company the vessel “Sea Jaguar”, also an Aframax tanker. Also on February 15 2007, Sea Production entered into a share purchase agreement with Seadrill Ltd. to acquire all the shares of Wisdom Shipping (S) Pte. Ltd., the owner of the FPSO “Crystal Ocean”.
 
Sea Production financed these acquisitions and the future conversion costs of Front Puffin through a $180 million equity issue, a $130 million bond issue and a $105 million bank facility. We agreed to subscribe for 28.33% of the shares in Sea Production in the equity offering at an aggregate cost of $51 million. The acquisition of the shares and assets, the equity issue and the bond issue where completed simultaneously on February 15, 2007. We have subsequently sold all our shares in Sea Production in market transactions and have currently no financial interest in the company.
 
D. EXCHANGE CONTROLS
 
The Company is classified by the Bermuda Monetary Authority as a non-resident of Bermuda for exchange control purposes.
 
The transfer of Ordinary 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 Ordinary 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 Ordinary 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 Ordinary Shares who are ordinarily resident outside Bermuda are not subject to any restrictions on their rights to hold or vote their shares. Because the Company has been designated as a non-resident for Bermuda exchange control purposes, there are no restrictions on its ability to transfer funds in and out of Bermuda or to pay dividends to U.S. residents who are holders of Ordinary Shares, other than in respect of local Bermuda currency.
 
E. 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 Ordinary Shares. Bermuda has undertaken not to impose any such Bermuda taxes on U.S. Shareholders of Ordinary Shares prior to the year 2016 except in so far as such tax applies to persons ordinarily resident in Bermuda.
 

 
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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, charterhire 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 is not permitted by law to 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 organised in a qualified foreign country which is one that grants an equivalent exemption from tax to corporations organised 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 organisation requirement”; and
 
 
(ii)
It can satisfy any one of the following two stock ownership requirements for more than half the days during the taxable year:
 
·  
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
 
·  
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 organisation requirement and the Publicly-Traded Test, which the Company refers to as the “50% Ownership Test.”
 

 
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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 2007 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.
 
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 the 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 consult your own tax advisor on this issue.
 

 
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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 non-taxable 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 2008) 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 on which our common stock is listed); (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.
 
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. 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.  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 in the common stock 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% 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
 

 
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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% of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the
 

 
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 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:
 
·  
the excess distribution or gain would be allocated ratably over the Non-Electing Holders’ aggregate holding period for the common stock;
 
·  
the amount allocated to the current taxable year and any taxable years before the Company became a PFIC would be taxed as ordinary income; and
 
·  
the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed 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:
 
·  
fail to provide an accurate taxpayer identification number;
 
·  
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
 
·  
in certain circumstances, fail to comply with applicable certification requirements.
 
If you sell your Ordinary 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 Ordinary 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,
 

 
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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 F 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, spot market rates for vessels and foreign currency fluctuations. We may enter into forward freight agreements and futures for trading purposes in order to manage our exposure to the risk of movements in the spot market for certain trade routes and, to some extent, for speculative purposes but currently we have not entered into any such agreements. We may also enter into other derivative instruments from time to time for speculative purposes but currently we have not entered into any such agreement.
 
Our exposure to interest rate risk relates to our floating rate debt, which totaled $80.0 million as of December 31, 2007 (2006: $1,602.9 million). The reduction in this balance is due to the fact that we do not consolidate Ship Finance at December 31, 2007. As of December 31, 2006, Ship Finance had 18 swaps with an aggregate notional value of $738.7 million. A one per cent change in interest rates would increase or decrease interest expense by $0.8 million per year as of December 31, 2007.
 

 
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As of December 31, 2007, the fair market value of our fixed rate debt was $435.5 million (2006: $877.2 million). The reduction in this balance is due to the fact that we no longer consolidate Ship Finance in our financial statements. As of December 31, 2006, Ship Finance had outstanding Notes with a fair market value of $448.8 million. If interest rates were to increase or decrease by one per cent with all other variables remaining constant, we estimate that the market value of our fixed rate debt would have decreased or increased by approximately $26.7 million and $29.3 million respectively (2006: decrease by $48.4 million and increase by $52.5 million).
 
The majority of our transactions, assets and liabilities are denominated in U.S. dollars, our functional currency. Certain of our subsidiaries report in Sterling or Norwegian Kroner and risks of two kinds arise as a result: a transaction risk, that is, the risk that currency fluctuations will have an effect on the value of our cash flows; and a translation risk, which is the impact of currency fluctuations in the translation of foreign operations and foreign assets and liabilities into U.S. dollars in our consolidated financial statements.
 
ITEM 12.                      DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
 
Not Applicable
 

 
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PART II
 
ITEM 13.                      DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
 
None
 
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, 2007. 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:
 
·  
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
 
·  
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
 
·  
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
 

 
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Rule 13a-15 of the Securities Exchange Act of 1934, as of December 31, 2007. 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, 2007.
 
The effectiveness of the Company’s internal control over financial reporting as of December 31 2007 has been audited by PricewaterhouseCoopers AS., an independent registered public accounting firm, as stated in their report which appears herein.
 
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. RESERVED
 
ITEM 16 A.  AUDIT COMMITTEE FINANCIAL EXPERT
 
Our Board of Directors has determined that the Company’s Audit Committee has one Audit Committee Financial Expert. Mr. Frixos Savvides 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 all employees, directors, officers and agents of the Company. We have posted a copy of our Code of Ethics on our website at w ww.frontline.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 2007 and 2006 was PricewaterhouseCoopers AS. The following table sets forth for the two most recent fiscal years the fees paid or accrued for audit and services provided by PricewaterhouseCoopers AS.
 
(in thousands of $)
 
2007
   
2006
 
Audit Fees (a)
    1,166       2,014  
Audit-Related Fees (b)
    —       —  
Tax Fees (c)
    —       —  
All Other Fees (d)
    —       —  
Total
    1,166       2,014  
 
(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 the independent auditor of the Company 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 were approved by the Board pursuant to the pre-approval policy.
 
ITEM 16D.                      EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
 
Not applicable
 
ITEM 16E.                      PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
 
Not applicable
 

 
81
 

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-37 are filed as part of this annual report:
 
Consolidated Financial Statements of Frontline Ltd
 
   
Index to Consolidated Financial Statements of Frontline Ltd
F-1
   
Report of Independent Registered Public Accounting Firm
F-2
   
Report of Independent Registered Public Accounting Firm
F-4
   
Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005
F-5
   
Consolidated Balance Sheets as of December 31, 2007 and 2006
F-6
   
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005
F-7
   
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2007, 2006 and 2005
F-8
   
Notes to Consolidated Financial Statements
F-9

ITEM 19.                      EXHIBITS
 
Number
Description of Exhibit
   
1.1*
Memorandum of Association of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form F-1, Registration No. 33-70158 filed on October 12, 1993 (the “Original Registration Statement”).
   
1.2
Amended and Restated Bye-Laws of the Company as adopted by shareholders on September 28, 2007.
   
2.1*
Form of Ordinary Share Certificate, incorporated by reference to Exhibit 4.1 of the Original Registration Statement.
   
2.2*
Form of Deposit Agreement dated as of November 24, 1993, among Frontline Ltd (F/K/A London & Overseas Freighters Limited), The Bank of New York as Depositary, and all Holders from time to time of American Depositary Receipts issued there under, including form of ADR, incorporated by reference to Exhibit 4.2 of the Original Registration Statement.
   
2.3*
Form of Deposit Agreement dated as of November 24, 1993, as amended and restated as of May 29, 2001, among Frontline Ltd (F/K/A London & Overseas Freighters Limited), The Bank of New York as Depositary, and all Holders from time to time of American Depositary Receipts issued there under, including form of ADR, incorporated by reference to Exhibit 2 of the Company’s Annual Report on Form 20-F, filed on June 13, 2001 for the fiscal year ended December 31, 2000.
   
2.4*
Amendment No. 1 to the Rights Agreement incorporated by reference to Exhibit 4.3 of the Amalgamation Registration Statement.
   

 
82
 


2.5*
The Subregistrar Agreement related to the registration of certain securities issued by Frontline Ltd in the Norwegian Registry of Securities between Frontline Ltd and Christiania Bank og Kreditkasse ASA together with the Form of Warrant Certificate and Conditions attaching thereto, incorporated by reference to Exhibit 1.1 of the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 1998.
   
4.4*
Master Agreement, dated September 22, 1999, among Frontline AB and Frontline Ltd (collectively “FL”), Acol Tankers Ltd. (“Tankers”), ICB Shipping AB (“ICB”), and Ola Lorentzon (the “Agent”), incorporated by reference to Exhibit 3.1 of the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 1999.
   
4.6
Charter Ancillary Agreement between Frontline Ltd and Ship Finance International Limited dated January 1, 2004.
   
4.7*
Addendum to Charter Ancillary Agreement between Frontline Ltd and Ship Finance International Limited dated June 15, 2004 incorporated by reference to Exhibit 10.3 of the Company’s Annual Report on From 20-F for the fiscal year ended December 31, 2004.
   
4.8*
Form of Performance Guarantee issued by the Company incorporated by reference to Exhibit 10.4 of the Company’s Annual Report on From 20-F for the fiscal year ended December 31, 2004.
   
4.9*
Form of Time Charter incorporated by reference to Exhibit 10.5 of the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2004.
   
4.10*
Form of Vessel Management Agreements incorporated by reference to Exhibit 10.6 of the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2004.
   
4.11*
Administrative Services Agreement incorporated by reference to Exhibit 10.7 of the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2004.
   
4.12*
Contribution Agreement between Frontline Ltd and Golden Ocean Group Limited dated November 29, 2004 incorporated by reference to Exhibit 10.8 of the Company’s Annual Report on From 20-F for the fiscal year ended December 31, 2004.
   
4.13
Second Supplemental Purchase Agreement between Sealift Ltd., Southwest Tankers Inc., Front Target Inc., Front Traveller Inc., West Tankers Inc., Granite Shipping Ltd., Quadrant Marine Inc. and Frontline Ltd. dated April 27, 2007.
   
4.14
Shareholder’s Agreement Relating to Sealift Ltd dated April 27, 2007.
   
4.15
Merger Agreement between Dockwise Limited and Sealift Ltd dated April 27, 2007.
   
4.16
Frontline Ltd Share Option Scheme dated November 16, 2006.
   
4.17
Management Agreement between Ship Finance International Limited and its subsidiaries and Frontline Management (Bermuda) Ltd, dated November 29, 2007. (Replaces Administrative Services Agreement dated December 31, 2004).
   
4.18
Addendum No. 3 to Charter Ancillary Agreement between Frontline Ltd, Ship Finance International Limited and Frontline Shipping Ltd, dated August 21, 2007.

 
83
 


   
4.19
Addendum No. 1 to Charter Ancillary Agreement between Frontline Ltd, Ship Finance International Limited and Frontline Shipping II Ltd, dated August 21, 2007.
   
8.1
Subsidiaries of the Company.
   
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.

 
 
* Incorporated herein by reference.
 

 
84
 

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.
 
   
Frontline Ltd
   
(Registrant)
     
Date:  May 2, 2008  
By:
/s/  Inger M. Klemp
 
      Name: Inger M. Klemp   
      Title: Chief Financial Officer  





 
85
 

Index to Consolidated Financial Statements of Frontline Ltd
 

Report of Independent Registered Public Accounting Firm
F-2
   
Report of Independent Registered Public Accounting Firm
F-4
   
Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005
F-5
   
Consolidated Balance Sheets as of December 31, 2007 and 2006
F-6
   
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005
F-7
   
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2007, 2006 and 2005
F-8
   
Notes to Consolidated Financial Statements
F-9

 
 
F-1
 

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Frontline Ltd

In our opinion, based on our audits and the report of other auditors, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows and the changes in stockholders’ equity present fairly, in all material respects, the financial position of Frontline Ltd and its subsidiaries   at December 31, 2007 and December 31, 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007   in conformity with accounting principles generally accepted in the United States of America.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under item 15(b) of Frontline Ltd’s Annual Report on Form 20-F. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our audits, which were integrated audits in 2007 and 2006.

We did not audit the financial statements of Independent Tankers Corporation, Buckingham Shipping PLC, Caernarforn Shipping PLC, Holyrood Shipping PLC, Sandringham Shipping Plc, Golden State Petro (IOM I-A) PLC, Golden State Petro (IOM I-B) PLC and, from April 1, 2006, CalPetro Tankers (Bahamas III) Limited, wholly owned subsidiaries, which statements reflect total assets of $808.1 million and $797.4 million as of December 31, 2007 and December 31, 2006, respectively, and total revenues of $60.1 million, $58.1 million and $ 56.2 million for each of the three years in the period ended December 31, 2007.  The financial statements of Independent Tankers Corporation, Buckingham Shipping PLC, Caernarforn Shipping PLC, Holyrood Shipping PLC, Sandringham Shipping Plc, Golden State Petro (IOM I-A) PLC, Golden State Petro (IOM I-B) PLC and, from April 1, 2006, CalPetro Tankers (Bahamas III) Limited   were audited by other auditors whose report thereon has been furnished to us, and our opinion on the financial statements expressed herein, insofar as it relates to the amounts included for Independent Tankers Corporation, Buckingham Shipping PLC, Caernarforn Shipping PLC, Holyrood Shipping PLC, Sandringham Shipping Plc, Golden State Petro (IOM I-A) PLC, Golden State Petro (IOM I-B) PLC and, from April 1, 2006, CalPetro Tankers (Bahamas III) Limited, is based solely on the report of the other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included 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.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits and the report of other auditors provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 
F-2
 



Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers AS
PricewaterhouseCoopers AS
Oslo, Norway
May 2, 2008

 
F-3
 

 Report of Independent Registered Public Accounting Firm
 

To the Board of Directors of
Independent Tankers Corporation

We have audited the accompanying combined balance sheets of Independent Tankers Corporation (“ITC”) (a Cayman Islands Company and wholly owned subsidiary of Frontline Ltd.), Buckingham Shipping PLC, Caernarforn Shipping PLC, Holyrood Shipping PLC, Sandringham Shipping Plc, Golden State Petro (IOM I-A) PLC, Golden State Petro (IOM I-B) PLC and CalPetro Tankers (Bahamas III) Limited (collectively the “Company”) as of December 31, 2007 and 2006 and the related combined statements of operations, cash flows and changes in stockholders’ equity for each of the three years in the period ended December 31, 2007 (not presented separately herein).  These combined financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Independent Tankers Corporation and Affiliates as of December 31, 2007 and 2006 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.



/s/ Grant Thornton LLP

New York, New York
April 9, 2008

 
F-4
 

Frontline Ltd.
Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005
 
(in thousands of $, except per share data)

   
2007
   
2006
   
2005
 
Operating revenues
                 
Time charter revenues
    432,813       352,575       197,291  
Bareboat charter revenues
    57,052       85,969       142,562  
Voyage charter revenues
    801,546       1,114,531       1,152,245  
Other income
    8,516       5,294       3,877  
Total operating revenues
    1,299,927       1,558,369       1,495,975  
Gain on sale of assets
    118,168       95,655       76,081  
Operating expenses
                       
Voyage expenses and commission
    352,451       399,046       336,963  
Ship operating expenses
    196,258       194,635       147,524  
Profit share expense
    37,279       -       -  
Charterhire expenses
    56,868       24,923       11,711  
Administrative expenses
    36,410       32,143       21,049  
Depreciation
    219,638       199,876       196,672  
Total operating expenses
    898,904       850,623       713,919  
Net operating income
    519,191       803,401       858,137  
Other income (expenses)
                       
Interest income
    54,316       47,612       40,840  
Interest expense
    (204,535 )     (200,396 )     (205,937 )
Equity earnings of unconsolidated subsidiaries and associated companies
    573       1,118       3,379  
Foreign currency exchange gain
    3,312       1,056       18,829  
Mark to market of derivatives
    3,530       (10,897 )     14,499  
Gain on sale of securities
    122,120       9,782       28,035  
Dividends received
    533       13,317       1,540  
Other financial items, net
    4,951       (3,663 )     1,756  
Net other expenses
    (15,200 )     (142,071 )     (97,059 )
Net income from continuing operations before income taxes and minority interest
    503,991       661,330       761,078  
Minority interest
    (22,162 )     (158,682 )     (169,459 )
Income tax (expense) benefit
    (419 )     (162 )     19  
Gain on issuance of shares by subsidiaries and associates
    83,566       -       1,105  
Net income from continuing operations
    564,976       502,486       592,743  
Discontinued operations
    5,442       13,514       14,096  
Net income
    570,418       516,000       606,839  
                         
Earnings per share:
                       
Basic earnings per share from continuing operations
  $ 7.55     $ 6.72     $ 7.92  
                         
Diluted earnings per share from continuing operations
  $ 7.55     $ 6.72     $ 7.92  
                         
Basic and diluted earnings per share from discontinued operations
  $ 0.07     $ 0.18     $ 0.19  
                         
Basic and diluted earnings per share
  $ 7.62     $ 6.90     $ 8.11  
                         
Weighted average shares outstanding, basic
    74,825       74,825       74,825  
                         
Weighted average shares outstanding, diluted
    74,867       74,825       74,825  
                         
Cash dividends per share declared
  $ 8.30     $ 7.00     $ 10.10  
 
See accompanying Notes that are an integral part of these Consolidated Financial Statements

 
F-5
 

Frontline Ltd.
Consolidated Balance Sheets as of December 31, 2007 and 2006
 
(in thousands of $)
   
2007
   
2006
 
ASSETS
           
Current Assets
           
Cash and cash equivalents
    168,432       197,181  
Restricted cash
    651,377       677,533  
Marketable securities
    15,684       1,469  
Trade accounts receivable, net
    59,523       59,728  
Related party receivables
    14,804       1,683  
Other receivables
    28,564       37,335  
Inventories
    55,435       43,791  
Voyages in progress
    60,479       43,412  
Prepaid expenses and accrued income
    8,424       11,900  
Net investment in finance lease, current portion
    -       23,608  
Derivative instruments receivable amounts, short term
    -       2,931  
Other current assets
    64       11,571  
Total current assets
    1,062,786       1,112,142  
Newbuildings
    160,298       166,851  
Vessels and equipment, net
    208,516       2,446,278  
Vessels and equipment under capital lease, net
    2,324,789       626,374  
Investment in unconsolidated subsidiaries and associated companies
    5,633       17,825  
Net investment in finance lease, long term portion
    -       175,141  
Deferred charges
    49       16,937  
Derivative instruments receivable amounts, long term
    -       17,807  
Other long-term assets
    20       10,582  
Total assets
    3,762,091       4,589,937  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities
               
Short-term debt and current portion of long-term debt
    96,811       281,409  
Current portion of obligations under capital leases
    179,604       28,857  
Related party payables
    50,988       941  
Trade accounts payable
    16,043       17,573  
Accrued expenses
    101,128       90,316  
Deferred charter revenue
    13,342       15,783  
Other current liabilities
    132,310       9,037  
Total current liabilities
    590,226       443,916  
Long-term liabilities
               
Long-term debt
    376,723       2,181,885  
Obligations under capital leases
    2,318,794       723,073  
Deferred gains on sales of vessels
    19,810       21,732  
Derivative instruments liabilities, long term
    -       8,743  
Other long-term liabilities
    10,569       906  
Total liabilities
    3,316,122       3,380,255  
Commitments and contingencies
               
Minority interest
    -       541,122  
                 
Stockholders’ equity
               
Share capital (74,825,169 shares outstanding, par value $2.50)
    187,063       187,063  
Additional paid in capital
    14,242       494,067  
Contributed surplus
    248,360       (8,145 )
Accumulated other comprehensive loss
    (3,696 )     (4,425 )
Retained earnings
    -       -  
Total stockholders’ equity
    445,969       668,560  
Total liabilities and stockholders’ equity
    3,762,091       4,589,937  
 
See accompanying Notes that are an integral part of these Consolidated Financial Statements

 
F-6
 

Frontline Ltd.
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005
 
(in thousands of $)
   
2007
   
2006
   
2005
 
Net income
    570,418       516,000       606,839  
Adjustments to reconcile net income to net cash provided by operating activities:
 
Depreciation
    221,246       203,849       198,875  
Amortisation of deferred charges
    810       3,346       16,705  
Gain from sale of assets (including marketable securities)
    (323,860 )     (105,439 )     (109,657 )
Equity earnings of unconsolidated subsidiaries and associated companies
    (573 )     (1,118 )     (3,380 )
Unrealised foreign exchange loss (gain)
    689       75       (2,222 )
Adjustment of derivatives to market value
    (3,541 )     9,348       (12,335 )
Minority interest
    22,162       158,682       169,459  
Other, net
    (12,324 )     (5,326 )     (3,030 )
Changes in operating assets and liabilities, net of effect of acquisitions:
 
Trade accounts receivable
    (1,208 )     12,991       64,981  
Other receivables
    22,495       (13,464 )     (6,493 )
Inventories
    (11,772 )     1,193       (12,967 )
Voyages in progress
    (17,068 )     51,067       54,421  
Prepaid expenses and accrued income
    3,341       (4,231 )     2,144  
Trade accounts payable
    47,830       8,191       1,114  
Accrued expenses
    17,241       4,777       7,126  
Deferred charter revenue
    2,441       8,179       2,689  
Other, net
    7,483       (16,564 )     5,781  
Net cash provided by operating activities
    545,810       831,556       980,050  
Investing activities
                       
Maturity (placement) of restricted cash
    12,674       13,730       (44,183 )
Additions to newbuildings, vessels and equipment
    (337,774 )     (569,819 )     (558,163 )
Proceeds from sale of vessels and equipment
    503,407       275,190       250,339  
Insurance proceeds from loss of vessels and equipment
    -       12,173       -  
Investments in associated companies
    (60,510 )     (3,431 )     (2,610 )
Dividends received from associated companies
    255       1,318       20,911  
Purchase of minority interest
    -       (7,198 )     (33,083 )
Proceeds from sale of investments in associated companies
    116,631       -       -  
Receipts from finance leases and loans receivable
    5,564       12,562       7,051  
Purchases of other assets
    (43,375 )     (71,067 )     (168,038 )
Proceeds from sale of other assets
    162,392       154,409       152,752  
Proceeds from issuance of shares in subsidiary
    -       7,800       -  
Proceeds from sale of newbuilding contracts
    -       9,769       16,800  
Sale of subsidiary, net of cash sold
    38, 308       -       -  
Cash effect of deconsolidation of subsidiary
    (146,435 )     -       -  
Net cash provided by (used in) investing activities
    251,137       (164,564 )     (358,224 )
Financing activities
                       
Proceeds from long-term debt
    127,188       539,748       1,660,503  
Repayments of long-term debt
    (165,108 )     (420,925 )     (1,347,217 )
Payment of obligations under capital leases
    (130,362 )     (24,706 )     (22,230 )
Debt fees paid
    (1,406 )     (2,230 )     (7,405 )
Cash dividends paid including amounts paid to minority interest
    (656,008 )     (654,480 )     (909,574 )
Net cash used in financing activities
    (825,696 )     (562,593 )     (625,923 )
Net (decrease)  increase in cash and cash equivalents
    (28,749 )     104,399       (4,097 )
Cash and cash equivalents at beginning of year
    197,181       92,782       96,879  
Cash and cash equivalents at end of year
    168,432       197,181       92,782  
Supplemental disclosure of cash flow information:
                       
Interest paid, net of interest capitalized
    206,495       207,610       225,053  
Income taxes paid
    215       62       46  
 
See accompanying Notes that are an integral part of these Consolidated Financial Statements

 
F-7
 

Frontline Ltd.
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2007, 2006 and 2005
 
(in thousands of $, except number of shares)

   
2007
   
2006
   
2005
NUMBER OF SHARES OUTSTANDING
             
Balance at beginning  and end of year
    74,825,169       74,825,169       74,825,169    
                           
SHARE CAPITAL
                         
Balance at beginning and end of year
    187,063       187,063       187,063    
                           
ADDITIONAL PAID IN CAPITAL
                         
Balance at beginning of year
    494,067       494,067       494,067    
Shares issued
    -       -       -    
Shares bought back and cancelled
    -       -       -    
Stock option expense
    962       -       -    
Transfer to contributed surplus
    (480,787 )     -       -    
Balance at end of year
    14,242       494,067       494,067    
                           
CONTRIBUTED SURPLUS
                         
Balance at beginning of year
    (8,145 )     40,720       74,060    
Contribution from related party
    -       -       85,364    
Cash dividends
    (212,896 )     (35,634 )     (203,643 )  
Minority interest in deemed equity contributions and deemed dividends
    (11,386 )     (13,231 )     84,939    
Transfer from additional paid in capital
    480,787       -       -    
Balance at end of year
    248,360       (8,145 )     40,720    
                           
ACCUMULATED OTHER COMPREHENSIVE LOSS
                         
Balance at beginning of year
    (4,425 )     (6,684 )     5,414    
Other comprehensive income (loss)
    729       2,259       (12,098 )  
Balance at end of year
    (3,696 )     (4,425 )     (6,684 )  
                           
RETAINED EARNINGS
                         
Balance at beginning of year
    -       -       157,364    
Net income
    570,418       516,000       606,839    
Cash dividends
    (408,196 )     (488,158 )     (552,322 )  
Stock dividends
    (162,222 )     (27,842 )     (211,881 )  
Balance at end of year
    -       -       -    
                           
TOTAL STOCKHOLDERS’ EQUITY
    445,969       668,560       715,166  
                           
COMPREHENSIVE INCOME
                         
Net income
    570,418       516,000       606,839    
Unrealised (loss) gains from marketable securities
    (595 )     1,721       (11,877 )  
Foreign currency translation
    1,324       538       (221 )  
Other comprehensive income
    729       2,259       (12,098 )  
                           
Comprehensive income
    571,147       518,259       594,741  

See accompanying Notes that are an integral part of these Consolidated Financial Statements

 
F-8
 

Notes to Consolidated Financial Statements

 

1.
GENERAL
   
 
Frontline Ltd. (the “Company” or “Frontline”) is a Bermuda based shipping company engaged primarily in the ownership and operation of oil tankers, including oil/bulk/ore (“OBO”) carriers. The Company operates tankers of two sizes: very large crude carriers (“VLCCs”) which are between 200,000 and 320,000 deadweight tons (“dwt”), and Suezmaxes, which are vessels between 120,000 and 170,000 dwt. The Company operates primarily through subsidiaries and partnerships located in Bermuda, Isle of Man, Liberia, Norway, Singapore, Cayman Islands, the United Kingdom and the Bahamas. The Company is also involved in the charter, purchase and sale of vessels.
   
 
The Company’s ordinary shares are listed on the New York Stock Exchange, the Oslo Stock Exchange and the London Stock Exchange.
   
 
In October 2003, the Company established Ship Finance International Limited (“Ship Finance”) in Bermuda.  Through transactions executed in January 2004, the Company transferred to Ship Finance ownership of 46 vessel-owning entities each owning one vessel and its corresponding financing, and one entity owning an option to acquire a VLCC. The Company then leased these vessels back on long-term charters.
   
 
Since May 2004, the Company has distributed its holding of Ship Finance to its shareholders and in March 2007, the Company distributed the majority of its remaining 11.1% shareholding to its shareholders. The Company still holds 73,383 shares in Ship Finance which represents 0.01% of Ship Finance’s total shares. Prior to the final distribution of shares in March 2007, the Company consolidated Ship Finance under the provisions of FASB Interpretation No. 46 (revised December 2003) Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (“FIN 46(R)”). Subsequent to the distribution in March 2007, the Company no longer consolidates Ship Finance. Refer to Note 4 for further information.
   
 
In January 2007, the Company’s wholly owned subsidiary Sealift Ltd (“Sealift”) completed a private placement raising $180.0 million in equity. The Company participated by investing $60.0 million and as a result of the private placement, its shareholding was reduced to 33.3%. The Company consequently began accounting for its investment under the equity method. Sealift used the proceeds from the private placement along with the proceeds from a $110.0 million bond facility, $120.0 million of a $240.0 million term loan facility and short term sellers’ credit of $80 million from the Company, to acquire from the Company four single hull vessels to be converted to heavy lift vessels and two Suezmax vessels. The private placement discussed above was conditional on the acquisition of the assets described above being effective and the sellers credit is payable to the Company upon the completion and delivery of each of the last two converted vessels with $40 million allocated to each vessel. In May 2007, Sealift acquired Dockwise Ltd (“Dockwise”) and immediately completed another private placement for 39.8 million shares, of which the Company subscribed for five million shares. The Company’s investment was reduced to 17.1% as a result of these transactions. In July 2007, Sealift changed its name to Dockwise. In October 2007, the Company sold its entire shareholding in Dockwise. Refer to Note 27 for further information.
   
 
In February 2007, the Company’s wholly owned subsidiary Sea Production Ltd (“Sea Production”) completed a private placement raising $180.0 million in equity and simultaneously acquired the Company’s floating production activities. The Company subscribed for 28.3% of the shares and consequently accounted for its investment under the equity method.  In June 2007, the Company disposed of its entire shareholding in Sea Production. Refer to Note 27 for further information.
   
   


 
F-9
 


2.
ACCOUNTING POLICIES
   
 
Basis of accounting
 
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The consolidated financial statements include the assets and liabilities of the Company and its subsidiaries and certain variable interest entities in which the Company is deemed to be the primary beneficiary.  All intercompany balances and transactions have been eliminated on consolidation.
   
 
A variable interest entity (“VIE”) is 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.
   
 
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 in the consolidated balance sheets as “Investment in unconsolidated subsidiaries and associated companies” and its share of the investees’ earnings or losses in the consolidated statements of operations as “Share in results of unconsolidated subsidiaries and associated companies”. 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 unconsolidated subsidiaries and associated companies”.
   
 
Investments in which the Company has a majority shareholding but which it does not control, due to the participating rights of minority shareholders, are accounted for using the equity method.
   
 
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.
   
 
Cash and cash equivalents
 
For the purposes of the consolidated statements 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.
   
 
Restricted cash
 
Restricted cash consists of bank deposits which may only be used to settle certain pre-arranged loan or lease payments or minimum deposits which must be maintained in accordance with contractual arrangements.
   
 
Marketable securities
 
Marketable equity securities held by the Company are considered to be available-for-sale securities and as such are carried at fair value with resulting unrealised gains and losses, net of deferred taxes if any, recorded as a separate component of other comprehensive income in stockholders’ equity.
   
 
Inventories
 
Inventories comprise principally of fuel and lubricating oils and are stated at the lower of cost and market value. Cost is determined on a first-in, first-out basis.


 
F-10
 


 
Investment in finance leases
 
Certain vessels have been chartered under agreements that are classified as direct financing leases. The minimum payments under the charter agreements are recorded as the gross investment in the finance lease.  The difference between the gross investment in the finance lease and the cost of the vessel is recorded as unearned income.  Throughout the term of the charter agreement, the Company records as revenue interest income and unearned income. This unearned income is amortised to income over the life of the charter agreement to produce a constant periodic rate of return on the net investment in the finance lease.
   
 
Vessels and equipment
 
The cost of the vessels less estimated residual value is depreciated on a straight-line basis over the vessels’ estimated remaining economic useful lives. The estimated economic useful life of the Company’s double hull vessels is 25 years and for single hull vessels is either 25 years or the vessel’s anniversary date in 2015, whichever comes first. Other equipment is depreciated over its estimated remaining useful life, which approximates five years.
   
 
Vessels and equipment under capital lease
 
The Company charters in certain vessels under agreements that are classified as capital leases. Depreciation of vessels under capital lease is included within depreciation and amortisation expense in the consolidated statement of operations. Vessels under capital lease are depreciated on a straight-line basis over the vessels’ remaining economic useful lives or on a straight-line basis over the term of the lease. The method applied is determined by the criteria by which the lease has been assessed to be a capital lease.
   
 
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 instalments and other capital expenditures together with capitalised interest and associated finance costs. No charge for depreciation is made until the vessel is put into operation.
   
 
Vessel purchase options
 
Vessel purchase options are capitalised at the time option contracts are acquired or entered into. The Company reviews expected future cash flows, which would result from the exercise of each option contract on a contract by contract basis to determine whether the carrying value of the option is recoverable. If the expected future cash flows are less than the carrying value of the option plus further costs to delivery, a provision is made to write down the carrying value of the option to the recoverable amount. The carrying value of each option payment is written off as and when the Company adopts a formal plan not to exercise the option. Purchase price payments are capitalised and the total of the option payment, if any, and purchase price payment is transferred to cost of vessels, upon exercise of the option and delivery of the vessel to the Company.
   
 
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 no longer be appropriate. 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 capitalised and amortised on a straight-line basis over the term of the relevant loan. The straight line basis of amortisation approximates the effective interest method in the Company’s consolidated statement of operations. Amortisation of loan costs is included in interest expense.  If a loan is repaid early, any unamortised portion of the related deferred charges is charged against income in the period in which the loan is repaid.


 
F-11
 


 
Discount on loans
 
Discount on issue of certain of the Company’s long-term debt is being amortised over the respective periods to maturity of the debt.
   
 
Trade accounts receivable
 
Trade and other receivables are presented net of allowances for doubtful balances. If amounts become uncollectible, they are charged against income when that determination is made.
   
 
Revenue and expense recognition
 
Revenues and expenses are recognised on the accruals basis. Revenues are generated from freight billings, time charter and bareboat charter hires. Voyage revenues and expenses are recognised ratably over the estimated length of each voyage and, therefore, are allocated between reporting periods based in the relative transit time in each period. The impact of recognising voyage expenses ratably over the length of each voyage is not materially different on a quarterly and annual basis from a method of recognising such costs as incurred. 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 a service is provided. The Company uses a discharge-to-discharge basis in determining percentage of completion for all spot voyages and voyages servicing contracts of affreightment whereby it recognises revenue rateably from when product is discharged (unloaded) at the end of one voyage to when it is discharged after the next voyage. The Company does not begin recognising revenue until a charter has been agreed to by a customer and the Company, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage.
   
 
Amounts receivable or payable arising from profit sharing arrangements are accrued based on amounts earned as of the reporting date. Profit share income represents vessel earnings earned by the Company’s customers in excess of market rates. Profit share expense represents amounts due to Ship Finance based on 20% of the excess of  vessel revenues earned by the Company over the base hire paid to Ship Finance for chartering in the vessels.
   
 
Revenues and voyage expenses of the vessels operating in pool arrangements are pooled and the resulting net pool revenues, calculated on a time charter equivalent basis, are allocated to the pool participants according to an agreed formula.  Formulae used to allocate net pool revenues vary among different pools but generally allocate revenues to pool participants on the basis of the number of days a vessel operates in the pool with weighting adjustments made to reflect vessels’ differing capacities and performance capabilities.  The same revenue and expense principles stated above are applied in determining the pool’s net pool revenues.  Certain pools are responsible for paying voyage expenses and distribute net pool revenues to the participants.  Certain pools require the participants to pay and account for voyage expenses, and distribute gross pool revenues to the participants such that the participants’ resulting net pool revenues are equal to net pool revenues calculated according to the agreed formula.  The Company accounts for gross pool revenues allocated by these pools as “pool revenues” which are included in voyage revenues in its consolidated statements of operations.
   
 
Gain on sale of assets
 
Gain on sale of assets includes gains from the sale of vessels, gains from the termination of leases and gains from the sale of heavy lift conversion projects. Gains from the sale of assets are recognised when the vessel has been delivered and all risks have been transferred and is determined by comparing the proceeds received with the carrying value of the vessel. Gains from the termination of leases are recognised when the lease is effectively terminated and the vessel has been redelivered to the owner. Gains from sale of heavy lift conversion projects are recognised as each converted vessel is delivered.  The amount recognised is the gain allocated to each vessel that is not contingent upon future events.  Deferred gains are recorded as Other Current Liabilities.
   

 
F-12
 


 
Drydocking
 
Normal vessel repair and maintenance costs are expensed when incurred. The Company recognises the cost of a drydocking at the time the drydocking takes place, that is, it applies the “expense as incurred” method.
   
 
Derivatives
 
The Company may enter into interest rate swap transactions 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 recognised as assets or liabilities with changes in fair values recognised in the consolidated statements of operations.
   
 
The Company may enter into forward freight contracts and options in order to hedge exposure to the spot market for certain trade routes and in some cases, for speculative purposes. These transactions involve entering into a contract to swap theoretical market index based voyage revenues for a fixed daily rate. The fair values of the forward freight contracts are recognised as assets or liabilities with changes in fair values recognised in the consolidated statements of operations.
   
 
Financial instruments
 
In determining the 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 realised.
   
 
Foreign currencies
 
The functional currency of the Company and the majority of its subsidiaries is the U.S. dollar as the majority of revenues and expenditures are denominated in U.S. dollars. The Company’s reporting currency is also U.S. dollars. For subsidiaries that maintain their accounts in currencies other than U.S. dollars, the Company uses the current method of translation whereby the statements of operations are translated using the average exchange rate and the assets and liabilities are translated using the year end exchange rate. Foreign currency translation gains or losses are recorded as a separate component of other comprehensive income in stockholders’ equity.
   
 
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.
   
 
Share-based payments
 
The Company accounts for share based payments in accordance with SFAS 123(R) Share-Based Payment s (“FAS 123(R)”).  Accordingly, the Company expenses the fair value of stock options issued to employees over the period in which the options vest.
   
 
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.
   
 
Issuance of shares by a subsidiary/ associate
 
The Company recognises a profit when its subsidiary or associate issues stock to third parties at a price per share in excess of its carrying amount if such profit is realisable.  If such profit is not realisable, it is recorded as an increase to contributed surplus.


 
F-13
 


 
Reclassification
 
Effective 2007, the Company has elected to reclassify certain balances in its consolidated financial statements. The Company has reclassified commissions paid on some of the Company’s time charters which has resulted in a decrease in ship operating expenses and an increase of voyage expenses of $2.8 million in the year ended December 31, 2006. Effective 2007, the Company has elected to separately disclose related party balances which were previously reported in other receivables and other current liabilities and to separately disclose additional paid in capital which was previously reported within contributed surplus. Prior period comparatives have been reclassified to conform to the current year presentation.
   
3.
RECENT ACCOUNTING PRONOUNCEMENTS
   
 
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard No. 157, Fair Value Measurements (“FAS 157”). FAS 157 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value measurement under other accounting pronouncements that require or permit fair value measurements. Accordingly, this statement does not require any new fair value measurements. FAS 157 is effective for fiscal years beginning after December 15, 2007 and interim periods within such years. In February 2008, the FASB issued a staff position that delays the effective date of FAS 157 for all nonfinancial assets and liabilities except for those recognised or disclosed at least annually with the revised effective date being fiscal years beginning after November 15, 2008. Adoption of FAS 157 is not expected to have a material effect on the Company’s consolidated financial statements.
   
 
In February 2007, the FASB issued Statement of Financial Accounting Standard No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115 (“FAS 159”). FAS 159 allows  entities to choose to measure many financial instruments and certain other items at fair value, with unrealised gains and losses related to these financial instruments being reported in earnings at each subsequent reporting date. FAS 159 is effective for fiscal years beginning after November 15, 2007. Adoption of FAS 159 on January 1, 2008 is not expected to have a material effect on the Company’s consolidated financial statements.  
   
 
In December 2007, the FASB issued Statement of Financial Accounting Standard No. 141 (revised 2007), Business Combinations (“FAS 141(R)”). FAS 141(R) establishes the principles and requirements for how an acquirer recognises and measures the identifiable assets acquired, the liabilities assumed, the noncontrolling interest in the acquiree and the goodwill acquired. FAS 141(R) requires the acquirer in a business combination to:

·  
recognise 100% of the fair values of acquired assets, including goodwill, and assumed liabilities even if the acquirer has not acquired 100% of the target entity
·  
apply fair value to contingent consideration arrangements at the acquisition date
·  
expense transaction costs as incurred rather than including as part of the fair value of an acquirer’s interest
·  
fair value certain pre-acquisition contingencies such as environmental or legal issues
·  
limit the accrual of the costs for a restructuring plan in purchase accounting

 
FAS 141(R) is effective prospectively to business combinations where the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption is not permitted. Adoption of FAS 141(R) is not expected to have a material effect on the Company’s consolidated financial statements.
   

 
F-14
 


 
In December 2007, the FASB issued Statement of Financial Accounting Standard  No. 160, Non controlling Interest in Consolidated Financial Statements, an amendment of ARB No. 51 (“FAS 160”). FAS 160 clarifies the classification of non controlling interests (i.e. minority owners’ interests in subsidiaries) in consolidated balance sheets and the accounting for and reporting of transactions between the reporting entity and holders of such non controlling interests. FAS 160 requires that:

·  
non controlling interests are reported as an element of consolidated equity, thereby removing the current practice of classifying minority interest within the mezzanine section of the balance sheet
·  
reported net income will consist of the total income of all consolidated subsidiaries, with separate disclosure on the face of the income statement of the split of that income between the controlling and non controlling interests
·  
movements in the non controlling ownership interest amount will be accounted for as equity transactions. If the controlling interest loses control and deconsolidates a subsidiary, full gain or loss on the transition will be recognised
 
 
SFAS 160 is effective prospectively for fiscal years beginning after December 15, 2008. Early adoption is not permitted. The following provisions are required to be adopted retrospectively:

·  
non controlling interests are required to be reclassified from the mezzanine section to equity in the consolidated balance sheet
  ·    
  
consolidated net income must be recast to include net income attributable to both controlling and non controlling interests.  
 
 
Adoption of FAS 160 will result in the Company reporting minority interest as a component of equity in the balance sheet.
   
4.
DECONSOLIDATION OF SHIP FINANCE
   
 
The Company distributed the majority of its remaining shareholding of Ship Finance in March 2007 and no longer consolidates Ship Finance as of March 31, 2007.
   
 
FIN 46(R) was applied to Ship Finance as a holding company and to each of its subsidiaries. Ship Finance was determined to be the primary beneficiary of its subsidiaries with the exception of the Front Shadow where Golden Ocean Group Limited (“Golden Ocean”), as the lessee, was determined to be the primary beneficiary. As a result, these subsidiaries are being consolidated or accounted for under the equity method by Ship Finance as appropriate. The Company was determined to be the primary beneficiary of the holding company Ship Finance as a result of the variable interests held by the Company and its related parties. Consequently, Ship Finance and its subsidiaries were consolidated until Frontline distributed the majority of its remaining shares in Ship Finance.
   
 
Under FIN 46(R), the primary beneficiary should reconsider whether it is still the primary beneficiary if it sells or otherwise disposes of its variable interests to unrelated parties. As such, the Company’s distribution of shares in March is a reconsideration event and it was determined that the Company was no longer the primary beneficiary of Ship Finance. Accordingly, the Company is no longer consolidating Ship Finance as of March 31, 2007.
   
 
A summary of the major changes to the financial statements of the Company is as follows:

·  
Vessels leased from Ship Finance which were previously reported as vessels and equipment are now reported as vessels under capital lease
·  
Capital lease obligations with Ship Finance which were previously eliminated on consolidation are reported as liabilities with related interest recorded in the consolidated statement of operations

 
F-15
 

·  
Debt incurred by Ship Finance, which was previously reported as debt of the Company, is no longer reported
 
·  
Derivative instruments held by Ship Finance are no longer reported
 
·  
Minority interest expense relating to Ship Finance is no longer reported
 
·  
Profit share expense relating to amounts due to Ship Finance is now presented in the consolidated statement of operations
 
·  
Results from Ship Finance’s container ships and jack-up rigs are reported as discontinued operations in the years ended December 31, 2007, 2006 and 2005
 
 
Prior to the deconsolidation of Ship Finance, items of expenditure incurred by Ship Finance which have been recorded in the Company’s consolidated statement of cash flows for the year ended December 31, 2007 include:

·  
Purchase of the container ship Horizon Hawk for $56.8 million
·  
Payments totalling $126.5 million relating to Ship Finance’s second jack up rig West Prospero
·  
Cash from debt draw downs  totalling $127.2 million
·  
Debt repayments totalling $122.4 million
 
5. SEGMENT INFORMATION
   
The Company and the chief operating decision maker (“CODM”) measure performance based on the Company’s overall return to shareholders based on consolidated net income. Consequently, the Company has only one reportable segment: tankers  The tankers segment includes crude oil tanker vessels and OBO or oil/bulk/ore vessels. Both types of vessel are managed as part of this one segment .
   
  The consolidated financial statements include the results of rigs and containerships as discontinued operations.
   
  The Company’s management does not evaluate performance by geographical region as this information is not meaningful.
   
  The Company performs in two markets, the wet market whereby crude oil is transported, and the dry market whereby dry cargo is transported. An analysis of revenues from these services is as follows:
 
   (in thousands of $)     2007       2006       2005  
 
Total operating revenues – wet market
    1,171,000       1,461,901       1,387,009  
 
Total operating revenues – dry market
    120,170       90,699       104,668  
 
   
 
During the year ended December 31, 2007, the Company reported total income from one customer of $247.3 million which represented approximately 19% of consolidated operating revenues (2006: one customer which represented approximately 13% and 2005: one customer which represented approximately 10.4%). These revenues are reported under the tanker segment.
 
 
 
F-16
 


6.
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, Norway and the United Kingdom are subject to taxation in their respective jurisdictions. The tax paid by subsidiaries of the Company that are subject to taxation is not material.
   
 
The Company adopted FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes (“FIN 48”) on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognised in financial statements in accordance with Statement of Financial Accounting Standard 109 Accounting for Income Taxes. FIN 48 requires companies to determine whether it is more likely than not that a tax position taken or expected to be taken in a tax return will be sustained upon examination. If a tax position meets the more likely than not recognition threshold, it is measured to determine the amount of benefit to recognise in the financial statements. The Company has not recognised any additional liabilities or expenses on adoption of FIN 48 and does not have any unrecognised tax benefits, material accrued interest or penalties relating to income taxes.
   
7.
EARNINGS PER SHARE
   
 
The computation of basic earnings per share (“EPS”) is based on the weighted average number of shares outstanding during the year. The computation of diluted EPS assumes the foregoing and the exercise of stock options using the treasury stock method.
   
 
The components of the numerator for the calculation of basic EPS and diluted EPS for net income from continuing operations and net income are as follows:

(in thousands of $)
 
2007
   
2006
   
2005
 
Net income from continuing operations
    564,976       502,486       592,743  
Discontinued operations
    5,442       13,514       14,096  
Net income available to stockholders
    570,418       516,000       606,839  


 
F-17
 


 
The components of the denominator for the calculation of basic EPS and diluted EPS are as follows:

(in thousands)
 
2007
   
2006
   
2005
 
Basic earnings per share:
                 
Weighted average number of ordinary shares outstanding
    74,825       74,825       74,825  
                         
Diluted earnings per share:
                       
Weighted average number of ordinary shares outstanding
    74,825       74,825       74,825  
Stock options
    42       -       -  
      74,867       74,825       74,825  

   
2007
   
2006
   
2005
 
Anti-dilutive options
    -       100,000       -  

 
The Company has reclassified 2007 and prior years for discontinued operations relating to container ships and rigs. The effect on EPS of this reclassification is as follows:

(in thousands of $)
 
2007
   
2006
   
2005
 
Discontinued operations – containers and rigs
    5,442       13,514       5,311  
Basic and diluted EPS – containers and rigs
  $ 0.07     $ 0.18     $ 0.07  
                         
Discontinued operations – drybulk
    -       -       8,785  
Basic and diluted EPS – drybulk
    -       -     $ 0.12  

8.
LEASES
   
 
As of December 31, 2007, the Company leased in 56 vessels on long-term time charters and bareboat charters from third parties and related parties.  Three of these leases are classified as operating leases and 53 as capital leases.   With the exception of the Company’s long-term leases with Ship Finance, the Company’s long-term leases of vessels generally contain optional renewal periods and purchase and put options.
   
 
Rental expense
   
 
Charter hire payments to third parties for certain contracted-in vessels are accounted for as operating leases. The Company is also committed to make rental payments under operating leases for office premises. The future minimum rental payments under the Company’s non-cancellable operating leases are as follows:

(in thousands of $)
     
Year ending December 31,
     
2008
    38,857  
2009
    35,786  
2010
    34,067  
2011
    27,845  
2012
    8,741  
2013 and later
    5,928  
Total minimum lease payments
    151,224  

 
Total rental expense for operating leases was $59.0 million, $26.5 million and $12.9 million for the years ended December 31, 2007, 2006 and 2005, respectively.


 
F-18
 


 
The following table discloses information about the terms of the Company’s long term leases for vessels contracted in which are accounted for as operating leases:


Vessel Type
Expiry of Mandatory Lease Period
 
Extended Lease Periods at Lessor’s Option
   
Extended Lease Periods at Company’s Option
   
Company’s Purchase Option Periods
 
Lessor’s Put Option Exercise Date
Front Warrior (Suezmax)
2007
    2008-2011       2010-2011       2007- 2011  
2011
Hampstead
2012
 
none
   
none
   
none
 
none
Kensington
2011
 
none
   
none
   
none
 
none

 
The lease for Front Warrior was extended for an additional two years at the lessor’s option on January 1, 2008. The minimum lease payments for this optional period have been included in the analysis above.
   
 
A liability for put options on vessels leased on operating leases is recorded at such time that market conditions make it likely that a put option will be exercised on the exercise date.  A liability is recognised based on the amount, if any, by which the put option price exceeds the fair market value of the related vessel. As of December 31, 2007, no such liability had arisen.
   
 
Nine of the vessels leased by the Company are leased from special purpose lessor entities which were established and are owned by independent third parties who provide financing through debt and equity participation. Each entity owns one vessel, which is leased to the Company, and has no other activities.  Prior to the adoption of FIN 46(R), these special purpose entities were not consolidated by Frontline. One of these leases is accounted for as operating leases and eight of these leases are accounted for as capital leases.  The Company has determined that due to the existence of certain put and call options over the leased vessels, these entities are variable interest entities.  The determination of the primary beneficiary of a variable interest entity requires knowledge of the participations in the equity of that entity by individual and related equity holders.  Our lease agreements with the leasing entities do not give us any right to obtain this information and the Company has been unable to obtain this information by other means.  Accordingly the Company is unable to determine the primary beneficiary of these leasing entities. As of December 31, 2007, the original cost to the lessor of the assets under such arrangements was $618.5 million. As of December 31, 2007 and 2006, the Company's residual value guarantees associated with these leases, which represent the maximum exposure to loss, are $85.0 million.
   
 
The following table discloses information about the Company’s activity with these non-consolidated lessor entities in the three year period ended December 31, 2007:

 
   
Year ended December 31,
 
   
2007
   
2006
   
2005
 
Repayments of principal obligations under capital leases
    28,857       25,142       22,205  
Interest expense for capital leases
    32,605       34,867       36,850  
Charterhire expense for operating leases
    5,311       5,402       5,211  

 

 
F-19
 


 
 
As of December 31, 2007, the Company leased out 34 of its vessels to third parties on time and bareboat charters with initial periods ranging between three months and five years. All of those leases are classified as operating leases.
   
 
Rental income
   
 
The minimum future revenues to be received on time and bareboat charters which are accounted for as operating leases and other contractually committed income as of December 31, 2007 are as follows:


(in thousands of $)
 
Total
 
2008
    362,982  
2009
    264,508  
2010
    109,095  
2011
    28,468  
2012
    15,627  
2013 and later
    -  
Total minimum lease revenues
    780,680  

 
The cost and accumulated depreciation of the vessels leased to third parties as of December 31, 2007 were approximately $1,825.2 million and $513.5 million, respectively, and as of December 31, 2006 were approximately $2,167.4 million and $849.3 million, respectively. Two of the vessels currently leased to third parties are leased in on operating leases by the Company.
   
9.
MARKETABLE SECURITIES
   
 
Marketable securities held by the Company are equity securities considered to be available-for-sale securities.
   

(in thousands of $)
 
2007
   
2006
 
Cost
    16,008       1,198  
Net unrealised (loss) gain
    (324 )     271  
Fair value
    15,684       1,469  

 
The net unrealised loss on marketable securities, including a component of foreign currency translation, included in comprehensive income is $0.3 million – a decrease of $0.6 million for the year ended December 31, 2007 (2006 – net unrealised gain of $0.3 million).  During the year ended December 31, 2007, the net unrealised gain as of December 31, 2006 was released into the income statement as a result of the sale of the shares held.

(in thousands of $)
 
2007
   
2006
   
2005
 
Proceeds from sale of available-for-sale securities
    162,392       154,409       152,752  
Realised gain (including amounts classified in discontinued operations)
    49,023       9,782       28,035  
Realised loss (including amounts classified in discontinued operations)
    (40 )      -       -  

 
The cost of sale of available-for-sale marketable securities is calculated on an average cost basis. Realised gains and losses are recorded as gain on sale of securities in the consolidated statement of operations. Refer to Note 27 for further information on gains recorded in gain on sale of securities resulting from sales of assets not previously classified as marketable securities.


 
F-20
 


10.
TRADE ACCOUNTS RECEIVABLE, NET
   
 
Trade accounts receivable are presented net of allowances for doubtful accounts relating to demurrage claims amounting to $1.3 million and $3.0 million as of December 31, 2007 and 2006 respectively.
   
11.
OTHER RECEIVABLES
   

(in thousands of $)
 
2007
   
2006
 
Agent receivables
    3,537       7,039  
Claims receivables
    6,355       8,458  
Receivable from sale of assets
    13,372       13,372  
Other receivables
    5,300       8,466  
      28,564       37,335  

 
Other receivables are presented net of allowances for doubtful accounts amounting to $nil as of December 31, 2007 and 2006.
   
12.
OTHER CURRENT ASSETS

(in thousands of $)
 
2007
   
2006
 
Security deposits on newbuildings
    -       11,222  
Other
    64       349  
Other current assets
    64       11,571  

 
Security deposits on newbuildings relate to deposits paid plus related interest accrued by Ship Finance in relation to containership newbuildings. The Company stopped consolidating the results of Ship Finance with effect from March 31, 2007.
   
13.
NEWBUILDINGS

(in thousands of $)
 
2007
   
2006
 
Newbuildings
    160,298       166,851  

 
The carrying value of newbuildings represents the accumulated costs which the Company has paid by way of purchase instalments and other capital expenditures together with capitalised loan interest.  Interest capitalised in the cost of newbuildings amounted to $10.4 million in 2007 (2006: $3.6 million, 2005: $nil).
   
 
As of December 31, 2007, there were seven newbuilding contracts representing costs of $113.1 million (2006: six contracts representing costs of $71.0 million) and two conversion projects representing costs of $47.2 million (2006: two projects representing costs of $95.9 million). The conversion projects are for the conversion of two single hull Suezmax tankers into heavy lift vessels which are already subject to a sales agreement as discussed in Note 27.
   
 
The conversion projects reported in 2006 were for the conversion of a single hull Suezmax tanker into a heavy lift vessel which was sold to Dockwise in March 2007 and the conversion of an Aframax tanker into a Floating Production Storage and Offloading (“FPSO”) vessel which was sold to Sea Production in February 2007.

 
F-21
 


   
14.
VESSELS AND EQUIPMENT, NET
   

(in thousands of $)
 
2007
   
2006
 
Cost
    273,399       3,567,607  
Accumulated depreciation
    (64,883 )     (1,121,329 )
Net book value at end of year
    208,516       2,446,278  

 
Included in the above amounts as of December 31, 2007 and 2006 is equipment with a net book value of $3.6 million and $3.5 million respectively.
   
 
The Company stopped consolidating the results of Ship Finance with effect from March 31, 2007. This has resulted in a net book value of vessels totalling $2,181.6 million that were reported as wholly owned vessels in 2006 no longer being reported as these are now recorded as vessels under capital lease.
   
 
Depreciation expense for vessels and equipment was $46.3 million, $157.6 million and $198.8 million for the years ended December 31, 2007, 2006 and 2005, respectively, including amounts recorded in discontinued operations. Depreciation expense for the year ended December 31, 2007 includes $32.1 million relating to vessels leased from Ship Finance which are now accounted for as vessels under capital leases.
   
15.
VESSELS UNDER CAPITAL LEASE, NET
   

(in thousands of $)
 
2007
   
2006
 
Cost
    3,153,602       853,169  
Accumulated depreciation
    (828,813 )     (226,795 )
Net book value at end of year
    2,324,789       626,374  

 
Depreciation expense for vessels under capital lease was $174.9 million, $46.2 million and $46.2 million for the years ended December 31, 2007, 2006 and 2005, respectively.
   
 
The outstanding obligations under capital leases are payable as follows:

(in thousands of $)
     
Year ending December 31,
     
2008
    345,231  
2009
    427,108  
2010
    476,348  
2011
    343,333  
2012
    241,181  
2013 and later
    1,726,150  
Minimum lease payments
    3,559,351  
Less: imputed interest
    (1,060,953 )
Present value of obligations under capital leases
    2,498,398  

 
As of December 31, 2007, the Company held 54 vessels under capital leases (2006 – twelve), of which, 41 are leased from Ship Finance. These leases are for terms that range from six to 24 years.
   
 
The Company has purchase options over eight of these vessels at certain specified dates and the lessor has options to put these vessels to the Company at the end of the lease term. Gains arising from the sale and leaseback transactions have been deferred and are being amortised over the lease terms.


 
F-22
 


 
The following table discloses information about the terms of the Company’s capital leases for vessels excluding those leased from Ship Finance:

Vessel Type
Expiry of Mandatory Lease Period
 
Extended Lease Periods at Lessor’s Option
   
Extended Lease Periods at Company’s Option
 
Company’s Purchase Option Periods
Lessor’s Put Option Exercise Date
Front Crown (VLCC)
2009
    2010-2014       2013-2014  
2009 to 2014
2014
Front Chief (VLCC)
2009
    2010-2014       2013-2014  
2009 to 2014
2014
Front Commander (VLCC)
2009
    2010-2014       2013-2014  
2009 to 2014
2014
Front Eagle (VLCC)
2010
    2011-2015       2014-2015  
2010 to 2015
2015
Front Melody (Suezmax)
2011
    2012-2015       2014-2015  
2011 to 2015
2015
Front Symphony (Suezmax)
2011
    2012-2015       2014-2015  
2011 to 2015
2015
Front Tina  (VLCC)
2011
    2012-2015       2014-2015  
2011 to 2015
2015
Front Commodore (VLCC)
2011
    2012-2015       2014-2015  
2011 to 2015
2015
British Pioneer (VLCC)
2024
 
none
   
Note (2)
 
Note (1)
none
British Progress (VLCC)
2025
 
none
   
Note (2)
 
Note (1)
none
British Purpose (VLCC)
2025
 
none
   
Note (2)
 
Note (1)
none
British Pride (VLCC)
2025
 
none
   
Note (2)
 
Note (1)
none

 
Put options on vessels leased under leases classified as capital leases are recorded as part of the lease’s minimum lease payments.  Lease liabilities are amortised so that the remaining balance at the date the put option becomes exercisable is equal to the put option amount.  An additional liability is recognised based on the amount, if any, by which the put option price exceeds the fair market value of the related vessel. As of December 31, 2007 no such additional liability had arisen.


  (1)
The Company does not have options to purchase the vessel but it has first refusal if the vessel’s owner offers the vessel for sale.
  (2)
The Company has the right to terminate the lease at any time but only with permission of the charterer.

 
F-23
 


 
The Company’s capital leases for vessels leased from Ship Finance are long-term, fixed rate leases which extend for various periods depending on the age of the vessels The following table discloses information about the terms of these leases:


Vessel Type
 
Expiry of Mandatory Lease Period
 
Company’s Optional Termination Date
Company’s Purchase Option Periods
Lessor’s Put Option Exercise Date
OBO (8 vessels)
 
2015
 
none
none
none
Non double hull Suezmax and VLCC (9 vessels)
 
2013
 
2010
none
none
Double hull Suezmax (6 vessels)
    2017-2021  
none
none
none
Double hull VLCC (18 vessels)
    2021-2027  
none
none
none

 
In conjunction to the leases with Ship Finance, the Company has also entered into charter ancillary agreements whereby the Company agrees to pay Ship Finance a profit sharing payment equal to 20% of the charter revenues earned by the Company in excess of the daily base charterhire paid to Ship Finance. Subsequent to 2010, non-double hull vessels will be excluded from this profit sharing calculation. In the year ended December 31, 2007, total profit share due to Ship Finance was $52.5 million, of which $15.2 million was recorded in the quarter ended March 31, 2007 and subsequently eliminated as a result of the consolidation of Ship Finance.
   
 
The Company is obligated to ensure that a charter service reserve be held which can only be used to make charter payments to Ship Finance and for reasonable working capital to meet short term voyage expenses. The charter reserve is based on the number of vessels that the Company charters from Ship Finance. As of December 31, 2007, the total charter service reserve is $226.7 million and the balance is recorded as restricted cash in the Company’s consolidated balance sheet.
   
16.
EQUITY METHOD INVESTMENTS
   
 
As of December 31, 2007, the Company had the following participation in investments that are recorded using the equity method:

   
2007
   
2006
 
International Maritime Exchange ASA
    -       24.49 %
Front Tobago Shipping Corporation
    40.00 %     40.00 %
Golden Fountain Corporation
    50.00 %     50.00 %
Front Shadow Inc
    -       100.00 %
CalPetro Tankers (Bahamas I) Limited
    100.00 %     100.00 %
CalPetro Tankers (Bahamas II) Limited
    100.00 %     100.00 %
CalPetro Tankers (IOM) Limited
    100.00 %     100.00 %


 
F-24
 


 
Summarised balance sheet information of investees which the Company accounts for under the equity method investees as of December 31, 2007 is as follows:

 (in thousands of $)
 
2007
   
2006
 
Current assets
    19,639       71,320  
Non current assets
    64,558       139,983  
Current liabilities
    11,313       27,267  
Non current liabilities
    66,681       99,247  

 
Summarised statement of operations information of investees which the Company accounts for under the equity method as of December 31, 2007 is as follows:

(in thousands of $)
 
2007
   
2006
   
2005
 
Net operating revenues
    35,020       28,876       27,377  
Net operating (loss) income
    5,197       10,461       27,545  
Net (loss) income
    5,232       3,691       20,312  

 
Dividends totalling $0.3 million were received from equity method investees in the year ended December 31, 2007.
   
 
In 2007, the Company sold its entire investment in International Maritime Exchange ASA (“IMAREX”) for net proceeds of $50.5 million resulting in a gain on sale of $41.9 million which has been reported in gain from sale of securities.
   
 
Front Shadow is a wholly owned subsidiary of Ship Finance and was incorporated during 2006 for the purpose of holding a single capital asset and leasing that asset to a related party. Up until the deconsolidation of Ship Finance, the entity was accounted for under the equity method as it was determined that the entity was a VIE and that Ship Finance was not the primary beneficiary under FIN 46(R).  As a result of deconsolidation of Ship Finance in March 2007, Front Shadow is no longer reported by the Company.
   
 
The Company has determined that under FIN 46(R), it is not the primary beneficiary of the VIEs CalPetro Tankers (Bahamas I) Limited (“CalPetro BI”), CalPetro Tankers (Bahamas II) Limited (“CalPetro BII”) and CalPetro Tankers (IOM) Limited (“CalPetro IOM”) and as such, these entities are being equity accounted for. These companies were incorporated in 1994 for the purpose of acquiring three oil tankers from Chevron Transport Corporation (“Chevron”) and concurrently charter these vessels back to Chevron on long-term charter agreements. The companies were acquired by Independent Tankers Corporation (“ITC”) which in turn is a wholly owned subsidiary of the Company. In April 2006, Chevron cancelled its bareboat contract with CalPetro Tankers (Bahamas III) Limited (“CalPetro BIII”). Under FIN 46(R) this was considered to be a reconsideration event and the Company began consolidating the VIE into its accounts from that date. The Company does not guarantee the debt of these entities and the net assets of the three entities that are not consolidated total $4.1 million.
   
 
In January 2007, the Company had a 33.3% investment in Sealift and accounted for this investment under the equity method. In May 2007, the Company’s investment was reduced to 17.1% and as a result of the Company’s inability to exercise significant influence, the investment was accounted for as marketable securities from that date.
   
 
In February 2007, the Company had a 28.3% investment in Sea Production and accounted for this investment under the equity method until it sold its entire shareholding in June 2007.
   

 
F-25
 


17.
INVESTMENT IN FINANCE LEASES
   
 
Ship Finance’s jack-up drilling rig was chartered on a long term fixed rate bareboat charter to a subsidiary of Seadrill Limited (“Seadrill”). The terms of the charter provide the charterer with various call options throughout the charter period, which expires in 2021. Refer to Note 26 for further information.
   
 
The following schedule lists the components of the net investment in finance lease:

(in thousands of $)
 
2007
   
2006
 
Total minimum lease payments to be received
    -       297,277  
Estimated residual values of leased property (unguaranteed)
    -       60,000  
Less : Unearned income
    -       (158,528 )
Net investment in finance leases
    -       198,749  

 
As a result of deconsolidation of Ship Finance, the Company no longer reports any investments in finance leases.
   
18.
DEFERRED CHARGES
   
 
Deferred charges represent debt arrangement fees that are capitalised.  If a loan is repaid early, any unamortised portion of the related deferred charges is charged against income in the period in which the loan is repaid. The deferred charges are comprised of the following amounts:

 
(in thousands of $)
 
2007
   
2006
 
Debt arrangement fees
    384       24,102  
Accumulated amortisation
    (335 )     (7,165 )
      49       16,937  

 
As a result of the deconsolidation of Ship Finance, $16.8 million of deferred charges previously reported in 2006 are no longer reported in the Company’s results.
   
19.
ACCRUED EXPENSES


(in thousands of $)
 
2007
   
2006
 
Voyage expenses
    22,707       22,064  
Ship operating expenses
    21,385       22,748  
Administrative expenses
    6,634       6,618  
Interest expense
    31,335       37,627  
Taxes
    483       317  
Accrued conversion costs for heavy lift vessels
    15,233       -  
Other
    3,351       942  
      101,128       90,316  

20.
OTHER CURRENT LIABILITIES

(in thousands of $)
 
2007
   
2006
 
Accrued charterhire
    708       681  
Proceeds from sale and conversion of vessels, deferred
    124,597       -  
Other
    7,005       8,356  
      132,310       9,037  


 
F-26
 


 
The Company sold four converted heavy lift vessels and two Suezmax vessels to Dockwise in March 2007 with the Company being responsible for the conversion of four Suezmax vessels into heavy lift vessels with delivery staggered between May 2007 and June 2008. The net proceeds were deferred with gains being recognised in the consolidated statement of operations as each converted vessel is delivered to Dockwise. Two converted vessels were delivered during the year and the balance of proceeds relating to the remaining two converted vessels is being deferred until delivery of the last two vessels which is expected in the second quarter of 2008.
   
21.
DEBT

 (in thousands of $)
 
2007
   
2006
 
US Dollar denominated floating rate debt (LIBOR + 0.50% ) due through 2008
    80,000       1,602,920  
8.5% Senior Notes due 2013
    -       449,080  
Serial Notes (6.5% to 6.68%) due through 2010
    17,100       30,800  
Term Loans (8.52%) due 2015
    11,328       12,744  
Term Notes (7.84% to 8.04%) due through 2021
    364,860       366,200  
      473,288       2,461,744  
Credit facilities
    246       1,550  
Total debt
    473,534       2,463,294  
Less: short-term and current portion of long-term debt
    (96,811 )     (281,409 )
      376,723       2,181,885  

 
The outstanding debt as of December 31, 2007 is repayable as follows:

(in thousands of $)
     
Year ending December 31,
     
2008
    96,811  
2009
    13,144  
2010
    13,045  
2011
    17,425  
2012
    22,120  
2013 and later
    310,989  
      473,534  

 
The weighted average interest rate for the floating rate debt denominated in US dollars was 5.93% as of December 31, 2007 (2006 – 5.39%). The 2006 interest rate takes into consideration related interest rate swaps held by Ship Finance.
   
 
As a result of the deconsolidation of Ship Finance, $1,915.2 million of debt as of December 31, 2006 is no longer reported in the Company’s consolidated balance sheet.
   
 
US DOLLAR DENOMINATED FLOATING RATE DEBT EXCLUDING SHIP FINANCE
   
 
$20.0 million term loan facility
   
 
In October 2004, the Company entered into a $20.0 million secured term loan facility. The facility bore interest at LIBOR plus a margin. The loan was repaid in full in February 2007.
   
 
$69.0 million term loan facility
   
 
In December 2005, the Company entered into a $69.0 million loan facility with DnB NOR Bank ASA. The facility bore interest at LIBOR plus a margin and was secured by certain marketable securities and cash deposits. The facility was repaid in full in August 2006.


 
F-27
 


 
$24.0 million term loan facility
   
 
In September 2006, the Company entered into a $24.0 million secured term loan facility.  The facility bore interest at LIBOR plus a margin. The facility was repaid in April 2007.
   
 
$20.0 million term loan facility
   
 
In January 2005, the Company entered into a $20.0 million secured term loan facility. The facility bore interest at LIBOR plus a margin. The facility was repaid in full in July 2007.
   
 
$80.0 million term loan facility
   
 
In June 2006, the Company entered into a $80.0 million secured term loan facility.  The facility bears interest at LIBOR plus a margin. The facility is due June 2008 and is expected to be refinanced. The facility contains a minimum value covenant and covenants that require the Company to maintain a minimum level of free cash and positive working capital.
   
 
TERM AND SERIAL NOTES
   
 
ITC is the holding company for three separate structures involved in financing and leasing transactions. One of these structures has Serial Notes maturing between 2007 and 2010 and two of these structures have Term Notes maturing between 2019 and 2021. The Notes are collateralised by first preferred mortgages on the vessels owned by the ITC subsidiaries. As of December 31, 2007, the effective interest rate for the Term and Serial Notes was 7.85% (2006 – 7.80%).
   
 
The 7.84% First Preferred Mortgage Term Notes due 2021 and the 8.04% First Preferred Mortgage Term Notes due 2019 are each subject to redemption through the operation of mandatory sinking funds according to the schedule of sinking fund redemption payments set forth below.  The sinking fund redemption price is 100% of the principal amount of Term Notes being redeemed, together with accrued and unpaid interest to the date fixed for redemption.

(in thousands of $)
     
Year ending December 31,
     
2008
    5,765  
2009
    7,600  
2010
    11,115  
2011
    16,635  
2012
    21,270  
2013 and later
    302,475  
      364,860  

 

 
F-28
 


 
 
TERM LOANS
 
Principal is repayable on the 8.52% Term Loans due 2015 in accordance with a remaining eight year sinking fund schedule. Of the four entities reporting these term loans, only one entity, CalPetro BIII is consolidated as the remaining three entities are accounted for under the equity method under FIN 46(R). As discussed above, CalPetro BIII’s initial charter with Chevron was terminated on April 1, 2006 and as such, the revised sinking fund redemption amounts and final principal payment is as follows:

Scheduled payment date
 
Amount
$’000
 
2008
    -  
2009
    444  
2010
    730  
2011
    790  
2012
    850  
2013 and later
    8,514  
      11,328  

 
US DOLLAR DENOMINATED FLOATING RATE DEBT INCURRED BY SHIP FINANCE AS OF DECEMBER 31, 2006
   
 
$1,131.4 million secured term loan facility
   
 
In February 2005, Ship Finance 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. The facility is repayable over a term of six years.
   
 
In September 2006, Ship Finance 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, Ship Finance entered into a combined $350.0 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 new VLCCs. The facility bears interest at LIBOR plus a margin. The facility is repayable over a term of seven years.
   
 
$210.0 million secured term loan facility
   
 
In April 2006, Ship Finance entered into a $210.0 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 and is repayable over a term of 12 years.
   
 
$165.0 million secured term loan facility
   
 
In June 2006 , Ship Finance entered into a $165.0 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 and is repayable over a term of six years.

 
F-29
 


 
8.5% SENIOR NOTES DUE 2013
   
 
On December 15, 2003, Ship Finance 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, Ship Finance may redeem notes at redemption prices which reduce from 104.25 per cent in 2008 to 100 per cent in 2011 and thereafter.
   
 
In February 2006, Ship Finance 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, Ship Finance held bonds with a principal amount of $52 million under this agreement.  In February 2007, Ship Finance entered into an additional bond swap line with a second bank for a term of 12 months.
   
 
In 2006, Ship Finance bought back and cancelled notes with a principal amount of $8.0 million. As of December 31, 2006, the outstanding amount of Notes was $449.1 million.

Assets pledged
(in thousands of $)
 
2007
   
2006
 
Ship mortgages
    204,876       2,494,526  
Restricted bank deposits (excluding amounts held in charter service reserve)
    424,677       408,432  

22.
SHARE CAPITAL
   
 
Authorised share capital:

(in thousands of $, except share data)
 
2007
   
2006
 
125,000,000 ordinary shares of $2.50 each
    312,500       312,500  

 
Issued and fully paid share capital:

(in thousands of $, except share data)
 
2007
   
2006
 
74,825,169 ordinary shares of $2.50 each (2006: 74,825,169)
    187,063       187,063  

 
The Company’s ordinary shares are listed on the New York Stock Exchange, the Oslo Stock Exchange and the London Stock Exchange.
   
 
In September 2007, the Company reduced its additional paid in capital account by $480.8 million and the amount resulting from the reduction was credited to the Company’s contributed surplus account.
   
23.
ACCUMULATED OTHER COMPREHENSIVE INCOME
 
The activity in Accumulated Other Comprehensive Income may be summarised as follows:


   
Unrealised investment gains (losses)
   
Translation adjustments and other
   
Total
 
Balance at December 31, 2004
    10,427       (5,013 )     5,414  
Translation adjustment for the year
    -       (221 )     (221 )
Net unrealised gains and losses for the year
    655       -       655  
Reclassification adjustments for realised gains included in net income
    (12,532 )     -       (12,532 )
Balance at December 31, 2005
    (1,450 )     (5,234 )     (6,684 )
Translation adjustment for the year
    -       538       538  

 
F-30
 


   
Unrealised investment gains (losses)
   
Translation adjustments and other
   
Total
 
Net unrealised gains and losses for the year
    295       -       295  
Reclassification adjustments for realised gains included in net income
    1,426       -       1,426  
Balance at December 31, 2006
    271       (4,696 )     (4,425 )
Translation adjustment for the year
    -       1,324       1,324  
Net unrealised gains and losses for the year
    (324 )     -       (324 )
Reclassification adjustments for realised gains included in net income
    (271 )     -       (271 )
Balance at December 31, 2007
    (324 )     (3,372 )      (3,696 )

24.
SHARE OPTION PLANS
   
 
In November 2006, the Company’s board of directors approved the Frontline Ltd Share Option Scheme (the “Frontline Scheme”).  The Frontline Scheme permits the board of directors, at its discretion, to grant options to acquire shares in the Company to employees and directors of the Company or its subsidiaries and 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 in the period from the date of grant until the date the option is exercised, provided the subscription price is never 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 authorised for awards of equity share options and authorised, unissued or treasury shares of the Company may be used to satisfy exercised options.
   
 
The fair value of each option award is estimated on the date of the grant using a Black Scholes option valuation model with the following assumptions:

   
2006
 
Risk free interest rate
    4.74 %
Expected life
 
3.5 years
 
Expected volatility
    44 %
Expected dividend yield
    0 %

 
The risk-free interest rate was estimated using the interest rate on 3 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.
   

 
F-31
 


 
The following summarises share option transactions related to the Frontline Scheme:


(in thousands except per share data)
 
Options
   
Exercise Price
 
Options outstanding as of December 31, 2005
    -       -  
Granted
    100    
NOK 238.50
 
Exercised
    -       -  
Cancelled
    -       -  
Options outstanding as of December 31, 2006
    100    
NOK 238.50
 
Granted
    -       -  
Exercised
    -       -  
Cancelled
    -       -  
Options outstanding as of December 31, 2007
    100    
NOK 175.70
 
                 
Exercisable options
    33.3    
NOK 162.36
 

 
The weighted average grant-date fair value of options granted during 2006 is $15.23.
   
 
As of December 31, 2007, there was $0.6 million in unrecognised compensation cost related to non-vested options granted under the Frontline Scheme.  The compensation expense will be recognised over a period of three years in accordance with vesting conditions. Compensation expense recognised in the years ended December 31, 2007 and 2006 were $0.9 million and nil respectively.
   
25.
FINANCIAL INSTRUMENTS
   
 
Interest rate risk management
   
 
Interest rate swaps
   
 
In certain situations, the Company may enter into financial instruments to reduce the risk associated with fluctuations in interest rates. Ship Finance has a portfolio of swaps that swap floating rate interest to fixed rate, which from a financial perspective hedge interest rate exposure. The counterparties to such contracts are Credit Agricole Indosuez, Deutsche Schiffsbank, DnB NOR ASA, Skandinaviska Enskilda Banken AB, Fortis Bank, Scotia Bank, Nordea Bank Norge ASA, Citibank, HSH Nordbank, HBOS, and NIBC. Credit risk exists to the extent that the counterparties are unable to perform under the contracts.The Company no longer consolidates Ship Finance and therefore no longer reports Ship Finance’s portfolio of swaps.
   
 
The Company does not hold or issue instruments for speculative or trading purposes
   

 
F-32
 


 
The Company managed its debt portfolio with interest rate swap agreements in U.S. dollars to achieve an overall desired position of fixed and floating interest rates. As of December 31, 2006, Ship Finance had entered into the following interest rate swap transactions involving the payment of fixed rates in exchange for LIBOR:


Principal
(in thousands of $)
 
Inception Date
Maturity Date
 
Fixed Interest Rate
 
$ 50,000  
February 2004
February 2009
    3.49 %
$ 100,000  
February 2004
February 2009
    3.49 %
$ 50,000  
February 2004
February 2009
    3.35 %
$ 50,000  
February 2004
February 2009
    3.49 %
$ 50,000  
February 2004
February 2009
    3.35 %
$ 50,000  
February 2004
February 2009
    3.35 %
$ 50,000  
February 2004
February 2009
    3.37 %
$ 25,000  
February 2004
February 2009
    3.32 %
$ 25,000  
February 2004
February 2009
    3.32 %
$ 25,000  
February 2004
February 2009
    3.33 %
$ 25,000  
February 2004
February 2009
    3.32 %
$ 41,588  
April 2006
   November 2018
    5.64 %
$ 41,588  
April 2006
   March 2019
    5.64 %
$ 41,588  
April 2006
     April 2019
    5.64 %
$ 41,588  
April 2006
      May 2019
    5.64 %
$ 41,588  
April 2006
      May 2019
    5.64 %
$ 14,849  
February 2004
August 2008
    6.24 %
$ 15,919  
February 2004
August 2008
    6.24 %

 
As of December 31, 2006, the notional principal amounts subject to such swap agreements were $738.7 million.
   
 
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. Certain of the Company’s subsidiaries report in Sterling or Norwegian kroner and risks of two kinds arise as a result:

·  
a transaction risk, that is, the risk that currency fluctuations will have a negative effect on the value of the Company’s cash flows;
 
·  
a translation risk, that is, the impact of adverse currency fluctuations in the translation of foreign operations and foreign assets and liabilities into U.S. dollars for the Company’s consolidated financial statements.
 
 
Accordingly, such risk may have an adverse effect on the Company’s financial condition and results of operations. The Company has not entered into derivative contracts for either transaction or translation risk.
   
 
Forward freight contracts
 
The Company may enter into forward freight contracts, futures and option contracts in order to manage its exposure to the risk of movements in the spot market for certain trade routes for speculative 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. As of December 31, 2007 and 2006, the Company had no such contracts outstanding.

 
F-33
 


 
Fair Values
 
The carrying value and estimated fair value of the Company’s financial instruments as of December 31, 2007 and 2006 are as follows:

   
2007
   
2006
 
 
(in thousands of $)
 
Carrying Value
   
Fair Value
   
Carrying Value
   
Fair Value
 
Non-Derivatives:
                       
Cash and cash equivalents
    168,432       168,432       197,181       197,181  
Restricted cash
    651,377       651,377       677,533       677,533  
Marketable securities
    15,684       15,684       1,469       1,469  
Floating rate debt and credit facilities
    80,246       80,246       1,604,470       1,604,470  
8.5% Senior notes
    -       -       449,080       448,799  
Serial Notes (6.5% to 6.68%) due through 2010
    17,100       17,405       30,800       31,307  
8.52% Term Loan, due 2015
    11,328       12,169       12,744       13,588  
Term Notes (7.84% to 8.04%) due through 2019
    364,860       405,923       366,200       383,492  
                                 
Derivatives:
                               
Interest rate swap transactions receivable
    -       -       17,807       17,807  
Interest rate swap transactions payable
    -       -       (8,743 )     (8,743 )
Bond swaps
    -       -       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 of marketable securities is based on the quoted market price of these or similar instruments.
   
 
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 estimated fair value for the remaining fixed rate long-term loans and notes is based on the quoted market price of these or similar instruments when available.
   
 
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.
   
 
In February 2006, Ship Finance entered into a total return bond swap line with Fortis Bank for a term of twelve months. This swap facilitated the repurchase of Ship Finance’s 8.5% Senior Notes in the amount of $50.0 million. The fair value of the bond swap is estimated by taking into account the cost of entering into the bond swap to offset Ship Finance’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 substantially all of the amounts are carried with Skandinaviska Enskilda Banken (“SEB”), The Bank of New York and Nordea Bank Norge (“Nordea”). There is a concentration of credit risk with respect to restricted cash to the extent that substantially all of the amounts are carried with SEB, Nordea, Pacific Life, The Bank of New York, HSBC Midland, CIBC World Markets and JP Morgan Chase. However, the Company believes this risk is remote as these banks are high credit quality financial institutions.
   
 
The majority of the vessels’ gross earnings are receivable in U.S. dollars. During the year ended December 31, 2007, one customer accounted for more than 10% of our consolidated operating revenues (2006 and 2005: one customer).

 
F-34
 


26.
RELATED PARTY TRANSACTIONS
   
 
In June 2006, Ship Finance purchased the jack-up rig West Ceres from a subsidiary of Seadrill for a total consideration of $210.0 million. Upon delivery to Ship Finance, the rig was immediately chartered back to the subsidiary under a 15-year bareboat charter agreement, fully guaranteed by Seadrill, who has options to buy back the rig after three, five, seven, 10, 12 and 15 years.
   
 
In September 2006, Ship Finance acquired the Panamax Golden Shadow for $28.4 million from Golden Ocean. The vessel was chartered back to Golden Ocean for a period of 10 years.  As part of the agreement, Golden Ocean 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, Ship Finance has 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 August 2007, the Company sold the single hull vessel Front Horizon to a subsidiary of Farahead Holdings Limited for net proceeds of $28.0 million resulting in a net gain of $6.2 million.
   
 
As of March 31, 2007, the Company is no longer consolidating the results of Ship Finance. The majority of the Company’s leased vessels are leased from Ship Finance and under a Charter Ancillary Agreement, Ship Finance is entitled to a share of the Company’s earnings on these leased vessels. A summary of leasing transactions with Ship Finance during the year ended 31 December 2007 (excluding amounts prior to deconsolidation) is as follows:

(in thousands of $)
 
2007
 
Charterhire paid (principal and interest)
    273,239  
Payments received for termination of leases
    29,343  
Profit share expense
    37,279  
Remaining lease obligation
    1,767,758  

 
A summary of net amounts earned and balances with related parties excluding charterhire is as follows:

Net amounts earned from related parties
 
Year ended December 31,
 
(in thousands of $)
 
2007
   
2006
   
2005
 
Seatankers Management Co. Ltd
    582       432       265  
Golar LNG Limited
    284       180       255  
Ship Finance International Limited
    1,525       -       -  
Norse Energy Group ASA (formerly Northern Oil ASA)
    -       -       6  
Golden Ocean Group Limited
    2,099       597       362  
Individual related to John Fredriksen
    -       12       -  
Aktiv Kapital First Investment Ltd
    -       -       10  
Greenwich Holdings Ltd
    69       -       -  
Bryggegata AS
    (1,430 )     (1,021 )     (692 )
Seadrill Limited
    (52 )     545       (24 )
CalPetro Tankers (Bahamas I) Limited
    40       40       38  
CalPetro Tankers (Bahamas II) Limited
    40       40       38  
CalPetro Tankers (Bahamas III) Limited
    -       -       38  
CalPetro Tankers (IOM) Limited
    40       40       38  


 
F-35
 


 
Net amounts earned from related parties comprise office rental income and management, technical and commercial advisory, newbuilding supervision, corporate and administrative service income. Net expenses paid to related parties comprise primarily of rental for office space.

Receivables (payables) with related parties
 
As of December 31,
 
(in thousands of $)
 
2007
   
2006
 
Ship Finance International Limited
    (36,718 )     -  
Seatankers  Management Co. Ltd
    (900 )     275  
Golar LNG Limited
    93       (553 )
Northern Offshore Ltd
    13       49  
Golden Ocean Group Limited
    1,160       942  
Seadrill Limited
    73       30  
Greenwich Holdings
    51       -  
CalPetro Tankers (Bahamas I) Limited
    13       10  
CalPetro Tankers (Bahamas II) Limited
    13       10  
CalPetro Tankers (IOM) Limited
    13       10  

 
Receivables and payables with related parties comprise unpaid management, technical advisory, newbuilding supervision, administrative service and rental charges.  In addition, certain payables and receivables arise when the Company pays an invoice on behalf of a related party and vice versa.  The payable with Ship Finance also includes unpaid profit share due to Ship Finance. Receivables and payables with related parties are generally settled quarterly in arrears with the exception of profit share due to Ship Finance which is settled annually.
   
 
Ship Finance, Golar, Northern Offshore, Norse Energy, Aktiv Kapital, Seadrill, Bryggegata AS, Golden Ocean, Greenwich, Farahead and Seatankers are each subject to the significant influence or indirect control of John Fredriksen.  CalPetro BI, CalPetro BII, CalPetro BIII and CalPetro IOM were all equity accounted until March 31, 2006 at which point, the Company began consolidating CalPetro BIII.
   
 
During the year ended December 31, 2007, the Company held investments in Sea Production and Dockwise and earned income from these companies in the form of rental income and income earned from the provision of accounting services totalling $1.0 million. During the year, the Company disposed of its entire investments in these companies and they are no longer considered to be related parties. Refer to Note 27 for further discussion on gains from disposal of assets relating to Sea Production and Dockwise.
   
 
The Company also entered into bareboat contracts with Dockwise for five of the vessels sold with the charters expiring when the vessels entered the yard for conversion. As of December 31, 2007, charters for the two Suezmax vessels were still in place with termination expected in the second quarter of 2008. The Company is not responsible for the conversion of these two vessels. Charterhire paid to Dockwise in the year ended December 31, 2007 was $13.5 million.
   
27.
DISPOSAL OF ASSETS
   
 
In March 2007, the Company sold the single hull vessel Front Transporter for a net gain of $21.3 million which is reported as a gain on sale of assets.

 
F-36
 


   
 
As of December 31, 2006, the Company’s wholly owned subsidiary Sea Production held a 70% interest in Puffin Ltd (“Puffin”). Frontline FPSO Ltd (“Frontline FPSO”), a wholly owned subsidiary of Puffin, owned the vessel Front Puffin which was undergoing conversion into a FPSO vessel. In January 2007, Sea Production changed its name to Frontline Floating Production Ltd (“Frontline Floating Production”) and in February 2007, the Company set up another wholly owned subsidiary named Sea Production Ltd (“Sea Production”) with a view to spinning off its FPSO activities through Sea Production. In February 2007, Frontline Floating Production sold all its assets to Sea Production for a total consideration of $93.7 million. Simultaneously, Sea Production completed a private placement raising $180.0 million in equity. Frontline subscribed for 25.5 million shares for a total consideration of $51.0 million resulting in a 28.33% investment in Sea Production. A gain of $39.8 million has been recorded as a gain on issuance of shares by associates. The Company accounted for its investment in Sea Production under the equity method until the disposal of its entire shareholding in Sea Production in June 2007 resulting in a net gain of $31.2 million which has been recorded as gain on sale of securities.
   
 
In March 2007, Sealift acquired six single hull vessels, of which four were to be converted to heavy lift vessels, for a total purchase price of $476.0 million which was based on the estimated market value of the four converted heavy lift vessels and the two single hull Suezmax vessels. The purchase price includes $80.0 million short term seller’s credit from the Company which has been allocated equally to each of the last two remaining converted heavy lift vessels. This seller’s credit will be payable on delivery of each vessel. The sale of vessels to Sealift included an obligation on the Company to manage, supervise and pay the conversion costs for the four heavy lift vessels. The gain on sale arising from this transaction has been allocated to each vessel with $60.0 million of the gain being accounted for as an adjustment against the Company’s investment. The gain is recognised as each vessel is delivered. The two Suezmax vessels and two converted vessels were successfully delivered to Dockwise in 2007 resulting in a net gain of $60.7 million which has been recorded as a gain on sale of assets. The remaining two converted vessels are scheduled to be delivered in the second quarter of 2008 and conversion costs are currently being recorded in newbuildings. As of December 31, 2007, total deferred proceeds of $124.6 million from the sale and conversion of vessels are recorded in other current liabilities.
   
 
The Company accounted for its 33.3% investment in Sealift under the equity method. In May 2007, Sealift issued 94.1 million shares to the shareholders of Dockwise in exchange for all the shares and convertible securities of the entities owned by Dockwise. Sealift also completed a private placement for 39.8 million shares with the Company subscribing for 5 million shares. Sealift subsequently changed its name to Dockwise. A gain of $43.7 million has been recorded as a gain on issuance of shares by associates as a result. Subsequent to this transaction, the Company accounted for its 17.1% investment in Dockwise as marketable securities. In October 2007, the Company sold its entire investment in Dockwise for a net gain of $48.7 million which has been recorded as gain on sale of securities.
   
 
In June 2007, Ship Finance sold the single hull vessel Front Vanadis to a third party and as a result, terminated the Company’s long-term lease for the vessel. The Company received a termination payment of $13.2 million and recorded a net gain of $13.3 million as a gain on sale of assets.
   
 
In August 2007, the Company sold the single hull vessel Front Horizon for a net gain of $6.2 million which has been recorded as again on sale of assets.
   
 
In November 2007, the Company sold its entire investment in International Maritime Exchange ASA (“IMAREX”) for net proceeds of $50.5 million resulting in a gain on sale of $41.9 million which has been reported in gain from sale of securities.
   
 
In December 2007, Ship Finance sold the single hull vessel Front Birch to a third party and as a result, terminated the Company’s long-term lease for the vessel. The Company received a termination payment of $16.2 million and recorded a net gain of $16.6 million as a gain on sale of assets.

 
F-37
 


28.
MINORITY INTEREST AND DIVIDEND DISTRIBUTION TO SHAREHOLDERS
   
 
The Company accounts for pro-rata distributions to owners in a spin-off at the book value of shares distributed and accounts for non pro-rata distributions to owners in a spin-off at the fair value of shares distributed.
   
 
A summary of pro-rata partial spin offs of Ship Finance by the Company are as follows:

Distribution
Date
 
% Frontline holding
Distributed
   
Distribution Ratio (Ship Finance/ Frontline shares held)
   
Value of dividend
$ millions
 
June 16, 2004
    25.0 %     1/4     $ 142.5  
September 24, 2004
    9.9 %     1/10     $ 59.8  
December 15, 2004
    13.3 %     2/15     $ 85.7  
February 18, 2005
    25.0 %     1/4     $ 154.9  
March 24, 2005
    10.0 %     1/10     $ 57.0  
March 20, 2006
    5.14 %     1/20     $ 27.8  
March 22, 2007
    11.1 %     3/28     $ 162.2  

 
The value of the non-cash dividend is valued based on the book value of Ship Finance at the date of distribution. As a result of the final distribution on March 2007, the Company no longer consolidates Ship Finance and therefore no longer reports any related minority interest.
   
 
In November 2006, 30% of shares in Puffin Ltd, a subsidiary of the Company, were issued to a third party for $7.8 million as part of the proposed spin off of the Company’s FPSO (Floating Production, Storage and Offloading) operations. In February 2007, the Company sold its entire investment in Puffin Ltd to Sea Production and no longer reports any related minority interest.
   
29.
COMMITMENTS AND CONTINGENCIES
   
 
The Company insures 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. As a member of these mutual associations, 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.
   
 
As of December 31, 2007, the Company had nine vessels that were sold by the Company at various times during the period from November 1998 to December 31, 2003, and leased back on charters that range for periods of eight to twelve and a half years with options on the lessors’ side to extend the charters for periods that range up to five years. Eight of these charters are accounted for as capital leases and one is accounted for as an operating lease. The Company has purchase options at certain specified dates and the lessor has options to put the vessels on the Company at the end of the lease terms for all of these nine vessels. The total amount that the Company would be required to pay under these put options with respect to the operating lease is $9.5 million.
   
 
As of December 31, 2007 Chevron charters three vessels on long-term bareboat charters recorded as investments in finance leases.  Chevron holds options to purchase each vessel for $1 on April 1, 2015 provided no earlier optional termination of the bareboat charter has occurred. The Company has not received notice of Chevron’s intent to terminate any of these charters.

 
F-38
 


 
As of December 31, 2007, the Company had seven contracts for the construction of four VLCC newbuildings scheduled for delivery in 2009 and 2010 and three Suezmax newbuildings scheduled for delivery in 2008 and 2009. As of December 31, 2007, the Company was committed to make further instalments of $523.2 million. As of December 31, 2007, the Company also had a further five contracts for Suezmax newbuildings scheduled for delivery in 2009 and 2010 with instalments totalling $357.0 million. Refund guarantees from the shipyards have not yet been received on these contracts.
   
 
As of December 31, 2007, the Company had contracts for the conversion of the single hull Suezmax vessels Front Traveller and Front Comor into heavy lift vessels. As of December 31, 2007, the Company was committed to make further instalments of $49.5 million for these two vessels. If the converted vessels are not delivered to Dockwise within six months of the agreed delivery date, Dockwise is entitled to cancel the purchase of the vessels and receive a full refund of the sale proceeds. The sales proceeds for these two vessels amounted to $200.0 million. The relevant dates are July 31, 2008 for Front Traveller and November 30, 2008 for Front Comor. The Company expects to deliver the converted vessels before the cancellation date.
   
 
The Company is a party, as plaintiff or defendant, to several lawsuits in various jurisdictions for demurrage, damages, off-hire and other claims and commercial disputes arising from the operation of its vessels, in the ordinary course of business or in connection with its acquisition activities.  The Company believes that the resolution of such claims will not have a material adverse effect on the Company’s operations or financial condition.
   
30.
SUPPLEMENTAL INFORMATION
   
 
Non-cash investing and financing activities include the following:

(in thousands of $)
 
2007
   
2006
   
2005
 
                   
Dividends in kind:
                 
Spin-off of Ship Finance
    162,222       27,841       211,881  
                         
Purchase of marketable securities:
                       
Forward contract
    -       -       70,850  
                         
Vessels:
                       
Reclassification of vessel under conversion to newbuildings
    -       (55,317 )     -  
Vessel addition on termination of capital lease
    -       13,502       -  
Additions to vessels purchased from related party
    -       -       85,363  
Equity contribution from related party
    -       -       (85,363 ) 

31.
DISCONTINUED OPERATIONS
   
 
In 2005, the Company’s last remaining dry bulk vessel was sold and in 2007, due to the deconsolidation of Ship Finance in March 2007, the Company no longer reports results of Ship Finance’s containerships or jack up rigs.
   
 
The operations that have been disposed of have been recorded as discontinued operations in accordance with the requirements of FAS 144  Accounting for the Impairment or Disposal of Long-Lived Assets (“FAS 144”) as the operations and cash flows of the operations have been eliminated from the ongoing operations of the Company. The Company will not have any significant continuing involvement in these dry bulk, containership or jack-up rig operations in the future.

 
F-39
 


   
 
The following table presents the information required by FAS 144 in respect of discontinued operations:

(in thousands of $)
 
2007
   
2006
   
2005
 
Carrying amount of assets disposed of
    524,961       -       12,875  
Carrying amount of debt or lease retired
    317,543       -       11,246  
                         
Amounts recorded in discontinued operations:
                       
Operating revenues
    11,465       25,494       9,865  
Net income
    5,442       13,514       14,096  
Gain on disposal
    -               5,533  

 
As of December 31, 2004, the Company held 23,918,832 Golden Ocean shares representing 10.6% of the shares outstanding. These were reported under Marketable Securities and in February 2005, the Company sold these shares for a net gain of $12.8 million, of which $11.8 million was classified as discontinued operations representing the difference between the cost of the shares sold and the fair value of the shares at the date of the spin off of Golden Ocean.
   
 
In 2005 the Company recognised an expense in discontinued operations of $10.2 million in connection with its guarantee of profit sharing payments for the vessel Channel Alliance.  The Company’s guarantee was issued as part of the spin off of Golden Ocean in 2004.
   
32.
POOL REVENUES
   
 
Voyage charter revenues include pool revenues. Certain pools are responsible for paying voyage expenses and distribute net pool revenues to the participants while other pools require the participants to pay and account for voyage expenses, and distribute gross pool revenues to the participants such that the participants’ resulting net pool revenues are equal to net pool revenues calculated according to the agreed formula. An analysis of the Company’s pool revenues included within voyage revenues is as follows:

   
2007
   
2006
   
2005
 
Pool earnings allocated on gross basis
    34,369       131,099       128,726  
Pool earnings allocated on net basis
    -       -       25,015  
Total pool earnings
    34,369       131,099       153,741  

33.
GAIN ON ISSUANCE OF SHARES BY ASSOCIATE
   
 
The Company had a 24.49% investment in IMAREX. IMAREX is an authorised marketplace for the trading of freight derivatives in the global oil and dry cargo shipping markets and was established in early 2000. On March 31, 2005, IMAREX announced that it had successfully concluded a share issue prior to its listing on the Oslo Stock Exchange. A total of 432,098 shares were sold for a price of NOK 81 per share (par value NOK 1) raising a total of NOK 35 million. The Company did not participate in this share issue and as a result, its holding changed from 26.56% to 24.84%. On July 14, 2005, IMAREX issued 98,750 shares pursuant to their employee share option scheme and as a result, in 2005, the Company’s holding changed to 24.49%. A gain of $1.1 million was recorded in the statement of operations in 2005 as a result of these share issues by IMAREX.
   
 
In February 2007, the Company’s wholly owned subsidiary Sea Production completed a private placement for 90.0 million shares at a price of $2 per share, raising a total of $180.0 million. The Company subscribed for 25.5 million shares which represented a 28.3% investment. A gain of $39.8 million was recorded in the statement of operations as a result of the issue of shares by Sea Production.
   

 
F-40
 


 
In May 2007, Dockwise, which the Company accounted for under the equity method, completed a private placement for 39.8 million shares at a price of NOK 30 per share raising a total of NOK 1,194.0 million. The Company subscribed for five million of these shares and as the subscription was not sufficient to maintain the Company’s proportionate interest, the Company’s shareholding was reduced from 33.3% to 17.1%. A gain of $43.8 million was recorded in the consolidated statement of operations as a result. The Company subsequently accounted for its 17.1% investment as marketable securities. In September 2007, Dockwise issued a further 0.5 million shares. The Company did not participate in this offering and its shareholding was further reduced to 16.6%.
   
34.
SUBSEQUENT EVENTS
   
 
In January 2008, the Company’s lease with Ship Finance for the Front Maple was terminated due to the sale of the vessel by Ship Finance. A termination fee of $16.7 million was received from Ship Finance.
   
 
In January 2008, Golden President Shipping Corporation, a wholly owned subsidiary of Golden Ocean, won a court case against Bocimar N.V. regarding disputed profit share due on a time charter and was awarded $14.7 million plus interest. Bocimar N.V. have subsequently appealed this decision.The Company had previously guaranteed the profit share due to Golden Ocean in connection with the spin off of Golden Ocean in 2004 and Golden Ocean is due to repay the amount awarded to the Company when it is received from Bocimar N.V.
   
 
In February 2008, the Company’s Board of Directors declared a cash dividend of $2.00 per share which was paid on March 10, 2008.
   
 
In February 2008, the Company invested $20 million in Navig8 Limited (“Navig8”) which represents a 15.8% investment in Navig8.
   
 
In February 2008, the Company announced the appointment of Ms. Katherine Fredriksen as a director of the Company to fill a vacancy created by the resignation of Mr. Tor Olav Troim.
   
 
In February 2008, as part of the Company’s planned spin-off of its investment in its Bermuda subsidiary Independent Tankers Corporation Limited (“ITCL”) to the Company’s shareholders, the Company’s Board of Directors declared a special dividend-in-kind of 20% of the Company’s investment in ITCL with the distribution date being March 6, 2008. Eligible shareholders received one share in ITCL for every five shares held in the Company. ITCL was registered on the over-the-counter market in Oslo (“Oslo OTC”) on March 7, 2008. Certain of the Company’s U.S. shareholders were excluded from the distribution with the estimated allotment of shares to these excluded shareholders being sold by the Company on their behalf over the first five days’ trading on the Oslo OTC market. The average share price determined as a result of these sales was NOK 8.78, equivalent to $1.72 per ITCL share. Accordingly, shareholders who were excluded from the distribution received a cash payment in lieu of shares of $0.34 per Frontline share.
   
 
In February 2008, the Company’s Board of Directors approved a grant of 760,000 share options to the Board of Directors, senior management and other employees in the Company under the terms of the Company’s existing share option scheme. The strike price for the options is NOK 243 per share and the options will vest over a period of three years.
   
 
In March 2008, the Company entered into a forward contract for 1,366,600 shares in Overseas Shipholding Group, Inc (“OSG”) which represents 4.4% of the total outstanding shares in OSG. The Company also announced that its existing holding of shares in OSG together with shares held by companies indirectly controlled by Mr. John Fredriksen corresponded to a 5.2% ownership of OSG resulting in a total combined ownership of 9.6%.
   
 
In April 2008, the Company entered into a contract for four VLCC newbuildings for an aggregate cost of $540 million for delivery between June and December 2011. The Company has also secured options for a further two similar newbuildings at a fixed price.


 
F-41
 


 
BYE-LAWS
 
OF
 
FRONTLINE LTD.
 
 
Adopted September 28, 2007
 

 
 
 

INTERPRETATION
 
1.
In these Bye-Laws unless the context otherwise requires-
 
 
·
“ Associate ” means:
 
 
(a)
in respect of an individual, such individual’s spouse, former spouse, sibling, aunt, uncle, nephew, niece or lineal ancestor or descendant, including any step-child and adopted child and their issue and step parents and adoptive parents and their issue or lineal ancestors;
 
 
(b)
in respect of an individual, such individual’s partner and such partner’s relatives (within the categories set out in (a) above);
 
 
(c)
in respect of an individual or body corporate, an employer or employee (including, in relation to a body corporate, any of its directors or officers);
 
 
(d)
in respect of a body corporate, any person who controls such body corporate, and any other body corporate if the same person has control of both or if a person has control of one and persons who are his Associates, or such person and persons who are his Associates, have control of the other, or if a group of two or more persons has control of each body corporate, and the groups either consist of the same persons or could be regarded as consisting of the same persons by treating (in one or more cases) a member of either group as replaced by a person of whom he is an Associate.  For the purposes of this paragraph, a person has control of a body corporate if either (i) the directors of the body corporate or of any other body corporate which has control of it (or any of them) are accustomed to acting in accordance with his instructions or (ii) he is entitled to exercise, or control the exercise of, one-third or more of the votes attaching to all of the issued shares of the body corporate or of another body corporate which has control of it (provided that where two or more persons acting in concert satisfy either of the above conditions, they are each to be taken as having control of the body corporate);
 
 
·
“ 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;
 
 
·
“ Business Day ” means a day on which banks are open for the transaction of general banking business in each of Oslo, Norway, London, UK, New York, USA and Hamilton, Bermuda;
 
 
·
“ Company ” means the company incorporated in Bermuda under the name of London & Overseas Freighters Limited on the 12 th day of June, 1992;
 

 
 
 

 
·
“ Companies Acts ” means every Bermuda statute from time to time in force concerning companies insofar as the same applies to the Company;
 
 
·
“ employees share scheme ” means a scheme for encouraging or facilitating the holding of shares or debentures in the Company by or for the benefit of: -
 
 
(a)
the bona fide employees or former employees of the Company or any subsidiary of the Company; or
 
 
(b)
the wives, husbands, widows, widowers or children or step-children under the age of 18 of such employees or former employees;
 
 
·
“ Electronic Record ” means a record created, stored, generated, received or communicated by electronic means and includes any electronic code or device necessary to decrypt or interpret such a record;
 
 
·
“ Extraordinary Resolution ” means a resolution passed by a majority of not less than two-thirds of the votes cast at a general meeting of the Company;
 
 
·
“ Listing Exchange ” means any stock exchange or quotation system upon which any of the shares of the Company are listed from time to time;
 
 
·
“ London Stock Exchange ” means London Stock Exchange Limited;
 
 
·
“ New York Stock Exchange ” means the New York Stock Exchange;
 
 
·
“ Ordinary Resolution ” means a resolution passed by a simple majority of votes cast at a general meeting of the Company;
 
 
·
“ Oslo Stock Exchange ” means the Oslo Stock Exchange;
 
 
·
“ paid up ” means paid up or credited as paid up;
 
 
·
“ Principal Act ” means The Companies Act, 1981 (Bermuda) as amended, restated or re-enacted from time to time;
 
 
·
“ Register ” means the Register of Shareholders of the Company and includes any branch Register;
 
 
·
“ Registered Office ” means the registered office for the time being of the Company;
 
 
·
“ Registrar ” means such person or body corporate as may, from time to time, be appointed by the Board as Registrar;
 
 
·
“ Registration Office ” means the place where the Board may from time to time determine to keep a branch Register of Shareholders and where (except in cases where the Board otherwise directs) the transfer and documents of title are to be lodged for registration;
 

 
 
 

 
·
“ Resident Representative ” means any person appointed to act as the resident representative of the Company and includes any deputy or assistant resident representatives;
 
 
·
“ 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 of the Company;
 
 
·
“ these Bye-Laws ” means these Bye-Laws in their present form or as from time to time amended;
 
 
·
“ Treasury Shares ” means any share of the Company that was acquired and held by the Company, or as treated as having been acquired and held by the Company which has been hold continuously by the Company since it was acquired and which has not been cancelled;
 
 
·
“ VPS ” means the Verdipapirsentralen, the computerized central share registry maintained in Oslo, Norway, for bodies corporate whose shares are listed for trading on the Oslo Stock Exchange, and includes any successor registry;
 
 
·
for the purpose of these Bye-Laws a body corporate shall be deemed to be present in person if its representative duly authorized pursuant to the Companies Acts is present;
 
 
·
words importing the singular number also include the plural number and vice versa;
 
 
·
words importing the masculine gender also include the feminine and neuter genders respectively;
 
 
·
words importing persons also include companies and associations or bodies of persons, whether corporate or unincorporated;
 
 
·
references to writing shall include typewriting, printing, lithography, facsimile, photography and other modes of reproducing or reproducing words in a legible and non-transitory form;
 
 
·
unless otherwise defined herein, any words or expressions defined in the Principal Act 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
 

 
 
 

 
·
any reference in these Bye-Laws to any statute or section thereof shall, unless expressly stated, be deemed to be a reference to such statute or section as amended, restated or re-enacted from time to time;
 
 
·
headings in these Bye-Laws are inserted for convenience of reference only and shall not affect the construction thereof.
 
REGISTERED OFFICE
 
2.
The Registered Office shall be at such place in Bermuda as the Board shall from time to time appoint.
 
SHARE RIGHTS
 
3.
Subject to the Companies Acts and any special rights conferred on the holders of any other share of 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 Ordinary Resolution determine.
 
4.
Subject to the Companies Acts, any preference shares may, with the sanction of an Ordinary 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 authorized by the memorandum of association or incorporating Act of the Company, that they are liable to be redeemed at the option of the holder.
 
The terms and manner of redemption shall be either as the Company may in general meeting determine or, in the event that the Company in general meeting may have so authorized, as the Board of Directors or any committee thereof may by resolution determine before the issuance of such shares.
 
5.
At any time that the Company holds Treasury Shares, all of the rights attaching to the Treasury Shares shall be suspended and shall not be exercised by the Company.  Without limiting the generality of the foregoing, if the Company holds Treasury Shares, the Company shall not have any right to attend and vote at a general meeting or sign written resolutions and any purported exercise of such a right is void.
 
6.
Except where required by the Principal Act, Treasury Shares shall be excluded from the calculation of any percentage or fraction of the share capital or shares of the Company.
 

 
 
 

 
MODIFICATION OF RIGHTS
 
7.
Subject to the Companies Acts, all or any of the 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 in nominal value of the issued shares of that class or with the sanction of a resolution passed by a majority of seventy-five percent of the votes cast 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:
 
 
(a)
the necessary quorum at any such meeting shall be two or more persons (or in the event that there is only one holder of the shares of the relevant class, one person) holding or representing by proxy in the aggregate at least one third in nominal value of the shares of the relevant class;
 
 
(b)
every holder of shares of the relevant class present in person or by proxy shall be entitled on a poll to one vote for every such share held by him; and
 
 
(c)
any holder of shares of the relevant class present in person or by proxy may demand a poll.
 
8.
The 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.
 
POWER TO PURCHASE OWN SHARES
 
9.
The Company shall have the power to purchase its own shares for cancellation.
 
10.
The Company shall have the power to acquire its own shares to be held as Treasury Shares.
 
11.
The Board may exercise all of the powers of the Company to purchase or acquire its own shares, whether for cancellation or to be held as Treasury Shares in accordance with the Principal Act.
 
SHARES
 
12.
Subject to the provisions of these Bye-Laws, the unissued shares of the Company (whether forming part of the original capital or any increased capital) shall be at the disposal of the Board, which may offer, allot, grant options over or otherwise dispose of them to such persons at such times and for such consideration and upon such terms and conditions as the Board may determine.
 

 
 
 

13.
The Board may in connection with the issue of any shares exercise all powers of paying commission and brokerage conferred or permitted by law.
 
14.
Except as ordered by a court of competent jurisdiction, as required by law or as otherwise provided in these Bye-Laws, no person shall be recognized by the Company as holding any share upon trust and the Company shall not be bound by or required in any way to recognize (even when having notice thereon) any equitable, contingent, future or partial interest in any share or any interest in any fractional part of a share or any other right in respect of any share except an absolute right to the entirety thereof in the registered holder.
 
15.
No shares shall be issued until they are fully paid except as may be prescribed by an Ordinary Resolution.
 
CERTIFICATES
 
16.
The preparation, issue and delivery of certificates shall be governed by the Companies Acts.  A person whose name is entered in the Register as the holder of any shares shall be entitled to receive within two months of a demand for same a certificate for such shares under the Seal of the Company as prima facie evidence of title of such person to such shares.  In the case of a share held jointly by several persons, delivery of a certificate for such share to one of several joint holders shall be sufficient delivery to all.
 
17.
If a share certificate is defaced, lost or destroyed it may be replaced without fee but on such terms (if any) as to evidence, indemnity and 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.
 
18.
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 mechanical means or may be printed thereon or that such certificates need not be signed by any persons.
 
LIEN
 
19.
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.
 

 
 
 
 
20.
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.
 
21.
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 authorize 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.
 
CALLS ON SHARES
 
22.
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 seven 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.
 
23.
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.
 
24.
The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof.
 
25.
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.
 
26.
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.
 

 
 
 
 
27.
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.
 
FORFEITURE OF SHARES
 
28.
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.
 
29.
The notice shall name a further day (not being less than fourteen 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, reference in these Bye-Laws to forfeiture shall include surrender.
 
30.
If the requirements of any such notice as aforesaid are not compiled 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.
 
31.
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.
 
32.
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 canceled on such terms as the Board may think fit.
 
33.
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.
 

 
 
 

34.
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 authorize 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.
 
REGISTER OF SHAREHOLDERS
 
35.
The Secretary shall establish and maintain the Register of Shareholders at the Registered Office 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 so 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 14.
 
36.
Subject to the Companies Act, the Company may keep a branch Register of Shareholders in any place, and the Board may make and vary such regulations as it determines in respect of the keeping of any such Register and maintaining a Registration Office in connection therewith.
 
REGISTER OF DIRECTORS AND OFFICERS
 
37.
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.
 
TRANSFER OF SHARES
 
38.
Subject to the Companies Acts and to such of the restrictions contained in these Bye-Laws as may be applicable and to the provisions of any applicable United States securities laws including without limitation the United States Securities Act, 1933, as amended, and the rules promulgated thereunder, 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.
 
39.
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.  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.  Should the Company be permitted to do so under the laws of Bermuda, the Board may, either generally or in any particular case, upon request by the transferor or the transferee, accept mechanically or electronically (including a transfer by a London Stock Exchange nominee to whom no certificate was issued) executed transfer and may also make such regulations with respect to transfer in addition to the provisions of these Bye-Laws as it considers appropriate.  The Board may, in its absolute discretion, decline to register any transfer of any share which is not a fully-paid share.
 
 
 
 
 
 
·
The Board shall decline to register the transfer of any share, and shall direct the Registrar to decline (and the Registrar shall decline) to register the transfer of any interest in any share held through the VPS, to a person where the Board is of the opinion that such transfer might breach any law or requirement of any authority or any Listing Exchange until it has received such evidence as it may require to satisfy itself that no such breach would occur.
 
 
·
The Board may decline to register the transfer of any share, and may direct the Registrar to decline (and the Registrar shall decline if so requested) to register the transfer of any interest in any share held through the VPS, if the registration of such transfer would be likely, in the opinion of the Board, to result in fifty percent or more of the aggregate issued share capital of the Company or shares of the Company to which are attached fifty percent or more of the votes attached to all outstanding shares of the Company being held or owned directly or indirectly, (including, without limitation, through the VPS) by a person or persons resident for tax purposes in Norway (or such other jurisdiction as the Board may nominate from time to time), provided that this provision shall not apply to the registration of shares in the name of the Registrar as nominee of persons whose interests in such shares are reflected in the VPS, but shall apply, mutatis mutandis, to interests in shares of the Company held by persons through the VPS.
 
 
·
For the purposes of this Bye-Law, each Shareholder (other than the Registrar in respect of those shares registered in its name in the Register as nominee of persons whose interests in such shares are reflected in the VPS) shall be deemed to be resident for tax purposes in the jurisdiction specified in the address shown in the Register for such Shareholder, and each person whose interests in shares are reflected in the VPS shall be deemed to be resident for tax purposes in the jurisdiction specified in the address shown in the VPS for such person.  If such Shareholder or person is not resident for tax purpose in such jurisdiction or if there is a subsequent change in his residence for tax purposes, such Shareholder shall notify the Company immediately of his residence for tax purposes.
 
 
·
Where any Shareholder or person whose interests in shares are reflected in the VPS fails to notify the Company in accordance with the foregoing, the Board and the Registrar may suspend sine die such Shareholder’s or person’s entitlement to vote or otherwise exercise any rights attaching to the shares or interests therein and to receive payments of income or capital which become due or payable in respect of such shares or interests and the Company shall have no liability to such Shareholder or person arising out of the late payment or non-payment of such sums and the Company may retain such sums for its own use and benefit.  In  addition to the foregoing the Board and the Registrar may dispose of the shares in the Company or interests herein of such Shareholder or person at the best price reasonably obtainable in all the circumstances.  Where a notice informing such Shareholder or person of the proposed disposal of his shares or interests therein has been served, his shares or interest therein may not be transferred otherwise than in accordance with this Bye-Law 39 and any other purported transfer of such shares or interests therein shall not be registered in the books of the Company or the VPS and shall be null and void.
 
 
 
 
 
 
·
The provision of these Bye-Laws relating to the protection of purchaser of shares sold under lien or upon forfeiture shall apply mutatis mutandis to a disposal of shares or interests therein by the Company or the Registrar in accordance with this Bye-Law.
 
 
·
Without limiting the generality of the foregoing, the Board may also decline to register any transfer unless:-
 
 
(i)
the instrument of transfer is duly stamped and lodged with the Company accompanied by the certificate for the shares to which it relates if any and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer;
 
 
(ii)
the instrument of transfer is in respect of only one class of share; and
 
 
(iii)
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 discretion of the Board under this Bye-Law and Bye-Laws 38 and 40.
 
 
·
If fifty percent or more of the aggregate issued share capital of the Company or shares to which are attached fifty percent or more of the votes attached to all outstanding shares of the Company are found to be held or owned directly or indirectly (including, without limitation, through the VPS) by a person or persons resident for tax purposes in Norway (or such other jurisdiction as the Board may nominate from time to time), other than the Registrar in respect of those shares registered in its name in the Register as nominee of persons whose interests in such shares are reflected in the VPS, the Board shall make an announcement to such effect through the Oslo Stock Exchange, and the Board and the Registrar shall thereafter be entitled and required to dispose of such number of shares of the Company or interests therein held or owned by such persons as will result in the percentage of the aggregate issued share capital of the Company held or owned as aforesaid being less than fifty percent, and, for these purposes, the Board and the Registrar shall in such case dispose of shares or interests therein owned by persons resident for tax purposes in the relevant jurisdiction in question on the basis that the shares or interests therein most recently acquired shall be the first to be disposed of (i.e. on the basis of last acquired first sold) save where there is a breach of the obligation to notify tax residency pursuant to the foregoing, in which event the shares or interests therein of the person in breach thereof shall be sold first.  Shareholders shall not be entitled to raise any objection to the disposal of their shares, but the provisions of these Bye-Laws relating to the protection of purchasers of shares sold under lien or upon forfeiture shall apply mutatis mutandis to any disposal of shares or interests therein made in accordance with this Bye-Law.
 

 
 
 
 
40.
If the Board declines to register a transfer it shall, within sixty days after the date on which the instrument of transfer was lodged, send to the transferee notice of such refusal.
 
41.
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.
 
42.
The Company may dispose of or transfer Treasury Shares for cash or other consideration.
 
TRANSMISSION OF SHARES
 
43.
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 recognized by the Company as having any title to his shares; but nothing herein contained shall release the estate of a deceased holder (whether 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 recognized by the Company for the purpose of this Bye-Law.
 
44.
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 another person registered, he shall signify his election by signing an instrument of transfer of such share in favor of that other person.  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 shared by such Shareholder.
 

 
 
 

45.
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.
 
46.
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 43, 44 and 45.
 
DISCLOSURE OF MATERIAL INTERESTS
 
 
47.
(a)
Any person (other than the Registrar in respect of those shares registered in its name in the Register as the nominee of persons whose interests in such shares are reflected in the VPS) who acquires or disposes of an interest in shares to the effect that the requirements of the Oslo Stock Exchange in effect from time to time concerning the duty to flag changes in a person’s interest in shares require such changes to be notified shall notify the Registrar immediately of such acquisition or disposal and the resulting interest of that person in shares.
 
 
(b)
For the purposes of this Bye-Law, a person shall be deemed to have an interest in shares:
 
 
(i)
owned by such person’s spouse, minor child or cohabitant;
 
 
(ii)
owned by any body corporate in which such person owns shares representing the majority of the votes attaching to all of the issued and outstanding shares of such body corporate or over which he has as owner of shares in such body corporate or by virtue of an agreement a determining influence and a substantial participation (as those terms are interpreted by the Norwegian courts from time to time) in the results of such body corporate’s operations;
 
 
(iii)
owned by any person with whom such person acts in concert (as such term is interpreted from time to time by the Oslo Stock Exchange), by virtue of any agreement or otherwise;
 
 
(iv)
registered in the name of the Registrar in the Register as nominee of such person or of any person referred to in clause (i), (ii), or (iii) in relation to such person;
 
 
 
 

 
(v)
which are issuable on the exercise of any options, convertible bonds, subscription rights or any other rights to acquire shares in which such person has an interest;
 
 
(vi)
subject to a lien or other security interest in favor of such person;
 
 
(vii)
which are issuable on the exercise of purchase rights, preemption rights, or other rights related thereto in which such person has an interest and which are activated by the acquisition, disposal or conversion of shares;
 
 
(viii)
subject of any other agreed restriction on a Shareholder’s right to dispose of same or to exercise such Shareholder’s rights as a Shareholder, in favor of such person, except agreements to separate the dividend right from the ownership right of a share;
 
 
(ix)
in connection with the acquisition of which there was given guarantee of their purchase price by such person or such person otherwise undertook a risk with respect to the value thereof and which guarantee or risk remains outstanding.
 
 
(c)
The Registrar shall promptly report any such notification of interest to the Oslo Stock Exchange and the Company.
 
 
(d)
If a person fails to give notification of a change in his interest in shares in accordance with this Bye-Law 47 and the Board believes that such person has acquired or disposed of an interest in shares in circumstances in which he would be subject to the notification requirements of this Bye-Law 47, the Board shall require the Registrar to serve upon that person a notice:
 
 
(i)
requiring him to comply with the notification requirements in relation to the change in his interest in shares; and
 
 
(ii)
informing him that, pending compliance with the notification requirements, the registered holder or holders of the shares in which that person is interested shall not be entitled to vote or otherwise exercise any rights attaching to the shares to which the notice relates nor shall such registered holder or holders be entitled to receive payments of income or capital which become due or payable in respect of such shares.  The registered holder’s or holders’ entitlement to such payments shall be suspended pending compliance with the notification requirements without any liability of the Company to such holder or holders arising for late payment or nonpayment and the Company may retain such sums for its own use and benefit during such period of suspension.
 
 
 
 

 
(e)
The provisions of these Bye-Laws relating to the protection of purchasers of shares sold under a lien or upon forfeiture shall apply mutatis mutandis to disposals under this Bye-Law 47.
 
INCREASE OF CAPITAL
 
48.
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 Ordinary Resolution shall prescribe.
 
49.
The Company may, by the Ordinary 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 Act) 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.
 
50.
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.
 
ALTERATION OF CAPITAL
 
51.
The Company may from time to time by Ordinary Resolution:
 
 
(a)
increase its capital as provided by Bye-Law 48;
 
 
(b)
divide its shares into several classes and attach thereto respectively any preferential, deferred, qualified or special rights, privileges or conditions;
 
 
(c)
consolidate and divide all or any of its share capital into shares of larger par value than its existing shares;
 
 
(d)
sub-divide its shares or any of them into shares of smaller amount 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;
 
 
(e)
make provision for the issue and allotment of shares which do not carry any voting rights;
 
 
(f)
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;
 
 
(g)
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 authorize 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.
 

 
 
 

 
52.
Subject to the provisions of the Companies Act and to any confirmation or consent required by law or these Bye-Laws, the Company may by Ordinary Resolution from time to time convert any preference shares into redeemable preference shares.
 
53.
The Company may from time to time purchase its own shares on such terms and in such manner as may be authorized by the Board of Directors, subject to the rules, if applicable, of the London Stock Exchange, the New York Stock Exchange and the Oslo Stock Exchange. In the event the Company conducts a tender offer for its shares, any such offer which is made through the facilities of the Oslo Stock Exchange shall be expressed as being conditional upon no Shareholders or persons resident for tax purposes in Norway (or such other jurisdiction as the Board may nominate from time to time) owning or controlling fifty percent or more of the issued share capital or the votes attaching to the issued and outstanding share capital of the Company following such purchase.
 
Any share so purchased shall be treated as cancelled, and the amount of the Company’s issued share capital shall be diminished by the nominal value of the shares purchased, but such purchase shall not be taken as reducing the amount of the Company’s authorized share capital.
 
54.
Subject to the Companies Act, the Company shall have the option, but not the obligation, to repurchase from any Shareholder or Shareholders all fractions of shares, and all holdings of fewer than 100 shares, registered in the name of said Shareholder or Shareholders.  Such repurchase shall be on such terms and conditions as the Board may determine, provided that in any event, the repurchase price shall be not less than the closing market price per share quoted on the New York Stock Exchange or the Oslo Stock Exchange on the effective date of the repurchase. Each Shareholder shall be bound by the determination of the Company to repurchase such shares or fractions thereof.  If the Company determines to repurchase any such shares or fractions, the Company shall give written notice to each Shareholder concerned accompanied by a cheque or warrant for the repurchase price and the relevant shares, fractions and certificates in respect thereof shall thereupon be cancelled.
 
REDUCTION OF CAPITAL
 
55.
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 Ordinary Resolution authorize the reduction of its issued share capital or any capital redemption reserve fund or any share premium or contributed surplus account in any manner.
 

 
 
 

56.
In relation to any such reduction the Company may by Ordinary 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.
 
GENERAL MEETINGS AND WRITTEN RESOLUTIONS
 
 
57.
(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 subject to the limitation set out below 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.  Any such Annual or Special General Meeting shall be held at any place other than Norway.
 
 
(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 a simple majority of all of the Shareholders (or such greater majority as is required by the Companies Acts or these Bye-Laws) 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)
A resolution in writing is passed 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, such number of the Shareholders of the Company who at the date of the notice represent such majority of votes as would be required if the resolution had been voted on at a meeting of the Shareholders.
 
 
(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.
 

 
 
 

 
(e)
Notice of any resolution to be made pursuant to Bye-Law 57 (b) shall be given, and a copy of the resolution shall be circulated, to all Shareholders who would be entitled to attend a meeting and vote on the resolution in the same manner as that required for a notice of a meeting of the Shareholders at which the resolution could have been considered except that any requirement in the Companies Acts or these Bye-Laws as to the length of the period of notice shall not apply.
 
NOTICE OF GENERAL MEETINGS
 
58.
An Annual General Meeting shall be called by not less than seven days notice in writing and a Special General Meeting shall be called by not less than seven days notice in writing.  The notice period shall be exclusive of the day on which the notice is served or deemed to be served and of the day on which the meeting to which it relates is to be held 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 these Bye-Laws 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 ninety-five 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.
 
59.
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.
 
60.
The Board may convene a Special General Meeting whenever it thinks fit.  A Special General Meeting shall also be convened by the Board on the written requisition of Shareholders holding at the date of the deposit of the requisition not less than one tenth in nominal value of the paid-up capital of the Company which as at the date of the deposit carries the right to vote at a general meeting of the Company.  The requisition must state the purposes of the meeting and must be signed by the requisitionists and deposited at the registered office of the Company, and may consist of several documents in like form each signed by one or more of the requisitionists.
 

 
 
 
 
PROCEEDINGS AT GENERAL MEETING
 
61.
No business shall be transacted at any general meeting unless the requisite 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 represented by proxy, holding in the aggregate shares carrying 33 1/3% of the voting rights entitled to be exercised at such meeting.
 
62.
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 or, in the event that there is only one Shareholder, one Shareholder, present in person or by proxy (whatever the number of shares held by them) shall be a quorum.  The Company shall give not less than five days notice of any meeting adjourned through want of a quorum and such notice shall state that two Shareholders or, in the event that there is only one Shareholder, one Shareholder, present in person or by proxy (whatever the number of shares held by them) shall be a quorum.
 
63.
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 meeting shall constitute presence in person at such meeting.
 
64.
Each Director and the Company’s auditor and Secretary shall be entitled to attend and speak at any general meeting of the Company.
 
65.
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.
 
66.
The chairman of the meeting may, with the consent of those present at 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 thirty days or more, notice of the adjourned meeting shall be given as in the case of an original meeting.
 

 
 
 
 
67.
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.
 
VOTING
 
68.
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 Ordinary Resolution.
 
69.
The Board may, with the sanction of an Ordinary Resolution, amalgamate the Company with another company (whether or not the Company is the surviving company and whether or not such an amalgamation involves a change in the jurisdiction of the Company).
 
70.
At any general meeting, a resolution put to the vote of the meeting shall be decided on a show of hands or by a count of votes received in the form of electronic records 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 at least 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, or on a count of votes received in the form of electronic records, 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.
 
71.
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.
 

 
 
 

72.
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.
 
73.
On a poll, votes may be cast either personally or by proxy.
 
74.
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.
 
75.
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.
 
76.
In the case of any equality of votes at a general meeting, whether on a show of hands, a count of votes received in the form of electronic records or on a poll, the chairman of such meeting shall not be entitled to a second or casting vote.
 
77.
Subject to the provisions of these Bye-Laws and to any special rights or restrictions as to voting for the time being attached to any shares, every Shareholder who is present in person or by proxy or proxies shall have one vote for every share of which he is the holder.
 
78.
In the case of joint holders of a share, the vote of the senior joint holder 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.
 
79.
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 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 by proxy, and may otherwise act and be treated as such Shareholder for the purpose of general meetings.
 
80.
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.
 
81.
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.
 

 
 
 
 
PROXIES AND CORPORATE REPRESENTATIVES
 
82.
A Shareholder may appoint one or more proxies to attend at a general meeting of the Company and to vote on his behalf and proxies appointed by a single Shareholder need not all exercise their vote in the same manner.  The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney authorized by him in writing or, if the appointor is a body corporate, either under its seal or under the hand of an officer, attorney or other person authorized to sign the same.
 
83.
Any Shareholder may appoint a standing proxy or (if a body corporate) representative by depositing at the Registered Office a proxy or (if a body corporate) an authorization and such proxy or authorization 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 which, if permitted by the Principal Act, may be in the form of an electronic record.  Where a standing proxy or authorization 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 of 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 authorization and the operation of any such standing proxy or authorization 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.
 
84.
Subject to Bye-Law 83, 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 which, if permitted by the Principal Act may be in the form of an electronic record, at the place of the meeting, 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 meeting or adjourned meeting at which the person named in the instrument proposes to vote or, in the case of a poll taken subsequent 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.
 
85.
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.
 

 
 
 

86.
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 which, if permitted by the Principal Act may be in the form of an electronic record, the place of the meeting 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 before the commencement of the meeting or adjourned meeting, or the taking of the poll, at which the instrument of proxy is used.
 
87.
Subject to the Companies Acts, the Board may at its discretion waive any of the provisions of these Bye-Laws related to proxies or authorizations 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.
 
88.
Notwithstanding any other provision of these Bye-Laws, any Shareholder may appoint an irrevocable proxy by depositing at the Registered Office an irrevocable proxy and such irrevocable proxy shall be valid for all general meetings and adjournments thereof, or resolutions in writing, as the case may be, until terminated in accordance with its own terms, or until written notice of termination is received at the Registered Office signed by the proxy.  The instrument creating the irrevocable proxy shall recite that it is constituted as such and shall confirm that it is granted with an interest.  The operation of an irrevocable proxy shall not be suspended at any general meeting or adjournment thereof at which the Shareholder who has appointed such proxy is present and the Shareholder may not specially appoint another proxy to vote himself in respect of any shares which are the subject of the irrevocable proxy.
 
TRANSACTIONS WITH PRINCIPAL SHAREHOLDERS
 
 
89.
(a)
Subject to paragraph (e) below, where any transaction with a Principal Shareholder is proposed, a circular must be sent to each Shareholder.
 
 
(b)
For the purposes of this Bye-Law:
 
 
(i)
“transaction with a Principal Shareholder” means a transaction (other than a transaction of a revenue nature in the ordinary course of business) between the Company, or any of its subsidiaries, and a Principal Shareholder or an Associate of a Principal Shareholder; and
 
 
(ii)
“Principal Shareholder” means any person (excluding the Registrar in respect of those shares registered in its name on the Register as nominee of persons whose interests in such shares are reflected in the VPS and any bare trustee) who is, or was within the twelve months preceding the date of the transaction, entitled to exercise, or to control the exercise of, whether directly or indirectly (including through interests in shares registered in the name of the Registrar on the Register as nominee of such person whose interests in such shares are reflected in the VPS), twenty percent or more of the votes attaching to all of the issued shares.
 

 
 
 
 
 
(c)
Any circular sent to Shareholders in accordance with paragraph (a) above shall provide sufficient information to enable each Shareholder to evaluate the effects of the transaction on the Company or the relevant subsidiary.
 
 
(d)
The provisions of paragraph (a) of this Bye-Law shall apply mutatis mutandis to any variation or novation of an existing agreement between the Company (or any of its subsidiaries) and a Principal Shareholder (or Associate of a Principal Shareholder) whether or not at the time that the original agreement was entered into the latter party was a Principal Shareholder (or Associate of a Principal Shareholder).
 
 
(e)
Notwithstanding the foregoing, the provisions of this Bye-Law shall not apply to any of the following transactions:
 
 
(i)
an issue of new shares for cash by the Company (or any of its subsidiaries); or
 
 
(ii)
the issue of shares of the Company (or of any of its subsidiaries) pursuant to an employee share scheme of the Company (or such subsidiary); or
 
 
(iii)
an underwriting of all or part of an issue of shares by the Company (or any of its subsidiaries) where the consideration paid by the Company (or such subsidiary) in respect of such underwriting is no more than the usual commercial underwriting consideration and is determined on the same basis as the consideration to be paid to the other underwriters (if any); or
 
 
(iv)
a transaction that is not material.  For the purposes of this Bye-Law a transaction shall be material where the market value of the assets which are the subject of the transaction (ignoring for these purposes any related indebtedness) is greater than or equal to five percent of the net assets of the Company as set out in the latest audited accounts of the Company then available (or, if there are none, in the latest consolidated balance sheet reported on by the auditors of the Company) or, if less, U.S.$20,000,000; or
 
 
(v)
a transaction in which a Principal Shareholder participates solely by virtue of his shareholding in, or interests in shares of, the Company and on a pro-rata basis with the other holders of shares or interests in shares of the relevant class of the Company, including, without limitation, the declaration of a dividend by the Company or other distribution of assets of the Company.
 

 
 
 
APPOINTMENT AND REMOVAL OF DIRECTORS
 
90.
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, subject to the Companies Acts and these Bye-Laws, hold office until the next annual general meeting following his election or until his successor is elected.
 
91.
The Company shall at the Annual General Meeting and may in a general meeting by Ordinary Resolution determine the minimum and the maximum number of Directors and may by Ordinary 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 in any general meeting 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.
 
92.
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 fourteen 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 person as Director in his place or, in the absence of any such election, by the Board.
 
RESIGNATION AND DISQUALIFICATION OF DIRECTORS
 
93.
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 he shall be removed from office;
 
 
(c)
if he becomes bankrupt or compounds with his creditors;
 
 
(d)
if he is prohibited by law from being a Director; or
 
 
(e)
if he ceases to be a Director by virtue of the Companies Acts or is removed from office pursuant to these Bye-Laws.
 
ALTERNATE DIRECTORS
 
 
94.
(a)
The Company may by Ordinary Resolution elect a person or persons qualified to be Directors to act as Directors in the alternative to any of the Directors of the Company or may authorize 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 which, if permitted by the Principal Act may be in the form of an electronic record, 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 Ordinary 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.
 
 
 
 
 
(b)
A Director may at any time, by notice in writing signed by him delivered to the Registered Office of the Company or at a meeting of the Board, appoint any person (including another Director) to act as Alternate Director in his place during his absence and may in like manner at any time determine such appointment.  If such person is not another Director such appointment unless previously approved by the Board shall have effect only upon and subject to being so approved.  The appointment of an Alternate Director shall determine on the happening of any event which, were he a Director, would cause him to vacate such office or if his appointor ceases to be a Director.
 
DIRECTORS’ FEES AND ADDITIONAL REMUNERATION AND EXPENSES
 
95.
The amount, if any, of Directors’ fees shall from time to time be determined by the Company by Ordinary 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 traveling, hotel and incidental expenses properly incurred 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.
 
DIRECTORS’ INTERESTS
 
 
96.
(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 provisions of 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 may be a director or other officer of, employed by, 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 body corporate held or owned by the Company to be exercised in such manner in all respects as it thinks fit, including the exercise thereof in favor of any resolution appointing the Directors or any of them to be directors or officers of such other body corporate, or voting or providing for the payment of remuneration to the directors or officers of such other body corporate.
 
 
(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.
 
POWERS AND DUTIES OF THE BOARD
 
97.
Subject to the provisions of the Companies Acts and these Bye-Laws and to any directions given by the Company in general meeting, the Board shall manage the business of the Company and 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 of the Company for the time being vested in or exercisable by the Board.  To the extent permitted by the Companies Acts, the Board may agree that the Company shall not exercise, in whole or in part, any of the powers in the Companies Acts that are reserved to Shareholders.
 

 
 
 
 
98.
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 or of any other persons.
 
99.
All checks, 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.
 
100.
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 in connection with the provision of pensions.  The Board may also establish and maintain any employees’ share scheme, share option or share incentive scheme approved by Ordinary Resolution whereby selected employees of the Company or of any company which is a subsidiary of the Company are given the opportunity of acquiring shares in the capital of the Company on the terms and subject to the conditions set out in such scheme and establish and (if any such scheme so provides) contribute to any scheme for the purchase by or transfer, allotment or issue to trustees of shares in the Company to be held for the benefit of employees (including Directors and officers) of the Company and subject to the Companies Act lend money to such trustees or employees to enable the purchase of such shares.
 
101.
The Board may from time to time appoint one or more of its body to be a managing director, joint managing director or an assistant managing director or 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.
 

 
 
 

DELEGATION OF THE BOARD’S POWERS
 
102.
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 power, 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 authorize any such attorney to sub-delegate all or any of the powers, authorities and discretions vested in him.  The Board may revoke or vary any such delegation of power, but no person dealing in good faith with such delegate without notice of such revocation or variation shall be affected by such revocation or variation.
 
103.
The Board may entrust to and confer upon any Director or officer or, without prejudice to the provisions of Bye-Law 104, other individual 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.
 
104.
The Board may delegate any of its powers, authorities or discretions 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.  The Board may revoke or vary any such delegation of its powers, authorities and discretions, but no person dealing in good faith and without notice of such revocation or variation shall be affected thereby.
 
PROCEEDINGS OF THE BOARD
 
105.
The Board may meet for the despatch of business, adjourn and otherwise regulate its meetings as it thinks fit, provided that Board meetings are to be held outside Norway and the United Kingdom.  Questions arising at any meeting shall be determined by a majority of votes cast.  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 Board meeting.
 
106.
Notice of a Board meeting 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.
 
 
107.
(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 a majority of the Board present in person or by proxy, provided that a quorum shall not be present unless a majority of the Directors present are not resident in Norway.  Any Director who ceases to be a Director at a Board meeting may continue to be present and to act as a Director and be counted in the quorum until the termination of the Board meeting if no other Director objects and if otherwise a quorum of Directors would not be present.
 

 
 
 
 
 
(b)
Subject to the provisions of Bye-Law 96 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.
 
108.
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.
 
109.
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 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 may choose one of their number to be chairman of the meeting.
 
110.
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.
 
111.
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 members of the committee concerned.
 
112.
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.  A meeting of the Board or committee appointed by the Board held in the foregoing manner shall be deemed to take place at the place where the largest group of participating Directors or committee members has assembled or, if no such group exists, at the place where the chairman of the meeting participates.  The Board or relevant committee shall use its best endeavours to ensure that any such meeting is not deemed to have been held in Norway or the United Kingdom, and the fact that one or more Directors may be present at such teleconference by virtue of his being physically in Norway or the United Kingdom shall not deem such meeting to have taken place in Norway or the United Kingdom.
 

 
 
 
 
113.
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 authorized 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 authorized.
 
OFFICERS
 
114.
The Board may appoint any person whether or not he is a Director to hold such other 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.
 
MINUTES
 
115.
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)
all proceedings at meetings of the Company, of the holders of any class of shares in the Company, and of committees; and
 
 
(d)
all proceedings of managers (if any).
 
SECRETARY AND RESIDENT REPRESENTATIVE
 
116.
The Secretary and Resident Representative shall be appointed by the Board at such remuneration (if any) and upon such terms as it may think fit and any Secretary and Resident Representative so appointed may be removed by the Board.  The duties of the Secretary and Resident Representative shall be those prescribed by the Companies Acts together with such other duties as shall from time to time be prescribed by the Board.
 

 
 
 
 
117.
A provision of the Companies Acts or these Bye-Laws requiring or authorizing 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.
 
THE SEAL
 
118.
The Company may, but need not, have a Seal and one or more duplicate Seals for use in any place outside of Bermuda.
 
119.
If the Company has a Seal:
 
 
(A)
The Seal shall consist of a circular metal device with the name of the Company around the outer margin thereof and “Bermuda 1992” across the centre thereof.  Should the Seal not have been received at the Registered Office in such form at the date of adoption of this Bye-Law then, pending such receipt, any document requiring to be sealed with the Seal shall be sealed by affixing a red wafer seal to the document with the name of the Company, and “Bermuda 1992” typewritten across the centre thereof.
 
 
(B)
The Board shall provide for the custody of every Seal.  A Seal shall only be used by authority of the Board or of a committee constituted by the Board.  Subject to these Bye-Laws, any instrument to which the Seal is affixed shall be signed by at least one Director or the Secretary, or by any person (whether or not a Director of the Secretary) who has been authorized either generally or specifically to attest to the use of a Seal;
 
 
(C)
The Company may have a duplicate Seal for use abroad where and as the Directors shall determine and the Company may by writing under the Seal appoint any agents or agent or committee abroad to be the duly authorized agent of the Company for the purpose of affixing and using such duplicate Seal and they may impose such restrictions on the use thereof as may be thought fit.  Wherever in the Bye-Laws reference is made to the Seal, the reference shall, when and so far as may be applicable, be deemed to include any such duplicate seal as aforesaid.
 
120.
The Secretary, a Director or the Resident Representative may affix a Seal attested with his signature to certify the authenticity of any copies of documents.
 
DIVIDENDS AND OTHER PAYMENTS
 
121.
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 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.
 

 
 
 
 
122.
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.
 
123.
The Board may deduct from any dividend, distribution or other moneys payable to a Shareholder by the Company on or in respect of any share 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.
 
124.
No dividend, distribution or other moneys payable by the Company on or in respect of any share shall bear interest against the Company unless otherwise provided by the rights attached to such share.
 
125.
Any dividend distribution, interest or other sum payable in cash to the holder of shares may be paid by check or warrant sent through the mail 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 check 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 check 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.
 
126.
Any dividend or proceeds of share repurchase or distribution out of contributed surplus unclaimed for a period of six years from the date of declaration of such dividend or proceeds of share repurchase or distribution shall be forfeited and shall revert to the Company, and the payment by the Board of any unclaimed dividend, distribution, interest or proceeds of share repurchase 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.
 
 
 
 

127.
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 body corporate, 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 authorize 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 basis of the value 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.
 
RESERVES
 
128.
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.
 
CAPITALIZATION OF PROFITS
 
129.
The Company may, upon the recommendation of the Board, at any time and from time to time resolve by Ordinary Resolution to the effect that it is desirable to capitalize 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, provided 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, distributed and credited as fully paid among such Shareholders, or partly in one way or 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.
 
130.
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 authorize any person to sell and transfer any fractions, 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.
 

 
 
 
 
RECORD DATES
 
131.
Notwithstanding any other provision of these Bye-Laws the Directors may fix any date as the record date for:
 
 
(a)
determining the Members entitled to receive any dividend or other distribution and such record date may be on, or not more than 30 days before or after, any date on which such dividend or distribution is declared;
 
 
(b)
determining the Members entitled to receive notice of and to vote at any general meeting of the Company.
 
ACCOUNTING RECORDS
 
132.
The Board shall cause to be kept accounting records sufficient to give a fair presentation in all material respects of the state of the Company’s affairs and to show and explain its transactions in accordance with the Companies Acts.
 
133.
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 Director 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 required by any Listing Exchange, by law, by regulations or as authorized by the Board or by Ordinary Resolution.
 
134.
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 auditor’s report, shall be sent to each person entitled thereto in accordance with the requirements of the Companies Acts and (without prejudice to the generality of Bye-Law 139) upon the coming into force of Section 2A of the Principal Act, the requirements of this Bye-Law shall be met by the publication of the relevant document as an electronic record on a website designated for the purpose by the Company.
 
AUDIT
 
135.
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, save that the fees of the auditor shall be determined by Ordinary Resolution.
 
SERVICE OF NOTICES AND OTHER DOCUMENTS
 
136.
Any notice or other document (including a share certificate) shall be in writing (except where otherwise expressly stated) and may be served on or delivered to any Shareholder by the Company either personally or by sending it through the mail (by airmail where applicable) in a prepaid 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 mail shall be deemed to have been served or delivered two Business Days after it was put in the mail; 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 mail.
 
137.
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 two Business Days after its dispatch.
 
138.
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 received 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.
 
139.
Upon Section 2A of the Principal Act coming into force, any notice or other document shall be deemed to be duly given to a Shareholder if it is delivered to such Shareholder by means of an electronic record in accordance with Section 2A of the Principal Act.
 
140.
Notwithstanding any other provisions of these Bye-Laws:
 
 
(a)
where there is a requirement under the Companies Acts or these Bye-Laws that the Company may provide a document to a person, or for the document to accompany another document, the requirement may be met by the delivery, or deemed delivery, of an electronic record of the document in accordance with this Bye-Law;
 
 
(b)
where there is a requirement under the Companies Acts or these Bye-Laws that a Shareholder provide a document to the Company, or for a document to accompany another document, the requirement may be met by the Shareholder by the delivery, or deemed delivery, of an electronic record of the document in accordance with this Bye-Law;
 
 
 
 
 
 
(c)
for the purposes of this Bye-Law, “to provide” includes to sent, forward, give, deliver, submit, file, deposit, furnish, issue, leave at, serve, circulate, lay, make available or lodge;
 
 
(d)
an electronic record of a document may be delivered to a person by communicating it by electronic means to the person at the address or number that has been notified by the person for the purposes of communication by electronic means;
 
 
(e)
an electronic record of a document is deemed to have been delivered to a person if it is published on a website and:
 
 
(i)
the person to whom the document is provided has agreed to have documents of that type provided by way of accessing them on a website instead of them being provided by other means;
 
 
(ii)
the document is a document of the type to which the agreement applies; and
 
 
(iii)
the person is notified in accordance with the agreement of the publication of the document on the website, the address of the website, the place on the website where the document may be found, and how the document may be accessed on the website.
 
provided that, if there is a requirement that a person have access to a document for a specified period of time, the person must be notified of the publication of the document before the commencement of the period and the document must be published on the website throughout the whole of the period.
 
 
(f)
Nothing in the foregoing shall invalidate the deemed delivery of an electronic copy of a document if:
 
 
(i)
the document is published for at least part of the period; and
 
 
(ii)
the failure to publish it throughout the whole of the period is wholly attributable to circumstances that the Company could not reasonably have been expected to prevent or avoid.
 
WINDING UP
 
141.
If the Company shall be wound up, the liquidator may, with the sanction of an Extraordinary Resolution and any other sanction required by the Companies Acts, divide among 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 contributors 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.
 

 
 
 
 
INDEMNITY
 
142.
No Director, Alternate Director, Officer, member of a committee authorised under Bye-law 104, Resident Representative of the Company or their respective 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.
 
143.
Every Director, Alternate Director, Officer, member of a committee constituted under Bye-Law 104, Resident Representative of the Company or 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, 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, 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.
 
144.
Every Director, Alternate Director, Officer, member of a committee constituted under Bye-Law 104, 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, member of a committee constituted under Bye-Law 104, 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.
 
 
 
 

145.
To the extent that any Director, Alternate Director, Officer, member of a committee constituted under Bye-Law 104, 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.
 
146.
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 104, 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.
 
147.
Notwithstanding anything contained in the Principal Act, the Company may advance moneys to an Officer or Director for the costs, charges and expenses incurred by the Officer or Director in defending any civil or criminal proceedings against them on the condition that the Director or Officer shall repay the advance if any allegation of fraud or dishonesty is proved against them.
 
148.
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 105, 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.
 
149.
The restrictions on liability, indemnities and waivers provided for in Bye-laws 142 to 150 inclusive shall not extend to any matter which would render the same void pursuant to the Companies Acts.
 
150.
The restrictions on liability, indemnities and waivers contained in Bye-laws 142 to 150 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.
 
ALTERATION OF BYE-LAWS
 
151.
These Bye-Laws may be amended from time to time in the manner provided for in the Companies Acts, provided that any such amendment shall only become operative to the extent that it has been confirmed by Ordinary Resolution.
 
 

 
 

EXHIBIT 4.6
 
 
 
CHARTER ANCILLARY AGREEMENT
by and among
SHIP FINANCE INTERNATIONAL LIMITED,
THE VESSEL OWNING SUBSIDIARIES NAMED HEREIN,
FRONTLINE LTD.
AND
FRONTLINE SHIPPING LIMITED
 
 
 

 

 
 
 


 
CHARTER ANCILLARY AGREEMENT
 
THIS CHARTER ANCILLARY AGREEMENT is entered into as of January 1, 2004 by and among Ship Finance International Limited, a Bermuda corporation (the “Company”), the vessel owning subsidiaries named on Schedule A hereto (the “Owners”), Frontline Ltd., a Bermuda corporation (“Frontline”), and Frontline Shipping Limited, a Bermuda corporation (the “Charterer”). The Company, the Owners, Frontline and the Charterer and any Substitute Owners that execute counterpart signature pages pursuant to Section 8.6(b) are collectively referred to herein as the “Parties.”
 
RECITALS:
 
WHEREAS, the Owners are the owners of those vessels (the “Vessels”) set forth opposite their names on Schedule A hereto;
 
WHEREAS, pursuant to the Fleet Purchase Agreement, Frontline has agreed to sell to the Company, and the Company has agreed to purchase from Frontline, either directly or indirectly through intermediate holding companies, all of the issued and outstanding shares of capital stock of each of the Owners on the terms and subject to the conditions set forth therein;
 
WHEREAS, pursuant to the Charters, each of the Owners has agreed to charter its Vessel to the Charterer, on the terms and subject to the conditions set forth therein;
 
WHEREAS, pursuant to the Management Agreements, Frontline Management has agreed to provide to the Owners certain technical and operational management services with respect to the Vessels, on the terms and subject to the conditions set forth therein;
 
WHEREAS, pursuant to the Administrative Services Agreement, Frontline Management has agreed to provide to the Company certain administrative support services, including corporate compliance, payroll, tax, regulatory compliance, legal and other administrative services, on the terms and subject to the conditions set forth therein;
 
WHEREAS, pursuant to the Performance Guarantee, Frontline has agreed to guarantee the performance of the obligations of the Charterer under the Charters (other than the payment of charter hire) and this Agreement and the obligations of Frontline Management under the Management Agreements and the Administrative Services Agreement;
 
WHEREAS, the Parties desire to enter into this Agreement to evidence the Parties’ understanding with respect to, among other things, the Charter Service Reserve, the deferral of certain payments owing by the Charterer to the Owners under the Charters in certain circumstances, the payment by the Charterer to the Company of certain profit sharing bonus amounts and certain collateral arrangements with respect to the Charterer’s obligations under this Agreement and the Charters;
 
NOW, THEREFORE, in consideration of the premises and the covenants, conditions, and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto hereby agree as follows:
 

 
 
 


 
ARTICLE I
DEFINITIONS; INTERPRETATION; EFFECTIVE DATE
 
1.1    Definitions .
 
As used in this Agreement, the following terms shall have the respective meanings set forth below. Capitalized terms that are used but not defined herein shall have the meanings set forth in the Fleet Purchase Agreement.
 
“Accumulated Off Hire Allowance” means, with respect to a Vessel, the aggregate Off Hire Allowance for such Vessel giving effect to the Off Hire Allowance for the calendar year in which such determination is made and for all prior years from inception of its respective Charter until any date of determination.
 
“Accumulated Off Hire Amount” means, with respect to a Vessel, the aggregate Off Hire Amount for such Vessel from inception of its respective Charter until any date of determination.
 
“Administrative Services Agreement” means that certain Administrative Services Agreement, dated as of January 1, 2004, among Frontline Management, the Company and the Owners.
 
“Affiliate” of a Person means any Person directly or indirectly controlling, controlled by, or under common control with such Person.
 
“Agreement” means this Charter Ancillary Agreement, as it may be amended, modified, or supplemented from time to time.
 
“Annual Financial Statements” has the meaning set forth in Section 2.4(c).
 
“Bonus Deferral” has the meaning set forth in Section 4.3(b).
 
“Bonus Payment” has the meaning set forth in Section 4.1.
 
“Bonus Payment Date” has the meaning set forth in Section 4.3(a).
 
“Bonus Payment Schedule” has the meaning set forth in Section 4.2(a).
 
“Business Day” means any day other than (a) Saturday or Sunday or (b) any other day on which banks in New York, New York or Oslo, Norway are permitted or required to be closed.
 
“Cash” means United States currency on hand and on deposit and demand deposits.
 

 
 
 


 
“ Cash Equivalents ” means:
 
(1)           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;
 
(2)           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.;
 
(3)           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 Service, Inc., and having combined capital and surplus in excess of $500.0 million;
 
(4)           repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (1), (2) and (3) entered into with any bank meeting the qualifications specified in clause (3) above;
 
(5)           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
 
(6)           interests in any investment company or money market fund which invests primarily in instruments of the type specified in clauses (1) through (5) above.
 
“Charter Service Reserve” means, at any time of determination, all Cash and Cash Equivalents held by the Charterer, except for any such Cash and Cash Equivalents in excess of the then applicable Minimum Reserve.
 
“Charters” means those certain Time Charters, dated as of January 1, 2004, between the Charterer and the Owners, in each case with respect to the Vessel owned by each such Owner, as set forth on Schedule A.
 
“Earnings Account” has the meaning set forth in Section 2.5.
 

 
 
 

“Event of Default” means:
 
(a)           any material breach by the Charterer of any provision of any Charter (including the failure to make charter payments thereunder when due; provided, however, that the exercise by the Charterer of its rights under Article III of this Agreement shall not be deemed to be an Event of Default);
 
(b)           any material breach by the Charterer or Frontline of any provision of this Agreement or the Performance Guarantee;
 
(c)           any material breach by Frontline Management of any provision of any Management Agreement; or
 
(d)           the failure of the Charterer at any time to hold at least $55,000,000 in Cash
 
or Cash Equivalents.
 
“Fleet Closing Date” has the meaning set forth in Section 1.3.
 
“Fleet Purchase Agreement” means that certain Fleet Purchase Agreement, dated as of December 11, 2003, between Frontline and the Company.
 
“Frontline Management” means Frontline Management (Bermuda) Ltd., a Bermuda corporation and wholly owned subsidiary of Frontline.
 
“GAAP” means United States generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time.
 
“Indebtedness” means at a particular time, without duplication, (i) any indebtedness for borrowed money or issued in substitution for or exchange of indebtedness for borrowed money, (ii) any indebtedness evidenced by any note, bond, debenture or other debt security, (iii) any indebtedness for the deferred purchase price of property or services with respect to which a Person is liable, contingently or otherwise, as obligor or otherwise, (iv) any commitment by which a Person assures a creditor against loss (including, without limitation, contingent reimbursement obligations with respect to letters of credit), (v) any indebtedness guaranteed in any manner by a Person (including, without limitation, guarantees in the form of an agreement to repurchase or reimburse), (vi) any obligations under capitalized leases with respect to which a Person is liable, contingently or otherwise as obligor, guarantor or otherwise, or with respect to which obligations a Person assures a creditor against loss, and (vii) any indebtedness secured by a lien on a Person’s assets; provided, however, that the obligations of the Charterer under the Charters shall not be deemed to be Indebtedness.
 

 
 
 


 
“Lien” means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement or like instrument under the laws of any jurisdiction).
 
“Management Agreements” means those certain Management Agreements entered into or to be entered into between Frontline Management and the Owners, in each case with respect to the Vessel owned by each such Owner, as set forth on Schedule A.
 
“Minimum Reserve” means US$250,000,000 (provided, however, that the Minimum Reserve shall be decreased by an amount equal to US$5,300,000 upon the termination of any Charter after the date hereof other than by reason of default by the Charterer under this Agreement or the Charters).
 
“Off Hire Allowance” means, for any calendar year with respect to a Vessel, an amount equal to 5 multiplied by the charter hire rate (set forth in Clause 44 of the applicable Charter) applicable to such Vessel under its respective Charter.
 
“Off Hire Amount” means, with respect to a Vessel, an amount equal to the number of days of actual off-hire for such Vessel multiplied by the charter hire rate (set forth in Clause 44 of the applicable Charter) applicable to such Vessel under its respective Charter.
 
“Organizational Documents” means, with respect to a particular Person (other than an individual), the certificate or articles of incorporation, bylaws, partnership agreement, limited liability company agreement or similar organizational document or agreement, as applicable, of such person.
 
“Payment Date” has the meaning set forth in Section 2.2(i).
 
“Performance Guarantee” means that certain Performance Guarantee, dated as of the date hereof, issued by Frontline in favor of the Company and the Owners.
 
“ Permitted Liens ” means:
 
(a)           Liens for taxes or assessments that are not yet delinquent or, if delinquent, are being contested in good faith by appropriate actions and for which adequate reserves or other appropriate provisions, if any, as required by GAAP, have been established;
 
(b)           materialmen’s, mechanic’s, repairman’s, employee’s, contractor’s, operator’s and other similar Liens or charges arising in the ordinary course of business for amounts that are not yet delinquent (including any amounts being withheld as provided by law), or if delinquent, are being contested in good faith by appropriate actions and for which adequate reserves or other appropriate provisions, if any, as required by GAAP, have been established;
 

 
 
 


 
(c)           vessel chartering, drydocking or maintenance, the furnishing of supplies and bunkers to vessels, repairs and improvements to vessels, crews’ wages and other maritime Liens incurred in the ordinary course of business;
 
(d)           Liens for salvage and general average; and
 
(e)           easements, rights-of-way, servitudes, permits, surface leases and other rights in respect of surface operations arising or incurred in the ordinary course of business.
 
“Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company, government or any agency or political subdivision thereof or any other entity.
 
“Quarterly Financial Statements” has the meaning set forth in Section 2.4(b).
 
“Security Interests” has the meaning set forth in Section 5.1.
 
“Subsidiaries” means the Owners and any other current or future direct or indirect subsidiary of the Company.
 
“Substitute Owner” has the meaning set forth in Section 8.6(b).
 
“Successful Public Listing” means the completion of one or more transactions that result in at least 20% of the then outstanding common stock of the Company being listed or quoted for public trading on the Oslo Stock Exchange, the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market System or other United States national securities exchange.
 
“Suezmax” means each of the Vessels that is classified as a Suezmax tanker vessel (between 120,000 and 200,000 dwt).
 
“Suezmax Bonus Amount” means the portion of a Bonus Payment for any period of determination attributable to the Suezmaxes and shall be calculated in accordance with the following formula:
 
Suezmax Bonus Amount = 0.20 x (TCE revenues of Suezmaxes - ($21,100 x number of days during the period of determination x Number of Suezmaxes))
 
where (i) “TCE revenues of Suezmaxes” means the revenues of the Charterer on a time charter equivalent basis attributable to the Suezmaxes during such period of determination (calculated in a manner consistent with that used in Frontline’s public reports) and (ii) “Number of Suezmaxes” means the weighted average number of Suezmaxes during such period of determination; and provided that (x) for purposes of calculating bareboat revenues on a time charter equivalent basis, expenses shall be
 

 
 
 

assumed to equal $6,500 per day and (y) no non-double-hulled Vessels shall be included in the calculation of the Suezmax Bonus Amount for any period after 2010.
 
“Vessels” has the meaning set forth in the first recital.
 
“VLCC” means each of the Vessels that is classified as a VLCC tanker vessel (between 200,000 and 295,000 dwt).
 
“VLCC Bonus Amount” means the portion of a Bonus Payment for any period of determination attributable to the VLCCs and shall be calculated in accordance with the following formula:
 
VLCC Bonus Amount = 0.20 x (TCE revenues of VLCCs – ($25,575 x number of days during the period of determination x Number of VLCCs))
 
where (i) “TCE revenues of VLCCs” means the revenues of the Charterer on a time charter equivalent basis attributable to the VLCCs during such period of determination (calculated in a manner consistent with that used in Frontline’s public reports) and (ii) “Number of VLCCs” means the weighted average number of VLCCs during such period of determination; and provided that (x) for purposes of calculating bareboat revenues on a time charter equivalent basis, expenses shall be assumed to equal $6,500 per day and (y) no non-double-hulled Vessels shall be included in the calculation of the VLCC Bonus Amount for any period after 2010.
 
1.2   References; Headings; Interpretation. All references in this Agreement to Annexes, Exhibits, Schedules, Articles, Sections, subsections and other subdivisions refer to the corresponding Annexes, Exhibits, Schedules, Articles, Sections, subsections and other subdivisions of or to this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any Articles, Sections, subsections or other subdivisions of this Agreement are for convenience only, do not constitute any part of this Agreement, and shall be disregarded in construing the language hereof. The words “this Agreement,” “herein,” “hereby,” “hereunder” and “hereof” and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The words “this Article,” “this Section” and “this subsection” and words of similar import refer only to the Article, Section or subsection hereof in which such words occur. The word “or” is not exclusive, and the word “including” (in its various forms) means including without limitation. Pronouns in masculine, feminine or neuter genders shall be construed to state and include any other gender, and words, terms and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires.
 
1.3   Effective Date. This Agreement shall be effective as of the date (the “Fleet Closing Date”) on which the Company has completed the purchase from Frontline of the Interests (as defined in the Fleet Purchase Agreement), directly or indirectly through intermediate holding companies, in at least 45 of the Vessel Owning Subsidiaries set forth on Schedule 3.19 to the Fleet Purchase Agreement.
 

 
 
 


 
ARTICLE II
COVENANTS
 
2.1    Charter Service Reserve
 
(a)           On or prior to the Fleet Closing Date, Frontline will make a capital contribution to the Charterer of Cash or Cash Equivalents in an amount equal to at least US$250,000,000 to initially fund the Charter Service Reserve.
 
(b)           The Charterer shall be entitled to use the Charter Service Reserve only (i) to make charter payments to the Company under any Charter or (ii) for reasonable working capital purposes to meet short-term voyage expenses.
 
2.2   Negative Covenants of the Charterer. The Charterer hereby covenants and undertakes with the Company and each of the Owners that the Charterer will not, without the consent of the Company:
 
(a)           amend its Organizational Documents in a manner that would adversely affect the Company;
 
(b)           take any action, or omit to take any action, which could reasonably be expected to result in a violation of its Organizational Documents;
 
(c)           fail at any time to have at least one independent director in accordance with its Organizational Documents;
 
(d)           engage in any business other than the operation and chartering of the Vessels and the activities incidental thereto;
 
(e)           incur any Indebtedness, other than trade payables and other current liabilities incurred in the ordinary course of business;
 
(f)           enter into any transaction that involves (i) a sale, exchange or other disposition of all or substantially all of the assets of the Charterer and its subsidiaries taken as a whole, (ii) a sale, exchange or other disposition of all or substantially all of the assets of any subsidiary of the Charterer or (iii) any merger, consolidation or business combination of the Charterer or any of its subsidiaries with another Person (other than a merger, consolidation or business combination among two or more of such subsidiaries);
 
(g)           enter into any transaction with any Affiliate (other than the Company or any Subsidiary), except for any such transaction entered into on an arm’s-length basis and on terms no less favorable to the Charterer than would be available from a disinterested or unconnected third party;
 
(h)           permit the incurrence of any Lien on any of its assets, other than Permitted Liens and other than as contemplated by Article V (Collateral Arrangements);
 

 
 
 


 
(i)           declare or make any dividend or distribution of any kind whatsoever to its shareholders (including through a buyback, redemption or repurchase of its securities) or loan, repay or make any other payment in respect of Indebtedness of the Charterer or any affiliate thereof (other than the Company and the Subsidiaries) unless (i) the Charterer is then in compliance with all of its obligations under this Agreement, (ii) after giving effect to the declaration or payment of any such dividend or distribution or loan or payment in respect of such Indebtedness, (A) the Charterer will continue to be in compliance with all of its obligations under this Agreement, (B) the Charter Service Reserve equals at least the then applicable Minimum Reserve and (C) the chief financial officer of the Charterer certifies to the Company that he reasonably believes that the amount of the Charter Service Reserve will equal or exceed the then applicable Minimum Reserve for at least 30 days after the date of any such payment (each, a “Payment Date”), taking into consideration the Charterer’s reasonably expected payment obligations during such 30-day period, (iii) any charter payments deferred pursuant to Article III have been paid to the Company prior to any such Payment Date and (iv) any Bonus Payments deferred pursuant to Article IV have been paid to the Company prior to any such Payment Date;
 
(j)           issue or grant to any Person other than Frontline any shares of capital stock or other ownership interests in the Charterer or any warrants, options, convertible or exchangeable securities or indebtedness, or any other rights to purchase or acquire, or exercisable for or convertible into or exchangeable into, any such shares of capital stock or such other ownership interests; and
 
(k)           make any investment in, acquire or purchase any stock, partnership or joint venture interest or other security of, or loan, advance or contribute capital to, or grant a financial guaranty or other similar assurance for the benefit of, another Person, other than investments in short-term interest bearing marketable securities;
 
2.3   Covenants of Frontline. Frontline hereby covenants and undertakes with the Company and each of the Owners that:
 
(a)           the Charterer will at all times be a wholly owned subsidiary of Frontline; and
 
(b)           except as contemplated by Article V, Frontline will not sell, transfer, assign or otherwise dispose of legal or beneficial ownership of any securities of the Charterer held by Frontline.
 
2.4   Financial Statements and Other Information. The Charterer hereby covenants and undertakes with the Company that it will deliver to the Company:
 
(a)           as soon as practicable and in any event within (i) 10 days after the end of each month in each fiscal year or (ii) two Business Days after request by the Company, a certificate executed by its chief financial officer which (1) sets forth the balance of the Charter Service Reserve as of the beginning and end of such month, (2) sets forth in reasonable detail all payments into and from the Charter Service Reserve during such month and (3) provides that no Event of Default is then occurring or, if there is an Event of Default then occurring, describes in reasonable detail such Event of Default;
 

 
 
 

 
 
(b)           following a Successful Public Listing, as soon as practicable and in any event within 45 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, consolidated statements of income, changes in stockholders’ equity and changes in financial position of the Charterer for such quarterly period and for the period from the beginning of the current fiscal year to the end of such quarterly period, and a consolidated balance sheet of the Charterer as at the end of such quarterly period, all unaudited but prepared in accordance with GAAP on a basis consistent with past practice (collectively, the “Quarterly Financial Statements”); and
 
(c)           following a Successful Public Listing, as soon as practicable and in any event within 120 days after the end of each fiscal year, consolidated statements of income, changes in stockholders’ equity and changes in financial position of the Charterer for such year, and a consolidated balance sheet of the Charterer as at the end of such year, in each case audited for the Charterer by independent public accountants of recognized standing selected by the Charterer, whose report shall state that such consolidated financial statements present fairly the results of operations, cash flows and financial position of the Charterer in accordance with GAAP on a basis consistent with prior periods except as noted therein and that the examination by such accountants has been made in accordance with generally accepted auditing standards (collectively, the “Annual Financial Statements”).
 
2.5   Earnings Account. The Charterer shall cause all of its revenues to be deposited into an earnings account (the “Earnings Account”).
 
ARTICLE III
DEFERRAL OF CHARTER PAYMENTS
 
3.1   Deferral of Charter Payments. For any period during which the Cash and Cash Equivalents held by the Charterer is less than $75,000,000, each Owner agrees that the Charterer shall be entitled to defer from the monthly payments due under each Charter up to $4,600 per day for each VLCC and up to $3,400 per day for each Suezmax; provided, however, that in no event shall any such deferral with respect to any particular Charter be outstanding with respect to more than one year at any given time. The Charterer shall immediately use all charter payments received by the Charterer from third parties under any subcharters with respect to the Vessels that are in excess of the then applicable fixed daily charter rates for such Vessels payable to the Company under the applicable Charters to pay any amounts so deferred at such time as the Cash and Cash Equivalents held by the Charterer are greater than $75,000,000; provided, however, that the Charterer shall not be obligated to make any such payment (x) if the chief financial officer of the Charterer reasonably believes that the amount of Cash and Cash Equivalents held by the Charterer will not equal or exceed $75,000,000 for at least 30 days after the date of such payment taking into consideration the Charterer’s reasonably expected payment obligations during such 30-day period and (y) until such payment would be at least $2,000,000. The Charterer shall not be obligated to pay any interest on any amounts so deferred.
 

 
 
 


 
3.2   Notice of Deferral. The Charterer shall promptly notify the Company in accordance with Section 7.6 of its decision to exercise its right to defer payments under Section 3.1 and shall provide the Company with a certificate executed by the chief financial officer of the Charterer, setting forth in reasonable detail the basis for such deferral.
 
ARTICLE IV
BONUS PAYMENTS
 
4.1   Bonus Payments. The Charterer shall pay to the Company periodic profit sharing bonus payments (each, a “Bonus Payment”) equal to (a) the VLCC Bonus Amount for the applicable period plus (b) the Suezmax Bonus Amount for the applicable period (provided, however, that in no event shall such Bonus Payment be less than $0), as determined in accordance with the terms of this Article IV.
 
4.2    Preparation and Delivery of Bonus Payment Schedules .
 
(a)           No later than March 1, 2005, the Charterer shall prepare or cause to be prepared, and shall deliver to the Company, a schedule (each, a “Bonus Payment Schedule”) with respect to the period from February 1, 2004 through December 31, 2004. Such Bonus Payment Schedule shall set forth, in each case with respect to such period, (i) the TCE revenues of the VLCCs, (ii) the TCE revenues of the Suezmaxes and (iii) the Charterer’s calculation of the VLCC Bonus Amount, the Suezmax Bonus Amount and the Bonus Payment, if any. The Charterer shall thereafter provide to the Company such supporting work papers or other supporting information as may be reasonably requested by the Company. Such Bonus Payment Schedule shall be prepared in accordance with GAAP, consistent with the preparation of Frontline’s accounts, and shall be certified by the chief financial officer of the Charterer and, if requested by the Company, the Charterer’s independent accountants.
 
(b)           No later than March 1 of each calendar year after 2005, the Charterer shall prepare or cause to be prepared, and shall deliver to the Company, a Bonus Payment Schedule with respect to the preceding calendar year. Each Bonus Payment Schedule shall set forth, in each case with respect to the preceding calendar year, (i) the TCE revenues of the VLCCs, (ii) the TCE revenues of the Suezmaxes and (iii) the Charterer’s calculation of the VLCC Bonus Amount, the Suezmax Bonus Amount and the Bonus Payment, if any. The Charterer shall thereafter provide to the Company such supporting work papers or other supporting information as may be reasonably requested by the Company. Such Bonus Payment Schedule shall be prepared in accordance with GAAP, consistent with the preparation of Frontline’s accounts, and shall be certified by the chief financial officer of the Charterer and, if requested by the Company, the Charterer’s independent accountants.
 

 
 
 


 
4.3    Delivery of Bonus Payment .
 
(a)           Subject to the other provisions of this Section 4.3, any Bonus Payments determined to be payable by the Charterer to the Company shall be made by wire transfer of immediately available funds to the wire transfer address of the Company no later than five Business Days following the date on which the Charterer is required to deliver the corresponding Bonus Payment Schedule (each, a “Bonus Payment Date”), which wire transfer address shall be designated by the Company by notice to the Charterer on or before the second Business Day prior to such Bonus Payment Date; provided that if no such notice is delivered by the Company, the Charterer shall make payment to the wire transfer address previously designated by the Company.
 
(b)           If (i) the amount of the Charter Service Reserve on any Bonus Payment Date is less than the then applicable Minimum Reserve or (ii) the payment of any Bonus Payment on any such Bonus Payment Date would cause the amount of the Charter Service Reserve to fall below the then applicable Minimum Reserve, then the Charterer shall be entitled to defer without interest the payment of (x) in the case of clause (i) above, all or any portion of such Bonus Payment and (y) in the case of clause (ii) above, all or any portion of an amount equal to (1) the amount of such Bonus Payment minus (2) the difference between (A) the amount of the Charter Service Reserve on such Bonus Payment Date prior to any such payment minus (B) the then applicable Minimum Reserve (each, a “Bonus Deferral”).
 
(c)           The Charterer shall immediately use all charter payments received by the Charterer from third parties under any subcharters with respect to the Vessels that are in excess of the then applicable fixed daily charter rates for such Vessels payable to the Company under the applicable Charters to pay any Bonus Payment amounts so deferred at such time as the Charter Service Reserve equals or exceeds the Minimum Reserve; provided, however, that the Charterer shall not be obligated to make any such payment (x) if the chief financial officer of the Charterer reasonably believes that the amount of the Charter Service Reserve will not equal or exceed the Minimum Reserve for at least 30 days after the date of such payment taking into consideration the Charterer’s reasonably expected payment obligations during such 30-day period and (y) until such payment would be at least $2,000,000.
 
(d)           Prior to any such deferral of any Bonus Payment, the Charterer shall provide the Company with a certificate executed by the chief financial officer of the Charterer, setting forth the amount of the Charter Service Reserve on such Bonus Payment Date.
 
4.4   Marketing; Preferential Treatment. During the term of this Agreement, the Charterer shall use its commercial best efforts to charter the Vessels on market terms (including, without limitation, ensuring that preferential treatment is not given to any other vessels owned, managed by or under control of Frontline or any of its affiliates (including, without limitation, Greenwich Holdings Ltd and any affiliates thereof) when marketing any of the Vessels).
 

 
 
 


 
ARTICLE V
COLLATERAL ARRANGEMENTS
 
5.1 Collateral. The Charterer, the Company and Frontline covenant and agree that the Charterer’s obligations under this Agreement and the Charters shall be secured by (a) a first priority floating charge over all of the undertaking and all of the assets and rights (including the Earnings Account and Charter Service Reserve) of the Charterer whatsoever and wheresoever both present and future and (b) a first priority fixed charge over all outstanding capital stock of the Charterer (collectively, the “Security Interests”). The Charterer and Frontline agree that they shall execute such documents and do such things as may reasonably be required by the Company’s lenders in order to give full effect to their covenants in this Section 5.1.
 
ARTICLE VI
OFF-HIRE
 
6.1   Off-Hire . Irrespective of the actual number of days off-hire for any one Vessel under its respective Charter, the Charterer agrees to continue to pay the agreed charter hire payments under the Charter to the Owner of such Vessel, and will not deduct for any off-hire, as long as the aggregate Accumulated Off Hire Amount for all Vessels then in the fleet is less than or equal to the aggregate Accumulated Off Hire Allowance for all such Vessels.
 
6.2    Off-Hire Certifications .
 
(a)           In any month in which the Charterer makes any deductions for off-hire from any charter hire payments due under any Charter, the Charterer shall, concurrently with such monthly charter hire payment, provide the Company with a certificate executed by an officer of the Charterer, setting forth in reasonable detail the basis for such deduction.
 
(b)           No later than February 1 of each calendar year, the Charterer shall promptly provide the Company with a certificate executed by the chief financial officer of the Charterer, setting forth in reasonable detail (i) the aggregate Accumulated Off Hire Allowance for all Vessels in the fleet and (ii) the aggregate Accumulated Off Hire Amount for all Vessels in the fleet, in each case as of the end of the preceding calendar year.
 
ARTICLE VII
DEFAULTS
 
7.1   Defaults. Upon the occurrence of any Event of Default that remains uncorrected for a period of 30 days following notice thereof by the Company to the Charterer, then the Company shall have the option to declare such Event of Default to be a breach by the Charterer of any or all of the Charters, in which case the Company or the Owners may (a) terminate any or all of the Charters by delivery of notice to the Charterer in accordance with Section 8.7, (b) foreclose upon any or all of the Security Interests or (c) exercise any or all other rights and remedies available to the Company or the Owners at law or in equity.
 

 
 
 


 
ARTICLE VIII
MISCELLANEOUS
 
8.1   Term. Following effectiveness in accordance with Section 1.3, this Agreement shall terminate upon the termination of the last Charter then in effect; provided, however, that the termination of this Agreement shall not impair any rights or obligations of any Party arising hereunder prior to such termination.
 
8.2   Choice of Law . This Agreement shall be governed by and construed in accordance with the laws of England.
 
8.3   Arbitration. Any dispute arising under this Agreement shall be resolved by arbitration in London in accordance with the provisions this Section 8.3 and the provisions of the Arbitration Act 1996, or any statutory modification or re-enactment thereof for the time being in force save to the extent necessary to give effect to the provisions of this Section 8.3. The arbitration shall be conducted in accordance with the London Maritime Arbitrators Association (LMAA) on terms current at the time when the arbitration proceedings are commenced. The reference shall be to three arbitrators: one to be appointed by the Company and the Owners, one to be appointed by the Charterer and Frontline and the third to be appointed by the two arbitrators so chosen, The decision of a majority of the arbitrators shall be final and binding on the Parties. Nothing herein shall prevent the parties from agreeing in writing to vary these provisions to provide for the appointment of a sole arbitrator. In cases where neither the claim nor any counterclaim exceeds the sum of US$50,000 (or such other sum as the parties may agree) the arbitration shall be conducted in accordance with the LMAA Small Claims Procedure current at the time when the arbitration proceedings are commenced.
 
8.4   Entire Agreement. This Agreement constitutes the entire agreement of the Parties relating to the matters contained herein, superseding all prior contracts or agreements, whether oral or written, relating to the matters contained herein.
 
8.5   Amendment or Modification. This Agreement may be amended or modified from time to time only by the written agreement of all of the Parties.
 
8.6    Assignment; Joinder .
 
(a)           No Party shall have the right to assign its rights or obligations under this Agreement without the consent of the other Parties hereto.
 
(b)           Each of the Parties acknowledges that the Fleet Purchase Agreement provides for the purchase by the Company of all of the issued and outstanding shares of capital stock of one or more vessel-owning entities owned by Frontline (each, a “Substitute Owner”) in place of one or more of the Vessel Owning Subsidiaries set forth on Schedule 3.19 to the Fleet Purchase Agreement in certain circumstances. In the event that the Company acquires any such Substitute Owner, Frontline and the Company agree that they shall cause such Substitute Owner (if it owns its vessel directly) or the subsidiary of such Substitute Owner that owns such vessel directly (if such Substitute Owner does not own its vessel directly) to become an Owner hereunder by executing a counterpart signature page to this Agreement, in the form attached hereto, prior to the closing under the Fleet Purchase Agreement of the acquisition of such Substitute Owner. The Parties agree that such Substitute Owner or such Substitute Owner’s subsidiary, as the case may be, shall be deemed to be a Party and that the vessel owned by such Substitute Owner or such Substitute Owner’s subsidiary, as the case may be, shall be deemed to be a Vessel for all purposes under this Agreement. The Parties further agree that the Owner for which such Substitute Owner or such Substitute Owner’s subsidiary, as the case may be, was substituted shall no longer be deemed to be a Party and that the vessel owned by such Owner shall no longer be deemed to be a Vessel for any purpose under this Agreement.
 

 
 
 

 
 
8.7   Notices. Unless otherwise provided herein, any notice, request, consent, instruction or other document to be given hereunder by any Party to another Party shall be in writing and will be deemed given (a) when received if delivered personally or by courier; or (b) on the date receipt is acknowledged if delivered by certified mail, postage prepaid, return receipt requested or (c) on the day of transmission if sent by facsimile transmission and receipt thereof is confirmed, as follows:
 
(a)           if to the Company, addressed to:
 
Ship Finance International Limited
Par-La-Ville Place
14 Par-La-Ville Road
Hamilton, Bermuda HM 08
Attention: Finance Department
Facsimile: +1 (441) 295-3494
 
(b)           if to any Owner, c/o the Company at the Company’s address set forth above;
 
(c)           if to Frontline, addressed to:
 
Frontline Ltd.
Par-La-Ville Place
14 Par-La-Ville Road
Hamilton, Bermuda HM 08
Attention: Finance Department
Facsimile: +1 (441) 295-3494
 
(d)           if to the Charterer, c/o Frontline at Frontline’s address set forth above;
 
or to such other place and with such other copies as any Party may designate as to itself by written notice to the others in accordance with this Section 7.6.
 

 
 
 


 
8.8   Counterparts . This Agreement may be executed in any number of counterparts with the same effect as if all signatory parties had signed the same document. All counterparts shall be construed together and shall constitute one and the same instrument.
 
8.9   Severability. If any provision of this Agreement or the application thereof to any Person or circumstance shall be held invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.
 
8.10   U.S. Currency. All sums and amounts payable to or to be payable pursuant to the provisions of this Agreement shall be payable in coin or currency of the United States of America that, at the time of payment, is legal tender for the payment of public and private debts in the United States of America.
 

 
 
 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed by their duly authorized representatives as of the day and year first above written.
 
 
SHIP FINANCE INTERNATIONAL LIMITED
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
GRANITE SHIPPING CO. LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
GOLDEN CURRENT LIMITED
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
BONFIELD SHIPPING LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
FOURWAYS MARINE LIMITED
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
FRONT ARDENNE INC.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
FRONT BRABANT INC.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     

 
 
 


 
FRONT FALCON INC.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
FRONT GLORY SHIPPING INC.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
FRONT PRIDE SHIPPING INC.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
FRONT SAGA INC.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
FRONT SERENADE INC.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
FRONT SPLENDOUR SHIPPING INC.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
FRONT STRATUS INC.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     

 
 
 


 
GOLDEN BAYSHORE SHIPPING CORPORATION
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
GOLDEN ESTUARY CORPORATION
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
GOLDEN FJORD CORPORATION
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
GOLDEN SEAWAY CORPORATION
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
GOLDEN SOUND CORPORATION
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
GOLDEN TIDE CORPORATION
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
KATONG INVESTMENTS LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     

 
 
 


 
LANGKAWI SHIPPING LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
PATRIO SHIPPING LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
RAKIS MARITIME S.A.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
SEA ACE CORPORATION
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
SIBU SHIPPING LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
SOUTHWEST TANKERS INC.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
WEST TANKERS INC.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     

 
 
 


 
PUERTO REINOSA SHIPPING CO S.A.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
ASPINALL PTD LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
BLIZANA PTE LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
BOLZANO PTE LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
CIREBON SHIPPING PTE LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
FOX MARITIME PTE LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
FRONT DUA PTE LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     

 
 
 


 
FRONT EMPAT PTE LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
FRONT ENAM PTE LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
FRONT LAPAN PTE LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
FRONT LIMA PTE LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
FRONT TIGA PTE LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
FRONT TUJUH PTE LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
FRONT SEMBILAN PTD LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     

 
 
 


 
RETTIE PTE LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
TRANSCORP PTE LTD.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
EDINBURGH NAVIGATION S.A.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
ARIAKE TRANSPORT CORP.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
HITATCHI HULL # 4983 CORP.
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
OSCILLA SHIPPING LIMITED
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     
 
FRONTLINE SHIPPING LIMITED
     
 
By:
/s/ Matthew R. Cooley
   
Name: Matthew R. Cooley
   
Title: Attorney-in-Fact
     

 
 
 


 
FRONTLINE LTD.
     
 
By:
/s/ Gary J. Wolfe
   
Name: Gary J. Wolfe
   
Title: Attorney-in-Fact
     


 
 
 


 
Counterpart Signature Page for Substitute Owners pursuant to Section 8.6(b)
 
Pursuant to Section 8.6(b) hereof, the undersigned hereby executes and delivers and becomes an Owner under this Agreement as of the date set forth below.
 
 
[NAME OF SUBSTITUTE OWNER]
     
 
By:
 
   
Name:
   
Title:
     


 
 
 

SCHEDULE A
 
OWNERS AND VESSELS
 
Owner
 
Vessel
 
Granite Shipping Co. Ltd.
 
Front Granite
 
Golden Current Limited
 
Opalia
 
Bonfield Shipping Ltd.
 
Front Driver
 
Fourways Marine Limited
 
Front Spirit
 
Front Ardenne Inc.
 
Front Ardenne
 
Front Brabant Inc.
 
Front Brabant
 
Front Falcon Inc.
 
Front Falcon
 
Front Glory Shipping Inc.
 
Front Glory
 
Front Pride Shipping Inc.
 
Front Pride
 
Front Saga Inc.
 
Front Page
 
Front Serenade Inc.
 
Front Serenade
 
Front Splendour Shipping Inc.
 
Front Splendour
 
Front Stratus Inc.
 
Front Stratus
 
Golden Bayshore Shipping Corporation
 
Navix Astral
 
Golden Estuary Corporation
 
Front Comanche
 
Golden Fjord Corporation
 
Front Commerce
 
Golden Seaway Corporation
 
New Vanguard
 
Golden Sound Corporation
 
New Vista
 
Golden Tide Corporation
 
New Circassia
 
Katong Investments Ltd.
 
Front Breaker
 
Langkawi Shipping Ltd.
 
Front Birch
 
Patrio Shipping Ltd.
 
Front Hunter
 
Rakis Maritime S.A.
 
Front Fighter
 
Sea Ace Corporation
 
Front Ace
 
Sibu Shipping Ltd.
 
Front Maple
 
Southwest Tankers Inc.
 
Front Sunda
 
West Tankers Inc.
 
Front Comor
 
Puerto Reinosa Shipping Co. S.A.
 
Front Lillo
 
Aspinall Ptd Ltd.
 
Front Viewer
 
Blizana Pte Ltd.
 
Front Rider
 
Bolzano Pte Ltd.
 
Mindanao
 
Cirebon Shipping Pte Ltd.
 
Front Vanadis
 
Fox Maritime Pte Ltd.
 
Front Sabang
 
Front Dua Pte Ltd.
 
Front Duchess
 
Front Empat Pte Ltd.
 
Front Highness
 
Front Enam Pte Ltd.
 
Front Lord
 
Front Lapan Pte Ltd.
 
Front Climber
 
Front Lima Pte Ltd.
 
Front Lady
 
Front Tiga Pte Ltd.
 
Front Duke
 
Front Tujuh Pte Ltd.
 
Front Emperor
 
Front Sembilan Ptd Ltd.
 
Front Leader
 
Rettie Pte Ltd.
 
Front Striver
 
Transcorp Pte Ltd.
 
Front Guider
 
Edinburgh Navigation S.A.
 
Edinburgh
 
Oscilla Shipping Limited
 
Oscilla
 
Ariake Transport Corp.
 
Ariake
 
Hitachi Hull # 4983 Corp.
 
Hakata
 



SK 02089 0009 859937

 

EXHIBIT 4.13


SECOND SUPPLEMENTAL PURCHASE AGREEMENT
 
This supplemental agreement (the “ Agreement ”) is entered into on this 27 th day of April 2007
 
BETWEEN:
 
1.
SEALIFT LTD. (“ Sealift ”);
 
2.
SOUTHWEST TANKERS INC. (“ Southwest ”);
 
3.
FRONT TARGET INC. (“ Front Target ”);
 
4.
FRONT TRAVELLER INC. (“ Front Traveller ”);
 
5.
WEST TANKERS INC. (“ West ”);
 
6.
GRANITE SHIPPING COMPANY LTD. (“ Granite ”);
 
7.
QUADRANT MARINE INC. (“ Quadrant ” )
 
(Southwest, Front Target, Front Traveller, West, Granite and Quadrant hereinafter collectively referred to as the “ Owners ”   and, individually, as an “ Owner ”)
 
8.
FRONTLINE LTD. (“ Frontline ” )
 
(Sealift and the Owners on the one hand and Frontline on the other hand are hereinafter collectively referred to as the “ Parties ”   and, individually, as a “ Party ”).
 
WHEREAS:
 
(A)
On 30 January, 2007, Frontline and Sealift entered into a purchase agreement setting forth the terms and conditions upon and subject to which Sealift acquired, inter alia, all of the shares in the Owners from Frontline (the “ Original Purchase Agreement ”);
 
On 15 March 2007 the Parties entered into a supplemental agreement supplementing certain terms of the Original Purchase Agreement (the “ Supplemental Agreement ” ) (together with the Original Purchase Agreement, referred to as the “ Purchase Agreement ”);   and
 
The Parties wish to supplement the terms of the Purchase Agreement in respect of a number of issues.
 
NOW THEREFORE, it is hereby, agreed as follows:
 
1.
Terms defined in the Purchase Agreement shall, when used herein in capitalised form, have the same meaning as attributed to them in the Purchase Agreement.
 
2.
Clause 8.1.6 of the Original Purchase Agreement shall be supplemented for the avoidance of doubt so that:
 
 
(i)
notwithstanding any of the terms in said Clause 8.1.6 or elsewhere in the Purchase Agreement, Frontline shall indemnify each Owner against all costs incurred by such Owner as a result of Frontline not paying any claim which such Owner is obliged to pay under the terms of the relevant Conversion Contract or any repair contract entered into by such Owner with Cosco;
 

 
 
 


 
 
(ii)
Frontline shall be responsible for the repair costs of each Conversion Vessel and in Clause 8.1.6 all references to “conversion costs” shall be construed so that this term includes such costs incurred as a result of a repair contract being entered into by Frontline (on behalf of the relevant Owner) with the relevant Yard pursuant to Clause 10.8 of such Conversion Contract.
 
3.
Clause 8.1.5 of the Original Purchase Agreement shall be amended so that the final sentence is deleted and the clause is supplemented by the following:
 
 
(i)
Sealift shall have the right to assign two representatives to the supervision team for Front Sunda, Front Target, Front Traveller and Front Comor, one of which shall have engine room expertise and the other deck expertise;
 
 
(ii)
the Sealift representatives shall have full access to information and documentation provided by Cosco to the supervision teams, as well as all documentation related to the Conversion Vessels as is being prepared by the supervision teams or circulated among its members;
 
 
(iii)
the Sealift representatives shall have the right to attend all inspections, testing of equipment, sea trials and review of sea trial documentation;
 
 
(iv)
the Sealift representatives shall work with the other members of the supervision team with the objective of resolving all technical issues in the best interests of the Owners and in the case of disagreement between the Sealift representatives and the other members of the supervision team, the views of the Sealift representatives shall be given in writing to the leader of the supervision team; and
 
Frontline shall procure that the Seatrials include operational (including ballasting and de-ballasting trials) in the presence of the Sealift representatives.
 
4.
Clause 8.1.9 of the Original Purchase Agreement and Clause 2 of the Supplemental Agreement shall be amended so that the agreed redelivery dates are as follows:
 
Front Sunda:
30 April 2007
Front Target:
30 September 2007
Front Traveller:
31 January 2008
Front Comor:
31 May 2008
   
5.
This Agreement shall become effective immediately upon Merger Completion.
 
6.
This Agreement shall be considered null and void if Merger Completion has not occurred prior to 12 May 2007.
 

 
 
 


 
7.
The Parties agree that the provisions of Clauses 14 and 17 of the Original Purchase Agreement shall apply to this Agreement as well.
 
For and on behalf of
 
For and on behalf of
SEALIFT LTD.
 
SOUTHWEST TANKERS INC.
     
     
     
For and on behalf of
 
For and on behalf of
FRONT TARGET INC.
 
FRONT TRAVELLER INC.
     
     
     
For and on behalf of
 
For and on behalf of
WEST TANKER INC.
 
GRANITE SHIPPING COMPANY LTD.
     
     
     
For and on behalf of
 
For and on behalf of
QUADRANT MARINE INC.
 
FRONTLINE LTD.
     
     
     




EXHIBIT 4.14

 
C L I F F O R D
 
C H A N C E
 
CLIFFORD CHANCE LLP
ADVOCATEN SOLICITORS NOTARIS BELASTINGADVISEURS
     
   
EXECUTION COPY

 

 
3i EUROPARTNERS Va L.P.
 
3i EUROPARTNERS Vb L.P.
 
3i PAN EUROPEAN BUY-OUTS 2006-08A L.P.
 
3i PAN EUROPEAN BUY-OUTS 2006-08B L.P.
 
3i PAN EUROPEAN BUY-OUTS 2006-08C L.P.
 
3i GLOBAL GROWTH 2006-08 L.P.
 
3i PAN-EUROPEAN GROWTH 2006-08 L.P.
 
PAN-EUROPEAN BUYOUTS CO-INVEST 2006-08 L.P.
 
PAN-EUROPEAN BUYOUTS CO-INVEST 2006-08 FCPR
 
PAN-EUROPEAN BUYOUTS (NORDIC) CO-INVEST 2006-08 L.P.
 
PAN-EUROPEAN BUYOUTS (DUTCH) A CO-INVEST 2006-08 L.P.
 
GLOBAL GROWTH CO-INVEST 2006-08 L.P.
 
OIL, GAS & POWER CO-INVEST 2006-08 L.P.
 
STICHTING MANAGEMENT SEAL
 
FRONTLINE LTD
 
AND
 
SEALIFT LTD
 
 
SHAREHOLDERS’ AGREEMENT
RELATING TO SEATLIFT LTD
 
 
DATED 27 APRIL 2007
 
 



 
 
 
CONTENTS

 

 
Clause                                                                                                                                                                                                                                                  Page
1.           Interpretation
2.           The Shares
3.           Condition Precedent; Completion
4.           Erisa
5.           The Board And Its Proceedings
6.           Proceedings Of The General Meeting
7.           Conduct Of Business And Reporting
8,           Target Warranties And Indemnities
9.           Business Plan And Financial Year
10.          Transfers
11.          Exit
12.          Tag Along Rights
13.          Termination Of Agreement
14.          3i Investors’ Rights
15.          Bye-Laws
16.          General
17.          Applicable Law And Dispute Resolution
Schedule 1: Interpretation
Schedule 2: Shareholdings
Schedule 3: Reserved Matters
Schedule 4: Form Of Deed Of Adherence
Schedule 5: Continuing Obligations
Schedule 6: Completion Certificate
Agreed Form Documents
(1)           Bye-Laws of the Company
(2)           Electronic Financial Report
(3)           Sample Management Accounts

 
 
 

THIS AGREEMENT (the   “ Agreement ”) is made   on 27 April 2007
 
BETWEEN:
 
(1)
3i EUROPARTNERS Va L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907 (registered number LP011419), with its registered office at 16 Palace Street, London SW1E 5JD, England (“ 3i Europartners Va ”),   acting by its manager, 3i Investments plc (registered number 3975789), with its registered office at 16 Palace Street, London SW1E 5JD, England (“ 3i Investments ”) ;
 
(2)
3i EUROPARTNERS Vb L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907 (registered number LP011420), with its registered office at 16 Palace Street, London SW1E 5JD, England (“ 3i Europartners Vb ”),   acting by its manager, 3i Investments;
 
(3)
3i PAN EUROPEAN BUY-OUTS 2006-08A L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907 (registered number LP011276), with its registered office at 16 Palace Street, London SW1E 5JD, England (“ 3i Pan European A ”),   acting by its manager, 3i Investments;
 
(4)
3i PAN EUROPEAN BUY-OUTS 2006-08B L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907 (registered number LP011277), with its registered office at 16 Palace Street, London SW1E 5JD, England (“ 3i Pan European B ”),   acting by its manager, 3i Investments;
 
(5)
3i PAN EUROPEAN BUY-OUTS 2006-08C L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907 (registered number LP011278), with its registered office at 16 Palace Street, London SW1E 5JD, England (“ 3i Pan European C ”),   acting by its manager, 3i Investments;
 
(6)
3i GLOBAL GROWTH 2006-08 L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907 (registered number LP011318), with its registered office at 16 Palace Street, London SW1E   5JD, England (“ 3i Global Growth ”),   acting by its manager, 3i Investments;
 
(7)
3i PAN-EUROPEAN GROWTH 2006-08 L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907 (registered number LP011320), with its registered office at 16 Palace Street, London SW1E 5JD, England (“ 3i Pan-European Growth ”),   acting by its manager, 3i Investments;
 
(8)
PAN-EUROPEAN BUYOUTS CO-INVEST 2006-08 L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907 (registered number LP011279), with its registered office at 16 Palace Street, London SW1E 5JD, England (“ Pan-European Co-invest ”),   acting by its manager, 3i Investments;
 
(9)
PAN-EUROPEAN BUYOUTS CO-INVEST 2006-08 FCPR ,   a fonds communs de placement à risqué formed under the laws of France, with its registered office at 3, rue Paul Cézanne, 75008 Paris, France (“ Pan-European Co-invest France ”),   acting by its manager, 3i Gestion S.A.;
 
(10)
PAN-EUROPEAN BUYOUTS ( NORDIC ) CO-INVEST 2006-08 L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907 (registered number LP011553), with its registered office at 16 Palace Street, London SW1E 5JD, England (“ Pan-European ( Nordic ) Co-invest ”),   acting by its manager, 3i Investments;
 
(11)
PAN EUROPEAN BUYOUTS ( DUTCH ) A CO-INVEST 2006-08 L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907, with registered number LP011874, and having its registered office at 16 Palace Street, London, SW1E 5JD, United Kingdom (“ Pan-European ( Dutch ) Co-Invest ”),   acting by its manager, 3i Investments;
 
(12)
GLOBAL GROWTH CO-INVEST 2006-08 L.P. ,   a limited partnership registered under the laws of Jersey (registered number LP760), with its registered office at 22 Grenville Street, St. Helier, Jersey (“ Global Growth Co-invest ”),   acting by its manager, 3i Investments;
 
(13)
OIL , GAS & POWER CO-INVEST 2006-08 L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907 (registered number LP011321), with its registered office at 16 Palace Street, London SW1E 5JD, England (“ Oil , Gas & Power Co-invest ”),   acting by its manager, 3i Investments;
 

 
 
 


 
(14)
STICHTING MANAGEMENT SEAL ,   a foundation (stichting) incorporated under the laws of The Netherlands, with its registered office at Lage Mosten 15, 4822 NJ Breda, The Netherlands, and being registered with the commercial register in West-Brabant, The Netherlands (the “ Stichting ”) ;
 
(15)
FRONTLINE LTD ,   a company incorporated under the laws of Bermuda, with its registered office at PO Box HM 1593, Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton HM 08, Bermuda, Company No. 17460 and being listed on the Oslo Stock Exchange and the New York Stock Exchange (“ Frontline ”) ; and
 
(16)
SEALIFT LTD ,   a company incorporated under the laws of Bermuda, with its registered office at PO Box HM 1593, Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton HM 08, Bermuda, Company No. 39466 (the “ Company ”).
 
The parties to this Agreement are hereinafter collectively referred to as the “ Parties ”   and each individually as a “ Party. ”   The Parties referred to under (1) to (13) are hereinafter collectively referred to as the “ 3i Investors ”   and each individually as a “ 3i Investor ”.
 
WHEREAS:
 
(A)
As at the date hereof, Frontline holds 33,3% of the shares in the capital of the Company;
 
(B)
On or around the date hereof, certain of the Parties and certain other persons entered into a merger agreement (the “ Merger Agreement ”)   and a sale and purchase agreement (the “ SPA ”) pursuant to which inter alia the 3i Investors will sell their shares and convertible bonds issued by Delphi to the Company in consideration for the issue by the Company of shares in its capital to the 3i Investors in the capacity as sellers under the SPA;
 
(C)
The Parties wish to enter into this Agreement for the purposes of regulating certain aspects of the affairs of the Company, on the terms and under the conditions set forth in this Agreement.
 

 
 
 

 
IT IS AGREED as follows:
 
1.            INTERPRETATION             
 
1.1
In addition to terms defined elsewhere in this Agreement, the definitions and other provisions in Schedule 1 (Interpretation) apply throughout this Agreement unless the contrary intention appears.
 
1.2
In this Agreement, unless the contrary intention appears, a reference to a recital, clause, Schedule or Annex is a reference to a recital, clause, schedule or annex of this Agreement.  The Schedules or Annexes are an integral part of this Agreement.
 
1.3
The headings in this Agreement do not affect its interpretation.
 
2.            THE SHARES
 
2.1
Upon completion of the Private Placement and the Merger Completion (both as defined in the Merger Agreement) having taken place, the Shares held by the Parties shall be as set out in Schedule 2 (Shareholdings).  The remaining Shares are held by third party shareholders not party to this Agreement.
 
2.2
The Parties other than the Company, as the holders of Shares, will have all voting and other rights attaching to the Shares as set out in this Agreement, the Bye-Laws and under the laws and regulations governing the Company and the Shares.
 
2.3
The Parties acknowledge and agree that if the Board or the General Meeting (whichever is authorised to so resolve) resolves to issue additional Shares or other equity or debt instruments to finance additional capital requirements of the Group, to make add-on investments or for other reasons, then each Shareholder shall be entitled to participate in such additional issuance (the “ Issuance ”)   in the same proportion as the Shareholders hold Shares at the time of the Issuance.  For the avoidance of doubt, the Shareholders shall only be entitled to participate in all of the instruments issued at the time of the Issuance and not in part thereof, regardless of whether they held these instruments prior to the date of the Issuance.  Each Shareholder hereby acknowledges and agrees that it will be diluted if it resolves not to participate in the Issuance and that its above and statutory pre-emptive rights (if any) may be excluded if it resolves not to participate.
 
3.            CONDITION PRECEDENT; COMPLETION
 
3.1
Except for the provisions of clause 1 (Interpretation), this clause 3 and clauses 16 (General) and 17 (Applicable Law and Dispute Resolution), as well as the provisions of Schedule 1 (Interpretation), which are of immediate effect, the provisions of and transactions contemplated in this Agreement are subject to and conditional on receipt by each Party of a duly executed Completion Certificate (the “ Condition ”).
 
3.2
If the Condition is fulfilled or waived on the Merger Completion Date, the Parties shall procure that the composition of the Board shall be changed, such that its composition shall be in accordance with clause 5.2 on that date.
 
3.3
If the Condition is not fulfilled or waived on or before that date, except for the provisions of clause 1 (Interpretation), this clause 3 and clauses 16 (General) and 17 (Applicable Law and Dispute Resolution), as well as the provisions of Schedule 1 (Interpretation), all the other clauses of this Agreement shall lapse and cease to have effect; but
 
 
3.3.1
the lapsing of those provisions shall not affect any rights or liabilities of any Party in respect of damages for non-performance of any obligation under this agreement falling due for performance prior to such lapse; and
 
 
3.3.2
no Party shall make (or permit any person to make) any announcement concerning this Agreement or any ancillary matter without the prior written consent of the 3i Investors and Frontline.
 

 
 
 


 
4.            ERISA
 
4.1
The Parties acknowledge that each of the ER1SA Funds (at the date of this Agreement being 3i Europartners Va and 3i Europarters Vb) has limited partners which are entities governed in the United States of America by ERISA.  In order to permit each ERISA Fund to treat the Company as a “venture capital operating company” (“VCOC”) for the purposes of ERISA, for so long as any ERISA Fund or its nominee holds any Shares in the capital of the Company:
 
 
4.1.1
that ERISA Fund may at any time by notice to the Company (i) nominate for appointment and removal any person to be a Director and (ii) appoint any person to be an Observer, and may similarly remove from office any such person and appoint another in his place, all in accordance with clause 5 and the Bye-Laws, and the Parties shall use their respective best endeavours to procure that the members of the Board co-opt such nominees in such capacity and the Shareholders shall vote their Shares at the next General Meeting to confirm the same;
 
 
4.1.2
none of the decisions set out in Part 1 of Schedule 3 (Reserved Matters) can be taken without the approval of the Director appointed by that ERISA Fund;
 
 
4.1.3
none of the decisions set out in Part 2 of Schedule 3 (Reserved Matters) can be taken without the approval of that ERISA Fund; and
 
 
4.1.4
that ERISA Fund shall have the right to (i) receive upon reasonable written request to the Company the information set forth in clause 7.2 and Schedule 5 (Continuing Obligations), (ii) meet with such management or personnel of the Group as may reasonably be designated by it, upon reasonable notice to the Company, for the purpose of consulting with and advising and influencing management, obtaining information regarding the business and prospects of the Group or expressing the views of that ERISA Fund on such matters, and (iii) visit and inspect any of the offices and properties of any member of the Group and inspect and copy the books and records of that member of the Group, upon reasonable notice to the Company.
 
4.2
The Parties shall not permit anything to be done that may prejudice the treatment by any ERISA Fund of the Company as a VCOC.
 
4.3
If any ERISA Fund notifies the Company (supported by a copy of legal advice to that effect received from appropriately qualified lawyers) that the provisions of clause 4.1 should be amended to preserve the qualification of that ERISA Fund as a VCOC, or otherwise to ensure that the assets of that ERISA Fund are not considered “plan assets” of the ERISA Fund for the purposes of ERISA, the Parties will agree and make any necessary amendments to the Agreement provided that the amendments do not result in a material adverse effect on the operations, business and prospects of any member of the Group, materially change the rights, liabilities or obligations of any of the Parties or materially affect the value of the Shares.
 
5.            THE BOARD AND ITS PROCEEDINGS
 
              Composition and appointments
 
5.1
The Company shall have a Board, which is responsible for the management of the business of the Company and attending to all other matters entrusted to the Board in the Bye-Laws or by operation of law.  The members of the Board shall at all times act in the interest of the Company.  In performing its task, the Board may exercise all the powers of the Company save to the extent specifically provided as otherwise provided in this Agreement, the Bye-Laws or the Bermuda Companies Act.
 
5.2
The Shareholders shall exercise their voting powers such that the members of the Board shall be appointed and removed from office by the Board and/or General Meeting (as applicable according to the Bye-Laws) as follows:
 

 
 
 


 
 
5.2.1
the CEO and CFO from time to time shall each be a Director;
 
 
5.2.2
the 3i Investors (by majority vote) shall be entitled by notice in writing to the Company to present candidates for the appointment or replacement of up to two (2) Directors;
 
 
5.2.3
Frontline shall be entitled by notice in writing to the Company to present candidates for the appointment or replacement of one (1) Director; and
 
 
5.2.4
each ERISA Fund shall be entitled by notice in writing to the Company to present candidates for the appointment or replacement of one (1) Director.
 
5.3
The 3i Investors and Frontline agree that the Board shall be expanded with two (2) as yet unknown independent directors whose identity, qualifications and experience is mutually acceptable to the 3i Investors and Frontline.
 
5.4
The members of the Board shall, from amongst their midst, appoint the Chairman.
 
5.5
The Board may represent the Company; in addition, any two (2) Directors shall be jointly authorised to represent the Company towards third parties, provided that such two (2) Directors may not both have been appointed pursuant to clause 5.2.1, 5.2.2 or 5.2.4 (as the case may be).
 
5.6
With respect to the appointments and removals from office referred to in clause 5.2, the Shareholders agree to vote in favour of one (1) of the candidates nominated by the Party or Parties entitled to make a nomination pursuant to that clause.
 
5.7
The Directors appointed pursuant to clauses 5.2.2, 5.2.3 and, if the Board so decides also the Directors appointed pursuant to clause 5.2.4, shall be entitled to an annual compensation that is customary for a group controlled by private equity investors that is of similar type and size of the Group, and to reimbursement of reasonable out of pocket expenses.
 
              Conduct of meetings
 
5.8
The Board shall meet as often as necessary, and shall also meet at the request of any individual Director.
 
5.9
At least five (5) Business Days’ notice, or such shorter period as the Chairman may agree to in writing, of each meeting of the Board shall be given to each Director and each Observer (if any).  The notice shall be accompanied by an agenda setting out in such reasonable detail as may be practicable the business to be transacted at the meeting.  A breach of this clause shall not affect the validity of any meeting of the Board that has otherwise been validly convened provided that all Directors entitled to attend were present or represented.
 
5.10
Meetings of the Board must as a general rule be held in the country where the Company is at that time resident.
 
5.11
A person to be designated for that purpose by the Chairman shall keep minutes of the meetings of the Board.  All minutes shall be in the English language.  The minutes shall be adopted by the Chairman of the Board and shall be signed by him as evidence thereof.
 
              Quorum
 
5.12
The quorum at meetings of the Board shall be met when at least half of the members of the Board are present or represented, including at least the Chairman.  If the quorum is not present or represented at a meeting of the Board at the time when any business is considered no resolutions may be validly adopted.  Any member of the Board may require that the meeting be reconvened.  In a reconvened meeting of the Board, the quorum shall be met when at least half of the members of the Board are present or represented.
 

 
 
 
 
              Resolutions
 
5.13
Unless otherwise agreed in this Agreement and subject to the requirements of the Bermuda Companies Act, all resolutions of the Board shall require a simple majority of the members of such Board present at the meeting in which the quorum requirements set forth in clause 5.12 are met.
 
5.14
In case of a tied vote the Chairman shall have a casting vote.
 
5.15
A resolution in writing signed by all members of the Board shall be valid and have effect as if it had been passed at a meeting of the Board duly convened and held.  Such resolution may be contained in one document or in several documents, each stating the terms of the resolution accurately and signed by one or more of the Directors.
 
5.16
A meeting of the Board may be held by means of such telephone, electronic or other communication facilities as permit all Directors or their representatives (some or all of whom may be in different places) participating in the meeting to communicate with each other simultaneously and instantaneously and participation in such meeting shall constitute presence in person at such meeting, provided that at the time of that meeting a majority of the Directors is in the country where the Company is at that time resident.
 
5.17
A Director or his representative may vote as a Director on any resolution concerning any matter in which he has, directly or indirectly, a financial or commercial interest, provided that he has disclosed to the other members of the Board the nature and extent of such interest, and, if he votes, his vote shall be counted and he shall be counted in the quorum when that resolution or matter is under consideration.
 
Reserved Matters
 
5.18
The Shareholders shall use their respective reasonable efforts to ensure that the Board shall not undertake:
 
 
5.18.1
any of the Reserved Matters as set forth in Part 1 of Schedule 3 (Reserved Matters), without the Board having resolved upon such matter by Qualified Resolution; and
 
 
5.18.2
any of the Reserved Matters as set forth in Part 2 of Schedule 3 (Reserved Matters), without the prior approval of the General Meeting by Qualified Resolution.
 
5.19
The Parties agree and the Company shall procure that no member of the Group shall adopt any resolution or take any action which is a Reserved Matter as set forth in Schedule 3 (Reserved Matters) (or a resolution which is analogous to or has a substantially similar effect to any of the Reserved Matters) without the prior written approval of the Board as its (ultimate) shareholder.  Clause 5.18 applies mutatis mutandis to such approval of the Board.
 
5.20
Where a matter that would otherwise require a Qualified Resolution of the Board or the prior approval of the General Meeting under this clause has been expressly included in the Business Plan (or any budget) adopted in accordance with this Agreement, no further approval shall be required under this clause 5.
 
Alternate Directors; Observers
 
5.21
Each Director shall be authorised to appoint and remove his own alternate director (an “ Alternate Director ”)   by written notice to the Company.  In addition, a Director may at any time by written notice to the Company or at a Board meeting appoint any person (who need not be a Director) to act as his Alternate Director in his place during his absence.  If such person is not a Director the approval of the Board shall be required for such appointment.
 

 
 
 


 
5.22
Each ERISA Fund shall be entitled to appoint an observer to the Board (an “ Observer ”)   by written notice to the Company.  Each Party shall use its reasonable endeavours to procure that any Observer shall be allowed to attend all meetings of the Board, and shall receive any and all information that the members of the Board receive, simultaneously with the members of the Board.  An Observer shall not be entitled to vote on any such meetings, but shall be allowed to speak and place items on the agenda for discussion.  Each ERISA Fund may remove the Observer appointed by it and appoint another person in its place.  Any Observer shall be reimbursed for its reasonable out-of-pocket expenses.
 
6.            PROCEEDINGS OF THE GENERAL MEETING
 
           Frequency of meetings
 
6.1
The annual General Meeting shall be held annually within six (6) months of the end of each Financial Year.
 
6.2
Special General Meetings shall be held as often as the Board or one or more Shareholders together holding at least 10% of the issued share capital of the Company deem necessary.
 
Agenda for General Meeting
 
6.3
The agenda for the annual General Meeting shall in any event contain the following matters:
 
 
6.3.1
the annual report for the previous Financial Year;
 
 
6.3.2
adoption of the Annual Accounts of the previous Financial Year and the allocation of the dividends and other distributions (if any);
 
 
6.3.3
discharge of the Directors for their management of the Company during the previous Financial Year;
 
 
6.3.4
appointments to any vacancies on the Board; and
 
 
6.3.5
any other proposals put forward for discussion by the Board.
 
Place of General Meeting
 
6.4
General Meetings shall as a general rule be held in the country where the Company is at that time resident, but may not be held in Norway, Luxembourg, The Netherlands or the United Kingdom (unless the Company is at that time resident there).  Notwithstanding the foregoing sentence, a General Meeting 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 meeting shall constitute presence in person at such meeting, provided that during such meeting the majority of Shareholders may not be in Norway, Luxembourg, The Netherlands or the United Kingdom.
 
Conduct of Meetings
 
6.5
General Meetings shall be convened by the Board.  The convening shall take place no later than the eighth day prior to the date of the meeting.  The notice of the meeting shall state the subject to be dealt with, without prejudice to the provisions of the Bye-Laws.
 
6.6
General Meetings shall be chaired by the Chairman.  In his absence, the Directors present shall choose a chairman from amongst their midst; if no Director is present or willing to act as chairman the General Meeting shall appoint its chairman.
 
6.7
Minutes shall be kept of the proceedings at every General Meeting by a secretary to be designated by the Chairman.  All minutes shall be in the English language.  The minutes shall be adopted by the Chairman and shall be signed by him as evidence thereof.
 

 
 
 


 
Quorum
 
6.8
Save as otherwise provided in this Agreement or the Bye-Laws, the quorum at any General Meeting shall be constituted by the presence of Shareholders (or of their duly appointed agents or attorneys) together holding at least 33 1/3 % of the voting rights entitled to be exercised at such meeting.  The said quorum shall be required at all General Meetings.  If a quorum is not present at a General Meeting at the time when any business is considered no resolutions shall be adopted.  Any Shareholder may require that the meeting be reconvened.  At least five (5) calendar days’ notice of the reconvened meeting shall be given.  The quorum for such reconvened meeting is met when Shareholders (or their duly appointed agents or attorneys) together holding at least 10% of the voting rights entitled to be exercised at such meeting are present or represented.
 
Resolutions
 
6.9
Unless agreed otherwise in this Agreement or in the Bye-Laws, or prescribed by mandatory law, all resolutions of the General Meeting shall require a simple majority of the Shareholders that are present at the meeting in which the quorum requirements set forth in clause 6.8 are met.
 
6.10
The Shareholders agree that they shall always exercise their vote in accordance with the provisions of this Agreement.
 
7.            CONDUCT OF BUSINESS AND REPORTING
 
Continuing Obligations
 
7.1
The Company undertakes to each of the 3i Investors and Frontline to comply with all the obligations set out in Schedule 5 (Continuing Obligations).
 
Information
 
7.2
The Company shall procure that Dockwise:
 
 
7.2.1
provides to the Board the information set out in Schedule 5 (Continuing Obligations);
 
 
7.2.2
keeps the Board informed of material matters relating to the progress of the business of the Group, to such extent and in such form and detail as the Board may from time to time reasonably require;
 
 
7.2.3
supplies to the Board such written particulars of any matters concerned with and arising out of the activities of the Group as the Board may from time to time reasonably require; and
 
 
7.2.4
responds promptly to such enquiries for information as shall be reasonably made by the Board.
 
7.3
The Company shall procure that each member of the Group shall give prompt written notice to the Board upon becoming aware of:
 
 
7.3.1
any occurrence (including, without limitation, any third party claim or liability, any litigation, arbitration or administrative proceedings) which would or would be likely either have a material adverse effect on the financial condition of the Group or affect adversely any Group member’s ability to perform its obligations under this Agreement, the Finance Documents or any other agreement related to this Agreement; or
 
 
7.3.2
any breach or likely breach of the covenants by any Group member under this Agreement, the Finance Documents or any other agreement related to this Agreement; or
 

 
 
 


 
 
7.3.3
the realized (year to date) EBITDA and cash flow of the Group for the relevant current accounting period shown in the Management Accounts at any time being less than ninety percent (90%) of the budget EBITDA amount or cash flow as shown in the same Management Accounts.
 
8.            TARGET WARRANTIES AND INDEMNITIES
 
8.1
The Company undertakes and agrees with each 3i Investor and Frontline that:
 
 
8.1.1
BidCo shall, and shall procure that any member of the Group shall, enforce or procure to be enforced to their full extent the obligations of the Sellers to BidCo under the Target Warranties and Indemnities;
 
 
8.1.2
BidCo shall, and shall procure that any member of the Group shall, notify the Board in writing promptly upon its becoming aware of any material breach or potential material breach of the Target Warranties and Indemnities;
 
 
8.1.3
no Acquisition Claim will be commenced, waived, compromised or settled without the prior written consent of the Board;
 
 
8.1.4
BidCo shall take, or shall procure that any member of the Group shall take, such action as the Board may reasonably require to be taken to investigate, conduct, pursue and enforce any actual or potential Acquisition Claim;
 
 
8.1.5
BidCo shall procure, at its own cost, the appointment of such legal and other professional advisers as the Board may from time to time require to act on BidCo’s behalf in the conduct and handling of any Acquisition Claim;
 
 
8.1.6
BidCo shall keep the Board informed of all material matters relating to the progress of any Acquisition Claim to such extent and in such form and detail as the Board may from time to time reasonably require; and
 
 
8.1.7
BidCo shall supply to the Board such written particulars of any matters concerned with or arising out of any actual or potential Acquisition Claim and the conduct thereof, as the Board may from time to time reasonably require.
 
8.2
If the Board so decides, the Company shall procure that BidCo shall at its own cost allow a person nominated by the Board, the exclusive conduct of any Acquisition Claim in BidCo’s own name and on its behalf and in such manner as that person sees fit.
 
8.3
If the Company or BidCo fails to comply with any of its obligations under this clause, either the 3i Investors or Frontline (whomever does so first) shall be entitled to instruct a legal or other professional adviser to prepare and submit to the Board, at the cost of the Company or BidCo (as the case may be), the information that should have been supplied to the Board pursuant to this clause.  The Company shall (and shall procure that all members of the Group shall) give such legal or other professional advisers all reasonable access to its books, records, correspondence and premises and all reasonable assistance as the legal or other professional advisers may request for this purpose and in particular (without prejudice to the generality of the foregoing) permit them to take extracts from and make copies of any documents and to discuss any matters with any of the Group’s personnel, officers and advisers.
 
9.            BUSINESS PLAN AND FINANCIAL YEAR
 
9.1
The Company shall procure that Dockwise prepares and delivers to the Board a Business Plan at such time and in such manner that it is ready for adoption not less than thirty (30) days before the first day of each Financial Year.  Adoption of any Business Plan shall require a resolution of the Board.  Each subsequent Business Plan shall be prepared in conformity with the initial Business Plan.
 

 
 
 


 
9.2
Each Business Plan shall include:
 
 
9.2.1
a business forecast with respect to the current Financial Year;
 
 
9.2.2
the proposed strategy (including the acquisition strategy with details on the possible acquisition target, the synergy options and the effect on the Business Plan of these potential acquisitions);
 
 
9.2.3
details of the assumptions used for the matters referred to in clauses 9.2.1 and 9.2.2;
 
 
9.2.4
a report on the Company’s performance during the current Financial Year, which is to include all members of the Group;
 
 
9.2.5
an annual budget for the first Financial Year following the current year of the (actual) Business Plan, including:
 
 
(a)
a breakdown of monthly consolidated revenues, operating expenses, operating results, net interest expenses and Net Profits broken down per country of operation, Subsidiary and product group;
 
 
(b)
a breakdown of monthly capital expenditures and cash flow;
 
 
(c)
a breakdown of a projected consolidated balance sheet as at the end of the Financial Year and projected profit and loss account for the Financial Year;
 
 
(d)
a breakdown of expected funding requirements and the proposed methods of meeting those requirements; and
 
 
(e)
a set of key performance indicators (“ KPIs ”), to be agreed with the Board.
 
 
9.2.6
a summary annual budget, consisting of at least a balance sheet, profit and loss account, cash flow statement and capital expenditures, for each of the second, third and fourth Financial Year following the Financial Year of the (actual) Business Plan.
 
9.3
The Company shall procure that Dockwise will, save to the extent the Board may during the current year of the (actual) Business Plan agree otherwise, implement and execute the Business Plan.
 
9.4
For the purposes of this Agreement, the first Financial Year of the Company shall end on 31 December 2007.  After the first Financial Year, all Financial Years of the Company will commence on 1 January and end on 31 December.  The financial years of the members of the Group may end on different dates.  This will not affect the reporting dates set out in this clause.
 
9.5
After the end of each Financial Year, the Annual Accounts shall be audited.  The consolidated audit of the Group shall be carried out by the Auditors.
 
9.6
Any Business Plan, the Annual Accounts and the Management Accounts shall at all times be expressed in US Dollars.
 
9.7
All financial information, as described in this clause, shall be in the English language unless the Board decides otherwise.
 
10.          TRANSFERS
 
10.1
Except for Permitted Transfers, each Shareholder agrees it shall not Transfer any Shares until the earlier of (i) 30 September 2007 and (ii) the completion of a Listing, except with the prior written consent of the 3i Investors and Frontline.
 
10.2
The Parties agree to co-operate and the Shareholders agree to vote in favour of:
 

 
 
 


 
 
10.2.1
any Transfer by any 3i Investor to and from any entity of the 3i Group or any 3i Fund; or
 
 
10.2.2
any Transfer to and from a nominee of any 3i Investor;
 
in both cases a “ Permitted Transfer ”   and any person to whom the Shares are transferred in accordance with this clause 10.2 a “ Permitted Transferee ”.
 
10.3
It shall be a condition of any Permitted Transfer that:
 
 
10.3.1
The shareholding by the Permitted Transferee is authorised by the Bermuda Registrar of Companies and/or the Bermuda Monetary Authority or is subject to an exemption or direction from the Bermuda Registrar of Companies and/or the Bermuda Monetary Authority;
 
 
10.3.2
the Permitted Transferee, if not already a Party, enters into an undertaking to observe and perform all of the provisions and obligations of this Agreement in accordance with the Deed of Adherence set out in Schedule 4 (Form of Deed of Adherence), in which case this clause shall apply to that Permitted Transferee; and
 
 
10.3.3
all Shares transferred under this clause shall be free from all liens, charges and encumbrances and shall carry all rights, benefits and advantages attached to them except the right to any dividend declared but not paid prior to the date of registration of such Permitted Transfer.
 
10.4
The Company is hereby irrevocably authorised to sign the relevant Deed of Adherence referred to in clause 10.3.12 on behalf of all other Parties.  The Company shall inform all other Parties in writing of any deed so executed.  This clause 10.4 is without prejudice to the continuation of the rights and obligations of the original Parties to this Agreement and to any other persons who have signed a Deed of Adherence.
 
10.5
Without prejudice to clauses 10.1 and 10.2, in case a third party (not being a 3i Related Party or nominee of any 3i Investor) makes a bonafide offer for Shares held by Frontline or any of the 3i Investors and Frontline or the relevant 3i Investor is willing to accept that offer, then, regardless of whether the third party or the relevant Shareholder initiated the offer, each 3i Investor (in the case of the offer being made to Frontline) or Frontline (in the case of the offer being made to any 3i Investor) shall be given the right to acquire those Shares for the same price and terms and conditions as are offered by that third party.
 
Consent under Bye-Laws
 
10.6
To the fullest extent possible under applicable law, the Shareholders hereby consent to and waive any right of first refusal in respect of any Permitted Transfer as required by the relevant provisions of the Bye-Laws.  To the extent necessary, the Parties shall take all actions and adopt all resolutions reasonably required to give effect to a Permitted Transfer or to clause 10.5.
 
11.          EXIT
 
11.1
The Parties acknowledge that the Board, on 27 April 2007, has resolved to apply for the Listing of the Company with Q3 of 2007 as the target date for the first date of trading.
 
11.2
After the filing of the application, the Parties do not express any view or accept any instruction or obligation as to whether the Company shall proceed with, cease or withdraw its application to list its Shares on the Oslo Stock Exchange.
 
11.3
The Company will, if the Board so decides:
 

 
 
 


 
 
11.3.1
appoint, on terms acceptable to the 3i Investors and Frontline, an independent financial adviser nominated by the 3i Investors and Frontline jointly to advise the Company and its Shareholders or have the 3i Investors perform this role;
 
 
11.3.2
assist in the preparation of any information memoranda or prospectus necessary or desirable to achieve an Exit.
 
11.4
The Parties acknowledge and agree that:
 
 
11.4.1
on any disposal of Shares in a Listing or a Sale, neither any of the 3i Investors nor Frontline shall give or be required to give any warranty or indemnity to any party, except for a warranty as to full legal and beneficial title to its Shares;
 
 
11.4.2
on any disposal of Shares in a Listing, or a Sale, they will use their respective best endeavours to ensure that the members of senior management of the Group (including in any event the CEO and CFO at that time) shall give customary warranties and indemnities subject to customary limitations if the 3i investors so require;
 
 
11.4.3
the Shareholders and the Company shall do all things required or appropriate to effect the Listing or the Sale in accordance with the relevant resolution of the Board and, with respect to a Listing, in accordance with the rules of the Oslo Stock Exchange and the requirements of the relevant Sponsor(s) engaged in relation thereto, or, with respect to a Sale, in accordance with the relevant sale and purchase agreement and related agreements entered into in connection with such Sale, or with respect to a Refinancing, in accordance with the relevant equity and debt documentation entered into in connection with such Refinancing.
 
11.5
The Parties will co-operate and shall do all things required or appropriate to procure that the Bye-Laws are amended as necessary or reasonably desirable for the purpose of achieving a Listing, including make such amendments that the share capital of the member of the Group that is to be listed shall be organised so that all its issued shares are of the same class, with rights typical of shares in listed companies and that the financing of the relevant company is organised in such way as advised by the relevant Sponsor(s) engaged in relation to the Listing.
 
12.         TAG ALONG RIGHTS
 
12.1
Without prejudice to clause 10.2, if at any time prior to expiry of the period referred to in clause 10.1 the 3i Investors (together the “ Tagged Shareholders ”)   or Frontline (the “ Tagged Shareholder ”)   intend to Transfer of any of their Shares to a third party and Frontline or the 3i Investors (as the case may be) consent to such Transfer, the other Shareholders (together, the “ Tagging Shareholders ”)   are entitled to Transfer a proportional part (pro rata parte the Shares to be Transferred by the Tagged Shareholder(s)) of their Shares at the same rice per Share and otherwise on the same terms (but subject to clause 11.3) as the Transfer by the Tagged Shareholder(s).
 
12.2
The Tagged Shareholder(s) shall give notice in writing (a “ Tag Notice ”)   to the Tagging Shareholders, specifying:
 
 
12.2.1
the number of Shares which it intends to Transfer (the “ Relevant Shares ”) ;
 
 
12.2.2
the name(s) of the proposed transferee(s) of the Relevant Shares and any person controlling the transferee;
 
 
12.2.3
the main terms of the contemplated Transfer; and
 
 
12.2.4
the proposed date of the Transfer.
 
12.3
Any Tagging Shareholder who wishes to dispose of a pro rata parte of its Shares on the same terms as specified in the Tag Notice shall within twenty (20) Business Days of the date of the Tag Notice notify the Tagged Shareholder(s) in writing.
 

 
 
 


 
12.4
The Tagged Shareholder(s) shall not dispose of the Relevant Shares unless it has:
 
 
12.4.1
given a Tag Notice in accordance with clause 12.2 not less than twenty (20) Business Days before the proposed disposal; and
 
 
12.4.2
procured, on the same terms as contained in the Tag Notice, the disposal of (at the discretion of the Tagging Shareholders) a pro rata part of the Shares of all Tagging Shareholders who have given due notice under this clause 12.
 
13.          TERMINATION OF AGREEMENT
 
This Agreement shall terminate:
 
 
13.1.1
in respect of all Parties, upon a Listing or Liquidation;
 
 
13.1.2
in respect of a Shareholder, upon that Shareholder ceasing to hold any Shares, provided that such Shareholder shall remain bound by the provisions in clauses 1 (Interpretation), 16 (General) and 17 (Applicable Law and Dispute Resolution), as well as the provisions of Schedule 1 (Interpretation);
 
and such person shall thereupon have no further rights or obligations under this Agreement, save as provided above and without prejudice to the accrued rights of any Party.
 
14.          3I INVESTORS’ RIGHTS
 
14.1
Save as provided otherwise, each 3i Investor may vote and/or exercise any of its rights under this Agreement as it may see fit and in its own interest.
 
14.2
Each 3i Investor may enforce the covenants, warranties and other obligations given to it by the Company in this Agreement independently.  However, each of the 3i Investors will inform the other 3i Investors of its intention to enforce the covenants, warranties and other obligations and the manner in which these will be enforced.
 
15.          BYE-LAWS
 
15.1
The Shareholders agree that they shall ensure and vote in favour of the inclusion in the Bye-Laws of a provision reflecting that any person who, whether alone or jointly with others, acquires 40% or more of the Shares, shall be obliged to make an offer for 100% of the issued and outstanding share capital of the Company.
 
15.2
The Shareholders agree that the Bye-Laws, including their respective rights and obligations thereunder, shall as between them at any time be interpreted and construed in accordance with the provisions of this Agreement.  If there is a conflict between a provision of this Agreement and a provision of the Bye-Laws, the Parties agree, to the extent permitted under Bermuda law, to observe the provisions of this Agreement and shall in such event, at the first request of any Party (other than the Company), amend the Bye-Laws as necessary to effect the full implementation of the Agreement in all respects.
 
16.          GENERAL
 
Applicable clauses
 
16.1
Clauses 14 ( Confidentiality ), 15 ( No Recission ), 16 ( Whole Agreement ), 17 ( Language ), 19 ( Assignments ), 20 ( Notices ), 21 ( Costs ), 22 ( General ), with the exception of clause 22.7, 24 ( Governing Law; Jurisdiction ), with the exception of clause 24.1, and 25 ( Counterparts ) of the Merger Agreement apply mutatis mutandis to this Agreement as if set out in full herein and as if reference therein to “Merger Agreement” is reference to “this Agreement” and are to be considered an integral part hereof.
 

 
 
 


 
Further assurances
 
16.2
The Parties undertake to each other to execute and perform all such deeds, documents, assurances, acts and things and to exercise all powers and rights available to them, including the convening of all meetings and the giving of all waivers and consents and the passing of all resolutions reasonably required to ensure that the Company, the Shareholders and the Directors and their representatives (if any) and the Company and all members of the Group give effect to the provisions of this Agreement.
 
Third parties
 
16.3
A person who is not a Party (for the sake of clarity, all Parties are mentioned under the header of this Agreement or may have become a Party pursuant to clause 10), other than 3i Investments and 3i Group which will be deemed a Party for the purposes of this clause, may not enforce any rights under this Agreement.
 
Information
 
16.4
Any Director, Alternate Director and Observer appointed by (or upon the nomination of) the 3i Investors or Frontline (as the case may be) may:
 
 
16.4.1
report to the 3i Investors or Frontline (as the case may be) on the affairs of the Group; and
 
 
16.4.2
disclose Confidential Information as he shall reasonably consider appropriate to the 3i Investors or Frontline (as the case may be).
 
16.5
In the ordinary course of the business of the 3i Group, it reviews existing investments and new investment proposals and conducts other investments and investment management activities.  Each 3i Related Party may disclose to and use Confidential Information for these purposes in all cases with any other 3i Related Party.
 
16.6
The Company consents to each 3i Investor and Frontline publicising (including, without limitation, on 3i’s or Frontline’s (as the case may be) website):
 
 
16.6.1
the fact that the 3i Investors or Frontline (as the case may be) are Shareholders of the Company; and
 
 
16.6.2
any other information about the Company which is already in the public domain (unless the information is in the public domain as a result of a breach of this Agreement by a 3i Investor or Frontline (as the case may be)).
 
16.7
The Parties other than the 3i Investors undertake with each 3i Investor that they shall not use the name of any member of the 3i Group or any 3i Fund in any context whatsoever (except as required by law) or hold itself, himself or themselves (as the case may be) out as being connected or associated with any member of the 3i Group or any 3i Fund (other than as regards the 3i Investors being Shareholders of the Company) in any manner whatsoever without the prior written consent of the relevant 3i Investor.
 
No partnership
 
16.8
Nothing in this Agreement shall be deemed to constitute a partnership between the Parties.
 
17.         APPLICABLE LAW AND DISPUTE RESOLUTION
 
17.1
This Agreement is governed by and shall be construed in accordance with the laws of England and Wales.
 
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IN WITNESS WHEREOF this Agreement has been executed by the Parties on the date first above written.
 
3i EUROPARTNERS Va L.P.
   
     
 
Acting by its manager, 3i Investments plc
 
By:
 
Title:
   
   
3i EUROPARTNERS Vb L.P.
   
     
 
Acting by its manager, 3i Investments plc
 
By:
 
Title:
   
   
3i PAN EUROPEAN BUY-OUTS 2006-08A L.P.
   
     
 
Acting by its manager, 3i Investments plc
 
By:
 
Title:
   
   
3i PAN EUROPEAN BUY-OUTS 2006-08B L.P.
   
     
 
Acting by its manager, 3i Investments plc
 
By:
 
Title:
   
   
3i PAN EUROPEAN BUY-OUTS 2006-08C L.P.
   
     
 
Acting by its manager, 3i Investments plc
 
By:
 
Title:
   
   
3i EUROPARTNERS Va L.P.
   
     
 
Acting by its manager, 3i Investments plc
 
By:
 
Title:
   
   

 

 
 
 


 
3i GLOBAL GROWTH 2006-08 L.P.
   
     
 
Acting by its manager, 3i Investments plc
 
By:
 
Title:
   
   
3i PAN-EUROPEAN GROWTH 2006-08 L.P.
   
     
 
Acting by its manager, 3i Investments plc
 
By:
 
Title:
   
   
PAN-EUROPEAN BUYOUTS CO-INVEST 2006-08 L.P.
   
     
 
Acting by its manager, 3i Investments plc
 
By:
 
Title:
   
   
PAN-EUROPEAN BYOUTS CO-INVEST 2006-08 FCPR
   
     
 
Acting by its manager, 3i Gestation S.A.
 
By:
 
Title:
   
   
PAN-EUROPEAN BUYOUTS ( NORDIC ) CO-INVEST 2006-08 L.P.
   
     
 
Acting by its manager, 3i Investments plc
 
By:
 
Title:
   
   
PAN EUROPEAN BUYOUTS ( DUTCH ) A CO-INVEST 2006-08 LP
   
     
 
Acting by its manager, 3i Investments plc
 
By:
 
Title:
   
   

 
 
 


GLOBAL GROWTH CO-INVEST 2006-08 L.P.
   
     
 
Acting by its manager, 3i Investments plc
 
By:
 
Title:
   
   
OIL , GAS & POWER CO-INVEST 2006-08 L.P.
   
     
 
Acting by its manager, 3i Investments plc
 
By:
 
Title:
   
   
STICHTING MANAGEMENT SEAL
   
     
 
By:
 
Title:
   
   
FRONTLINE LTD.
   
     
 
By:
 
Title:
   
   
SEALIFT LTD.
   
     
 
By:
 
Title:
   
   

 

 

 
 
 

SCHEDULE 1:  INTERPRETATION
 
1.            DEFINITIONS
 
3i Group means 3i Group plc (registered number 1142830) and any Subsidiary or Holding Company of 3i Group plc and any Subsidiary of such Holding Company;
 
3i Investments means 3i Investments plc (registered number 3975789);
 
3i Investor means any of 3i Europartners Va, 3i Europartners Vb, 3i Pan European A, 3i Pan European B, 3i Pan European C, 3i Global Growth, 3i Pan-European Growth, Pan-European Co-invest, Pan-European Co-invest France, Pan-European (Nordic) Co-invest, Pan-European (Dutch) Co-invest, Global Growth Co-invest or Oil, Gas & Power Co-invest, in each case for so long as it remains a Party;
 
3i Related Party means (i) any entity of the 3i Group, (ii) any 3i Investor and any other fund, partnership, investment vehicle or other entity which is managed or advised by an entity in the 3i Group or its nominees or by other parties selected by 3i Group, or in which any entity in the 3i Group has a majority economic interest (a “ 3i Fund ”)   and (iii) any investor in any 3i Fund;
 
Accounting Standards means the accounting policies and principles used and consistently applied by the Group in accordance with Dutch Generally Accepted Accounting Principles or International Financial Reporting Standards;
 
Acquisition Claim means any claim, compromise, arbitration, litigation or other legal proceedings, commenced by the Company or its Subsidiaries, in respect of the Target Warranties and Indemnities;
 
Acquisition Documents means (i) the agreement for the sale and purchase of all of the issued shares in Dockwise dated 22 December 2006 between Heerema Transport Finance (Luxembourg) S.A., Heavy Transport Holding Denmark APS and Wilh. Wilhelmsen Netherlands B.V. as sellers (the “ Sellers ”),   Wilh. Wilhelmsen ASA and Heerema Holding Construction, Inc as guarantors and BidCo as purchaser and (ii) the other documents (if any) entered into pursuant thereto or in connection therewith;
 
Affiliate means, in relation to any person, any Subsidiary or Holding Company of that person and any other Subsidiary of that Holding Company, provided always that neither the Company nor any of its Subsidiaries shall be regarded as being an Affiliate of any Shareholder for the purposes of this Agreement;
 
Agreed Form means, in relation to any document, substantially the form of that document which has been initialled by or on behalf of each Party for the purpose of identification;
 
Annual Accounts means the audited consolidated annual accounts of the Group for a Financial Year, including the directors’ report, the auditors’ report and management letter, the audited or unaudited consolidated or non-consolidated profit and loss account for the 12-month period prior to the date of the annual accounts and the audited or unaudited consolidated or non-consolidated balance sheet as at the date of the annual accounts and the notes thereon;
 
Alternate Director has the meaning given to it in clause 5.20;
 
Auditor means any of the external accountants or accountants’ firms for the time being of the Company;
 
Bermuda Companies Act means the Companies Act 1981 (Bermuda), as amended;
 
BidCo means Delphi Acquisition holding I B.V., a company incorporated under the laws of The Netherlands, with its registered office at Lage Mosten 15, 4822 NJ Breda, The Netherlands, and being registered with the commercial register in West-Brabant, The Netherlands, under number 34262243;
 
Board means the board of directors of the Company;
 
Business Day means a day (other than a Saturday or Sunday) on which banks are generally open in The Netherlands, United Kingdom and Norway for normal business;
 

 
 
 


 
Business Plan means the business plan in relation to the Group that is to be prepared as soon as practically possible after the date of this Agreement and any subsequent business plan to be prepared hereunder;
 
Bye-Laws means the articles of association of the Company as they stand at the date of this Agreement, as they may be amended from time to time;
 
CEO means the member of the board of directors of Dockwise appointed as chief executive officer from time to time;
 
CFO means the member of the board of directors of Dockwise appointed as chief financial officer of Dockwise;
 
Chairman means the chairman of the Board;
 
Condition means the condition precedent as referred to in clause 3.1;
 
Confidential Information means any information relating to the business, strategies, products, objectives, affairs, performance and/or finances of any member of the Group for the time being confidential to it or to them or treated by it or them as such and trade secrets (including, without limitation, technical data and know-how) relating to the business of any member of the Group or of any of its or their suppliers, clients, distributors or customers;
 
Constitutional Documents means the Bye-Laws, the articles of association, bye-laws, memorandum and articles or other constitutional documents of the other members of the Group;
 
Controlling Interest means the ownership by a person and its Subsidiaries and Holding Companies (and any Subsidiary of such Holding Company) of shares carrying the rights to exercise more than 50% of the voting rights attached to the issued and outstanding shares;
 
Deed of Adherence means the agreement pursuant to which a new shareholder (including any Permitted Transferee) agrees and adheres to the terms and conditions of this Agreement, the Agreed Form of which deed of adherence is attached as Schedule 4 (Form of Deed of Adherence);
 
Delphi means Delphi Acquisition Holding S.A., a company incorporated under the laws of the Grand Duchy of Luxembourg, with its registered office at 20, rue de la Poste, L-2346 Luxembourg, Grand Duchy of Luxembourg, and being registered with the Luxembourg Trade and Companies Register under number B 122.411;
 
Director means any member of the Board;
 
Dockwise means Dockwise Transport N.V., a company incorporated under the laws of the Netherlands Antilles, with its registered office at Lage Mosten 15, 4822 NJ Breda, The Netherlands, and being registered with the commercial register in West-Brabant, The Netherlands, under number 20112806;
 
Electronic Financial Report means the electronic financial report in the Agreed Form (EMAS), setting out certain key financial information relating to Dockwise extracted from the Management Accounts;
 
ERISA means the United States of America Employee Retirement Income Security Act 1974, as amended;
 
ERISA Director means any member of the Board appointed or removed from time to time at the nomination of an ERISA Fund in accordance with clause 5.2.4;
 
ERISA Fund means any of 3i Europartners Va and 3i Europarters Vb and any other Investor who from time to time notifies the Company that it or one of its affiliates is intended to be a VCOC;
 
Exit means a Sale, a Listing or a Liquidation;
 
Finance Documents means the relevant finance documents relating to the debt financing of the Group (other than by the Investors), including roll-over facilities;
 

 
 
 


 
Financial Year means a financial year of the Company ending on 31 December, or any other financial year agreed by the Shareholders pursuant to the provisions of this Agreement;
 
General Meeting means any general meeting of shareholders of the Company save for the Annual General Meeting;
 
Group means the Company and any of its Subsidiaries from time to time;
 
Holding Company has the meaning set out in this Schedule 1 under the definition of Subsidiary;
 
Intellectual Property Rights means all copyrights, moral rights, design rights, trade marks and trade names, service marks, domain names, data base rights, trade secrets, computer software, including any updates or new releases, know-how and any other intellectual property rights (whether registered or unregistered) and all applications for any of them, anywhere in the world, or otherwise, as the context may require;
 
Investor means any of the 3i Investors and any Permitted Transferee, in each case as long as it is a Party;
 
Issuance has the meaning given to it in clause 2.3;
 
KPIs means the key performance indicators as set out in clause 9.2.5(e);
 
LCIA has the meaning given to it in clause 23.2;
 
Liquidation means a voluntary liquidation of the Company in accordance with the Bye-Laws;
 
Listing means the admission to listing of Shares on the Oslo Stock Exchange;
 
Management Accounts means the monthly unaudited management accounts of the Group, consisting of a consolidated profit and loss account for the one-month period prior to the Management Accounts Date, a consolidated balance sheet as at the Management Accounts Date, and a cash flow statement as at the Management Accounts Date;
 
Management Accounts Date means the last date of the relevant calendar month for which the Management Accounts have been prepared;
 
Merger Chart means a chart in such form and detail as the 3i Investors shall reasonably require from time to time showing the Group’s turnover for the last completed Financial Year broken down by reference to geographic territories;
 
Merger Completion has the meaning given to it in the Merger Framework Agreement;
 
Merger Completion Date has the meaning given to it in the Merger Framework Agreement;
 
Merger Agreement has the meaning given to it in Recital (A);
 
Merger Documents means the Merger Agreement and the other documents entered into pursuant thereto or in connection therewith (but excluding the Finance Documents);
 
Net Profits means, in respect of any Financial Year, the audited consolidated profit of the Group (if any) on an after-tax basis as shown in the audited consolidated profit and loss account of the Company;
 
Observer means each person appointed pursuant to clause 5.21;
 
Party means any party that is mentioned in the introduction to this Agreement and any other person who has agreed to adhere to this Agreement;
 
Permitted Transfer has the meaning given to it in clause 10.2;
 

 
 
 


 
Permitted Transferee has the meaning given to it in clause 10.2;
 
Qualified Resolution means a resolution that, in the case of a Qualified Resolution of the General Meeting, requires a simple majority, including in any event the affirmative vote of the ERISA Funds, and in the case of a Qualified Resolution of the Board, requires a simple majority including the affirmative vote of the ERISA Directors;
 
Refinancing means any refinancing of the debt of the Group, in connection with which all or part of the investments of the Shareholders are repaid, redeemed or liquidated in whatever way;
 
Relevant Shares has the meaning given to it in clause 12.2.1;
 
Reserved Matters means any of the matters referred to in Schedule 3 (Reserved Matters) ;
 
Sale means the sale by the 3i Investors and Frontline (whether through a single transaction or through a series of transactions and whether directly or indirectly) of a Controlling Interest of the Group or at least the majority of the assets of the Group;
 
Shareholder means any person holding Shares that is also a Party to this Agreement, and any person to whom Shares are transferred or issued from time to time (excluding the Company but including any Permitted Transferee) in accordance with the terms of this Agreement and any applicable Deed of Adherence;
 
Shares means, from time to time, all issued and outstanding ordinary shares in the share capital of the Company and any other issued shares in the capital of the Company (or any of them if the context so requires);
 
SPA has the meaning given to it in Recital (A);
 
Sponsor means the bank(s) appointed by the Company to act as its sponsor or underwriter in connection with its application for a Listing of the Company;
 
Subsidiary means with respect to any person (the “ Holding Company ”),   any other person of which securities or interests having the power to elect a majority of that other person’s board of directors or other governing body or otherwise having the power to exercise a majority of the votes in a general meeting of shareholders (other than securities or interests having that power only upon the happening of a contingency that has not occurred) are held (or the voting rights with respect to such securities or interests are controlled by contract or otherwise) by the Holding Company or one or more of its Subsidiaries;
 
Tag Notice has the meaning given to it in clause 12.2;
 
Tagged Shareholder ( s )   has the meaning given to it in clause 12.1;
 
Tagging Shareholders has the meaning given to it in clause 12.1;
 
Target                        Warranties and Indemnities means the representations, warranties, covenants and indemnities given or made to BidCo under the Acquisition Documents;
 
Transfer means any direct or indirect sale and transfer, or any offer or contract to sell, or the creation of any interest over, pledge or right of usufruct, or any option to purchase or otherwise dispose of Shares (or securities rights or obligations convertible into or exchangeable for Shares); and
 
VCOC has the meaning given to it in clause 4.1.
 
2.            GENERAL
 
2.1
In this Agreement, unless otherwise specified, a reference to:
 
 
2.1.1
a person shall be construed so as to include any individual, firm, company, corporation, body corporate, government, governmental authority, tax inspector, state or agency of a state or any joint venture, association or partnership (whether or not having a separate legal personality);
 

 
 
 

SCHEDULE 2:
SHAREHOLDINGS
 
Issued share capital 203,990,791 ordinary shares with a nominal value of USD 1 each.
 
Name Shareholder
Number of Shares
3i Europartners Va
12.562.367
3i Europartners Vb
13.924.912
3i Pan-European A
20.052.872
3i Pan-European B
1.522.131
3i Pan-European C
3.301.554
3i Global Growth
5.528.126
3i Pan-European Growth
2.764.066
Pan-European Co-invest
347.088
Pan-European Co-invest France
38.953
Pan-European (Nordic) Co-invest
42.665
Pan-European (Dutch) Co-invest
23.245
Global Growth Co-invest
13.530
Oil, Gas & Power Co-invest
137.117
Stichting
12,050,229
Frontline 1
34,976,500
Total
107.285.355



 
1 This assumes Frontline subscribes for USD 25,000,000 Shares in the Secondary Placement.

 
 
 

 
2.1.2
a company shall be construed so as to include any company, corporation or other body corporate or other legal entity, wherever and however incorporated or established, and including any legal entity or entities into which such company may be merged by means of a statutory merger or into which it may be split up or demerged, by means of a statutory split-up or demerger;
 
 
2.1.3
a particular agreement or document is (unless the context otherwise requires) a reference to the version of such agreement or document which is binding and enforceable on the date hereof, as such agreement or document may be novated, assigned, amended or supplemented from time to time;
 
 
2.1.4
a communication in writing shall be construed so as to include any communication in the written form, letter, fax or e-mail;
 
 
2.1.5
times of day are to the local time in the relevant jurisdiction unless otherwise stated;
 
 
2.1.6
the singular includes a reference to the plural and vice versa ;
 
 
2.1.7
the masculine includes a reference to the feminine and neuter and vice versa ;
 
 
2.1.8
clauses, Schedules and Annexes are references to clauses of and schedules and annexes to this Agreement.
 
2.2
Where any provision is qualified or phrased by reference to an arm’s length basis or principle, such qualification or reference shall mean the conditions which would have been obtained between comparable, independent persons in comparable transactions (taking into account the assets used, the responsibilities and risks assumed and the division of benefits between the parties) and comparable circumstances (taking into account the times and places of performance and the parties’ business strategies), thereby providing the closest approximation of the workings of the open market.
 
2.3
Where any obligation is characterised as several, such characterisation shall mean that said obligation is separate and individual for each of the obligees of such obligation.
 
2.4
The Schedules and Annexes are an integral part of this Agreement and references to this Agreement shall include its Schedules, Appendices and Annexes.
 

 

 
 
 

SCHEDULE : SHAREHOLDINGS
 
Issued share capital 204,506,798 ordinary shares with a nominal value of USD 1 each.
 
Issued share capital 203,990,791 ordinary shares with a nominal value of USD 1 each.
 
Name Shareholder
Number of Shares
3i Europartners Va
12.562.367
3i Europartners Vb
13.924.912
3i Pan-European A
20.052.872
3i Pan-European B
1.522.131
3i Pan-European C
3.301.554
3i Global Growth
5.528.126
3i Pan-European Growth
2.764.066
Pan-European Co-invest
347.088
Pan-European Co-invest France
38.953
Pan-European (Nordic) Co-invest
42.665
Pan-European (Dutch) Co-invest
23.245
Global Growth Co-invest
13.530
Oil, Gas & Power Co-invest
137.117
Stichting
12,050,229
Frontline 2
34,976,500
Total
107.285.355


 
2 This assumes Frontline subscribes for USD 25,000,000 Shares in the Secondary Placement.

 
 
 


 
 
 

SCHEDULE 3:    RESERVED MATTERS
 
PART 1
 
The following actions of the Board regarding any member of the Group or the Group as a whole shall at all times require a resolution of the Board, unless expressly included in the Business Plan (or any budget) adopted in accordance with this Agreement:
 
 
(A) Corporate Affairs

Business Plan
adopting or amending any Business Plan or budget (to the extent not included in the Business Plan), or taking any action materially inconsistent with such business plan or budget.
   
Accounting Policies
any modification of the Accounting Standards, their application by the Group and/or the format of the Annual Accounts, unless such change is required by law or by virtue of a new standard of generally accepted accounting policies or practices.
   
Alternation to Business
making any material change in the nature of the Group’s businesses, including entering in new lines of business or in new geographic areas within existing business units.
   
Liquidation
the passing of any resolution for the Liquidation of the Company or to technically liquidate any member of the Group by disposal of all or substantially all of the assets of such member of the Group.
   
Bankruptcy
any application for a member of the Group to be declared bankrupt or for a suspension of payments of a member of the Group.

 
(B)            Directors Compensation and Related Party Transactions
 

Directors Compensation
granting or modifying the remuneration or other terms of engagement of management a director of the Group earning in excess of USD 100,000 annually.
   
Related Party Transactions
entering into any transaction, agreement or arrangement with or for the benefit of any Shareholder or other related party or Affiliate thereof.

(D)            Material Events

Listing
the application for a Listing, and the appointment of professional advisers in connection therewith.
   
Equity Transactions
acquiring or disposing of any interest in the share capital or instruments convertible into or exchangeable for share capital of any other company or body corporate for a consideration in excess of USD 1 million.
   
Asset Transactions
the sale, transfer, leasing, licensing or disposal by a member of the Group (other than in the ordinary course of trading) of all or a substantial part of its business, undertaking or assets whether by a single transaction or series of transactions, related or not acquiring or disposing of any asset of the Group in excess of USD 1 million.
   
Joint Ventures
forming, entering into, terminating or withdrawing from any partnership, consortium, joint venture or any other unincorporated association carrying on a trade or business or any other similar arrangement, whether or not with a view to making a profit.
   

 
 
 


Material Contracts
entering into any agreement or series of connected agreements under which the consideration payable is more than USD 2 million or the receivable represents more than USD 15 million.
   
Finance Documents
effecting or permitting to be effected any variations or amendments to, or waivers or compromises or releases under or in connection with, or entering into any agreement inconsistent with, any of the Finance Documents.
   
Refinancing
(the making by any member of the Group of any application or submission of any business plan to any person with a view to) attracting additional or substitute financing for the Group or any part of it other than under the Finance Documents.

 

 

 



 
 
 

PART 2
 
 
Unless more stringent majority rules apply under the Bermuda Companies Act or the Bye-laws, the following resolutions of the General Meeting shall at all times require a Qualified Resolution of the General Meeting unless expressly included in the Business Plan (or any budget) adopted in accordance with this Agreement:
 
(A)          Corporate Affairs

Constitutional Documents
any amendment of the Bye-Laws (including changes to the name and financial year of the Company).
   
Auditor
the appointment or dismissal of the Auditor.

(B)            Material Events

Legal Mergers
any merger or demerger involving the Company, other than in relation to an expansion of the business of the Group by acquisition or otherwise.

 

 


 
 
 

SCHEDULE 4:   FORM OF DEED OF ADHERENCE
 
THIS DEED is made on [DATE]
 
BETWEEN :
 
 
(1)          [NAME TRANSFEREE], [DETAILS] (the “ New Shareholder ”) ;
 
(2)          [NAME SHAREHOLDER], [DETAILS] (the “ Original Shareholder ”) ; and
 
(3)
SEALIFT LTD ,   a company incorporated under the laws of Bermuda, with its registered office at PO Box HM 1593, Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton HM 08, Bermuda, Company No. 39466 (the “ Company ”,   for itself and on behalf of the “ Continuing Shareholders ”);
 

WHEREAS:
 
 
(A)
 
(B)
The Original Shareholder and the Continuing Shareholders are parties to a shareholders’ agreement dated [DATE] 2007 (the “ Agreement’ );
 
The New Shareholder proposes to purchase/subscribe for [        ] Shares of [     ] each in the capital of the Company from the Original Shareholder;
 
(C)
 
 
(D)
The shareholding by the New Shareholder is authorised by the Bermuda Registrar of Companies and/or the Bermuda Monetary Authority or is subject to an exemption or direction from the Bermuda Registrar of Companies and/or the Bermuda Monetary Authority;
 
This Deed is made by the New Shareholder in compliance with the Agreement.
 
THIS DEED WITNESSES as follows:

1.
The New Shareholder confirms that it has been supplied with a copy of the Agreement.
 
2.
The New Shareholder hereby subscribes for [NUMBER] Shares with a nominal value of [•] each in the capital of the Company at a subscription price of USD [AMOUNT] per share and agrees to hold the Shares subject to the Bye-Laws of the Company.] In consideration of the sum of USD [AMOUNT] paid on the date hereof, the Original Shareholder(s) shall forthwith transfer to the New Shareholder [NUMBER] Shares together with the right to receive all dividends accrued thereon as at the date of transfer subject to the Bye-Laws of the Company.  Upon execution of the [issue][transfer] instrument, the Company shall register the New Shareholder in the shareholders’ register as the holder of [NUMBER] Shares.
 
3.
The New Shareholder undertakes to the Continuing Shareholders to be bound by the Agreement in all respects as if the New Shareholder was a Party to the Agreement and named in it as a Shareholder and to observe and perform all the provisions and obligations of the Agreement applicable to or binding on a Shareholder under the Agreement insofar as they fall to be observed or performed on or after the date of this Deed.
 
4.
The Continuing Shareholders undertakes to the New Shareholder to observe and perform all the provisions and obligations of the Agreement applicable to or binding on a “Shareholder” or a “Party” under the Agreement and acknowledges that the New Shareholder shall be entitled to the rights and benefits of the Agreement as if the New Shareholder were named in the Agreement as a Shareholder or a Party with effect from the date of this Deed.

5.
This Deed is made for the benefit of (a) the Parties to the Agreement as at the date hereof and (b) every other person who after the date of the Agreement (and whether before or after the execution of this Deed) assumes any rights or obligations under the Agreement or who adheres to it.
 

 
 
 


 
6.
The address and fax number of the New Shareholder for the purposes of clause 17 of the Agreement is as follows:

Attn:
   
     
Fax:
   
     
Address:
   

7.           This Deed is governed by and shall be construed in accordance with the laws of Luxembourg.
 
IN WITNESS WHEREOF this Deed has been executed and delivered on the date first written above.
 
[New Shareholder]
 
   
By:
 
Title:
 
 

 
[Original Shareholder]
 
   
By:
 
Title:
 
 

Sealift Ltd for itself and on behalf of the Continuing Shareholders,
 
   
By:
 
Title:
 

 


 
 
 


 
 
 

SCHEDULE 5:   CONTINUING OBLIGATIONS
 
1.            COMPLIANCE WITH BYE-LAWS
 
The Company shall observe all the provisions of its Bye-Laws and this Agreement and shall procure the compliance by each member of the Group with the provisions of its Constitutional Documents.
 
2.            ACCOUNTING RECORDS , ACCOUNTS AND REPORTS
 
2.1
The Company shall, and shall procure that each member of the Group shall:
 
 
2.1.1
keep proper accounting records and in them make true and complete entries of all its dealings and transactions in relation to its business; and
 
 
2.1.2
comply with all statutory requirements as to the preparation and audit of annual accounts.
 
2.2
Dockwise shall prepare:
 
 
2.2.1
unaudited monthly Management Accounts of the Group, such accounts:
 
 
(a)
to include a consolidated profit and loss account, balance sheet and cash flow statement for the Group broken down according to the principal divisions of the Group from time to time;
 
 
(b)
to refer to any material matter occurring in or relating to the period in question;
 
 
(c)
to include a comparison of all such information with the projections and forecasts in the relevant operating budget included in the Business Plan and with the corresponding information for the same period in the preceding year and a statement of any material variation from the relevant operating budget;
 
 
(d)
to itemise all material transactions referred to in the statement of projected capital expenditure included in the relevant operating budget and entered into by the Group during that period;
 
 
(e)
to set out in a separate schedule (in sufficient detail to demonstrate the same) the Group’s actual performance against the limits set out in the Finance Documents;
 
 
(f)
to have been approved by the CFO and one other director of the relevant company as evidenced by their signature of the accounts;
 
 
(g)
to include a commentary by the management board of Dockwise on the state of the business of the Company;
 
 
(h)
to be substantially in the form of the sample Management Accounts in the Agreed Form;
 
 
(i)
to include project cash flows for the period up to the end of a Financial Year; and
 
 
(j)
to include projected profit and loss account for the remainder of the then current financial period;
 
 
2.2.2
a report by the management board of Dockwise (which in relation to each 12-month period ending on the accounting reference date each year, shall include a reconciliation of the Group’s actual performance to any Business Plan showing variances and giving narrative explanation of those variances);
 
 
2.2.3
the Electronic Financial Report;
 
 
2.2.4
the Merger Chart; and
 

 
 
 


 
 
2.2.5
such other reports as the Board may from time to time reasonably require as to any matter relating to the businesses or affairs of the Group or to its financial position or assets.
 
2.3
Dockwise shall ensure that:
 
 
2.3.1
the Annual Accounts and each set of Management Accounts referred to in paragraph 2.2 above are prepared, so far as applicable, on the same basis as that used in the preparation of the Business Plan and in accordance with the Accounting Standards, consistently applied;
 
 
2.3.2
each report prepared under paragraphs 2.2.1, 2.2.2 and 2.2.3 above is delivered to the Board within 14 days of the end of each calendar month in such format as may be required by the Board;
 
 
2.3.3
the Annual Accounts are delivered to the Board within four months of the end of the Financial Year; and
 
 
2.3.4
the Merger Chart prepared under paragraph 2.2.4 above is delivered to 3i Group plc at such time as the Annual Accounts are delivered.
 
3.            MINUTES
 
If so requested by the Board, the Company shall make available (not later than the earliest of (i) the same time the minutes hereinafter mentioned are made available to any member of the relevant board, (ii) the Business Day before the next meeting of the relevant board, or (iii) 14 days after the relevant meeting) to the Board copies of minutes of meetings of the board of any member of the Group.
 
4.            LICENCES AND CONSENTS
 
The Company shall take, and shall procure that each other member of the Group shall take, all reasonable steps to obtain and maintain (and to comply with the terms of) all governmental and other licences and consents necessary for the conduct of its business.
 
5.            INSURANCE
 
5.1
The Company shall, and shall procure that each other member of the Group shall at all times keep insured with a reputable insurance office:
 
 
5.1.1
all its assets against such risks and in such manner and to such extent as accords with good commercial practice with regard to assets of the same kind in comparable circumstances;
 
 
5.1.2
itself in respect of any accident, damage, injury, third party loss, loss of profits and other risks and to such an extent as accords with good commercial practice with regard to a business of the same kind as that of the relevant member of the Group; and
 
 
5.1.3
its directors against any liability incurred by them in the lawful performance of their duties and, if the CEO and CFO so request, against the permanent disability and demise risks of the directors.
 
5.2
Dockwise shall procure that the Group’s insurance and assurance policies are reviewed by its insurance brokers at least once every year and that all reasonable recommendations made by its brokers in relation to such policies are complied with.
 

 
 
 


 
6.            FINANCE DOCUMENTS
 
BidCo shall procure that each member of the Group observes in all material respects the provisions of the Finance Documents and any associated agreements.  BidCo shall deliver to the Board a copy of each notice (including, without limitation, of a breach of a covenant or other obligation) received under the Finance Documents and each report delivered by the Group to the relevant financier under the Finance Documents at the same time as it is delivered to the parties there under.
 
7.            COMPLIANCE WITH LAWS
 
Dockwise shall, and shall procure that all other Group members shall, comply in all material respects with any law, statute, regulation or order of any governmental authority or of any agency thereof, applicable to the Group and shall notify the Board of any violation of such law, statute, regulation or order of any governmental authority or of any agency thereof, which violation in any respect may materially and adversely affect the business of the Group.
 
8.            EXPANSION OF THE BUSINESS
 
The Company shall effect, and shall procure that the other members of its Group effect, any expansion, development or evolution of the Group’s business through the Company or a wholly owned Subsidiary of the Company.
 
9.            ACQUISITION DOCUMENTS
 
The Company shall, and shall procure that the other members of the Group shall, enforce or procure to be enforced to their full extent the rights of BidCo under the Acquisition Documents.
 
10.          INTELLECTUAL PROPERTY RIGHTS
 
Dockwise shall, and shall procure that the other members of the Group shall, take all reasonable steps within their respective powers to protect their Intellectual Property Rights and shall make such patent, registered design, trade mark and other such applications and effect such renewals or extensions thereof as are required to keep the same in force.
 
11.         CORPORATE AND SOCIAL RESPONSIBILITY
 
11.1
Dockwise shall, and shall procure that the other members of the Group shall, (i) comply with all applicable environmental laws, regulations or directives (“ Environmental Law ”),   (ii) maintain all consents, permits and licenses required under Environmental Law and (iii) notify each Investor as soon as possible if any member of the Group any such consents, permits or licenses (whether because they expire, are revoked or terminated or otherwise).
 
11.2
Dockwise shall, and shall procure that the other members of the Group shall, comply with (i) all applicable laws, regulations or directives relating to the relationship between the relevant member of the Group and its employees, potential employees, trade unions and employee representative body and/or the health and safety of its employees and (ii) any arrangements between the relevant member of the Group and its employees, trade unions and/or employee representative bodies.
 
12.         PROTECTION OF INFORMATION
 
The Company and Dockwise shall, and each shall procure that the other members of the Group shall, take all reasonable steps within their respective powers to protect the Confidential Information.
 

 
 
 

 
SCHEDULE 6:   COMPLETION CERTIFICATE
 

To:
 
[All Parties, at their address as referred to in clause 17 (Notices) ]
 

 
COMPLETION CERTIFICATE
 
Dear Sirs,
 
The undersigned and certain other parties have entered into an agreement on [•] 2007 concerning their intention of combining their joint interests in heavy lift shipping and transport activities conducted by Sealift Ltd. and Delphi Acquisition Holding S.A. and their respective subsidiaries (the “ Merger Agreement ”).
 
Capitalised words if not defined in this certificate shall have the same meaning as in the Merger Framework Agreement.
 
For the purpose of and in accordance with clause 8.5 of the Merger Agreement the undersigned hereby confirms that the Completion Conditions have been fulfilled or waived in accordance with clause 7.3 of the Merger Agreement and that the parties to the Shareholders’ Agreement are hereby irrevocably and unconditionally authorised to proceed to completion in accordance with clause 3 of the Shareholders’ Agreement.  Furthermore, for the avoidance of doubt the undersigned declares that this certificate is to be considered a ‘‘Completion Certificate ”   as defined in clause 3 of the Shareholders’ Agreement.
 
Signed by [either SEALIFT or 3i INVESTMENTS and 3i GESTION, as managers of the 3i Funds],
 
   
Name:
 
Date:
 

 

 
SK 02089 0009 859982

 

EXHIBIT 4.15
 


EXECUTION COPY
 
FRONTLINE LTD
 
SEALIFT LTD
 
3i EUROPARTNERS Va L.P.
 
3i EUROPARTNERS Vb L.P.
 
3i PAN EUROPEAN BUY-OUTS 2006-08A L.P.
 
3i PAN EUROPEAN BUY-OUTS 2006-08B L.P.
 
3i PAN EUROPEAN BUY-OUTS 2006-08C L.P.
 
3i GLOBAL GROWTH 2006-08 L.P.
 
3i PAN-EUROPEAN GROWTH 2006-08 L.P.
 
PAN-EUROPEAN BUYOUTS CO-INVEST 2006-08 L.P.
 
PAN-EUROPEAN BUYOUTS CO-INVEST 2006-08 FCPR
 
PAN-EUROPEAN BUYOUTS (NORDIC) CO-INVEST 2006-08 L.P.
 
PAN EUROPEAN BUYOUTS (DUTCH) A CO-INVEST 2006-08 L.P.
 
GLOBAL GROWTH CO-INVEST 2006-08 L.P.
 
OIL, GAS & POWER CO-INVEST 2006-08 L.P.
 
STICHTING MANAGEMENT SEAL
 
STICHTING MANAGEMENT DELPHI
 
NEPTUN HEAVY LIFT AS
 
CAPRICORN INVESTMENT AS
 
SJØKONSULT AS
 

 
MERGER AGREEMENT
DOCKWISE AND SEALIFT


 
 
 

CONTENTS
 

Clause
 
Page
     
1.
Definitions
 
2.
Sale And Purchase Agreement
 
3.
Shareholders Agreement
 
4.
The Debt Restructuring
 
5.
Vessels, Conversion, Shipco’s Transfer Transaction
 
6.
Private Placement
 
7.
Interconditionality And Announcement
 
8.
Conditions To Completion
 
9.
Pre-Completion Conduct
 
10.
Completion
 
11.
Due Diligence
 
12.
Warranties
 
13.
Ancillary Restraints & Undertakings
 
14
Confidentiality
 
15.
No Rescission
 
16.
Whole Agreement
 
17.
Language
 
18.
Further Assurances; Post-Completion Actions
 
19.
Assignment
 
20.
Notices
 
21.
Costs
 
22.
General
 
23.
Interpretation
 
24.
Governing Law; Jurisdiction
 
25.
Counterparts
 




 
 
 

THIS MERGER AGREEMENT is made on 27 April 2007.
 
BETWEEN:
 
 
The investment funds listed in SCHEDULE 1 (3i Investors) to this Merger Agreement (the “ 3i Investors ”);
 
 
FRONTLINE LTD ,   a company incorporated under the laws of Bermuda with its registration number 17460 and its registered office at Par la Ville Place, 14 Par la Ville Road, Hamilton, Bermuda and listed on the Oslo Stock Exchange (“ Frontline ”);
 
 
SEALIFT LTD a company incorporated under the laws of Bermuda with the registration number 39466 and its registered office at Par la Ville Place, 14 Par la Ville Road, Hamilton, Bermuda, (“ Sealift ”   or the “ Company ”);
 
 
STICHTING MANAGEMENT DELPHI ,   a foundation (stichting) incorporated under the laws of The Netherlands, having its registered offices at Lage Mosten 15, 4822 NJ Breda, the Netherlands, registered with the Commercial Register in West-Brabant, The Netherlands, under file number 34260899 (the “ Delphi Foundation ”);
 
 
STICHTING MANAGEMENT SEALIFT ,   a foundation (stichting) incorporated under the laws of The Netherlands, having its registered offices at Breda, The Netherlands, and its principal place of business at Lage Mosten 15, 4822 NJ Breda, the Netherlands, registered with the Commercial Register in West-Brabant, The Netherlands (the “ MPP Foundation ”);
 
 
NEPTUN HEAVY LIFT AS , a company incorporated under the laws of Norway, with its registered office at Ruselokkveien 26, 0117 Oslo, Norway and registered with the corporate register in Norway under number 935 302 110 (“ Neptun ”);
 
 
CAPRICORN INVESTMENT AS, a company incorporated under the laws of Norway, with its registered office at Dalsveien 57, 0775 Oslo, Norway and registered with the corporate register in Norway under number 989 048 945 (“ Capricorn ”);   and
 
 
SJØKONSULT AS , a company incorporated under the laws of Norway, with its registered office at Bjerkebakken 65 A, 0757 Oslo, Norway and registered with the corporate register in Norway under number 989 382 810 (“ Sjøkonsult ”);
 
The above parties (including each of the 3i Investors) are individually referred to as a “Party” and together as the “ Parties ” ;
 
WHEREAS:
 
(A)
The 3i Investors, the Delphi Foundation (which has or will transfer all its interests in Delphi to the MPP Foundation), Neptun, Capricorn and SJØKONSULT (collectively the “ Delphi Shareholders ”)   together hold 100% of the issued share capital of Delphi Acquisition Holding S.A., a limited liability company (société anonyme) incorporated under the laws of Luxembourg, with its registered office at 20, rue de la Poste, L-2346 Luxembourg, Grand Duchy of Luxembourg and registered with the Luxembourg Trade and Companies Register under number B122.411 (“ Delphi ”);
 

 
 
 
 
(B)
Delphi is the holding company for a group of companies active in the offshore industry operating a fleet of large heavy lift transport vessels (the “Delphi Business”). Delphi acquired the group of companies operating the Delphi Business on 12 January 2007;
 
(C)
Sealift is the holding company for a group of, inter alia, six companies (the “ShipCo’s”) each of which owns a single hull Suez max vessel (collectively the “Sealift Vessels”). Four Sealift Vessels are being, or are scheduled to be, converted at a Cosco shipyard in China into float-over heavy lift transport vessels. Sealift has the option to also convert the remaining two Sealift Vessels into float-over heavy lift transport vessels. Pursuant to the purchase agreement(s) dated 31 January 2007 as supplemented on 15th March 2007, the costs of conversion of the first four of the Sealift Vessels are for the account of Frontline. The costs of conversion of the further two Sealift Vessels are for the account of Sealift;
 
(D)
The shares of Sealift are traded in Norway on the over the counter system (“OTC”) administrated by the Norwegian Stockbrokers Association. Frontline is a substantial minority shareholder of Sealift holding 33.33% of the entire issued share capital of Sealift;
 
(E)
The Parties have discussed the possibility of merging the Delphi Business and the Sealift Business (as defined herein) (the “Merger”) and have on 3 April 2007 entered into a non­binding merger term sheet and a confidentiality and exclusivity agreement;
 
(F)
The Merger will be effected by (i) the sale by the Delphi Shareholders of the entire issued share capital of Delphi to Sealift in consideration for the issue by Sealift of the Consideration Shares (as defined herein) such shares to be admitted for trading on the OTC, and (ii) the sale by Sealift of the shares of the ShipCo’s to Dockwise Transport B.V. (the “ShipCo Transfer Transaction”);
 
(G)
The Parties wish (i) to procure the Private Placement (as defined herein) of shares in the capital of Sealift (which will be tradable on the OTC), and (ii) to restructure the debt financing of both Sealift, Delphi and their respective subsidiaries (the “Debt Restructuring”). (The Merger, the ShipCo Transfer Transaction, the Private Placement, and the Debt Restructuring, are collectively referred to as the “Transaction”);
 
(H)
Sealift’s board has, without prejudice to the provisions of the Shareholders Agreement, in a resolution on 27 April 2007, resolved to seek a listing of its shares on the Oslo Stock Exchange with Q3/07 as the targeted period for the first date of trading (the “Proposed Listing”);
 
(I)
Sealift and Delphi have complied or procured compliance with the provisions of the Dutch Social Economic Council Merger Regulations for the protection of employees (SER-Besluit Fusiegedragsregels 2000 ter bescherming van de belangen van werknemers) and the works council of Dockwise B.V. has rendered an unconditional positive advice in relation to the Transaction; and
 

 
 
 

(J)
The Parties now wish to proceed with the Transaction on the terms and conditions set out in this Merger Agreement.
 
IT IS HEREBY AGREED AS FOLLOWS:
 
1.
DEFINITIONS
 
1.1
In this Merger Agreement capitalised terms have the meaning ascribed thereto in SCHEDULE 2 (Definitions).
 
2.
SALE AND PURCHASE AGREEMENT
 
2.1
Sealift, the Delphi Shareholders, the Delphi Foundation, Neptun, Capricorn and Sjøkonsult shall on the date hereof enter into the Delphi SPA in the Agreed Form.
 
3.
SHAREHOLDERS AGREEMENT
 
3.1
Frontline, certain of the Delphi Shareholders and Sealift shall on the date hereof enter into the Sealift Shareholders Agreement in the Agreed Form.
 
4.
THE DEBT RESTRUCTURING
 
4.1
The Parties shall procure the implementation of the Debt Restructuring in accordance with the provisions of SCHEDULE 5 (Debt Restructuring).
 
5.
VESSELS , CONVERSION , SHIPCO’S TRANSFER TRANSACTION
 
5.1
Frontline shall, and Sealift shall procure that the ShipCo’s shall, on the date hereof enter into the Second Supplemental Purchase Agreement.
 
5.2
Sealift shall, and the Delphi Shareholders shall procure that Dockwise Transport B.V. shall, on the date hereof enter into the ShipCo SPA and shall on the Merger Completion Date complete the ShipCo Transfer Transaction in accordance with SCHEDULE 6 (ShipCo Transfer Transaction).
 
6.
PRIVATE PLACEMENT
 
6.1
The Parties wish to pursue a private placement to professional investors (“ New Investors ”)   of shares in the capital of Sealift (the “ Offering Shares ”)   to be admitted to trading on the OTC (the “ Private Placement ”).
 
6.2
Part of the Offering Shares shall be issued by Sealift directly to New Investors in which case the proceeds shall be for the account of Sealift (the “ Primary Offering Shares ”)   and part of the Offering Shares shall be Consideration Shares to be sold to New Investors by certain of the Delphi Shareholders in which case the proceeds shall be for the account of the selling Delphi Shareholders (the “ Secondary Offering Shares ”),   all in accordance with the provisions of SCHEDULE 3 (Private Placement) and the Subscription Agreement.
 

 
 
 

6.3
Sealift has mandated Pareto Securities ASA and Carnegie ASA as managers in connection with the Private Placement (the “ Placement Managers ”) .
 
6.4
The final offer price for the Offering Share shall be NOK 30 per Offering Share (the “ Offer Price ”).   The total number of Offering Shares, the number of Primary Offering Shares and Secondary Offering Shares and the allotment of Offering Shares to New Investors shall be determined in accordance with SCHEDULE 3 (Private Placement) and the Subscription Agreement.
 
6.5
Sealift and Frontline shall procure that the Private Placement shall take place in accordance with all applicable laws and regulations affecting Sealift in Bermuda and all applicable rules and regulations and market practice relating to private placements on the OTC.
 
7.
INTERCONDITIONALITY AND ANNOUNCEMENT
 
7.1
The obligations of each of the Parties is conditional on each of the Transaction Documents having been duly signed by the appropriate parties thereto (“ Signing ”).
 
7.2
Immediately following Signing Sealift and Frontline shall announce the Transaction by issuing the Sealift Press Release and the Frontline Press Release.
 
8.
CONDITIONS TO COMPLETION
 
8.1
Completion of the Transaction is conditional on the Completion Conditions set out in clause 8.2 being fulfilled or waived in accordance with clause 8.3.
 
8.2
The Completion Conditions are:
 
 
8.2.1
receipt of all required licences and consents required from the Bermuda Monetary Authority or the Bermuda Registration of Companies or any other governmental authority having jurisdiction in relation to the issue of the Consideration Shares and the placement of the Offering Shares; and
 
 
8.2.2
receipt by the 3i Investors and Sealift of a confirmation from the Placement Managers that they have received irrevocable commitments from New Investors in relation to the subscription for Offering Shares for an aggregate amount of at least 39,800,000 Offering Shares at a price equal to the Offer Price and the allotment of the Offering Shares and the satisfaction or waiver of all the Conditions of the Offering, all as defined and in accordance with the provisions of the Subscription Agreement.
 
8.3
The Completion Condition set out in clause 8.2.2 is for the benefit of the 3i Investors and may be waived by the 3i Investors (either in whole or in part) at any time by notice to the other Parties. The Completion Condition in Clause 8.2.1 is for the benefit of all the Parties. All Parties shall (to the extent within their power) use reasonable endeavours to procure that the Completion Conditions are satisfied on or before the Merger Completion Date.
 

 
 
 


 
8.4
If the Completion Conditions have not all been fulfilled or waived in accordance with clause 8.3 on or before 23h59m CET on 11 May 2007 (the “ Stop Date ”)   but subject to the Parties having complied with their obligations under this Merger Agreement, the 3i Investors and Sealift may each terminate this Merger Agreement by notice in writing to the other Parties without liability of any Party to any other Party and without any obligation on any Party to compensate any other Party for any damages or cost incurred as a result thereof. Following such termination:
 
 
8.4.1
except for this clause 8 (Conditions), clauses 1 (Definitions), 16 (Whole Agreement), 17 (Language), 20 (Notices), 23 (Interpretation), 24 (Governing Law; Jurisdiction) and 25 (Counterparts), all the other clauses of this Merger Agreement and the offer Transaction Documents shall lapse and cease to have effect; but
 
 
8.4.2
the lapsing of those provisions and agreements shall not affect any rights or liabilities of any Party in respect of damages for non-performance of any obligation under the Transaction Documents falling due for performance prior to such lapse; and
 
 
8.4.3
except as required by statutory or contractual obligations to a stock exchange or other market on which the shares of any Party are traded, no Party shall make (or permit any person to make) any announcement concerning the termination of this Merger Agreement or any ancillary matter without the prior written consent of the 3i Investors, Frontline and Sealift (not to be unreasonably withheld or delayed).
 
8.5
Upon fulfilment or waiver (as the case may be) of the Completion Conditions, (i) each of Sealift and the 3i Investors may issue the Completion Certificate and (ii) the Parties must proceed to completion of the Merger in accordance with clause 10, the Delphi SPA and the ShipCo SPA (“ Merger Completion ”).
 
8.6
Completion of the Private Placement shall occur immediately after Merger Completion having occurred.
 
9.
PRE-COMPLETION CONDUCT
 
9.1
Pending Merger Completion each of Frontline and Sealift shall procure that:
 
 
9.1.1
the Delphi Shareholders, their representatives and advisers are given reasonable access to the management and to the books and records of the Sealift Group Companies;
 
 
9.1.2
the Delphi Shareholders, their representatives and advisers are provided information regarding the business and affairs of the Sealift Group Companies they reasonably require for the purposes of the Transaction; and
 

 
 
 


 
 
9.1.3
each of the Sealift Group Companies, if required by the Delphi Shareholders, shall provide all co-operation reasonably necessary in connection with the Debt Restructuring.
 
The Delphi Shareholders shall have no rights under this clause whilst they are in breach of this Merger Agreement.
 
9.2
Pending Merger Completion each of Frontline (to the extent within its power) and Sealift shall use their reasonable endeavours so as to procure that, except with the written consent of the Delphi Shareholders (which shall not be unreasonably withheld or delayed and shall in any event be deemed to be given if no response is received within 3 (three) days of a written request by Frontline and Sealift) the business of the Sealift Group Companies shall be run in the ordinary course and in accordance with consistent past practice.
 
10.
COMPLETION
 
10.1
Merger Completion shall take place on the Merger Completion Date at the offices of Clifford Chance LLP in Amsterdam in accordance with the terms of the Delphi SPA and each of the Parties shall comply with its obligations set out therein.
 
10.2
Completion of the Debt Restructuring shall take place at the offices of Clifford Chance LLP in Amsterdam on the Merger Completion Date in accordance with the provisions of SCHEDULE 5 (Debt Restructuring) and each of the Parties shall comply with its obligations set out therein.
 
10.3
Completion of the ShipCo Transfer Transaction shall take place at the offices of Clifford Chance LLP in Amsterdam on the Merger Completion Date in accordance with the provisions of SCHEDULE 6 (ShipCo Transfer Transaction) and each of the Parties shall comply with its obligations set out therein.
 
10.4
Completion of the Private Placement shall take place on the Private Placement Completion Date in accordance with the Subscription Agreement and the provisions of SCHEDULE 3 (Private Placement) and to the extent the same relates to them, each of the Parties shall comply with the provisions thereof.
 
11.
DUE DILIGENCE
 
11.1
The Delphi Shareholders acknowledge and agree that:
 
 
11.1.1
they have performed, with the assistance of professional advisors, a due diligence investigation with respect to Sealift, the Sealift Group Companies and the Sealift Business during the period from 5 April 2007 to the date hereof (the “ Sealift Due Diligence Investigation ”);
 

 
 
 


 
 
11.1.2
for the purposes of the Sealift Due Diligence Investigation the Delphi Shareholders have had (and their advisors have had) sufficient opportunity to review any and all information made available to the Delphi Shareholders and its advisors, amongst others, (i) by having received verbal and written information regarding the Sealift Group Companies and the Sealift Business from Frontline, Sealift, and/or their representatives, (ii) by having had access to the financial, legal, tax, commercial and other information listed on the index attached as SCHEDULE 7 (Disclosed Information), (iii) by having had the opportunity to submit questions to and receive answers from Frontline and from Sealift on any matter that they deemed proper and necessary for the purpose of entering into this Merger Agreement, and (iv) by having had access to senior management of the Company (including meeting with the Company’s management group) (together with information cross-referred therein collectively the “ Disclosed Sealift Information ”);   and
 
 
11.1.3
the Delphi Shareholders have to the best of their knowledge raised with Frontline and Sealift all specific issues which they considered relevant in connection with the transactions contemplated hereby and taking into account the information available to the Delphi Shareholders at that time.
 
11.2
Frontline and Sealift acknowledge and agree that:
 
 
11.2.1
they have been offered the opportunity to perform, with the assistance of professional advisors, a due diligence investigation with respect to the Shares, Convertible Bonds, Loan Notes (all as defined in the Delphi SPA), the Delphi Group Companies and their business during the period from 30 March 2007 to the date hereof (the “ Dockwise Due Diligence Investigation ”);
 
 
11.2.2
for the purposes of the Due Diligence Investigation Frontline and Sealift have had (and its advisors have had) sufficient opportunity to review any and all information made available to Frontline, Sealift and their advisors, amongst others, (i) by having received information regarding the Delphi Group Companies and its business from the Delphi Shareholders, Delphi and/or their representatives (ii) by having had access to the Disclosed Dockwise Information, (iii) by having had the opportunity to submit questions to and receive answers from the Delphi Shareholders and from Delphi on any matter that it deemed proper and necessary for the purpose of entering into this Merger Agreement, and (iv) by having had access to senior management of Delphi (including meeting with the Delphi management group) (together with information cross-referred therein collectively the “ Disclosed Dockwise Information ”); and
 
 
11.2.3
Frontline and Sealift have to the best of their knowledge raised with the Delphi Shareholders all specific issues which they considered relevant in connection with the transactions contemplated hereby and taking into account the information available to Frontline and Sealift at that time.
 

 
 
 


 
12.
WARRANTIES
 
12.1
Each of Frontline and Sealift represents and warrants to the Delphi Shareholders that each of the statements set out in SCHEDULE 8 (Warranties) is true, accurate in all material respects and not misleading in any material respect at the date hereof and will be true, accurate in all material respects and not misleading in any material respect at Merger Completion.
 
12.2
In the event that any of the Warranties is not true or accurate or is misleading or in the event of any other breach of this Merger Agreement (any of the foregoing a “ Breach ”)   Frontline and Sealift shall be jointly and severally liable for all damages incurred by the Delphi Shareholders directly resulting from such Breach and, subject to the provisions of this Merger Agreement, compensate the Delphi Shareholders (or at their direction any Sealift Group Company or Delphi Group Company) for these damages, provided however, that neither Frontline nor Sealift shall be liable for any consequential damages, losses or liabilities or loss of profit.
 
12.3
If the Delphi Shareholders become aware of a Breach, they shall notify Frontline and Sealift thereof, describing in reasonable detail the facts or circumstances giving rise thereto, and, if reasonably possible, the amount of the claim (the “ Claim ”) .
 
12.4
Sealift’s aggregate liability with respect to any claim for breach of Warranties is limited to USD 37.5 million. Frontline’s aggregate liability with respect to any claim for breach of Warranties is limited to USD 37.5 million and Sealift and Frontline shall not be liable to indemnify the Delphi Shareholders unless and until the amount of the aggregated claims for which Frontline and Sealift (as the case may be) are liable exceeds USD 10 million in which event Frontline and Sealift shall - subject to the limitation above - be liable for the full amount of such claim if such claims are justified hereunder. Any individual claim shall only be taken into account (including for the purposes of determining if the above threshold has been met) if it exceeds five hundred thousand US Dollars (USD 500,000).
 
12.5
Frontline and Sealift are not liable in respect of a claim for any breach of Warranties unless the Delphi Shareholders have given Frontline and Sealift written notice of the claim within 12 months of the Merger Completion Date.
 
12.6
Frontline’s and Sealift’s liability for any Breach is limited by (i) matters disclosed in the Disclosed Sealift Information, (ii) any matter which has been fairly disclosed, or excepted, in the Warranties themselves and/or otherwise in this Merger Agreement and/or in the Schedules hereto and (iii) any matter of which the Delphi Shareholders are or should have been aware of at the time of entering into this Merger Agreement whether on the basis of information available from Sealift, Frontline or its advisers, from any public register or otherwise.
 

 
 
 


 
13.
ANCILLARY RESTRAINTS & UNDERTAKINGS
 
13.1
Frontline undertakes to the Delphi Shareholders, the MPP Foundation, Sealift and each of the Sealift Group Companies from time to time that it will not, and that it will ensure that each member of the Frontline Group will not, either alone or jointly with others, directly or indirectly whether for the account of Frontline, any other Frontline Group Company or otherwise and in any capacity including as owner, officer, director, partner, shareholder, agent, consultant, advisor, developer, or in any other capacity do any of the following without the prior written consent of Sealift:
 
 
13.1.1
at any time before the expiry of 36 months after the date of termination or expiry of the Sealift Shareholders Agreement (the “ Non-Compete Period ”)   directly or indirectly incorporate, establish, own, operate, manage, control or engage in any Competing Business;
 
 
13.1.2
at any time before the expiry of the Non-Compete Period acquire or hold an interest (financial or otherwise) in any company or business that, directly or through any company or business directly or indirectly controlled by it, is engaged in any Competing Business;
 
 
13.1.3
at any time before the expiry of the Non-Compete Period participate in a joint venture or other co-operative arrangement aimed directly or indirectly at generating Competing Business;
 
 
13.1.4
disclose any confidential information relating to the Delphi Shareholders, the MPP Foundation, Sealift, or any of the Sealift Group Companies, the Delphi Group Companies or the businesses that they operate except as permitted in accordance with this clause 13;
 
 
13.1.5
at any time before the expiry of 24 months after the date of termination or expiry of the Sealift Shareholders Agreement, employ, enter into a consulting agreement with or solicit, encourage or induce to terminate an existing employment or consulting relationship with any person earning an annual salary of more than one hundred thousand United States Dollars (USD 100,000) who is on the date of this Merger Agreement or has during the three (3) months before the date of this Merger Agreement been an employee of or consultant to Sealift, any Sealift Group Company or any Delphi Group Companies;
 
 
13.1.6
at any time before the expiry of the Non-Compete Period solicit or entice away any customer of the Combined Business; or
 
 
13.1.7
at any time after Merger Completion use the trade names Sealift or Dockwise or any of their logo’s or any other name or logo likely to be confused with such trade name or logo.
 

 
 
 


 
13.2
Frontline shall not, and shall procure that any person directly or indirectly controlled by it shall not at any time during the Non-Compete Period:
 
 
13.2.1
sell, transfer, finance, lease or otherwise make available directly or indirectly to any Competitor any Competing Vessel or any vessel capable of being converted into a Competing Vessel; and
 
 
13.2.2
convert or broker, contract for or otherwise facilitate or assist in the conversion of any vessel into a Competing Vessel.
 
Frontline will exercise any rights it may have or acquires during the Non Compete Period (whether directly or indirectly and whether as owner, shareholder, director, partner, agent, consultant, advisor, developer, or in any other capacity) in a manner consistent with this clause 13.
 
13.3
Each undertaking in clauses 13.1 and 13.2 must be interpreted as a separate undertaking, severable from the remainder of this Merger Agreement, so that if one or more parts of the undertakings are held to be unlawful or against the public interest or in any way an unreasonable restraint of trade, and then to that extent only, it must be disregarded and the remaining undertakings (and, if it applies, the remainder of the undertaking in question) will continue to bind Frontline.
 
13.4
Each undertaking in clauses 13.1 and 13.2 shall confer a benefit on each Delphi Shareholder, each member of their respective groups of companies, the MPP Foundation and each Sealift Group Company. Each beneficiary (but no other person who is not a party to this Merger Agreement) shall be entitled to enforce such undertakings subject to and in accordance with the provisions of the contracts (Rights of Third Parties) Act 1999 (the “ 1999 Act ”)   provided that it shall only be entitled to enforce such undertakings whilst it is a member of the relevant group, or a Sealift Group Company or if no longer a member of the relevant group or a Sealift Group Company where the same is the result of an Exit Event involving (i) all or substantially all of the Sealift Group Companies (or their assets), or (ii) all or substantially all of those Sealift Group Companies (or their assets) which together form a separate business, business unit or division.
 
13.5
Nothing contained in clause 13.1 or 13.2 shall preclude or restrict Frontline or any other member of the Frontline Group from holding (i) as a passive investment not more than three per cent (3%) of the issued share capital of any company engaged in Competing Business whose shares are listed on a recognised stock exchange, the OTC or any similar trading platform, and (ii) for the avoidance of doubt, shares in the capital of Sealift.
 
14.
CONFIDENTIALITY
 
14.1
Subject to clauses 14.3 and 14.4, neither Party shall make (or permit any member of its group of companies, to make) any announcement concerning the Transaction, the Proposed Listing or any ancillary matter before, on or after Merger Completion except as specifically provided in this Merger Agreement.
 

 
 
 


 
14.2
Subject to clauses 14.3 and 14.4, each Party shall keep confidential, and shall procure that each member of their respective group of companies from time to time shall keep confidential, all information provided to it by or on behalf of any other Party or otherwise obtained by or in connection with this Merger Agreement and which relates to the other Party.
 
14.3
Nothing in this clause 14 prevents any announcement being made or any confidential information being disclosed:
 
 
14.3.1
with the written approval of the other Parties, which in the case of any announcement shall not be unreasonably withheld or delayed; or
 
 
14.3.2
to the extent required by law or any stock exchange or other competent regulatory body or by any contractual obligation in relation to the market on which the shares of a Party are traded, provided that a Party required to disclose any confidential information shall promptly notify the other Parties, where practicable and lawful to do so, before disclosing any relevant information;
 
14.4
Nothing in this clause 14 prevents disclosure of confidential information by any Party:
 
 
14.4.1
to the extent that the information is in or comes into the public domain other than as a result of a breach of any undertaking or duty of confidentiality by any person;
 
 
14.4.2
to that Party’s professional advisers, auditors or bankers, provided that before any disclosure to any such person is made the relevant party shall procure that he is made aware of the terms of this clause and that the disclosing party shall use its best endeavours to procure that each such person adheres to those terms as if he were bound by the provisions of this clause 14.
 
14.5
The 3i Investors and Frontline may disclose the terms of this Merger Agreement and any information concerning Sealift (a) to any 3i Related Party, (b) to a director, officer or employee of any 3i Related Party, Frontline or their professional advisers, (c) in an information memorandum, prospectus or similar document or otherwise in connection with any debt or equity fundraising by a 3i Related Party or any Frontline Group Company or in connection with the direct or indirect sale of any debt or equity interests in any 3i Related Party or any Frontline Group Company.
 
15.
NO RESCISSION
 
Without prejudice to clauses 7 and 8 of this Merger Agreement, the Parties waive their rights, if any, to rescind this Merger Agreement either in whole or in part. In the event of a Breach, the only remedy for the Parties shall be a claim for specific performance or damages.
 

 
 
 


 
16.
WHOLE AGREEMENT
 
The Transaction Documents together with any documents entered into pursuant thereto contain the whole agreement between the Parties relating to the Transaction contemplated by this Merger Agreement and supersedes all previous agreements, whether oral or in writing, between the Parties relating to the Transaction.
 
17.
LANGUAGE
 
The language of this Merger Agreement and the transactions envisaged by it is English and all notices, demands, requests, statements, certificates or other documents or communications shall be in English unless otherwise agreed.
 
18.
FURTHER ASSURANCES; POST-COMPLETION ACTIONS
 
18.1
On or after the date hereof each Party shall, at its own cost and expense, execute and do (or procure to be executed and done by any other necessary person) all such deeds, documents, acts and things as any other Party may from time to time reasonably require in order give full effect to this Merger Agreement.
 
18.2
In relation to each Sealift Group Company, Sealift shall procure the convening of all meetings, the giving of all waivers and consents and the passing of all resolutions as are necessary under their respective constitutions or any agreement or obligation affecting it to give effect to this Merger Agreement.
 
18.3
In relation to each Delphi Group Company, the Delphi Shareholders shall procure the convening of all meetings, the giving of all waivers and consents and the passing of all resolutions as are necessary under their respective constitutions or any agreement or obligation affecting it to give effect to this Merger Agreement.
 
18.4
Sealift and Frontline acknowledge that upon advise from Delphi’s counsel a general meeting of shareholders of Delphi will be held before a Luxembourg notary to resolve (i) to convert Delphi from of a public company (societe anonyme) into a private company (société à responsabilite limitée) and (ii) to amend the articles of association of Delphi in accordance with the provisions recommended by counsel to Delphi.
 
18.5
Sealift shall make any US check-the-box election of Delphi Sàrl and other Seal or Delphi Group Companies as advised by counsel to Delphi.
 

 
 
 


 
19.
ASSIGNMENT
 
No Party may assign any of its rights, including the benefit of the Warranties, or transfer any of the obligations under this Merger Agreement without the prior written consent of the other Parties, provided however that each of the Parties shall be allowed to assign and transfer its rights and obligations to any member of its own group, provided further that the Delphi Shareholders and Sealift shall be allowed to grant any security interests in or a pledge over this Merger Agreement, or its rights hereunder, to financial institutions providing financing to the Delphi Shareholders, any member within the group of companies to which the relevant Delphi Shareholder belongs and/or any of the Delphi Group Companies or Sealift Group Companies in connection with the transactions contemplated in this Merger Agreement and provided further that Sealift and the Delphi Shareholders may assign and transfer their rights hereunder in connection with an Exit Event involving (i) Sealift, (ii) all or substantially all of the Sealift Group Companies (or their assets) from time to time, or (iii) all or substantially all of the Sealift Group Companies (or their assets) from time to time which together form a separate business, business unit or division.
 
20.
NOTICES
 
Any notice or other formal communication given under this Merger Agreement must be in writing (which includes fax, but not email) and may be delivered in person, or sent by post or fax to the party to be served as follows and the Parties hereby choose domicile at such addresses and agree that all process may be validly served on it at such address:
 
20.1
If to 3i Europartners Va, 3i Europartners Vb, 3i Pan European A, 3i Pan European B, 3i Pan European C, 3i Global Growth, 3i Pan-European Growth, Pan-European Co-invest, Pan-European Co-invest France, Pan-European (Nordic) Co-invest, Pan-European (Dutch) Co-invest, Global Growth Co-invest or Oil, Gas & Power Co-invest (jointly or individually):
 
Attn.:
Investment Operations (reference “Seal”)
Fax:
+44 207 928 0058
Address:
16 Palace Street
London SW1E 5JD
United Kingdom
 
c.c.:
3i Investments plc - (attn. Mr. Mark Dickinson)
Fax:
+44 207 928 0058
Address:
16 Palace Street
London SW1E 5JD
United Kingdom
 
c.c.:
3i Europe plc - Benelux (attn. Mr. Guus Overdijkink)
Fax:
+31 20 305 7455
Address:
Cornelis Schuytstraat 72
1071 JL Amsterdam
The Netherlands
 
20.2
If to Stichting Management Seal or Stichting Management Delphi
 
Attn.:
The Board
Fax:
+31 76 548 4290
Address:
Lage Mosten 17
4822 NJ Breda
United Kingdom
The Netherlands

20.3
If to Neptun:
 
Attn.:
John A. Nielsen
Fax:
+47 23 11 6351
Address:
Ruselokkveien 26
0117 Oslo
Norway

20.4
If to Capricorn:
 
Attn.:
Frederik Steenbuch
Fax:
+47 22 14 5970
Address:
Dalsveien 57
0775 Oslo
Norway

20.5
If to Sjøkonsult:
 
Attn.:
Svein K. Johnsen
Fax:
+47 23 11 6351
Address:
Bjerkebakken 65 A
0757 Oslo
Norway

20.6
If to Frontline:
 
Attn.:
Tor Olav Troim
Fax:
+44 207 824 5530
Address:
c/o Frontline Management (UK) Limited
15 Sloane Square
London SW1W 8ER
United Kingdom

20.7
If to Sealift:
 
Attn.:
The Board
Fax:
+31 76 548 4299 (after Merger Completion)
+44 207 824 5530 (pre-Merger Completion)
Address:
c/o Frontline Management (UK) Limited
15 Sloane Square
London SW1W 8ER
United Kingdom

21.
COSTS
 
21.1
Save as otherwise provided in this Merger Agreement, or as otherwise specifically agreed in writing by the Parties after the date of this Merger Agreement, all costs, fees and expenses incurred by them in connection with the entering into, and completion of, this Merger Agreement and the other Transaction Documents, including without limitation in respect of their obligations in satisfying the Completion Conditions and the other requirements for implementing the Transaction, will be paid by Sealift except those fees incurred in connection with the sale to New Investors of Secondary Offering Shares which shall be borne fully by the Delphi Shareholders.
 
22.
GENERAL
 
22.1
A variation of this Merger Agreement is valid only if it is in writing and signed by or on behalf of each Party.
 
22.2
The failure to exercise or delay in exercising a right or remedy provided by this Merger Agreement or by law does not impair or constitute a waiver of the right or remedy or an impairment of or a waiver of other rights or remedies. No single or partial exercise of a right or remedy provided by this Merger Agreement or by law prevents further exercise of the right or remedy or the exercise of another right or remedy.
 
22.3
The Parties’ rights and remedies contained in this Merger Agreement are cumulative and not exclusive of rights or remedies provided by law.
 
22.4
Except to the extent that they have been performed and except where this Merger Agreement provides otherwise, the obligations contained in this Merger Agreement remain in force after Merger Completion.
 

 
 
 

22.5
Save as otherwise provided herein, any payment to be made by any Party under this Merger Agreement shall be made in full without any set-off, restriction, condition or deduction for or on account of any counterclaim.
 
22.6
If at any time any provision of this Merger Agreement is or becomes illegal, invalid or unenforceable under the laws of any jurisdiction, that shall not affect:
 
 
22.6.1
the legality, validity or enforceability in that jurisdiction of any other provision of this Merger Agreement; or
 
 
22.6.2
the legality, validity or enforceability under the laws of any other jurisdiction of that or another provision of this Merger Agreement;
 
 
22.6.3
the Parties shall commit themselves to replacing the non-binding and/or non-enforceable provisions by provisions which are binding and enforceable and which differ as little as possible - taking into account the object and purpose of this Agreement - from the non-binding and/or non-enforceable provisions.
 
22.7
The undertakings in this Merger Agreement shall confer a benefit on each Delphi Shareholder, each Delphi Group Company and each employee, director, agent, officer or adviser of each Delphi Shareholder or each Delphi Group Company with respect to undertakings made by Frontline and shall confer a benefit on Frontline and each employee, director, agent, officer or adviser of Frontline with respect to undertakings made by any Delphi Shareholders and each such beneficiary (but no other person who is not a party to this Merger Agreement) shall be entitled to enforce such undertakings subject to and in accordance with the provisions of the 1999 Act.
 
22.8
The Parties other than the 3i Investors each acknowledge and agree that no 3i Related Party is acting for them or advising them. For example, 3i Investments, which is regulated by the UK Financial Services Authority (“ FSA ”), does not have to provide the protection that it would give to a client (as defined in the glossary to the FSA handbook of rules and guidance) to any person other than 3i Related Parties. In addition, each Party other than the 3i Investors acknowledges and agrees that in connection with its decisions concerning a (possible) investment in any Sealift or Delphi Group Company:
 
 
22.8.1
it has not relied on any appraisal, recommendation, advice or information given by, carried out or effected by, or on behalf of, any 3i Related Party or its advisers;
 
 
22.8.2
it has made its own investigations into, and appraisals and assessment of, each Sealift or Delphi Group Company and its prospects, and will continue to do so for so long as it is the holder of, or otherwise interested in, equity in any Sealift or Delphi Group Company;
 
 
22.8.3
no 3i Related Party shall have any liability to it from any cause of action;
 
 
22.8.4
it is owed no duty of care or other obligation by any 3i Related Party or its advisers in connection with its decision to invest or not invest in the equity of Sealift or Delphi Group Company; and
 

 
 
 

 
22.8.5
where appropriate, it has sought independent expert advice (whether alone or jointly with other Parties).
 
22.9
Nothing in this Merger Agreement shall be deemed to constitute a partnership between any of the Parties.
 
22.10
The Parties other than the 3i Investors undertakes with each 3i Investor that they shall not use the name of any 3i Related Party in any context whatsoever (except as required by law) or hold itself, himself or themselves (as the case may be) out as being connected or associated with any 3i Related Party (other than as regards the 3i Investors being a shareholders of Sealift) in any manner whatsoever without the prior written consent of the relevant 3i Investor.
 
23.
INTERPRETATION
 
23.1
In this Merger Agreement:
 
 
23.1.1
a reference to a company or other legal entity shall be construed so as to include any legal entity or entities into which such company may be merged by means of a statutory merger or into which it may be split up or demerged, by means of a statutory split-up or demerger.
 
 
23.1.2
a reference to a “person” includes a reference to any individual, firm, company, corporation, partnership, association, body corporate, and any other entity (whether or not having separate legal personality) and includes such person’s legal representatives, successors and permitted assigns.
 
 
23.1.3
the term “subsidiary” of a company shall mean a legal entity with respect to which that company is able to direct or control, immediately or through one or more subsidiaries through:
 
 
(a)
the exercise of more than half of the votes at a general meeting of shareholders;
 
 
(b)
the appointment of more than half of the members of the management board (or local law equivalent); or
 
 
(c)
the appointment of more than half of the members of the supervisory board (if any),
 
in each case whether through holding voting securities, by agreement or otherwise, and the term “parent” of a company means a legal entity of which that company is a subsidiary;
 
 
23.1.4
the term “control” or “controlled” means, in relation to any person:
 
 
(a)
being legally entitled, directly or indirectly, to exercise more than fifty per cent. (50%) of the votes capable of being cast in general meetings of that person; or
 

 
 
 

 
(b)
having the legal right, directly or indirectly, to appoint or replace the majority of the board of directors, supervisory directors or any similar body, or otherwise control the votes at meetings of such boards or similar body, whether through ownership of voting rights, through agreement or otherwise;
 
 
23.1.5
a reference to a particular agreement or document is (unless the context otherwise requires) a reference to the version of such agreement or document which is binding and enforceable on the date hereof, as such agreement or document may be novated, assigned, amended or supplemented from time to time;
 
 
23.1.6
a reference to the singular includes a reference to the plural and vice versa;
 
 
23.1.7
a reference to the masculine includes a reference to the feminine and neuter and vice versa;
 
 
23.1.8
unless the contrary is specifically stated, the words “include” or “including” are used to indicate that the matters are not a complete enumeration of all matters covered;
 
 
23.1.9
unless the context clearly indicates a contrary intention, when any number of days is prescribed, it must be calculated exclusively of the first and inclusively of the last day unless the last day falls on a day other than a Business Day, in which case the last day will be the next succeeding day which is a Business Day.
 
23.2
The recitals and schedules form an integral part of this Merger Agreement, and a reference to a Recital, Schedule or clause means a recital, schedule or clause of this Merger Agreement unless stated otherwise.
 
23.3
The headings in this Merger Agreement are inserted for convenience and reference purposes only and do not affect its interpretation.
 
24.
GOVERNING LAW; JURISDICTION
 
24.1
This Merger Agreement is governed by and shall be construed in accordance with English law.
 
24.2
Any dispute (a “Dispute ”) arising from or connected with this Merger Agreement (including a dispute regarding the existence, validity or termination of this Merger Agreement or the consequences of its nullity), shall be referred to and finally resolved by arbitration under the Arbitration Rules of the London Court of International Arbitration (“ LCIA ”)   (the “ Rules ”).
 
24.3
The tribunal shall consist of three arbitrators, two of whom shall be nominated by the respective parties” who shall each be an English lawyer of not less than 10 years standing. The seat of the arbitration and the venue of all hearings shall be London, England, and the language of the arbitration shall be English.
 

 
 
 

24.4
The Parties agree that the arbitral tribunal shall have power to award on a provisional basis any relief which it would have power to grant on a final award.
 
24.5
Without prejudice to the powers of the arbitrator provided by the Rules, statute or otherwise, the arbitrator shall have power at any time, on the basis of affidavit evidence and the submissions of the parties alone, to make an award in favour of the claimant (or the respondent if a counterclaim) in respect of any claims (or counterclaims) to which there is no reasonably arguable defence, either at all or except as to the amount of any damages or other sum to be awarded.
 
24.6
The Parties exclude any rights to refer points of law or to appeal to the courts, to the extent that they can validly waive these rights.
 
25.
COUNTERPARTS
 
This Merger Agreement may be executed in any number of counterparts, each of which executed and delivered is an original and all of which together evidence the same agreement.
 
[Remainder of the page intentionally left blank]
 

 
 
 

IN WITNESS WHEREOF this Merger Agreement is signed on the date first written above.
 
For and on behalf of
 
FRONTLINE LTD
 
   
By:
 
Title:
 


SEALIFT LTD
 
   
By:
 
Title:
 


3i EUROPARTNERS Va L.P.
 
   
Acting by its manager, 3i Investments plc
By:
 
Title:
 


3i EUROPARTNERS Vb L.P.
 
   
Acting by its manager, 3i Investments plc
By:
 
Title:
 
 


 
 
 

 

3i PAN EUROPEAN BUY-OUTS 2006-08A L.P.
   
Acting by its manager, 3i Investments plc
By:
 
Title:
 


3i PAN EUROPEAN BUY-OUTS 2006-08B L.P.
   
Acting by its manager, 3i Investments plc
By:
 
Title:
 


3i PAN EUROPEAN BUY-OUTS 2006-08C L.P.
   
Acting by its manager, 3i Investments plc
By:
 
Title:
 


3i GLOBAL GROWTH 2006-08 L.P.
   
Acting by its manager, 3i Investments plc
By:
 
Title:
 


 
 
 


3i PAN-EUROPEAN GROWTH 2006-08 L.P.
   
Acting by its manager, 3i Investments plc
By:
 
Title:
 


PAN-EUROPEAN BUYOUTS CO-INVEST 2006-08 L.P.
   
Acting by its manager, 3i Investments plc
By:
 
Title:
 


PAN-EUROPEAN BUYOUTS CO-INVEST 2006-08 FCPR
   
Acting by its manager, 3i Gestion S.A.
By:
 
Title:
 


PAN-EUROPEAN BUYOUTS ( NORDIC ) CO-INVEST 2006-08 L.P.
   
Acting by its manager, 3i Investments plc
By:
 
Title:
 



 
 
 


PAN-EUROPEAN BUYOUTS ( DUTCH ) A CO-INVEST 2006-08 L.P.
   
Acting by its manager, 3i Investments plc
By:
 
Title:
 


GLOBAL GROWTH CO-INVEST 2006-08 L.P.
   
Acting by its manager, 3i Investments plc
By:
 
Title:
 


OIL , GAS & POWER CO-INVEST 2006-08 L.P.
   
Acting by its manager, 3i Investments plc
By:
 
Title:
 


STICHTING MANAGEMENT SEALIFT
   
     
By:
 
By:
Title:
 
Title:
 


 
 
 

 

STICHTING SHAREHOLDERS DELPHI
   
     
By:
 
By:
Title:
 
Title:


NEPTUN HEAVY LIFT AS
   
By:
 
Title:
 


CAPRICORN INVESTMENT AS
   
By:
 
Title:
 


SJØKONSULT AS
   
By:
 
Title:
 

 
 
 

SCHEDULE 1
 
3I INVESTORS
 
(1)
3i EUROPARTNERS Va L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907 (registered number LP011419), with its registered office at 16 Palace Street, London SW1E 5JD, England (“ 3i Europartners Va ”),   acting by its manager, 3i Investments plc (registered number 3975789), with its registered office at 16 Palace Street, London SW1E 5JD, England (“ 3i Investments ”);
 
(2)
3i EUROPARTNERS Vb L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907 (registered number LP011420), with its registered office at 16 Palace Street, London SW1E 5JD, England (“ 3i Europartners Vb ”),   acting by its manager, 3i Investments;
 
(3)
3i PAN EUROPEAN BUY-OUTS 2006-08A L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907 (registered number LP011276), with its registered office at 16 Palace Street, London SW1E   5JD, England (“ 3i Pan European A ”),   acting by its manager, 3i Investments;
 
(4)
3i PAN EUROPEAN BUY-OUTS 2006-08B L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907 (registered number LP011277), with its registered office at 16 Palace Street, London SW1E 5JD, England (“ 3i Pan European B ”),   acting by its manager, 3i Investments;
 
(5)
3i PAN EUROPEAN BUY-OUTS 2006-08C L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907 (registered number LP011278), with its registered office at 16 Palace Street, London SW1E 5JD, England (“ 3i Pan European C ”),   acting by its manager, 3i Investments;
 
(6)
3i GLOBAL GROWTH 2006-08 L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907 (registered number LP011318), with its registered office at 16 Palace Street, London SW1E 5JD, England (“ 3i Global Growth ”),   acting by its manager, 3i Investments;
 
(7)
3i PAN-EUROPEAN GROWTH 2006-08 L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907 (registered number LP011320), with its registered office at 16 Palace Street, London SW1E 5JD, England (“ 3i Pan-European Growth ”),   acting by its manager, 3i Investments;
 
(8)
PAN-EUROPEAN BUYOUTS CO-INVEST 2006-08 L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907 (registered number LP011279), with its registered office at 16 Palace Street, London SW1E 5JD, England (“ Pan-European Co-invest ”),   acting by its manager, 3i Investments;
 
(9)
PAN-EUROPEAN BUYOUTS CO-INVEST 2006-08 FCPR ,   a fonds communs de placement à risqué formed under the laws of France, with its registered office at 3, rue Paul Cezanne, 75008 Paris, France (“ Pan-European Co-invest France ”),   acting by its manager, 3i Gestion S.A.;
 

 
 
 

(10)
PAN-EUROPEAN BUYOUTS ( NORDIC ) CO-INVEST 2006-08 L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907 (registered number LP011553), with its registered office at 16 Palace Street, London SW1E 5JD, England (“ Pan-European ( Nordic ) Co-invest ”),   acting by its manager, 3i Investments;
 
(11)
PAN EUROPEAN BUYOUTS ( DUTCH ) A CO-INVEST 2006-08 L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907, with registered number LP011874, and having its registered office at 16 Palace Street, London, SW1E 5JD, United Kingdom (“ Pan-European ( Dutch ) Co-Invest ”),   acting by its manager, 3i Investments;
 
(12)
GLOBAL GROWTH CO-INVEST 2006-08 L.P. ,   a limited partnership registered under the laws of Jersey (registered number LP760), with its registered office at 22 Grenville Street, St. Helier, Jersey (“ Global Growth Co-invest ”),   acting by its manager, 3i Investments; and
 
(13)
OIL , GAS & POWER CO-INVEST 2006-08 L.P. ,   a limited partnership registered under the Limited Partnerships Act 1907 (registered number LP011321), with its registered office at 16 Palace Street, London SW1E 5JD, England (“ Oil , Gas & Power Co-invest ”),   acting by its manager, 3i Investments.
 

 
 
 

SCHEDULE 2
 

 
Definitions
 
3i Investments
has the meaning given to it in paragraph (1) of SCHEDULE 1 (3i Investors);
 
3i Investors
means the parties listed in SCHEDULE 1 (3i Investors);
 
3i Related Party
means (i) any entity of the 3i Group, (ii) any 3i Investor and any other fund, partnership, investment vehicle or other entity which is managed or advised by an entity in the 3i Group or its nominees or by other parties selected by 3i Group, or in which any entity in the 3i Group has a majority economic interest (a “ 3i Fund ”)   and (iii) any investor in any 3i Fund;
 
Affiliate
means in relation to any entity or person, any subsidiary, subsidiary undertaking, parent company, parent undertaking or other entity or person that directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such entity or person, or any entity for which such entity or person serves as investment adviser, discretionary investment manager or in a similar capacity, and all mutual funds or other pooled or collective investment vehicles advised or managed by such entity or person;
 
Agreed Form
shall mean the document in its final form as approved and initialled by Frontline, Sealift and the 3i Investors as appropriate;
 
Bareboat Charters
means the bareboat charters forming part of the Shipping Documents as described in the Disclosed Information;
 
Bermuda Monetary
Authority
means the Bermuda Monetary Authority established in terms of the Bermuda Monetary Authority Act 1969 as a body corporate having perpetual succession, to act as an independent licensing, supervisory and regulatory body;
 
Board Resolution
means the resolution of the Board of Sealift in the form of SCHEDULE 4 (Board Resolution);
 
BidCo
means Delphi Acquisition Holding I B.V., a company incorporated under the laws of The Netherlands with its registered office in Breda, The Netherlands;

 
 
 


Bond Trustee
means Norsk Tillitsmann ASA in its capacity as bond trustee in relation to the Sealift Bonds;
 
Breach
has the meaning given to it in clause 12.2 of this Merger Agreement;
 
Business Day
means a day other than a Saturday, Sunday or official public holiday in either the United Kingdom or Norway, and on which banks are generally open for business in London, England and Oslo, Norway;
 
Capricorn
has the meaning given to it in the introduction to this Merger Agreement, paragraph 1.7;
 
Claim
has the meaning given to it in clause 12.3 of this Merger Agreement;
 
Combined Business
means the Sealift Business and the Delphi Business taken together; means Sealift;
 
Company
means Sealift;
 
Competing Business
means any business or activity which involves providing heavy lift maritime shipping services of a type now or during the Non Compete Period provided by any Sealift Group Company or any Delphi Group Company from time to time;
 
Competing Vessel
means any vessel capable of being deployed in Competing Business;
 
Competitor
means any person directly or indirectly engaged in, or seeking to have available to it via purchase, lease, chartering or otherwise any vessels where the person restricted by the provisions of Clause 13 of the Merger Agreement or Mr Fredriksen, as the case may be, is reasonably aware such person is seeking to engage in, Competing Business;
 
Completion Certificate
means the certificate substantially in the form set out in SCHEDULE 6 to the Delphi SPA;
 
Completion Conditions
means the conditions set out in clause 8.2 of this Merger Agreement;
 
Consideration Shares
has the meaning set out in the Delphi SPA;

 
 
 


Conversion Contracts
means the contracts entered into with Cosco for the incorporating of new designs and materials within the existing structure of the four Sealift Vessels converting such Sealift Vessels into float-over heavy lift transport vessels ;
 
Cosco
means either of Cosco (Zhoushan) Shipyard Co., Ltd or Cosco (Nantong) Shipyard Co., Ltd, as the context may require;
 
Debt Restructuring
has the meaning given to it in recital (G) of this Merger Agreement;
 
Delphi
has the meaning given to it in recital (A);
 
Delphi Business
has the meaning given to it in recital (B);
 
Delphi Foundation
has the meaning given to it in the introduction to this Merger Agreement, paragraph 1.4;
 
Delphi Group Company /
Companies
means Delphi and its Subsidiaries from time to time;
 
 
Delphi Shareholders
has the meaning given to it in recital (A);
 
Delphi SPA
means the share purchase agreement of even date herewith, between the Delphi Shareholders, the Delphi Foundation as Sellers and Sealift as Buyer;
 
Disclosed Sealift
Information
 
has the meaning given to it in clause 11.1.2 of this Merger Agreement;
 
Dockwise Due Diligence
Investigation
 
has the meaning ascribed thereto in clause 11.2.1;
Encumbrance
means a mortgage, charge, pledge, lien, option, restriction, right of first refusal, right of pre-emption, third-party right or interest, other encumbrance or security interest of any kind, or another type of preferential arrangement (including, without limitation, a title transfer or retention arrangement) having similar effect;
 
Existing Facility
Agreement
means the Delphi USD 680 million senior facilities agreement dated 11 January 2007 (as amended from time to time) and the PIKCo USD 65 million PIK Facility Agreement dated 10 April 2007;
 
Existing Shares
means all the issued share capital of Sealift being immediately prior to the issuing of the Primary Offering Shares and the Consideration Shares a total of 90 million shares with a nominal vale of USD 1 each;
 
Exit Event
means any sale, transfer, merger, share for share exchange or asset pooling, a listing on any stock exchange or similar event;
 
Facility Agreements
means the PIK Facility Agreement and the Senior Facilities Agreement;
 
Frontline
has the meaning given to it in the introduction to this Merger Agreement, paragraph 1.2;
 
Frontline Group
means Frontline and any of its Subsidiaries from time to time;
 
Frontline Press Release
means the press release in the Agreed Form to be issued by Frontline after Signing;
 
Investor Presentation
means the investor presentation dated 26 April 2007 issued by the Company in connection with the Private Placement;
 
Offering Shares
has the meaning given to it in clause 6.1;
 
Offer Price
means NOK 30 per Offering Share;
 
Management Agreements
means the agreements described in SCHEDULE 8;
 
Mandatory Bond
Prepayment Date
 
means 15 Business Days after the issue of the Mandatory Prepayment Notice;
Mandatory Prepayment
Notice
 
means the notice in the Agreed Form;
Marketing Materials
means the Investor Presentation prepared and distributed in relation to the Private Placement;
 
Merger
has the meaning given to it in recital (E) of this Merger Agreement;
 
Merger Agreement
means this Merger agreement including all the Schedules and Annexes to this Agreement;
 
Merger Completion
has the meaning given to it in clause 8.5 of this Merger Agreement;
 
Merger Completion Date
means the date designated by the 3i Investors and Seal for Merger Completion which is set at 4 May 2007 but can be deferred by each of Seal and 3i Investments by notice to all other Parties to a Business Day no later than 11 May 2007 or such other date as shall be agreed between Frontline and 3i Investments;

 
 
 


MPP Foundation
has the meaning given to it in the introduction to this Merger Agreement, paragraph 1.5;
 
Neptun
has the meaning given to it in the introduction to this Merger Agreement, paragraph 1.6;
 
New Investors
has the meaning given to it in clause 6.1 of this Merger Agreement;
 
Non-Compete Period
has the meaning given to it in clause 13.1.1 of this Merger Agreement;
 
Norwegian Stockbrokers
Association
means the Norwegian Securities Dealers Association and its subsidiary, the Norwegian Stockbrokers Information services (FINFO), which operates a trading support system for unlisted shares (The OTC-system) for the benefit of its members;
 
Notary
Means Mr. T.P. van Duuren, civil law notary at Clifford Chance LLP in Amsterdam;
 
Notary Account
means the third party account set out in the Notary Letter;
 
Notary Letter
means the letter detailing the (re-)pay went investors to the Notary;
 
Offering Shares
has the meaning given to it in clause 4.1 of this Merger Agreement;
 
OTC
has the meaning given to it in recital (D) of this Merger Agreement;
 
Parties
has the meaning given to it in the introduction to this Merger Agreement and a Party means any of them;
 
PIK Facility Agreement
means USD 65 million Pik facility agreement between, amongst others, Lehman Brothers and PIKCo dated on or about the date hereof;
 
PIK Lenders
means the financial institutions which are from time to time a party to the PIK Facility Agreement as a Lender (as defined therein);

 
 
 


PIK Loan
means the PIK Facility Agreement between PIKCo, Bayerische Hypo- und Vereinsbank AG, London Branch, Lehman Brothers International (Europe) as arrangers and bookrunners, Lehman Brothers International (Europe) as Agent, Lehman Brothers International (Europe) as Security Agent and the Original Lenders as listed therein;
 
PIKCo
means Delphi Acquisition Holding B.V., a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) incorporated under the laws of The Netherlands, having its registered office at Lage Mosten 15, 4822 NJ Breda, The Netherlands, and being registered with the Chamber of Commerce in Amsterdam, The Netherlands, under file number 20131044;
 
Placement Managers
has the meaning given to it in clause 6.3 of this Merger Agreement;
 
Primary Offering Shares
has the meaning given to it in clause 6.2 of this Merger Agreement;
 
Private Placement
has the meaning given to it in clause 4.1 of this Merger Agreement;
 
Private Placement
Completion Date
 
has the meaning given to it in SCHEDULE 3 (Private Placement);
Proposed Listing
has the meaning given to it in recital (H) of this Merger Agreement;
 
Consideration Shares
has the meaning given to it in the Delphi SPA;
 
Refund Guarantees
means the guarantees issued to the ShipCo’s in relation to refund of instalments paid under the Conversion Contracts;
 
Sealift
has the meaning given to it in the introduction to this Merger Agreement, paragraph 1.3;
 
Sealift Bonds
means the FRN Sealift Ltd. Senior Secured Callable Bonds issued by Sealift under a loan agreement dated 8 February 2007;
 
Sealift Business
Means the business as conducted by Sealift including the ShipCo’s and the Shipping Assets;

 
 
 


Sealift Due Diligence
 
Investigation
has the meaning given to it in clause 11.1.1 of this Merger Agreement;
Sealift Group Companies
means Sealift and its Subsidiaries from time to time and Sealift Group Company means any of them;
 
Sealift Press Release
means the press release in the Agreed Form to be issued by Sealift after Signing;
Sealift Shareholders
Agreement
means the Agreed Form shareholders agreement of even date herewith, between the Parties to this Merger Agreement except for Capricorn, Sjøkonsult, Neptun and the Delphi Foundation;
 
Sealift Vessels
has the meaning given to it in recital (C) and further details of which are set out in SCHEDULE 10 (Shipping Assets);
 
Secondary Offering Shares
Has   the meaning set out in clause 6.2;
 
Second Supplemental
Purchase Agreement
 
means the supplemental purchase agreement in the form of SCHEDULE 11 (Second Supplemental Purchase Agreement) ;
Senior Facilities
Agreement
means the USD 1,100 million facility agreement between, amongst others, Lehman Brothers and BIDCo dated on or about the date hereof;
 
Senior Sealift Loan
means the loan that was made available to Sealift under the Senior Sealift Loan Agreement;
 
Senior Sealift Loan
Agreement
means the Sealift USD 240 million delayed draw term loan facility agreement dated 15 March 2007;
 
ShipCo
means either Front Target Inc., Front Traveller Inc., Granite Shipping Company Limited or Quadrant Marine Inc or Southwest Tankers Inc or West Tankers Inc, as the context may require and “ Owners ” means all of them;
 
ShipCo SPA
means the agreement for the sale and purchase of all the issued shares in Front Target Inc., Front Traveller Inc., Granite Shipping Company Limited, West Tankers Inc., Southwest Tankers Inc. and Quadrant Marine Inc. entered into on the date of this Merger Agreement by and between Sealift as seller and Dockwise Transport B.V. as buyer, all in the Agreed Form;
 
ShipCo’s Transfer
Transaction
has the meaning given to it in recital (F) of this Merger Agreement;

 
 
 


Shipping Assets
means the legal and beneficial interests the Owners have in each of the Sealift Vessels and the Shipping Documents as set out in SCHEDULE 10 (Shipping Assets);
 
Shipping Document
means the Conversion Contracts, the Conversion Options, the Bareboat Charters, the Management Agreements and the Refund Guarantees;
 
Signing
has the meaning given to it in clause 7.1;
 
Sjøkonsult
has the meaning given to it in the introduction to this Merger Agreement, paragraph 1.8;
 
Stop Date
has the meaning given to it in clause 8.4 of this Merger Agreement;
 
Subscription Agreement
means the Agreed Form subscription agreement issued in
connection with the Private Placement;
 
Subsidiaries
has the meaning given to it in clause 1 of the Delphi SPA;
 
Transaction
has the meaning given to it in recital (G);
 
Transaction Documents
means the Merger Agreement, the Delphi SPA, the Commitment Letter, the Notary Letter, the Frederiksen Non-Compete Undertaking, the Sealift Shareholders Agreement, the ShipCo SPA and the Board Resolution; and
 
Warranties
means the warranties given by Frontline and Sealift to the Delphi Shareholders set out in SCHEDULE 8 (Warranties) of this Merger Agreement.


 
 
 

SCHEDULE 3
 

 
Private Placement
 
Immediately following Signing:
 
1.
Frontline will issue the Frontline Press Release.
 
2.
Sealift will issue the Sealift Press Release.
 
3.
Within 48 hours of the date hereof, the Placement Managers will have informed the Parties of the number of Offering Shares the Placement Managers are able to place with New Investors (subject to Merger Completion).
 
4.
Upon receipt of the information referred to in 3 above, the allotment decisions will be made in accordance with the provisions of the Subscription Agreement.
 
5.
Completion of the Private Placement shall take place no later than on 11 May 2007 (the “ Private Placement Completion Date ”).
 

 
 
 

SCHEDULE 4
 
Board Resolution
 
 
SEALIFT LTD.
 
The undersigned, being all the Directors of Sealift Ltd., a company incorporated in the Islands of Bermuda (the “ Company ”)   pursuant to Bye-Law 104 of the Company’s Bye-laws, HEREBY ADOPT the resolutions set out below.
 
These Unanimous Written Resolutions may be executed in counterparts, and a copy shall be inserted in the Company’s Minute Book. Any action taken herein shall be of the same force and effect as if adopted at a duly convened meeting of the Board of Directors of the Company.
 
1.
Election and Appointment of Officers and Resident Representative
 
WHEREAS it is noted that it is desirous to appoint the persons set out below as Directors of the Company with effect from Merger Completing as defined in the Morgan Agreement.
 
It is HEREBY RESOLVED that:-
 
Andre Goedee, Mark Dickinson, Stefan Malfliet and Hans Middelthon be elected or appointed from Merger Completion as defined in the Merger Agreement to hold office until election of the next Board of Directors or until their respective successors are elected or appointed:
 
2.
The Transaction Documents
 
WHEREAS it is proposed that the Company shall entand er into a merger agreement to be made between, inter alia, the Company, Frontline Ltd., the 3i Investors (as defined therein), Stichting Shareholding Delphi, Stichting Management Sealift, Neptun Heavy Lift AS, Capricorn Investment AS and Sjøkonsult AS in order to effect the merger of the business of the Company with the business of Delphi Acquisition Holding S.A. (“ Delphi ”)   on the terms and conditions contained therein (the “ Merger Agreement ”);
 
WHEREAS in connection with the Merger Agreement the Company shall enter into an agreement regarding the sale and purchase of shares, convertible bonds, loan notes, depositary receipts over shares, depositary receipts over convertible bonds and depositary receipts over loan notes in Delphi to be made between, inter alia, the Company, the 3i Investors (as defined therein), Stichting Management Seal, Neptune Heavy Lift AS, Capricorn Investment AS and SJØKONSULT AS (the “ Delphi SPA ”);
 
WHEREAS in connection with the issuance of shares in the Company as consideration for the above it is intended that the Company will also enter into several subscription agreements for the private placement of shares in the Company (the “ Subscription Agreements ”)   and a shareholders agreement to be made between, inter alia, the Company, Frontline Ltd. and the Delphi Shareholders (as defined in the Merger Agreement) (the “ Shareholders Agreement ”);
 

 
 
 

 
 
WHEREAS the Company owns all the issued and outstanding shares in Front Target Inc., Front Traveller Inc., Granite Shipping Company Limited, West Tankers Inc., Southwest Tankers Inc., and Quadrant Marine Inc. (the “ Shipco Shares ”),   it is intended that the Company will enter into a sale and purchase agreement to sell the Shipco Shares to Dockwise Transport B.V. (the “ Shipco SPA ”)
 
The Merger Agreement, the Delphi SPA, the Shareholders Agreement the Private Placement Agreements and the Shipco SPA are each individually referred to as a “ Transaction Document ”   and collectively as the “ Transaction Documents ”);
 
WHEREAS the Board has carefully reviewed the contents and effect and the terms of each of the Transaction Documents and all the documents referred to in the Merger Agreement and the transactions contemplated therein;
 
WHEREAS the Combined Business, as defined in the Merger Agreement, has been valued at 2.062 billion USD on a cash and debt free basis and accordingly, the Purchase Price (as defined in the Delphi SPA) has been negotiated at arms length and in good faith;
 
WHEREAS the execution and delivery by or on behalf of the Company of the Transaction Documents and the exercise by the Company of its rights and the performance by the Company of its obligations thereunder would materially benefit the Company and would be for the purpose of carrying on its business.
 
WHEREAS no Director has, directly or indirectly, any interest in the Transaction Documents or the arrangements relating thereto, which he is required by the Memorandum of Association or Bye-Laws of the Company or by statute or otherwise to disclose or is for any reason disqualified from voting pursuant to these unanimous written resolutions of the Board except for the options and remuneration packages negotiated for this transaction;
 
WHEREAS neither the execution and delivery by or on behalf of the Company of the Transaction Documents to which the Company will be a party nor the exercise by the Company of any of its rights or the performance by the Company of any of its obligations thereunder would result in any breach of any restriction imposed by law, the Memorandum of Association or Bye-Laws of the Company or any agreement to which the Company is a party or by which the Company is bound;
 
It is HEREBY RESOLVED that:-
 
the issuance of the Primary Offering Shares (as defined in the Merger Agreement) and the issuance of the Consideration Shares (as defined in the Delphi SPA), in each cash credited as fully paid up, are hereby approved as being in the best interests of the Company and the actions of the Directors, Officers and Agents of the Company to date in connection therewith be and are hereby approved, ratified and confirmed;
 

 
 
 

the transactions contemplated in the Transaction Documents are hereby approved as being in the best interests of the Company and the actions of the directors,
 
officers and agents of the Company to date in connection therewith are hereby approved, ratified and confirmed;
 
the actions of the Directors, Officers and agents of the Company to date in connection with the aforementioned transactions be and are hereby approved and the entry by the Company into the Transaction Documents and all transactions contemplated therein is hereby approved and retified;
 
the terms and conditions (so far as they concern the Company) of each of the Transaction Documents and the execution and delivery by or on behalf of the Company of each Transaction Document in such form or with such amendments thereto as the person or persons executing the same pursuant to the authorities conferred by the following resolutions may in his or their absolute discretion think fit, and the exercise by the Company of its rights and the performance by the Company of its obligations thereunder he and are hereby approved;
 
each of the Directors, including the director appointed as per the resolutions above, (each an “ Authorised Signatory ”),   be and is severally authorised to sign and deliver on behalf of the Company each of the Transaction Documents, in the forms of the drafts reviewed by the Directors or with such amendments thereto as such Authorised Signatory may in his absolute discretion think fit, the exercise of such discretion to be conclusively evidenced by the Authorised Signatory’s execution thereof;
 
each Authorised Signatory be and is hereby severally authorised to do all acts and things so as to carry into effect the purposes of the foregoing resolutions and to sign and deliver on behalf of the Company any and all documents which may be required pursuant to or in connection with the Transaction Documents and to give any and all notices, acknowledgements or undertakings on behalf of the Company in connection with the Transaction Documents, in each case in such manner or form as such Authorised Signatory may in his absolute discretion think fit, the exercise of such discretion to be conclusively evidenced by his execution thereof;
 
with respect to documents to be executed as deeds (if any), each Authorised Signatory and Attorney be and is hereby severally authorized in respect of any Transaction Document (or any such other document as may be requisite or appropriate in furtherance of the exercise of the Company’s rights or performance of the Company’s obligations thereunder), to execute under the Company’s Common Seal and deliver same on behalf of the Company, in such form as such person may in his or her absolute discretion think fit, the exercise of such discretion to be conclusively evidenced by his execution thereof;
 
with respect to documents requiring execution only under hand, each Authorised Signatory be and is hereby severally authorized in respect of any Transaction Document (or any such other document as may be requisite or appropriate in furtherance of the exercise of the Company’s rights or performance of the Company’s obligations thereunder) that does not require execution as a deed, to execute under hand and deliver same in such form as such person may in his or her absolute discretion think fit, the exercise of such discretion to be conclusively evidenced by his execution thereof;
 

 
 
 

 
 
each of the Secretary, the Assistant Secretary, the Resident Representative and the Assistant Representative of the Company be and is hereby severally authorized to issue a power or powers of attorney under the Common Seal of the Company authorizing any or all of the Authorized Signatories as attorneys-in-fact of the Company (each an “ Attorney ”   and together, the “ Attorneys ”)   and delegating to the Attorneys the powers and discretions vested in the Authorised Signatories by virtue of the foregoing resolutions, such power or powers of attorney to he in such form as the individual or individuals acting may in his or their discretion determine, the exercise of such discretion to be conclusively evidenced by their execution thereof;
 
each of the Directors, the Secretary or the Assistant Secretary of the Company be and is hereby authorised:
 

 
 
 

SCHEDULE 5
 

 
Debt Restructuring
 
1.
Bidco has notified Lehman Brothers International (Europe) in accordance with the terms of the Commitment Letter, that signing of the Facility Agreement is required to take place on the date of Completion on terms approved as of the date hereof.
 
2.
The Bond Trustee has notified Sealift in writing that the ShipCo Transfer Transactions constitutes a mandatory prepayment event in accordance with the terms of the Sealift Bonds.
 
3.
On the date hereof:
 
3.1
Sealift shall notify Nordea Bank Norge ASA (“ Nordea ”) as agent under the Senior Sealift Loan Agreement that the Senior Sealift Loan will voluntarily be repaid by Sealift on Merger Completion.
 
3.2
BidCo shall notify Fortis Bank S.A. / N.V. (UK Brands) as agent under the Existing Facility Agreements that the Existing Facilities will voluntarily be prepaid by BidCo on Merger Completion.
 
4.
Prior to the Merger Completion Date the appropriate parties shall enter into the and Notary Letter.
 
5.
On the Merger Completion Date:
 
5.1
Bidco, PIKCo and Lehman Brothers as the Agent will enter into the Facilities Agreements.
 
5.2
The lenders under the Facilities Agreements will make the funding available to the Notary Account for release in accordance with the terms of the Notary Letter upon prepayment of the conditions precedent as agreed therein.
 
5.3
Sealift will issue to the Bond Trustee the Mandatory Prepayment Notice.
 
6.
Within 3 Business Days of Merger Completion Sealift will repay the Sealift Senior Facility and procure the release of first lien security by Nordea as security agent under the Senior Sealift Loan Agreement.
 
7.
On the Mandatory Bond Prepayment Date, Sealift will repay the Sealift Bonds together with the mandatory prepayment amount.
 
8.
Following Merger Completion, BidCo, PIKCo and the ShipCo’s will enter into the relevant further security documents in accordance with the terms of the Facility Agreements.
 

 
 
 

SCHEDULE 6
 

 
Shipco Transfer Transacti on
 
1.
On the Merger Completion Date:
 
1.1
Sealift and Dockwise Transport B.V. shall procure the transfer of the ShipCo’s in accordance with the ShipCo SPA.
 
1.2
Frontline agrees to the assignment by Sealift or ShipCo of any and all rights and the transfer of any and all obligations under any Shipping Document to any other direct or indirect wholly owned subsidiary of Sealift.
 
1.3
The time charter contracts in relation to the Granite and Marble will be replaced by bareboat charter contracts in the Agreed Form:
 
Rate: USD 12.500 per day
 
Start date: Merger Completion
 
End date: 15 March 2008 (Granite) or 15 April 2008 (Marble).
 
If delivery date agreed with Cosco is later than 15 March 2008 (Granite) or 15 April 2008 (Marble) the bareboat contract shall terminate on the earlier of such delivery date and 15 April 2008 (Granite) and 15 May 2008 (Marble).
 
1.4
Frontline confirms that prior to the Merger Completion Date the ShipCo Transfer Transaction has been disclosed to the insurers and the lead underwriters have confirmed that all the insurance policies disclosed as part of the Disclosed Information will continue in full force and effect and on the same terms and conditions following the completion of the ShipCo Transfer Transaction. Frontline confirms that with effect from the date hereof it will continue to maintain in full force and effect each of the insurance policies disclosed as part of the Disclosed Information until the earlier of 15 January 2008 and such time as the Company gives written notice that it has replaced such policies on terms and conditions satisfactory to the Company; it being understood that the relevant premiums, to the extent they relate to the relevant Shipco Vessels, will be recharged at cost to the relevant Shipco in accordance with consistent past practice.
 
1.5
Frontline confirms that each ShipCo is and will remain the sole loss payee in relation to any insurance policies relating to the relevant Sealift Vessel owned by it.
 

 
 
 

SCHEDULE 7
 

 
Disclosed Information
 
 
1.          OWNERSHIP OF VESSELS
 
1.1
Purchase Agreement between Frontline and Sealift dated 30 January 2007, governed by Norwegian Law
 
1.2
Supplemental Agreement to the Purchase Agreement, between Sealift, the Owners and Frontline dated 15 March 2007, governed by Norwegian Law
 
1.3
Certificates of Ownership for each Vessel
 
2.
CHARTERS
 
2.1
Bareboat Charter re “Front Target” between Front Target Inc. and Key Chartering Corp. dated 21 March 2007, governed by English Law
 
2.2
Bareboat Charter re “Front Traveller” between Front Traveller Inc. and Key Chartering Corp. dated 21 March 2007, governed by English Law
 
2.3
Bareboat Charter re “Front Comor” between West Tankers Inc. and Key Chartering Corp. dated 21 March 2007, governed by English Law
 
2.4
Letter of Intent to Contract Heavy Lift Vessel dated 23 March 2007
 
3.
MANAGEMENT OF VESSELS
 
3.1
Addendum 1 to the Administrative Services Agreement, between Sealift, Frontline Management and the Owners dated 21 March 2007, governed by Norwegian Law
 
3.2
Technical Ship Management Contract between Granite Shipping Company Ltd. and Frontline Management dated 21 March 2007, governed by English Law
 
3.3
Technical Ship Management Contract between Quadrant Marine Inc. and Frontline Management dated 21 March 2007, governed by English Law
 
3.4
Administrative Services Agreement between Sealift and Frontline dated 27 February 2007, governed by Norwegian Law
 
3.5
Commercial Management Agreement between Quadrant Marine Inc. and Frontline Management dated 21 March 2007, governed by English Law
 
3.6
Commercial Management Agreement between Granite Shipping Company Limited and Frontline Management dated 21 March 2007, governed by English Law
 
4.
CONVERSION
 
4.1
Heavylift Conversion Schedule dated 22 March 2007
 

 
 
 

4.2
Conversion Contract re “Front Target” between Front Target Inc. and Cosco (Nantong) Shipyard Co. Ltd. dated 11 December 2006, governed by English Law
 
4.3
Conversion Contract re “Front Traveller” between Front Traveller Inc. and Cosco (Zhoushan) Shipyard Co. Ltd. dated 18 January 2007, governed by English Law
 
4.4
Conversion Contract re “Front Transporter” between Front Transporter Inc. and Cosco (Nantong) Shipyard Co. Ltd. 1 June 2006, governed by English Law
 
4.5
Conversion Contract re “Front Comor” between West Tankers Inc. and Cosco (Nantong) Shipyard Co. Ltd. dated 18 January 2007, governed by English Law
 
4.6
Novation Agreement between Front Transporter Inc., Southwest Tankers Inc. and Cosco (Nantong) Shipyard Co. Ltd. dated 20 January 2007, governed by English Law
 
4.7
Heads of Agreement of Conversion between Ship Finance International Ltd. and Cosco Shipyard group Co. Ltd dated 22 February 2006, governed by English Law
 
4.8
Novation of Option Agreement between Cosco Shipyard group Co. Ltd., Ship Finance International Ltd and Sealift dated 18 January 2007, governed by English Law
 
4.9
Option Agreement between Cosco Shipyard group Co. Ltd. and Ship Finance International Ltd. dated 1 June 2006, governed by English Law
 
4.10
Draft conversion contract to be agreed between Granite Shipping Company Limited and Cosco (Zhoushan) Shipyard Co. Ltd for the conversion of “Front Granite” (although the draft refers to ‘Front Traveller Inc.’ and “Front Traveller” it was disclosed as relating to “Front Granite”
 
4.11
Draft conversion contract to be agreed between Quadrant Marine Inc. and Cosco (Guangzhou) Shipyard Co. Ltd for the conversion of “Marble” (although the draft refers to ‘Front Traveller Inc.’ and “Front Traveller” it was disclosed as relating to “Marble”
 
5.
CLASSIFICATION
 
Classification Certificates relating to each Vessel dated 15 February 2007.
 
6.
CORPORATE
 
6.1
Sealift
 
6.2
Sealift Bye-Laws, dated 15 January 2007
 
6.3
Sealift Equity Offering Presentation dated January 2007
 
6.4
Sealift Certificate of Incorporation, dated 11 January 2007
 
6.5
Incorporation of Sealift - SGM minutes dated 15 January 2007
 
6.6
Board minutes and resolutions Sealift dated 15 January 2007
 

 
 
 

6.7
Board minutes Sealift dated 24 January 2007
 
6.8
Board minutes Sealift dated 12 February 2007
 
6.9
Board minutes Sealift dated 14 February 2007(1)
 
6.10
Board minutes Sealift dated 14 February 2007(2)
 
6.11
Board minutes Sealift dated 21 March 2007
 
6.12
Shareholders written resolution dated 24 January 2007
 
6.13
Subsidiaries
 
6.14
Incorporation documentation, dated 23 December 2002 - Front Target Inc.
 
6.15
Incorporation documentation, dated 23 December 2002 - Front Traveller Inc.
 
6.16
Incorporation documentation, dated 29 May 1991 - Granite Shipping Company Limited.
 
6.17
Incorporation documentation, dated 2 December 1991 - Quadrant Marine Inc.
 
6.18
Incorporation documentation, dated 23 February 1989 - Southwest Tankers Inc.
 
6.19
Incorporation documentation, dated 23 February 1989 - West Tankers Inc.
 
6.20
Board resolutions re Security, dated 14 February 2007 - Granite Shipping Company Limited
 
6.21
Board resolutions re Corporate matters and Documentation, dated 14 February 2007 - Granite Shipping Company Limited.
 
6.22
Board resolutions re Security, dated 14 February 2007 - Southwest Tankers Inc.
 
6.23
Board resolutions re Corporate matters and Documentation, dated 14 February 2007 - Southwest Tankers Inc.
 
6.24
Board resolutions re Security, dated 14 February 2007 - Front Target Inc.
 
6.25
Board resolutions re Corporate matters and Documentation, dated 14 February 2007 - Front Target Inc.
 
6.26
Board resolutions re Security, dated 14 February 2007 - West Tankers Inc.
 
6.27
Board resolutions re Corporate matters and Documentation, dated 14 February 2007 - West Tankers Inc.
 
6.28
Board resolutions re Security, dated 14 February 2007 - Quadrant Marine Inc.
 
6.29
Board resolutions re Corporate matters and Documentation, dated 14 February 2007 - Quadrant Marine Inc.
 

 
 
 

6.30
Board resolutions re Security, dated 14 February 2007 - Front Traveller Inc.
 
6.31
Board resolutions re Corporate matters and Documentation, dated 14 February 2007 - Front Traveller Inc.
 
6.32
Board resolutions and POAs re the financing, dated 16 March 2007 - Front Target Inc., Quadrant Marine Inc. and Granite Shipping Company Limited
 
6.33
Board resolutions and POAs re the financing, dated 16 March 2007 - West Tankers Inc, Front Target Inc. and Southwest Tankers Inc.
 
6.34
Written resolutions of the Shareholders of the Owners dated 19 March 2007
 
6.35
Written resolutions of the Shareholders of the Owners dated 15 February 2007
 
6.36
Board minutes of the Owners dated 18 April 2007
 
6.37
Board minutes - incomplete
 
6.38
Commercial register extract dated 21 March 2007 - Sealift Management B.V.
 
6.39
Articles of Sealift Management B.V. dated 20 February 2007
 
6.40
Share register of Sealift Management B.V. dated 20 February 2007
 
6.41
Share certificates of the Owners dated 21 March 2007
 
6.42
List of Directors and Officers of the Owners, undated
 
6.43
Register of members of the Owners, last updated 21 March 2007
 
6.44
OTC
 
6.45
Registrar Agreement between Nordea and Sealift, governed by Norwegian Law
 
6.46
Confirmation letter from Norwegian Stockbrokers Association dated 30 January 2007
 
6.47
Agreement on Distribution of Price Sensitive Information between Sealift and Norwegian Stockbrokers’ Association dated 24 January 2007, governed by Norwegian Law
 
6.48
Branch Register Agreement between Sealift and Nordea dated 24 January 2007, governed by Norwegian Law
 
6.49
Permits
 
6.50
Correspondence with Bermuda Monetary Authority
 
6.51
Exemption from the Companies Act dated 19 January 2007
 
6.52
Ministry of Finance - exemption under the 1966 Act dated 16 January 2007
 

 
 
 

7.
INSURANCES
 
7.1
Company Liability Insurance
 
7.1.1
Frontline - Directors and Officers, Company Liability and Securities Claims Entity Insurance, governed by Norwegian Law
 
7.1.2
Endorsement no. 7 - Endorsement of Sealift as Additional Named Company under Frontline - Company Liability and Securities Claims Entity Insurance
 
7.1.3
Frontline - Directors and Officers, Company Liability and Securities Claims Entity Insurance - Excess Policy, governed by Norwegian Law
 
7.2
Insurance of Vessels
 
7.2.1
Assured Mortgagees Sealift
 
7.2.2
Hull and Machinery Insurance document dated 2 January 2006
 
7.2.3
Schedule of Insurances per Vessel dated 20 February 2007
 
7.2.4
Schedule of Insurance claims dated 16 February 2007
 
7.2.5
Certificate of Entry - “Front Target” - effective date 20 February 2007
 
7.2.6
Certificate of Entry - “Front Traveller” - effective date 20 February 2007
 
7.2.7
Certificate of Entry - “Front Granite” - effective date 20 February 2007
 
7.2.8
Certificate of Entry - “Marble” - effective date 20 February 2007
 
7.2.9
Certificate of Entry - “Front Sunda”- effective date 20 February 2007
 
7.2.10
Certificate of Entry - “Front Comor” - effective date 20 February 2007
 
8.
LOAN DOCUMENTS AND SECURITY
 
8.1
Loan Agreements & Guarantees
 
8.2
Commitment Letter from Nordea and DNB Nor to Sealift dated 7 February 2007
 
8.3
Coordination Agreement between Nordea, Norsk Tillitsmann and Sealift dated 15 March 2007, governed by Norwegian Law
 
8.4
$240m Delayed Draw Term Loan Facility Agreement between Sealift, the Owners and Nordea and DNB Nor dated 15 March 2007, governed by Norwegian Law (the $240m Loan”)
 
8.5
Postponement of Payment of Obligations Agreement between Sealift and Frontline dated 21 March 2007
 

 
 
 

8.6
Letter Agreement Between Nordea and Sealift dated 21 March 2007, governed by Norwegian Law
 
8.7
Frontline Guarantee for obligations of Sealift in favour of Nordea dated 21 March 2007, governed by Norwegian Law
 
8.8
Guarantee by Frontline in favour of Target, Traveller and West Tankers dated 21 March 2007, governed by Norwegian Law
 
8.9
Loan Trustee Fees between Sealift and Norsk Tillitsmann dated 9 February 2007
 
8.10
Sealift Bond Presentation re Bond Issue dated January 2007
 
8.11
Bond Loan Agreement between Sealift and Norsk Tillitsmann dated 8 February 2007, governed by Norwegian Law (the “Bond Loan”)
 
8.12
Letter from Nordea confirming a drawdown under the MUSD 240 facility and a fax confirmation from the Loan Trustee stating the interest of the bond loan for the first interest period
 
8.13
Security
 
8.14
First Preferred Mortgage issued by Front Target Inc. to Nordea in respect of "Front Target" dated 20 March 2007, governed by the Laws of the Republic of the Marshall Islands
 
8.15
First Preferred Mortgage issued by Front Traveller Inc. to Nordea in respect of “Front Traveller” dated 20 March 2007, governed by the Laws of the Republic of the Marshall Islands
 
8.16
First Preferred Mortgage issued by Granite Shipping Company Limited to Nordea in respect of “Front Granite” dated 20 March 2007, governed by the Laws of the Republic of the Marshall Islands
 
8.17
First Preferred Mortgage issued by Southwest Tankers Inc. to Nordea in respect of “Front Sunda” dated 20 March 2007, governed by the Laws of the Republic of the Marshall Islands
 
8.18
First Preferred Mortgage issued by West Tankers Inc. to Nordea in respect of “Front Comor” dated 20 March 2007, governed by the Laws of the Republic of the Marshall Islands
 
8.19
Registration of Mortgage - “Marble”, dated 21 March 2007
 
8.20
Second Preferred Mortgage issued by Front Target Inc. to Norsk Tillitsmann in respect of “Front Target” dated 20 March 2007, governed by the Laws of the Republic of the Marshall Islands
 

 
 
 


 
8.21
Second Preferred Mortgage issued by Front Traveller Inc. to Norsk Tillitsmann in respect of “Front Traveller” dated 20 March 2007, governed by the Laws of the Republic of the Marshall Islands
 
8.22
Second Preferred Mortgage issued by Granite Shipping Company Limited to Norsk Tillitsmann in respect of “Front Granite” dated 20 March 2007, governed by the Laws of the Republic of the Marshall Islands
 
8.23
Second Preferred Mortgage issued by Southwest Tankers Inc. to Norsk Tillitsmann in respect of “Front Sunda” dated 20 March 2007, governed by the Laws of the Republic of the Marshall Islands
 
8.24
Second Preferred Mortgage issued by West Tankers Inc. to Norsk Tillitsmann in respect of “Front Comor” dated 20 March 2007 governed, by the Laws of the Republic of the Marshall Islands
 
8.25
Mortgage Deed of Covenant between Quadrant Marine Inc. and Norsk Tillitsmann dated 21 March 2007, governed by Bahamian Law
 
8.26
Second Priority Assignment of Insurances between Front Target Inc. and Norsk Tillitsmann dated 19 March 2007, governed by Norwegian Law
 
8.27
Second Priority Assignment of Insurances between Front Traveller Inc. and Norsk Tillitsmann dated 19 March 2007, governed by Norwegian Law
 
8.28
Second Priority Assignment of Insurances between Granite Shipping Company Limited and Norsk Tillitsmann dated 19 March 2007, governed by Norwegian Law
 
8.29
Second Priority Assignment of Insurances between Quadrant Marine Inc. and Norsk Tillitsmann dated 19 March 2007, governed by Norwegian Law
 
8.30
Second Priority Assignment of Insurances between Southwest Tankers Inc. and Norsk Tillitsmann dated 19 March 2007, governed by Norwegian Law
 
8.31
Second Priority Assignment of Insurances between West Tankers Inc. and Norsk Tillitsmann dated 19 March 2007, governed by Norwegian Law
 
8.32
Pledge of Shares between Sealift and Norsk Tillitsmann dated 19 March 2007, governed by Norwegian Law
 
8.33
Refund guarantees in favour of Southwest Tankers Inc. (third installment), Front Transporter Inc. (second and third installment) and Front Target Inc. (first installment)
 
8.34
Guarantee between Front Target Inc. and Norsk Tillitsmann dated 19 March 2007, governed by Norwegian Law
 
8.35
Guarantee between Front Traveller Inc. and Norsk Tillitsmann dated 19 March 2007, governed by Norwegian Law
 

 
 
 


 
8.36
Guarantee between Quadrant Marine Inc. and Norsk Tillitsmann dated 19 March 2007, governed by Norwegian Law
 
8.37
Guarantee between Southwest Tankers Inc. and Norsk Tillitsmann dated 19 March 2007, governed by Norwegian Law
 
8.38
Guarantee between West Tankers Inc. and Norsk Tillitsmann dated 19 March 2007, governed by Norwegian Law
 
8.39
Guarantee between Granite Shipping Company Ltd. and Norsk Tillitsmann dated 19 March 2007
 
8.40
Second Priority Assignment Deed of Purchase Agreement, between Sealift and Norsk Tillitsmann dated 21 March 2007, governed by English Law
 
8.41
Account Charge between Front Target Inc. and Nordea dated 21 March 2007, governed by Norwegian Law
 
8.42
Account Charge between Front Traveller Inc. and Nordea dated 21 March 2007, governed by Norwegian Law
 
8.43
Account Charge between Granite Shipping Company Limited and Nordea dated 21 March 2007, governed by Norwegian Law
 
8.44
Account Charge between Quadrant Marine Inc. and Nordea dated 21 March 2007, governed by Norwegian Law
 
8.45
Account Charge between Southwest Tankers Inc. and Nordea dated 21 March 2007, governed by Norwegian Law
 
8.46
Account Charge between West Tankers Inc. and Nordea dated 21 March 2007, governed by Norwegian Law
 
8.47
General Assignment of Earning and Insurances between Front Target Inc. and Nordea dated 21 March 2007, governed by Norwegian Law
 
8.48
General Assignment of Earning and Insurances between Front Traveller Inc. and Nordea dated 21 March 2007, governed by Norwegian Law
 
8.49
General Assignment of Earning and Insurances between Granite Shipping Company Limited and Nordea dated 21 March 2007, governed by Norwegian Law
 
8.50
General Assignment of Earning and Insurances between Quadrant Marine Inc. and Nordea dated 21 March 2007, governed by Norwegian Law
 
8.51
General Assignment of Earning and Insurances between Southwest Tankers Inc. and Nordea dated 21 March 2007, governed by Norwegian Law
 

 
 
 


 
 
8.52
General Assignment of Earning and Insurances between West Tankers Inc. and Nordea dated 21 March 2007, governed by Norwegian Law
 
8.53
Assignment of Conversion Contract and Refund Guarantees – “Front Target”- between Front Target Inc. and Nordea, governed by English Law
 
8.54
Assignment of Conversion Contract and Refund Guarantees – “Front Traveller”- between Front Traveller Inc. and Nordea, governed by English Law
 
8.55
Assignment of Conversion Contract and Refund Guarantees – “Front Sunda”- between Southwest Tankers Inc. and Nordea, governed by English Law
 
8.56
Assignment of Conversion Contract and Refund Guarantees – “Front Comor”- between West Tankers Inc. and Nordea, governed by English Law
 
8.57
Assignment Deed - Bareboat re “Front Target”- between Front Target Inc. and Nordea dated 21 March 2007, governed by English Law
 
8.58
Assignment Deed - Bareboat re “Front Traveller”- between Front Traveller Inc. and Nordea dated 21 March 2007, governed by English Law
 
8.59
Assignment Deed - Bareboat re “Front Comor”- between West Tankers Inc. and Nordea dated 21 March 2007, governed by English Law
 
8.60
Assignment Deed - Purchase Agreement - between Sealift and Nordea dated 21 March 2007, governed by English Law
 
8.61
Assignment Deed - Option Agreement - between Sealift and Nordea dated 21 March 2007, governed by English Law
 
8.62
Pledge of Shares between Sealift and Nordea dated 21 March 2007, governed by Norwegian Law
 
8.63
Mortgage Deed of Covenant between Quadrant Marine Inc. and Nordea dated 21 March 2007
 
8.64
Account Charge between Sealift and Nordea dated 21 March 2007, governed by Norwegian Law
 
9.
FINANCIAL INFORMATION
 
9.1
Payment Schedule under the $240m Loan
 
9.2
Payment Schedule under the Bond Loan
 
9.3
Unaudited Consolidated First Quarter Report and Accounts for Sealift
 
9.4
Sealift Cashflow scenarios

 
The Refund Guarantees in relation to the first, second and third installments relating to the Front Sunda will be replaced and until then the next set of installments due to Cosco will not be paid by Frontline.
 

 
 
 

 
SCHEDULE 8
 
 
WARRANTIES
 
1.
Power and Authority
 
1.1
Frontline and Sealift each have the requisite capacity, power and authority to enter into and to perform this Merger Agreement.
 
1.2
The signature of and the compliance with the terms of this Merger Agreement does not and will not conflict with or constitute a default under any provision of:
 
any agreement or instrument to which either Frontline or Sealift is a party;
 
or the constitutional and corporate documents of either Frontline or Sealift.
 
the laws of Bermuda.
 
2.
The Existing Shares
 
2.1
The Existing Shares comprise all of the issued shares of Sealift and are fully paid up, free of further capital contribution obligations.
 
2.2
Frontline is the sole legal and beneficial owner of 30 million of the 90 million the Existing Shares.
 
2.3
There is no Encumbrance, and there is no agreement, arrangement or obligation to create or give an Encumbrance, in relation to any of the unissued shares in the capital of Sealift.
 
2.4
Other than this Merger Agreement, there is no agreement, arrangement or obligation requiring the issue, transfer, repurchase, redemption or repayment of, or the grant to a person of the right (conditional or not) to require the issue, transfer, redemption or repayment of, a share in the capital of Sealift (including, without limitation, an option or right of pre-emption or conversion).
 
3.
Shipping
 
3.1
Binding Agreements
 
3.1.1
The obligations of each ShipCo under each Shipping Document are, or when the relevant document is executed will be, enforceable in accordance with their terms.
 
3.2
Shipping Assets
 
3.2.1
Each of the Shipping Assets is owned both legally and beneficially by the relevant ShipCo as set out in SCHEDULE 10 (Shipping Assets) and each of those Shipping Assets capable of possession is in the possession or under the control of the relevant ShipCo.
 

 
 
 

3.2.2
Except for statutory maritime liens arising in the ordinary course of business and subject to the due repayment of the Senior Sealift Loan and the Sealift Bonds there is no Encumbrance over or affecting all or part of the Shipping Assets which will subsist after completion of the Debt Restructuring and no ShipCo is a party to any agreement or commitment to give or create any and so far as Frontline and Sealift are aware, no claim has been made by any person to be entitled to any.
 
3.3
Conversion Contracts, Options and Refund Guarantees
 
3.3.1
Complete and accurate copies of all Conversion Contracts, Conversion Options and Refund Guarantees have been disclosed as part of the Disclosed Information.
 
3.3.2
Each of the Conversion Contracts and Conversion Options was properly executed by the relevant ShipCo and, so far as Frontline and Sealift are aware, by the respective counterparties, and has not been terminated and neither Frontline nor Sealift are aware of any breach, invalidity, or grounds for determination, rescission, avoidance or repudiation of any Conversion Contract or Conversion Option.
 
3.3.3
Subject to the due repayment of the Senior Sealift Loan and the Sealift Bonds, there is no Encumbrance over or affecting all or part of the ShipCos’ rights under the Conversion Contracts or the Conversion Options which will subsist after Completion and no ShipCo is a party to any agreement or commitment to give or create any and, so far as Frontline and Sealift are aware, no claim has been made by any person to be entitled to any.
 
3.3.4
So far as Frontline and Sealift are aware, each of the Refund Guarantees was properly executed by the Refund Guarantor, and has not been terminated and neither Frontline nor Sealift are aware of any breach, invalidity, or grounds for determination, rescission, avoidance or repudiation of any Refund Guarantee provided, however, that the Refund Guarantees received will be reissued to take into account the novation of the Conversion Contract relevant to M/T “Front Sunda” having been novated to Southwest Tankers Inc. from Front Transporter Inc. and the revised text thereof agreed with Nordea as agent for the lenders to the Senior Sealift Loan.
 
3.3.5
There is no Encumbrance over or affecting all or part of the ShipCos’ rights under the Refund Guarantee which will subsist after Completion and no ShipCo is a party to any agreement or commitment to give or create any and, so far as Frontline and Sealift are aware, no claim has been made by any person to be entitled to any.
 
3.3.6
The agreed schedule for delivery of the first four Sealift Vessels to Cosco for the conversion works to be undertaken pursuant to the Conversion Contracts and for the redelivery of each such Sealift Vessel to the relevant ShipCo following completion of such works is as included in the Disclosed Information.
 

 
 
 

3.4
The Sealift Vessels
 
 
3.4 1
So far as Frontline and Sealift are aware, each of the Sealift Vessels currently holds all material certificates, licences or authorisations required to enable such Sealift Vessel to carry out its operations in the jurisdiction in which it is registered and all jurisdictions in which it currently trades subject only to such certificates lapsing during actual conversion of a Sealift Vessel pursuant to the Conversion Contracts.
 
3.4.2
So far as Frontline and Sealift are aware, each of the Sealift Vessels is presently permanently registered at its place of registry and all fees of such registry have been paid.
 
3.4.3
Neither Frontline or Sealift has received any notice that any Sealift Vessel is or is likely to be subject to any claim, to forfeiture, arrest, other detention, seizure, confiscation or other requisition and neither Frontline nor Sealift are aware of any circumstances which might give rise to any such claim, forfeiture, arrest, other detention, seizure, confiscation or other requisition.
 
4.
Insurances
 
4.1
All premiums, calls or other sums payable in respect of the insurances for the Sealift Vessels have been paid.
 
4.2
All material facts disclosable to insurers have been disclosed, including the planned conversion of each of the Sealift Vessels.
 
5.
General
 
5.1
The Disclosed Information contains all information relating to (i) the business and affairs of Sealift and each Sealift Group Company and that is material in the context of the Transaction and (ii) any arrangement between Frontline, any director or shareholder of Frontline and Sealift has been disclosed to the Delphi Shareholders.
 
5.2
Sealift has obtained all necessary consents and complied with all requirements in relation to all statutes and regulations including but not limited to the Bermuda Monetary Authority, exchange control and foreign currency regulations. Sealift and each Sealift Group Company has at all times complied and continues to comply with such statutes and regulations governing each company in the country of its incorporation. Sealift or any Sealift Group Company is not under any obligation, contractual or otherwise, to request or obtain the consent of any person, and no permits, licenses, certifications, authorisations or approvals of or notifications to, any government or governmental agency, board, commission or authority are required to be obtained by Sealift or any Sealift Group Company in connection with the execution, delivery or performance by Sealift of this Merger Agreement or the completion of the Transaction.
 

 
 
 

 
 
SCHEDULE 9
 
Intentially left blanc

 
 
 


 
SCHEDULE 10
 
SHIPPING ASSETS
 

A.
VESSELS
 
     
1.
Name of Vessel:
MARBLE
     
 
Sealift ShipCo of Vessel:
Quadrant Marine Inc
     
 
Flag of Vessel:
Bahamas
     
2.
Name of Vessel:
FRONT GRANITE
     
 
Sealift ShipCo of Vessel:
Granite Shipping Company Limited
     
 
Flag of Vessel:
Marshall Islands
     
3.
Name of Vessel:
FRONT TARGET
     
 
Sealift ShipCo of Vessel:
Front Target Inc.
     
 
Flag of Vessel:
Marshall Islands
     
4.
Name of Vessel:
FRONT SUNDA

 
 
 


     
 
Sealift ShipCo of Vessel:
Southwest Tankers Inc.
     
 
Flag of Vessel:
Marshall Islands
     
5.
Name of Vessel:
FRONT COMOR
     
 
Sealift ShipCo of Vessel:
West Tankers Inc.
     
 
Flag of Vessel:
Marshall Islands
     
6.
Name of Vessel:
FRONT TRAVELLER
     
 
Sealift ShipCo of Vessel:
Front Traveller Inc.
     
 
Flag of Vessel:
Marshall Islands
     
B.
SHIPPING DOCUMENTS
 
     
1.
Conversion Contracts
 
     
2.
Conversion Options
 
     

 
 
 


3.
Bareboat Charters
 
     
4.
Management Agreements
 
     
5.
Refund Guarantees
 
     
6.
Post-Redelivery Shipping Documents
 
     
 


 
 
 


 

 
SCHEDULE 11
 
SECOND SUPPLEMENTAL PURCHASE AGREEMENT
 
This supplemental agreement (the “ Agreement ”)   is entered into on this [ • ] day of [ • ] 2007 BETWEEN:
1.
SEALIFT LTD. (“ Sealift ”);
 
2.
SOUTHWEST TANKERS INC. (“ Southwest ”);
 
3.
FRONT TARGET INC. (“ Front Target ”);
 
4.
FRONT TRAVELLER INC. (“ Front Traveller ”);
 
5.
WEST TANKERS INC. (“ West ”);
 
6.
GRANITE SHIPPING COMPANY LTD. (“ Granite ”);
 
7.
QUADRANT MARINE INC. (“ Quadrant ”)
 
 
(Southwest, Front Target, Front Traveller, West, Granite and Quadrant hereinafter collectively referred to as the “ Owners ”   and, individually, as an “ Owner ”)
 

8.
FRONTLINE LTD. (“ Frontline ”)
 
Sealift and the Owners on the one hand and Frontline on the other hand are hereinafter collectively referred to as the “ Parties ”   and, individually, as a “ Party ”) .
 
WHEREAS:
 
(A)
On 30 January, 2007, Frontline and Sealift entered into a purchase agreement setting forth the terms and conditions upon and subject to which Sealift acquired, inter alia, all of the shares in the Owners from Frontline (the “ Original Purchase Agreement ”);
 
 
On 15 March 2007 the Parties entered into a supplemental agreement supplementing certain terms of the Original Purchase Agreement (the “ Supplemental Agreement ”)   (together with the Original Purchase Agreement, referred to as the “ Purchase Agreement ”);   and
 
 
The Parties wish to supplement the terms of the Purchase Agreement in respect of a number of issues.
 
NOW THEREFORE ,   it is hereby, agreed as follows:
 

 
 
 

1.
Terms defined in the Purchase Agreement shall, when used herein in capitalised form, have the same meaning as attributed to them in the Purchase Agreement.
 
2.
Clause 8.1.6 of the Original Purchase Agreement shall be supplemented for the avoidance of doubt so that:
 
 
(i)
notwithstanding any of the terms in said Clause 8.1.6 or elsewhere in the Purchase Agreement, Frontline shall indemnify each Owner against all costs incurred by such Owner as a result of Frontline not paying any claim which such Owner is obliged to pay under the terms of the relevant Conversion Contract or any repair contract entered into by such Owner with Cosco;
 
 
(ii)
Frontline shall be responsible for the repair costs of each Conversion Vessel and in Clause 8.1.6 all references to “conversion costs” shall be construed so that this term includes such costs incurred as a result of a repair contract being entered into by Frontline (on behalf of the relevant Owner) with the relevant Yard pursuant to Clause 10.8 of such Conversion Contract.
 
3.
Clause 8.1.5 of the Original Purchase Agreement shall be amended so that the final sentence is deleted and the clause is supplemented by the following:
 
 
(i)
Sealift shall have the right to assign two representatives to the supervision team for Front Sunda, Front Target, Front Traveller and Front Comor, one of which shall have engine room expertise and the other deck expertise;
 
 
(ii)
the Sealift representatives shall have full access to information and documentation provided by Cosco to the supervision teams, as well as all documentation related to the Conversion Vessels as is being prepared by the supervision teams or circulated among its members;
 
 
(iii)
the Sealift representatives shall have the right to attend all inspections, testing of equipment, sea trials and review of sea trial documentation;
 
 
(iv)
the Sealift representatives shall work with the other members of the supervision team with the objective of resolving all technical issues in the best interests of the Owners and in the case of disagreement between the Sealift representatives and the other members of the supervision team, the views of the Sealift representatives shall be given in writing to the leader of the supervision team; and
 
Frontline shall procure that the Seatrials include operational (including ballasting and de-ballasting trials) in the presence of the Sealift representatives.
 
4.
Clause 8.1.9 of the Original Purchase Agreement and Clause 2 of the Supplemental Agreement shall be amended so that the agreed redelivery dates are as follows:
 
Front Sunda:                           30 April 2007
Front Target:                           30 September 2007
Front Traveller:                        31 January 2008
Front Comor:                           31 May 2008

 
 
 

5.          This Agreement shall become effective immediately upon Merger Completion.
 
6.
This Agreement shall be considered null and void if Merger Completion has not occurred prior to 12 May 2007.
 
7.
The Parties agree that the provisions of Clauses 14 and 17 of the Original Purchase Agreement shall apply to this Agreement as well.
 
For and on behalf of
For and on behalf of
SEALIFT LTD.
 
SOUTHWEST TANKERS INC.
For and on behalf of
FRONT TARGET INC.
 
For and on behalf of
FRONT TRAVELLER INC.
For and on behalf of
WEST TANKER INC.
 
For and on behalf of
GRANITE SHIPPING COMPANY LTD.
For and on behalf of
QUADRANT MARINE INC.
 
For and on behalf of
FRONTLINE LTD.

SK 02089 0009 859977


Exhibit 4.16
 
THE RULES
 
OF
 
FRONTLINE LTD.’s
 
SHARE OPTION SCHEME
 
(Approved by Frontline Ltd.’s Board
on November 16 , 2006)
 

 
 
 

FRONTLINE LTD.
 
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 Frontline Ltd., 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.


EXHIBIT 4.17

 
 
 
MANAGEMENT AGREEMENT
 
 
 
 
 
 
between
SHIP FINANCE INTERNATIONAL LIMITED
and its SUBSIDIARIES
and
FRONTLINE MANAGEMENT (BERMUDA ) LTD.
 

 
 
 

CONTENTS
 

Clause
Page
1.
APPOINTMENT
4
2.
THE SFIL GROUP’S MANAGEMENT FUNCTIONS
4
3.
THE SUBSIDIARIES
4
4.
SERVICES
5
5.
GENERAL CONDITIONS
7
6.
MANAGEMENT FEE — REIMBURSEMENT OF COSTS
7
7.
AUTHORITY
8
8.
INDEMNITY
8
9.
CONFIDENTIALITY
9
10.
TERMINATION
9
11.
DEFAULT
10
12.
FORCE MAJEURE
10
13.
NOTICES
10
14.
MISCELLANEOUS
11
15.
GOVERNING LAW AND ARBITRATION
11
 
Schedule 1                                 List of Subsidiaries

 
 
 

THIS MANAGEMENT AGREEMENT (the “ Agreement ”)   is made on this 29 th day of November 2007 between:
 
 
(1)
SHIP FINANCE INTERNATIONAL LIMITED of Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton HMGX, Bermuda (the   “ Company ”);
 
(2)
THE SUBSIDIARIES OF THE COMPANY, LISTED IN SCHEDULE 1 HERETO (the “ Subsidiaries ”)
 
and
 
(3)
FRONTLINE MANAGEMENT (BERMUDA ) LTD. of Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton HMGX, Bermuda (the “ Manager ”)
 
(hereinafter jointly referred to as the “ Parties ”   and, individually, as a “ Party ”.)
 
WHEREAS :
 
(A)
The Company is a limited company organised under the laws of Bermuda, having its registered office at the address stated above.
 
(B)
The Company’s shares are listed on the New York Stock Exchange.
 
(C)
The Company is, through the Subsidiaries, the owner of a number of tanker, dry bulk and other vessels, offshore drilling rigs and other assets.
 
(D)
It is the Company’s policy to outsource its and the Subsidiaries’ administrative needs to other corporate entities, either owned or controlled by itself or by third parties.
 
(E)
The Company was, during the period from its incorporation until 31 December 2006, provided with such management services as its board required to carry out the day-to-day management of the Company and its assets by the Manager under the terms of (i) an administrative services agreement with, inter alia, the Manager dated 1 January 2004, (ii) an administrative management agreement with, inter alia, the Manager dated 20 June 2005, (iii) an administrative management agreement with, inter alia, the Manager dated 17 January 2006 and (iv) an administrative management agreement with, inter alia, the Manager dated 1 October 2006 (collectively, the “ Admin Agreements ”).
 
(F)
The Company’s subsidiaries (including but not limited to the Subsidiaries) were, during the period from the Company’s incorporation until 31 December 2006, provided with such general management services as their respective boards required to carry out the day-to-day management of their activities by the Manager under the terms of the Admin Agreements.
 
(G)
The Manager has, in the period referred to in Recital (E) above, subcontracted parts of the services provided to the Company to its affiliates, Frontline Management AS ( “ FrontMan AS ”)   and Frontline Corporate Services Ltd ( “ FrontCorp ”).
 
(H)
The Company decided, in the first quarter of 2006, to establish a wholly owned subsidiary, Ship Finance Management AS ( “ SFManagement ”) , for the purpose of establishing a proprietary management team which, on market terms, would provide the Company and the Subsidiaries with the majority of the management services required by them.
 
(I)
SFManagement became operational on 1 May 2006 and assumed, gradually throughout the remainder of 2006, responsibility for the provision of the management services required by the Company and the Subsidiaries on terms orally agreed with the board of the Company.
 

 
 
 


 
(J)
The scope and terms of the administrative services provided by SF Management were to the Company effective from 1 January 2007 have today been documented in a written management agreement between SFManagement and the Company (the “ General Management Agreement ”).
 
(K)
The Parties have agreed to enter into this Agreement in order to document the terms upon which the Manager, with effect from 1 January 2007, has provided and shall continue to provide certain management services to the Company and the Subsidiaries and, as part of such agreement, to document the agreed cancellation of the Admin Agreements in relation to the Company and the Subsidiaries with effect from such date.
 
NOW THEREFORE, the Parties have agreed as follows:
 
1.
APPOINTMENT
 
1.1
The Company and the Subsidiaries (the “ SFIL Group ”)   hereby confirm the appointment of the Manager, effective from 1 January 2007, as responsible for those of their respective management functions that are described herein on the terms and conditions set forth in the following.
 
1.2
The Parties hereby confirm their agreement that the Admin Agreements were terminated in respect of the Company and the Subsidiaries, effective on 31 December 2006.
 
2.
THE SFIL GROUP’S MANAGEMENT FUNCTIONS
 
2.1
Ultimate responsibility for the administration of the Company and the Subsidiaries lies with the Company’s board of directors of the Company (the “ Board ”).
 
The board of directors of each Subsidiary is formally responsible for the administration thereof but answers to the Board as its sole shareholder.
 
2.2
The Manager confirms its understanding that the services provided hereunder shall supplement the services provided by SFManagement under the General Management Agreement and that SFManagement thus has the overall responsibility for providing the Company with the management services the Company requires from time to time.
 
2.3
The Manager further agrees to and accepts that it shall report to SFManagement in respect of the services to be provided by it hereunder. Further, the Manager confirms that it will ensure that its subcontractors in providing the services shall report to SFManagement too.
 
3.
THE SUBSIDIARIES
 
3.1
The Company’s assets are, generally, held through wholly owned subsidiaries.
 
3.2
The Company’s subsidiaries as of the date hereof are listed in Schedule 1 hereto and are parties to the Agreement.
 
If and when a Subsidiary is sold or liquidated, this Agreement shall terminate in relation to such Subsidiary without further notice.
 
If a new subsidiary (in this context defined as a wholly owned subsidiary of the Company) is incorporated or otherwise acquired by the Company, whether directly or indirectly, it shall be deemed to have acceded to this Agreement as a “ Subsidiary ”)   at such time.
 

 
 
 


 
The Parties agree, for documentary purpose, to update Schedule 1 in relation to subsidiaries acquired, liquidated or divested by the Company at regular intervals.
 
3.3
The Manager shall, on matters of particular importance to a Subsidiary, keep such Subsidiary’s board of directors informed (while reporting to the Board). Final decisions in such matters shall be taken by the board of directors of such Subsidiary.
 
4.
SERVICES
 
4.1
The Manager shall, throughout the term of this Agreement, make the following services
 
 
available to the SFIL Group:
 
4.1.1
Corporate Governance Services
 
 
(a)
The Manager shall assist SFManagement with all aspects of the Company’s corporate governance which relates to Bermuda law and shall, in particular, assist with the conveying of board and shareholders meetings in Bermuda.
 
 
(b)
The Manager shall prepare all documentation of written resolutions passed by the Board and the board of directors of the Subsidiaries and the shareholder(s) of the Company and the Subsidiaries along with minutes from their respective meetings and shall, furthermore, be responsible for the same being signed and safely filed. SFManagement shall be provided with copies thereof.
 
 
(c)
The Manager shall assist the Company’s company secretary in preparing and implementing all aspects of the Company’s employee share option plan from time to time.
 
 
(d)
The Manager shall be responsible for the operation of the Company’s shareholder register.
 
 
(e)
The Manager shall be responsible for the corporate books and records of the Subsidiaries.
 
4.1.2
Accounting – Corporate Governance - Auditing - Reports
 
 
(a)
The Manager shall be responsible for the SFIL Group’s accounting functions.
 
This shall include both the day-to-day accounting of the SFIL Group’s activities of the Company and the Subsidiaries and the consolidation of the accounts for the SFIL Group (which shall include the preparation of the Company’s Form 20F according to US GAAP).
 
 
(b)
The SFIL Group’s accounting shall be based on US GAAP and such accounting principles as the Board from time to time shall have approved.
 
 
(c)
The Manager shall maintain all financial records and books of account of all transactions of the Company and the Subsidiaries in accordance with applicable laws and proper accounting practice.
 
 
(d)
The Manager shall be responsible for the preparation of the Company’s and the SFIL Group’s interim and annual closing of accounts.
 

 
 
 


 
 
(e)
The Manager shall, by way of designing and implementing necessary procedure assist the Board in ensuring that the SFIL Group meets all relevant corporate governance principles (including but not limited to the Sarbanes-Oxley Act).
 
 
(f)
The Manager shall assist the SFIL Group’s auditors in the continuous and annual audit of the Company’s and the Subsidiaries’ accounts.
 
 
(g)
The Manager shall prepare such interim reports in respect of the performance of the Company and the SFIL Group as SFManagement shall require from time to time.
 
4.1.3
Company Records
 
 
(a)
The Manager shall be responsible for the safekeeping and professional filing of all the SFIL Group’s original corporate documents, such archive being physically located in Bermuda.
 
 
(b)
The Manager shall establish and maintain an adequate and accessible archive, either or both in electronic and physical form, over all documents relevant to the SFIL Group’s business.
 
 
(c)
The Manager shall ensure that SFManagement has full access to such archive and shall assist SFManagement in the maintenance of a copy-set of such documents in SFManagement’s office.
 
4.1.4
Government Relations - Taxes
 
The Manager shall ensure compliance by the Company with all laws, regulations and provisions applicable to the Company in Bermuda.
 
4.1.5
Insurances
 
The Manager shall advise the SFIL Group on all issues relevant to the insurance of its assets and activities, such advice to include the preparation of general guidelines for cover, the identification of relevant insurers and the terms for the insurance of the Company’s assets and activities.
 
4.1.6
Accidents - Contingency Plans
 
The Manager shall handle all accidents involving assets or personnel owned or employed by the SFIL Group on the SFIL Group and the Board’s behalf and shall, in such cases, liaise with SFManagement and the Board in accordance with such instructions as the same shall provide from time to time.
 
The Manager shall establish a crisis management procedure which shall be submitted to the Board for approval and which, thereafter, shall be updated whenever necessary.
 
4.1.7
Sale and Purchase of Assets
 
The Manager shall assist SFManagement in identifying sale and purchase and newbuilding opportunities, assist in the negotiations of the terms thereof (always within the scope defined by the Board) and the closing of any such transaction.
 
(The services specified in this Clause 4.1 shall hereinafter be referred to as the “ Services ”.)
 

 
 
 


 
4.2
The Manager may, at its discretion, sub-contract any of the Services to its affiliates FrontMan AS and FrontCorp, always provided that the Manager shall remain responsible for the overall performance of the Services notwithstanding any such subcontracting or delegation.
 
All such subcontracting arrangements shall be documented in writing and shall incorporate provisions reflecting, inter alia, the content of Clauses 2, 5 and 9.
 
5.
GENERAL CONDITIONS
 
5.1
The Manager shall, in performing its duties hereunder, effectively and faithfully serve the Company and the Subsidiaries. In exercising the powers and authorities hereby conferred on it, the Manager shall:
 
 
(a)
always use its best endeavours to protect and promote the Company’s and the Subsidiaries’ interests;
 
 
(b)
observe all applicable laws and regulations relevant to the Company’s and the Subsidiaries’ activities; and
 
 
(c)
always act in accordance with good and professional management practice.
 
5.2
The Manager shall be entitled to provide management services to other companies or entities, provided that the provision of such services is not deemed detrimental to the interests of the SFIL Group.
 
5.3
The Manager shall not afford preference to any vessel or company under its management but shall, so far as practicable, ensure a fair distribution of service to all such vessels and companies from time to time.
 
The Manager shall, in performing the Services, be entitled to have regard to its overall responsibility in relation to all matters as may from time to time be entrusted to its management and in particular, but without prejudice to the generality of the foregoing, be entitled to allocate available supplies, manpower and services between its management assignments in such manner as in the prevailing circumstances the Manager considers to be fair and reasonable.
 
5.4
All discounts, commissions and other benefits received by the Manager and/or its employees from third parties as a consequence of the provision of the Services shall be disclosed to the Board and, unless otherwise agreed, placed at the Company’s or, as the case may be, the relevant Subsidiary’s disposal.
 
5.5
The Company shall, at all times, be allowed full access to the accounts and records of the
 
 
Manager which are relevant to the performance of the Services.
 
Representatives of the Company’s auditor shall, in relation to the audit of the Company’s accounts, always be considered authorised.
 
5.6
The Manager shall, upon request, provide the Company with copies of all documents relevant to the Company or a Subsidiary in its possession and otherwise compile such facts and records on the basis of such documents as shall, from time to time be requested by the Board.
 

 
 
 


 
6.
MANAGEMENT FEE – REIMBURSEMENT OF COSTS
 
6.1
The Company shall pay the manager a fee (the “ Management Fee ”)   as consideration for the Manager’s provision of the Services.
 
6.2
The Management Fee shall, in relation to each calendar year, be detailed in a fee letter to be submitted by the Manager to the Company no later than 1 December in the preceding year.
 
The Management Fee shall cover those of the Services that are provided to the Subsidiaries as well as those provided to the Company.
 
6.3
The Company shall make on account payments of the Management Fee throughout the year
 
 
in accordance with the terms of the annual fee letter.
 
6.4
The Management Fee shall be based on the market price for administrative services
 
 
similar to the Services covered by it.
 
6.5
Both the Manager and the Company may, if it can be documented that the scope of the Services changes materially during a year, demand that the Management Fee or a specified element therein for such year is revised with effect for the remainder of the relevant year. The Manager shall have the same right if the Manager’s cost base increases materially during a year.
 
6.6
The Company shall reimburse the Manager for all out-of-pocket expenses incurred by the
 
 
Manager in relation to third parties in connection with the provision of the Services.
 
7.
AUTHORITY
 
7.1
The Manager is, within the scope of the Services and subject to the limitations set forth below, authorised to act on the Company’s and each Subsidiary’s behalf and shall obligate the Company by its signature.
 
The general authority set forth above shall be limited as follows:
 
 
(i)
The Manager shall not, unless specifically authorised by the Company or a Subsidiary, be authorised to act for the Company or such Subsidiary outside the scope of the Services;
 
 
(ii)
The Manager’s general authority shall always be limited by applicable laws (including, but not limited to, Bermuda law) and the Company’s and each Subsidiary’s bye-laws or similar constitutional documentation and the specific limitations set forth herein;
 
 
(iii)
The Manager’s general authority shall always exclude matters of an irregular nature or special importance (always including the chartering or lease out of material assets) unless specifically authorised by the Board or the board of directors of a Subsidiary (whether in general or for a limited period or within set limits without time limitation or specifically in relation to a particular transaction).
 
7.2
The Company and the Subsidiaries hereby ratify, confirm and undertake, at all times, to allow, ratify and confirm all actions the Manager and its employees shall lawfully take or cause to be taken on the Company’s or a Subsidiary’s behalf in the bona fide performance of the Services.
 

 
 
 


 
8.
INDEMNITY
 
8.1
The Manager shall be under no responsibility or liability for any loss or damage, whether as a loss of profits or otherwise, to the Company or a Subsidiary arising out of any act or omission involving any error of judgment or any negligence on the part of the Manager or any of its officers or employees in connection with the performance of the Services, unless the acts or omissions leading to a loss or damage are caused by gross negligence or wilful misconduct on the part of the Manager, its officers or employees.
 
The Manager’s liability to compensate the Company or a Subsidiary for any loss shall be limited to the Management Fee in the year preceding the year in which such loss arose.
 
8.2
The Company agrees to indemnify and keep the Manager and its officers and employees together with its subcontractors and such subcontractors’ employees and officers indemnified against any and all liabilities, costs, claims, demands, proceedings, charges, actions, suits or expenses of whatsoever kind or character that may be incurred or suffered by any of them howsoever arising (other than by reason of fraud or dishonesty on their part) in connection with the provisions of the Services to both the Company and the Subsidiaries.
 
If the Board or the board of directors of a Subsidiary requires the Manager to take any action which, in the opinion of the Manager, might make the Manager liable for the payment of any money or liable in any other way, the Manager shall be kept indemnified by the Company in an amount and a form satisfactory to it as a prerequisite to taking such action.
 
8.3
The indemnities provided by the Company hereunder shall cover all reasonable costs and expenses payable by the Manager in connection with any claims to which the indemnity obligation of the Company applies.
 
8.4
The indemnification provided by the Company pursuant to this Clause 8 shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any statute, agreement, the bye-laws of the Company or otherwise, and shall continue after the termination of this Agreement.
 
9.
CONFIDENTIALITY
 
9.1
All Confidential Information furnished to the Manager, its subcontractors or any of their respective employees or directors pursuant to this Agreement shall be and remain the property of the Company or the relevant Subsidiary, and shall be kept confidential by the Manager.
 
For the purpose of this clause “ Confidential Information ”   shall mean information relating to the business of the SFIL Group which the Manager becomes aware of or generates in the course of or in connection with the performance of the Services.
 
The provisions of this Clause 9.1 shall not apply to Confidential Information which is:
 
 
(i)
required to be disclosed by law or court order; or
 
 
(ii)
becomes public knowledge otherwise than as a result of the conduct of the Manager.
 

 
 
 


 
10.
TERMINATION
 
10.1
Each of the Company and the Manager may terminate this Agreement following no less than 3 month’s prior written notice to the other Party.
 
The Agreement shall automatically terminate in relation to the Subsidiaries if terminated pursuant to the above.
 
10.2
Termination shall be without prejudice to any rights or liabilities of the Parties arising
 
 
prior to or in respect of any act or omission occurring prior to termination.
 
10.3
In the event of termination, the Management Fee shall be pro ratal to the date of termination (after taking into account such additional amounts, if any, as time spent and the responsibility undertaken by the Manager during the relevant period immediately prior to termination justify).
 
10.4
In the event of termination of the Agreement, the Manager shall procure that all such acts are done as may be necessary to give effect to such termination and the Company shall secure and the Manager, subject to payment of all amounts due to it hereunder, shall co­operate in the appointment of a substitute manager as circumstances may require.
 
10.5
Upon the termination of this Agreement, the Manager shall hand over to the Company all books of account, correspondence and records relating to the affairs of the Company and the Subsidiaries which are the property of the Company and the Subsidiaries and which are in its or its sub-contractors’ possession.
 
11.
DEFAULT
 
11.1
If the Manager shall, by any act or omission, be in breach of any material obligation under this Agreement and such breach shall continue for a period of fourteen (14) days after written notice thereof has been given by the Company to the Manager, the Company shall have the right to terminate this Agreement with immediate effect by notice to the Manager.
 
The right to terminate this Agreement shall be in addition to and without prejudice to any other rights which the Company and the Subsidiaries may have against the Manager hereunder.
 
11.2
Each of the Manager and the Company (but not a Subsidiary) may forthwith by notice in writing to the other Party terminate this Agreement if an order be made or a resolution be passed for the winding up of the other Party or if a receiver be appointed of the business or property of the other Party, or if the other Party shall cease to carry on its business or make special arrangement or composition with its creditors or if any event analogous with any of the foregoing occurs under any applicable law with relevance to the other Party.
 
12.
FORCE MAJEURE
 
No Party shall incur liability of any kind or nature whatsoever in relation to the other Party in the event of a failure to perform any of its obligations hereunder if such failure is directly or indirectly caused by circumstances beyond its control such as war or war-like activities, government orders, riots, civil commotion, strike, lock-out or similar actions, an act of God, peril of the sea or any other similar cause.
 

 
 
 


 
13.
NOTICES
 
13.1
All correspondence or notices required or permitted to be given under this Agreement shall be given in English and sent by mail, telefax, email or delivered by hand at the following addresses:
 

 

 
If to the Company and the Subsidiaries:
 
Ship Finance International Ltd .
 
Visiting address :
 
Par-la-Ville Place
14 Par-la-Ville Road
Hamilton HMGX
Bermuda
 
Postal address :
 
P.O. Box 1593
HM 08
Bermuda
   
Fax:
+ 1 441 205 3404
Telephone:
+ 1 441 295 6935
Att.:
Chairman of the Board
   
If to the Manager:
 
Frontline Management (Bermuda ) Ltd .
 
Visiting address :
 
Par-la-Ville Place
14 Par-la-Ville Road
Hamilton HMGX
Bermuda
 
Postal address :
 
P.O. Box HM 1593
Hamilton HMGX
Bermuda
   
Fax:
+ 1 441 205 3494
Telephone:
+ 1 441 295 6935
Att.:
Managing Director
   
or such other address as either Party may designate to the other Party in writing.
 

 
 
 


 
14.
MISCELLANEOUS
 
14.1
None of the Parties shall be entitled to assign its rights and/or obligations under this Agreement unless the prior written consents of the other Parties hereto have been obtained. This principle shall not apply to the subcontracting by the Manager of the provision of parts of the Services pursuant to Clause 4.2.
 
14.2
Nothing in this Agreement shall be deemed to constitute a partnership between the Parties.
 
14.3
No term of this Agreement is enforceable by a person who is not a party to it.
 
14.4
This Agreement shall not be amended, supplemented or modified save by written agreement signed by or on behalf of the Parties.
 
15.
GOVERNING LAW AND ARBITRATION
 
15.1
This Agreement shall be governed by Norwegian law.
 
15.2
Any dispute, controversy or claim arising out of or relating to this Agreement (including the breach, termination or invalidity thereof), shall be settled by arbitration in accordance with the provisions of the Norwegian Arbitration Act 2004.
 
The arbitration proceedings shall be held in Oslo and shall, if either Party so requests, be conducted in the English language
 
For and on behalf of
 
For and on behalf of
SHIP FINANCE INTERNATIONAL LIMITED
 
FRONTLINE MANAGEMENT (BERMUDA ) LTD .
     
     
Craig Stevenson
 
Kjell Langva
Chairman
 
As per special authority
     
     
     
For and on behalf of
   
THE SUBSIDIARIES
   
     
     
Lars Solbakken
   
Director
   
 

 

 
 
 

Schedule 1
 
LIST OF SUBSIDIARIES
as of 6 November 2007
 
Vessel Owning Subsidiaries
 
Name of Company
Registered
Name of Vessel
Ariake Transport Corporation
Liberia
Oliva
Aspinall Pte Ltd
Singapore
Front Viewer
Benmore Shipping Inc
Cyprus
Sea Alfa
Blizana Pte Ltd
Singapore
Front Rider
Bolzano Pte Ltd
Singapore
Mindanao
Bonfield Shipping Ltd
Liberia
Front Driver
Cirebon Shipping Pte Ltd
Singapore
Front Vanadis
Edinburgh Navigation S.A.
Liberia
Edinburgh
Fox Maritime Pte Ltd
Singapore
Front Sabang
Front Ardenne Inc.
Liberia
Front Ardenne
Front Brabant Inc.
Liberia
Front Brabant
Front Dua Pte Ltd
Singapore
Front Duchess
Front Empat Pte Ltd
Singapore
Front Highness
Front Enam Pte Ltd
Singapore
Hebei River
Front Falcon Inc.
Liberia
Front Falcon
Front Glory Shipping Inc.
Liberia
Front Glory
Front Lapan Pte Ltd
Singapore
Front Climber
Front Lima Pte Ltd
Singapore
Front Lady
Front Opalia Inc
Liberia
Front Opalia
Front Pride Shipping Inc.
Liberia
Front Pride
Front Saga Inc.
Liberia
Front Page
Front Scilla Inc.
Liberia
Front Scilla
Front Sembilan Pte Ltd
Singapore
Front Leader
Front Serenade Inc.
Liberia
Front Serenade
Front Shadow Inc
Liberia
Golden Shadow
Front Splendour Shipping Inc.
Liberia
Front Splendour
Front Stratus Inc.
Liberia
Ondina
Front Tiga Pte Ltd
Singapore
Front Duke
Golden Estuary Corporation
Liberia
Front Comanche
Golden Fjord Corporation
Liberia
Ocana
Golden Narrow Corporation
Liberia
Golden Victory
Golden Seaway Corporation
Liberia
Front Vanguard
Golden Sound Corporation
Liberia
Front Vista
Golden Tide Corporation
Liberia
Front Circassia
Hitachi Hull 4983 Corporation
Liberia
Otina
Hudson Bay Marine Company Limited
Cyprus
Front Force
Jaymont Shipping Inc
Cyprus
Sea Beta
Katong Investments Ltd
Liberia
Front Breaker
Langkawi Shipping Ltd.
Liberia
Front Birch
Millcroft Maritime SA
Liberia
Front Champion
Newbond Shipping Company Limited
Cyprus
Front Energy
Rettie Pte Ltd
Singapore
Front Striver
Rig Finance
Bermuda
West Ceres
Rig Finance II Limited
Bermuda
West Prospero
Sea Ace Corporation
Liberia
Front Ace
Sibu Shipping Ltd.
Liberia
Front Maple

 
 
 


Transcorp Pte Ltd.
Singapore
Front Guider
Ultimate Shipping Ltd.
Liberia
Front Century
SFL Geo I Limited
Bermuda
TBN
SFL Geo II Limited
Bermuda
TBN
SFL Geo III Limited
Bermuda
TBN
SFL Europa Inc.
Marshall Islands
Montemar Eurpoa
SFL Sea Pike Ltd.
Cyprus
Sea Pike
SFL Sea Cheetah Ltd.
Cyprus
Sea Cheetah
SFL Sea Halibut Ltd.
Cyprus
Sea Halibut
SFL Sea Jaguar Ltd.
Cyprus
Sea Jaguar
SFL Sea Trout Ltd.
Cyprus
Sea Trout
SFL Avon Inc.
Liberia
SFL Avon
SFL Clyde Inc.
Liberia
SFL Clyde
SFL Dee Inc.
Liberia
SFL Dee
SFL Humber Inc.
Liberia
SFL Humber
SFL Tamar Inc.
Liberia
SFL Tamar
Golden Island Inc.
Liberia
Golden Island
Golden Straits Inc.
Liberia
Golden Straits
Front Heimdall Inc.
Liberia
SFL Heimdall
Front Baldur Inc.
Liberia
SFL Baldur
HL Hunter LLC
Delaware
Horizon Hunter
HL Hawk LLC
Delaware
Horizon Hawk
HL Eagle LLC
Delaware
Horizon Eagle
HL Falcon LLC
Delaware
Horizon Falcon
HL Tiger LLC
Delaware
Horizon Tiger
     
     
Non Vessel Owning Subsidiaries-Under Liquidation
 
Name of Company
Registered
Previously Owned Vessel
Front Target Inc.
Liberia
Front Target
Front Tobago Shipholding Inc.
Liberia
Front Tobago
Front Transporter Inc.
Liberia
Front Transporter
Front Traveller
Liberia
Front Traveller
Granite Shipping Company Ltd.
Bahamas
Front Granite
Southwest Tankers Inc.
Liberia
Front Sunda
West Tankers Inc.
Liberia
Front Comor
     
     
Sub Holding Subsidiaries
   
Name of Company
Registered
 
Madeira International Corp.
Liberia
 
SFL Holdings LLC
Delaware
 

SK 02089 0009 859953

 



AMENDMENT AGREEMENT NO. 3
 
This amendment agreement No. 3 (the “ Amendment ”)   is entered into on this 21 st day of August 2007 by and among:
 
(1 )
SHIP FINANCE INTERNATIONAL LIMITED (the “ Company ”);
 
(2 )
THE VESSEL OWNING SUBSIDIARIES OF THE COMPANY named in Schedule 1 hereto (the “ Owners ”);
 
(3 )
FRONTLINE LTD. (“ Frontline ”);
 
and
 
(4 )
FRONTLINE SHIPPING LTD. (the “ Charterer ”)
 
(hereinafter collectively referred to as the “ Parties ”)   for the purpose of amending certain terms in a charter ancillary agreement entered into on January 1, 2004 between the Parties and some other vessel owning subsidiaries of the Company at such time as subsequently amended by an addendum No. 1 thereto of June 15, 2004 and an amendment No. 2 thereto dated February 3, 2005 (together, the “ Charter Agreement ”) .
 
The following has, with effect from April 1, 2007 (the “ Effective Date ”) , been agreed between the Parties:
 
1.
Terms defined in the Charter Agreement shall have the same meaning as set out therein when used in the following.
 
2.
The term “ Agreement ”   shall, when used in the Charter Agreement, hereafter mean the Charter Agreement as amended by this Amendment.
 
3.
Clause 4.1 shall be amended by deleting the words:
 
“... (provided, however, that in no event shall such Bonus Payment be less than $0), ...”.
 
in lines 3 and 4 thereof.
 
4.
Clause 4.2 of the Charter Agreement shall be substituted with the following wording:
 
 
“4.2
Preparation and Delivery of Bonus Payment Schedules
 
 
(a)
The period upon which each Bonus Amount shall be determined shall be three calendar months and shall coincide with the calendar quarters of each calendar year.
 

 
 
 


 
 
(b)
No later than on the last Business Day in the calendar month following the end of each calendar quarter, the Charterer shall prepare or cause to be prepared, and shall deliver to the Company, a Bonus Payment Schedule with respect to the preceding quarter. Each Bonus Payment Schedule shall set forth, in each case with respect to the preceding quarter, (i) the TCE revenues of the VLCCs, (ii) the TCE revenues of the Suezmaxes and (iii) the Charterer’s calculation of the VLCC Bonus Amount, the Suezmax Bonus Amount and the aggregate thereof on a year to date basis less any agreed Bonus Amount(s) for the preceding quarters in the relevant calendar year (the “ Bonus Amount ”).   The Charterer shall, at the same time, provide to the Company such supporting work papers or other supporting information as may be reasonably requested by the Company in order to verify the calculation of the Bonus Amount for the preceding quarter. Such Bonus Payment Schedule shall be prepared in accordance with GAAP, consistent with the preparation of Frontline’s accounts, and shall be certified by the Chief Financial Officer of the Charterer and, if requested by the Company, by the Charterer’s independent accountants.
 
 
(c)
It is agreed and understood between the Parties that a Bonus Amount pertaining to a quarter can be positive or negative.
 
5.
The wording of Clause 4.3 (a) of the Charter Agreement shall be substituted with the following wording:
 
Following the Charterer’s submittal of the Bonus Payment Schedule for the fourth quarter of each calendar year to the Company and the Company’s acceptance thereof and subject to the other provisions of this Section 4.3, the Bonus Amounts (whether positive or negative) for the four quarters of each calendar year shall be aggregated (the “ Bonus Payment ”).
 
The Bonus Paymenet shall be paid by the Charterer by wire transfer of immediately available funds to the wire transfer address of the Company. Such payment shall be made on a Business Day no later than 1 March in the calendar year subsequent to which it pertains (the “ Bonus Payment Date ”).
 
The Bonus Payment for each calendar year shall, in no event, be less than $0”.
 
6.
The Parties agree that the VLCC Bonus Amount and the Suezmax Bonus Amount pertaining to the 1 st quarter of 2007, when calculated in January 2008, shall be included in the aggregate Bonus Amount for 2007 and paid accordingly.
 
7.
Except as expressly amended by this Amendment, the Charter Agreement shall be and remain in full force and effect.
 
8.
This Agreement shall be governed by and construed in accordance with the laws of England.
 

 
 
 


 
For and on behalf of
SHIP FINANCE INTERNATIONAL LIMITED
 
For and on behalf of
FRONTLINE LIMITED
     
_______________________________________
Lars Solbakken
As per special authority
 
________________________________
Bjørn Sjaastad
As per special authority
     
For and on behalf of
FRONTLINE SHIPPING LIMITED
 
For and on behalf of
THE OWNERS LISTED IN SCHEDULE 1
     
______________________________________
Bjørn Sjaastad
As per special authority
 
________________________________
Lars Solbakken
Director

 

 
 
 


 
SCHEDULE 1
 
Vessel Owning Subsidiaries
 
Vessel Owner
Vessel Name
Ariake Transport Corporation
“Ariake”
Aspinall Pte. Ltd.
“Front Viewer”
Blizana Pte. Ltd.
“Front Rider”
Bolzano Pte. Ltd.
“Mindanao”
Bonfield Shipping Ltd.
“Front Driver”
Edinburgh Navigation S.A.
“Edinburgh”
Fox Maritime Pte. Ltd.
“Front Sabang”
Front Ardenne Inc.
“Front Ardenne”
Front Brabant Inc.
“Front Brabant”
Front Dua Pte. Ltd.
“Front Duchess”
Front Empat Pte. Ltd.
“Front Highness”
Front Enam Pte. Ltd.
“Front Lord”
Front Falcon Inc.
“Front Falcon”
Front Glory Shipping Inc.
“Front Glory”
Front Lapan Pte. Ltd.
“Front Climber”
Front Lima Pte. Ltd.
“Front Lady”
Front Opalia Inc.
“Opalia”
Front Pride Shipping Inc.
“Front Pride”
Front Saga Inc.
“Front Page”
Front Scilla Inc.
“Front Scilla”
Front Sembilan Pte. Ltd.
“Front Leader”
Front Serenade Inc.
“Front Serenade”
Front Splendour Shipping Inc.
“Front Splendour”
Front Stratus Inc.
“Front Stratus”
Front Tiga Pte. Ltd.
“Front Duke”
Golden Estuary Corporation
“Front Comanche”
Golden Fjord Corporation
“Ocana”
Golden Seaway Corporation
“Front Vanguard”
Golden Sound Corporation
“Front Vista”
Golden Tide Corporation
“Front Circassia”
Hitachi Hull 4983 Corporation
“Otina”
Katong Investments Ltd.
“Front Breaker”
Langkawi Shipping Ltd.
“Front Birch”
Rettie Pte. Ltd.
“Front Striver”
Sea Ace Corporation
“Front Ace”
Sibu Shipping Ltd.
“Front Maple”
Transcorp Pte. Ltd.
“Front Guider”

SK 02089 0009 859984
 



AMENDMENT AGREEMENT NO. 1
 
This amendment agreement (the “ Amendment ”)   is entered into on this 21 st day of August 2007 by and among:
 
(1)
SHIP FINANCE INTERNATIONAL LIMITED (the “ Company ”);
 
(2)
THE VESSEL OWNING SUBSIDIARIES OF THE COMPANY named in Schedule 1 hereto (the “ Owners ”);
 
(3)
FRONTLINE LTD. (“ Frontline ”);
 
and
 
(4)
FRONTLINE SHIPPING II LTD. (the “ Charterer ”)
 
(hereinafter collectively referred to as the “ Parties ”)   for the purpose of amending certain terms in a charter ancillary agreement entered into on June 20, 2005 between the Parties and some other vessel owning subsidiaries of the Company at such time (the ‘‘Charter Agreement ”.
 
The following has, with effect from April 1, 2007 (the “ Effective Date ”)   been agreed between the Parties:
 
1.
Terms defined in the Charter Agreement shall have the same meaning as set out therein when used in the following.
 
2.
The term “ Agreement ”   shall, when used in the Charter Agreement, hereafter mean the Charter Agreement as amended by this Amendment.
 
3.
Clause 3.1 shall be amended by deleting the words:
 
 
“... (provided, however, that in no event shall such Bonus Payment be less than $0), ...”.
 
in line 3 and 4 thereof.
 
4.
Clause 3.2 of the Charter Agreement shall be substituted with the following wording:
 
 
“3.2
Preparation and Delivery of Bonus Payment Schedules
 
 
(a)
The period upon which each Bonus Amount shall be determined shall be three calendar months and shall coincide with the calendar quarters of each calendar year.
 

 
 
 

 
(b)
No later than on the last Business Day in the calendar month following the end of each calendar quarter, the Charterer shall prepare or cause to be prepared, and shall deliver to the Company, a Bonus Payment Schedule with respect to the preceding quarter. Each Bonus Payment Schedule shall set forth, in each case with respect to the preceding quarter, the TCE revenues of each Vessel and the Charterer’s calculation of the Bonus Amount on a year to date basis less any agreed Bonus Amount(s) for the preceding quarters in the relevant calendar year. The Charterer shall, at the same time, provide to the Company such supporting work papers or other supporting information as may be reasonably requested by the Company in order to verify the calculation of the Bonus Amount for the preceding quarter. Such Bonus Payment Schedule shall be prepared in accordance with GAAP, consistent with the preparation of Frontline’s accounts, and shall be certified by the chief financial officer of the Charterer and, if requested by the Company, by the Charterer’s independent accountants.
 
 
(c)
It is agreed and understood between the Parties that a Bonus Payment pertaining to a quarter can be positive or negative.
 
5.
The wording of Clause 3.3 (a) of the Charter Agreement shall be substituted with the
 
 
following wording:
 
“Following the Charterer’s submittal of the Bonus Payment Schedule for the fourth quarter of each calendar year to the Company and the Company’s acceptance thereof and subject to the other provisions of this Section 3.3, the Bonus Amounts (whether positive or negative) for the four quarters of each calendar year shall be aggregated (the “ Bonus Payment ”).
 
The Bonus Payment shall be paid by the Charterer by wire transfer of immediately available funds to the wire transfer address of the Company. Such payments shall be made on a Business Day no later than 1 March in the calendar year subsequent to which it pertains (the “ Bonus Payment Date ”).
 
The Bonus Payment for each calendar year shall, in no event, be less than $0”.
 
6.
The Parties agree that the Bonus Amount pertaining to the 1 st quarter of 2007, when calculated in January 2008, shall be included in the aggregate Bonus Amount for 2007 and paid accordingly.
 
7.
Except as expressly amended by this Amendment, the Charter Agreement shall be and remain in full force and effect.
 
8.
This Agreement shall be governed by and construed in accordance with the laws of England.
 

 
 
 


 
For and on behalf of
SHIP FINANCE INTERNATIONAL LIMITED
 
For and on behalf of
FRONTLINE LIMITED
     
_______________________________________
Lars Solbakken
As per special authority
 
________________________________
Bjørn Sjaastad
As per special authority
     
For and on behalf of
FRONTLINE SHIPPING LIMITED
 
For and on behalf of
THE OWNERS LISTED IN SCHEDULE 1
     
______________________________________
Bjørn Sjaastad
As per special authority
 
________________________________
Lars Solbakken
Director

 

 
 
 


 
SCHEDULE 1
 
Vessel Owning Subsidiaries
 

 
Vessel Owner
Vessel Name
Ultimate Shipping Ltd.
Millcroft Maritime SA
Golden Narrow Corporation
Hudson Bay Marine Company Limited
Newbond Shipping Company Limited
“Front Century”
“Front Champion”
“Golden Victory”
“Front Force”
“Front Energy”

 


Exhibit 8.1


Significant Subsidiaries at April 14, 2008


 
Name
Country of
Incorporation
Ownership and
Voting Percentage
     
     
Frontline Shipping Limited
Bermuda
100%
Frontline Shipping II Limited
Bermuda
100%
Key Chartering Inc
Liberia
100%
Frontline Management (Bermuda) Ltd
Bermuda
100%
ICB Shipping (Bermuda) Limited
Bermuda
100%
Frontline Tankers Limited
Bermuda
100%
Frontline Corporate Services Ltd
United Kingdom
100%
Independent Tankers Corporation Limited
Bermuda
82.5%
Independent Tankers Corporation
Cayman Islands
100%
Buckingham Shipping Plc
Isle of Man
100%
Caernarfon Shipping Plc
Isle of Man
100%
CalPetro Tankers (IOM) Ltd
Isle of Man
100%
CalPetro Tankers (Bahamas I) Ltd
Bahamas
100%
CalPetro Tankers (Bahamas II) Ltd
Bahamas
100%
CalPetro Tankers (Bahamas III) Ltd
Bahamas
100%
Golden State Petro (IOM 1-A) Plc
Isle of Man
100%
Golden State Petro (IOM 1-B) Plc
Isle of Man
100%
Holyrood Shipping Plc
Isle of Man
100%
Sandringham Shipping Plc
Isle of Man
100%
Front Eagle Corporation
Liberia
100%
Golden Channel Corporation
Liberia
100%
Kea Navigation Ltd
Liberia
100%
Otina Inc.
Liberia
100%
Optimal Shipping SA
Liberia
100%
Pablo Navigation SA
Liberia
100%
Ryan Shipping Corporation
Liberia
100%
Saffron Rose Shipping Limited
Liberia
100%
Tidebrook Maritime Corporation
Liberia
100%
Bandama Investment Ltd
Liberia
100%
Frontline Management AS
Norway
100%




Exhibit 12.1
 
CERTIFICATION
 
I, Bjorn Sjaastad certify that:
 
1. I have reviewed this annual report on Form 20-F of Frontline Ltd.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
 
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
 
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
 
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
 
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
 
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
 
Date: May 2, 2008
 
     
/s/ Bjorn Sjaastad
   
Bjorn Sjaastad
   
Principal Executive Officer
   
 


 

Exhibit 12.2
 
CERTIFICATION
 
I, Inger M. Klemp certify that:
 
1. I have reviewed this annual report on Form 20-F of Frontline Ltd.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
 
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
 
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
 
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
 
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
 
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
 
Date: May 2, 2008
 
     
/s/ Inger M. Klemp
   
Inger M. Klemp
   
Principal Financial Officer
   


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

 
In connection with this Annual Report of Frontline Ltd. (the “Company”) on Form 20-F for the year ended December 31, 2007 as filed with the Securities and Exchange Commission (the “SEC”) on or about the date hereof (the “Report”), I, Bjorn Sjaastad, 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: May 2, 2008
 
     
/s/ Bjorn Sjaastad
   
Bjorn Sjaastad
   
Principal Executive Officer
   



Exhibit 13.2
 
PRINCIPAL FINANCIAL OFFICER CERTIFICATION
 
PURSUANT TO 18 U.S.C. SECTION 1350
 

 
In connection with this Annual Report of Frontline Ltd. (the “Company”) on Form 20-F for the year ended December 31, 2007 as filed with the Securities and Exchange Commission (the “SEC”) on or about the date hereof (the “Report”), I, Inger M. Klemp, 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: May 2, 2008
 

 
     
/s/ Inger M. Klemp
   
Inger M. Klemp
   
Principal Financial Officer