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As filed with the Securities and Exchange Commission on March 17, 2014

Registration No. 333-        

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

Form F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

NORDIC AMERICAN OFFSHORE LTD.

(Exact name of registrant as specified in its charter)

 

 

 

Marshall Islands   4412   N/A

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

Nordic American Offshore Ltd.

c/o Scandic American Shipping Ltd.

Canon’s Court

22 Victoria Street

Hamilton HM EX

Bermuda

   

Seward & Kissel LLP

Attention: Gary J. Wolfe, Esq.

One Battery Park Plaza

New York, New York 10004

(212) 574-1200

(Name, address and telephone number

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)     of agent for service)

 

 

 

Copies to:

 

Gary J. Wolfe, Esq.

Seward & Kissel LLP

One Battery Park Plaza

New York, New York 10004

(212) 574-1223 (telephone number)

(212) 480-8421 (facsimile number)

 

Lesley Peng, Esq.

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

(212) 455-2000 (telephone number)

(212) 455-2502 (facsimile number)

 

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

 

If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.   ¨

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

 

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

  Proposed
Maximum
Aggregate
Offering Price( 1)(2)
  Amount of
Registration Fee (3)

Common shares, $0.01 par value per share

  $115,000,000   $14,812

 

 

(1)   Includes        common shares that may be sold pursuant to exercise of the underwriters’ option to purchase additional shares.
(2)   Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(3)   Calculated in accordance with Rule 457(o) under the Securities Act of 1933.

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the U.S. Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED MARCH 17, 2014

PRELIMINARY PROSPECTUS

 

            Shares

 

LOGO

 

 

 

Nordic American Offshore Ltd.

 

Common Shares

 

 

 

This is our initial public offering of common shares in the United States. Currently our common shares are not listed on any United States securities exchange.

 

Our common shares are traded on the Norwegian OTC List, an over-the-counter market that is administered by a subsidiary of the Norwegian Securities Dealers Association, under the symbol “NAO.” On March 11, 2014, the closing price of our common shares was 104.50 Norwegian Kroner (“NOK”) per share, which was equivalent to approximately $17.56 per share based on the Bloomberg Composite Rate of NOK5.95 per $1.00 in effect on that date.

 

We anticipate that the initial public offering price will be between $        and $        per share.

 

 

 

The Company intends to apply to list the common shares on the New York Stock Exchange under the symbol “NAO.”

 

We are an “emerging growth company” and we are eligible for reduced reporting requirements. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

 

Investing in our common shares involves risks. See “ Risk Factors ” beginning on page 13 of this prospectus for a discussion of certain factors that you should consider before investing in our common shares.

 

Neither the Securities and Exchange Commission not any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

      

Per Share

      

Total

 
Initial public offering price        $                       $               
Underwriting discounts and commissions          
Proceeds, before expenses, to us (1)        $                           $                   

 

  (1)   We expect to reimburse the underwriters for certain FINRA-related expenses. See “Underwriting”.

 

Nordic American Offshore Ltd. has granted the underwriters the option to purchase up to an additional shares to cover over-allotments at the initial public offering price less the underwriting discount.

 

The underwriters expect to deliver the common shares to purchasers on                , 2014.

 

 

 

MORGAN STANLEY   CREDIT SUISSE   J.P. MORGAN   PARETO SECURITIES

 

                , 2014.


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LOGO


Table of Contents

TABLE OF CONTENTS

 

PROSPECTUS SUMMARY

     1   

CORPORATE INFORMATION

     8   

OTHER INFORMATION

     8   

THE OFFERING

     9   

SUMMARY FINANCIAL DATA

     11   

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     12   

RISK FACTORS

     13   

USE OF PROCEEDS

     31   

CAPITALIZATION

     32   

SHARE PRICE INFORMATION

     33   

DIVIDEND POLICY

     34   

DILUTION

     35   

SELECTED FINANCIAL DATA

     36   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     37   

INDUSTRY AND MARKET CONDITIONS

     45   

BUSINESS

     48   

MANAGEMENT

     63   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     67   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     68   

DESCRIPTION OF CAPITAL STOCK

     69   

CERTAIN MARSHALL ISLANDS COMPANY CONSIDERATIONS

     75   

TAXATION

     78   

SHARES ELIGIBLE FOR FUTURE SALE

     84   

UNDERWRITING

     85   

ENFORCEMENT OF CIVIL LIABILITIES AND INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

     90   

LEGAL MATTERS

     90   

EXPERTS

     90   

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     91   

OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

     91   

INDEX TO FINANCIAL STATEMENTS

     F-1   
 

 

You should rely only on the information contained in this prospectus or in any free writing prospectus we may authorize to be delivered to you. We have not, and the underwriters have not, authorized any other person to provide you with additional, different or inconsistent information. If anyone provides you with additional, different or inconsistent information, you should not rely on it. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission, or the SEC, is effective. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information appearing in this prospectus is accurate as of any date other than the date on the front cover of this prospectus unless otherwise specified herein. Our business, financial condition, results of operations and prospects may have changed since that date. Information contained on our website does not constitute part of this prospectus.

 

We have not taken any action to permit a public offering of these securities outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of these securities and the distribution of this prospectus outside the United States.


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PROSPECTUS SUMMARY

 

This summary highlights certain of the information that appears later in this prospectus. This summary may not contain all of the information that may be important to you. As an investor, you should carefully review the entire prospectus, including the section of this prospectus entitled “Risk Factors” and the more detailed information that appears later in this prospectus before making an investment in our common shares. The information presented in this prospectus assumes, unless otherwise indicated, that the underwriters’ option to purchase additional common shares is not exercised.

 

Unless otherwise indicated, references to “Nordic American Offshore,” the “Company,” “we,” “our,” “us,” “NAO” or similar terms refer to the registrant, Nordic American Offshore Ltd., and its subsidiaries, except where the context otherwise requires. We use the term deadweight tons, or dwt, expressed in metric tons, each of which is equivalent to 1,000 kilograms, in describing the size of our vessels. Unless otherwise indicated, all references to “U.S. dollars,” “dollars,” “U.S. $” and “$” in this prospectus are to the lawful currency of the United States of America and references to “Norwegian Kroner” and “NOK” are to the lawful currency of Norway.

 

Concurrently with the closing of this offering, we plan to commence an offer to exchange all of the unregistered common shares that we previously issued in the Private Placement, as defined below, other than the common shares owned by Nordic American Tankers Ltd. and other affiliates of ours, for common shares that have been registered under the Securities Act of 1933, as amended, or the Securities Act, which we refer to as the Exchange Offer. We have filed a registration statement on Form F-4 to register the common shares to be offered by us in the Exchange Offer. We expect such registration statement to become effective concurrently with the registration statement of which this prospectus forms a part.

 

OUR BUSINESS

 

We are an international company that was recently incorporated in the Republic of the Marshall Islands for the purpose of acquiring and operating platform supply vessels, or PSVs, with an initial focus of operations in the North Sea. PSVs are used for transporting supplies and equipment to and from offshore installations such as drilling rigs. In November 2013, we purchased six secondhand PSVs for an aggregate purchase price of approximately $265.7 million. We refer to these six vessels as our Initial Fleet. Our Initial Fleet was delivered to us during December 2013 and January 2014. In February 2014, we entered into two memoranda of agreement for two newbuilding PSVs to be delivered to us during January 2015, at the earliest, for approximately $44.0 million each, or our Newbuilding PSVs. The PSV market is driven by the supply and demand activity in the offshore oil rig and platform sector and the availability of PSVs. The current orderbook for drilling rigs indicates record growth in the drilling rig fleet going forward, which may increase demand and create more opportunity for PSVs. As of the date of this prospectus, three of the PSVs from our Initial Fleet have time charters attached to them that are scheduled to expire, at the earliest, in November 2014, February 2015 and April 2018. The remaining vessel trades in the spot market.

 

Our Initial Fleet and our Newbuilding PSVs were purchased from Blue Ship Invest AS, or BSI, a wholly owned subsidiary of Ulstein Shipping AS which is fully owned by the Ulstein Group ASA. At the time of purchase, the six vessels of the Initial Fleet that we acquired represented all of BSI’s operating vessels. Three of the six vessels had time charters at the time of delivery. Upon acquisition, we entered into separate agreements, directly with the charterers, as the purchase of the vessels did not transfer the charters without the charterers’ consent. The three remaining vessels were free of charter at the time of delivery.

 

In November 2013, we issued an aggregate of 16,666,666 common shares in a Norwegian private placement exempt from registration under the Securities Act for net proceeds of $243.5 million, of which Nordic American

 

 

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Tankers Limited, or NAT, an international tanker company with a fleet of 20 modern wholly owned Suezmax tankers and a company related to us, acquired 4,333,566 common shares, representing an ownership interest in us of approximately 26%. We refer to the Norwegian private placement throughout this prospectus as the Private Placement. We believe that NAT will be motivated to facilitate our growth because of its significant ownership interest in us, and we intend to leverage the relationships, expertise and reputation of NAT to manage and charter our Initial Fleet and Newbuilding PSVs, and to identify opportunities to expand our Initial Fleet through newbuildings and selective acquisitions.

 

Following the completion of this offering, we expect to have $              million of available cash from the net proceeds of this offering, based on an initial public offering price of $         per share (the mid-point of the price range on the cover of this prospectus). As of the date of this prospectus, we have paid a total of $265.7 million due under the purchase contracts for our Initial Fleet and $8.9 million due under the memoranda of agreement for our Newbuilding PSVs. We plan to use a portion of the net proceeds from this offering to fund the Newbuilding PSVs. Our fleet currently operates exclusively in the North Sea. Our intention is to acquire additional PSVs and develop a fleet that can expand its activities in the North Sea and to the Barents Sea as well as broaden its focus, in the longer term, to other areas such as West Africa, the Gulf of Mexico and Brazil. We currently have a five-year horizon to consider expanding outside of the North Sea and the Barents Sea. We expect that the main factors for our deciding to expand to other regions will be our level of success operating vessels in the North Sea and the Barents Sea, market conditions and the global demand for PSVs. The timing of these acquisitions has not been decided.

 

OUR RELATIONSHIP WITH NORDIC AMERICAN TANKERS LIMITED

 

NAT is engaged in seaborne transportation of crude oil products in the international shipping markets. As of the date of this prospectus, its fleet consisted of 20 modern wholly owned Suezmax tankers.

 

We believe that one of our principal strengths is our relationship with NAT and the NAT group of companies, which includes NAT’s wholly owned subsidiaries Scandic American Shipping Ltd., or Scandic, and Orion Tankers Ltd., or Orion, or collectively, the NAT Group. We have entered into a management agreement with Scandic for the supervision of the functions related to operating our PSVs and as interim provider of commercial management services. NAT, the parent company of Scandic, also owns approximately 26% of our outstanding common shares. We expect our relationship with NAT and the NAT Group of companies will give us access to their relationships with major international charterers, lenders and oil companies. We will also have access to the NAT Group’s technical, commercial and managerial expertise, which we believe will allow us to compete more effectively and operate our vessels on a cost-efficient basis.

 

In addition to our relationship with NAT itself, we believe there are opportunities for us to benefit from operational, chartering and shipyard-based synergies from our broader relationship with the NAT Group of companies, which includes Scandic. Scandic supervises the commercial and technical management of the 20 vessels owned by NAT and provides us with similar services for our PSVs.

 

Our Executive Chairman and Interim Chief Executive Officer, Herbjørn Hansson, has been involved in the shipping and the offshore industries for nearly 40 years. He is also the founder and has been the Chairman and Chief Executive Officer of NAT since its establishment in 1995.

 

We can provide no assurances that we will realize any benefits from our relationship with NAT or the NAT Group.

 

 

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OUR FLEET

 

The following table summarizes key information about our Initial Fleet of PSVs as of the date of this prospectus:

 

Vessel Name

   Year
Built
    

Type of Charter /
Charterer

   Capacity
(dwt)
     Cargo
Deck
Area (sq.
meters)
    

Delivered to

NAO

  

Earliest/Latest

Charter Expiration

Blue Fighter

     2012       Time Charter / Apache North Sea Limited (1)      4,200         850       January 2014    February 2015 / February 2016

Blue Prosper

     2012       Time Charter / Apache North Sea Limited (1)      4,242         850       January 2014    November 2014 / November 2015

Blue Power

     2013       Time Charter / BG International Limited (2)      4,200         850       January 2014    April 2018 / April 2020

Blue Thunder

     2013       Spot Charter / Statoil Petroleum AS (3)      4,200         850       December 2013    July 2014 / December 2014

Blue Guardian

     2013       Spot Charter / Statoil Petroleum AS (3)      4,200         850       December 2013    July 2014 / January 2015

Blue Protector

     2013       Spot Charter / Statoil Petroleum AS (4)      4,200         850       December 2013    July 2014 / October 2014

 

  (1)   This charter agreement contains one optional extension period of one year that must be exercised by the charterer 30 days before the end of the charter period.
  (2)   This charter agreement contains two optional extension periods of one year each that must be exercised by the charterer 90 days before the end of the charter period.
  (3)   This charter agreement contains two optional extension periods of three months each that must be exercised by the charterer one month before the end of the charter period.
  (4)   This charter agreement contains three optional extension periods of one month each that must be exercised by the charterer one month before the end of the charter period.

 

EMPLOYMENT OF OUR FLEET

 

Three of the vessels in our Initial Fleet are currently employed on time charters with firm commitment periods and the remaining three vessels in our Initial Fleet are employed in the spot market, which we believe provides us with the benefits of stable cash flows and high utilization rates, while enabling us to capture increased profit margins during periods of improvements in PSV charter rates. Our Initial Fleet is currently employed by and is providing services for Apache North Sea Limited, BG International Limited and Statoil Petroleum AS. The average duration of the contracts (assuming options are exercised) is just over two years with rates between $25,000 and $29,000 per day per vessel. The contractual charter rates are generated in British Pounds and Norwegian Kroner. Because our charter revenue is paid in currencies other than the U.S. dollar, our average charter rate may from time to time increase our decrease as a result of fluctuations in exchange rates.

 

We define a spot charter as a contract with duration of less than one year. Contracts over one year are referred to as time charters.

 

 

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MANAGEMENT OF OUR BUSINESS

 

The technical management of our vessels is provided by independent vessel management companies under the supervision of Scandic. Scandic also provides all general and administrative services including all services relating to capital markets activities. Scandic is also providing us with commercial management services until we hire a new chief executive officer and chartering manager. Upon the appointment of these officers, we plan to have management provide our commercial management services. The ship management firms Atlantic Offshore Management AS and Remøy Shipping AS provide technical management services for our Initial Fleet. We are currently in a 90-day notice period for the termination of the technical management services agreement with Atlantic Offshore Management AS. We plan to appoint Remøy Shipping AS as the technical manager of all of the vessels of our Initial Fleet after the expiration of this notice period.

 

The compensation paid to Scandic and to the technical management companies are in accordance with industry standards. For further information, please see the financial statements and related notes which form a part of this prospectus.

 

COMPETITIVE STRENGTHS

 

We believe that we possess a number of competitive strengths in our industry, including:

 

Attractive Initial Fleet. Our Initial Fleet is comprised of six high-quality PSVs with an average age of 0.9 years and an aggregate carrying capacity of 25,242 dwt. We believe that it is an opportune time to acquire PSVs because PSVs are primarily used for servicing drilling rigs and we believe the orderbook for such drilling rigs is at an all-time high. Also, utilization rates of PSVs is on an upward trend, with average year-to-date levels of 92%, which are approaching peak usage rates of 95% from 2007.

 

Significant Available Liquidity to Pursue Acquisition and Expansion Opportunities. Following the completion of this offering, we expect to have $         million of available cash, including net proceeds of $         million from this offering based on an assumed initial public offering price of $         per share. We intend to use our available cash and borrowing capacity under the Credit Facility to pursue vessel acquisitions, including the acquisition of our Newbuilding PSVs, consistent with our business strategy. We believe that the current state of our balance sheet, financing capacity and future access to capital will allow us to make opportunistic acquisitions at attractive prices.

 

Experienced Management Team with an Established Track Record in the Public Market. Our management team has considerable depth of shipping and offshore industry expertise. Since 2004, under the leadership of the board of directors of NAT, including Herbjørn Hansson, our Executive Chairman and Interim Chief Executive Officer, NAT has grown from an owner of three vessels in 2004 to an owner of 20 vessels as of the date of this prospectus. Ms. Turid M. Sørensen, our Chief Financial Officer, also holds a senior management position within NAT and has more than 29 years of experience in the shipping industry and has formerly worked for Skaugen PetroTrans Inc., Ugland Nordic Shipping ASA and Teekay Norway AS.

 

Access to Attractive Acquisition and Chartering Opportunities. We believe that NAT’s global relationships with shipping companies, charterers, shipyards, brokers, major oil companies and commercial shipping lenders will provide us with a commercial advantage in accessing attractive asset acquisitions, chartering and vessel financing opportunities. In addition, we believe that NAT’s reputation as a creditworthy counterparty and proven ability to raise capital and execute vessel purchase transactions in a timely manner will provide us with access to acquisition opportunities on attractive terms.

 

 

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Vessel Opportunities with Major Oil Companies. We believe that the NAT Group’s experience with the management of vessels and its reputation in the industry as an operator with high safety and quality operating standards will be important in establishing and retaining charters with major oil companies that are looking for reliable and responsible operators to meet their exacting standards for vessel chartering and day-to-day operations.

 

OUR BUSINESS STRATEGIES

 

Our primary objectives are to profitably grow our business and achieve success as an owner and operator of PSVs. The key elements of our strategy are:

 

Expanding Our Fleet through Opportunistic Acquisitions of High-Quality Vessels at Attractive Prices. We intend to acquire additional modern secondhand PSVs and develop a fleet that can expand its activities in the North Sea and to the Barents Sea as well as broaden its focus, in the longer term, to other areas such as West Africa, the Gulf of Mexico and Brazil. We currently have a five-year horizon to consider expanding outside of the North Sea and the Barents Sea. The main factor for our expansion to other regions will be our level of success operating vessels in the North Sea and the Barents Sea and the market conditions and the global demand for PSVs. We have maintained a strong relationship with Ulstein Shipping AS, or Ulstein, an unrelated party, which holds 4% of our outstanding common shares, which is known for developing highly advanced vessels for offshore segments. When evaluating acquisitions, we will consider and analyze, among other things, our expectation of fundamental developments in the offshore oil and gas exploration industry, the level of liquidity in the resale and charter market, the cash flow earned by the vessel in relation to its value, its condition and technical specifications, expected remaining useful life, the credit quality of the charterer and duration and terms of charter contracts for vessels acquired with charters attached. We believe that these circumstances combined with our management’s knowledge of the shipping industry and our relationship with Ulstein presents an opportunity for us to grow our fleet at favorable prices.

 

Optimizing Vessel Revenues Through a Combination of Time Charters and Spot Market Exposure. We intend to employ a chartering strategy to capture upside opportunities in the spot market while using fixed-rate time charters as the charter market improves, to reduce downside risks and increase cash flows and future dividend capacity. We believe that a strategy of mixed employment of our vessels through the spot market and fixed time charters will create the most sustainable form of revenue growth for our Company.

 

Focusing on Platform Supply Vessels Based on the Experience and Expertise of Our Management Team in the International Offshore and Shipping Industries. We believe that major international drilling rig and oil exploration companies seek transportation partners that are financially stable and have a reputation for reliability, safety and high environmental and quality standards. We intend to leverage the operational expertise and customer base of the NAT Group and the members of our management team in order to further expand these relationships with consistent delivery of superior customer service.

 

Reducing Operating and Corporate Expenses. Pursuant to the management agreement that we have entered into, Scandic will have the daily administrative responsibility and supervise the Company’s functions to ensure that strategies set by our board of directors are followed. We believe that Scandic will be able to provide these services at costs that are lower than what we could achieve by performing these functions in-house.

 

Maintain a Balance Sheet with a Moderate use of Leverage. We plan to finance our Initial Fleet, Newbuilding PSVs and future vessel acquisitions with a mix of debt and equity, but intend to maintain moderate levels of leverage over time, in an amount not to exceed approximately 20% of the carrying value of the Company’s vessels, collateralizing its indebtedness on a consolidated basis, even though we may have the capacity to obtain additional financing. By maintaining moderate levels of leverage, we expect to retain greater

 

 

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flexibility than our more leveraged competitors to operate our vessels under shorter spot or period charters. Charterers have increasingly favored financially solid vessel owners, and we believe that our balance sheet strength following this offering will enable us to access more favorable chartering opportunities, as well as give us a competitive advantage in pursuing vessel acquisitions from commercial banks and shipyards, which have also recently displayed a preference for contracting with well capitalized counterparties.

 

RECENT AND OTHER DEVELOPMENTS

 

On October 17, 2013, we issued 500 common shares to NAT in connection with our initial capitalization.

 

During November 2013, we issued and sold 16,666,666 common shares, par value $0.01 per share, in the Private Placement exempt from registration under the Securities Act for net proceeds of $243.5 million. At the close of the Private Placement we repurchased and canceled the 500 shares issued in connection with our initial capitalization.

 

Concurrently with the closing of this offering, we plan to commence an offer to exchange all of the unregistered common shares we previously issued in the Private Placement, other than common shares owned by NAT and other affiliates of ours, for common shares that have been registered under the Securities Act, which we refer to as the Exchange Offer. The Exchange Offer will be made only by means of a prospectus and a related letter of transmittal. See “Business—Exchange Offer.”

 

On December 19, 2013, we entered into a revolving credit facility with DNB Bank ASA and Skandinaviska Enskilda Banken AB for up to $60 million, or our Credit Facility. Amounts borrowed under the Credit Facility bear interest at an annual rate equal to LIBOR plus a margin of 2.50% and the Company pays a commitment fee of 1.00% on any undrawn amounts. The maximum potential annual commitment fee payable on undrawn amounts is $600,000. The Credit Facility matures in December 2018. The proceeds of our Credit Facility are expected to fund general corporate purposes as well as the purchase of PSVs. Four vessels from our Initial Fleet have been pledged as security under our Credit Facility.

 

On January 10, 2014, we drew down $30.0 million on our Credit Facility to finance the delivery of three of our vessels.

 

In January 2014 we formed Nordic American Offshore (UK) Ltd, or NAO UK, a wholly owned subsidiary in the United Kingdom. NAO UK is responsible for our North Sea operations. NAO UK has currently one employee, employed to manage and supervise the operations of our vessels in the North Sea.

 

On February 10, 2014, we announced that we had agreed to buy two more PSVs from a company in the Ulstein Group. The two newbuildings will be delivered in January 2015, and cost about $44.0 million each.

 

On February 14, 2014, we drew down $10 million on our Credit Facility primarily to finance a 10% deposit due under the memoranda of agreement for our Newbuilding PSVs.

 

 

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RISK FACTORS

 

We face a number of risks associated with our business and industry and must overcome a variety of challenges to utilize our strengths and implement our business strategies. These risks relate to, among others, changes in the international shipping and offshore oil and gas exploration industry, including supply and demand, charter hire rates, a downturn in the global economy, hazards inherent in our industry and operations resulting in liability for damage to or destruction of property and equipment, pollution or environmental damage, inability to comply with covenants in our existing Credit Facility and credit facilities we may enter into, inability to finance capital projects, and inability to successfully employ our PSVs.

 

You should carefully consider these risks, the risks described in “Risk Factors” and the other information in this prospectus before deciding whether to invest in our common shares.

 

IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY

 

We had less than $1.0 billion in revenue during our last fiscal year, which means that we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

   

the ability to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in the registration statement for an initial public offering;

 

   

exemption from the auditor attestation requirement in the assessment of the emerging growth company’s internal controls over financial reporting;

 

   

exemption from new or revised financial accounting standards applicable to public companies until such standards are also applicable to private companies; and

 

   

exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and financial statements.

 

We may take advantage of these provisions until the end of the fiscal year following the fifth anniversary of our initial public offering or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company if, among other things, we have more than $1.0 billion in “total annual gross revenues” during the most recently completed fiscal year. We may choose to take advantage of some, but not all, of these reduced burdens. For as long as we take advantage of the reduced reporting obligations, the information that we provide shareholders may be different from information provided by other public companies. We are choosing to “opt out” of the extended transition period relating to the exemption from new or revised financial accounting standards and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth public companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

 

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CORPORATE INFORMATION

 

We were incorporated in the Republic of the Marshall Islands on October 17, 2013 with principal executive offices located at Canon’s Court, 22 Victoria Street, Hamilton HM EX, Bermuda. Our telephone number at that address is (441) 295 2244.

 

OTHER INFORMATION

 

Because we are incorporated under the laws of the Republic of the Marshall Islands, you may encounter difficulty protecting your interests as shareholders, and your ability to protect your rights through the U.S. federal court system may be limited. Please refer to the sections entitled “Risk Factors” and “Enforcement of Civil Liabilities and Indemnification for Securities Act Liabilities” for more information.

 

 

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THE OFFERING

 

Common shares offered

                common shares.

 

Over-allotment

We have granted the underwriters a 30-day option to purchase, from time to time, up to an additional                 of our common shares to cover over-allotments, if any.

 

Common shares outstanding immediately after the offering

                common shares. (1)

 

                  common shares, if the underwriters exercise their over-allotment option in full. (1)

 

Use of proceeds

We estimate that we will receive net proceeds of approximately $         million from this offering assuming the underwriters’ over-allotment option is not exercised, and approximately $         million if the underwriters’ over-allotment option is exercised in full, in each case after deducting underwriting discounts and commissions and estimated expenses payable by us. These estimates are based on an assumed initial public offering price of $         per share, which is the mid-point of the price range on the cover of this prospectus.

 

  We intend to use approximately $78 million of the net proceeds of this offering towards the purchase of our Newbuilding PSVs. We also plan to use a portion of the net proceeds of this offering towards the payment of outstanding debt under our Credit Facility. We intend to use any remaining net proceeds of this offering for general corporate purposes, including vessel acquisitions, and working capital.

 

  Please read “Use of Proceeds.”

 

Dividend policy

We have not yet paid any dividends to holders of our common shares but we intend to adopt a policy of declaring quarterly dividends to shareholders as decided by our board of directors. The dividend to shareholders could be higher than the operating cash flow or the dividend to shareholders could be lower than the operating cash flow after reserves as our board of directors may from time to time determine are required, taking into account contingent liabilities, including the cost of drydockings, the terms of our Credit Facility, our other cash needs and the requirements of Marshall Islands law.

 

  Please read “Dividend Policy.”

 

Voting rights

Holders of our common shares are entitled to one vote per common share in all shareholders’ meetings. Please read “Description of Capital Stock—Common shares.”

 

Exchange listing

We plan to apply to have our common shares listed for trading on the New York Stock Exchange, or the NYSE, under the symbol “NAO.”

 

 

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Transfer agent

Computershare Trust Company, N.A.

 

Risk factors

Investment in our common shares involves a high degree of risk. You should carefully read and consider the information set forth under the heading “Risk Factors” and all other information set forth in this prospectus before investing in our common shares.

 

Exchange Offer

Concurrently with the closing of this offering, we plan to offer to exchange the unregistered common shares previously issued in the Private Placement, other than common shares owned by NAT and other affiliates of ours, for common shares that have been registered under the Securities Act. The Exchange Offer will be made only by means of a prospectus and a related letter of transmittal.

 

  (1)   The number of common shares outstanding immediately after the offering is based on 16,666,666 common shares outstanding as of December 31, 2013. This does not include the 833,333 warrants that were issued to NAT as part of the Private Placement that have an exercise price of $15.00 per share.

 

The information presented in this prospectus assumes, unless otherwise indicated, that the underwriters’ option to purchase additional common shares is not exercised .

 

 

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SUMMARY FINANCIAL DATA

 

We were formed on October 17, 2013 for the purpose of acquiring and operating platform supply vessels in the oil and gas exploration industry. The following table summarizes our summary financial data for the period from October 17, 2013 (inception) to December 31, 2013.

 

The following table should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited financial statements as of and for the period from October 17, 2013 (inception) to December 31, 2013 and related notes thereto included elsewhere in this prospectus. In accordance with standard shipping industry practice, we did not obtain from the seller historical operating data for the vessels that we acquired, as the data was not material to our decision to purchase the vessels. Accordingly, we have not included any historical financial data relating to the results of operations of our vessels from the period before acquisition of them. Please see the section of this prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Lack of Historical Operating Data for Vessels before their Acquisition.”

 

     From
October 17 (inception)
to December 31, 2013
 
     All figures in
thousands of USD
except share data
 

Charter revenues

     1,280   

Charter expenses

     (108

Vessel operating expenses—excl. depreciation expense presented below

     (686

General and administrative expenses

     (482

Depreciation expenses

     (262

Net operating loss

     (258
  

 

 

 

Interest income

     138   

Other financial income

     50   
  

 

 

 

Total other income

     188   
  

 

 

 

Income tax

       
  

 

 

 

Net loss and comprehensive loss

     (70
  

 

 

 

Basic loss per share

     (0.01

Diluted loss per share

     (0.01

Basic weighted average number of common shares outstanding

     8,772,166   

Diluted weighted average number of common shares outstanding

     8,772,166   

Other financial data:

  

Net cash provided (Used in) by operating activities

     (545

Selected Balance Sheet Data (at period end):

  

Cash and cash equivalents

     109,819   

Total assets

     245,382   

Total long-term debt

       

Common shares

     167   

Total shareholders’ equity

     243,321   

 

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Statements included in this prospectus which are not historical facts (including our financial forecast and any other statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto) are forward-looking statements. In addition, we and our representatives may from time to time make other oral or written statements which are also forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “projects,” “likely,” “will,” “would,” “could” and similar expressions or phrases may identify forward-looking statements.

 

All forward-looking statements involve risks and uncertainties. The occurrence of the events described, and the achievement of the expected results, depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from expected results.

 

In addition, 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 interest rates;

 

   

general market conditions of the oil and natural gas industry which influence charter hire rates and vessel values;

 

   

changes in demand in platform supply vessels;

 

   

changes in our operating expenses, including bunker prices, dry docking 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 or political events;

 

   

the availability of financing and refinancing;

 

   

vessel breakdowns and instances of off-hire; and

 

   

other important factors described in “Risk Factors” beginning on page 13.

 

We have based these statements on assumptions and analyses formed by applying our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We undertake no obligation, and specifically decline any obligation, except as required by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur.

 

See the section entitled “Risk Factors,” beginning on page 13 of this prospectus for a more complete discussion of these risks and uncertainties and for other risks and uncertainties. These factors and the other risk factors described in this prospectus are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, there can be no assurance that actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements.

 

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RISK FACTORS

 

An investment in our common shares involves a substantial risk. You should carefully consider the risks described below, as well as the other information included in this prospectus before making an investment in our common shares. We operate in an intensely competitive industry. Some of the following risks relate principally to the industry in which we operate and our business in general. Other risks relate principally to the securities market, national and global economic conditions and the ownership of our common shares. The occurrence of any of the events described in this section could cause our results to differ materially from those contained in the forward-looking statements made in this report, and could significantly and negatively affect our business, financial condition or operating results, which may reduce our ability to pay dividends and lower the trading price of our common shares.

 

Risk Related to Our Industry

 

We rely on the oil and natural gas industry, and volatile oil and natural gas activity impacts demand for our services.

 

Demand for our services depends on activity in offshore oil and natural gas exploration, development and production. The level of exploration, development and production activity is affected by factors such as:

 

   

prevailing oil and natural gas prices;

 

   

expectations about future prices and price volatility;

 

   

cost of exploring for, producing and delivering oil and natural gas;

 

   

sale and expiration dates of available offshore leases;

 

   

demand for petroleum products;

 

   

current availability of oil and natural gas resources;

 

   

rate of discovery of new oil and natural gas reserves in offshore areas;

 

   

local and international political, environmental and economic conditions;

 

   

technological advances; and

 

   

ability of oil and natural gas companies to obtain leases, permits or obtain funds for capital.

 

The level of offshore exploration, development and production activity has historically been characterized by volatility. The oil and natural gas industry has been in a state of recovery since the global economic downturn experienced in 2008 and the level of offshore exploration for oil and natural gas has not reached pre-2008 levels. A decline in exploration and development of offshore areas may result in a decline in the demand for our offshore marine services. Any such decrease in activity is likely to reduce our day rates and our utilization rates and, therefore, could have a material adverse effect on our financial condition and results of operations. Moreover, our fleet currently operates exclusively in the North Sea and we are therefore dependent on levels of activity in that region, which may differ from levels of activity in other regions of the world.

 

An increase in the supply of PSVs would likely have a negative effect on charter rates for our vessels, which could reduce our earnings.

 

Charter rates for PSVs depend in part on the supply of vessels. We could experience a reduction in demand as a result of an increased supply of vessels. Excess vessel capacity in the industry or a particular offshore market may result from:

 

   

constructing new vessels;

 

   

moving vessels from one offshore market area to another;

 

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converting vessels formerly dedicated to services other than offshore marine services; or

 

   

declining offshore oil and gas drilling production activities.

 

In the last ten years, construction of vessels of the type we operate has increased. The addition of new capacity of various types to the worldwide offshore marine fleet or declining offshore oil and gas drilling and production activities are likely to increase competition in those markets where we presently operate which, in turn, could reduce day rates, utilization rates and operating margins, which would adversely affect our financial condition and results of operations.

 

The current state of global financial markets and current economic conditions may adversely impact our ability to obtain financing or refinance our existing or future credit facilities on acceptable terms, which may hinder or prevent us from operating or expanding our business.

 

Global financial markets and economic conditions have been, and continue to be, volatile. These issues, along with significant write-offs in the financial services sector, the re-pricing of credit risk and the current weak economic conditions, have made, and will likely continue to make, it difficult to obtain additional financing. The current state of global financial markets and current economic conditions might adversely impact our ability to issue additional equity at prices which will not be dilutive to our existing shareholders or preclude us from issuing equity at all.

 

Also, as a result of concerns about the stability of financial markets generally and the solvency of counterparties specifically, the cost of obtaining money from the credit markets has increased as many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at all or on terms similar to current debt and reduced, and in some cases ceased to provide, funding to borrowers. Due to these factors, we cannot be certain that financing will be available to the extent required, or that we will be able to refinance our existing or future credit facilities, on acceptable terms or at all. If financing or refinancing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due or we may be unable to enhance our existing business, complete the acquisition of our newbuilding and additional vessel acquisitions or otherwise take advantage of business opportunities as they arise.

 

If economic conditions throughout the world do not improve, it may impede our results of operations, financial condition and cash flows, and may adversely affect the market price of our common shares.

 

Negative trends in the global economy that emerged in 2008 continue to adversely affect global economic conditions. In addition, the world economy is currently facing a number of new challenges, recent turmoil and hostilities in the Middle East, including Syria, North Korea, North Africa and other geographic areas and countries. The weakness in the global economy has caused, and may continue to cause, a decrease in worldwide demand for certain goods, including oil and gas, and, thus, the demand for PSVs. Continuing economic instability could have a material adverse effect on our ability to implement our business strategy.

 

The United States, the European Union and other parts of the world have recently been or are currently in a recession and continue to exhibit weak economic trends. The credit markets in the United States and Europe have experienced significant contraction, deleveraging and reduced liquidity, and the U.S. federal and state governments and European authorities have implemented and are considering a broad variety of governmental action and/or new regulation of the financial markets and may implement additional regulations in the future. Securities and futures markets and the credit markets are subject to comprehensive statutes, regulations and other requirements. The SEC, other regulators, self-regulatory organizations and exchanges are authorized to take extraordinary actions in the event of market emergencies, and may effect changes in law or interpretations of existing laws. Global financial markets and economic conditions have been, and continue to be volatile. Credit markets and the debt and equity capital markets have been distressed and the uncertainty surrounding the future of the global credit markets has resulted in reduced access to credit worldwide.

 

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We face risks attendant to changes in economic environments, changes in interest rates, and instability in the banking and securities markets around the world, among other factors. Major market disruptions and the current adverse changes in market conditions and regulatory climate in the United States and worldwide may adversely affect our business or impair our ability to borrow amounts under credit facilities or any future financial arrangements. The recent and developing economic and governmental factors, together with the possible further declines in charter rates and vessel values, may have a material adverse effect on our results of operations, financial condition or cash flows, or the trading price of our common shares.

 

The improved economics of producing natural gas and oil from shale may result in a decrease in offshore oil and gas drilling that could adversely affect us.

 

The rise in production of natural gas and oil, particularly from onshore shale, as a result of improved drilling efficiencies that are lowering the costs of extraction, may result in a reduction of capital invested in offshore oil and gas exploration. Because we provide vessels servicing offshore oil and gas exploration, a significant reduction in investments in offshore exploration and development would have a material adverse effect on our operations and financial position.

 

The market values of our vessels may decline, which could limit the amount of funds that we can borrow or cause us to breach certain financial covenants in our Credit Facility or other debt agreements that we may enter into in the future, or result in an impairment charge, and we may incur a loss if we sell vessels following a decline in their market value.

 

The fair market values of PSVs have generally experienced low volatility. Although we believe that we have contracted to purchase our Initial Fleet at attractive times in the cycle, the fair market value of our vessels may fluctuate depending on a number of factors, including:

 

   

prevailing level of charter rates;

 

   

general economic and market conditions affecting the oil and gas exploration industry;

 

   

types, sizes and ages of vessels;

 

   

supply of and demand for vessels;

 

   

cost of newbuildings;

 

   

governmental or other regulations;

 

   

the need to upgrade vessels as a result of charterer requirements, technological advances in vessel design or equipment or otherwise; and

 

   

technological advances.

 

If the fair market values of our vessels decline, we may not be in compliance with certain covenants contained in our Credit Facility or other debt agreements that we may enter into in the future. In such circumstances, we may not be able to refinance our debt or obtain additional financing. If we are not able to comply with the covenants in our debt agreements, and are unable to remedy the relevant breach, our lenders could accelerate our debt and foreclose on our fleet. In addition, if we sell one or more of our vessels at a time when vessel prices have fallen and before we have recorded an impairment adjustment to our financial statements, the sale may be less than the vessel’s carrying value on our financial statements, resulting in a loss and a reduction in earnings. Furthermore, if vessel values decline, we may have to record an impairment charge in our financial statements which could adversely affect our financial results.

 

Conversely, if vessel values are elevated at a time when we wish to acquire additional vessels, the cost of such acquisitions may increase and this could adversely affect our business, results of operations, cash flow and financial condition.

 

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Compliance with safety and other vessel requirements imposed by classification societies may be very costly and may adversely affect our business.

 

The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the International Convention for the Safety of Life at Sea of 1974, or SOLAS, a treaty of the International Maritime Organization, or IMO.

 

A vessel must undergo annual surveys, intermediate surveys and special surveys. In lieu of a special survey, a vessel’s machinery may be on a continuous survey cycle under which the machinery would be surveyed periodically over a five-year period. Every vessel is also required to be drydocked every two and a half to five years for inspection of its underwater parts.

 

Compliance with the above requirements may result in significant expense. If any vessel does not maintain its class or fails any annual, intermediate or special survey, the vessel will be unable to trade between ports and will be unemployable and uninsurable, which could negatively impact our results of operations and financial condition.

 

We are subject to complex laws and regulations, including environmental regulations that can adversely affect the cost, manner or feasibility of doing business.

 

Our operations are subject to numerous international, national, state and local laws, regulations, treaties and conventions in force in international waters and the jurisdictions in which our vessels operate or are registered, which can significantly affect the ownership and operation of our vessels. These regulations include, but are not limited to, the U.S. Oil Pollution Act of 1990, or OPA, the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, the U.S. Clean Air Act, the U.S. Clean Water Act and the U.S. Maritime Transportation Security Act of 2002, or the MTSA, and treaties and conventions of the IMO, including the International Convention for the Prevention of Pollution from Ships of 1975, the International Convention for the Prevention of Marine Pollution of 1973, SOLAS and the International Convention on Load Lines of 1966. Compliance with such laws, regulations and standards, where applicable, may require installation of costly equipment or implementation of operational changes and may affect the resale value or useful lives of our vessels. These costs could have a material adverse effect on our business, results of operations, cash flows and financial condition. A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations. Because such conventions, laws, and regulations are often revised, we cannot predict the ultimate cost of complying with them or the impact thereof on the resale prices or useful lives of our vessels. Additional conventions, laws and regulations may be adopted which could limit our ability to do business or increase the cost of our doing business and which may materially adversely affect our operations.

 

Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. Under OPA, for example, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil within the 200-mile exclusive economic zone around the United States. Furthermore, the 2010 explosion of the Deepwater Horizon well and the subsequent release of oil into the Gulf of Mexico, or other similar events, may result in further regulation of the shipping industry, and modifications to statutory liability schemes, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. An oil spill could result in significant liability, including fines, penalties and criminal liability and remediation costs for natural resource damages under other federal, state and local laws, as well as third-party damages.

 

We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses, and certificates with respect to our operations, and satisfy insurance and financial responsibility

 

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requirements for potential oil (including marine fuel) spills and other pollution incidents. Although we will, when available, arrange insurance to cover certain environmental risks, there can be no assurance that such insurance will be sufficient to cover all such risks or that any claims will not have a material adverse effect on our business, results of operations, cash flows and financial condition and our ability to pay dividends, if any, in the future.

 

World events could affect our results of operations and financial condition.

 

Past terrorist attacks, as well as the threat of future terrorist attacks around the world, continue to cause uncertainty in the world’s financial markets and may affect our business, operating results and financial condition. Continuing conflicts and recent developments in the Korean Peninsula, the Middle East, including Egypt and North Africa, and the presence of U.S. or other armed forces in the Middle East, may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic instability in the global financial markets. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all. In the past, political conflicts have also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea and the Gulf of Aden off the coast of Somalia. Any of these occurrences could have a material adverse impact on our operating results, revenues and costs.

 

We are subject to war, sabotage, piracy, cyber attacks and terrorism risk.

 

War, sabotage, pirate, cyber and terrorist attacks or any similar risk may affect our operations in unpredictable ways, including changes in the insurance markets, disruptions of fuel supplies and markets, particularly oil, and the possibility that infrastructure facilities, including pipelines, production facilities, refineries, electric generation, transmission and distribution facilities, offshore rigs and vessels, and communications infrastructures, could be direct targets of, or indirect casualties of, a cyber attack or an act of piracy or terror. War or risk of war may also have an adverse effect on the economy. Insurance coverage can be difficult to obtain in areas of pirate and terrorist attacks resulting in increased costs that could continue to increase. We continually evaluate the need to maintain this insurance coverage as it applies to our fleet. Instability in the financial markets as a result of war, sabotage, piracy, cyber attacks or terrorism could also affect our ability to raise capital and could also adversely affect the oil, natural gas and power industries and restrict their future growth.

 

Our operating results will be subject to seasonal fluctuations, which could affect our operating results.

 

The operations of our fleet may be subject to seasonal factors dependent upon which region of the world we are operating our platform supply vessels. While we initially plan to operate exclusively in the North Sea we intend to expand to other areas such as the Barents Sea, West Africa, the Gulf of Mexico and Brazil. This seasonality may result in volatility in our operating results to the extent that we enter into new charter agreements or renew existing agreements during a time when charter rates are weaker or we operate some of our vessels on the spot market, which may result in quarter-to-quarter volatility in our operating results.

 

Operations in the North Sea are generally at their highest levels during the months from April through August and at their lowest levels from December through February primarily due to lower construction activity and harsh weather conditions affecting the movement of drilling rigs. Activity in the Gulf of Mexico, like the North Sea, is often slower during the winter months when construction projects and other specialized jobs are most difficult, and during the hurricane season from June through November, although following a hurricane, activity may increase as there may be a greater demand for vessel services as repair and remediation activities take place. Operations in any market may be affected by seasonality often related to unusually long or short construction seasons due to, among other things, abnormal weather conditions, as well as market demand associated with increased drilling and development activities.

 

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We are subject to international safety standards and the failure to comply with these regulations may subject us to increased liability, may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.

 

The operation of our vessels is affected by the requirements set forth in the International Safety Management Code, or the ISM Code, promulgated by the IMO under SOLAS. The ISM Code requires ship owners, ship managers and bareboat charterers to develop and maintain an extensive “Safety Management System” that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation of vessels and describing procedures for dealing with emergencies. In addition, vessel classification societies impose significant safety and other requirements on our vessels.

 

The failure of a ship owner or bareboat charterer to comply with the ISM Code may subject it to increased liability, may invalidate existing insurance or decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports. Each of the vessels that we have agreed to acquire were or will be ISM Code-certified when delivered to us. However, if we are subject to increased liability for non-compliance or if our insurance coverage is adversely impacted as a result of non-compliance, it may negatively affect our ability to pay dividends, if any, in the future. If any of our vessels are denied access to, or are detained in, certain ports as a result of non-compliance with the ISM Code, our revenues may be adversely impacted.

 

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 and trans-shipment points. Inspection procedures may result in the seizure of contents of our vessels, delays in the loading, offloading, trans-shipment 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. 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 a material adverse effect on our business, financial condition and results of operations.

 

Our business has inherent operational risks, which may not be adequately covered by insurance.

 

Our vessels and their cargoes are at risk of being damaged or lost because of events such as marine disasters, bad weather, mechanical failures, human error, environmental accidents, war, terrorism, piracy and other circumstances or events. In addition, transporting cargoes across a wide variety of international jurisdictions creates a risk of business interruptions due to political circumstances in foreign countries, hostilities, labor strikes and boycotts, the potential for changes in tax rates or policies, and the potential for government expropriation of our vessels. Any of these events may result in loss of revenues, increased costs and decreased cash flows to our customers, which could impair their ability to make payments to us under our charters.

 

In the event of a casualty to a vessel or other catastrophic event, we will rely on our insurance to pay the insured value of the vessel or the damages incurred. We procure insurance for the vessels in our fleet employed under time charters against those risks that we believe the shipping industry commonly insures against. This insurance includes marine hull and machinery insurance, protection and indemnity insurance, which include pollution risks and crew insurance, and war risk insurance. Currently, the amount of coverage for liability for pollution, spillage and leakage available to us on commercially reasonable terms through protection and indemnity associations and providers of excess coverage is $1 billion per vessel per occurrence.

 

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We maintain hull and machinery insurance, protection and indemnity insurance for our vessels, which provides environmental damage and pollution insurance coverage, and war risk insurance for our fleet. We do not maintain, for our vessels, insurance against loss of hire, which covers business interruptions that result from the loss of use of a vessel. We may not be adequately insured against all risks. We may not be able to obtain adequate insurance coverage for our fleet in the future, and we may not be able to obtain certain insurance coverages. The insurers may not pay particular claims. Our insurance policies may contain deductibles for which we will be responsible and limitations and exclusions which may increase our costs or lower our revenue. Moreover, insurers may default on claims they are required to pay.

 

We cannot assure you that we will be adequately insured against all risks or that we will be able to obtain adequate insurance coverage at reasonable rates for our vessels in the future. For example, in the past more stringent environmental regulations have led to increased costs for, and in the future may result in the lack of availability of, insurance against risks of environmental damage or pollution. Additionally, our insurers may refuse to pay particular claims. Any significant loss or liability for which we are not insured could have a material adverse effect on our financial condition.

 

Maritime claimants could arrest one or more of our vessels, which could interrupt our cash flow.

 

Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a claimant may seek to obtain security for its claim 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 large sums of money to have the arrest or attachment 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 attempt to assert “sister ship” liability against one vessel in our fleet for claims relating to another of our vessels.

 

Governments could requisition our vessels during a period of war or emergency, resulting in a loss of earnings.

 

A government could requisition one or more of our vessels for title or for hire. Requisition for title occurs when a government takes control of a vessel and becomes her owner, while requisition for hire occurs when a government takes control of a vessel and effectively becomes her charterer at dictated charter rates. Generally, requisitions occur during periods of war or emergency, although governments may elect to requisition vessels in other circumstances. Although we would be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of payment would be uncertain. Government requisition of one or more of our vessels may negatively impact our revenues.

 

Failure to comply with the U.S. Foreign Corrupt Practices Act could result in fines, criminal penalties, charter terminations and an adverse effect on our business.

 

We may operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics which is consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA. We are subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take actions determined to be in violation of such anti-corruption laws, including the FCPA. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.

 

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Risk Related to Our Company

 

We are a recently formed company with a limited history of operations.

 

We are a recently formed company and have a limited performance record, operating history and historical financial statements upon which you can evaluate our operations or our ability to implement and achieve our business strategy. We cannot assure you that we will be successful in implementing our business strategy.

 

We may not be able to recharter or obtain new and favorable charters for our PSVs, which could adversely affect our revenues and profitability.

 

The vessels in our Initial Fleet are employed either on time charters with firm commitment periods or in the spot market. In addition, we have entered into two memoranda of agreement with BSI for our Newbuilding PSVs, for which we have not yet secured employment. As of the date of this prospectus, three of the PSVs from our initial fleet have time charters attached to them that are scheduled to expire, at the earliest, in November 2014, February 2015 and April 2018, respectively. Our ability to renew expiring charters or obtain new charters will depend on the prevailing market conditions at the time. Additionally, we employ, and expect to continue to employ, some of our vessels in the spot charter market, exposing us to fluctuations in the spot charter rates. The spot charter market may fluctuate significantly based upon PSV supply and demand. The successful operation of our vessels in the competitive spot charter market depends on, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters. If future spot charter rates decline, we may be unable to operate our vessels trading in the spot market profitably.

 

If we are not able to obtain new charters, either on time charter or in the spot market, in direct continuation with existing charters or on newbuildings upon their delivery to us, or if new charters are entered into at rates substantially below the existing rates or on terms otherwise less favorable compared to existing charter terms, our revenues and profitability could be adversely affected and we may have difficulty meeting our obligations, including payments on indebtedness, or paying dividends in the future.

 

We are subject to certain risks with respect to our counterparties on contracts, and failure of such counterparties to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.

 

We have entered into, and may enter into in the future, various contracts, including charter agreements, shipbuilding contracts and credit facilities. Such agreements subject us to counterparty risks. The ability of each of our counterparties to perform its obligations under a contract with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the maritime and offshore industries, the overall financial condition of the counterparty, charter rates received for specific types of vessels, and various expenses. For example, the combination of a reduction of cash flow resulting from declines in world trade, a reduction in borrowing bases under reserve-based credit facilities and the lack of availability of debt or equity financing may result in a significant reduction in the ability of our charterers to make charter payments to us. In addition, in depressed market conditions, our charterers and customers may no longer need a vessel that is then under charter or contract or may be able to obtain a comparable vessel at lower rates. As a result, charterers and customers may seek to renegotiate the terms of their existing charter agreements or avoid their obligations under those contracts. Should a counterparty fail to honor its obligations under agreements with us, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

The failure of our charterers to meet their obligations under our charter agreements, on which we depend for our revenues, could cause us to suffer losses or otherwise adversely affect our business.

 

We expect to employ some of our vessels under medium- to long-term time charter agreements. The ability and willingness of each of our counterparties to perform their obligations under a time charter, spot charter or

 

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other agreement with us, will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the offshore supply industry and the overall financial condition of the counterparties. In addition, in depressed market conditions, there have been reports of charterers renegotiating their charters or defaulting on their obligations under charters. Our customers may fail to pay charter hire or attempt to renegotiate charter rates. Should a counterparty fail to honor its obligations under agreements with us, it may be difficult to secure substitute employment for such vessel, and any new charter arrangements we secure in the spot market or on time charters may be at lower rates. If our charterers fail to meet their obligations to us or attempt to renegotiate our charter agreements, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well as our ability to pay dividends, if any, in the future, and comply with covenants in our credit facilities.

 

We derive a significant amount of revenue from a relatively small number of customers, the loss of any of which could adversely affect our business and operating results.

 

For the period from October 17, 2013 (inception) to December 31, 2013, Statoil Petroleum AS accounted for all of our total revenues. The portion of our revenues attributable to any single customer may change over time, depending on the level of relevant activity by any such customer, our ability to meet the customer’s needs and other factors, many of which are beyond our control. In addition, our results of operations, financial condition and cash flows could be materially adversely affected if one or more of these customers decide to interrupt or curtail their activities, terminate their contracts with us, fail to renew existing contracts, and/or refuse to award new contracts, and we were unable to contract our vessels with new customers at comparable day rates.

 

In recent years, oil and natural gas companies, energy companies and drilling contractors have undergone substantial consolidation and additional consolidation is possible.

 

We cannot assure you that our board of directors will declare dividends.

 

Our board of directors will continue to assess our dividend policy and may in the future determine to pay dividends. The declaration and payment of dividends, if any, will always be subject to the discretion of our board of directors, restrictions contained in our Credit Facility or other debt agreement that we may enter into in the future and the requirements of Marshall Islands law. The timing and amount of any dividends declared will depend on, among other things, our earnings, financial condition and cash requirements and availability, our ability to obtain debt and equity financing on acceptable terms as contemplated by our growth strategy, the terms of our outstanding indebtedness and the ability of our subsidiaries to distribute funds to us. The offshore supply industry is highly volatile, and we cannot predict with certainty the amount of cash, if any, that will be available for distribution as dividends in any period. Also, there may be a high degree of variability from period to period in the amount of cash that is available for the payment of dividends. It may take substantial time following the closing of this offering before it would be possible for us to pay any dividends. Accordingly, it may take substantial time following the closing of this offering before it would be possible for us to pay any dividends.

 

We may incur expenses or liabilities or be subject to other circumstances in the future that reduce or eliminate the amount of cash that we have available for distribution as dividends, including as a result of the risks described herein. Our growth strategy contemplates that we will finance our acquisitions of additional vessels through debt financings or the net proceeds of future equity issuances on terms acceptable to us. If financing is not available to us on acceptable terms or at all, our board of directors may determine to finance or refinance acquisitions with cash from operations, which would reduce the amount of any cash available for the payment of dividends.

 

Under the terms of our Credit Facility we are not be permitted to pay dividends if there is a default or a breach of a loan covenant. Please see the section of this prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for more information relating to restrictions on our ability to pay dividends under the terms of our Credit Facility.

 

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The Republic of Marshall Islands laws generally prohibit the payment of dividends other than from surplus (retained earnings and the excess of consideration received for the sale of shares above the par value of the shares) or while a company is insolvent or would be rendered insolvent by the payment of such a dividend. We may not have sufficient surplus in the future to pay dividends and our subsidiaries may not have sufficient funds or surplus to make distributions to us. We can give no assurance that dividends will be paid at all.

 

We may have difficulty managing our planned growth properly.

 

We are a newly incorporated company formed for the purpose of acquiring and operating PSVs, with an initial focus of operations in the North Sea. In addition to the six secondhand PSVs comprising our Initial Fleet, we have entered into two memoranda of agreement with BSI for our Newbuilding PSVs. One of our principal strategies is to continue to grow by expanding our operations and adding to our fleet. As our business grows, we intend to acquire additional PSVs and expand our activities in the North Sea and to the Barents Sea as well as broaden our focus, in the longer term, to other areas such as West Africa, the Gulf of Mexico and Brazil. Our future growth will primarily depend upon a number of factors, some of which may not be within our control. These factors include our ability to:

 

   

identify suitable PSVs, including newbuilding slots at reputable shipyards and/or shipping companies for acquisitions at attractive prices;

 

   

obtain required financing for our existing and new operations;

 

   

integrate any acquired PSV assets or businesses successfully with our existing operations, including obtaining any approvals and qualifications necessary to operate vessels that we acquire;

 

   

hire, train and retain qualified personnel and crew to manage and operate our growing business and fleet;

 

   

enhance our customer base; and

 

   

improve our operating, financial and accounting systems and controls.

 

Our failure to effectively identify, acquire, develop and integrate any PSVs could adversely affect our business, financial condition and results of operations. The number of employees that perform services for us and our current operating and financial systems may not be adequate as we implement our plan to expand the size of our fleet in the PSV sector, and we may not be able to effectively hire more employees or adequately improve those systems. Finally, acquisitions may require additional equity issuances, which may dilute our common shareholders if issued at lower prices than the price they acquired their shares, or debt issuances (with amortization payments), both of which could lower our available cash. If any such events occur, our financial condition may be adversely affected.

 

Growing any business by acquisition presents numerous risks such as undisclosed liabilities and obligations, difficulty in obtaining additional qualified personnel and managing relationships with customers and suppliers and integrating newly acquired operations into existing infrastructures. The expansion of our fleet may impose significant additional responsibilities on our management and staff, and the management and staff of our commercial and technical managers, and may necessitate that we, and they, increase the number of personnel. We cannot give any assurance that we will be successful in executing our growth plans or that we will not incur significant expenses and losses in connection with our future growth.

 

As we expand our business, we may need to improve our operating and financial systems and will need to recruit suitable employees and crew for our vessels.

 

Our current operating and financial systems may not be adequate as we implement our plan to expand the size of our fleet and our attempts to improve those systems may be ineffective. In addition, if we further expand our fleet, we will need to recruit suitable additional seafarers and shore-side administrative and management

 

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personnel. We cannot guarantee that we will be able to hire suitable employees as we expand our fleet. If we or our crewing agent encounters business or financial difficulties, we may not be able to adequately staff our vessels. If we are unable to grow our financial and operating systems or to recruit suitable employees as we expand our fleet, our financial performance may be adversely affected and, among other things, the amount of cash available for distribution as dividends to our shareholders may be reduced.

 

Exposure to currency exchange rate fluctuations will result in fluctuations in our cash flows and operating results.

 

We may generate all our revenues and incur some of our operating expenses and general and administrative expenses in currencies other than the U.S. dollar. This difference could lead to fluctuations in our revenues and vessel operating expenses, which would affect our financial results. Expenses incurred in foreign currencies increase when the value of the U.S. dollar falls, which would reduce our profitability. Our operating results could suffer as a result.

 

We operate secondhand vessels, and we are exposed to increased operating costs which could adversely affect our earnings and, as our fleet ages, the risks associated with our vessels could adversely affect our ability to obtain profitable charters.

 

While we have inspected the secondhand vessels which we have acquired, this does not provide us with the same knowledge about their condition that we would have had if these vessels had been built for and operated exclusively by us. Generally, purchasers of secondhand vessels do not receive the benefit of warranties from the builders for the secondhand vessels that they acquire.

 

Governmental regulations, safety or other equipment standards related to the age of vessels may require expenditures for alterations, or the addition of new equipment, to our vessels and may restrict the type of activities in which the vessels may engage. As our vessels age, market conditions may not justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.

 

The aging of our fleet may result in increased operating costs in the future, which could adversely affect our earnings.

 

In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. While the vessels in our Initial Fleet are recently built PSVs, as our vessels age typically they will become less fuel-efficient and more costly to maintain than more recently constructed vessels due to improvements in engine technology. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations and safety or other equipment standards related to the age of vessels may also require expenditures for alterations or the addition of new equipment, to our vessels and may restrict the type of activities in which our vessels may engage. We cannot assure you that, as our vessels age, market conditions will justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.

 

Technological innovation could reduce our charter hire income and the value of our vessels.

 

The charter hire rates and the value and operational life of a vessel are determined by a number of factors including the vessel’s efficiency, operational flexibility and physical life. Efficiency includes speed, fuel economy and the ability to load and discharge cargo quickly. Flexibility includes the ability to enter harbors, operate in extreme climates, utilize related docking facilities and pass through canals and straits. The length of a vessel’s physical life is related to its original design and construction, its maintenance and the impact of the stress of operations. If new PSVs are built that are more efficient or more flexible or have longer physical lives than our vessels, competition from these more technologically advanced vessels could adversely affect the amount of charter hire payments we receive for our vessels once their initial charters expire and the resale value of our vessels could significantly decrease. As a result, our business, results of operations, cash flows and financial condition could be adversely affected.

 

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We may be subject to litigation that, if not resolved in our favor and not sufficiently insured against, could have a material adverse effect on us.

 

We may be, from time to time, involved in various litigation matters. These matters may include, among other things, contract disputes, personal injury claims, environmental claims or proceedings, asbestos and other toxic tort claims, employment matters, governmental claims for taxes or duties, and other litigation that arises in the ordinary course of our business. Although we intend to defend these matters vigorously, we cannot predict with certainty the outcome or effect of any claim or other litigation matter, and the ultimate outcome of any litigation or the potential costs to resolve them may have a material adverse effect on us. Insurance may not be applicable or sufficient in all cases and/or insurers may not remain solvent which may have a material adverse effect on our financial condition.

 

A change in tax laws, treaties or regulations, or their interpretation, of any country in which we operate could result in a higher tax rate on our worldwide earnings, which could result in a significant negative impact on our earnings and cash flows from operations.

 

We conduct our operations through various subsidiaries. Tax laws and regulations are highly complex and subject to interpretation. Consequently, we are subject to changing tax laws, treaties and regulations in and between countries in which we operate. Our income tax expense is based upon our interpretation of tax laws in effect in various countries at the time that the expense was incurred. A change in these tax laws, treaties or regulations, or in the interpretation thereof, or in the valuation of our deferred assets, could result in a materially higher tax expense or a higher effective tax rate on our worldwide earnings, and such change could be significant to our financial results. If any tax authority successfully challenges our operational structure, intercompany pricing policies or the taxable presence of our operating subsidiaries in certain countries, or if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure, or if we lose a material tax dispute in any country, our effective tax rate on our worldwide earnings could increase substantially and our earnings and cash flows from these operations could be materially adversely affected.

 

Our subsidiaries may be subject to taxation in the jurisdictions in which their activities are conducted. The amount of any such taxation may be material and would reduce the amounts available for distribution to shareholders.

 

Investors are encouraged to consult their own tax advisors concerning the overall tax consequences of the ownership of the common shares arising in an investor’s particular situation under U.S. federal, state, local or foreign law.

 

We are dependent on our managers and their ability to hire and retain key personnel and our relationship with NAT and the NAT Group.

 

Our success depends to a significant extent upon the abilities and efforts of our manager, Scandic. Our success will depend upon our and our managers’ ability to hire and retain key members of our management team, including Herbjørn Hansson and Turid M. Sorensen. The loss of any of these individuals could adversely affect our business prospects and financial condition.

 

We are also dependent on our relationship with NAT and the NAT Group of companies, which will give us access to their relationships with major international charterers, lenders and oil companies. We will also have access to the NAT Group’s technical, commercial and managerial expertise, which we believe will allow us to compete more effectively and operate our vessels on a cost-efficient basis.

 

Difficulty in hiring and retaining personnel and maintaining a relationship with NAT and the NAT Group could adversely affect our results of operations. We do not maintain “key man” life insurance on any of our officers.

 

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Risks Related to Our Relationship With NAT and Its Affiliates

 

NAT will not provide any guarantee of the performance of our obligations nor will you have any recourse against NAT should you seek to enforce a claim against us.

 

Immediately following this offering and the planned Exchange Offer, NAT will beneficially own approximately     % of our common shares, but will not provide any guarantee of the performance of our obligations. Further, you will have no recourse against NAT should you seek to enforce a claim against us.

 

Our relationship with NAT may cause negative publicity.

 

Negative incidents that the NAT Group may incur could reflect poorly on us due to our relationship with NAT. This negative publicity may have unfavorable results for us.

 

Risks Related to Our Indebtedness

 

Servicing our current or future indebtedness limits funds available for other purposes and if we cannot service our debt, we may lose our vessels.

 

Borrowing under credit facilities requires us to dedicate a part of our cash flow from operations to paying interest on our indebtedness. These payments limit funds available for working capital, capital expenditures and other purposes, including further equity or debt financing in the future. Amounts borrowed under our Credit Facility will bear interest at variable rates. Increases in prevailing rates could increase the amounts that we would have to pay to our lenders, even though the outstanding principal amount remains the same, and our net income and cash flows would decrease. We expect our earnings and cash flow to vary from year to year due to the cyclical nature of the offshore supply vessel industry. If we do not generate or reserve enough cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing plans, such as:

 

   

seeking to raise additional capital;

 

   

refinancing or restructuring our debt;

 

   

selling PSVs; or

 

   

reducing or delaying capital investments.

 

However, these alternative financing plans, if necessary, may not be sufficient to allow us to meet our debt obligations. If we are unable to meet our debt obligations or if some other default occurs under our Credit Facility, our lenders could elect to declare that debt, together with accrued interest and fees, to be immediately due and payable and proceed against the collateral vessels securing that debt.

 

We expect to be exposed to volatility in the London Interbank Offered Rate, or LIBOR, and we may enter into derivative contracts, which can result in higher than market interest rates and charges against our income.

 

Our Credit Facility is advanced at a floating rate based on LIBOR, which has been stable, but was volatile in prior years, and will affect the amount of interest payable on our debt, and which, in turn, could have an adverse effect on our earnings and cash flow. In addition, in recent years, LIBOR has been at relatively low levels, and may rise in the future as the current low interest rate environment comes to an end. Our financial condition could be materially adversely affected at any time that we have not entered into interest rate hedging arrangements to hedge our exposure to the interest rates applicable to our credit facilities and any other financing arrangements we may enter into in the future, including those we enter into to finance a portion of the amounts payable with respect to newbuildings.

 

We intend to selectively enter into derivative contracts to hedge our overall exposure to interest rate risk exposure. Entering into swaps and derivatives transactions is inherently risky and presents various possibilities for incurring significant expenses. The derivatives strategies that we employ in the future may not be successful or effective, and we could, as a result, incur substantial additional interest costs.

 

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Our Credit Facility contains restrictive covenants which limit the amount of cash that we may use for other corporate activities, which could negatively affect our growth and cause our financial performance to suffer.

 

Our Credit Facility imposes operating and financial restrictions on us. These restrictions limit our ability, or the ability of our subsidiaries party thereto to:

 

   

pay dividends and make capital expenditures if we do not repay amounts drawn under our Credit Facility or if there is another default under our Credit Facility;

 

   

incur additional indebtedness, including the issuance of guarantees;

 

   

create liens on our assets;

 

   

change the flag, class or management of our vessels or terminate or materially amend the management agreement relating to certain vessels;

 

   

sell our vessels;

 

   

merge or consolidate with, or transfer all or substantially all our assets to, another person; or

 

   

enter into a new line of business.

 

Therefore, we may need to seek permission from our lenders in order to engage in some corporate actions. Our lenders’ interests may be different from ours and we may not be able to obtain our lenders’ permission when needed. This may limit our ability to pay dividends to you if we determine to do so in the future, finance our future operations or capital requirements, make acquisitions or pursue business opportunities.

 

In addition, our Credit Facility requires us to maintain specified financial ratios and satisfy financial covenants, including ratios and covenants based on the market value of the vessels in our fleet. Should our charter rates or vessel values materially decline in the future, we may be required to take action to reduce our debt or to act in a manner contrary to our business objectives to meet any such financial ratios and satisfy any such financial covenants. Events beyond our control, including changes in the economic and business conditions in the shipping markets in which we operate, may affect our ability to comply with these covenants. We cannot assure you that we will meet these ratios or satisfy these covenants or that our lenders will waive any failure to do so. A breach of any of the covenants in, or our inability to maintain the required financial ratios under our Credit Facility would prevent us from borrowing additional money under our Credit Facility and could result in a default under our Credit Facility. If a default occurs under our Credit Facility, the lenders could elect to declare the outstanding debt, together with accrued interest and other fees, to be immediately due and payable and foreclose on the collateral securing that debt, which could constitute all or substantially all of our assets.

 

Risks Relating to Our Common Shares

 

We are incorporated in the Marshall Islands, which does not have a well-developed body of corporate and case law.

 

We are organized in the Republic of the Marshall Islands, which does not have a well-developed body of corporate or case law and, as a result, shareholders may have fewer rights and protections under Marshall Islands law than under a typical jurisdiction in the United States. Our corporate affairs are governed by our amended and restated articles of incorporation and bylaws and by the Marshall Islands Business Corporations Act, or the BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. However, there have been few judicial cases in the Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors under the laws of the Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in the United States. The rights of shareholders of companies incorporated in the Marshall Islands may differ from the rights of shareholders of companies incorporated in the United States. While the BCA provides that it is to be interpreted according to the laws of the State of Delaware and other states with substantially similar

 

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legislative provisions, there have been few, if any, court cases interpreting the BCA in the Marshall Islands and we can’t predict whether Marshall Islands courts would reach the same conclusions as U.S. courts. Thus, you may have more difficulty in protecting your interests in the face of actions by the management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction which has developed a relatively more substantial body of case law.

 

We are incorporated in the Marshall Islands and certain of our officers and directors are non-U.S. residents. It may be difficult to serve legal process or enforce judgments against us, our directors or our management.

 

We are incorporated under the laws of the Republic of the Marshall Islands, and substantially all of our assets are located outside of the United States. Our business is operated primarily from our administrative offices in Norway and the United Kingdom. In addition, most of our directors and officers are non-residents of the United States, and substantially all of their assets are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States if you believe that your rights have been infringed under securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Republic of the Marshall Islands and of other jurisdictions may prevent or restrict you from enforcing a judgment against our assets or our directors and officers. Although you may bring an original action against us or our affiliates in the courts of the Marshall Islands, and the courts of the Marshall Islands may impose civil liability, including monetary damages, against us or our affiliates for a cause of action arising under Marshall Islands law, it may be impracticable for you to do so. See “Enforceability of Civil Liabilities and Indemnification for Securities Act Liabilities.”

 

An active and liquid market for our common shares may not develop or be sustained.

 

Our common shares currently trade on the Norwegian OTC List and there is currently no established trading market for our common shares in the United States. We intend to apply to list our common shares on the New York Stock Exchange. There is no guarantee that an active trading market will develop. Shareholders therefore have limited access to information about prior market history on which to base their investment decision. If an active trading market for our common shares does not develop, the price of our common shares may be more volatile and it may be more difficult and time consuming to complete a transaction in common shares, which could have an adverse effect on the price of the common shares.

 

Even if an active trading market for our common shares develops, the market value for our common shares may be highly volatile and could be subject to wide fluctuations after this offering and our planned Exchange Offer, and we cannot predict the price at which our common shares will trade.

 

Investors in this offering will suffer immediate and substantial dilution.

 

The initial public offering price per common share will be substantially higher than our pro forma net tangible book value per share immediately after this offering. As a result, you will pay a price per common share that substantially exceeds the per share book value of our tangible assets after subtracting our liabilities. In addition, you will pay more for your common shares than the amounts paid by our existing shareholders. Assuming an offering price of $         per common share, which is the mid-point of the price range on the front cover of this prospectus, you will incur immediate and substantial dilution in an amount of $         per common share. See “Dilution.”

 

The price of our common shares may be highly volatile.

 

The market price of our common shares has fluctuated since the listing on the Norwegian OTC List in November 2013 and may continue to fluctuate in response to many factors, such as actual or anticipated fluctuations in our operating results and those of other public companies in our industry, market conditions in the offshore supply vessel industry, the failure of securities analysts to publish research about us after this offering,

 

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changes in financial estimates by securities analysts, economic and regulatory trends, rumors concerning us or our competitors and other factors, many of which are beyond our control. Since November 2013, the market price for our common shares, as reported by the Norwegian over-the-counter system, has varied between NOK93.0 (approximately $15.63) and NOK104.50 (approximately $17.56).

 

The initial public offering price for the common shares will be determined by negotiations between us and the underwriters and may not be indicative of the market price of the common shares that will prevail in the U.S. trading market. The market price of our common shares may decline below the initial public offering price. An adverse development in the market price for our common shares could negatively affect our ability to issue new equity to fund our activities.

 

Future sales of our common shares could cause the market price of our common shares to decline.

 

The market price for our common shares could decline as a result of sales by existing shareholders of large numbers of our common shares after this offering, or as a result of the perception that such sales may occur. Sales of our common shares by these shareholders also might make it more difficult for us to sell equity or equity-related securities in the future at a time and at the prices that we deem appropriate. Of the common shares outstanding after giving effect to this offering,             shares will be freely tradable unless purchased by persons deemed our “affiliates,” as the term is defined in Rule 144 under the Securities Act, and             additional shares may be sold after the expiration of a lock-up agreement that our officers and directors and certain shareholders will enter into in connection with this offering, subject to registration under the Securities Act, compliance with the requirements of Rule 144 or the availability of an exemption from the registration requirements of the Securities Act. In addition, following the completion of this offering and our planned Exchange Offer, an additional             of our common shares may be available for trading in the U.S. markets.

 

We may issue additional common shares or other equity securities without your approval, which could dilute your ownership interests and depress the market price of our common shares.

 

We may issue additional common shares or other equity securities of equal or senior rank in the future in connection with, among other things, future vessel acquisitions, repayment of outstanding indebtedness or an equity incentive plan, without shareholder approval, in a number of circumstances.

 

Our issuance of additional common shares or other equity securities of equal or senior rank would have the following effects:

 

   

our existing shareholders’ proportionate ownership interest in us will decrease;

 

   

the amount of cash available for dividends payable on our common shares may decrease;

 

   

the relative voting strength of each previously outstanding common share may be diminished; and

 

   

the market price of our common shares may decline.

 

Anti-takeover provisions in our organizational documents could have the effect of discouraging, delaying or preventing a merger or acquisition, or could make it difficult for our shareholders to replace or remove our current board of directors, which could adversely affect the market price of our common shares.

 

Several provisions of our amended and restated articles of incorporation and bylaws could make it difficult for our shareholders to change the composition of our board of directors in any one year, preventing them from changing the composition of management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that shareholders may consider favorable. These provisions include:

 

   

authorizing our board of directors to issue “blank check” preferred stock without stockholder approval;

 

   

providing for a classified board of directors with staggered, three-year terms;

 

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establishing certain advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by shareholders at stockholder meetings;

 

   

prohibiting cumulative voting in the election of directors;

 

   

limiting the persons who may call special meetings of shareholders;

 

   

authorizing the removal of directors only for cause and only upon the affirmative vote of two-thirds of the votes cast at an annual meeting of shareholders by the holders of shares entitled to vote thereon; and

 

   

establishing supermajority voting provisions with respect to amendments to certain provisions of our amended and restated articles of incorporation and bylaws.

 

These anti-takeover provisions could substantially impede the ability of public shareholders to benefit from a change in control and, as a result, may adversely affect the market price of our common shares and your ability to realize any potential change of control premium.

 

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common shares less attractive to investors.

 

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” as described under “Prospectus Summary—Implications of Being an Emerging Growth Company.” We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile.

 

In addition, under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 for so long as we are an emerging growth company.

 

For as long as we take advantage of the reduced reporting obligations, the information that we provide shareholders may be different from information provided by other public companies.

 

Our costs of operating as a public company will be significant, and our management will be required to devote substantial time to complying with public company regulations.

 

Upon completion of this offering, we will be a public company, and as such, we will have significant legal, accounting and other expenses in addition to our initial registration and listing expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, as well as rules subsequently implemented by the SEC and the New York Stock Exchange, have imposed various requirements on public companies, including changes in corporate governance practices, and these requirements may continue to evolve. We and our management personnel, and other personnel, if any, will need to devote a substantial amount of time to comply with these requirements. Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities more time-consuming and costly.

 

Sarbanes-Oxley requires, among other things, that we maintain and periodically evaluate our internal control over financial reporting and disclosure controls and procedures. In particular, we need to perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of Sarbanes-Oxley, subject to the reduced disclosure requirements for emerging growth companies set forth above. Our compliance with Section 404 may require that we incur substantial accounting expenses and expend significant management efforts.

 

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U.S. tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S. shareholders.

 

A foreign corporation will be treated as a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of “passive income” or (2) at least 50% of the average value of the corporation’s assets produce or are held for the production of those types of “passive income.” For purposes of these tests, “passive income” includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive income,” whereas rental income would generally constitute “passive income” to the extent not attributable to the active conduct of a trade or business. U.S. shareholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.

 

We do not believe that we will be treated as a PFIC for any taxable year. However, our status as a PFIC is determined on an annual basis and will depend upon the operations of our vessels and our other activities during each taxable year. In this regard, we intend to treat the gross income we derive or are deemed to derive from our spot chartering and time chartering activities as services income, rather than rental income. Accordingly, we believe that our income from our spot chartering and time chartering activities does not constitute “passive income,” and the assets that we own and operate in connection with the production of that income do not constitute passive assets.

 

There is, however, no direct legal authority under the PFIC rules addressing our method of operation. Accordingly, no assurance can be given that the U.S. Internal Revenue Service, or IRS, or a court of law will accept our position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any taxable year we become unable to acquire vessels in a timely fashion or if there were to be changes in the nature and extent of our operations.

 

If the IRS were to find that we are or have been a PFIC for any taxable year, our U.S. shareholders would face adverse U.S. federal income tax consequences and information reporting obligations. Under the PFIC rules, unless those shareholders made an election available under the Internal Revenue Code (which election could itself have adverse consequences for such shareholders, as discussed below under “Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Status and Significant Tax Consequences”), such shareholders would be liable to pay U.S. federal income tax upon excess distributions and upon any gain from the disposition of our common shares at the then prevailing income tax rates applicable to ordinary income plus interest as if the excess distribution or gain had been recognized ratably over the shareholder’s holding period of our common shares. Please see the section of this prospectus entitled “Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Status and Significant Tax Consequences” for a more comprehensive discussion of the U.S. federal income tax consequences to U.S. shareholders if we are treated as a PFIC.

 

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USE OF PROCEEDS

 

We estimate that we will receive net proceeds of approximately $         million from this offering (approximately $         million if the underwriters’ over-allotment option is exercised in full), in each case after deducting underwriting discounts and commissions and estimated expenses payable by us. These estimates are based on an assumed initial public offering price of $         per share (the mid-point of the price range on the cover of this prospectus).

 

We intend to use approximately $78 million of the net proceeds of this offering towards the purchase of our Newbuilding PSVs. We also plan to use a portion of the net proceeds of this offering towards the payment of outstanding debt under our Credit Facility. Amounts borrowed under the Credit Facility bear interest at an annual rate equal to LIBOR plus a margin of 2.50%, and the Credit Facility matures in December 2018. The outstanding borrowings of our Credit Facility have been used to finance the acquisition of our Initial Fleet, and we may borrow under our Credit Facility in the future to finance PSV acquisitions. We intend to use any remaining net proceeds of this offering for general corporate purposes, including vessel acquisitions, and working capital.

 

A $1.00 increase or decrease in the assumed initial public offering price of $         per common share would cause the net proceeds from this offering, after deducting the estimated underwriting discounts and commissions and offering expenses payable by us, to increase or decrease, respectively, by approximately $         million. In addition, we may also increase or decrease the number of common shares we are offering. Each increase of 1.0 million common shares offered by us together with a cocomitant $1.00 increase in the assumed public offering price to $         per common share, would increase net proceeds to us from this offering by approximately $         million. Similarly, each decrease of 1.0 million common shares offered by us would decrease the net proceeds to us from this offering by approximately $         million.

 

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CAPITALIZATION

 

The following table sets forth our capitalization:

 

   

on an actual basis, as of December 31, 2013; and

 

   

on an adjusted basis, to give effect to the amount borrowed under our Credit Facility, as of March 11, 2014; and

 

   

on an as further adjusted basis to give effect to the issuance of             common shares in this offering at an assumed initial public offering price of $         per share, which is the mid-point of the price range on the cover of this prospectus.

 

There have been no significant changes to our capitalization since December 31, 2013, as so adjusted. The information set forth in the table assumes no exercise of the underwriters’ over-allotment option. Please read “Risk Factors” beginning on page 13 for a more complete discussion of risks and uncertainties that should be considered before investing in common shares. You should read this capitalization table together with the section of this prospectus entitled “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes appearing elsewhere in this prospectus.

 

     Actual     As
Adjusted
    As
Further
Adjusted
     U.S. dollars in thousands

Debt

      

Credit Facility (1)

            40,000     

Total debt

            40,000     

Shareholders’ equity

      

Common shares, $0.01 par value outstanding actual (500 shares), as adjusted (16,666,666 shares) (2)

     167        167     
  

 

 

   

 

 

   

 

Additional paid-in capital

     243,224        243,224     
  

 

 

   

 

 

   

 

Retained deficit

     (70     (70  
  

 

 

   

 

 

   

 

Shareholders’ equity

     243,321        243,321     
  

 

 

   

 

 

   

 

Total capitalization

     243,321        243,321     

 

  (1)   The remaining availability under our Credit Facility is $20.0 million.
  (2)   The number of common shares outstanding immediately after the offering is based on 16,666,666 common shares outstanding as of December 31, 2013. This does not include the 833,333 warrants that were issued to NAT as part of the Private Placement that have an exercise price of $15.00 per share.

 

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SHARE PRICE INFORMATION

 

Our common shares have traded on the Norwegian OTC List since November 28, 2013 under the symbol “NAO.” We intend to apply to have our common shares listed for trading on the NYSE under the symbol “NAO.”

 

The following tables set forth the high and low prices for our common shares as reported on the Norwegian OTC List for the periods listed below. Share prices are presented in U.S. dollars per common share based on the Bloomberg Composite Rate on each day of measurement. On March 11, 2014, the exchange rate between the Norwegian Kroner and the U.S. dollar was NOK5.95 to one U.S. dollar based on the Bloomberg Composite Rate in effect on that date.

 

     Norwegian OTC List  
     High      Low  
     (U.S. dollars)      (U.S. dollars)  

March 2014 (through and including March 11, 2014)

   $ 17.56       $ 16.81   

February 2014

   $ 16.97       $ 15.97   

January 2014

   $ 17.56       $ 16.30   

December 2013

   $ 16.64       $ 15.63   

November 2013 (since November 28, 2013)

   $ 17.56       $ 16.64   

 

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DIVIDEND POLICY

 

We have not yet paid any dividends to holders of our common shares but we intend to adopt a policy of declaring quarterly dividends to shareholders as decided by our board of directors. The dividend to shareholders could be higher than the operating cash flow or the dividend to shareholders could be lower than the operating cash flow after reserves as our board of directors may from time to time determine are required, taking into account contingent liabilities, including the cost of drydockings, the terms of our Credit Facility, our other cash needs and the requirements of Marshall Islands law.

 

Until the shares become traded on an established securities market in the United States, any dividends paid by us will be treated as ordinary income to a U.S. shareholder, and may continue to be so treated even after we become publicly traded. Please see the section of this prospectus entitled “Taxation—U.S. Federal Income Tax Considerations—U.S. Federal Income Taxation of U.S. Holders—Distributions” for additional information relating to the U.S. federal income tax treatment of our dividend payments, if any are declared in the future.

 

In the event of a default or breach of covenants under our Credit Facility, we are restricted from paying dividends. Under such circumstances, we may not be able to pay dividends so long as we are in default or have breached certain covenants of our Credit Facility without our lenders’ consent or waiver of the default or breach. In addition, Marshall Islands law generally prohibits the payment of dividends (i) other than from surplus (retained earnings and the excess of consideration received for the sale of shares above the par value of the shares); (ii) when a company is insolvent or (iii) if the payment of the dividend would render the company insolvent.

 

In addition, we may incur expenses or liabilities, including extraordinary expenses, decreases in revenues, including as a result of unanticipated off-hire days or loss of a vessel, or increased cash needs that could reduce or eliminate the amount of cash that we have available for distribution as dividends. The PSV charter market is cyclical and volatile. We cannot predict with accuracy the amount of cash flows our operations will generate in any given period. Factors beyond our control may affect the charter market for our vessels and our charterers’ ability to satisfy their contractual obligations to us, and we cannot assure you that dividends will actually be declared or paid in the future. We are a recently formed company and have a limited performance record and operating history. Accordingly, it may take substantial time following the closing of this offering before it would be possible for us to pay any dividends in the future. We cannot assure you that we will be able to pay regular quarterly dividends, and our ability to pay dividends will be subject to the limitations set forth above and in the section of this prospectus titled “Risk Factors.”

 

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DILUTION

 

As of December 31, 2013, we had net adjusted tangible book value of $         million, or $ per share. After giving effect to the sale of             common shares at an initial offering price of $             per share, the mid-point of the price range on the cover page of this prospectus, deducting the estimated underwriting discounts and commissions and estimated offering expenses, and assuming that the underwriters’ over-allotment option is not exercised, the pro forma net adjusted tangible book value as of December 31, 2013 would have been $         million, or $         per share. This represents an immediate dilution in net tangible book value of $         per share to existing shareholders and an immediate accretion of net adjusted tangible book value of $         per share to new investors. The following table illustrates the pro forma per share accretion and dilution as of December 31, 2013:

 

Initial public offering price per share

   $                

Net adjusted tangible book value per share

   $     

Decrease in net adjusted tangible book value per share attributable to new investors in this offering

   $     

Pro forma net adjusted tangible book value per share after giving effect to this offering

   $     

Accretion per share to new investors

   $     

 

Adjusted net tangible book value per common share is determined by dividing our tangible net worth, which consists of tangible assets less liabilities, by the number of common shares outstanding. Dilution or accretion is the amount by which the offering price paid by the purchasers of our common shares in this offering will differ from the net tangible book value per common share after the offering. Accretion per share to new investors would be $         if the underwriters exercised their over-allotment option in full.

 

A $1.00 increase or decrease in the assumed initial public offering price of $         per common share would cause the adjusted net tangible book value to increase or decrease, respectively, by approximately $         million, or $         per common unit. In addition, we may also increase or decrease the number of common shares we are offering. Each increase of 1.0 million common shares offered by us would decrease the adjusted net tangible book value by approximately $         million or $         per common share. Similarly, each decrease of 1.0 million common shares offered by us would increase the adjusted net tangible book value by approximately $         million or $         per common share.

 

The following table summarizes, on a pro forma basis as of December 31, 2013, the differences between the number of common shares acquired from us, the total amount paid and the average price per share paid by the existing holders of common shares and by you in this offering.

 

    

Pro Forma Shares Outstanding

   Total Consideration    Average Price
Per Share
     Number    Percentage    Amount    Percentage   
     (Expressed in millions of U.S. dollars, except percentages and per share data)

Existing investors

              

New investors

              
  

 

  

 

  

 

  

 

  

 

Total

              

 

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SELECTED FINANCIAL DATA

 

We were formed on October 17, 2013 for the purpose of acquiring and operating platform supply vessels in the oil and gas exploration industry. The following table summarizes our selected financial data for the period from October 17, 2013 (inception) to December 31, 2013.

 

The following table should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited financial statements as of and for the period from October 17, 2013 (inception) to December 31, 2013 and related notes thereto included elsewhere in this prospectus. In accordance with standard shipping industry practice, we did not obtain from the seller historical operating data for the vessels that we acquired, as the data was not material to our decision to purchase the vessels. Accordingly, we have not included any historical financial data relating to the results of operations of our vessels from the period before acquisition of them. Please see the section of this prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Lack of Historical Operating Data for Vessels before their Acquisition.”

 

     From
October 17 (inception)
to December 31, 2013
 
     All figures in
thousands of USD
except share data
 

Charter revenues

     1,280   

Charter expenses

     (108

Vessel operating expenses—excl. depreciation expense presented below

     (686

General and administrative expenses

     (482

Depreciation expenses

     (262

Net operating loss

     (258
  

 

 

 

Interest income

     138   

Other financial income

     50   
  

 

 

 

Total other income

     188   
  

 

 

 

Income tax

       
  

 

 

 

Net loss and comprehensive loss

     (70
  

 

 

 

Basic loss per share

     (0.01

Diluted loss per share

     (0.01

Basic weighted average number of common shares outstanding

     8,772,166   

Diluted weighted average number of common shares outstanding

     8,772,166   

Other financial data:

  

Net cash provided (Used in) by operating activities

     (545

Selected Balance Sheet Data (at period end):

  

Cash and cash equivalents

     109,819   

Total assets

     245,382   

Total long-term debt

       

Common shares

     167   

Total shareholders’ equity

     243,321   

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with the “Selected Financial Data” and the accompanying financial statements and related notes included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Please read “Risk Factors” and “Forward-Looking Statements.” In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur.

 

We were incorporated in the Republic of the Marshall Islands on October 17, 2013. As of the date of this prospectus, we have issued and sold 16,666,666 common shares in a Norwegian private transaction exempt from registration under the Securities Act for net proceeds of $243.5 million. From these net proceeds, we have made payments aggregating $265.7 million in connection with the purchase contracts for our Initial Fleet, which includes six secondhand platform supply vessels, or PSVs. Our Initial Fleet was delivered to us during December 2013 and January 2014. In February 2014, we entered into two memoranda of agreement for two newbuilding PSVs to be delivered to us during January 2015, at the earliest, for approximately $44.0 million each, or our Newbuilding PSVs. We have made payments aggregating $8.9 million due under the memoranda of agreements for our Newbuilding PSVs. As of March 11, 2014, we have a cash balance of $4.9 million.

 

For the period from October 17, 2013 (inception) to December 31, 2013 our operations are comprised of charters for the three vessels delivered. Revenue generating activities for these vessels commenced from December 7, December 16 and December 18 respectively. General and Administrative expenses are charged since the time of inception, October 17, 2013, and includes charges for establishing and operating a corporate structure for six vessels. As such the net loss presented for the period from October 17, 2013 (inception) to December 31, 2013 is not indicative for our future operations and profitability.

 

Lack of Historical Operating Data for Vessels before their Acquisition

 

Also, consistent with shipping industry practice, other than inspection of the physical condition of the vessels and examinations of classification society records, neither we nor our affiliated entities conduct any historical financial due diligence process when we acquire vessels. Accordingly, neither we nor our affiliated entities have obtained the historical operating data for the vessels from the sellers because that information is not material to our decision to make acquisitions, nor do we believe it would be helpful to potential investors in assessing our business or profitability. Most vessels are sold under a standardized agreement, which, among other things, provides the buyer with the right to inspect the vessel and the vessel’s classification society records. The standard agreement does not give the buyer the right to inspect, or receive copies of, the historical operating data of the vessel. Prior to the delivery of a purchased vessel, the seller typically removes from the vessel all records, including past financial records and accounts related to the vessel. In addition, the technical management agreement between the seller’s technical manager and the seller is automatically terminated.

 

Acquisition and Operation of Vessels

 

Consistent with shipping industry practice, and after making considerations on applicable U.S. GAAP codification, we treat the acquisition of vessels (whether acquired with or without charter) from unaffiliated parties as the acquisition of an asset rather than a business. Our Initial Fleet and our Newbuilding PSVs were purchased from Blue Ship Invest AS, or BSI, a wholly owned subsidiary of Ulstein Shipping AS which is fully owned by the Ulstein Group ASA. At the time of purchase, the six vessels of the Initial Fleet that we acquired represented all of BSI’s operating vessels. Three of the six vessels had time charters at the time of delivery. Although vessels are generally acquired free of charter, upon acquisition, we entered into separate agreements, directly with the charterers, as the purchase of the vessels did not transfer the charters without the charterers’

 

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consent. The three remaining vessels were free of charter at the time of delivery. We may, in the future, acquire some vessels with time charters attached.

 

When we purchase a vessel and renegotiate a related time charter, we must take the following steps before the vessel will be ready to commence operations:

 

   

obtain the charterer’s consent to us as the new owner;

 

   

obtain the charterer’s consent to a new technical manager, if applicable;

 

   

obtain the charterer’s consent to a new flag for the vessel, if applicable;

 

   

arrange for a new crew for the vessel, if applicable;

 

   

replace all hired equipment on board, such as gas cylinders and communication equipment;

 

   

negotiate and enter into new insurance contracts for the vessel through our own insurance brokers;

 

   

register the vessel under a flag state and perform the related inspections in order to obtain trading certificates from the flag state;

 

   

implement a new planned maintenance program for the vessel; and

 

   

obtain new certificates for compliance with the safety and vessel security regulations of the flag state.

 

In connection with the acquisition of our Initial Fleet, we executed the tasks above, except for those instances highlighted as “if applicable” above. Management decided to enter into agreements with the same technical managers that were used by the seller and not to change flags of the vessels at the time of acquisition. Management may decide to change managers or flags at any point in time.

 

The following discussion is intended to help you understand how acquisitions of vessels affect our business and results of operations:

 

Our vessel operating business is comprised of the following main elements:

 

   

employment and operation of our vessels; and

 

   

management of the financial, general and administrative elements involved in the conduct of our business and ownership of our vessels.

 

The employment and operation of our vessels requires the following main components:

 

   

vessel maintenance and repair;

 

   

crew selection and training;

 

   

vessel spares and stores supply;

 

   

contingency response planning;

 

   

onboard safety procedures auditing;

 

   

accounting;

 

   

vessel insurance arrangement;

 

   

vessel chartering;

 

   

vessel hire management;

 

   

vessel surveying; and

 

   

vessel performance monitoring.

 

For our Initial Fleet, these operations will be instructed by management and carried out by our managers based on their respective agreements.

 

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The management of financial, general and administrative elements involved in the conduct of our business and ownership of our vessels requires the following main components:

 

   

management of our financial resources, including banking relationships, such as the administration of bank loans and bank accounts;

 

   

management of our accounting system and records and financial reporting;

 

   

administration of the legal and regulatory requirements affecting our business and assets; and

 

   

management of the relationships with our service providers and customers.

 

For our Company, these processes are handled by management and our manager, Scandic. For our Initial Fleet, these elements will be instructed by management and carried out by our managers based on their respective agreements.

 

The principal factors that affect our profitability, cash flows and shareholders’ return on investment include:

 

   

rates and periods of charter hire;

 

   

levels of vessel operating expenses;

 

   

depreciation expenses;

 

   

financing costs; and

 

   

fluctuations in foreign exchange rates.

 

Critical Accounting Policies

 

The discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The preparation of those financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

 

Critical accounting policies are those that reflect significant judgments or uncertainties, and potentially result in materially different results under different assumptions and conditions. We have described below what we believe are our most critical accounting policies.

 

Implications of Being an Emerging Growth Company

 

We had less than $1.0 billion in revenue during our last fiscal year, which means that we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

   

the ability to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in the registration statement for an initial public offering;

 

   

exemption from the auditor attestation requirement in the assessment of the emerging growth company’s internal controls over financial reporting;

 

   

exemption from new or revised financial accounting standards applicable to public companies until such standards are also applicable to private companies; and

 

   

exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and financial statements.

 

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We may take advantage of these provisions until the end of the fiscal year following the fifth anniversary of our initial public offering or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company if, among other things, we have more than $1.0 billion in “total annual gross revenues” during the most recently completed fiscal year. We may choose to take advantage of some, but not all, of these reduced burdens. For as long as we take advantage of the reduced reporting obligations, the information that we provide shareholders may be different from information provided by other public companies. We are choosing to “opt out” of the extended transition period relating to the exemption from new or revised financial accounting standards and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth public companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

The Following are Critical Accounting Policies We Have Adopted

 

Use of Estimates: Preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The effects of changes in accounting estimates are accounted for in the same period in which the estimates are changed.

 

Revenue and Expense Recognition: Revenues and expenses for spot charters and time charters are recognized on the accruals basis. Revenues are generated from time charters and spot charters.

 

Charter revenues and expenses are recognized on a straight line basis over the duration of the contract with the charterer and, therefore, may be allocated between reporting periods based on the relative transit time in each period. The impact of recognizing charter expenses ratably over the length of each contract, if any, is not materially different on a quarterly and annual basis from a method of recognizing such costs as incurred. Probable losses on contracts are provided for in full at the time such losses can be estimated.

 

Accounting for Acquisition of Vessels: The Company performs analysis of the acquisition of a vessel in context of ASC 805, which defines a business for accounting principles generally accepted in the United States. The codification defines a business as “an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members or participants.” Furthermore, subtopic ASC 805-10-55 provides implementation guidance to identify what constitutes a business. The Company considers each element of a business described in the subtopic (i.e. inputs, processes and outputs). A PSV is considered to be an input that is an economic resource in the form of a long-lived asset that has the ability to create outputs when processes are applied to it in the form of strategic, operational and resource management processes. The Company will try to identify any processes that were transferred from the seller with the vessel. If no processes are identified, and the Company accordingly is unable to identify any outputs, then the acquisition of the vessels from an unaffiliated party will be accounted for as an acquisition of an asset.

 

Vessels, Net: Vessels are stated at their historical cost, which consists of the contracted purchase price and any direct expenses incurred upon acquisition (including improvements, on site supervision expenses incurred during the construction period, commissions paid, delivery expenses and other expenditures to prepare the vessel for its initial voyage) less accumulated depreciation. Financing costs incurred during the construction period of the vessels are also capitalized and included in vessels’ cost based on the weighted-average method. Certain subsequent expenditures for conversions and major improvements are also capitalized if it is determined that they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the vessel. Depreciation is calculated based on cost less estimated residual value, and is provided over the estimated useful life of the related assets using the straight-line method. The estimated useful life of a vessel is 25 years from the date the vessel is delivered from the shipyard. Repairs and maintenance are expensed as incurred.

 

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Drydocking: The Company’s vessels are required to be drydocked approximately every 60 months. The Company will capitalize a substantial portion of the costs incurred during drydocking, and amortize those costs on a straight line basis from the completion of a drydocking or intermediate survey to the estimated completion of the next drydocking. For the vessels acquired an estimated drydock cost of $200,000 has been allocated from the purchase price, and is depreciated over five years.

 

Impairment of Long-Lived Assets: The Company reviews for impairment long-lived assets held and used whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In this respect, the Company reviews its assets for impairment on an asset by asset basis. When the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, the Company evaluates the asset for impairment loss. The impairment loss is determined by the difference between the carrying amount of the asset and fair value (calculated based on estimated discounted operating cashflow). In developing estimates of future undiscounted cash flows, the Company makes assumptions and estimates about the vessels’ future performance, with the significant assumptions being related to charter rates, fleet utilization, operating expenses, capital expenditures, residual value and the estimated remaining useful life of each vessel. The assumptions used to develop estimates of future undiscounted cash flows are based on historical trends as well as future expectations. The estimated net operating cash flows are determined by considering an estimated daily charter rate for the remaining operating days. The Company estimates the daily charter rate for the remaining operating days based on the historical average for similar vessels and utilizing available market data for current charter rates over the remaining estimated life of the vessel, assumed to be 25 years from the delivery of the vessel from the shipyard, net of brokerage commissions, expected outflows for vessels’ maintenance and vessel operating expenses (including planned drydocking expenditures). The residual value used in the impairment test is estimated to be $1.5 million per vessel. If the Company’s estimate of undiscounted future cash flows for any vessel is lower than the vessel’s carrying value, the carrying value is written down, by recording a charge to operations, to the vessel’s fair market value if the fair market value is lower than the vessel’s carrying value. Fair market value is calculated based on estimated discounted operating cashflow.

 

As of December 31, 2013, the Company has evaluated whether there are any circumstances indicating that the carrying amount of its assets may not be recoverable. The vessels are newly acquired, and the charter rates have improved from the point of acquisition to the start of 2014. This has been demonstrated by improved rates for the Company’s vessels in the spot-market with renewed charters. When circumstances arise that indicate that the carrying value may not be recoverable the Company will perform estimates of undiscounted cash flows as described in the paragraph above.

 

As of December 31, 2013, the estimated market value of each of our vessels was greater than its carrying value.

 

A summary of significant accounting policies can be found in the financial statements and related notes, which form a part of this prospectus.

 

Liquidity and Capital Resources

 

Sources and Uses of Funds; Cash Management

 

We purchased six secondhand PSVs and we entered into two memoranda of agreement for two newbuilding PSVs to be delivered to us during January 2015, at the earliest, for approximately $44.0 million each, or our Newbuilding PSVs. Our Initial Fleet was delivered to us during December 2013 and January 2014. Our business is capital intensive and we intend to pay for these vessels with a combination of proceeds from the sale of our common shares and borrowings under one or more secured credit facilities, which will be collateralized by the vessels in our Initial Fleet. We anticipate that such credit agreements will bear interest based on LIBOR. Between November 15, 2013 and November 18, 2013, we issued and sold 16,666,666 common shares, par value $0.01 per share, in a Norwegian private transaction exempt from registration under the Securities Act for net proceeds of $243.5 million.

 

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We expect to rely on operating cash flows as well as long-term borrowings under secured credit facilities and future equity offerings to implement our growth plan and dividend policy. On December 19, 2013, we entered into a revolving credit facility with DNB Bank ASA and Skandinaviska Enskilda Banken AB for up to $60.0 million, or our Credit Facility. Amounts borrowed under the Credit Facility bear interest at an annual rate equal to LIBOR plus a margin of 2.50% and the Company pays a commitment fee of 1% on any undrawn amounts. The maximum potential commitment fee payable on undrawn amounts is $600,000. The Credit Facility matures in December 2018. We have currently drawn down $40.0 million on the Credit Facility. The proceeds of our Credit Facility are expected to fund general corporate purposes as well as the purchase of PSVs. Four vessels from our Initial Fleet have been pledged as security under our Credit Facility. We believe that our current cash balance as well as operating cash flows and available borrowings under our Credit Facility will be sufficient to meet our liquidity needs for the next twelve months.

 

Our Credit Facility contains financial covenants which require us, among other things, to:

 

   

maintain minimum liquidity of the higher of either $10.0 million or $1.0 million per vessel that we operate;

 

   

maintain a minimum value adjusted equity amount of $135,000,000;

 

   

maintain a minimum value adjusted equity ratio of 45%; and

 

   

at all times maintain positive working capital on a consolidated basis.

 

Our Credit Facility also contains covenants which may limit, among other things, our ability to:

 

   

pay dividends to shareholders;

 

   

incur additional indebtedness, create liens or issue guarantees;

 

   

sell, transfer or lease certain of our assets or vessels;

 

   

make investments or capital expenditures;

 

   

reduce our share capital; and

 

   

undergo certain changes of more than 50% in our ownership, or a change in commercial manager.

 

Dividend Policy

 

We have not yet paid any dividends to holders of our common shares but we intend to adopt a policy of declaring quarterly dividends to shareholders as decided by our board of directors. The dividend to shareholders could be higher than the operating cash flow or the dividend to shareholders could be lower than the operating cash flow after reserves as our board of directors may from time to time determine are required, taking into account contingent liabilities, including the cost of drydockings, the terms of our Credit Facility, our other cash needs and the requirements of Marshall Islands law. Please see the section of this prospectus entitled “Dividend Policy.”

 

Prospective Financial Information

 

The Company does not as a matter of course make public projections as to future charter revenue, earnings, or other results. However, the management of the Company has prepared the prospective financial information set forth below to present the investor with an estimate of what amount of average daily revenue our vessels would need to earn in order to cover our vessel operating expenses and all other cash expenses, including interest expenses and general and administrative expenses. The accompanying prospective financial information was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of the Company’s management, was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of management’s knowledge and belief, the expected

 

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course of action and the expected future financial performance of the Company. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this registration statement are cautioned not to place undue reliance on the prospective financial information.

 

Neither the Company’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information.

 

The assumptions and estimates underlying the prospective financial information are inherently uncertain and, though considered reasonable by the management of the Company as of the date of its preparation, are subject to a wide variety of significant business, economic, and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the prospective financial information, including, among others, risks and uncertainties, including the following: lack of operating history and other factors described in “Risk Factor” section of the registration statement. Accordingly, there can be no assurance that the prospective results are indicative of the future performance of the Company or that actual results will not differ materially from those presented in the prospective financial information. Inclusion of the prospective financial information in this registration statement should not be regarded as a representation by any person that the results contained in the prospective financial information will be achieved.

 

The Company does not generally publish its business plans and strategies or make external disclosures of its anticipated financial position or results of operations. Accordingly, the Company does not intend to update or otherwise revise the prospective financial information to reflect circumstances existing since its preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error. Furthermore, the Company does not intend to update or revise the prospective financial information to reflect changes in general economic or industry conditions.

 

Additional information relating to the principal assumptions used in preparing the projections is set forth below.

 

Expected Break-Even Rates

 

The cash break-even rate is the average daily revenue our vessels would need to earn in order to cover our vessel operating expenses and all other cash expenses, including interest expenses and general and administrative expenses. The average duration of the contracts (including options) are just over two years with rates between $25,000 and $29,000 per day per vessel. We expect our cash break-even rate to be about $12,000 per day. This is based on our budget for vessel operating expenses of $10,000 per day based upon budgets that were provided to us by Atlantic Offshore Management AS and Remøy Shipping AS, and estimated general and administrative costs and financial expenses of approximately $2,000 per day, which is based on estimated fees associated with salaries of administrative personnel, technology costs, advertising costs, travel costs and other administrative costs. These estimates were made based on our current financing and plans for operation of the Company.

 

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Contractual Obligations

 

The following table sets forth our estimated commitments and obligations at of the date of this prospectus.

 

Contractual Obligations

(in millions)

   Total      Less than
1 year
     1-3 years      3-5 years      More than
5 years
 

Newbuilding PSVs (1)

     79.2         79.2                           

Long-Term Debt Obligation (2)

     40.0                         40.0           

Interest Payments (3)

     5.4         1.1         3.2         1.1           

Commitment Fees (4)

     2.0         0.4         1.2         0.4           

Success Fee (5)

     1.5         1.5                           
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     128.1         82.2         4.4         41.5           
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (1)   Refers to the outstanding amounts due under the memoranda of agreement for our Newbuilding PSVs.
  (2)   Refers to our obligation to repay indebtedness outstanding under the Credit Facility.
  (3)   Refers to estimated payments over the term of the indebtedness outstanding under the Credit Facility.
  (4)   Refers to estimated commitment fees over the term of the indebtedness outstanding under the Credit Facility.
  (5)   Refers to success fee which is contingent on stock listing of the Company at the NYSE.

 

This table does not include commercial, operational and technical management fees and expenses, which are approximately $340,000 per vessel per year.

 

The success fee is payable to NAT at the time of listing on the NYSE, NAT will distribute the compensation to the members of management and employees of NAT for successfully establishing the Company.

 

Quantitative and Qualitative Disclosures About Market Risk

 

Our activities expose us primarily to the financial risks of changes in foreign currency exchange rates and interest rates as described below.

 

Interest Rate Risk: We are exposed to market risk from changes in interest rates related to the variable rate of borrowings under our Credit Facility. Amounts borrowed under the Credit Facility bear interest at a rate equal to LIBOR plus a 2.50%. Increasing interest rates could affect our future profitability. In certain situations, the Company may enter into financial instruments to reduce the risk associated with fluctuations in interest rates. The Company had no long term debt as of December 31, 2013.

 

Foreign Currency Exchange Risk: Charter revenues and charter expenses generated in for the period from October 17, 2013 (inception) to December 31, 2013 for the three delivered vessels were in Norwegian Kroner. For accounting purposes, expenses and revenue incurred or generated in currencies other than U.S. dollars are converted in U.S. dollars at the exchange rate prevailing on the date of each transaction. Because a portion of our revenues and expenses may be incurred in currencies other than the U.S. dollar, our revenues or expenses may from time to time increase relative to each other as a result of fluctuations in exchange rates, which could affect the amount of net income that we report in future periods. As of December 31, 2013, the net effect of a 1% adverse movement in U.S. dollar exchange rates would not have a material effect on our operating results.

 

We do not currently hedge movements in currency exchange rates, but our management monitors exchange rate fluctuations on a continuous basis. We may seek to hedge this currency fluctuation risk in the future.

 

Concentration of Credit Risk: Our PSVs are used for transporting supplies and equipment to and from offshore installations such as drilling rigs in the North Sea. The charterers consist of major oil companies. For the period from October 17, 2013 (inception) to December 31, 2013, Statoil Petroleum AS accounted for all of our total revenues.

 

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INDUSTRY AND MARKET CONDITIONS

 

The market for offshore support vessels, or OSVs, traditionally comprised of platform supply vessels, or PSVs, and anchor handling tug supply vessels, or AHTSs, is driven by the supply and demand activity in the offshore oil rig and platform sector, and the availability of OSVs. PSVs are designed to transport supplies to offshore oil rigs and platforms, and typically return with different types of waste generated from the drilling process. PSVs are versatile vessels and are employed throughout the offshore sector, assisting in various segments such as subsea construction and pipelaying. AHTSs are designed to handle anchors for offshore oil rigs, to tow rigs to location, as well as to transport supplies and equipment.

 

The number of PSVs required per rig varies depending on the type of rig, but the increasingly utilized ultra deepwater floating rig, generally requires two to four PSVs per rig. PSVs are generally characterized as small or large based on whether the deadweight ton capacity, or dwt, of the vessel is below or above 3,000 dwt. Global demand for PSVs has mainly been for large high-end vessels, as exploration drilling moves to deeper waters in more remote and demanding regions.

 

Demand for offshore assets generally tends to fluctuate with the level of offshore exploration and production spending, or E&P spending, carried out by the major oil companies. This also holds true for PSVs, however, historically, demand for these vessels has been more robust during downturns, as many are on long term contracts and a lot of the work they carry out is related to operational expenditure, which generally fluctuates less than capital expenditure. Since the early 2000s, E&P spending has increased significantly, growing by about 10% per year on average, primarily as a result of oil companies pursuing hydrocarbons in more remote areas and deeper waters, as most oil supplies found in easier drilling conditions have already been discovered and are being utilized. This has had a positive effect on the demand for PSVs as well, which in the same period, have seen average annual growth of around 6%. Furthermore, larger and newer PSVs have seen an even more robust demand development of around 14% growth per year for the period from 2005 to 2013, as oil companies have shown a preference for PSVs with a larger size and a younger age. During this same period, the PSV market has also seen an unprecedented amount of newbuilding activity, which we believe has led to substantial fleet growth in order to supply the increasing demand from oil companies. Since 2000, utilization for PSVs has generally remained between 85% and 90%, with the exception of the 2009/10 and 2010/11 winter seasons, when a continued influx of newbuilds ordered before the financial crisis of 2008, coupled with a slowdown in demand growth, brought utilization into the 70% to 79% range. Over the course of 2011, utilization improved in the PSV market, as increasing offshore activity continued to fuel demand, however, continued high fleet growth hampered any significant day rate improvement.

 

PSVs that are designed to operate in the North Sea differentiate themselves from other vessels that operate globally in a number of ways. First, operations in the North Sea generally require larger PSVs, typically PSVs that are greater than 3,500 dwt, due to the harsh environment in the North Sea, which contains large waves that are challenging for smaller vessels. Secondly, there are higher safety requirements for vessels that operating in the North Sea, which results in greater technological equipment included on the vessels such as more advanced dynamic positioning capabilities. Other requirements and preferences related to vessels that operate in the North Sea include more single cabins, greater oil recovery capabilities, greater standby capabilities and more advanced fire-fighting capabilities. Furthermore, vessels operating in the North Sea usually have the highest quality equipment providers, which may further differentiate them from globally operational vessels. These differences tend to increase the price of PSV newbuilds designed to operate in the North Sea when compared to vessels not designed for harsh climates.

 

We believe that trends discussed in this prospectus are indicative of trends in the orderbook of specialized PSVs because North Sea PSVs are typically constructed at Norwegian or European yards and currently only 9% of the European PSV fleet was built outside of Europe. This is a result of the fact that vessels constructed in other parts of the world generally do not meet the requirements of Norwegian charterers, including vessel specifications and the necessary quality level for the equipment. As such, we believe that the most relevant indicator for growth in supply of PSVs in the North Sea is the European newbuild orderbook, which is currently at an eight-year low.

 

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In 2013, the general market for OSVs strengthened substantially, especially for large PSVs in the North Sea spot market, where utilization was around 90% for the year. During the traditionally strong summer season, the PSV market was essentially sold out and day rates almost doubled as compared to those in 2012. This positive development was primarily caused by increased demand, as activity on both new and mature oil fields was high during the year.

 

In addition to solid activity in the North Sea, we believe that escalation of demand has positively influenced the global market in other areas, such as West Africa, which has experienced PSV fleet growth of approximately 18% and 19% in 2012 and in 2013, respectively. In 2013, West Africa drew 16 vessels out of the North Sea fleet, which is currently comprised of 224 vessels with greater than 3,000 dwt capacity. While the Brazilian rig count, historically one of the most important drivers of OSV demand, has not grown in recent years due to disappointing discoveries. However, we believe that a growing installed base of floating production and offloading units, or FPSOs, along with increased project activity will continue to elevate demand for PSVs. Furthermore, increased frontier drilling in the Barents Sea has had a positive effect on the demand for PSVs, as lack of infrastructure in the region augments the number of PSVs required per rig and the length of time for which each PSV is required.

 

Operations in the North Sea, an important driver of OSV demand, declined in 2012, contributing to last year’s poor summer season. Generally, 2012 was relatively weak in the spot market as offshore activity was lower than expected and there was a continued influx of newbuild PSVs in the market, which applied pressure on spot rates during the year. Demand has improved significantly in 2013 and we believe that this development will continue into 2014, as large companies prepare for subsea projects in the coming year. Two large FPSO installations may take place next year in the Barents Sea and North Sea, respectively, which will draw on PSV capacity. We further expect the number of working rigs in Northwest Europe to increase by approximately 12% per annum in the coming years, implying increased exploration and appraisal drilling and continued growth in demand for PSVs. In 2013, exploration and appraisal drilling rebounded to 55 wells from the low of 42 wells reached during 2012. We believe this development will continue into 2014 and 2015 as interest grows for frontier drilling in the Barents Sea, the Arctic regions and potentially offshore Greenland. Preliminary estimates suggest that 15 wells will be drilled in the Barents Sea in 2014 and 2015, compared to the six wells drilled in 2012 and nine in 2013. In the Russian Arctic during 2014, some oil companies are planning to launch a multi-seasonal drilling campaign in the Kara Sea, which will be highly OSV intensive and require large high-end vessels that will need to be drawn from the North Sea fleet. Previous drilling campaigns offshore of Greenland required 12 to 14 vessels to support two rigs, also taken from the North Sea pool of vessels. We also believe that there is at least one new campaign being considered offshore of Greenland of approximately 3 months during 2014 and 2015. We believe that the recent announcements of oil discoveries offshore Newfoundland could lead to more Arctic campaigns during 2015 and beyond. Furthermore, we believe Nova Scotia and Canada will receive renewed interest from other exploration and production companies.

 

As drivers of PSV demand continue to point upwards, the ordering of newbuildings has decreased along with the orderbook. The PSV sector has in previous years been haunted by high newbuilding activity, often on speculative terms. Thus, we believe it is important to emphasize that expected PSV newbuilding orders could slip 40% and 30% in 2013 and 2014, respectively, as approximately 50% of vessels on order are being built at Asian yards, many of which have little or no experience building PSVs. The European orderbook is currently at an eight year low, and we further expect few of the vessels coming from Asian yards to have specifications suitable for harsh environments such as the North Sea and Arctic regions. Though the PSV orderbook has come down, the orderbook for drilling rigs, traditionally a leading indicator for future PSV demand, is at an all-time high, implying fewer PSVs available per rig going forward. The reason the drilling rig orderbook is at an all-time high is because the rig market has experienced a period of abnormally high profitability, which has spurred further rig orders. As the PSV market has not experienced the same period of abnormal profitability, this has dampened the demand to build new vessels and combined with the rig orderbook, the Company believes this indicates that the demand for PSVs should rise going forward.

 

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The demand for PSVs has increased since 2012 and we expect continued improvements in the market for PSV operators going into 2014. As the growth in the rig count is expected to outpace the growth of the PSV fleet in the coming years, we believe that the demand for PSVs will increase and dayrates will improve. Additionally, we believe there will be higher demand for PSVs in the North Sea market during 2014 as more vessels leave the North Sea for West Africa and other regions, and as companies engage in more frontier drilling activities in the Barents Sea and the Arctic regions.

 

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BUSINESS

 

History and Development of the Company

 

Nordic American Offshore Ltd. was established on October 17, 2013 under the laws of the Republic of the Marshall Islands for the purpose of acquiring and operating platform supply vessels, or PSVs, with an initial focus of operations in the North Sea. PSVs are used for transporting supplies and equipment to and from offshore installations such as drilling rigs. During November 2013, we issued and sold 16,666,666 common shares, par value $0.01 per share, in a Norwegian private transaction exempt from registration under the Securities Act for net proceeds of $243.5 million. In November 2013, we purchased six secondhand PSVs for an aggregate purchase price of approximately $265.7 million. We refer to these six vessels as our Initial Fleet. Our Initial Fleet was delivered to us during December 2013 and January 2014. In February 2014, we entered into two memoranda of agreement for two newbuilding PSVs to be delivered to us during January 2015, at the earliest, for approximately $44.0 million each, or our Newbuilding PSVs. The PSV market is driven by the supply and demand activity in the offshore oil rig and platform sector and the availability of PSVs. The current orderbook for drilling rigs indicates record growth in the drilling rig fleet going forward, which may increase demand and create more opportunity for PSVs. As of the date of this prospectus, three of the PSVs from our Initial Fleet have time charters attached to them that are scheduled to expire, at the earliest, in November 2014, February 2015 and April 2018. The remaining vessel trades in the spot market.

 

Our Initial Fleet and our Newbuilding PSVs were purchased from Blue Ship Invest AS, or BSI, a wholly owned subsidiary of Ulstein Shipping AS which is fully owned by the Ulstein Group ASA. At the time of purchase, the six vessels of the Initial Fleet that we acquired represented all of BSI’s operating vessels. Three of the six vessels had time charters at the time of delivery. Upon acquisition, we entered into separate agreements, directly with the charterers, as the purchase of the vessels did not transfer the charters without the charterers’ consent. The three remaining vessels were free of charter at the time of delivery.

 

Following the completion of this offering, we expect to have $         million of available cash from the net proceeds of this offering, based on an initial public offering price of $         per share (the mid-point of the price range on the cover of this prospectus). As of the date of this prospectus, we have paid a total of $265.7 million due under the purchase contracts for our Initial Fleet and $8.9 million due under the memoranda of agreement for our Newbuilding PSVs. We plan to use a portion of the net proceeds from this offering and the net proceeds from future equity or debt offerings or both, together with the amounts we expect to be available to us under our Credit Facility, as defined below, to fund the Newbuilding PSVs. Our fleet currently operates exclusively in the North Sea. Our intention is to acquire additional PSVs and develop a fleet that can expand its activities in the North Sea and to the Barents Sea as well as broaden its focus, in the longer term, to other areas such as West Africa, the Gulf of Mexico and Brazil. We currently have a five-year horizon to consider expanding outside of the North Sea and the Barents Sea. The main factors for our deciding to expand to other regions will be our level of success operating vessels in the North Sea and the Barents Sea, market conditions and the global demand for PSVs. The timing of these acquisitions has not been decided.

 

On December 19, 2013 we entered into a revolving credit facility with DNB Bank ASA and Skandinaviska Enskilda Banken AB for up to $60.0 million, or our Credit Facility. Amounts borrowed under the Credit Facility bear interest at an annual rate equal to LIBOR plus a margin of 2.50% and the Company pays a commitment fee of 1.00% on any undrawn amounts. The proceeds of our Credit Facility are expected to fund general corporate purposes as well as the purchase of PSVs. Four vessels from our Initial Fleet have been pledged as security under our Credit Facility.

 

Business Overview

 

Our primary objectives are to profitably grow our business and emerge as a successful owner and operator of PSVs. We intend to leverage the relationships, expertise and reputation of Nordic American Tankers Ltd., or NAT, and the NAT Group of companies to manage, service and employ our fleet and to identify opportunities to expand our fleet through newbuildings and selective acquisitions.

 

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Our Relationship with Nordic American Tankers Limited

 

NAT is engaged in seaborne transportation of crude oil products in the international shipping markets. As of the date of this prospectus, its fleet consisted of 20 modern wholly owned Suezmax tankers.

 

We believe that one of our principal strengths is our relationship with NAT and the NAT group of companies, which includes NAT’s wholly owned subsidiaries Scandic American Shipping Ltd., or Scandic, and Orion Tankers Ltd., or Orion, or collectively, the NAT Group. We have entered into a management agreement with Scandic for the supervision of the functions related to operating our PSVs and as interim provider of commercial management services. NAT, the parent company of Scandic, also owns approximately 26% of our outstanding common shares. We expect our relationship with NAT and the NAT Group of companies will give us access to their relationships with major international charterers, lenders and oil companies. We will also have access to the NAT Group’s technical, commercial and managerial expertise, which we believe will allow us to compete more effectively and operate our vessels on a cost-efficient basis.

 

In addition to our relationship with NAT itself, we believe there are opportunities for us to benefit from operational, chartering and shipyard-based synergies from our broader relationship with the NAT Group of companies, which includes Scandic. Scandic supervises the commercial and technical management of the 20 vessels owned by NAT and provides us with similar services for our PSVs.

 

Our Executive Chairman and Interim Chief Executive Officer, Herbjørn Hansson, has been involved in the shipping and the offshore industries for nearly 40 years. He is also the founder and has been the Chairman and Chief Executive Officer of NAT since its establishment in 1995.

 

We can provide no assurances that we will realize any benefits from our relationship with NAT or the NAT Group.

 

Competitive Strengths

 

We believe that we possess a number of competitive strengths in our industry, including:

 

Attractive Initial Fleet. Our Initial Fleet is comprised of six high-quality PSVs with an average age of 0.9 years and an aggregate carrying capacity of 25,242 dwt. We believe that it is an opportune time to acquire PSVs because PSVs are primarily used for servicing drilling rigs and the orderbook for such drilling rigs is at an all-time high. Also, utilization rates of PSVs is on an upward trend with average year-to-date levels of 92%, which are approaching peak usage rates of 95% from 2007.

 

Significant Available Liquidity to Pursue Acquisition and Expansion Opportunities. Following the completion of this offering, we expect to have $         million of available cash, including net proceeds of $         million from this offering based on an assumed initial public offering price of $         per share. We intend to use our available cash and borrowing capacity under the Credit Facility to pursue vessel acquisitions, including the acquisition of our Newbuilding PSVs, consistent with our business strategy. We believe that the current state of our balance sheet, financing capacity and future access to capital will allow us to make opportunistic acquisitions at attractive prices.

 

Experienced Management Team with an Established Track Record in the Public Market. Our management team has considerable depth of shipping and offshore industry expertise. Since 2004, under the leadership of the board of directors of NAT, including Herbjørn Hansson, our Executive Chairman and Interim Chief Executive Officer, NAT has grown from an owner of three vessels in 2004 to an owner of 20 vessels as of the date of this prospectus. Ms. Turid M. Sørensen, our Chief Financial Officer, also holds a senior management position within NAT and has more than 29 years of experience in the shipping industry and has formerly worked for Skaugen PetroTrans Inc., Ugland Nordic Shipping ASA and Teekay Norway AS.

 

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Access to Attractive Acquisition and Chartering Opportunities. We believe that NAT’s global relationships with shipping companies, charterers, shipyards, brokers, major oil companies and commercial shipping lenders will provide us with a commercial advantage in accessing attractive asset acquisitions, chartering and vessel financing opportunities. In addition, we believe that NAT’s reputation as a creditworthy counterparty and proven ability to raise capital and execute vessel purchase transactions in a timely manner will provide us with access to acquisition opportunities on attractive terms.

 

Vessel Opportunities with Major Oil Companies. We believe that the NAT Group’s experience with the management of vessels and its reputation in the industry as an operator with high safety and quality operating standards will be important in establishing and retaining charters with major oil companies that are looking for reliable and responsible operators to meet their exacting standards for vessel chartering and day-to-day operations.

 

Our Business Strategies

 

Our primary objectives are to profitably grow our business and achieve success as an owner and operator of PSVs. The key elements of our strategy are:

 

Expanding Our Fleet Through Opportunistic Acquisitions of High-quality Vessels at Attractive Prices. We intend to acquire additional modern secondhand PSVs and develop a fleet that can expand its activities in the North Sea and to the Barents Sea as well as broaden its focus, in the longer term, to other areas such as West Africa, the Gulf of Mexico and Brazil. We currently have a five-year horizon to consider expanding outside of the North Sea and the Barents Sea. The main factor for our expansion to other regions will be our level of success operating vessels in the North Sea and the Barents Sea and the market conditions and the global demand for PSVs. We have maintained a strong relationship with Ulstein Shipping AS, or Ulstein, an unrelated party, which holds 4% of our outstanding common shares, which is known for developing highly advanced vessels for offshore segments. When evaluating acquisitions, we will consider and analyze, among other things, our expectation of fundamental developments in the offshore oil and gas exploration industry, the level of liquidity in the resale and charter market, the cash flow earned by the vessel in relation to its value, its condition and technical specifications, expected remaining useful life, the credit quality of the charterer and duration and terms of charter contracts for vessels acquired with charters attached. We believe that these circumstances combined with our management’s knowledge of the shipping industry and our relationship with Ulstein presents an opportunity for us to grow our fleet at favorable prices.

 

Optimizing Vessel Revenues through a Combination of Time Charters and Spot Market Exposure. We intend to employ a chartering strategy to capture upside opportunities in the spot market while using fixed-rate time charters as the charter market improves, to reduce downside risks and increase cash flows and future dividend capacity. We believe that a strategy of mixed employment of our vessels through the spot market and fixed time charters will create the most sustainable form of revenue growth for our Company.

 

Focusing on Platform Supply Vessels Based on the Experience and Expertise of Our Management Team in the International Offshore and Shipping Industries . We believe that major international drilling rig and oil exploration companies seek transportation partners that are financially stable and have a reputation for reliability, safety and high environmental and quality standards. We intend to leverage the operational expertise and customer base of the NAT Group and the members of our management team in order to further expand these relationships with consistent delivery of superior customer service.

 

Reducing Operating and Corporate Expenses. Pursuant to the management agreement that we have entered into, Scandic will have the daily administrative responsibility and supervise the Company’s functions to ensure that strategies set by our board of directors are followed. We believe that Scandic will be able to provide these services at costs that are lower than what we could achieve by performing these functions in-house.

 

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Maintain a Balance Sheet with a Moderate use of Leverage. We plan to finance our Initial Fleet, Newbuilding PSVs and future vessel acquisitions with a mix of debt and equity, but intend to maintain moderate levels of leverage over time, in an amount not to exceed approximately 20% of the carrying value of the Company’s vessels, collateralizing its indebtedness on a consolidated basis, even though we may have the capacity to obtain additional financing. By maintaining moderate levels of leverage, we expect to retain greater flexibility than our more leveraged competitors to operate our vessels under shorter spot or period charters. Charterers have increasingly favored financially solid vessel owners, and we believe that our balance sheet strength following this offering will enable us to access more favorable chartering opportunities, as well as give us a competitive advantage in pursuing vessel acquisitions from commercial banks and shipyards, which have also recently displayed a preference for contracting with well capitalized counterparties.

 

Our Fleet

 

The following table summarizes key information about our Initial Fleet as of the date of this prospectus:

 

Vessel Name

   Year
Built
    

Type of Charter/

Charterer

   Capacity
(dwt)
     Cargo Deck
Area

(sq. meters)
     Delivered to
NAO
   Earliest/Latest
Charter Expiration

Blue Fighter

     2012       Time Charter/Apache North Sea Limited (1)      4,200         850       January 2014    February 2015 /
February 2016

Blue Prosper

     2012       Time Charter/Apache North Sea Limited (1)      4,242         850       January 2014    November 2014 /
November 2015

Blue Power

     2013       Time Charter/BG International Limited (2)      4,200         850       January 2014    April 2018/

April 2020

Blue Thunder

     2013       Spot Charter/Statoil Petroleum AS (3)      4,200         850       December 2013    July 2014/
December 2014

Blue Guardian

     2013       Spot Charter/Statoil Petroleum AS (3)      4,200         850       December 2013    July 2014/

January 2015

Blue Protector

     2013       Spot Charter/Statoil Petroleum AS (4)      4,200         850       December 2013    July 2014/

October 2014

 

  (1)   This charter agreement contains one optional extension period of one year that must be exercised by the charterer 30 days before the end of the charter period.
  (2)   This charter agreement contains two optional extension periods of one year each that must be exercised by the charterer 90 days before the end of the charter period.
  (3)   This charter agreement contains two optional extension periods of three months each that must be exercised by the charterer one month before the end of the charter period.
  (4)   This charter agreement contains three optional extension periods of one month each that must be exercised by the charterer one month before the end of the charter period.

 

Employment of Our Fleet

 

Three of the vessels in our Initial Fleet are currently employed on time charters with firm commitment periods and the remaining three vessels in our Initial Fleet are employed in the spot market, which we believe provides us with the benefits of stable cash flows and high utilization rates, while enabling us to capture increased profit margins during periods of improvements in PSV charter rates. Our Initial Fleet is currently employed by and is providing services for Apache North Sea Limited, BG International Limited and Statoil Petroleum AS. The average duration of the contracts (assuming options are exercised) is just over two years with rates between $25,000 and $29,000 per day per vessel. The contractual charter rates are in British Pounds and Norwegian Kroner. Because our charter revenue is paid in currencies other than the U.S. dollar, our average charter rate may from time to time increase our decrease as a result of fluctuations in exchange rates.

 

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Management of Our Business

 

The technical management of our vessels is provided by independent vessel management companies under the supervision of Scandic. Scandic also provides all general and administrative services including all services relating to the capital markets. In the interim period, Scandic has also provided commercial management services until we hire a new chief executive officer and chartering manager. Upon the appointment of these officers, we plan to have management provide our commercial management services. The ship management firms Atlantic Offshore Management AS and Remøy Shipping AS provide technical management services for our Initial Fleet. We are currently in a 90-day notice period for the termination of the technical management services agreement with Atlantic Offshore Management AS. We plan to appoint Remøy Shipping AS as the technical manager of all of the vessels of our Initial Fleet after the expiration of this notice period.

 

The compensation paid to Scandic and to the technical management companies are in accordance with industry standards. For further information, please see the financial statements and related notes which form a part of this prospectus.

 

Officers and Crewing

 

We currently have three employees. Our technical managers, Atlantic Offshore Management AS and Remøy Shipping AS, will be responsible for identifying, screening and recruiting, directly or through a crewing agent, the officers and all other crew members for our vessels.

 

Our Customers

 

We believe that developing strong relationships with the end users of our services allow us to better satisfy their needs with appropriate and capable vessels. A prospective charterer’s financial condition, creditworthiness, and reliability track record are important factors in negotiating our vessels’ employment.

 

Competition

 

We operate in markets that are highly competitive and based primarily on supply and demand. We compete for charters on the basis of price, vessel location, size, age and condition of the vessel, as well as on our reputation. We compete primarily with other independent and state-owned offshore supply vessel owners. Our competitors may have more resources than us and may operate vessels that are newer, and therefore more attractive to charterers, than our vessels. Ownership of offshore supply vessels is highly fragmented and is divided among publicly listed companies, state-controlled owners and private ship owners.

 

Seasonality

 

Operating offshore supply vessels has traditionally been seasonal depending on the region of the world the vessels are operating. While we initially plan to operate exclusively in the North Sea we intend to expand to other areas such as the Barents Sea, West Africa, the Gulf of Mexico and Brazil. Operations in the North Sea are generally at their highest levels during the months from April through August and at their lowest levels from December through February primarily due to lower construction activity and harsh weather conditions affecting the movement of drilling rigs. Activity in the Gulf of Mexico, like the North Sea, is often slower during the winter months when construction projects and other specialized jobs are most difficult, and during the hurricane season from June through November, although following a hurricane, activity may increase as there may be a greater demand for vessel services as repair and remediation activities take place. Operations in any market may be affected by seasonality often related to unusually long or short construction seasons due to, among other things, abnormal weather conditions, as well as market demand associated with increased drilling and development activities. Seasonality should have moderate effects on the Company because most of our vessels are on time charter during periods that include some of the traditionally slower months.

 

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Environmental and Other Regulations in the International Shipping Industry

 

Government regulation significantly affects the ownership and operation of our fleet. We are subject to international conventions and treaties and national, state and local laws and regulations relating to safety and health and environmental protection in force in the countries in which our vessels may operate or are registered. These regulations include requirements relating to the storage, handling, emission, transportation and discharge of hazardous and non-hazardous materials, and the remediation of contamination and liability for damage to natural resources. Compliance with such laws, regulations and other requirements may entail significant expense, including vessel modifications and implementation of certain operating procedures.

 

A variety of government and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (applicable national authorities such as the United States Coast Guard, harbor master or equivalent), classification societies; flag state administrations (countries of registry) and charterers, particularly terminal operators. Certain of these entities require us to obtain permits, licenses, certificates and other authorizations for the operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur substantial costs or temporarily suspend the operation of one or more of our vessels.

 

We believe that the heightened level of environmental and quality concerns among insurance underwriters, regulators and charterers is leading to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns have created a demand for vessels that conform to the stricter environmental standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with United States and international regulations. We believe that the operation of our vessels will be in substantial compliance with applicable environmental laws and regulations and that our vessels will have all material permits licenses, certificates or other authorizations necessary for the conduct of our operations. However, because such laws and regulations are frequently changed and may impose increasingly stricter requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our vessels. In addition, a future serious marine incident that causes significant adverse environmental impact, such as the 2010 BP plc Deepwater Horizon oil spill in the Gulf of Mexico, could result in additional legislation or regulations that could negatively affect our profitability.

 

International Maritime Organization

 

The International Maritime Organization, the United Nations agency for maritime safety and the prevention of pollution by ships, or the IMO, has adopted the International Convention for the Prevention of Marine Pollution from Ships, 1973, as modified by the related Protocol of 1978 relating thereto, which has been updated through various amendments (collectively, “MARPOL”). MARPOL entered into force on October 2, 1983. It has been adopted by over 150 nations, including many of the jurisdictions in which our vessels will operate.

 

MARPOL is broken into six Annexes, each of which regulates a different source of pollution. Annex I relates to oil leakage or spilling; Annexes II and III relate to harmful substances carried, in bulk, in liquid or packaged form, respectively; Annexes IV and V relate to sewage and garbage management, respectively; and Annex VI relates to air emissions. Annex VI was separately adopted by the IMO in September of 1997.

 

Air Emissions

 

In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution. Effective May 2005, Annex VI sets limits on nitrogen oxide emissions from ships whose diesel engines were constructed (or underwent major conversions) on or after January 1, 2000. It also prohibits “deliberate emissions” of “ozone depleting substances,” defined to include certain halons and chlorofluorocarbons. “Deliberate emissions” are not limited to times when the ship is at sea; they can for example include discharges occurring in the course of the

 

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ship’s repair and maintenance. Emissions of “volatile organic compounds” from certain vessels, and the shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as polychlorinated biphenyls (PCBs)) are also prohibited. Annex VI also includes a global cap on the sulfur content of fuel oil (see below).

 

The IMO’s Maritime Environment Protection Committee, or MEPC, adopted amendments to Annex VI on October 10, 2008, which entered into force on July 1, 2010. The amended Annex VI seeks to further reduce air pollution by, among other things, implementing a progressive reduction of the amount of sulphur contained in any fuel oil used on board ships. As of January 1, 2012, the amended Annex VI requires that fuel oil contain no more than 3.50% sulfur (from the previous cap of 4.50%). By January 1, 2020, sulfur content must not exceed 0.50%, subject to a feasibility review to be completed no later than 2018.

 

Sulfur content standards are even stricter within certain “Emission Control Areas”, or “ECAs”. By July 1, 2010, ships operating within an ECA were not permitted to use fuel with sulfur content in excess of 1.0% (from 1.50%), which will be further reduced to 0.10% on January 1, 2015. Amended Annex VI establishes procedures for designating new ECAs. Currently, the Baltic Sea, the North Sea and certain coastal areas of North America and areas of the United States Caribbean Sea are designated ECAs. If other ECAs are approved by the IMO or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the United States Environmental Protection Agency, or the EPA, or the states where we operate, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations.

 

Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for new marine engines, depending on their date of installation. The U.S. EPA promulgated equivalent (and in some senses stricter) emissions standards in late 2009.

 

As of January 1, 2013 MARPOL made mandatory certain measures relating to energy efficiency for ships. This included the requirement that all new ships utilize the Energy Efficiency Design Index, or “EEDI”, and all ships use the Ship Energy Management Plan (SEEMP).

 

We believe that all our vessels will be compliant in all material respects with these regulations. Additional or new conventions, laws and regulations may be adopted that could require the installation of expensive emission control systems and could adversely affect our business, results of operations, cash flows and financial condition.

 

Ballast Water Management

 

IMO adopted the International Convention for the Control and Management of Ships’ Ballast Water and Sediments, or the BWM Convention, in February 2004. The BWM Convention will not become effective 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. To date, there has not been sufficient adoption of this standard for it to take force, but it is close. Many of the implementation dates originally written in the BWM Convention have already passed, so that once the BWM Convention entered into force, the period for installation of mandatory ballast water exchange requirements would be extremely short, with several thousand ships a year needing to install ballast water management systems (BWMS). For this reason, on December 4, 2013, the IMO Assembly passed a resolution revising the application dates of BWM Convention so that they are triggered by the entry into force date and not the dates originally in the BWM Convention. This in effect makes all vessels constructed before the entry into force date ‘existing’ vessels, and allows for the installation of a BWMS on such vessels at the first renewal survey following entry into force. Once mid-ocean ballast exchange or ballast water treatment requirements become mandatory, the cost of compliance could increase for ocean carriers. Although we do not believe that the costs of such compliance would be material, it is difficult to predict the overall impact of such a requirement on our operations.

 

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Safety Management System Requirements

 

The IMO has also adopted the International Convention for the Safety of Life at Sea, or SOLAS and the International Convention on Load Lines, or the LL Convention, which impose a variety of standards that regulate the design and operational features of ships. The IMO periodically revises the SOLAS and LL Convention standards. Certain amendments were made to SOLAS in May 2012, and entered into force January 1, 2014. The Convention on Limitation of Liability for Maritime Claims (LLMC) was recently amended and the amendments are expected to go into effect on June 8, 2015. The amendments alter the limits of liability for loss of life or personal injury claims and property claims against ship owners. We believe that all our vessels will be in substantial compliance with SOLAS and LL Convention standards.

 

Under Chapter IX of SOLAS, the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, or ISM Code, our operations are also subject to environmental standards and requirements. The ISM Code requires the owner of a vessel, or any person who has taken responsibility for operation of a vessel, to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We rely upon the safety management system that we and our technical manager have developed for compliance with the ISM Code. The failure of a ship owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports.

 

The ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by a vessel’s management with the ISM Code requirements for a safety management system. No vessel can obtain a safety management certificate unless its manager has been awarded a document of compliance, issued by classification societies under the authority of each flag state, under the ISM Code. SSM has or will obtain documents of compliance for their offices and will obtain safety management certificates for all of our vessels for which the certificates are required by the IMO. The document of compliance, or the DOC, and safety management certificate, or the SMC, are renewed every five years, but the DOC is subject to audit verification annually and the SMC at least every 2.5 years.

 

Pollution Control and Liability Requirements

 

The IMO adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage, or the Bunker Convention, to impose strict liability on ship owners for pollution damage in jurisdictional waters of ratifying states caused by discharges of bunker fuel. The Bunker Convention requires registered owners of ships over 1,000 gross tons to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime (but not exceeding the amount calculated in accordance with the Convention on Limitation of Liability for Maritime Claims of 1976, as amended). With respect to non-ratifying states, liability for spills or releases of oil carried as fuel in ship’s bunkers typically is determined by the national or other domestic laws in the jurisdiction where the events or damages occur.

 

IMO regulations also require owners and operators of vessels to adopt shipboard oil pollution emergency plans and/or shipboard marine pollution emergency plans for noxious liquid substances in accordance with the guidelines developed by the IMO.

 

Compliance Enforcement

 

The flag state, as defined by the United Nations Convention on Law of the Sea, has overall responsibility for implementing and enforcing a broad range of international maritime regulations with respect to all ships granted the right to fly its flag. The “Shipping Industry Guidelines on Flag State Performance” evaluates and reports on flag states based on factors such as sufficiency of infrastructure, ratification, implementation, and enforcement of principal international maritime treaties and regulations, supervision of statutory ship surveys, casualty

 

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investigations and participation at IMO and ILO meetings. All of our vessels will be flagged in the Marshall Islands. Marshall Islands flagged vessels have historically received a good assessment in the shipping industry. We recognize the importance of a credible flag state and do not intend to use flags of convenience or flag states with poor performance indicators. Noncompliance with the ISM Code or other IMO regulations may subject the ship owner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports. The 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, respectively. Each of our vessels will be ISM Code certified. However, there can be no assurance that such certificate will be maintained.

 

The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.

 

The U.S. Oil Pollution Act of 1990 and Comprehensive Environmental Response, Compensation and Liability Act

 

The U.S. Oil Pollution Act of 1990, or OPA, established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA affects all “owners and operators” whose vessels trade in the United States, its territories and possessions or whose vessels operate in United States waters, which includes the United States’ territorial sea and its 200 nautical mile exclusive economic zone. The United States has also enacted the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, which applies to the discharge of hazardous substances other than oil, whether on land or at sea. OPA and CERCLA both define “owner and operator” in the case of a vessel as any person owning, operating or chartering by demise, the vessel. OPA applies to oil tankers (which are not operated by us), as well as non-tanker ships with respect to the fuel oil, or bunkers, used to power such ships. CERCLA also applies to our operations.

 

Under OPA, vessel owners and operators are “responsible parties” and 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 discharges or threatened discharges of oil from their vessels. OPA defines these other damages broadly to include:

 

   

injury to, destruction or loss of, or loss of use of, natural resources and the costs of assessment thereof;

 

   

injury to, or economic losses resulting from, the destruction of real and personal property;

 

   

net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property, or natural resources;

 

   

loss of subsistence use of natural resources that are injured, destroyed or lost;

 

   

lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources;

 

   

net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety or health hazards.

 

OPA contains statutory caps on liability and damages; such caps do not apply to direct cleanup costs. Effective July 31, 2009, the U.S. Coast Guard adjusted the limits of OPA liability for non-tank vessels to the greater of $1,000 per gross ton or $854,400 (subject to periodic adjustment for inflation). These limits of liability do not apply if an incident was proximately caused by the violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual relationship), or a responsible party’s gross negligence or willful misconduct. The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report the incident where the responsibility party knows or has reason to know of the incident; (ii) reasonably cooperate and assist as requested

 

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in connection with oil removal activities; or (iii) without sufficient cause, comply with an order issued under the Clean Water Act (Section 311 (c) or (e)) or the Intervention on the High Seas Act. The 2010 Deepwater Horizon oil spill in the Gulf of Mexico may also result in additional regulatory initiatives or statutes, including the raising of liability caps under OPA.

 

CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as damage for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing same, and health assessments or health effects studies. There is no liability if the discharge of a hazardous substance results solely from the act or omission of a third party, an act of God or an act of war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible person fails or refused to provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.

 

OPA and CERCLA both require owners and operators of vessels to establish and maintain with the U.S. Coast Guard evidence of financial responsibility sufficient to meet the maximum amount of liability to which the particular responsible person may be subject. Vessel owners and operators may satisfy their financial responsibility obligations by providing a proof of insurance, a surety bond, qualification as a self-insurer or a guarantee. We plan to comply with the U.S. Coast Guard’s financial responsibility regulations by providing a certificate of responsibility evidencing sufficient self-insurance.

 

We currently maintain pollution liability coverage insurance in the amount of $1.0 billion per incident for each of our vessels. If the damages from a catastrophic spill were to exceed our insurance coverage it could have an adverse effect on our business and results of operation.

 

OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, provided they accept, at a minimum, the levels of liability established under OPA. Some states have enacted legislation providing for unlimited liability for oil spills. In some cases, states, which have enacted such legislation have not yet issued implementing regulations defining vessels owners’ responsibilities under these laws. We intend to comply with all existing and future applicable state regulations in the ports where our vessels call.

 

Other Environmental Initiatives

 

The U.S. Clean Water Act, or CWA, prohibits the discharge of oil or hazardous substances in U.S. navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA. In addition, many 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 EPA regulates the discharge of ballast water and other substances in U.S. waters under the CWA. EPA regulations require vessels 79 feet in length or longer (other than commercial fishing and recreational vessels) to comply with a Vessel General Permit authorizing ballast water discharges and other discharges incidental to the operation of vessels. The Vessel General Permit imposes technology and water-quality based effluent limits for certain types of discharges and establishes specific inspection, monitoring, record keeping and reporting

 

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requirements to ensure the effluent limits are met. The First Vessel General Permit was issued in 2003 (the “2003 VGP”) and was effective until December 19, 2013. In March 2013, the EPA re-issued the Vessel General Permit, the “2013 VGP”, which took effect December 19, 2013. The 2013 VGP also contains numeric ballast water discharge limits for most vessels to reduce the risk of invasive species in U.S. waters, more stringent requirements for exhaust gas scrubbers and requires the use of environmentally acceptable lubricants. U.S. Coast Guard regulations adopted under the U.S. National Invasive Species Act, or NISA, also impose mandatory ballast water management practices for all vessels equipped with ballast water tanks entering or operating in U.S. waters, including restrictions on the allowable concentration of living organisms in ballast water discharged from ships in U.S. waters. The Coast Guard ballast water standards are consistent with those adopted by the IMO in 2004. Compliance with the EPA and the U.S. Coast Guard regulations 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, or may otherwise restrict our vessels from entering U.S. waters.

 

Compliance with future EPA and U.S. Coast Guard regulations could require the installation of certain engineering equipment and water treatment systems to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial cost, or may otherwise restrict our vessels from entering U.S. waters.

 

European Union Regulations

 

In October 2009, the European Union (EU) amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Aiding and abetting the discharge of a polluting substance may also lead to criminal penalties. Member States were required to enact laws or regulations to comply with the directive by the end of 2010. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims. The directive applies to all types of vessels, irrespective of their flag, but certain exceptions apply to warships or where human safety or that of the ship is in danger.

 

Greenhouse Gas Regulation

 

Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions. However, in July 2011 MEPC adopted two new sets of mandatory requirements to address greenhouse gas emissions from ships that entered into force in January 2013. Currently operating ships are required to develop SEEMPs, and minimum energy efficiency levels per capacity mile will apply to new ships. These requirements could cause us to incur additional compliance costs. The IMO is considering the implementation of market-based mechanisms to reduce greenhouse gas emissions from ships at an upcoming MEPC session. The EU has indicated that it intends to propose an expansion of the existing European Union emissions trading scheme to include emissions of greenhouse gases from marine vessels. The EU has also made a unilateral commitment to reduce overall greenhouse gas emissions from its member states by 20% of 1990 levels, and has committed to reduce its emissions by 20% under the Kyoto Protocol’s second period, from 2013 to 2020. In the United States, the EPA has issued a finding that greenhouse gases endanger the public health and safety, has adopted regulations to limit greenhouse gas emissions from certain mobile sources and has proposed regulations to limit greenhouse gas emissions from large stationary sources. Although the mobile source emissions regulations do not apply to greenhouse gas emissions from vessels, the EPA is considering a petition from the California Attorney General and environmental groups to regulate greenhouse gas emissions from ocean-going vessels. Any passage of climate control legislation or other regulatory initiatives by the IMO, European Union, the U.S. or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol, that restrict emissions of greenhouse gases could require us to make significant

 

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financial expenditures which we cannot predict with certainty at this time. Even in the absence of climate control legislation, our business may be indirectly affected to the extent that limits change may result in sea level changes or more intense weather events.

 

International Labour Organization

 

The International Labour Organization (ILO) is a specialized agency of the UN with headquarters in Geneva, Switzerland. The ILO has adopted the Maritime Labor Convention 2006 (MLC 2006). A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance will be required to ensure compliance with the MLC 2006 for all ships above 500 gross tons in international trade. The MLC 2006 came into force on August 20, 2013 and we are in compliance with these results.

 

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 the 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. The regulations also impose requirements on certain ports and facilities, some of which are regulated by the EPA.

 

Similarly, in December 2002, amendments to SOLAS created a new chapter of the convention dealing specifically with maritime security. The new Chapter V became effective in July 2004 and imposes various detailed security obligations on vessels and port authorities, and mandates compliance with the International Ship and Port Facility Security Code, or the ISPS Code. The ISPS Code is designed to enhance the security of ports and ships 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 alert the authorities on shore;

 

   

the development of a ship security plan;

 

   

ship identification number to be permanently marked on a vessel’s hull;

 

   

a continuous synopsis record kept onboard showing a vessel’s history including the name of the ship, the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship’s identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and

 

   

compliance with flag state security certification requirements.

 

Any vessel operating without a valid certificate may be detained at port until it obtains an ISSC, or it may be expelled from port, or refused entry at port.

 

The U.S. Coast Guard regulations, intended to align with international maritime security standards, exempt from MTSA vessel security measures non-U.S. vessels provided such vessels have on board a valid ISSC that attests to the vessel’s compliance with SOLAS security requirements and the ISPS Code. Our managers intend to implement the various security measures addressed by MTSA, SOLAS and the ISPS Code, and we intend that our fleet will comply with applicable security requirements. We have implemented the various security measures addressed by the MTSA, SOLAS and the ISPS Code.

 

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Inspection by Classification Societies

 

Every oceangoing vessel must be “classed” by a classification society. The classification society certifies 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.

 

For maintenance of the class certification, 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. Upon a ship owner’s request, 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. Vessels under five years of age can waive drydocking in order to increase available days and decrease capital expenditures, provided the vessel is inspected underwater.

 

Most vessels are also drydocked every 30 to 36 months for inspection of the underwater parts and for repairs related to inspections. 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 (the IACS). In 2012, the IACS issued draft harmonized Common Structure Rules, that align with the IMO goals standards, and they are expected to be adopted in winter 2013. All our vessels will be certified as being “in class” by the American Bureau of Shipping, or ABS, and Det Norske Veritas, or DNV, major classification societies.

 

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All new and secondhand vessels that we acquire must be certified prior to their delivery under our standard purchase contracts and memorandum of agreement. If the vessel is not certified on the date of closing, we have no obligation to take delivery of the vessel.

 

Risk of Loss and Liability Insurance

 

The operation of any offshore supply vessel includes risks such as mechanical and structural failure, hull damage, collision, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, piracy, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including oil spills and other environmental incidents, and the liabilities arising from owning and operating vessels in international trade. OPA, which imposes virtually unlimited liability upon owners, operators and demise charterers of vessels trading in the United States exclusive economic zone for certain oil pollution accidents in the United States, has made liability insurance more expensive for ship owners and operators trading in the United States market.

 

We plan to maintain hull and machinery insurance, war risks insurance, protection and indemnity cover, and freight, demurrage and defense cover for our fleet in amounts that we believe to be prudent to cover normal risks in our operations. However, we may not be able to achieve or maintain this level of coverage throughout a vessel’s useful life. In addition, while we believe that the insurance coverage that we plan to obtain will be adequate, not all risks can be insured, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates.

 

Hull & Machinery and War Risk Insurance

 

We have obtained marine hull and machinery and war risk insurance, which include the risk of actual or constructive total loss, for all of the vessels in our fleet. However, our insurance policies contain deductible amounts for which we will be responsible. We have also arranged additional total loss coverage for each vessel. This coverage, which is called hull interest and freight interest coverage, provides us additional coverage in the event of the total loss or the constructive total loss of a vessel. The agreed deductible on each vessel averages approximately $150,000.

 

Protection and Indemnity Insurance

 

Protection and indemnity insurance is provided by mutual protection and indemnity associations, or P&I Associations, which insure liabilities to third parties in connection with our shipping activities. This includes third-party liability and other related expenses resulting from the injury or death of crew, passengers and other third parties, the loss or damage to cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil or other substances and salvage, towing and other related costs, including wreck removal. Our P&I coverage will be subject to and in accordance with the rules of the P&I Association in which the vessel is entered. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity mutual associations, or “clubs.” Our coverage is expected to be limited to approximately $6.5 billion, except for pollution which is limited $1 billion and passenger and crew which is limited to $3 billion.

 

We expect that our protection and indemnity insurance coverage for pollution will be $1 billion per vessel per incident. The thirteen P&I Associations that comprise the International Group insure approximately 90% of the world’s commercial tonnage and have entered into a pooling agreement to reinsure each association’s liabilities. Each P&I Association has capped its exposure to this pooling agreement at $6.5 billion. As a member of a P&I Association which is a member of the International Group, we are subject to calls payable to the associations based on the group’s claim records as well as the claim records of all other members of the individual associations and members of the pool of P&I Associations comprising the International Group.

 

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Permits and Authorizations

 

We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our vessels. The kinds of permits, licenses and certificates required depend upon several factors, including the commodity transported, the waters in which the vessel operates, the nationality of the vessel’s crew and the age of a vessel. We expect to be able to obtain all permits, licenses and certificates currently required to permit our vessels to operate. Additional laws and regulations, environmental or otherwise, may be adopted which could limit our ability to do business or increase the cost of us doing business.

 

Legal Proceedings

 

To our knowledge, we are not currently a party to any lawsuit that, if adversely determined, would have a material adverse effect on our financial position, results of operations or liquidity. As such, we do not believe that pending legal proceedings, taken as a whole, should have any significant impact on our financial statements. From time to time in the future we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. While we expect that these claims would be covered by our existing insurance policies, those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. We have not been involved in any legal proceedings which may have, or have had, a significant effect on our financial position, results of operations or liquidity, nor are we aware of any proceedings that are pending or threatened which may have a significant effect on our financial position, results of operations or liquidity.

 

Exchange Controls

 

Under Marshall Islands law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident holders of our common shares.

 

Properties

 

Other than our vessels (including the contracts for the construction thereof), we do not own any material property.

 

Exchange Offer

 

Concurrently with the closing of this offering, we plan to commence an offer to exchange the unregistered common shares previously issued in the Private Placement, other than common shares owned by NAT and other affiliates of ours, for common shares that have been registered under the Securities Act. The Exchange Offer will be made only by means of a prospectus and a related letter of transmittal.

 

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MANAGEMENT

 

Directors and Executive Officers

 

Set forth below are the names, ages and positions of our directors and executive officers. Our board of directors currently consists of five directors and is elected annually on a staggered basis. Each director elected holds office for a three-year term or until his successor is duly elected and qualified, except in the event of his death, resignation, removal or the earlier termination of his term of office. The initial term of office of each director is follows: our Class A directors will serve for a term expiring at the first annual meeting of shareholders to be held in 2014, our Class B directors will serve for a term expiring at the second annual meeting of shareholders to be held in 2015, and our Class C directors will serve for a term expiring at the third annual meeting of shareholders to be held in 2016. Officers are appointed from time to time by our board of directors and hold office until a successor is appointed. The business address of each of our directors and executive officers listed below is Nordic American Offshore Ltd., Canon’s Court, 22 Victoria Street, Hamilton HM EX, Bermuda. We expect that all of our directors, other than Messrs. Hansson and Kelly, will be independent.

 

Name

   Age   

Position

Herbjørn Hansson

   65   

Executive Chairman, Class C Director and Interim Chief Executive Officer

Turid M. Sørensen

   53   

Chief Financial Officer

Paul J. Hopkins

   66   

Class B Director

James Kelly

   60   

Class B Director

Marianne Lie

   51   

Class C Director

David M. Workman

   53   

Class A Director

 

Biographical information concerning the directors and executive officers listed above is set forth below.

 

Herbjørn Hansson, Executive Chairman, Class C Director & Interim Chief Executive Officer

 

Herbjørn Hansson earned his M.B.A. at the Norwegian School of Economics and Business Administration and Harvard Business School. He has been our Executive Chairman and Interim CEO since our inception. In 1974 he was employed by the Norwegian Shipowners’ Association. In the period from 1975 to 1980, he was Chief Economist and Research Manager of INTERTANKO, an industry association whose members control about 70% of the world’s independently owned tanker fleet, excluding state owned and oil company fleets. During the 1980s, he was Chief Financial Officer of Kosmos/Anders Jahre, at the time one of the largest Norwegian based shipping and industry groups. In 1989, Mr. Hansson founded Ugland Nordic Shipping AS, or UNS, which became one of the world’s largest owners of specialized shuttle tankers. UNS became a public company in 1993. While under Mr. Hansson’s management, UNS increased dividends paid to shareholders each year for nine years. He served as Chairman in the first phase and as Chief Executive Officer as from 1993 to 2001 when UNS, under his management, was sold to Teekay Shipping Corporation, or Teekay, for an enterprise value of $780.0 million. He continued to work with Teekay, most recently as Vice Chairman of Teekay Norway AS, until he started working full-time for NAT on September 1, 2004. Mr. Hansson is the founder and has been Chairman and Chief Executive Officer of NAT since its establishment in 1995. NAT was listed on the NYSE in 1997. Since then, NAT has paid dividends 65 times, with total dividend payments of $44.55 per share from the fourth quarter 1997 to the date of this prospectus. He also has been a member of various governing bodies of companies within shipping, insurance, banking, manufacturing, national/international shipping agencies including classification societies and protection and indemnity associations. Mr. Hansson is fluent in Norwegian and English, and has a command of German and French for conversational purposes.

 

Turid M. Sørensen, Chief Financial Officer

 

Turid M. Sørensen has 29 years of experience in the shipping industry. She has been our CFO since our inception. She was appointed Executive Vice President & Chief Financial Officer of NAT on June 1, 2012. She

 

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previously served as Chief Financial Officer of NAT from February 6, 2006. Ms. Sørensen has a Bachelor’s Degree in Business Administration from the Norwegian School of Management, a M.B.A. in Management Control from the Norwegian School of Economics and Business Administration and Advanced Management Program from Harvard Business School. During the period from 1984 to 1987, she worked for Anders Jahre AS and Kosmos AS in Norway and held various positions within accounting and information technology. In the period from 1987 to 1995, Ms. Sørensen was Manager of Accounting and IT for Skaugen PetroTrans Inc., in Houston, Texas. After returning to Norway she was employed by Ugland Nordic Shipping ASA and Teekay Norway AS as Vice President, Accounting. From October 2004 until her appointment as Chief Financial Officer of NAT in February 2006, she served as the Treasurer and Controller of NAT.

 

Paul J. Hopkins, Class B Director

 

Paul J. Hopkins has been a director of the Company since its inception and was a director of NAT from June 2005 until December 13, 2013. Until March 2008, Mr. Hopkins was also a Vice President and a director of Corridor Resources Inc., a Canadian publicly traded exploration and production company. From 1989 through 1993 he served with Lasmo as Project Manager during the start-up of the Cohasset/Panuke oilfield offshore Nova Scotia, the first offshore oil production in Canada. Earlier, Mr. Hopkins served as a consultant on frontier engineering and petroleum economic evaluations in the international oil industry. Mr. Hopkins was seconded to Chevron UK in 1978 to assist with the gas export system for the Ninian Field. Previously, beginning in 1973, he was employed with Ranger Oil (UK) Limited, being involved in the drilling and production testing of oil wells in the North Sea. Through the end of 1972 he worked with Shell Canada as part of its offshore Exploration Group.

 

James Kelly, Class B Director

 

James Kelly has been a director of the Company since its inception and a director of NAT since June 2010. Mr. Kelly has worked for Time Inc., the world’s largest magazine publisher, since 1978. He served as Foreign Editor during the fall of the Soviet Union and the first Gulf War, and was named Deputy Managing Editor in 1996. In 2001, Mr. Kelly became the magazine’s managing editor, and during his tenure the magazine won a record four National Magazine awards. In 2004, Time Magazine received its first EMMA for its contribution to the ABC News Series “Iraq: Where Things Stand.” In late 2006, Mr. Kelly became the managing editor of all of Time Inc., helping supervise the work of more than 2,000 journalists working at 125 titles, including Fortune, Money, Sports Illustrated and People. Since 2009, Mr. Kelly has worked as a consultant at Bloomberg LP and taught at Princeton and Columbia Universities.

 

Marianne Lie, Class C Director

 

Marianne Lie has served as our Class C director since December 2013. Having broad international experience, she has been and still is a board member of several Norwegian companies mainly within the shipping, offshore business, energy and finance industries. She is a member of the shareholders Committee of the Central Bank of Norway. She was in the Norwegian Shipowners Association from 1988 until 1998, after which she was managing director of the Norwegian Branch of Vattenfall, a Swedish based energy group. Ms. Lie was also a board member of the Finnish energy group Fortum. She was managing director of the Norwegian Shipowners Association from 2002 to 2008. Ms. Lie has studied law and political science at the University of Oslo.

 

David M. Workman, Class A Director

 

David M. Workman has served as our Class A Director since December 2013. Mr. Workman was, until recently Chief Operating Officer and member of the Supervisory Board of Stork Technical Services having guided, as Chief Executive Officer, the sale of the RBG Offshore Services Group into the STS Group. Mr. Workman has 30 years of broad experience in the offshore sector ranging from drilling operations/field development through production operations and project management. He has worked with a wide variety of

 

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exploration and production companies in the sector and has balanced this with exposure to the service sector, working with management companies. As part of his experience with these different companies, he has had extensive exposure to the North Sea market. Mr. Workman graduated from Imperial College London in 1983 with a Masters in Petroleum Engineering and spent his early years as a Drilling/Production Operations Engineer with BP. In 1987 he joined Hamilton Brothers Oil and Gas who were early adopters of floating production systems. In 1993 he joined Kerr McGee as an operations manager for the Tentech 850 designed Gryphon FPSO, the first permanently moored FPSO in the North Sea. In 1996, Mr. Workman established the service company Atlantic Floating Production, which went on to become the management contractor and duty holder on the John Fredriksen owned Northern Producer and on the Petroleum Geo-Services (PGS) owned Banff FPF. In 2003, Mr. Workman was instrumental in founding Tuscan Energy which went on to redevelop the abandoned Argyll Field in the UK Continental Shelf. In 2009, Mr. Workman was appointed as Chief Executive Officer and led the sale of the RBG Group to Stork Technical Services in 2011.

 

Board of Directors and Committees

 

Immediately following the effectiveness of the registration statement of which this prospectus forms a part, we will establish an audit committee comprised of two independent members of our board of directors who will be responsible for reviewing our accounting controls and recommending to the board of directors the engagement of our outside auditors. Our audit committee will also be responsible for reviewing all related party transactions for potential conflicts of interest and all related party transactions will be subject to the approval of the audit committee. The initial members of the audit committee will be Marianne Lie and Paul J. Hopkins. We expect Marianne Lie to act as chairperson of the audit committee and qualify as an audit committee financial expert, as such term is defined under Regulation S-K promulgated by the SEC.

 

Our board of directors may, in the future, establish such other committees as it determines from time to time.

 

Corporate Governance Practices

 

Pursuant to an exception under the NYSE listing standards available to foreign private issuers, we are not required to comply with all of the corporate governance practices followed by U.S. companies under the NYSE listing standards, which are available at www.nyse.com. Pursuant to Section 303.A.11 of the NYSE Listed Company Manual, we are required to list the significant differences between our corporate governance practices and the NYSE standards applicable to listed U.S. companies. Set forth below is a list of those differences.

 

Independence of Directors. The NYSE requires that a U.S. listed company maintain a majority of independent directors. As permitted under Marshall Islands law and our amended and restated bylaws, three members of our board of directors are independent according to the NYSE’s standards for independence.

 

Audit Committee. The NYSE requires, among other things, that a listed U.S. company have an audit committee with a minimum of three members. As permitted by Rule 10A-3 under the Exchange Act, our audit committee will consist of two independent members of our board of directors. Pursuant to our audit committee charter, the audit committee will confer with our independent registered public accounting firm and will review, evaluate and advise the board of directors concerning the adequacy of our accounting systems, our financial reporting practices, the maintenance of our books and records and our internal controls. In addition, the audit committee will review the scope of the audit of our financial statements and results thereof.

 

Corporate Governance Guidelines. The NYSE requires U.S. listed companies to adopt and disclose corporate governance guidelines. The guidelines must address, among other things: director qualification standards, director responsibilities, director access to management and independent advisers, director compensation, director orientation and continuing education, management succession and an annual performance evaluation. We are not required to adopt such guidelines under Marshall Islands law and we have not adopted such guidelines.

 

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Board of Directors and Executive Compensation

 

We currently have employment agreements with our Executive Chairman and Interim CEO and Chief Financial Officer to be paid an aggregate amount of $350,000 per year. Under the terms of these employment agreements, either party may terminate the agreement with six months prior notice and we may terminate the agreement without having basis under Norwegian law if we pay the executive three times his annual salary at the end of such six-month notice period, or earlier if the parties so agree. We plan to enter into a direct employment agreement with a new Chief Executive Officer. Also, each of our non-executive directors will receive annual compensation in the amount of $37,500 plus reimbursement of their out-of-pocket expenses incurred while attending any meeting of the board of directors or any board committee. We do not have a retirement plan for our officers or directors.

 

We believe that it is important to align the interests of our directors and management with that of our shareholders. Accordingly, after the completion of this offering and the planned Exchange Offer, we expect that our board of directors will consider issuing equity awards to provide incentives to our management in order to improve our business.

 

Employees

 

As of the date of this prospectus, we have three employees filling the positions of Interim Chief Executive Officer, Chief Financial Officer and an employee at NAO UK.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

Management Agreement

 

We have entered into a management agreement with Scandic for the supervision of the commercial and technical management of our PSVs. Scandic provides similar services for the 20 vessels owned by NAT. NAT, the parent company of Scandic, also holds approximately 26% of our outstanding common shares. We will reimburse Scandic for all direct costs without mark-ups and pay Scandic an annual fee of $150,000 for 2014 and after delivery of our Newbuilding PSVs, Scandic’s fee is expected to increase depending on the size of the fleet.

 

Share Issuance

 

On October 17, 2013, we issued 500 common shares to NAT in connection with our initial capitalization for $500. At the close of the Private Placement we repurchased and canceled these 500 shares.

 

During November 2013, we issued and sold 4,333,566 common shares to NAT for $65.0 million as part of the Private Placement. These common shares are subject to a contractual lock-up until the earlier of twelve months from the completion of the Private Placement or a successful completion of this offering or public listing with the New York Stock Exchange. NAT, as an affiliate of ours, will not be eligible to participate in the Exchange Offer.

 

As part of the Private Placement, approximately 833,333 warrants were issued to NAT with an exercise price of $15.00 per common share. The warrants vest in 20% increments at each 10% increase in the volume weighted average price, or VWAP, of our common shares between increases of 25% to 65%. The VWAP must be above an exercise level for a minimum of 10 business days, with a minimum trading volume of $2.0 million above exercise levels. The warrants mature on December 31, 2015. Also, a success fee of $1.5 million was agreed to be paid by NAO to the members of management and employees of NAT contingent upon publicly listing the common shares of NAO on the NYSE.

 

Directors and Executive Officers

 

The directors and executive officers of the Company acquired a total of 102,600 common shares in the Private Placement.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth the information regarding the beneficial owners of 5% or more of our common shares and beneficial ownership of all of our directors and officers as a group as of the date of this prospectus. All of our shareholders, including the shareholders listed in the table below, are entitled to one vote for each common share held.

 

The percentage of beneficial ownership upon consummation of this offering is based on 16,666,666 shares outstanding as of February 28, 2014 and gives effect to                 common shares sold in this offering, assuming the underwriters’ over-allotment option is not exercised in full.

 

     Common Shares
Beneficially Owned Prior
to this Offering
    Common Shares to be
Beneficially Owned After
this Offering
    Common Shares to be
Beneficially Owned After this
Offering and the full exercise
of the underwriters’ over-
allotment option
 

Name and Address of Beneficial Owner

   Number      Percentage (1)     Number      Percentage     Number      Percentage  

Nordic American Tankers Ltd. (1)

     4,333,566         26.0     4,333,566                      4,333,566                             

Omega Advisors Inc. (2)

     2,666,700         16.0     2,666,700                      2,666,700                 

BHR Capital LLC (3)

     1,333,300         8.0     1,333,300                      1,333,300                 

Tufton Oceanic Ltd. (4)

     1,266,700         7.6     1,266,700                      1,266,700                 

Directors and executive officers as a group (5)

     102,600         0.6     102,600                      102,600                 

 

  (1)   This does not include 833,333 warrants that were issued to NAT with an exercise price of $15.00 per common share. The warrants vest in 20% increments at each 10% increase in the volume weighted average price, or VWAP, of our common shares between increases of 25% to 65%. The VWAP must be above an exercise level for a minimum of 10 business days. The warrants mature on December 31, 2015.
  (2)   The individual who exercises voting and investment power over these common shares is Mr. Leon G. Cooperman.
  (3)   The individual who exercises voting and investment power over these common shares is Michael N. Thompson.
  (4)   The individual who exercises voting and investment power over these common shares is Cato Brahde.
  (5)   This includes Herbjørn Hansson, Turid M. Sørensen and Paul J. Hopkins.

 

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DESCRIPTION OF CAPITAL STOCK

 

The following is a description of material terms of our amended and restated articles of incorporation and amended and restated bylaws. Because the following is a summary, it does not contain all information that you may find useful. For more complete information, you should read our amended and restated articles of incorporation and bylaws, copies of which will be filed as exhibits to the Registration Statement of which this prospectus forms a part and may be obtained from us as set forth under “Where You Can Find Additional Information.”

 

Purpose

 

Our purpose, as stated in our amended and restated articles of incorporation, is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the Marshall Islands Business Corporations Act, or the BCA. Our amended and restated articles of incorporation and bylaws do not impose any limitations on the ownership rights of our shareholders.

 

Authorized capitalization

 

Under our amended and restated articles of incorporation our authorized capital stock consists of 200,000,000 common shares, par value $0.01 per share, of which             shares will be issued and outstanding after the offering or common shares, if the underwriters exercise their over-allotment option in full, and 50,000,000 preferred shares, par value $0.01 per share, of which no shares are issued and outstanding.

 

Share history

 

On October 17, 2013, we issued 500 common shares to NAT in connection with our initial capitalization.

 

Between November 15, 2013 and November 18, 2013, we issued 16,666,666 common shares, par value $0.01 per share in a Norwegian private transaction, the Private Placement, exempt from registration under the Securities Act. These common shares were initially sold in offshore transactions to non-U.S. persons pursuant to Regulation S under the Securities Act and in the United States to “qualified institutional buyers” as defined in, and in reliance on, Rule 144A of the Securities Act. At the close of the Private Placement we repurchased and canceled the 500 shares issued in connection with our initial capitalization.

 

Concurrently with the closing of this offering, we plan to commence an offer to exchange all of the unregistered common shares we previously issued in the Private Placement, other than common shares owned by NAT and other affiliates of ours, for common shares that have been registered under the Securities Act, which we refer to as the Exchange Offer. The Exchange Offer will be made only by means of a prospectus and a related letter of transmittal. See “Business—Exchange Offer.”

 

Common shares

 

Each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders. Subject to preferences that may be applicable to any outstanding preferred shares, holders of common shares are entitled to receive ratably all dividends, if any, declared by our board of directors out of funds legally available for dividends. Upon our dissolution or liquidation or the sale of all or substantially all of our assets, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of our common shares are entitled to receive pro rata our remaining assets available for distribution. Holders of common shares do not have conversion, redemption or pre-emptive rights to subscribe to any of our securities. The rights, preferences and privileges of holders of our common shares are subject to the rights of the holders of any preferred shares, which we may issue in the future.

 

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Preferred Shares

 

Our amended and restated articles of incorporation authorize our board of directors to establish one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:

 

   

the designation of the series;

 

   

the number of shares of the series;

 

   

the preferences and relative, participating, option or other special rights, if any, and any qualifications, limitations or restrictions of such series; and

 

   

the voting rights, if any, of the holders of the series.

 

Warrants

 

As part of the Private Placement, approximately 833,333 warrants were issued to NAT with an exercise price of $15.00 per common share. The warrants vest in 20% increments at each 10% increase in the volume weighted average price, or VWAP, of our common shares between increases of 25% to 65%. The VWAP must be above an exercise level for a minimum of 10 business days, with a minimum trading volume of $2.0 million (cumulative) above exercise levels. The warrants mature on December 31, 2015.

 

Directors

 

Our directors are elected by a plurality of the votes cast by shareholders entitled to vote. There is no provision for cumulative voting.

 

Our amended and restated articles of incorporation require our board of directors to consist of at least one member. Upon the completion of this offering, our board of directors will consist of five members. Our amended and restated bylaws may only be amended by the vote of two-thirds of our entire board of directors.

 

Directors are elected annually on a staggered basis, and each shall serve for a three-year term and until his successor shall have been duly elected and qualified, except in the event of his death, resignation, removal, or the earlier termination of his term of office. Directors may only be removed for cause and only upon the affirmative vote of two-thirds votes cast at an annual meeting of shareholders by the holders of shares entitled to vote thereon. Our board of directors has the authority to fix the amounts which shall be payable to the members of the board of directors for attendance at any meeting or for services rendered to us.

 

Shareholder Meetings

 

Under our amended and restated bylaws, annual meetings of shareholders will be held at a time and place selected by our board of directors. The meetings may be held in or outside of the Marshall Islands. Special meetings may be called at any time by a majority of our board of directors or the chairman of our board of directors. Our board of directors may set a record date between 15 and 60 days before the date of any meeting to determine the shareholders that will be eligible to receive notice and vote at the meeting. One or more shareholders representing at least one-third of the total number of votes eligible to be cast by holders of shares issued and outstanding and entitled to vote at such meetings shall constitute a quorum for the purposes of the meeting.

 

Dissenters’ Rights of Appraisal and Payment

 

Under the BCA, our shareholders have the right to dissent from various corporate actions, including any merger or consolidation and the sale of all or substantially all of our assets not made in the usual course of our business, and receive payment of the fair value of their shares. In the event of any further amendment of our amended and restated articles of incorporation, a shareholder also has the right to dissent and receive payment for his or her shares if the amendment alters certain rights in respect of those shares. The dissenting shareholder must follow the procedures set forth in the BCA to receive payment. In the event that we and any dissenting

 

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shareholder fail to agree on a price for the common shares, the BCA procedures involve, among other things, the institution of proceedings in the high court of the Republic of the Marshall Islands or in any appropriate court in any jurisdiction in which our shares are primarily traded on a local or national securities exchange.

 

Shareholders’ Derivative Actions

 

Under the BCA, any of our shareholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the shareholder bringing the action is a holder of common shares both at the time the derivative action is commenced and at the time of the transaction to which the action relates.

 

Limitations on Liability and Indemnification of Officers and Directors

 

The BCA authorizes corporations to limit or eliminate the personal liability of directors and officers to corporations and their shareholders for monetary damages for breaches of directors’ fiduciary duties. Our amended and restated articles of incorporation include a provision that eliminates the personal liability of directors for monetary damages for actions taken as a director to the fullest extent permitted by law.

 

Our amended and restated bylaws provide that we must indemnify our directors and officers to the fullest extent authorized by law, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. We are also required to advance certain expenses (including attorney’s fees and disbursements and court costs) to our directors and officers and we may carry directors’ and officers’ insurance providing indemnification for our directors and officers for some liabilities. We believe that these indemnification provisions and this insurance are useful to attract and retain qualified directors and officers.

 

The limitation of liability and indemnification provisions in our amended and restated articles of incorporation and bylaws may discourage shareholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our shareholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

 

There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.

 

Anti-takeover Effect of Certain Provisions of Our Amended and Restated Articles of Incorporation and Bylaws

 

Several provisions of our amended and restated articles of incorporation and bylaws, which are summarized below, may have anti-takeover effects. These provisions are intended to avoid costly takeover battles, lessen our vulnerability to a hostile change of control and enhance the ability of our board of directors to maximize shareholder value in connection with any unsolicited offer to acquire us. However, these anti-takeover provisions, which are summarized below, could also discourage, delay or prevent (1) the merger or acquisition of us by means of a tender offer, a proxy contest or otherwise that a shareholder may consider in its best interest and (2) the removal of incumbent officers and directors.

 

Blank Check Preferred Stock

 

Under the terms of our amended and restated articles of incorporation, our board of directors has authority, without any further vote or action by our shareholders, to issue up to 50,000,000 shares of “blank check” preferred stock. Our board of directors may issue preferred shares on terms calculated to discourage, delay or prevent a change of control of us or the removal of our management and might harm the market price of our common shares. We have no current plans to issue any preferred shares.

 

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Election and Removal of Directors

 

Our amended and restated articles of incorporation prohibit cumulative voting in the election of directors. Our amended and restated bylaws require parties other than the board of directors to give advance written notice of nominations for the election of directors. Our amended and restated articles of incorporation also provide that our directors may only be removed for cause upon the affirmative vote of not less than two-thirds of the outstanding shares of our capital stock entitled to vote for those directors. These provisions may discourage, delay or prevent the removal of incumbent directors.

 

Limited Actions by Shareholders

 

Our amended and restated articles of incorporation and our amended and restated bylaws provide that any action required or permitted to be taken by our shareholders must be effected at an annual or special meeting of shareholders or by the unanimous written consent of our shareholders. Our amended and restated articles of incorporation and our amended and restated bylaws provide that, unless otherwise prescribed by law, only a majority of our board of directors or the chairman of our board of directors may call special meetings of our shareholders and the business transacted at the special meeting is limited to the purposes stated in the notice. Accordingly, a shareholder will be prevented from calling a special meeting for shareholder consideration of a proposal unless scheduled by our board of directors and shareholder consideration of a proposal may be delayed until the next annual meeting.

 

Advance Notice Requirements for Shareholder Proposals and Director Nominations

 

Our amended and restated bylaws provide that shareholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of shareholders must provide timely notice of their proposal in writing to the corporate secretary. Generally, to be timely, a shareholder’s notice must be received at our principal executive offices not less than 120 days nor more than 180 days prior to the one year anniversary of the immediately preceding annual meeting of shareholders. Our amended and restated bylaws also specify requirements as to the form and content of a shareholder’s notice. These provisions may impede shareholders’ ability to bring matters before an annual meeting of shareholders or make nominations for directors at an annual meeting of shareholders.

 

Classified Board of Directors

 

As described above, our amended and restated articles of incorporation provide for the division of our board of directors into three classes of directors, with each class as nearly equal in number as possible, serving staggered three-year terms beginning on the expiration of the initial term for each class. Accordingly, approximately one-third of our board of directors will be elected each year. This classified board provision could discourage a third party from making a tender offer for our shares or attempting to obtain control of us. It could also delay shareholders who do not agree with the policies of our board of directors from removing a majority of our board of directors for two years.

 

Business Combinations

 

Although the BCA does not contain specific provisions regarding “business combinations” between companies organized under the laws of the Marshall Islands and “interested shareholders,” we have included these provisions in our amended and restated articles of incorporation. Specifically, our amended and restated articles of incorporation prohibit us from engaging in a “business combination” with certain persons for three years following the date the person becomes an interested shareholder. Interested shareholders generally include:

 

   

any person who is the beneficial owner of 15% or more of our outstanding voting shares; or

 

   

any person who is our affiliate or associate and who held 15% or more of our outstanding voting shares at any time within three years before the date on which the person’s status as an interested shareholder is determined, and the affiliates and associates of such person.

 

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Subject to certain exceptions, a business combination includes, among other things:

 

   

certain mergers or consolidations of us or any direct or indirect majority-owned subsidiary of ours;

 

   

any sale, lease, exchange, mortgage, pledge, transfer or other disposition of our assets or of any subsidiary of ours having an aggregate market value equal to 10% or more of either the aggregate market value of all of our assets, determined on a combined basis, or the aggregate value of all of our outstanding shares;

 

   

certain transactions that result in the issuance or transfer by us of any shares of ours to the interested shareholder;

 

   

any transaction involving us or any of our subsidiaries that has the effect of increasing the proportionate share of any class or series of stock, or securities convertible into any class or series of stock, of ours or any such subsidiary that is owned directly or indirectly by the interested shareholder or any affiliate or associate of the interested shareholder; and

 

   

any receipt by the interested shareholder of the benefit directly or indirectly (except proportionately as a shareholder) of any loans, advances, guarantees, pledges or other financial benefits provided by or through us or a subsidiary.

 

These provisions of our amended and restated articles of incorporation do not apply to a business combination if:

 

   

before a person became an interested shareholder, our board of directors approved either the business combination or the transaction in which the shareholder became an interested shareholder;

 

   

upon consummation of the transaction which resulted in the shareholder becoming an interested shareholder, the interested shareholder owned at least 85% of our voting shares outstanding at the time the transaction commenced, other than certain excluded shares;

 

   

at or following the transaction in which the person became an interested shareholder, the business combination is approved by our board of directors and authorized at an annual or special meeting of shareholders, and not by written consent, by the affirmative vote of the holders of at least two-thirds of our outstanding voting shares that is not owned by the interest shareholder;

 

   

the shareholder became an interested shareholder prior to the date of our amended and restated articles of incorporation, which was November 22, 2013;

 

   

a shareholder became an interested shareholder inadvertently and (i) as soon as practicable divested itself of ownership of sufficient shares so that the shareholder ceased to be an interested shareholder; and (ii) would not, at any time within the three-year period immediately prior to a business combination between us and such shareholder, have been an interested shareholder but for the inadvertent acquisition of ownership; or

 

   

the business combination is proposed prior to the consummation or abandonment of and subsequent to the earlier of the public announcement or the notice required under our amended and restated articles of incorporation which (i) constitutes one of the transactions described in the following sentence; (ii) is with or by a person who either was not an interested shareholder during the previous three years or who became an interested shareholder with the approval of the board; and (iii) is approved or not opposed by a majority of the members of the board of directors then in office (but not less than one) who were directors prior to any person becoming an interested shareholder during the previous three years or were recommended for election or elected to succeed such directors by a majority of such directors. The proposed transactions referred to in the preceding sentence are limited to:

 

   

a merger or consolidation of us (except for a merger in respect of which, pursuant to the BCA, no vote of our shareholders is required);

 

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a sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), whether as part of a dissolution or otherwise, of assets of us or of any direct or indirect majority-owned subsidiary of ours (other than to any direct or indirect wholly owned subsidiary or to us) having an aggregate market value equal to 50% or more of either the aggregate market value of all of our assets determined on a consolidated basis or the aggregate market value of all the outstanding shares; or

 

   

a proposed tender or exchange offer for 50% or more of our outstanding voting shares.

 

Transfer Agent

 

The registrar and transfer agent for our common shares is Computershare.

 

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CERTAIN MARSHALL ISLANDS COMPANY CONSIDERATIONS

 

Our corporate affairs are governed by our amended and restated articles of incorporation and bylaws and by the BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States, including Delaware. While the BCA also provides that it is to be interpreted according to the laws of the State of Delaware and other states with substantially similar legislative provisions, there have been few, if any, court cases interpreting the BCA in the Marshall Islands, and we cannot predict whether Marshall Islands courts would reach the same conclusions as Delaware or other courts in the United States. Accordingly, you may have more difficulty in protecting your interests under Marshall Islands law in the face of actions by our management, directors or controlling shareholders than would shareholders of a corporation incorporated in a U.S. jurisdiction that has developed a substantial body of case law. The following table provides a comparison between statutory provisions of the BCA and the Delaware General Corporation Law relating to shareholders’ rights.

 

Marshall Islands

  

Delaware

Shareholder Meetings
Held at a time and place as designated in the bylaws.    May be held at such time or place as designated in the certificate of incorporation or the bylaws, or if not so designated, as determined by the board of directors.
Special meetings of the shareholders may be called by the board of directors or by such person or persons as may be authorized by the articles of incorporation or by the bylaws.    Special meetings of the shareholders may be called by the board of directors or by such person or persons as may be authorized by the certificate of incorporation or by the bylaws.
May be held in or outside of the Marshall Islands.    May be held in or outside of Delaware.
Notice:    Notice:

•     Whenever shareholders are required to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting and, unless it is an annual meeting, indicate that it is being issued by or at the direction of the person calling the meeting.

  

•   Whenever shareholders are required to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, and the means of remote communication, if any.

•     A copy of the notice of any meeting shall be given personally or sent by mail not less than 15 nor more than 60 days before the meeting.

  

•   Written notice shall be given not less than 10 nor more than 60 days before the meeting.

Shareholders’ Voting Rights
Any action required to be taken by a meeting of shareholders may be taken without a meeting if consent is in writing and is signed by all the shareholders entitled to vote with respect to the subject matter thereof.    Any action required to be taken by a meeting of shareholders may be taken without a meeting if a consent for such action is in writing and is signed by shareholders having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
Any person authorized to vote may authorize another person or persons to act for him by proxy.    Any person authorized to vote may authorize another person or persons to act for him by proxy.
Unless otherwise provided in the articles of incorporation, a majority of shares entitled to vote constitutes a quorum. In no event shall a quorum consist of fewer than one-third of the common shares entitled to vote at a meeting.    For stock corporations, the certificate of incorporation or bylaws may specify the number of shares required to constitute a quorum but in no event shall a quorum consist of less than one-third of shares entitled to vote at a meeting. In the absence of such specifications, a majority of shares entitled to vote shall constitute a quorum.

 

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Marshall Islands

  

Delaware

Shareholders’ Voting Rights (continued)
When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any shareholders.    When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any shareholders.
The articles of incorporation may provide for cumulative voting in the election of directors.    The certificate of incorporation may provide for cumulative voting in the election of directors.
Directors
The board of directors must consist of at least one member.    The board of directors must consist of at least one member.
Number of board members can be changed by an amendment to the bylaws, by the shareholders, or by action of the board under the specific provisions of a by-law.    Number of board members shall be fixed by, or in a manner provided by, the bylaws, unless the certificate of incorporation fixes the number of directors, in which case a change in the number shall be made only by amendment to the certificate of incorporation.
If the board of directors is authorized to change the number of directors, it can only do so by a majority of the entire board of directors and so long as no decrease in the number shortens the term of any incumbent director.   
Dissenter’s Rights of Appraisal
Shareholders have a right to dissent from any plan of merger or consolidation or sale of all or substantially all assets not made in the usual course of business, and receive payment of the fair value of their shares.    Appraisal rights shall be available for the shares of any class or series of stock of a corporation in a merger or consolidation, subject to limited exceptions, such as a merger or consolidation of corporations listed on a national securities exchange in which listed shares are the offered consideration.
A holder of any adversely affected shares who does not vote on or consent in writing to an amendment to the articles of incorporation has the right to dissent and to receive payment for such shares if the amendment:   

•     Alters or abolishes any preferential right of any outstanding shares having preference; or

  

•     Creates, alters or abolishes any provision or right in respect to the redemption of any outstanding shares.

  

•     Alters or abolishes any preemptive right of such holder to acquire shares or other securities; or

  

•     Excludes or limits the right of such holder to vote on any matter, except as such right may be limited by the voting rights given to new shares then being authorized of any existing or new class.

  

 

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Marshall Islands

  

Delaware

Shareholders’ Derivative Actions
An action may be brought in the right of a corporation to procure a judgment in its favor, by a holder of shares or of voting trust certificates or of a beneficial interest in such shares or certificates. It shall be made to appear that the plaintiff is such a holder at the time the action is brought and that he was such a holder at the time of the transaction of which he complains, or that his shares or his interest therein devolved upon him by operation of law.    In any derivative suit instituted by a shareholder or a corporation, it shall be averred in the complaint that the plaintiff was a shareholder of the corporation at the time of the transaction of which he complains or that such shareholder’s stock thereafter devolved upon such shareholder by operation of law.
A complaint shall set forth with particularity the efforts of the plaintiff to secure the initiation of such action by the board of directors or the reasons for not making such effort.   
Such action shall not be discontinued, compromised or settled without the approval of the High Court of the Republic of The Marshall Islands.   
Attorneys’ fees may be awarded if the action is successful.   
A corporation may require a plaintiff bringing a derivative suit to give security for reasonable expenses if the plaintiff owns less than 5% of any class of stock and the common shares have a value of less than $50,000.   

 

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TAXATION

 

The following is a discussion of the material Marshall Islands and U.S. federal income tax considerations relevant to us and the ownership of our common shares. This discussion does not purport to deal with the tax consequences relevant to all categories of investors, some of which, such as financial institutions, regulated investment companies, real estate investment trusts, tax-exempt organizations, insurance companies, persons holding our common shares as part of a hedging, integrated, conversion or constructive sale transaction or a straddle, traders in securities that have elected the mark-to-market method of accounting for their securities, persons liable for alternative minimum tax, persons who are investors in partnerships or other pass-through entities for U.S. federal income tax purposes, dealers in securities or currencies, U.S. Holders, as defined below, whose functional currency is not the U.S. dollar and investors that own, actually or under applicable constructive ownership rules, 10% or more of our common shares, may be subject to special rules. This discussion deals only with holders who acquire our common shares in connection with this offering and hold the common shares as a capital asset. You are encouraged to consult your own tax advisors concerning the overall tax consequences arising in your own particular situation under U.S. federal, state, local or non-U.S. law of the ownership of our common shares.

 

Marshall Islands Tax Considerations

 

In the opinion of Seward & Kissel, LLP, the following are the material Marshall Islands tax consequences of our activities to us and of the ownership of our common shares to our shareholders. We are incorporated in the Marshall Islands. Under current Marshall Islands law, we are not subject to tax on income or capital gains, and no Marshall Islands withholding tax will be imposed upon payments of dividends by us to our shareholders or on capital gains realized by our shareholders from the disposition of our shares.

 

U.S. Federal Income Tax Considerations

 

In the opinion of Seward & Kissel, LLP, our U.S. counsel, the following are the material U.S. federal income tax consequences of the ownership of common shares to U.S. Holders and Non-U.S. Holders, each as defined below. The following discussion of U.S. federal income tax matters is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the U.S. Department of the Treasury, or the Treasury Regulations, all of which are subject to change, possibly with retroactive effect. The discussion below is based, in part, on the description of our business as described in this prospectus and assumes that we conduct our business as described herein.

 

U.S. Federal Income Taxation of the Company

 

We are not currently subject to any U.S. federal income tax on our income. However, in the future we may directly or through a subsidiary conduct activities which would give rise to U.S.-source income. Depending on the nature of those activities, we may be subject to U.S. federal income tax on all or a portion of the income from such activities.

 

U.S. Federal Income Taxation of U.S. Holders

 

As used herein, the term “U.S. Holder” means a holder that for U.S. federal income tax purposes is a beneficial owner of common shares and is an individual U.S. citizen or resident, a U.S. corporation or other U.S. entity taxable as a corporation, an estate the income of which is subject to U.S. federal income taxation regardless of its source, or a trust if a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.

 

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If a partnership holds our common shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding our common shares, you are encouraged to consult your tax advisor.

 

Distributions

 

Subject to the discussion of passive foreign investment companies below, any distributions made by us with respect to our common shares to a U.S. Holder will generally constitute dividends to the extent of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of such earnings and profits will be treated first as a nontaxable return of capital to the extent of the U.S. Holder’s tax basis in its common shares and thereafter as capital gain. Because we are not a U.S. 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 with respect to our common shares will generally be treated as foreign source dividend income and will generally constitute “passive category income” for purposes of computing allowable foreign tax credits for U.S. foreign tax credit purposes.

 

Until the common shares are publicly traded on the NYSE, any dividends paid by us will be treated as ordinary income to a U.S. Holder, and may continue to be so treated thereafter. Dividends paid on our common shares to certain non-corporate U.S. Holders will generally be treated as “qualified dividend income” that is taxable to such U.S. Holders at preferential tax rates provided that (1) the common shares are readily tradable on an established securities market in the United States (such as the NYSE); (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 (as discussed in detail below); (3) the non-corporate U.S. Holder has owned the common shares for more than 60 days in the 121-day period beginning 60 days before the date on which the common shares become ex-dividend; and (4) certain other conditions are met.

 

There is no assurance that any dividends paid on our common shares will be eligible for these preferential rates in the hands of such non-corporate U.S. Holders. Any dividends paid by us which are not eligible for these preferential rates will be taxed as ordinary income to a non-corporate U.S. Holder.

 

Special rules may apply to any “extraordinary dividend” (generally, a dividend in an amount which is equal to or in excess of 10% of a shareholder’s adjusted tax basis in a common share) paid by us. If we pay an “extraordinary dividend” on our common shares that is treated as “qualified dividend income” to a non-corporate U.S. Holder, then any loss derived by such non-corporate U.S. Holder from the sale or exchange of such common shares will be treated as long-term capital loss to the extent of such dividend.

 

Sale, Exchange or Other Disposition of Common Shares

 

Assuming we do not constitute a passive foreign investment company for any taxable year, a U.S. Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our common shares in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holder’s tax basis in such shares. Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder’s holding period is greater than one year at the time of the sale, exchange or other disposition. Such capital gain or loss will generally be treated as U.S. source income or loss, as applicable, for U.S. foreign tax credit purposes. Long-term capital gains of certain non-corporate U.S. Holders are currently eligible for reduced rates of taxation. A U.S. Holder’s ability to deduct capital losses is subject to certain limitations.

 

Passive Foreign Investment Company Status and Significant Tax Consequences

 

Special U.S. federal income tax rules apply to a U.S. Holder that holds shares in a foreign corporation classified as a “passive foreign investment company,” or a PFIC, for U.S. federal income tax purposes. In

 

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general, we will be treated as a PFIC with respect to a U.S. Holder if, for any taxable year in which such holder holds our common shares, either

 

  (1)   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

 

  (2)   at least 50% of the average value of our assets during such taxable year produce, or are held for the production of, passive income.

 

For purposes of determining whether we are a PFIC, cash will be treated as an asset which is held for the production of passive income. In addition, 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 income” unless we were treated under specific rules as deriving our rental income in the active conduct of a trade or business.

 

We do not believe that we will be treated as a PFIC for any taxable year. However, our status as a PFIC is determined on an annual basis and will depend upon the operations of our vessels and our other activities during each taxable year. In making the determination as to whether we are a PFIC, we intend to treat the gross income we derive or are deemed to derive from the spot chartering and time chartering activities of us or any of our subsidiaries as services income, rather than rental income. Correspondingly, such income should 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 should 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 IRS pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, there is also authority which characterizes time charter income as rental income rather than services income for other tax purposes. In the absence of any legal authority specifically relating to the statutory provisions governing PFICs, the IRS 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 shares, as discussed below.

 

If we were to be treated as a PFIC for any taxable year, U.S. Holders would be required to report their ownership of our common shares to the IRS by filing an IRS Form 8621 with their U.S. federal income tax return for each such taxable year.

 

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 for U.S. federal income tax purposes its pro rata share of our ordinary earnings and net capital gain, if any, for each of our taxable years during which we are a PFIC that ends with or within the taxable year of the Electing Holder, regardless of whether distributions were received from us by the Electing Holder. No portion of any such inclusions of ordinary earnings will be treated as “qualified dividend income.” Net capital gain inclusions of certain non-corporate U.S. Holders may be eligible for preferential capital gains tax rates. The Electing Holder’s adjusted tax basis in the common shares will be increased to reflect any income included under the QEF election. Distributions of previously taxed income will not be subject to tax upon

 

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distribution but will decrease the Electing Holder’s tax basis in the common shares. An Electing Holder would not, however, be entitled to a deduction for its pro rata share of any losses that we incur with respect to any taxable year. An Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of our common shares. A U.S. Holder would make a timely QEF election for our common shares by filing IRS Form 8621 with his U.S. federal income tax return for the first year in which he held such shares when we were a PFIC. If we determine that we are a PFIC for any taxable year, we would provide each U.S. Holder with all necessary information in order to make the QEF election described above.

 

Taxation of U.S. Holders Making a “Mark-to-Market” Election

 

Alternatively, if we were to be treated as a PFIC for any taxable year and, as we anticipate will be the case after the listing of our common shares on the NYSE, our common shares are treated as “marketable stock,” a U.S. Holder would be allowed to make a “mark-to-market” election with respect to our common shares, provided the U.S. Holder completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. If that election is made, the U.S. Holder generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of the common shares at the end of the taxable year over such U.S. Holder’s adjusted tax basis in the common shares. The U.S. Holder would also be permitted an ordinary loss in respect of the excess, if any, of the U.S. Holder’s adjusted tax basis in the common shares over their fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holder’s tax basis in his common shares would be adjusted to reflect any such income or loss amount recognized. Any gain realized on the sale, exchange or other disposition of the common shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the common shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the U.S. Holder.

 

Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election

 

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 the common shares in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder’s holding period for the common shares), and (2) any gain realized on the sale, exchange or other disposition of our common shares. Under these special rules:

 

  (1)   the excess distribution or gain would be allocated ratably over the Non-Electing Holder’s aggregate holding period for the common shares;

 

  (2)   the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, would be taxed as ordinary income and would not be “qualified dividend income”; and

 

  (3)   the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed tax deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.

 

U.S. Federal Income Taxation of “Non-U.S. Holders”

 

As used herein, the term “Non-U.S. Holder” means a holder that, for U.S. federal income tax purposes, is a beneficial owner of common shares (other than a partnership) that is not a U.S. Holder.

 

If a partnership holds our common shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding our common shares, you are encouraged to consult your tax advisor.

 

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Dividends on Common Shares

 

A Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on dividends received from us with respect to our common shares, unless that income is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States. In general, if the Non-U.S. Holder is entitled to the benefits of an applicable U.S. income tax treaty with respect to those dividends, that income is taxable only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States.

 

Sale, Exchange or Other Disposition of Common Shares

 

A Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on any gain realized upon the sale, exchange or other disposition of our common shares, unless:

 

  (1)   the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States; in general, in the case of a Non-U.S. Holder entitled to the benefits of an applicable U.S. income tax treaty with respect to that gain, that gain is taxable only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States; or

 

  (2)   the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other conditions are met.

 

Income or Gains Effectively Connected with a U.S. Trade or Business

 

If the Non-U.S. Holder is engaged in a U.S. trade or business for U.S. federal income tax purposes, dividends on the common shares and gain from the sale, exchange or other disposition of the shares, that is effectively connected with the conduct of that trade or business (and, if required by an applicable U.S. income tax treaty, is attributable to a U.S. permanent establishment), will generally be subject to regular U.S. federal income tax in the same manner as discussed in the previous section relating to the taxation of U.S. Holders. In addition, in the case of a corporate Non-U.S. Holder, its earnings and profits that are attributable to the effectively connected income, which are subject to certain adjustments, may be subject to an additional U.S. federal branch profits tax at a rate of 30%, or at a lower rate as may be specified by an applicable U.S. income tax treaty.

 

Backup Withholding and Information Reporting

 

In general, dividend payments, or other taxable distributions, and the payment of gross proceeds on a sale or other disposition of our common shares, made within the United States to a non-corporate U.S. Holder will be subject to information reporting. Such payments or distributions may also be subject to backup withholding if the non-corporate U.S. Holder:

 

  (1)   fails to provide an accurate taxpayer identification number;

 

  (2)   is notified by the IRS that it has have failed to report all interest or dividends required to be shown on its U.S. federal income tax returns; or

 

  (3)   in certain circumstances, fails to comply with applicable certification requirements.

 

Non-U.S. Holders may be required to establish their exemption from information reporting and backup withholding with respect to dividend payments or other taxable distributions on our common shares by certifying their status on an applicable IRS Form W-8. If a Non-U.S. Holder sells our common shares to or through a U.S. office of a broker, the payment of the proceeds is subject to both U.S. backup withholding and information reporting unless the Non-U.S. Holder certifies that it is a non-U.S. person, under penalties of perjury, or it otherwise establish an exemption. If a Non-U.S. Holder sells our common shares through a non-U.S. office of a non-U.S. broker and the sales proceeds are paid outside the United States, then information reporting and backup withholding generally will not apply to that payment. However, U.S. information reporting requirements, but not

 

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backup withholding, will apply to a payment of sales proceeds, even if that payment is made outside the United States, if a Non-U.S. Holder sells our common shares through a non-U.S. office of a broker that is a U.S. person or has some other contacts with the United States. Such information reporting requirements will not apply, however, if the broker has documentary evidence in its records that the Non-U.S. Holder is not a U.S. person and certain other conditions are met, or the Non-U.S. Holder otherwise establishes an exemption.

 

Backup withholding is not an additional tax. Rather, a refund may generally be obtained of any amounts withheld under backup withholding rules that exceed the taxpayer’s U.S. federal income tax liability by filing a timely refund claim with the IRS.

 

Individuals who are U.S. Holders (and to the extent specified in applicable Treasury Regulations, Non-U.S. Holders and certain U.S. entities) who hold “specified foreign financial assets” (as defined in Section 6038D of the Code) are required to file IRS Form 8938 with information relating to the asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on the last day of the taxable year (or such higher dollar amount as prescribed by applicable Treasury Regulations). Specified foreign financial assets would include, among other assets, our common shares, unless the common shares are held in an account maintained with a U.S. financial institution. Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect. Additionally, in the event an individual U.S. Holder (and to the extent specified in applicable Treasury Regulations, a Non-U.S. Holder or a U.S. entity) that is required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of U.S. federal income taxes of such holder for the related tax year may not close until three years after the date that the required information is filed. U.S. Holders (including U.S. entities) and Non-U.S. Holders are encouraged to consult their own tax advisors regarding their reporting obligations in respect of our common shares.

 

Other Tax Considerations

 

In addition to the tax consequences discussed above, we may be subject to tax in one or more other jurisdictions where we conduct activities. The amount of any such tax imposed upon our operations may be material.

 

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SHARES ELIGIBLE FOR FUTURE SALE

 

        common shares, or         %, of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common shares to drop significantly, even if our business is doing well.

 

After this offering, we will have outstanding                 common shares. This includes the                 we are selling in this offering, which may be resold in the public market immediately. The remaining         %, or                 shares, of our total outstanding shares will become available for resale in the public market as shown in the chart below.

 

As restrictions on resale end, the market price could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them.

 

Number of
shares /        %
of total
outstanding
    

Date of availability for resale into public market

  /         %                   days after the date of this prospectus due to an agreement these shareholders have with the underwriters. However, the underwriters can waive this restriction and allow these shareholders to sell their shares at any time subject to the limitations imposed by the U.S. securities laws applicable to our affiliates.
  /         %       Following the completion of the Exchange Offer, which we intend to commence concurrently with this offering, up to an additional             common shares that were sold in the 2013 Private Placement may be available for trading in the U.S. markets. Any common shares held by persons other than affiliates of the Company for at least six months will become transferable under Rule 144 beginning 90 days following the pricing of this offering.

 

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UNDERWRITING

 

Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. LLC, Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC and Pareto Securities AS are acting as representatives, have severally agreed to purchase, and we have agreed to sell to them, severally, the number of shares indicated below:

 

Name

   Number of
Shares

Morgan Stanley & Co. LLC

  
  

 

Credit Suisse Securities (USA) LLC

  
  

 

J.P. Morgan Securities LLC

  
  

 

Pareto Securities AS

  
  

 

Total

  
  

 

 

The underwriters are offering the common shares subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the common shares offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the common shares offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ over-allotment option described below.

 

The underwriters initially propose to offer part of the common shares directly to the public at the offering price listed on the cover page of this prospectus and part to certain dealers. Any common shares sold by the underwriters to securities dealers may be sold at a discount of up to $         per share from the public offering price. Any such securities dealers may resell any common shares purchased from the underwriters to certain other brokers or dealers at a discount from the initial public offering price of up to $         per share from the public offering price. After the initial offering of the common shares, the offering price and other selling terms may from time to time be varied by the representative.

 

The activities of Pareto Securities AS in the United States will be effected through Pareto Securities Inc. in accordance with Rule 15a-6 under the Exchange Act.

 

We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to             additional common shares at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the common shares offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional common shares as the number listed next to the underwriter’s name in the preceding table bears to the total number of common shares listed next to the names of all underwriters in the preceding table.

 

The following table shows the per share and total public offering price, underwriting discounts and commissions, and proceeds before expenses to us. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase up to an additional             common shares.

 

            Total  
     Per
Share
     No
Exercise
     Full
Exercise
 

Public offering price

   $                    $                    $                

Underwriting discounts and commissions paid by us

   $         $         $     

Proceeds, before expenses, to us

   $         $         $     

 

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The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately $            . We have agreed to reimburse the underwriters for expenses relating to clearance of this offering with the Financial Industry Regulatory Authority up to $            .

 

The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of common shares offered by them.

 

We intend to apply to list our common shares on the New York Stock Exchange under the trading symbol “            ”.

 

We and all directors and officers and certain other existing holders of our common shares have agreed that, subject to certain exceptions, without the prior written consent of the representatives on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus (the “restricted period”):

 

   

offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any common shares or any securities convertible into or exercisable or exchangeable for common shares; or

 

   

enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common shares.

 

whether any such transaction described above is to be settled by delivery of common shares or such other securities, in cash or otherwise. In addition, we and such other persons have agreed that, subject to certain exceptions, without the prior written consent of the representatives on behalf of the underwriters, we and such other persons will not, during the restricted period, in the case of the Company, file any registration statement with the Securities and Exchange Commission relating to the offering of any common shares or any securities convertible into or exercisable or exchangeable for common shares, and, in the case of such other persons, make any demand for, or exercise any right with respect to, the registration of any common shares or any securities convertible into or exercisable or exchangeable for common shares.

 

The representatives, in their sole discretion, may release the common shares and other securities subject to the lock-up agreements described above in whole or in part at any time with or without notice.

 

In order to facilitate the offering of the common shares, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common shares. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common shares in the open market after pricing that could adversely affect investors who purchase in this offering. As an additional means of facilitating this offering, the underwriters may bid for, and purchase, common shares in the open market to stabilize the price of the common shares. These activities may raise or maintain the market price of the common shares above independent market levels or prevent or retard a decline in the market price of the common shares. The underwriters are not required to engage in these activities and may end any of these activities at any time.

 

We and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.

 

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allocate a number of common shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representative to underwriters that may make Internet distributions on the same basis as other allocations.

 

Other Relationships

 

The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they received or will receive customary fees and expenses.

 

In addition, in the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and instruments. The underwriters and their respective affiliates may also make investment recommendations or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions in such securities and instruments.

 

Pricing of the Offering

 

Our common shares currently trade on the Norwegian OTC List and there is currently no established trading market for our common shares in the United States. The initial public offering price was determined by negotiations between us and the representative. Among the factors considered in determining the initial public offering price were our future prospects and those of our industry in general, our sales, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities, and certain financial and operating information of companies engaged in activities similar to ours.

 

Selling Restrictions

 

European Economic Area

 

In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a “Relevant Member State”), an offer to the public of any common shares may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any common shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

 

  (a)   to any legal entity that is a qualified investor as defined in the Prospectus Directive;

 

  (b)   to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives for any such offer; or

 

  (c)   in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of our common shares shall result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.

 

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For the purposes of this provision, the expression an “offer to the public” in relation to any of our common shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any common shares to be offered so as to enable an investor to decide to purchase any of our common shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State, and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

 

United Kingdom

 

In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are “qualified investors” (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”), and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). This document must not be acted on or relied on in the United Kingdom by persons who are not relevant persons. In the United Kingdom, any investment or investment activity to which this document relates is only available to, and will be engaged in with, relevant persons.

 

Notice to Prospective Investors in Hong Kong

 

The common shares may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the common shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to common shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

 

Notice to Prospective Investors in Singapore

 

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the common shares may not be circulated or distributed, nor may the common shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

 

Where the common shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, common shares, debentures and units of common shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for 6 months after

 

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that corporation or that trust has acquired the common shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.

 

Notice to Prospective Investors in Japan

 

The common shares have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the “Financial Instruments and Exchange Law”) and each underwriter has agreed that it will not offer or sell any common shares, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.

 

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ENFORCEMENT OF CIVIL LIABILITIES AND INDEMNIFICATION FOR

SECURITIES ACT LIABILITIES

 

We are incorporated under the laws of the Republic of the Marshall Islands, and we conduct operations in countries around the world. Most of the directors, officers and experts named in this prospectus reside outside the United States. In addition, substantially all of our assets and the assets of the directors, officers and experts are located outside the United States. As a result, it may not be possible for you to serve legal process within the United States upon us or any of these persons. It may also not be possible for you to enforce, both in and outside the United States, judgments you may obtain in U.S. courts against us or these persons in any action, including actions based upon the civil liability provisions of U.S. federal or state securities laws. Furthermore, there is substantial doubt that the courts of such jurisdictions would enter judgments in original actions brought in those courts predicated on U.S. federal or state securities laws. See “Risk Factors—Risks Relating to Our Common Shares—We are incorporated in the Marshall Islands, which does not have a well-developed by of corporate and bankruptcy law” and “Risk Factors—Risks Relating to Our Common Shares—We are incorporated in the Marshall Islands and certain of our officers and directors are non-U.S. residents. It may be difficult to serve legal process or enforce judgments against us, our directors or our management.”

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

LEGAL MATTERS

 

The validity of the common shares and certain other matters relating to United States federal income and Marshall Islands tax considerations and to Marshall Islands corporations law will be passed upon for us by Seward & Kissel LLP, New York, New York. Certain legal matters in connection with the offering will be passed upon for the underwriters by Simpson Thacher & Bartlett LLP, New York, New York.

 

EXPERTS

 

The financial statements of Nordic American Offshore Ltd. included in this prospectus has been audited by Deloitte AS, an independent registered public accounting firm, as stated in their report appearing herein. Such financial statements are included in reliance upon the report of such firm given upon their authority as experts in auditing and accounting. The address of Deloitte AS is Dronning Eufemias gate 14, 0191 Oslo, Norway.

 

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WHERE YOU CAN FIND ADDITIONAL INFORMATION

 

We have filed with the SEC a registration statement on Form F-1 under the Securities Act with respect to our common shares offered by this prospectus. For the purposes of this section, the term “registration statement” means the original registration statement and any and all amendments, including the schedules and exhibits to the original registration statement or any amendment. This prospectus does not contain all of the information set forth in the registration statement on Form F-1 we filed. Although we believe that we have accurately summarized the material terms of documents filed as exhibits to the registration statement, you should read those exhibits for a complete statement of their provisions. The registration statement on Form F-1, including its exhibits and schedules, may be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., 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 Section of the SEC 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.

 

Information Provided by the Company

 

We will furnish holders of our common shares with annual reports containing audited financial statements and a report by our independent registered public accounting firm and intend to make available quarterly reports containing selected unaudited financial data for the first three quarters of each fiscal year. The audited financial statements will be prepared in accordance with U.S. GAAP and those reports will include a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section for the relevant periods. As a “foreign private issuer,” we are exempt from the rules under the Securities Exchange Act prescribing the furnishing and content of proxy statements to shareholders. While we furnish proxy statements to shareholders in accordance with the rules of any stock exchange on which our common shares may be listed in the future, those proxy statements will not conform to Schedule 14A of the proxy rules promulgated under the Securities Exchange Act. In addition, as a “foreign private issuer,” our officers and directors are exempt from Section 16 of the Securities Exchange Act and the rules under the Securities Exchange Act relating to, among other things, short swing profit reporting and liability.

 

OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

 

We estimate the expenses in connection with the distribution of our common shares in this offering, other than underwriting discounts and commissions, will be as set forth in the table below. We will be responsible for paying the following expenses associated with this offering.

 

SEC Registration Fee

   $ 14,812   

Printing and Engraving Expenses

   $ *   

Legal Fees and Expenses

   $ *   

Accountants’ Fees and Expenses

   $ *   

NYSE Listing Fee

   $ *   

FINRA Fee

   $ 17,750   

Blue Sky Fees and Expenses

   $ *   

Transfer Agent’s Fees and Expenses

   $ *   

Miscellaneous Costs

   $ *   

Total

   $ *   

 

  *   To be provided by amendment.

 

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INDEX TO FINANCIAL STATEMENTS

 

     Page  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     F-2   

Statement of Operations for the period from October 17, 2013 (inception) to December 31, 2013

     F-3   

Balance Sheet as of December 31, 2013

     F-4   

Statement of Shareholders’ Equity for the period from October 17, 2013 (inception) to December  31, 2013

     F-5   

Statement of Cash Flows for the period from October 17, 2013 (inception) to December 31, 2013

     F-6   

Notes to Financial Statements

     F-7   

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of Nordic American Offshore Ltd.

Majuro, Marshall Islands

 

We have audited the accompanying balance sheet of Nordic American Offshore Ltd. (the “Company”) as of December 31, 2013 and the related statements of operations, stockholders’ equity, and cash flows for the period from October 17, 2013 (inception) to December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit 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 audit provide a reasonable basis for our opinion.

 

In our opinion, such financial statements present fairly, in all material respects, the financial position of Nordic American Offshore Ltd. as of December 31, 2013, and the results of its operations and its cash flows for the period from October 17, 2013 (inception) to December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ Deloitte AS

 

Oslo, Norway

March 14, 2014

 

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Table of Contents

NORDIC AMERICAN OFFSHORE LTD.

 

STATEMENT OF OPERATIONS FOR THE PERIOD FROM OCTOBER 17, 2013

(INCEPTION) TO DECEMBER 31, 2013

All figures in USD ‘000, except share and per share amount

 

     From
Inception,
October 17 to
December 31,
 
     2013  

Charter Revenues

     1,280   

Charter Expenses

     (108

Vessel Operating Expenses—excluding depreciation expense presented below

     (686

General and Administrative Expenses

     (482

Depreciation Expenses

     (262
  

 

 

 

Net Operating Loss

     (258
  

 

 

 

Interest Income

     138   

Other Financial Income

     50   
  

 

 

 

Total Other Income

     188   
  

 

 

 

Income Tax

       
  

 

 

 

Net Loss and Comprehensive Loss

     (70
  

 

 

 

Basic Loss per Share

     (0.01

Diluted Loss per Share

     (0.01

Basic Weighted Average Number of Common Shares Outstanding

     8,772,166   

Diluted Weighted Average Number of Common Shares Outstanding

     8,772,166   

 

The footnotes are an integral part of these financial statements.

 

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NORDIC AMERICAN OFFSHORE LTD.

 

BALANCE SHEET AS OF DECEMBER 31, 2013

All figures in USD ‘000, except share and per share amount

 

     As of December 31,  
     2013  

A SSETS

  

Current Assets

  

Cash and Cash Equivalents

     109,819   

Accounts receivable, net

     1,160   

Prepaid expenses

     191   

Inventory

     319   

Other Current Assets

     516   
  

 

 

 

Total Current Assets

     112,005   
  

 

 

 

Non-Current Assets

  

Vessels, Net

     132,765   

Other Non-Current Assets

     612   

Total Non-current Assets

     133,377   
  

 

 

 

Total Assets

     245,382   
  

 

 

 

L IABILITIES AND S HAREHOLDERS ’ E QUITY

  

Current Liabilities

  

Accounts Payable

     981   

Accounts Payable, related party

     241   

Accrued Liabilities

     839   
  

 

 

 

Total Current Liabilities

     2,061   
  

 

 

 

Long term debt

       
  

 

 

 

Total Liabilities

     2,061   
  

 

 

 

Commitments and Contingencies

  

S HAREHOLDERS ’ E QUITY

  

Common shares, par value $0.01 per Share; 250,000,000 shares authorized, 16,666,666 shares issued and outstanding at December 31, 2013

     167   

Additional Paid-in Capital

     243,224   

Accumulated Deficit

     (70
  

 

 

 

Total Shareholders’ Equity

     243,321   
  

 

 

 

Total Liabilities and Shareholders’ Equity

     245,382   
  

 

 

 

 

The footnotes are an integral part of these financial statements.

 

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NORDIC AMERICAN OFFSHORE LTD.

 

STATEMENT OF SHAREHOLDERS’ EQUITY FOR THE PERIOD FROM OCTOBER 17, 2013 (INCEPTION) TO DECEMBER 31, 2013

All figures in USD ‘000, except number of shares

 

     Number of
Shares
    Common
Stock
     Additional
Paid-in
Capital
    Accumulated
deficit
    Total
Shareholders’
Equity
 

Balance at October 17, 2013

                                    
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Establishment, Marshall Islands

     500                0.5               0.5   

Private placement, net proceeds

     16,666,666        167         243,224               243,391   

Elimination of repurchased shares

     (500             (0.5            (0.5

Net Loss

                        (70     (70
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance at December 31, 2013

     16,666,666        167         243,224        (70     243,321   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

The footnotes are an integral part of these financial statements.

 

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NORDIC AMERICAN OFFSHORE LTD.

 

STATEMENT OF CASH FLOWS FOR THE PERIOD FROM OCTOBER 17, 2013 (INCEPTION) TO DECEMBER 31, 2013,

All figures in USD ‘000

 

     From Inception,
October 17 to
December 31,
 
     2013  

Cash Flows from Operating Activities

  

Net Loss

     (70

Reconciliation of Net Loss to Net Cash Provided by Operating Activities

  

Depreciation Expense

     262   

Changes in Operating Assets and Liabilities:

  

Accounts Receivables

     (1,160

Inventory

     (319

Prepaid and Other Current Assets

     (554

Accounts Payable and Accrued Liabilities

     1,055   

Accounts Payable Related party

     241   

Other Non-Current assets

       
  

 

 

 

Net Cash Used in Operating Activities

     (545
  

 

 

 

Cash Flows from Investing Activities

  

Investment in Vessels

     (133,027
  

 

 

 

Net Cash Used in Investing Activities

     (133,027
  

 

 

 

Cash Flows from Financing Activities

  

Net Proceeds from Issuance of Common Shares

     243,391   
  

 

 

 

Net Cash Provided by Financing Activities

     243,391   
  

 

 

 

Net Increase in Cash and Cash Equivalents

     109,819   
  

 

 

 

Cash and Cash Equivalents at Inception

       
  

 

 

 

Cash and Cash Equivalents at the End of Period

     109,819   
  

 

 

 

Cash paid for interest

       

Cash paid for tax

       

 

The footnotes are an integral part of these financial statements.

 

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NORDIC AMERICAN OFFSHORE LTD.

 

NOTES TO FINANCIAL STATEMENTS

(All amounts in USD ‘000 except where noted)

 

1.    Nature of Business

 

Formation

 

Nordic American Offshore Ltd. (“the Company”) was formed on October 17, 2013 under the laws of The Marshall Islands. On November 22, 2013 the Company completed a private placement of 16,666,666 shares of its common shares. The shares were issued at $15.00 per share and realized gross proceeds of $250.0 million.

 

The Company was listed on the Norwegian Over the Counter (“OTC”) Market on November 27, 2013 under the symbol “NAO”. The Company was formed for the purpose of acquiring and operating platform supply vessels (“PSVs”). The Company has a fiscal year end of December 31.

 

Vessel Acquisition

 

On November 18, 2013 the Company agreed to purchase six PSVs from Blue Ship Invest AS, a subsidiary of the Ulstein Group, for a contracted purchase price of NOK 272.5 million per vessel (in total approximately $267.3 million). At the time of agreement three of the six vessels were on charter contracts and the Company entered into separate agreements directly with the charterers, as the purchase of the vessels does not transfer the charter. Correspondingly the Company also entered into separate agreements directly with the technical managers, as the purchase of the vessels does not transfer the technical management contracts without the consents of the technical manager and the charterer. In February 2014 one of the contracts with a technical manager was terminated.

 

The Company compensated the seller for inventories on board at the time of delivery. No intellectual property was identified or transferred by the seller as part of the acquisitions. No employees of the seller were included as part of the transactions, and no other assets or liabilities were acquired or assumed. In addition to the agreed purchase price approximately $50,000 in acquisition related expenses were capitalized as Vessels, net.

 

The Fleet

 

As of December 31, 2013 the Company’s fleet consisted of three PX121 PSVs employed either on time charters or the spot market. A spot charter is defined as a contract with duration of up to one year; contracts with duration of over one year are referred to as time charters. The remaining three vessels were delivered in January 2014.

 

Vessel Name

   Year
Built
    

Type of Charter /
Charterer

   Capacity
(dwt)
     Cargo Deck
Area

(sq. meters)
    

Delivered to
NAO

  

Earliest/Latest
Charter
Expiration

Blue Thunder

     2013       Spot Charter / Statoil Petroleum AS      4200         850       December 2013   

July 2014/

January 2015

Blue Guardian

     2013       Spot Charter / Statoil Petroleum AS      4200         850       December 2013   

July 2014/

January 2015

Blue Protector

     2013      

Spot Charter / Statoil Petroleum AS

     4200         850       December 2013   

July 2014/

October 2014

 

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Employment and Operation of our Vessels

 

As of March 14, 2014, all of the six vessels are on contract employment to major oil and energy companies with an average duration (including options) of a little over two years with rates between $25,000 and $29,000 per day per vessel.

 

The Company’s direction is dictated by its Board of Directors, which make resolutions on all key decisions. The strategies are implemented and monitored by its management and Scandic American Shipping (“Scandic” or our “Manager”). The Manager has the daily administrative responsibility, and interim commercial and operational responsibility, for the vessels. The Manager has the overall responsibility for the supervision of the Company’s functions to ensure that strategies set by the Board of Directors are followed in all situations that can influence its profitability.

 

The commercial management of PSVs include, but is not limited to, procuring charter parties, managing the relationship with charterers, invoicing costumers and ensuring that the commercial strategy set by the Board of Directors is followed. The Company plans to employ its own personnel who will relieve the Manager and perform these services.

 

The operational management of PSVs includes, but is not limited to, supervising technical managers, collecting outstanding charter revenues, plan and execute drydockings, arranging insurance for the vessels and ensuring that the operational strategy set by the Board of Directors is followed. The Company has employed personnel who will relieve the Manager and perform these services.

 

Technical management of PSVs include, but is not limited to, vessel maintenance and ad-hoc repair, crewing and training, procuring vessel spares and stores supply, contingency response planning, onboard safety procedures auditing, vessel accounting, and vessel performance monitoring. The technical management is performed by two external parties in accordance with approved budgets and under the supervision and direction of the operational manager and Manager. In February 2014 one of the contracts with a technical manager was terminated.

 

2.    Summary of Significant Accounting Policies

 

Basis of Accounting: These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

 

Use of Estimates: Preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The effects of changes in accounting estimates are accounted for in the same period in which the estimates are changed.

 

Foreign Currency Translation: The Company’s reporting and functional currency is U.S. dollar. The Company will generate revenues and incur cost in foreign currencies. Transactions in foreign currencies during the year will be translated into U.S dollars at the rates of exchange in effect at the date of the transaction . Balance sheet items will be translated at the rates of exchange in effect at the balance sheet date.

 

Revenue and Expense Recognition: Revenues and expenses for spot charters and time charters are recognized on the accruals basis. Revenues are generated from time charters and spot charters.

 

Charter revenues and expenses are recognized on a straight line basis over the duration of the contract with the charterer and, therefore, may be allocated between reporting periods based on the relative transit time in each period. The impact of recognizing charter expenses ratably over the length of each contract, if any, is not materially different on a quarterly and annual basis from a method of recognizing such costs as incurred. Probable losses on contracts are provided for in full at the time such losses can be estimated.

 

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Vessel Operating Expenses: Vessel operating expenses include crewing, repair and maintenance, insurance, stores, lubricants, management fee, communication expenses and tonnage tax. These expenses are recognized when incurred.

 

Cash and Cash Equivalents: Cash and cash equivalents consist of highly liquid investments such as time deposits with original maturities of three months or less.

 

Accounts Receivable: Accounts and other receivables are presented net of allowances for doubtful balances. If amounts become uncollectable, they are charged against income when that determination is made.

 

Inventories: Inventories, which are comprised of bunker fuel and lubrication oil, are stated at the lower of cost or market, which is determined on a first-in, first-out (“FIFO”) basis. Bunker fuel on board at the time of delivery to a charterer is purchased by the charterer. The bunker fuel is recognized as a current or non-current receivable depending on the duration of the charter party as the bunkers is settled at the time of redelivery to the Company.

 

Vessels, Net: Vessels are stated at their historical cost, which consists of the contracted purchase price and any direct expenses incurred upon acquisition less accumulated depreciation. Certain subsequent expenditures for conversions and major improvements are also capitalized if it is determined that they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the vessel. Depreciation is calculated based on cost less estimated residual value, and is provided over the estimated useful life of the related assets using the straight-line method. The estimated useful life of a vessel is 25 years from the date the vessel is delivered from the shipyard. Repairs and maintenance are expensed as incurred. The vessels residual values and useful lifetime assumptions are reviewed at each balance sheet date, and where they differ significantly from previous estimates, depreciation charges are changed accordingly on a prospective basis.

 

Impairment of Long-Lived Assets: The Company reviews for impairment long-lived assets held and used whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In this respect, the Company reviews its assets for impairment on an asset by asset basis. When the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, the Company evaluates the asset for impairment loss. The impairment loss is determined by the difference between the carrying amount of the asset and fair value (calculated based on estimated discounted operating cash flow). In developing estimates of future undiscounted cash flows, the Company makes assumptions and estimates about the vessels’ future performance, with the significant assumptions being related to charter rates, fleet utilization, operating expenses, capital expenditures, residual value and the estimated remaining useful life of each vessel. The assumptions used to develop estimates of future undiscounted cash flows are based on historical trends as well as future expectations. The estimated net operating cash flows are determined by considering an estimated time charter equivalent for the remaining operating days.

 

Drydocking: The Company’s vessels are required to be drydocked approximately every 60 months. The Company will capitalize a substantial portion of the costs incurred during drydocking, and amortize those costs on a straight line basis from the completion of a drydocking or intermediate survey to the estimated completion of the next drydocking. For the vessels acquired an estimated drydock cost of $200,000 has been allocated from the purchase price, and is depreciated over five years.

 

Other Comprehensive Income (Loss): The Company follows the guidance in Accounting Standards Codification (“ASC”) Topic 220, Comprehensive Income which requires separate presentation of certain transactions that are recorded directly as components of shareholders’ equity. No such transactions have occurred, thus the separate schedules have been omitted from these financial statements.

 

Geographical Segment: The Company currently operates all of its six vessels in the North Sea.

 

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Fair Value of Financial Instruments: The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate carrying value because of the short-term nature of these instruments.

 

Income Taxes: The Company is incorporated in The Marshall Islands. Under current legislation, the Company is not subject to corporate income taxes. Corporate income taxes may be imposed by nations in the regions where the Company operates.

 

Deferred Financing Costs: Finance costs, including fees, commissions and legal expenses, which are recorded as “Other non-current Assets” on the Balance Sheet are deferred and amortized on a straight-line basis over the term of the arrangement.

 

Share-Based Payments:

 

Share-Based Compensation: The compensation costs for all of the Company’s stock-based compensation awards are based on the fair value method as defined in ASC Topic 718, Compensation – Stock Compensation (FAS 123(R)).

 

Warrants issued as compensation: The fair value of the warrants has been determined based on the Black-Scholes valuation model with the significant non-observable input being the volatility in the stock and the probability of increase in the volume weighted average price, or VWAP. The volatility has been determined by analyzing nine comparative companies in the PSV segment over a period of ten years. The probability of meeting the exercise requirements presented in Note 3, including number of business days and trading volume, has been qualitatively considered by management. In addition to using the Black-Scholes valuation model, a dilution adjustment factor has been applied.

 

Interest Rate Risk: We are exposed to market risk from changes in interest rates related to the variable rate of the Company’s borrowings under our Credit Facility. Amounts borrowed under the Credit Facility bear interest at a rate equal to LIBOR plus a margin. Increasing interest rates could affect our future profitability. In certain situations, the Company may enter into financial instruments to reduce the risk associated with fluctuations in interest rates. The Company has no long term debt as of December 31, 2013.

 

Foreign Currency Exchange Risk: Charter revenues and charter expenses generated in the period of operations in 2013 for the three delivered vessels were in Norwegian kroner. For accounting purposes, expenses and revenue incurred or generated in currencies other than U.S. dollars are converted in U.S. dollars at the exchange rate prevailing on the date of each transaction. Because a portion of our revenues and expenses may be incurred in currencies other than the U.S. dollar, our revenues or expenses may from time to time increase relative to each other as a result of fluctuations in exchange rates, which could affect the amount of net income that we report in future periods. As of December 31, 2013, the net effect of a 1% adverse movement in U.S. dollar exchange rates would not have a material effect on our operating results.

 

We do not currently hedge movements in currency exchange rates, but our management monitors exchange rate fluctuations on a continuous basis. We may seek to hedge this currency fluctuation risk in the future.

 

Concentration of Credit Risk: Our PSVs are used for transporting supplies and equipment to and from offshore installations such as drilling rigs in the North Sea. The charterers consist of major oil companies. For the period from October 17, 2013 (inception) to December 31, 2013, Statoil accounted for all of our total revenues.

 

Recent Accounting Pronouncements: There are no recent pronouncements issued whose adoption would have a material impact on the Company’s financial statements in the current period or are expected to have a material impact on future years.

 

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3.    Shareholders’ Equity

 

Authorized, issued and outstanding common shares since inception:

 

     Authorized
Shares
     Issued and
Outstanding
Shares
     Common
Stock
 
     All figures in USD ‘000, except number of shares  

Incorporation of company, October 17, 2013

     1,000         500           

Increased authorized share capital

     249,999,000         

Common Shares issued in Private Placement, November 22, 2013

        16,666,666         167   

Repurchase and cancellation of shares

        -500           
  

 

 

    

 

 

    

 

 

 

Balance

     250,000,000         16,666,666         167   
  

 

 

    

 

 

    

 

 

 

 

The Company was formed on October 17, 2013 under the laws of The Marshall Islands, with 1,000 common shares authorized and 500 common shares issued.

 

On November 21, 2013, the Company increased its authorized share capital from 1,000 common shares to 250,000,000 common shares, par value $0.01 per share.

 

On November 22, 2013 the Company issued 16,666,666 common shares in connection with the private placement that was completed on November 27, 2013 and raised $250.0 million gross proceeds.

 

As part of the Private Placement, the Company issued 833,333 warrants to NAT with an exercise price of $15.00 per common share. The warrants vest in 20% increments at each 10% increase in the VWAP, of our common shares between increases of 25% to 65%. The VWAP must be above an exercise level for a minimum of 10 business days, with a minimum trading volume of $2.0 million above exercise levels. The warrants mature on December 31, 2015.

 

The warrants are classified as a share-based compensation transaction with non-employees. The performance obligation was met upon completion of the Private Placement, and the fair value of the warrants was recognized in equity in accordance with subtopic ASC 505-50. The warrants were issued as payment for the services provided by the Nordic American Tankers Limited (“NAT”) in relation to the Private Placement; accordingly this is deducted from the equity as an issuance cost. The net impact on equity is accordingly $0.

 

At the close of the Private Placement we repurchased and cancelled the 500 shares issued in connection with our initial capitalization.

 

4.    Vessels

 

Vessels, net, consist of the carrying value of three vessels, which were acquired December 5, December 16 and December 17, 2013:

 

     Vessel
cost
     Dry
Docking
     Accumulated
depreciation
    Net book
Value
 
     All figures in USD ‘000  

Balance, October 17, 2013

                              
  

 

 

    

 

 

    

 

 

   

 

 

 

Vessel acquisitions

     132,427         600                133,027   

Depreciation

                     (262     (262
  

 

 

    

 

 

    

 

 

   

 

 

 

Balance, December 31, 2013

     132,427         600         (262     132,765   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

All vessels are accounted for at the purchase price with a drydocking component of $200,000, which is deducted from the purchase price and depreciated until the first expected drydocking. The first expected drydocking is five years after the vessel was completed. The estimated useful life of each vessel is considered to be 25 years, and the estimated residual value is $1,500,000.

 

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Accounting for Acquisition of Vessels

 

The Company performed an analysis of the acquisition of the six PSVs considering the guidance in ASC Topic 805, Business Combinations (“ASC 805”). ASC 805 defines a business as “An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members or participants”. Furthermore subtopic ASC 805-10-55 provides implementation guidance to identify what constitutes a business. The Company considered each element of a business described in the guidance (i.e. inputs, processes and outputs). A PSV is considered to be an input that is an economic resource in the form of a long-lived asset that has the ability to create outputs when processes are applied to it in the form of strategic, operational and resource management processes. The Company did not identify any processes that were transferred from the seller with the vessels, and consequently were unable to identify any outputs that were a result of processes acquired with the vessels applied to the input. Based on these considerations the acquisition of the vessels from an unaffiliated party was accounted for as an acquisition of assets. For further information of the acquisition please see the “Vessel Acquisition” paragraph of Note 1.

 

5.    Long-Term Debt

 

Credit Facility:

 

On December 19, 2013, the Company entered into a $60.0 million revolving credit facility (“Credit Facility”) with a syndicate of lenders in order to secure available liquidity for general corporate purposes. Amounts borrowed under the Credit Facility bear interest at an annual rate equal to LIBOR plus a margin of 2.5 % p.a. and the Company pays a commitment fee of 1.0 % p.a. on any undrawn amounts. The credit facility matures in December 2018.

 

Borrowings under the Credit Facility are currently secured by first priority mortgages on four of the Company’s vessels and assignments of earnings and insurance. Under the Credit Facility, the Company is subject to certain covenants requiring among other things, the maintenance of (i) a minimum value adjusted amount of equity (ii) a minimum value adjusted equity ratio (iii) a minimum level of liquidity (iv) a positive working capital. The Credit Facility also includes customary events of default, including non-payment, breach of covenants, insolvency, cross defaults and material adverse change. The Company is permitted to pay dividends in accordance with its dividend policy so long as it is not in default.

 

In connection with the establishment of the Credit Facility the Company incurred $765,000 in debt issuance cost that were included in Accrued Liabilities as of December 31, 2013, due to subsequent payment.

 

The Company was in compliance with its loan covenants as of December 31, 2013.

 

6.    Related Party Transactions

 

Nordic American Tankers Limited:

 

On November 18, 2013, NAT purchased 4,333,566 common shares for $65.0 million as part of the Private Placement, making NAT the largest shareholder with an ownership of 26 %.

 

NAT assisted the Company in the Private Placement. As compensation the Company issued warrants, valued at $0.9 million, and agreed to pay a success fee of $1.5 million contingent on stock listing of the Company at the New York Stock Exchange. For further information on the warrants please see Note 3.

 

The Company has a Management Agreement with Scandic, signed November 18, 2013. The Manager is wholly owned by NAT. The Manager has the daily administrative responsibility, and interim commercial and operational responsibility, for the vessels. Requirements to the Manager on certain aspects of the day-to-day operation are subject to the Company’s objectives and policies as established by the Board of Directors.

 

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For its services under the Management Agreement, the Manager will receive a total compensation of $150,000 per annum, and all direct costs related to the Company will be reimbursed.

 

As of December 31, 2013 the Company had $200,000 payable to NAT and $41,000 payable to the Manager.

 

Blue Power Limited:

 

In December 2013, the Company formed Blue Power Limited (“BPL”) under the laws of the Islands of Bermuda. The sole activity of BPL is to own the vessel Blue Power (delivered in January 2014), and the vessel will be operated as a part of the Company’s fleet using the same management. BPL had no activity in 2013, and will be part of the Company’s financial statements when the activity commences.

 

7.    Legal Proceedings and Claims

 

The Company may become a party to various legal proceedings generally incidental to its business and is subject to a variety of environmental and pollution control laws and regulations. As is the case with other companies in similar industries, the Company faces exposure from actual or potential claims and legal proceedings. Although the ultimate disposition of legal proceedings cannot be predicted with certainty, it is the opinion of the Company’s management that the outcome of any claim which might be pending or threatened, either individually or on a combined basis, will not have a materially adverse effect on the financial position of the Company, but could materially affect the Company’s results of operations in a given year.

 

No claims have been filed against the Company in 2013.

 

8.    SUBSEQUENT EVENTS

 

The following material events have occurred after the balance sheet date.

 

Delivery of Vessels:

 

In January 2014, the Company took delivery of the three remaining vessels that were originally agreed to be acquired on November 18, 2013 (see Note 1). The Company drew down $30 million on its Credit Facility on January 10, 2014 to finance the delivery of the three vessels. The Company paid $132.7 million of the total acquisition price subsequent to December 31, 2013.

 

Details of the three vessels delivered in January 2014 are as follows:

 

Vessel Name

   Year
Built
    

Type of Charter /
Charterer

   Capacity
(dwt)
     Cargo Deck
Area

(sq. meters)
    

Delivered to
NAO

  

Earliest/Latest
Charter

Expiration

Blue Fighter

     2012       Time Charter / Apache North Sea Limited      4200         850       January 2014    February 2015 / February 2016

Blue Prosper

     2012       Time Charter / Apache North Sea Limited      4242         850       January 2014    November 2014 / November 2015

Blue Power

     2013       Time Charter / BG International Limited      4200         850       January 2014    April 2018 / April 2020

 

In January 2014 the Company formed Nordic American Offshore (UK) Ltd, or NAO UK, in the United Kingdom. NAO UK will be responsible for the Company’s North Sea operations. NAO UK has currently one employee, employed to manage and supervise the operations of our vessels in the North Sea.

 

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On January 14, 2014 the vessel Blue Power was delivered to BPL.

 

On February 10, 2014, the Company announced that it had agreed to buy two more PSVs from a company in the Ulstein Group, which has a 4% interest in the Company. The two newbuildings will be delivered in January 2015, and cost about $44.0 million each.

 

On February 14, 2014, the Company drew down $10 million on its Credit Facility primarily to finance a 10% deposit due under the memoranda of agreement for the Company’s newbuilding PSVs.

 

In March 2014 the agreements with one of our two vessel managers, representing three of our vessels, were terminated and replaced by agreements with our other vessel manager.

 

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Table of Contents

 

                Shares

 

LOGO

 

 

 

Nordic American Offshore Ltd.

 

 

 

PROSPECTUS

 

            , 2014

 

Until             , 2014 (the 25th day after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.


Table of Contents

PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS

 

Item 6.  Indemnification of Directors and Officers

 

  I.   Article VIII of the Amended and Restated Bylaws of the Registrant provides as follows:

 

  1.   Any person who is or was a Director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another, partnership, joint venture, trust or other enterprise shall be entitled to be indemnified by the Corporation upon the same terms, under the same conditions, and to the same extent as authorized by Section 60 of the BCA, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The Corporation shall have the power to pay in advance expenses a director or officer incurred while defending a civil or criminal proceeding, provided that the director or officer will repay the amount if it shall ultimately be determined that he or she is not entitled to indemnification under this section. Any repeal or modification of this Article VIII shall not adversely affect any rights to indemnification and to the advancement of expenses of a Director or officer of the Corporation existing at the time of such repeal or modification with respect to any acts or omissions occurring prior to such repeal or modification.

 

  2.   The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a Director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer against any liability asserted against such person and incurred by such person in such capacity whether or not the Corporation would have the power to indemnify such person against such liability by law or under the provisions of these Bylaws.

 

  II.   Section 60 of the Associations Law of the Republic of the Marshall Islands provides as follows:

 

  1.   Actions not by or in right of the corporation. A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of no contest, or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the bests interests of the corporation, and, with respect to any criminal action or proceedings, had reasonable cause to believe that his conduct was unlawful.

 

  2.  

Actions by or in right of the corporation. A corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him or in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claims, issue or matter as to which such person

 

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  shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper.

 

  3.   When director or officer successful. To the extent that a director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (1) or (2) of this section, or in the defense of a claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith.

 

  4.   Payment of expenses in advance. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid in advance of the final disposition of such action, suit or proceeding as authorized by the board of directors in the specific case upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this section.

 

  5.   Indemnification pursuant to other rights. The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.

 

  6.   Continuation of indemnification. The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

 

  7.   Insurance. A corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director or officer against any liability asserted against him and incurred by him in such capacity whether or not the corporation would have the power to indemnify him against such liability under the provisions of this section.

 

Item 7.  Recent Sales of Unregistered Securities

 

In November 2013, we issued an aggregate of 16,666,666 common shares, in a Norwegian private placement transaction exempt from registration under the Securities Act. These common shares were initially sold in offshore transactions to non-U.S. persons pursuant to Regulation S under the Securities Act and in the United States to “qualified institutional buyers” as defined in, and in reliance on Rule 144A of the Securities Act. Pareto Securities AS acted as global coordinator for the private placements, for which it received customary fees. The proceeds of these transactions are expected to be applied to partially finance the acquisition of our Initial Fleet.

 

Securities Sold

 

Date Sold

 

Consideration Per
Share

 

Net
Consideration

 

Exemption from
Registration

 

Purchasers

16,666,666 Common shares   November 2013   $15.00 per share   $243.5 million   Regulation S and Rule 144A   Non-U.S. Investors and Qualified Institutional Buyers

 

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Item 8.  Exhibits and Financial Statement Schedules

 

  (a)   Exhibits

 

The exhibits filed as part of this registration statement are listed in the index to exhibits immediately preceding such exhibits.

 

  (b)   Financial Schedules

 

The financial statements filed as part of this registration statement are listed in the index to the financial statements immediately preceding such financial statements, which index to the financial statements is incorporated herein by reference.

 

Item 9.  Undertaking

 

The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

 

The undersigned registrant hereby undertakes that:

 

(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

II-3


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SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Hamilton, Bermuda on the 17 th day of March, 2014.

 

NORDIC AMERICAN OFFSHORE LTD.

By:

 

/s/ Herbjørn Hansson

 

Name:

 

Herbjørn Hansson

 

Title:

 

Chief Executive Officer

(Principal Executive Officer)

 

Power of Attorney

 

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gary J. Wolfe with full power to act alone, his or her true lawful attorneys-in-fact and agents, with full powers of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this registration statement, whether pre-effective or post-effective (including pursuant to Rule 462(b) under the Securities Act of 1933, as amended), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary to be done, as fully for all intents and purposes as he or she might or could do in person hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute, may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities indicated on March 17, 2014.

 

Signature

  

Title

/s/ Herbjørn Hansson

Herbjørn Hansson

  

Chief Executive Officer, Chairman and Director

(Principal Executive Officer)

/s/ Turid M. Sørensen

Turid M. Sørensen

  

Chief Financial Officer

(Principal Financial Officer and Principal Accounting  Officer)

/s/ James Kelly

James Kelly

  

Director

/s/ Paul J. Hopkins

Paul J. Hopkins

  

Director

/s/ Marianne Lie

Marianne Lie

  

Director

/s/ Dave Workman

Dave Workman

  

Director


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Authorized Representative

 

Pursuant to the requirements of the Securities Act of 1933, as amended, the undersigned, the duly authorized representative of the Registrant in the United States, has signed this registration statement in the City of Newark, State of Delaware, on March 17, 2014.

 

PUGLISI & ASSOCIATES

By:

 

/s/ Donald J. Puglisi

 

Name:    Donald J. Puglisi

 

Title:      Managing Director


Table of Contents

EXHIBIT INDEX

 

Number

    

Description

  1.1      

Form of Underwriting Agreement*

  1.2      

Form of Warrant Agreement*

  3.1      

Amended and Restated Articles of Incorporation of the Company

  3.2      

Amended and Restated Bylaws of the Company

  4.1      

Form of Common Share Certificate

  5.1      

Form of Opinion of Seward & Kissel LLP, Marshall Islands counsel to the Company, as to the validity of the common shares

  8.1      

Form of Opinion of Seward & Kissel LLP with respect to certain U.S. tax matters

  10.1      

$60 million revolving credit facility dated December 19, 2013

  14.1      

Code of Ethics*

  21.1      

List of Subsidiaries

  23.1      

Consent of Independent Registered Public Accounting Firm

  24.1      

Powers of Attorney (included in the signature page hereto)

 

  *   To be filed by amendment.

Exhibit 3.1

 

LOGO  

AMENDED AND RESTATED

ARTICLES OF INCORPORATION

 

OF

 
 

 

NORDIC AMERICAN OFFSHORE LTD.

Reg. No. 64438

 

 

   

REPUBLIC OF THE MARSHALL ISLANDS

 

REGISTRAR OF CORPORATIONS

 

DUPLICATE COPY

   

 

The original of this Document was filed in

accordance with Section 5 of the

Business Corporations Act on

NON RESIDENT    
    November 26, 2013

 

LOGO

   

LOGO

 

   

Deputy Registrar

   
   
   
   
   
   
   
   
   
   


AMENDED AND RESTATED

ARTICLES OF INCORPORATION

OF

NORDIC AMERICAN OFFSHORE LTD.

PURSUANT TO SECTION 93 OF THE MARSHALL ISLANDS BUSINESS CORPORATIONS ACT

NORDIC AMERICAN OFFSHORE LTD., a Marshall Islands corporation (the “Corporation”), does hereby certify as follows:

1. The name of the Corporation is: NORDIC AMERICAN OFFSHORE LTD.

2. The Corporation’s Articles of Incorporation were filed with the Registrar of Corporations as of the 17th day of October, 2013.

3. The amendments to the Articles of Incorporation effected hereby are as follows: Article D is amended as provided below, Article H is amended as provided below and redesignated as Article L, Articles I and J are deleted and new Articles H, I, J and K are added.

4. These Amended and Restated Articles of Incorporation (“Amended and Restated Articles of Incorporation”) of the Corporation have been duly adopted in accordance with the provisions of Section 88 of the Business Corporations Act of the Associations Law of the Republic of the Marshall Islands by the directors and shareholders of the Corporation.

5. These Amended and Restated Articles of Incorporation shall be effective on the date of filing with the Registrar of Corporations of the Marshall Islands.

6. These Amended and Restated Articles of Incorporation of the Corporation amends and restates the articles of incorporation of the Corporation in its entirety as follows:

 

A. The name of the Corporation shall be:

Nordic American Offshore Ltd.

 

B. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the Marshall Islands Business Corporations Act (the “BCA”).

 

C. The registered address of the Corporation in the Marshall Islands is Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH96960. The name of the Corporation’s registered agent at such address is The Trust Company of the Marshall Islands, Inc.


D. The aggregate number of shares of stock that the Corporation is authorized to issue is two-hundred fifty (250,000,000) registered shares, of which:

 

  (a) two hundred million (200,000,000) shall be designated common shares with a par value of one United States cent (U.S.$0.01) per share; and

 

  (b) fifty million (50,000,000) shall be designated preferred shares with a par value of one United States cent (U.S.$0.01) per share. The Board of Directors of the Corporation (the “Board”) shall have the authority to authorize the issuance from time to time of one or more classes of preferred shares with one or more series within any class thereof, with such voting powers, full or limited, or without voting powers and with such designations, preferences and relative, participating, optional or special rights and qualifications, limitations or restrictions thereon as shall be set forth in the resolution or resolutions adopted by the Board providing for the issuance of such preferred shares.

 

E. No holder of shares of the Corporation of any class, now or hereafter authorized, shall have any preferential or preemptive rights to subscribe for, purchase or receive any shares of the Corporation of any class, now or hereafter authorized or any options or warrants for such shares, or any rights to subscribe to or purchase such shares, or any securities convertible into or exchangeable for such shares, which may at any time be issued, sold or offered for sale by the Corporation.

 

F. The Corporation shall have every power which a corporation now or hereafter organized under the BCA may have.

 

G. The name and address of the incorporator is:

 

Name:

  

Address

Majuro Nominees Ltd.    P.O. Box 1405
   Majuro
   Marshall Islands

 

H.   (a)    The number of directors constituting the entire Board shall be not less than one, as fixed from time to time by the vote of not less than two-thirds of the entire Board of Directors; provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office. The phrase “two-thirds of the entire Board” as used in these Articles of Incorporation shall be deemed to refer to two-thirds of the number of directors constituting the Board as provided in or pursuant to this Section (a) of Article H, without regard to any vacancies then existing.

 

  (b) At any time that the Board is comprised of at least three members, the Board shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the entire Board permits, with the term of office of one or another of the three classes expiring each year. As soon as practicable after the Board is comprised of three or more members, the Board shall be divided into

 

2


  three classes, with the term of office of the first class to expire at the first annual meeting of shareholders held after the Board is comprised of three or more members, the term of office of the second class to expire at the second annual meeting of shareholders held after the Board is comprised of three or more members and the term of office of the third class to expire at the third annual meeting of shareholders held after the Board is comprised of three or more members, Commencing with the first annual meeting of shareholders, the directors elected at an annual meeting of shareholders to succeed those whose terms then expire shall be identified as being directors of the same class, if any, as the directors whom they succeed, and each of them shall hold office until the next annual meeting of shareholders (assuming the Board is not classified) or the third succeeding annual meeting of shareholders if the Board is then classified, and until such director’s successor is elected and has qualified. Any vacancies in the Board for any reason, and any created directorships resulting from any increase in the number of directors, may be filled by the vote of not less than a majority of the members of the Board then in office, although less than a quorum, and any directors so chosen shall hold office until the next election of the class for which such directors shall have been chosen and until their successors shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director.

 

  (c) Notwithstanding any other provisions of these Articles of Incorporation or the bylaws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, these Articles of Incorporation or the bylaws of the Corporation), any director or the entire Board may be removed at any time, but only for cause and only by the affirmative vote of two-thirds votes cast at an annual meeting of shareholders by the holders of shares entitled to vote thereon (considered for this purpose as one class).

 

  (d) Directors shall be elected by a plurality of the votes cast at a meeting of shareholders by the holders of shares entitled to vote in the election. Cumulative voting, as defined in Division 7, Section 71(2) of the BCA, shall not be used to elect directors.

 

  (e) Notwithstanding any other provisions of these Articles of Incorporation or the bylaws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, these Articles of Incorporation or the bylaws of the Corporation), the affirmative vote of two-thirds or more of the total number of votes eligible to be cast by the holders of issued and outstanding shares of common stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter, change or repeal this Article H.

 

I. The bylaws of the Corporation may be amended, repealed or adopted by action of the Board, pursuant to the provisions of the Corporation’s bylaws as in effect at such time. Notwithstanding any other provisions of these Articles of Incorporation or the bylaws of the Corporation (and notwithstanding the fact that some lesser percentage may be

 

3


  specified by law, these Articles of Incorporation or the bylaws of the Corporation), the affirmative vote of two-thirds or more of the total number of votes eligible to be cast by the holders of issued and outstanding shares of common stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter, change or repeal this Article I.

 

J.   (a)   The Corporation may not engage in any Business Combination with any Interested Shareholder for a period of three years following the time of the transaction in which the person became an Interested Shareholder, unless:

 

  (1) prior to such time, the Board approved either the Business Combination or the transaction which resulted in the shareholder becoming an Interested Shareholder;

 

  (2) upon consummation of the transaction which resulted in the shareholder becoming an Interested Shareholder, the Interested Shareholder owned at least 85% of the voting stock of the Corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

 

  (3) at or subsequent to such time, the Business Combination is approved by the Board and authorized at an annual or special meeting of shareholders, and not by written consent, by the affirmative vote of the holders of at least two-thirds of the outstanding voting stock that is not owned by the Interested Shareholder; or

 

  (4) the shareholder became an Interested Shareholder prior to the date hereof.

 

  (b) The restrictions contained in this Article J shall not apply if:

 

  (1) A shareholder becomes an Interested Shareholder inadvertently and (i) as soon as practicable divests itself of ownership of sufficient shares so that the shareholder ceases to be an Interested Shareholder; and (ii) would not, at any time within the three-year period immediately prior to a Business Combination between the Corporation and such shareholder, have been an Interested Shareholder but for the inadvertent acquisition of ownership; or

 

  (2) The Business Combination is proposed prior to the consummation or abandonment of and subsequent to the earlier of the public announcement or the notice required hereunder of a proposed transaction which (i) constitutes one of the transactions described in the following sentence; (ii) is with or by a person who either was not an Interested Shareholder during the previous three years or who became an Interested Shareholder with the approval of the Board; and (iii) is approved or not opposed by a

 

4


  majority of the members of the Board then in office (but not less than one) who were directors prior to any person becoming an Interested Shareholder during the previous three years or were recommended for election or elected to succeed such directors by a majority of such directors. The proposed transactions referred to in the preceding sentence are limited to:

 

  (A) a merger or consolidation of the Corporation (except for a merger in respect of which, pursuant to the BCA, no vote of the shareholders of the Corporation is required);

 

  (B) a sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), whether as part of a dissolution or otherwise, of assets of the Corporation or of any direct or indirect majority-owned subsidiary of the Corporation (other than to any direct or indirect wholly-owned subsidiary or to the Corporation) having an aggregate market value equal to 50% or more of either that aggregate market value of all of the assets of the Corporation determined on a consolidated basis or the aggregate market value of all the outstanding shares; or

 

  (C) a proposed tender or exchange offer for 50% or more of the outstanding voting shares of the Corporation.

The Corporation shall give not less than 20 days notice to all Interested Shareholders prior to the consummation of any of the transactions described in clause (i) or (ii) of the second sentence of this paragraph.

 

  (c) For the purpose of this Article J only, the term:

 

  (1) “Affiliate” means a person that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, another person.

 

  (2) “Associate”, when used to indicate a relationship with any person, means:

 

  (i) Any corporation, partnership, unincorporated association or other entity of which such person is a director, officer or partner or is, directly or indirectly, the owner of 15% or more of any class of voting shares; (ii) any trust or other estate in which such person has at least a 15% beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; and (iii) any relative or spouse of such person, or any relative of such spouse, who has the same residence as such person.

 

  (3) “Business Combination”, when used in reference to the Corporation and any Interested Shareholder of the Corporation, means:

 

  (i)

Any merger or consolidation of the Corporation or any direct or indirect majority-owned subsidiary of the Corporation with (A) the

 

5


  Interested Shareholder or any of its affiliates, or (B) with any other corporation, partnership, unincorporated association or other entity if the merger or consolidation is caused by the Interested Shareholder.

 

  (ii) Any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), except proportionately as a shareholder of the Corporation, to or with the Interested Shareholder, whether as part of a dissolution or otherwise, of assets of the Corporation or of any direct or indirect majority-owned subsidiary of the Corporation which assets have an aggregate market value equal to 10% or more of either the aggregate market value of all the assets of the Corporation determined on a consolidated basis or the aggregate market value of all the outstanding shares;

 

  (iii) Any transaction which results in the issuance or transfer by the Corporation or by any direct or indirect majority-owned subsidiary of the Corporation of any shares, or any share of such subsidiary, to the Interested Shareholder, except: (A) pursuant to the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into shares, or shares of any such subsidiary, which securities were outstanding prior to the time that the Interested Shareholder became such; (B) pursuant to a merger with a direct or indirect wholly-owned subsidiary of the Corporation solely for purposes of forming a holding company; (C) pursuant to a dividend or distribution paid or made, or the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into shares, or shares of any such subsidiary, which security is distributed, pro rata to all holders of a class or series of shares subsequent to the time the Interested Shareholder became such; (D) pursuant to an exchange offer by the Corporation to purchase shares made on the same terms to all holders of said shares; or (E) any issuance or transfer of shares by the Corporation; provided however, that in no case under items (C)-(E) of this subparagraph shall there be an increase in the Interested Shareholder’s proportionate share of the any class or series of shares;

 

  (iv) Any transaction involving the Corporation or any direct or indirect majority-owned subsidiary of the Corporation which has the effect, directly or indirectly, of increasing the proportionate share of any class or series of shares, or securities convertible into any class or series of shares, or shares of any such subsidiary, or securities convertible into such shares, which is owned by the Interested Shareholder, except as a result of immaterial changes due to fractional share adjustments or as a result of any purchase or redemption of any shares not caused, directly or indirectly, by the Interested Shareholder; or

 

  (v) Any receipt by the Interested Shareholder of the benefit, directly or indirectly (except proportionately as a shareholder of the Corporation), of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in subparagraphs (i)-(iv) of this paragraph) provided by or through the Corporation or any direct or indirect majority-owned subsidiary.

 

6


  (4) “Control”, including the terms “controlling”, “controlled by “ and “under common control with”, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting shares, by contract or otherwise. A person who is the owner of 15% or more of the outstanding voting shares of any corporation, partnership, unincorporated association or other entity shall be presumed to have control of such entity, in the absence of proof by a preponderance of the evidence to the contrary. Notwithstanding the foregoing, a presumption of control shall not apply where such person holds voting shares, in good faith and not for the purpose of circumventing this provision, as an agent, bank, broker, nominee, custodian or trustee for one or more owners who do not individually or as a group have control of such entity.

 

  (5) “Interested Shareholder” means any person (other than the Corporation and any direct or indirect majority-owned subsidiary of the Corporation) that (i) is the owner of 15% or more of the outstanding voting shares of the Corporation, or (ii) is an affiliate or associate of the Corporation and was the owner of 15% or more of the outstanding voting shares of the Corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an Interested Shareholder; and the affiliates and associates of such person; provided, however, that the term “Interested Shareholder” shall not include any person whose ownership of shares in excess of the 15% limitation set forth herein is the result of action taken solely by the Corporation; provided that such person shall be an Interested Shareholder if thereafter such person acquires additional shares of voting shares of the Corporation, except as a result of further Corporation action not caused, directly or indirectly, by such person. For the purpose of determining whether a person is an Interested Shareholder, the voting shares of the Corporation deemed to be outstanding shall include voting shares deemed to be owned by the person through application of paragraph (8) below, but shall not include any other unissued shares which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.

 

7


  (6) “Person” means any individual, corporation, partnership, unincorporated association or other entity.

 

  (7) “Voting stock” means, with respect to any corporation, shares of any class or series entitled to vote generally in the election of directors and, with respect to any entity that is not a corporation, any equity interest entitled to vote generally in the election of the governing body of such entity.

 

  (8) “Owner”, including the terms “own” and “owned”, when used with respect to any shares, means a person that individually or with or through any of its affiliates or associates:

 

  (i) Beneficially owns such shares, directly or indirectly; or

 

  (ii) Has (A) the right to acquire such shares (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise; provided, however, that a person shall not be deemed the owner of shares tendered pursuant to a tender or exchange offer made by such person or any of such person’s affiliates or associates until such tendered shares is accepted for purchase or exchange; or (B) the right to vote such shares pursuant to any agreement, arrangement or understanding; provided, however, that a person shall not be deemed the owner of any shares because of such person’s right to vote such shares if the agreement, arrangement or understanding to vote such shares arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made to 10 or more persons; or

 

  (iii) Has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except voting pursuant to a revocable proxy or consent as described in item (B) of subparagraph (ii) of this paragraph), or disposing of such shares with any other person that beneficially owns, or whose affiliates or associates beneficially own, directly or indirectly, such shares.

 

  (d) Notwithstanding any other provisions of these Articles of Incorporation or the bylaws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, these Articles of Incorporation or the bylaws of the Corporation), the affirmative vote of two-thirds or more of the total number of votes eligible to be cast by the holders of issued and outstanding shares of common stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter, change or repeal this Article J.

 

8


K. At all meetings of shareholders of the Corporation, except as otherwise expressly provided by law, the presence either in person or by proxy of shareholders of record entitled to cast at least one-third of the total number of votes eligible to be cast by holders of shares issued and outstanding and entitled to vote at such meetings shall constitute a quorum, except as otherwise provided by statute or these Articles of Incorporation, If less than a quorum is present, a majority of the total number of votes represented by those shares present either in person or by proxy shall have power to adjourn any meeting until a quorum shall be present.

 

L. No director shall be personally liable to the Corporation or any of its shareholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the BCA as the same exists or may hereafter be amended. Any repeal or modification of this Article L shall not adversely affect any rights or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification.

IN WITNESS WHEREOF, the Corporation has caused these Amended and Restated Articles of Incorporation to be executed on its behalf on this 22 day of November, 2013.

 

NORDIC AMERICAN OFFSHORE LTD.
By:   LOGO
 

 

Name:   Herbjørn Hansson
Title:   President & Chief Executive Officer

 

9

Exhibit 3.2

NORDIC AMERICAN OFFSHORE LTD.

AMENDED AND RESTATED BYLAWS

As Adopted November 22, 2013

ARTICLE I

OFFICES

The principal place of business of Nordic American Offshore Ltd. (the “Corporation”) shall be at such place or places as the Board of Directors of the Corporation (the “Board”) shall from time to time determine. The Corporation may also have an office or offices at such other places within or without the Marshall Islands as the Board may from time to time appoint or the business of the Corporation may require.

ARTICLE II

SHAREHOLDERS

Section 1. Annual Meeting : The annual meeting of shareholders of the Corporation shall be held on such day and at such time and place within or without the Marshall Islands as the Board may determine for the purpose of electing members of the Board (“Directors”) and of transacting such other business as may properly be brought before the meeting. The Chairman of the Board (the “Chairman”) or, in the Chairman’s absence, another person designated by the Board shall act as the Chairman at any meeting of shareholders.

Section 2. Nature of Business at Annual Meetings of Shareholders : No business may be transacted at an annual meeting of shareholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board (or any duly authorized committee thereof); (b) otherwise properly brought before the annual meeting by or at the direction of the Board (or any duly authorized committee thereof); or (c) otherwise properly brought before the annual meeting by any shareholder of the Corporation (i) who is a shareholder of record on the date of the giving of the notice provided for in this Section 2 of this Article II and has remained a shareholder of record through the record date for the determination of shareholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 2 of this Article II.

In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a shareholder, such shareholder must have given timely notice thereof in proper written form to the Secretary of the Corporation (the “Secretary”).

To be timely a shareholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than one-hundred twenty (120) days nor more than one-hundred eighty (180) days prior to the one-year anniversary date of the immediately preceding annual meeting of shareholders. In no event shall the public disclosure of any adjournment of an annual meeting of the shareholders commence a new time period for the giving of the shareholder’s notice described herein.


To be in proper written form, a shareholder’s notice to the Secretary must set forth as to each matter such shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such shareholder along with such shareholder’s tax identification number, (iii) the number of shares of capital stock of the Corporation which are owned beneficially or of record by such shareholder, (iv) a description of all arrangements or understandings between such shareholder and any other person or persons (including their names) in connection with the proposal of such business by such shareholder and any material interest of such shareholder in such business and (v) a representation that such shareholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. In addition, notwithstanding anything in this Section 2 of this Article II to the contrary, a shareholder intending to nominate one or more persons for election as a Director at an annual meeting must comply with Article III Section 3 of these Bylaws for such nomination or nominations to be properly brought before such meeting.

No business shall be conducted at the annual meeting of shareholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 2 of this Article II; provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 2 of this Article II shall be deemed to preclude discussion by any shareholder of any such business. If the Chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman of the meeting shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.

Section 3. Special Meeting : Special meetings of the shareholders, unless otherwise prescribed by law, may be called for any purpose or purposes at any time by the Chairman or a majority of the Board. No other person or persons are permitted to call a special meeting, unless otherwise prescribed by law. The business transacted at any special meeting shall be limited to the purposes stated in the notice.

Section 4. Notice of Meetings : Notice of every annual and special meeting of shareholders, other than any meeting the giving of notice of which is otherwise prescribed by law, stating the date, time, place and purpose thereof, and in the case of special meetings, the name of the person or persons at whose direction the notice is being issued, shall be given personally or sent by mail or telefax at least fifteen (15) but not more than sixty (60) days before such meeting, to each shareholder of record entitled to vote thereat and to each shareholder of record who, by reason of any action proposed at such meeting would be entitled to have his shares appraised if such action were taken, and the notice shall include a statement of that purpose and to that effect. If mailed, notice shall be deemed to have been given when deposited in the mail, directed to the shareholder at his address as the same appears on the record of shareholders of the Corporation or at such address as to which the shareholder has given notice to the Secretary. To the extent Marshall Islands law permits the giving of notice by other means, then notice may be given of such means.

 

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Notice of a meeting need not be given to any shareholder who submits a signed waiver of notice, whether before or after the meeting, or who attends the meeting without protesting prior to the conclusion thereof the lack of notice to him.

Section 5. Adjournments : Any meeting of shareholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the meeting is adjourned for lack of quorum, notice of the new meeting shall be given to each shareholder of record entitled to vote at the meeting. If after an adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record on the new record date entitled to notice in Section 4 of this Article II.

Section 6. Quorum : At all meetings of shareholders for the transaction of business, the number of shares of capital stock issued and outstanding and entitled to vote thereat, present either in person or represented by proxy, which is provided in the Articles of Incorporation or, if not in the Articles of Incorporation, by statute, shall be requisite and shall constitute a quorum. If less than a quorum is present, a majority of the total number of votes represented by those shares present either in person or by proxy shall have power to adjourn any meeting until a quorum shall be present.

Section 7. Voting : If a quorum is present, and except as otherwise expressly provided by law, the Corporation’s Articles of Incorporation then in effect or these Bylaws, the affirmative vote of a majority of the votes cast by holders of shares of stock present in person or represented by proxy shall be the act of the shareholders. Any action required to be permitted to be taken at a meeting, may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the shareholders entitled to vote with respect to the subject matter thereof.

Section 8. Fixing of Record Date : The Board may fix a time not more than sixty (60) nor less than fifteen (15) days prior to the date of any meeting of shareholders, as the time as of which shareholders entitled to notice of and to vote at such a meeting shall be determined, and all persons who were holders of record of voting shares at such time and no others shall be entitled to notice of and to vote at such meeting. The Board may fix a time not exceeding sixty (60) days preceding the date fixed for the payment of any dividend, the making of any distribution, the allotment of any rights or the taking of any other action, as a record time for the determination of the shareholders entitled to receive any such dividend, distribution, or allotment or for the purpose of such other action.

ARTICLE III

DIRECTORS

Section 1. Number : The affairs, business and property of the Corporation shall be managed by the Board. The number of Directors shall be determined by the Board of Directors. The Directors need not be residents of the Marshall Islands nor shareholders of the Corporation.

 

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Section 2. How Elected : The Directors shall be elected as specified in the Articles of Incorporation.

Section 3. Nomination of Directors : Only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors. Nominations of persons for election to the Board may be made at any annual meeting of shareholders (a) by or at the direction of the Board (or any duly authorized committee thereof) or (b) by any shareholders of the Corporation (i) who is a shareholder of record on the date of the giving of the notice provided for in this Section 3 of this Article III and on the record date for the determination of shareholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in this Section 3 of this Article III.

In addition to any other applicable requirements, for a nomination to be made by a shareholder, such shareholder must have given timely notice thereof in proper written form to the Secretary.

To be timely, a shareholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than one-hundred twenty (120) days nor more than one-hundred eighty (180) days prior to the one-year anniversary date of the immediately preceding annual meeting of shareholders.

To be in proper written form, a shareholder’s notice to the Secretary must set forth; (a) as to each person whom the shareholder proposes to nominate for election as a Director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of Directors by rules and regulations applicable to the Corporation and (b) as to the shareholder giving the notice (i) the name and record address of such shareholder along with such shareholder’s tax identification number, (ii) the number of shares of capital stock of the Corporation which are owned beneficially and of record by such shareholder, (iii) a description of all arrangements or understandings between such shareholder and each proposed nominee and any other person and persons (including their names) pursuant to which the nomination(s) are to be made by such shareholder, (iv) a representation that such shareholder intends to appear in person or by proxy at the meeting to nominate the person or persons named in its notice and (v) any other information relating to such shareholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of Directors by rules and regulations applicable to the Corporation. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a Director if elected.

No person shall be eligible for election as a Director unless nominated in accordance with the procedures set forth in this Section 3 of this Article III. If the Chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.

 

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Notwithstanding any other provisions of the Articles of Incorporation or these Bylaws (and notwithstanding the fact that some lesser percentage may be specified by law, the Articles of Incorporation or these Bylaws), the vote of not less than two-thirds of the entire Board shall be required to amend, alter, change or repeal this Section 3 of this Article III.

Section 4(a). Removal : Removal of Directors is governed by the Articles of Incorporation.

4(b) No proposal by a shareholder to remove a Director shall be voted upon at an annual meeting of the shareholders unless such shareholder has given timely notice thereof in proper written form to the Secretary. To be timely, a shareholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than one-hundred twenty (120) days nor more than one-hundred eighty (180) days prior to the one-year anniversary date of the immediately preceding annual meeting of the shareholders. To be in proper written form, a shareholder’s notice must set forth: (a) a statement of the grounds, if any, on which such Director is proposed to be removed, (b) evidence reasonably satisfactory to the Secretary of such shareholder’s status as such and of the number of shares of capital stock of the Corporation beneficially owned by such shareholder, and (c) a list of the names and addresses of other shareholders of the Corporation, if any, with whom such shareholder is acting in concert, and the number of shares of capital stock of the Corporation beneficially owned by each such shareholder.

4(c) No shareholder proposal to remove a Director shall be voted upon at an annual meeting of the shareholders unless proposed in accordance with the procedures set forth in this Section 4 of this Article III. If the Chairman of the meeting determines, based on the facts, that a shareholder proposal to remove a Director was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that a proposal to remove a Director of the Corporation was not made in accordance with the procedures prescribed by these Bylaws, and such defective proposal shall be disregarded.

Section 5. Vacancies : The filling of any vacancies in the Board shall be governed by the Articles of Incorporation.

Section 6. Regular Meetings : Regular meetings of the Board may be held at such time and place as may be determined by resolution of the Board and no notice shall be required for any regular meeting. Except as otherwise provided by law, any business may be transacted at any regular meeting.

Section 7. Special Meetings : Special meetings of the Board may, unless otherwise prescribed by law, be called from time to time by the Chairman or a majority of the Board. The Chairman or the Secretary shall call a special meeting of the Board upon written request directed to either of them by any two Directors stating the time, place, and purpose of such special meeting. Special meetings of the Board shall be held on a date and at such time and at such place as may be designated in the notice thereof by the officer calling the meeting.

Section 8. Notice of Special Meetings : Notice of the date, time and place of each special meeting of the Board shall be given to each Director at least forty-eight (48) hours prior to such

 

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meeting, unless the notice is given orally or delivered in person, in which case it shall be given at least twenty-four (24) hours prior to such meeting. For the purpose of this section, notice shall be deemed to be duly given to a Director if given to him personally (including by telephone) or if such notice be delivered to such Director by mail or telefax to his last known address. To the extent Marshall Islands law permits the giving of notice by other means, then Notice may be given of such means. Notice of a meeting need not be given to any Director who submits a signed waiver of notice, whether before or after the meeting or who attends the meeting without protesting, prior to the conclusion thereof, the lack of notice to him.

Section 9. Quorum : A majority of the Directors at the time in office, present in person or by proxy or by conference telephone, shall constitute a quorum for the transaction of business.

Section 10. Voting : The vote of the majority of the Directors, present in person, by proxy, or by conference telephone, at a meeting at which a quorum is present shall be the act of the Directors. Any action required or permitted to be taken at a meeting may be taken without a meeting if all members of the Board consent thereto in writing.

Section 11. Compensation of Directors and Members of Committees : The Board may from time to time, in its discretion, fix the amounts which shall be payable to members of the Board and to members of any committee, for attendance at the meetings of the Board or of such committee and for services rendered to the Corporation.

ARTICLE IV

COMMITTEES

The Board may, by resolution or resolutions passed by a majority of the entire Board, designate from among its members an executive committee to consist of one or more of the Directors of the Corporation, which, to the extent provided in said resolution or resolutions, or in these Bylaws, shall have and may exercise, to the extent permitted by law, the powers of the Board in the management of the business and affairs of the Corporation, and may have power to authorize the seal of the Corporation to be affixed to all papers which may require it, provided, however, that no committee shall have the power or authority to (i) fill a vacancy in the Board or in a committee thereof, (ii) amend or repeal any Bylaw or adopt any new Bylaw, (iii) amend or repeal any resolution of the entire Board, (iv) or increase the number of Directors on the Board, or (v) remove any Director. In addition, the Board may, by resolution or resolutions passed by a majority of the entire Board designate from among its members other committees to consist of one or more of the Directors of the Corporation, each of which shall perform such function and have such authority and powers as shall be delegated to it by said resolutions or as provided for in these Bylaws, except that only the executive committee may have and exercise the powers of the Board. Members of the executive committee and any other committee shall hold office for such period as may be prescribed by the vote of a majority of the entire Board. Vacancies in membership of such committees shall be filled by vote of the Board. Committees may adopt their own rules of procedure and may meet at stated times or on such notice as they may determine. Each committee shall keep a record of its proceedings and report the same to the Board when requested.

 

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ARTICLE V

OFFICERS

Section 1. Number and Designation: The Board shall appoint a Secretary and such other officers with such duties as it may deem necessary, provided that initial officers may be appointed by the incorporator. Officers may be of any nationality, need not be residents of the Marshall Islands and may be, but are not required to be, Directors. Officers of the Corporation shall be natural persons, except that the secretary may be a corporate entity. Any two or more offices may be held by the same natural person.

Section 2. Secretary . The Secretary shall act as Secretary of all meetings of the shareholders and the Board at which he is present, shall have supervision over the giving and serving of notices of the Corporation, shall be the custodian of the corporate records and of the corporate seal of the Corporation, shall be empowered to affix the corporate seal to those documents, the execution of which, on behalf of the Corporation under its seal, is duly authorized and when so affixed may attest the same, and shall exercise the powers and perform such other duties as may be assigned to him by the Board or the President. If the Secretary is a corporation, the duties of the Secretary may be carried out by any authorized representative of such corporation.

Section 3. Other Officers : Officers other than those treated in Sections 2 through 4 of this Article shall exercise such powers and perform such duties as may be assigned to them by the Board or the Chief Executive Officer or President, as the case may be.

The designations, power, authority, obligations and salaries of officers and any other compensation paid to them shall be fixed from time to time by the Board or any duly authorized committee thereof. The Board may at any meeting appoint additional officers. Each officer shall hold office until his successor shall have been duly appointed and qualified, except in the event of the earlier termination of his term of office, through death, resignation, removal or otherwise. Any officer may be removed by the Board at any time with or without cause, subject to the terms of any employment agreement between the Corporation and such officer. Any vacancy in an office may be filled by the Board at any regular or special meeting.

ARTICLE VI

CERTIFICATES FOR SHARES

Section 1. Form and Issuance: The shares of the Corporation may be represented by certificates in a form meeting the requirements of law and approved by the Board. Certificates shall be signed by (i) the Chairman, President or a Vice President and by (ii) the Secretary or any Assistant Secretary or the Treasurer or any Assistant Treasurer. These signatures may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or its employees. Shares may also be represented in uncertificated form, and, specifically, the Corporation may issue shares to be represented in any manner permitted or required by the rules of the stock exchange on which the shares of the Corporation may be listed.

 

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Section 2. Transfer : The Board shall have power and authority to make such rules and regulations as they may deem expedient concerning the issuance, registration and transfer of shares of the Corporation’s stock, and may appoint transfer agents and registrars thereof.

Section 3. Loss of Stock Certificates : The Board may direct a new certificate or certificates of stock to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed.

ARTICLE VII

DIVIDENDS

Dividends may be declared in conformity with law by, and at the discretion of, the Board at any regular or special meeting. Dividends may be declared and paid in cash, stock, or other property of the Corporation.

ARTICLE VIII

INDEMNIFICATION

Section 1. Indemnification . Any person who is or was a Director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another, partnership, joint venture, trust or other enterprise shall be indemnified by the Corporation upon the same terms, under the same conditions, and to the same extent as authorized by Section 60 of the BCA, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The Corporation shall pay in advance expenses a director or officer incurred while defending a civil or criminal proceeding, provided that the director or officer will repay the amount if it shall ultimately be determined that he or she is not entitled to indemnification under this section. Any repeal or modification of this Article VIII shall not adversely affect any rights to indemnification and to the advancement of expenses of a Director or officer of the Corporation existing at the time of such repeal or modification with respect to any acts or omissions occurring prior to such repeal or modification.

Section 2. Insurance . The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a Director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer against any liability asserted against such person and incurred by such person in such capacity whether or not the Corporation would have the power to indemnify such person against such liability by law or under the provisions of these Bylaws.

 

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ARTICLE IX

CORPORATE SEAL

The seal of the Corporation, if any, shall be circular in form, with the name of the Corporation in the circumference and such other appropriate legend as the Board may from time to time determine.

ARTICLE X

FISCAL YEAR

The fiscal year of the Corporation shall be such period of twelve consecutive months as the Board may by resolution designate.

ARTICLE XI

AMENDMENTS

These Bylaws may be amended, added to, altered or repealed, or new Bylaws may be adopted, solely at any regular or special meeting of the Board by the affirmative vote of 66 2/3% of the entire Board. The phrase “66 2/3% of the entire Board” shall be deemed to refer to 66 2/3% of the number of directors constituting the Board as set forth in accordance with Article III, without regard to any vacancies, or if the number of Directors constituting 66 2/3% of the entire Board is greater than the number of members of the Board then in office, the unanimous vote of Directors in office.

 

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Exhibit 4.1

LOGO

ZQ|CERT#|COY|CLS|RGSTRY|ACCT#|TRANSTYPE|RUN#|TRANS#
COMMON SHARES COMMON SHARES
PAR VALUE $0.01 THIS CERTIFICATE IS TRANSFERABLE
IN CANTON, MA, JERSEY CITY, NJ AND
COLLEGE STATION, TX
Certificate Shares
Number **000000 ******************
***000000 *****************
ZQ00000000 ****000000 ****************
NORDIC AMERICAN OFFSHORE LTD. *****000000 ***************
******000000 **************
INCORPORATED UNDER THE LAWS OF MARSHALL ISLANDS
** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample
**** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David
THIS CERTIFIES THAT Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander
David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr.
Alexander David SampleMR.**** Mr. AlexanderSAMPLEDavid Sample **** Mr. Alexander&DavidMRS.Sample **** Mr AlexanderSAMPLEDavid Sample **** Mr. Alexander& David Sample **** CUSIP XXXXXX XX X
Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample
**** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David
Sample **** Mr. AlexanderMR.David Sample SAMPLE**** Mr. Alexander David Sample ****&Mr. AlexanderMRS.David SampleSAMPLE**** Mr. Alexander David Sample **** Mr. Alexander SEE REVERSE FOR CERTAIN DEFINITIONS
David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr.
Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample ****
Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Sample **** Mr. Sample
is the owner of **000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****
000000**Shares****000000**Shares***
*000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****
000000**Shares****000000**Shares****
000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****
000000**Shares****000000**Shares****0
00000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****

000000**Shares****000000**Shares****00***ZERO HUNDRED THOUSAND
0000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****
000000**Shares****000000**Shares****000
000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****
000000**Shares****000000**Shares****0000

00**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****
000000**Shares****000000**Shares****00000
0**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****
000000**Shares****000000**Shares****000000ZERO HUNDRED AND ZERO***
**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****
000000**Shares****000000**Shares****000000*
*Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****
000000**Shares****000000**Shares****000000**
Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****
000000**Shares****000000**Shares****000000**S
FULLY-PAID AND NON-ASSESSABLE SHARES OF COMMON SHARES OF
Nordic American Offshore Ltd. (hereinafter called the “Company”), transferable on the books of the Company in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby, are issued and shall be held subject to all of the provisions of the Articles of Incorporation, as amended, and the By-Laws, as amended, of the Company (copies of which are on file with the Company and with the Transfer Agent), to all of which each holder, by acceptance hereof, assents. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Company and the facsimile signatures of its duly authorized officers.
DATED DD-MMM-YYYY
COUNTERSIGNED AND REGISTERED:
COMPUTERSHARE TRUST COMPANY, N.A.
TRANSFER AGENT AND REGISTRAR,
Executive Chairman
By
AUTHORIZED SIGNATURE
CUSIP XXXXXX XX X Holder ID XXXXXXXXXX
Insurance Value 1,000,000.00 Number of Shares 123456
DTC 12345678 123456789012345
PO BOX 43004, Providence, RI 02940-3004
Certificate Numbers Num/No. Denom. Total
MR A SAMPLE 1234567890/1234567890 1 1 1 DESIGNATION (IF ANY) 1234567890/1234567890 2 2 2
ADD 1
ADD 2 1234567890/1234567890 3 3 3 1234567890/1234567890 4 4 4
ADD 3
ADD 4 1234567890/1234567890 5 5 5 1234567890/1234567890 6 6 6
Total Transaction 7
1234567


 

NORDIC AMERICAN OFFSHORE LTD.

THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS, A SUMMARY OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OF THE COMPANY AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND RIGHTS, AND THE VARIATIONS IN RIGHTS, PREFERENCES AND LIMITATIONS DETERMINED FOR EACH SERIES, WHICH ARE FIXED BY THE ARTICLES OF INCORPORATION OF THE COMPANY, AS AMENDED, AND THE RESOLUTIONS OF THE BOARD OF DIRECTORS OF THE COMPANY, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE VARIATIONS FOR FUTURE SERIES. SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE SECRETARY OF THE COMPANY OR TO THE TRANSFER AGENT. THE BOARD OF DIRECTORS MAY REQUIRE THE OWNER OF A LOST OR DESTROYED STOCK CERTIFICATE, OR HIS LEGAL REPRESENTATIVES, TO GIVE THE COMPANY A BOND TO INDEMNIFY IT AND ITS TRANSFER AGENTS AND REGISTRARS AGAINST ANY CLAIM THAT MAY BE MADE AGAINST THEM ON ACCOUNT OF THE ALLEGED LOSS OR DESTRUCTION OF ANY SUCH CERTIFICATE.

 

     
    The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:    
   
    TEN COM   -   as tenants in common     UNIF GIFT MIN ACT   -                                                 Custodian                                                  
                                    (Cust)                                         (Minor)    
   
    TEN ENT   -   as tenants by the entireties         under Uniform Gifts to Minors Act                                                      
                (State)                        
   
    JT TEN   -   as joint tenants with right of survivorship     UNIF TRF MIN ACT   -  

                                          Custodian (until age                                )

   
        and not as tenants in common                         (Cust)    
                   
                                     under Uniform Transfers to Minors Act                           
                    (Minor)                                                                          (State)    
   

Additional abbreviations may also be used though not in the above list.

 

   

 

PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
For value received,                       hereby sell, assign and transfer unto             

 

 

(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE)

 

 

 

 

 

  Shares

of the common shares represented by the within Certificate, and do hereby irrevocably constitute and appoint

 

  Attorney

to transfer the said stock on the books of the within-named Company with full power of substitution in the premises.

 

Dated:  

 

  20  

 

      

Signature(s) Guaranteed: Medallion Guarantee Stamp

 

Signature:

          

 

THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings and Loan Associations and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15.

 

Signature:

 

 

 

      
 

Notice:    The signature to this assignment must correspond with the name as written upon the face of the certificate, in every particular,without alteration or enlargement, or any change whatever.

        

 

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The IRS requires that we report the cost basis of certain shares acquired after January 1, 2011. If your shares were covered by the legislation and you have sold or transferred the shares and requested a specific cost basis calculation method, we have processed as requested. If you did not specify a cost basis calculation method, we have defaulted to the first in, first out (FIFO) method. Please visit our website or consult your tax advisor if you need additional information about cost basis.

 

If you do not keep in contact with us or do not have any activity in your account for the time periods specified by state law, your property could become subject to state unclaimed property laws and transferred to the appropriate state.

 

 

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Exhibit 5.1

S EWARD & K ISSEL LLP

ONE BATTERY PARK PLAZA

NEW YORK, NEW YORK 10004

 

WRITER’S DIRECT DIAL   

TELEPHONE: (212) 574-1200

FACSIMILE: (212) 480-8421

WWW.SEWKIS.COM

  

1200 G STREET, N.W.

WASHINGTON, D.C. 20005

TELEPHONE: (202) 737-8833

FACSIMILE: (202) 737-5184

March 17, 2014

Nordic American Offshore Ltd.

c/o Scandic American Shipping Ltd.

Canon’s Court

22 Victoria Street

Hamilton HM EX

Bermuda

 

  Re: Nordic American Offshore Ltd.

Ladies and Gentlemen:

We have acted as Marshall Islands counsel to Nordic American Offshore Ltd. (the “Company”) in connection with the Company’s Registration Statement on Form F-1 (File No. 333-        ) (the “Registration Statement”) as filed publicly with the U.S. Securities and Exchange Commission on March 17, 2014, as thereafter amended or supplemented, with respect to the initial public offering of the Company’s common shares (the “Common Shares”), par value $0.01 per share.

We have examined originals or copies, certified or otherwise identified to our satisfaction, of: (i) the Registration Statement; (ii) the prospectus of the Company (the “Prospectus”) included in the Registration Statement; and (iii) such corporate documents and records of the Company and such other instruments, certificates and documents as we have deemed necessary or appropriate as a basis for the opinions hereinafter expressed. In such examinations, we have assumed the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies or drafts of documents to be executed, the genuineness of all signatures and the legal competence or capacity of persons or entities to complete the execution of documents. As to various questions of fact which are material to the opinions hereinafter expressed, we have relied upon statements or certificates of public officials, directors of the Company and others.

We have further assumed for the purposes of this opinion, without investigation, that (i) all documents contemplated by the Prospectus to be executed in connection with the Offering have been duly authorized, executed and delivered by each


Nordic American Offshore Ltd.

March 17, 2014

Page 2 of 2

 

of the parties thereto other than the Company, (ii) the terms of the Offering comply in all respects with the terms, conditions and restrictions set forth in the Prospectus and all of the instruments, agreements and other documents relating thereto or executed in connection therewith, and (iii) all Common Shares will be issued in compliance with applicable U.S. federal and state securities and other laws (other than the laws of the Republic of the Marshall Islands in respect of which we are opining).

Based upon and subject to the foregoing, and having regard to such other legal considerations which we deem relevant, we are of the opinions that under the laws of the Republic of the Marshall Islands, the Common Shares have been duly authorized and when issued, sold and paid for as contemplated in the Prospectus, the Common Shares will be validly issued, fully paid for and non-assessable.

This opinion is limited to the law of the Republic of the Marshall Islands as in effect on the date hereof.

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement, and to each reference to us and the discussions of advice provided by us under the headings “Legal Matters” in the Prospectus, without admitting we are “experts” within the meaning of the Securities Act of 1933, as amended, or the rules and regulations of the Commission thereunder with respect to any part of the Registration Statement.

 

Very truly yours,
/s/ Seward & Kissel LLP

Exhibit 8.1

S EWARD & K ISSEL LLP

ONE BATTERY PARK PLAZA

NEW YORK, NEW YORK 10004

 

WRITER’S DIRECT DIAL   

TELEPHONE: (212) 574-1200

FACSIMILE: (212) 480-8421

WWW.SEWKIS.COM

  

1200 G STREET, N.W.

WASHINGTON, D.C. 20005

TELEPHONE: (202) 737-8833

FACSIMILE: (202) 737-5184

March 17, 2014

Nordic American Offshore Ltd.

c/o Scandic American Shipping Ltd.

Canon’s Court

22 Victoria Street

Hamilton HM EX

Bermuda

 

  Re: Nordic American Offshore Ltd.

Ladies and Gentlemen:

We have acted as counsel to Nordic American Offshore Ltd. (the “Company”) in connection with the Company’s Registration Statement on Form F-1 (File No. 333-        ) (the “Registration Statement”) as filed publicly with the U.S. Securities and Exchange Commission on March 17, 2014, as thereafter amended or supplemented, with respect to the initial public offering of the Company’s common shares, par value $0.01 per share.

In formulating our opinion as to these matters, we have examined such documents as we have deemed appropriate, including the Registration Statement and the prospectus of the Company (the “Prospectus”) included in the Registration Statement. We also have obtained such additional information as we have deemed relevant and necessary from representatives of the Company.

Capitalized terms not defined herein have the meanings ascribed to them in the Registration Statement.

Based on the facts as set forth in the Registration Statement and, in particular, on the representations, covenants, assumptions, conditions and qualifications described under the captions “Risk Factors” and “Taxation” therein, we hereby confirm that the opinions of Seward & Kissel LLP with respect to United States federal income tax matters and Marshall Islands tax matters expressed in the Registration Statement under the captions “Taxation– U.S. Federal Income Tax Considerations”, “Taxation – Marshall


Nordic American Offshore Ltd.

March 17, 2014

Page 2 of 2

 

Islands Tax Considerations”, “Risk Factors – A change in tax laws, treaties or regulations, or their interpretation, of any country in which we operate could result in a higher tax rate on our worldwide earnings, which could result in a significant negative impact on our earnings and cash flows from operations” and “Risk Factors – U.S. tax authorities could treat us as a ‘passive foreign investment company,’ which could have adverse U.S. federal income tax consequences to U.S. shareholders” accurately state our views as to the tax matters discussed therein.

Our opinions and the tax discussion as set forth in the Registration Statement are based on the current provisions of the Internal Revenue Code of 1986, as amended, the Treasury Regulations promulgated thereunder, published pronouncements of the Internal Revenue Service which may be cited or used as precedents, and case law, any of which may be changed at any time with retroactive effect. No opinion is expressed on any matters other than those specifically referred to above by reference to the Registration Statement.

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement, and to each reference to us and discussion of advice provided by us in the Prospectus. In giving such consent, we do not hereby admit that we are “experts” within the meaning of the Securities Act and the rules and regulations of the Commission promulgated thereunder with respect to any part of the Registration Statement.

 

Very truly yours,
/s/ Seward & Kissel LLP

Exhibit 10.1

 

 

FACILITY AGREEMENT

 

USD 60,000,000

REVOLVING CREDIT FACILITY

 

for

 

NORDIC AMERICAN OFFSHORE LTD.

as Borrower

 

arranged by

DNB Bank ASA

Skandinaviska Enskilda Banken AB (publ)

as Mandated Lead Arrangers

 

with

 

The Financial Institutions

listed in Part I of Schedule 1

as Lenders

 

and

 

DNB Bank ASA

as Security Agent and Agent

 

and

 

The Financial Institutions

listed in Part II of Schedule 1

as Swap Banks

 

Dated 19 December 2013

  LOGO

 

1


CONTENTS

 

1

 

DEFINITIONS AND INTERPRETATION

     4   

2

 

THE FACILITY

     18   

3

 

PURPOSE

     19   

4

 

CONDITIONS OF UTILISATION

     19   

5

 

UTILISATION

     19   

6

 

REPAYMENT

     20   

7

 

ILLEGALITY, VOLUNTARY PREPAYMENT AND CANCELLATION

     21   

8

 

MANDATORY PREPAYMENT AND CANCELLATION

     23   

9

 

RESTRICTIONS

     24   

10

 

INTEREST

     25   

11

 

INTEREST PERIODS

     26   

12

 

CHANGES TO THE CALCULATION OF INTEREST

     26   

13

 

FEES

     28   

14

 

TAX GROSS UP AND INDEMNITIES

     28   

15

 

INCREASED COSTS

     32   

16

 

OTHER INDEMNITIES

     33   

17

 

MITIGATION BY THE LENDERS

     34   

18

 

COSTS AND EXPENSES

     35   

19

 

GUARANTEE AND INDEMNITY

     35   

20

 

SECURITY

     40   

21

 

REPRESENTATIONS

     42   

22

 

INFORMATION UNDERTAKINGS

     46   

23

 

FINANCIAL COVENANTS

     50   

24

 

GENERAL UNDERTAKINGS

     52   

25

 

VESSEL COVENANTS

     55   

26

 

EVENTS OF DEFAULT

     59   

27

 

CHANGES TO THE LENDERS

     62   

28

 

CHANGES TO THE OBLIGORS

     65   

29

 

ROLE OF THE AGENT, THE SECURITY AGENT AND THE ARRANGER

     66   

30

 

CONDUCT OF BUSINESS BY THE FINANCE PARTIES

     72   

31

 

SHARING AMONG THE FINANCE PARTIES

     72   

32

 

PAYMENT MECHANICS

     73   

33

 

SET-OFF

     77   

 

2


34

 

NOTICES

     77   

35

 

CALCULATIONS AND CERTIFICATES

     79   

36

 

PARTIAL INVALIDITY

     79   

37

 

REMEDIES AND WAIVERS

     79   

38

 

AMENDMENTS AND WAIVERS

     80   

39

 

CONFIDENTIALITY

     80   

40

 

COUNTERPARTS

     84   

41

 

GOVERNING LAW

     84   

42

 

ENFORCEMENT

  

SCHEDULES:

 

SCHEDULE 1:    THE ORIGINAL PARTIES
   Part I: The Original Lenders
   Part II: The Swap Banks
SCHEDULE 2:    CONDITIONS PRECEDENT
SCHEDULE 3:    FORM OF UTILISATION REQUEST
SCHEDULE 4:    FORM OF TRANSFER CERTIFICATE
SCHEDULE 5A:    FORM OF COMPLIANCE CERTIFICATE – FINANCIAL COVENANTS
SCHEDULE 5B:    FORM OF COMPLIANCE CERTIFICATE – TOTAL MARKET VALUE
SCHEDULE 6:    FORM OF ACCESSION LETTER

 

3


THIS FACILITY AGREEMENT is dated 19 December 2013 and made between:

 

(1) NORDIC AMERICAN OFFSHORE LTD: of Trust Company Complex. Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH 96960 (the “ Borrower ”);

 

(2) DNB BANK ASA of Dronning Eufemias gate 30, Bygg M15S, N-0191 Oslo, Norway and Skandinaviska Enskilda Banken AB (publ) of Filipstad Brygge 1, N-0123 Oslo, Norway, as mandated lead arrangers (whether acting individually or together, the “ Arrangers ”);

 

(3) THE FINANCIAL INSTITUTIONS listed in Part I of Schedule 1 ( The Original Lenders ) as lenders (the “ Original Lenders ”);

 

(4) DNB BANK ASA of Dronning Eufemias gate 30, Bygg M15S, N-0191 Oslo, Norway as security agent (in such capacity, the “ Security Agent ”) and agent of the other Finance Parties (in such capacity, the “ Agent ”); and

 

(5) THE FINANCIAL INSTITUTIONS listed in Part II of Schedule 1 ( The Swap Banks ), as swap banks, (together, the “ Swap Banks ”).

IT IS AGREED as follows:

 

1 DEFINITIONS AND INTERPRETATION

 

1.1 Definitions

In this Agreement:

Accession Letter ” means a document substantially in the form set out in Schedule 6 ( Form of Accession Letter ).

Additional Guarantor ” means a Subsidiary which becomes an Additional Guarantor after the date of this Agreement in accordance with Clause 28 ( Changes to the Obligors ).

Affiliate ” means, in relation to any person, a Subsidiary of that person or a Holding Company of that person or any other Subsidiary of that Holding Company.

Agreement ” means this facility agreement, as it may be amended, restated, supplemented and varied in writing from time to time, including its Schedules and any Transfer Certificate.

Approved Brokers ” means Fearnley Offshore AS, RS Platou Offshore AS, Pareto JGO Shipbrokers AS, or any other shipbroker(s) approved by the Agent.

Approved Ship Registry ” means the Marshall Islands Ship Registry, the Norwegian International Ship Registry, the Norwegian Ordinary Ship Registry, the Bermuda Ship Registry, the Liberian Ship Registry, the UK Ship Register or such other reputable ship registry or flag acceptable to the Majority Lenders.

Assignment Agreement ” means the assignment agreement collateral to this Agreement for (i) the first priority assignment of the Earnings under Charterparties with a fixed duration of more than twelve (12) months, the Insurances and any present and future monetary claims the relevant Obligor(s) may have under the MOAs and/or the Shipbuilding Contracts (following the transfer on

 

4


27 November 2013 of, inter alia, warranties and claims under the Shipbuilding Contracts to the Borrower), and (ii) the first priority pledge of the Earnings Accounts, to be made between the relevant Obligor and the Security Agent (on behalf of the Finance Parties and the Swap Banks) as security for all amounts due from time to time under the Finance Documents and any Swap Agreement(s), in form and content acceptable to the Security Agent (on behalf of the Finance Parties and the Swap Banks).

Authorisation ” means an authorisation, consent, approval, resolution, licence, exemption, filing, notarization or registration.

Availability Period ” means the period from and including the date of this Agreement to and including the date falling three (3) months prior to the Termination Date.

Available Commitment ” means a Lender’s Commitment minus:

 

a) the amount of its participation in any outstanding Loans; and

 

b) in relation to any proposed Utilisation, the amount of its participation in any Loans that are due to be made on or before the proposed Utilisation Date,

other than that Lender’s participation in any Loans that are due to be repaid or prepaid on or before the proposed Utilisation Date.

Available Facility ” means the aggregate for the time being of each Lender’s Available Commitment.

Break Costs ” means the amount (if any) by which:

 

a) the interest which a Lender should have received for the period from the date of receipt of all or any part of its participation in a Loan or Unpaid Sum to the last day of the current Interest Period in respect of that Loan or Unpaid Sum, had the principal amount or Unpaid Sum received been paid on the last day of that Interest Period;

exceeds:

 

b) the amount which that Lender would be able to obtain by placing an amount equal to the principal amount or Unpaid Sum received by it on deposit with a leading bank in the Relevant Interbank Market for a period starting on the Business Day following receipt or recovery and ending on the last day of the current Interest Period.

Business Day ” means a day (other than a Saturday or Sunday) on which banks are open for general business in London and Oslo (or any other relevant place of payment under Clause 30 ( Payment mechanics)) .

Charterers ” means any charterers of any of the Vessels from time to time.

Charterparty ” means each of the time charterparty(ies), bareboat charterparty(ies) or other contracts of employment (as the case may be) made between a Obligor (as owner) and the relevant Charterers for the charter of the Vessels.

Charterparty Assignment ” means a first priority assignment of any Charterparty (to the extent assignable) with a duration of more than eighteen (18) months, to be entered into between the relevant Obligor and the Security Agent (on behalf of the Finance Parties and the Swap Banks) as

 

5


security for the Obligors’ obligations under the Finance Documents and any Swap Agreement(s), in form and substance as approved by the Security Agent (on behalf of the Finance Parties and the Swap Banks).

Code ” means the US Internal Revenue Code of 1986.

Commercial Management Agreement ” means any agreement made or to be made between the relevant Obligor and a Commercial Manager (other than the Obligors) for the commercial management of the Obligor(s) and the Vessels (including, but not limited to, the appointment of the Commercial Manager).

Commercial Manager ” means the Obligors or a third party commercial manager acceptable to the Majority Lenders.

Commitment ” means:

 

a) in relation to an Original Lender, the amount in the amount set opposite its name under the heading “Commitment” in Part I of Schedule 1 ( The Original Lenders ) and the amount of any other Commitment transferred to it under this Agreement; and

 

b) in relation to any other Lender, the amount of any Commitment transferred to it under this Agreement,

to the extent not cancelled, reduced or transferred by it under this Agreement.

Compliance Certificate ” means any of the Compliance Certificate - Financial Covenants and the Compliance Certificate - Total Market Value.

Compliance Certificate - Financial Covenants ” means a certificate substantially in the form set out in Schedule 5A ( Form of Compliance Certificate - Financial Covenants) .

Compliance Certificate - Total Market Value ” means a certificate substantially in the form set out in Schedule 5B ( Form of Compliance Certificate - Total Market Value) .

Confidential Information ” means all information relating to the Obligors, the Finance Documents or the Facility of which a Finance Party becomes aware in its capacity as, or for the purpose of becoming, a Finance Party or which is received by a Finance Party in relation to, or for the purpose of becoming a Finance Party under, the Finance Documents or the Facility from either:

 

a) any of the Obligors or any of their respective advisers; or

 

b) another Finance Party, if the information was obtained by that Finance Party directly or indirectly from the Obligors or any of their respective its advisers,

in whatever form, and includes information given orally and any document, electronic file or any other way of representing or recording information which contains or is derived or copied from such information but excludes information that:

 

(i) is or becomes public information other than as a direct or indirect result of any breach by that Finance Party of Clause 39 ( Confidentiality ); or

 

(ii) is identified in writing at the time of delivery as non-confidential by the relevant Obligor or any of its advisers; or

 

6


(iii) is known by that Finance Party before the date the information is disclosed to it in accordance with paragraphs a) or b) above or is lawfully obtained by that Finance Party after that date, from a source which is, as far as that Finance Party is aware, unconnected with the Obligors and which, in either case, as far as that Finance Party is aware, has not been obtained in breach of, and is not otherwise subject to, any obligation of confidentiality.

Current Assets ” has the meaning given to that term in Clause 22.1 ( Financial definitions ).

Current Liabilities ” has the meaning given to that term in Clause 22.1 ( Financial definitions ).

Default ” means an Event of Default or any event or circumstance specified in Clause 25 ( Events of Default ) which would (with the expiry of a grace period, the giving of notice, the making of any determination under the Finance Documents or any combination of any of the foregoing) be an Event of Default.

Disruption Event ” means either or both of:

 

a) a material disruption to those payment or communications systems or to those financial markets which are, in each case, required to operate in order for payments to be made in connection with the Facility (or otherwise in order for the transactions contemplated by the Finance Documents to be carried out) which disruption is not caused by, and is beyond the control of, any of the Parties; or

 

b) the occurrence of any other event which results in a disruption (of a technical or systems-related nature) to the treasury or payments operations of a Party preventing that, or any other Party:

 

  (i) from performing its payment obligations under the Finance Documents; or

 

  (ii) from communicating with other Parties in accordance with the terms of the Finance Documents,

and which (in either such case) is not caused by, and is beyond the control of, the Party whose operations are disrupted.

DOC ” means in relation to the Technical Manager a valid document of compliance issued to the Technical Manager pursuant to paragraph 13.2 of the ISM Code.

Earnings ” means all moneys whatsoever which are now, or later become, payable (actually or contingently) to the relevant Obligor and which arise out of the use of or operation of any of the Vessels, including (but not limited to):

 

a) all freight, hire and passage moneys payable to the relevant Obligor, including (without limitation) payments of any nature under any Charterparty or any other charter or agreement for the employment, use, possession, management and/or operation of any of the Vessels;

 

b) any claim under any guarantees related to freight and hire payable to the relevant Obligor as a consequence of the operation of any of the Vessels;

 

7


c) compensation payable to the relevant Obligor in the event of any requisition of any of the Vessels or for the use of any of the Vessels by any government authority or other competent authority;

 

d) remuneration for salvage, towage and other services performed by any of the Vessels payable to the relevant Obligor;

 

e) demurrage and retention money receivable by the relevant Obligor in relation to any of the Vessels;

 

f) all moneys which are at any time payable under the Insurances in respect of loss of earnings;

 

g) if and whenever any of the Vessels is employed on terms whereby any moneys falling within paragraph a) to f) above are pooled or shared with any other person, that proportion of the net receipts of the relevant pooling or sharing arrangement which is attributable to such Vessel; and

 

h) any other money whatsoever due or to become due to the relevant Obligor from third parties in relation to any of the Vessels, or otherwise.

Earnings Accounts ” means the Borrower’s account no. 1503.41.65588 (NOK account), account no. 1503.42.31467 (NOK account), account no. 1250.05.06626 (USD account), account no. 1250.16.25815 (GBP account), and account no. 1250.16.26390 (GBP account), all held with the Agent and to which all the Earnings shall be paid, and any amount deposited into and standing to the credit of such accounts from time to time, and any other accounts held by a Obligor to which any Earnings shall be paid.

Environmental Approval ” means any permit, licence, consent, approval and other authorisations and the filing of any notification, report or assessment required under any Environmental Law for the operation of any of the Vessels.

Environmental Claim ” means any claim, proceeding or investigation by any party in respect of any Environmental Law or Environmental Approval.

Environmental Law ” means any applicable national or international law, regulation, convention or treaty in any jurisdiction in which the relevant Obligor and/or the Charterers conducts business which relates to:

 

a) the pollution or protection of the environment;

 

b) harm to or the protection of human health;

 

c) conditions on the workplace;

 

d) any emission or substance capable of causing harm to any living organism or the environment; or

 

e) to the carriage of material which is capable of polluting the environment.

Event of Default ” means any event or circumstance specified as such in Clause 25 ( Events of Default ).

 

8


FA Act ” means the Norwegian Financial Agreements Act of 25 June 1999 no. 46 (as amended).

Facility ” means the revolving loan facility made available under this Agreement as described in Clause 2 ( The Facility ).

Facility Office ” means the office or offices notified by a Lender to the Agent in writing on or before the date it becomes a Lender (or, following that date, by not less than five (5) Business Days’ written notice) as the office or offices through which it will perform its obligations under this Agreement.

FATCA ” means:

 

a) sections 1471 to 1474 of the Code or any associated regulations or other official guidance;

 

b) any treaty, law, regulation or other official guidance enacted in any other jurisdiction, or relating to an intergovernmental agreement between the US and any other jurisdiction, which (in either case) facilitates the implementation of relating to paragraph a) above; or

 

c) any agreement pursuant to the implementation of paragraphs a) or b) of this definition with the Internal Revenue Service of the United States of America, the United States government or any governmental or taxation authority in any other jurisdiction.

FATCA Application Date ” means:

 

a) in relation to a “withholdable payment” described in section 1473(l)(A)(i) of the Code (which relates to payments of interest and certain other payments from sources within the US), 1 July 2014;

 

b) in relation to a “withholdable payment” described in section 1473(l)(A)(ii) of the Code (which relates to “gross proceeds” from the disposition of property of a type that can produce interest from sources within the US), 1 January 2017; or

 

c) in relation to a “passthru payment” described in section 1471(d)(7) of the Code not falling within paragraphs a) or b) above, 1 January 2017,

or, in each case, such other date from which such payment may become subject to a deduction or withholding required by FATCA as a result of any change in FATCA after the date of this Agreement.

FATCA Deduction ” means a deduction or withholding from a payment under a Finance Document required by FATCA.

FATCA Exempt Party ” means a Party that is entitled to receive payments free from any FATCA Deduction.

Fee Letter ” means any letter or letters dated on or about the date of this Agreement between the Arranger and the Borrower (or the Agent and the Borrower) setting out any of the fees referred to in Clause 13 ( Fees ).

Finance Document ” means this Agreement, any Fee Letter, the Security Documents, any Transfer Certificate and any notice, certificate, statement or other document designated as such by the Agent and the Borrower.

 

9


Finance Party ” means the Agent, the Security Agent, the Arrangers, or a Lender.

Financial Indebtedness ” means any indebtedness for or in respect of:

 

a) moneys borrowed and debit balances at bank or other financial institutions;

 

b) any acceptance under any acceptance credit or bill discounting facility (or dematerialized equivalent);

 

c) any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;

 

d) the amount of any liability in respect of any lease or hire purchase contract which would, in accordance with GAAP, be treated as a finance or capital lease;

 

e) receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis);

 

f) any amount raised under any other transaction (including any forward sale or purchase agreement) having the commercial effect of a borrowing or otherwise classified as borrowings under GAAP;

 

g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price (and, when calculating the value of any derivative transaction, only the marked to market value shall be taken into account);

 

h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution; and

 

i) without double counting, the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs a) to h) above.

GAAP ” means the generally accepted accounting principles in the United States of America, including IFRS.

Holding Company ” means, in relation to a company or corporation, any other company or corporation in respect of which it is a Subsidiary.

IFRS ” means international accounting standards within the meaning of the IAS Regulation 1606/2002 to the extent applicable to the relevant financial statements.

Initial Utilisation Date ” means the first Utilisation Date under this Agreement, however no later than 15 January 2014.

Insurances ” means, in relation to each of the Vessels, all policies and contracts of insurance (which expression includes all entries of such Vessel in a protection and indemnity or war risk association) which are from time to time during the Security Period in place or taken out or entered into by or for the benefit of the relevant Obligor (whether in the sole name of the relevant Obligor or in the joint names of the relevant Obligor and any other person) in respect of the Vessels or otherwise in connection with the Vessels and all benefits thereunder (including claims of whatsoever nature and return of premiums).

 

10


Interest Period ” means, in relation to a Loan, each period determined in accordance with Clause 11 ( Interest Periods ) and, in relation to an Unpaid Sum, each period determined in accordance with Clause 10.3 ( Default interest ).

Investment ” means any direct or indirect:

 

a) extension of credit or capital contribution to any other person;

 

b) purchase of vessels;

 

c) acquisition of shares; and

 

d) acquisition of debt instruments issued by any other person.

ISM Code ” means the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevent.

ISPS Code ” means the International Ship and Port Facility Security (ISPS) Code as adopted by the International Maritime Organization’s (IMO) Diplomatic Conference of December 2002.

Lender ” means:

 

a) any Original Lender; and

 

b) any bank, financial institution, trust, fund or other entity which has become a Party in accordance with Clause 27 ( Changes to the Parties ),

which in each case has not ceased to be a Party in accordance with the terms of this Agreement.

LIBOR ” means, in relation to any Loan:

 

a) the applicable interest settlement rate for the relevant period as displayed on Reuters screen page LIBOR01 or LIBOR02 (or any replacement Reuters page which displays that rate), as appropriate; or

 

b) (if the Reuters screen page referred to in (a) is not available for the Interest Period of that Loan or other sum) the arithmetic mean of the rates (rounded upwards to four decimal places) as supplied to the Agent at its request quoted by the Reference Banks to leading banks in the Relevant Interbank Market,

at or about 11:00 hours (London time) on the applicable Quotation Day for the offering of deposits in the currency of that Loan and for a period comparable to the Interest Period for that Loan and, if any such rate is below zero, LIBOR will be deemed to be zero.

Liquidity ” has the meaning given to that term in Clause 22.1 ( Financial definitions ).

Loan ” means a loan made or to be made under the Facility or the principal amount outstanding for the time being of that loan.

Majority Lenders ” means a Lender or Lenders whose Commitments aggregate more than 66 2/3% of the Total Commitments (or, if the Total Commitments have been reduced to zero, aggregated more than 66 2/3% of the Total Commitments immediately prior to the reduction).

 

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Management Agreements ” means the Commercial Management Agreement and the Technical Management Agreement.

Managers ” means the Commercial Manager and the Technical Manager.

Mandatory Cost ” means the percentage rate per annum calculated by the Agent to reflect the cost of compliance with a) the requirements of the Bank of England and or the Financial Services Authority (or in either case, any other authority which replaces all or any of its functions, or b) the requirements of the European Central Bank.

Margin ” means two point five per cent (2.50%) per annum.

Market Value ” means, in respect of each Vessel, the fair market value in USD, being the average of valuations of such Vessel obtained from minimum two (2) Approved Brokers, with or without physical inspection of the relevant Vessel on the basis of a sale for prompt delivery for cash at arm’s length on normal commercial terms as between a willing buyer and seller, on an “as is, where is” basis, free of any existing charter or other contract of employment and/or pool arrangement. If the higher of the two (2) valuations differ by a margin of more than ten per cent (10.00%) from the lower of the two (2) valuations, then the Agent may request a valuation from a third independent and reputable shipbroker appointed by the Agent and the fair market value of the Vessel shall be the average mean of the three (3) valuations. All valuations shall be at the Borrower’s cost.

Material Adverse Effect ” means, in the reasonable opinion of the Majority Lenders, a material adverse effect on:

 

a) the business, operations, assets, condition (financial or otherwise) or prospects of the Borrower; or

 

b) the ability of an Obligor to perform any of its obligations under the Finance Documents; or

 

c) the validity or enforceability of, or the effectiveness or ranking of any Security Interest granted or purported to be granted pursuant to any of the Finance Documents or the rights or remedies of any Finance Party under any of the Finance Documents.

MOAs ” means the memoranda of agreement dated 18 November 2013 and entered into between the Borrower and Blue Ship Invest AS in respect of the Vessels.

Month ” means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month, except that:

 

a) (subject to paragraph c) below) if the numerically corresponding day is not a Business Day, that period shall end on the next Business Day in that calendar month in which that period is to end if there is one, or if there is not, on the immediately preceding Business Day;

 

b) if there is no numerically corresponding day in the calendar month in which that period is to end, that period shall end on the last Business Day in that calendar month; and

 

c) if an Interest Period begins on the last Business Day of a calendar month, that Interest Period shall end on the last Business Day in the calendar month in which that Interest Period is to end.

 

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The above rules will only apply to the last Month of any period.

Mortgages ” means each of the first priority mortgages and the deeds of covenants collateral or declarations of pledge thereto (if any) to be executed and recorded by the relevant Obligor against each of the Vessels in an Approved Ship Registry in favour of the Agent (on behalf of the Finance Parties and the Swap Banks) as security for all amounts due from time to time under the Finance Documents and any Swap Agreement(s), in form and substance satisfactory to the Agent (on behalf of the Finance Parties and the Swap Banks).

New Lender ” has the meaning given to that term in Clause 27 ( Changes to the Parties ).

Obligor ” means the Borrower or an Additional Guarantor.

Original Financial Statements ” means the proforma financial statements of the Borrower dated 17 December 2013.

Participating Member State ” means any member state of the European Communities that adopts or has adopted the EUR as its lawful currency in accordance with legislation of the European Community relating to Economic and Monetary Union.

Party ” means a party to this Agreement.

Permitted Encumbrances ” means:

 

a) any Security Interest created by the Finance Documents;

 

b) liens for current master or crews’ wages and salvage (including contract salvage);

 

c) any other liens incurred in the ordinary course of trading the Vessels (included liens for master’s disbursements incurred in the ordinary course of trading a vessel) securing obligations not more than thirty (30) days overdue;

 

d) liens for classification or scheduled dry-docking, ship repairer’s lien and outfitter’s possessory liens where the indebtedness secured by such liens does not exceed USD 3,000,000 in aggregate (or the equivalent in other currencies); and

 

e) any Security Interest arising by operation of law in respect of taxes which are not overdue for payment.

Quotation Day ” means, in relation to any period for which an interest rate is to be determined two (2) Business Days before the first day of that period, unless market practice differs in the Relevant Interbank Market for a currency, in which case the Quotation Day for that currency will be determined by the Agent in accordance with market practice in the Relevant Interbank Market (and if quotations would normally be given by leading banks in the Relevant Interbank Market on more than one day, the Quotation Day will be the last of those days).

Reference Banks ” means the principal offices of DNB Bank ASA and Skandinaviska Enskilda Banken AB (publ) and/or such other banks as may be appointed by the Agent in consultation with the Borrower.

Related Fund ” in relation to a fund (the “ first fund ”), means a fund which is managed or advised by the same investment manager or investment adviser as the first fund or, if it is managed by a different investment manager or investment adviser, a fund whose investment manager or investment adviser is an Affiliate of the investment manager or investment adviser of the first fund.

 

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Relevant Interbank Market ” means the London interbank market.

Repeating Representations ” means each of the representations set out in Clause 20 ( Representations ).

Restricted Party ” means a person that

 

a) is listed on any Sanctions List;

 

b) is located in or incorporated under the laws of a country or territory that is the target of country-wide or territory-wide Sanctions;

 

c) is directly or indirectly owned or controlled by, or acting on behalf of, a person referred to in (a) and/or (b) above; or

 

d) with whom a subject or a Sanctions Authority would be prohibited or restricted by law from engaging in trade, business, or other activities.

Sanctions ” means the economic sanctions laws, regulations, embargoes or restrictive measures administered, enacted or enforced by

 

a) the Norwegian Government;

 

b) the United States Government;

 

c) the United Nations;

 

d) the United Kingdom,

and with regards to (a) -(d) above, the respective governmental institutions and agencies or any of the foregoing, including, without limitation, the Office of Foreign Assets Control of the US Department of Treasury (“ OFAC ”), the United States Department of State and Her Majesty’s Treasury (“ HMT ”), together the “ Sanctions Authorities ”).

Sanctions List ” means the “Specifically Designated Nationals and Blocked Persons” list maintained by OFAC, the “Consolidated List of Financial Sanctions Targets” maintained by HMT, or any similar list maintained by, or public announcement of Sanctions designations made by, any of the Sanctions Authorities, including but not limited to the Norwegian Government, the European Union and/or the United Nations.

Security Documents ” means all or any security documents as may be entered into from time to time pursuant to Clause 19 ( Security ).

Security Interest ” means any mortgage, charge (whether fixed or floating), encumbrance, pledge, lien, assignment by way of security, finance lease, sale and repurchase or sale and leaseback arrangement, sale of receivables on a recourse basis or other security interest or any other agreement or arrangement having the effect of conferring security.

 

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Security Period ” means the period commencing on the date of this Agreement and ending the date on which the Agent notifies the other Finance Parties, the Swap Banks and the Borrower that:

 

a) all amounts which have become due for payment by the Borrower or any other party under the Finance Documents and any Swap Agreement(s) have been paid;

 

b) no amount is owing or has accrued (without yet having become due for payment) under any of the Finance Documents or any Swap Agreement(s);

 

c) none of the Obligors has any future or contingent liability under any provision of this Agreement or the other Finance Documents or any Swap Agreement(s); and

 

d) the Agent, the Majority Lenders and the Swap Banks do not consider that there is a significant risk that any payment or transaction under a Finance Document or any Swap Agreement(s) would be set aside, or would have to be reversed or adjusted, in any present or possible future proceeding relating to a Finance Document or any Swap Agreement(s) or any asset covered (or previously covered) by a Security Interest created by a Finance Document or any Swap Agreement(s).

Shipbuilding Contracts ” means the shipbuilding contracts in respect of the Vessels, all dated 15 May 2102 and entered into between Blue Ship Invest AS as buyer and Ulstein Verfts AS as yard.

SMC ” means a valid safety management certificate issued for each of the Vessels pursuant to paragraph 13.7 of the ISM Code.

SMS ” means a safety management system for each of the Vessels developed and implemented in accordance with the ISM Code and including the functional requirements duties and obligations that follow from the ISM Code.

Subsidiary ” means a subsidiary of the Borrower, where the Borrower at any time owns or controls (directly or indirectly) no less than hundred per cent. (100.00%) of the voting capital of such subsidiary.

Swap Agreement ” means any currency-, fx- or interest rate swap agreement or other agreements, hereunder any ISDA Master Agreement and schedules and confirmations thereto, to be made between the Borrower and a Swap Bank.

Tax ” means any tax, levy, impost, duty or other charge or withholding of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same).

Technical Management Agreement ” means any agreement made or to be made between the relevant Obligor and a Technical Manager (other than the relevant Obligor) for the technical management of the Vessels (including, but not limited to, the appointment of the Technical Manager).

Technical Manager ” means the relevant Obligor, any Subsidiary of the Borrower, Atlantic Offshore Management AS, Remøy Shipping AS or any third party reputable technical manager of any of the Vessels acceptable to the Majority Lenders.

Termination Date ” means five (5) years after the date of this Agreement.

Total Assets ” has the meaning given to that term in Clause 22.1 ( Financial definitions ).

Total Commitments ” means the aggregate of the Commitments, being USD 60,000,000 at the date of this Agreement.

 

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Total Debt ” has the meaning given to that term in Clause 22.1 ( Financial definitions ).

Total Loss ” means, in relation to any Vessel:

 

a) the actual, constructive, compromised, agreed, arranged or other total loss of such Vessel; and

 

b) any expropriation, confiscation, requisition, arrest, seizure, hijacking, acquisition, theft or similar of such Vessel, whether for full consideration, a consideration less than its proper value, a nominal consideration or without any consideration, which is effected by any government or official authority or by any person or persons claiming to be or to represent a governmental or official authority (excluding a requisition for hire for a fixed period not exceeding one (1) year without any right to extension) unless it is within thirty (30) days from the Total Loss Date redelivered to the full control of the relevant Obligor.

Total Loss Date ” means:

 

a) in the case of an actual total loss of any Vessel, the date on which it occurred or, if that is unknown, the date when such Vessel was last heard of;

 

b) in the case of a constructive, compromised, agreed or arranged total loss of any Vessel, the earlier of:

 

  (i) the date on which a notice of abandonment is given to the insurers (provided a claim for total loss is admitted by such insurers) or, if such insurers do not forthwith admit such a claim, at the date at which either a total loss is subsequently admitted by the insurers or a total loss is subsequently adjudged by a competent court of law or arbitration panel to have occurred or, if earlier, the date falling six (6) months after notice of abandonment of such Vessel was given to the insurers; and

 

  (ii) the date of compromise, arrangement or agreement made by or on behalf of the relevant Obligor with such Vessel’s insurers in which the insurers agree to treat such Vessel as a total loss; or

 

c) in the case of any other type of total loss, on the date (or the most likely date) on which it appears to the Agent that the event constituting the total loss occurred.

Total Market Value ” means the aggregate Market Value of all Vessels.

Transaction Documents ” means the Finance Documents, the Charterparties and the Management Agreements and the Swap Agreement(s), together with the other documents contemplated herein or therein.

Transfer Certificate ” means a certificate substantially in the form set out in Schedule 4 ( Form of Transfer Certificate ) or any other form agreed between the Agent and the Borrower.

Transfer Date ” means, in relation to an assignment or a transfer, the later of:

 

a) the proposed Transfer Date specified in the relevant Transfer Certificate; and

 

b) the date on which the Agent executes the relevant Transfer Certificate.

 

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Unpaid Sum ” means any sum due and payable but unpaid by the Borrower under the Finance Documents.

USD ” means United States dollars, being the lawful currency of the United States of America.

Utilisation ” means a Utilisation of the Facility.

Utilisation Date ” means the date of a Utilisation, being the date on which a Loan is to be made.

Utilisation Request ” means a notice substantially in the form set out in Schedule 3 ( Form of Utilisation Request ).

Value Adjusted Equity 1 has the meaning given to that term in Clause 22.1 ( Financial definitions ).

Value Adjusted Total Assets ” has the meaning given to that term in Clause 22.1 ( Financial definitions ).

VAT ” means value added tax or any other indirect tax of a similar nature.

Vessels ” means:

 

a) M/V “BLUE GUARDIAN”, an offshore supply vessel built in 2013 with IMO number 9665114 owned by and registered in the name of the Borrower in the Norwegian Ordinary Ship Registry;

 

b) M/V “BLUE PROSPER”, an offshore supply vessel built in 2012 with IMO number 9312707 owned by and registered in the name of the Borrower in the Norwegian International Ship Registry;

 

c) M/V “BLUE PROTECTOR”, an offshore supply vessel built in 2013 with IMO number 9665126 owned by and registered in the name of the Borrower in the Norwegian Ordinary Ship Registry;

 

d) M/V “BLUE THUNDER”, an offshore supply vessel built in 2013 with IMO number 9665102 owned by and registered in the name of the Borrower in the Norwegian Ordinary Ship Registry;

and any Replacement Vessel (as defined in clause 8.1 ( Total Loss or sale ).

Working Capital ” has the meaning given to that term in Clause 22.1 ( Financial definitions ).

 

1.2 Construction

 

a) Unless a contrary indication appears, any reference in this Agreement to:

 

  (i) the “ Agent ”, the “ Arranger ”, any “ Finance Party ”, any “ Lender ”, any “ Swap Bank ” or any “ Party ” shall be construed so as to include its successors in title, permitted assigns and permitted transferees;

 

1   To be discussed

 

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  (ii) assets ” includes present and future properties, revenues and rights of every description;

 

  (iii) a “ Transaction Document ” or any other agreement or instrument is a reference to that Transaction Document or other agreement or instrument as amended, novated, supplemented, extended or restated;

 

  (iv) indebtedness ” includes any obligation (whether incurred as principal or as surety) for the payment or repayment of money, whether present or future, actual or contingent;

 

  (v) a “ person ” includes any individual, firm, company, corporation, government, state or agency of a state or any association, trust, joint venture, consortium or partnership (whether or not having separate legal personality);

 

  (vi) a “ regulation ” includes any regulation, rule, official directive, request or guideline (whether or not having the force of law) of any governmental, intergovernmental or supranational body, agency, department or of any regulatory, self-regulatory or other authority or organization;

 

  (vii) a provision of law is a reference to that provision as amended or re-enacted; and

 

  (viii) a time of day is a reference to London time.

 

b) Section, Clause and Schedule headings are for ease of reference only.

 

c) Unless a contrary indication appears, a term used in any other Finance Document or in any notice given under or in connection with any Finance Document has the same meaning in that Finance Document or notice as in this Agreement.

 

d) A Default (other than an Event of Default) is “ continuing ” if it has not been remedied or waived and an Event of Default is “ continuing ” if it has not been waived.

 

e) In case of a conflict between any of the Security Documents and this Agreement, the provisions of this Agreement shall prevail.

 

2 THE FACILITY

 

2.1 The Facility

Subject to the terms of this Agreement, the Lenders make available to the Borrower a revolving credit facility in an aggregate amount equal to the Total Commitments.

 

2.2 Finance Parties’ rights and obligations

 

a) The obligations of each Finance Party under the Finance Documents are several. Failure by a Finance Party to perform its obligations under the Finance Documents does not affect the obligations of any other Party under the Finance Documents. No Finance Party is responsible for the obligations of any other Finance Party under the Finance Documents.

 

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b) The rights of each Finance Party under or in connection with the Finance Documents are separate and independent rights and any debt arising under the Finance Documents to a Finance Party from the Borrower shall be a separate and independent debt.

 

c) A Finance Party may, except as otherwise stated in the Finance Documents, separately enforce its rights under the Finance Documents.

 

3 PURPOSE

 

3.1 Purpose

The Borrower shall apply all amounts borrowed by it under the Facility towards financing its general corporate purposes.

 

3.2 Monitoring

No Finance Party is bound to monitor or verify the application of any amount borrowed pursuant to this Agreement.

 

4 CONDITIONS OF UTILISATION

 

4.1 Initial conditions precedent

The Borrower may not deliver a Utilisation Request unless the Agent has received all of the documents and other evidence listed in Schedule 2 ( Conditions precedent ) in form and substance satisfactory to the Agent. The Agent shall notify the Borrower and the Lenders promptly upon being so satisfied.

 

4.2 Further conditions precedent

The Lenders will only be obliged to comply with Clause 5.4 ( Lenders’ participation ) if on the date of the Utilisation Request and on the proposed Utilisation Date:

 

a) no Default is continuing or would result from the proposed Loan; and

 

b) the Repeating Representations to be made by the Obligors are true in all material respects.

 

4.3 Maximum number of Loans

The Borrower may not deliver a Utilisation Request if as a result of the proposed Utilisation more than five (5) Loans would be outstanding.

 

5 UTILISATION

 

5.1 Delivery of a Utilisation Request

The Borrower may utilize the Facility by delivery to the Agent of a duly completed Utilisation Request not later than 10:00 hours three (3) Business Days prior to the proposed Utilisation Date.

 

5.2 Completion of a Utilisation Request

 

a) Each Utilisation Request is irrevocable and will not be regarded as having been duly completed unless:

 

  (i) the proposed Utilisation Date is a Business Day within the Availability Period;

 

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  (ii) the currency and amount of the Utilisation comply with Clause 5.3 ( Currency and amount ); and

 

  (iii) the proposed Interest Period complies with Clause 11 ( Interest Periods ).

 

b) Only one (1) Loan may be requested in each Utilisation Request.

 

5.3 Currency and amount

 

a) The currency specified in a Utilisation Request must be USD.

 

b) The amount of a proposed Loan must be in an amount which is not more than the Available Facility and which is a minimum of USD 5,000,000, and if more, in integral multiples of USD 1,000,000 or, if less, the Available Facility.

 

5.4 Lenders’ participation

 

a) If the conditions set out in this Agreement have been met and subject to Clause 6.1 ( Repayment of Loans ), each Lender shall make its participation in each Loan available by the Utilisation Date through its Facility Office.

 

b) The amount of each Lender’s participation in each Loan will be equal to the proportion borne by its Available Commitment to the Available Facility immediately prior to making the Loan.

 

c) The Agent shall notify each Lender of the amount of each Loan and the amount of its participation in that Loan and, if different, the amount of that participation to be made available in cash by 16:00 hours three (3) Business Days prior to the Utilisation Date.

 

5.5 Cancellation of Commitment

The Commitments which, at that time, are unutilized shall be immediately cancelled at the end of the Availability Period.

 

6 REPAYMENT

 

6.1 Repayment of Loans

 

a) The Borrower shall repay each Loan on the last day of its Interest Period.

 

b) Without prejudice to the Borrower’s obligation under paragraph a) above, if:

 

  (i) one (1) or more Loans are to be made available to the Borrower:

 

  (A) on the same day that a maturing Loan is due to be repaid by the Borrower; and

 

  (B) in whole or in part for the purpose of refinancing the maturing Loan; and

 

  (ii) the proportion borne by each Lender’s participation in the maturing Loan to the amount of that maturing Loan is the same as the proportion borne by that Lender’s participation in the new Loans to the aggregate amount of those new Loans,

 

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the aggregate amount of the new Loans shall, unless the Borrower notifies the Agent to the contrary in the relevant Utilisation Request, be treated as if applied in or towards repayment of the maturing Loan so that:

 

  (C) if the amount of the maturing Loan exceeds the aggregate amount of the new Loans:

 

  (1) the Borrower will only be required to make a payment under Clause 32.1 ( Payments to the Agent ) in an amount equal to that excess; and

 

  (2) each Lender’s participation in the new Loans shall be treated as having been made available and applied by the Borrower in or towards repayment of that Lender’s participation in the maturing Loan and that Lender will not be required to make a payment under Clause 32.1 ( Payments to the Agent ) in respect of its participation in the new Loans; and

 

  (D) if the amount of the maturing Loan is equal to or less than the aggregate amount of the new Loans:

 

  (1) the Borrower will not be required to make a payment under Clause 32.1 ( Payments to the Agent ); and

 

  (2) each Lender will be required to make a payment under Clause 32.1 ( Payments to the Agent ) in respect of its participation in the new Loans only to the extent that its participation in the new Loans exceeds that Lender’s participation in the maturing Loan and the remainder of that Lender’s participation in the new Loans shall be treated as having been made available and applied by the Borrower in or towards repayment of that Lender’s participation in the maturing Loan.

 

6.2 Final repayment

The Borrower shall repay all Loans outstanding under this Agreement in full on the Termination Date.

 

7 ILLEGALITY, VOLUNTARY PREPAYMENT AND CANCELLATION

 

7.1 Illegality

If in any applicable jurisdiction, it becomes unlawful for any Lender to perform any of its obligations as contemplated by this Agreement or to fund or maintain its participation in any Loan or it becomes unlawful for any Affiliate of a Lender for that to do so:

 

a) that Lender shall promptly notify the Agent upon becoming aware of that event;

 

b) upon the Agent notifying the Borrower, the Commitment of that Lender will be immediately cancelled; and

 

c) the Borrower shall repay that Lender’s participation in the Loans made to the Borrower on the last day of the Interest Period for each Loan occurring after the Agent has notified the Borrower or, if earlier, the date specified by the Lender in the notice delivered to the Agent (being no earlier than the last day of any applicable grace period permitted by law).

 

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7.2 Voluntary cancellation

The Borrower may, if it gives the Agent not less than ten (10) Business Days’ (or such shorter period as the Majority Lenders may agree) prior notice, cancel the whole or any part (being a minimum amount of USD 5,000,000 of the Available Facility, or such lower amount as the Majority Lenders should agree to). Any cancellation under this Clause 7.2 shall reduce the Commitments of the Lenders rateably.

 

7.3 Voluntary prepayment of Loans

The Borrower may, if it gives the Agent not less than ten (10) Business Days’ (or such shorter period as the Majority Lenders may agree) prior notice, prepay the whole or any part of a Loan (but if in part, being an amount that reduces the Loan by a minimum amount of USD 5,000,000, or such lower amount as the Majority Lenders should agree to).

 

7.4 Right of replacement or repayment and cancellation in relation to a single Lender

 

a) If:

 

  (i) any sum payable to any Lender by the Borrower is required to be increased under paragraph c) of Clause 14.2 ( Tax gross-up ); or

 

  (ii) any Lender claims indemnification from the Borrower under Clause 14.3 ( Tax indemnity ) or Clause 15.1 ( Increased costs ),

the Borrower may, whilst the circumstance giving rise to the requirement for that increase or indemnification continues, give the Agent notice of cancellation of the Commitment of that Lender and its intention to procure the repayment of that Lender’s participation in the Loans or give the Agent notice of its intention to replace that Lender in accordance with paragraph d) below.

 

b) On receipt of a notice of cancellation referred to in paragraph a) above, the Commitment of that Lender shall immediately be reduced to zero.

 

c) On the last day of each Interest Period which ends after the Borrower has given notice of cancellation under paragraph a) above (or, if earlier, the date specified by the Borrower in that notice), the Borrower to shall repay that Lender’s participation in that Loan.

 

d) The Borrower may, in the circumstances set out in paragraph a) above, on 15 (fifteen) Business Days’ prior notice to the Agent and that Lender, replace that Lender by requiring that Lender to (and, to the extent permitted by law, that Lender shall) transfer pursuant to Clause 27 ( Changes to the Parties ) all (and not part only) of its rights and obligations under this Agreement to a Lender or other bank or, financial institution selected by the Borrower which confirms its willingness to assume and does assume all the obligations of the transferring Lender in accordance with Clause 27 ( Changes to the Parties ) for a purchase price in cash or other cash payment payable at the time of the transfer equal to the outstanding principal amount of such Lender’s participation in the outstanding Loans and all accrued interest, Break Costs and other amounts payable in relation thereto under the Finance Documents.

 

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e) The replacement of a Lender pursuant to paragraph d) above shall be subject to the following conditions:

 

  (i) the Borrower shall have no right to replace the Agent;

 

  (ii) neither the Agent nor any Lender shall have any obligation to find a replacement Lender;

 

  (iii) in no event shall the Lender replaced under paragraph d) above be required to pay or surrender any of the fees received by such Lender pursuant to the Finance Documents; and

 

  (iv) the Lender shall only be obliged to transfer its rights and obligations pursuant to paragraph (d) above once it is satisfied that it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations in relation to that transfer.

 

f) A Lender shall perform the checks described in paragraph e)(iv) above as soon as reasonably practicable following delivery of a notice referred to in paragraph d) above and shall notify the Agent and the Borrower when it is satisfied that it has complied with those checks.

 

8 MANDATORY PREPAYMENT AND CANCELLATION

 

8.1 Total Loss or sale

 

a) If any Vessel is sold or otherwise is disposed of (whether in whole or in part) or suffers a Total Loss:

 

(i) the Borrower may propose that another vessel (the “ Replacement Vessel ”) be financed under the Facility, and the Agent (acting on behalf of the Lenders) may (in the sole discretion of the Lenders) and subject to satisfaction of conditions precedent (to be set by the Agent on behalf of the Lenders) in respect of the Replacement Vessel consent to this; or

 

(ii) the Facility shall be prepaid by an amount equal to the Facility Reduction Amount on the Facility Reduction Date. Such prepayments shall be applied in accordance with Clause 9.7 ( Application of proceeds and reduction of Commitments ). If the Facility Reduction Amount is higher than the Loans then outstanding, the Available Facility shall be reduced on a proportionate basis on the Facility Reduction Date in order to ensure that the aggregate amount prepaid and so reduced is equal to the Facility Reduction Amount.

 

b) Following receipt of the Facility Reduction Amount, and subject to a closing procedure to be agreed between the Borrower and the Security Agent (in its sole discretion), the Security Agent shall, unless otherwise specified in the Finance Documents, release (including taking any steps necessary to giving effect to such release) any Security relating to the relevant Vessel and to release the relevant Obligor from its obligations under the Finance Documents in respect of such Vessel. The Security Agent (acting on behalf of the Lenders) shall further be obliged to release the Mortgage against the relevant Vessel when the Agent has received the Facility Reduction Amount.

 

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c) For the purposes of this Clause 8.1 the following definitions shall apply:

Facility Reduction Amount ” means the amount equal to (x) the aggregate of all outstanding Loans plus any Available Commitment multiplied by (y) a fraction, the numerator of which is the Market Value of the relevant Vessel and the denominator of which is the aggregate Market Value of all Vessels (based on valuations not older than thirty (30) days).

Facility Reduction Date ” means, in relation to a Vessel:

 

  i. where such Vessel has become a Total Loss; the date which is the earlier of the date of receipt by the Agent of the Facility Reduction Amount and one hundred and twenty (120) days after such Vessel as became a Total Loss; or

 

  ii. where such Vessel is sold or otherwise disposed of; the date upon which the sale or disposal of such Vessel is completed; or

 

  iii. where such Vessel is requisition on or before the date on which the Vessel is delivered to the requisitioning authority.

 

8.2 Minimum Total Market Value

If the Total Market Value at any time falls below one hundred and fifty per cent (150%) of the outstanding Loans hereunder, the Borrower shall, unless otherwise agreed with the Agent (on behalf of the Lenders), within fifteen (15) Business Days of receipt of written demand by the Agent, either:

 

a) prepay the Facility with an amount; or

 

b) provide the Lenders with such additional security, in form and substance satisfactory to the Security Agent (on behalf of the Lenders and the Swap Banks),

required to restore the aforesaid ratio.

 

9 RESTRICTIONS

 

9.1 Notices of Cancellation and Prepayment

Any notice of cancellation or prepayment given by any Party under Clause 7 ( Illegality, Voluntary Prepayment and Cancellation ) shall be irrevocable and, unless a contrary indication appears in this Agreement, shall specify the date or dates upon which the relevant cancellation or prepayment is to be made and the amount of that cancellation or prepayment.

 

9.2 Interest and other amounts

Any prepayment under this Agreement shall be made together with accrued interest on the amount prepaid and, subject to any Break Costs, without premium or penalty.

 

9.3 Re-borrowing

Unless a contrary indication appears in this Agreement, any part of the Facility which is prepaid or repaid may be reborrowed in accordance with the terms of this Agreement.

 

9.4 Prepayment/cancellation/repayment in accordance with the Agreement

The Borrower shall not repay or prepay all or any part of the Loans or cancel all or any part of the Commitments except at the times and in the manner expressly provided for in this Agreement.

 

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9.5 No reinstatement of Total Commitments

No amount of the Total Commitments cancelled under this Agreement may be subsequently reinstated.

 

9.6 Agent’s receipt of Notices

If the Agent receives a notice under Clause 7 ( Illegality, Voluntary Prepayment and Cancellation ) it shall promptly forward a copy of that notice to either the Borrower or the affected Lender, as appropriate.

 

9.7 Application of proceeds and reduction of Commitments:

 

a) Any amount prepaid or cancelled pursuant to this Agreement shall be applied against the Facility.

 

b) Any amount cancelled shall reduce each Lender’s Commitment in respect of the Facility by an amount equal to the proportion of the cancelled amount of the Facility which (prior to such reduction) its Commitment in respect of the Facility bears to the Available Facility of that Facility on that date.

 

c) If all or part of a Loan is repaid or prepaid and is not available for redrawing (other than by operation of Clause 4.2 ( Further conditions precedent )), an amount of the Commitments (equal to the amount of the amount of the Loan which is repaid or prepaid) will be deemed to be cancelled on the date of repayment or prepayment. Any cancellation under this paragraph c) shall reduce the Commitments of the Lenders rateably.

 

10 INTEREST

 

10.1 Calculation of interest

The rate of interest on each Loan for each Interest Period is the percentage rate per annum which is the aggregate of:

 

a) the Margin;

 

b) LIBOR; and

 

c) Mandatory Cost, if any.

 

10.2 Payment of interest

The Borrower shall pay accrued interest on a Loan on the last day of each Interest Period (and, if the Interest Period is longer than six (6) months, on the dates falling at six-monthly intervals after the first day of the Interest Period).

 

10.3 Default interest

 

a)

If the Borrower fails to pay any amount payable by it under a Finance Document on its due date, interest shall accrue on the overdue amount from the due date up to the date of actual payment (both before and after judgment) at a rate which, subject to paragraph b) below, is two (2) per cent higher than the rate which would have been payable if the overdue amount had, during the period of non-payment, constituted a Loan in the currency of the overdue amount for successive Interest Periods, each of a duration selected by the Agent (acting reasonably). If any Event of Default has occurred and is continuing under any Finance Documents and notice thereof has been sent from

 

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  the Agent to the Borrower, all outstanding amounts shall be deemed overdue and default interest (as specified above) will be calculated. Any interest accruing under this Clause 10.3 shall be immediately payable by the Borrower on demand by the Agent.

 

b) If any overdue amount consists of all or part of a Loan which became due on a day which was not the last day of an Interest Period relating to that Loan:

 

  (i) the first Interest Period for that overdue amount shall have a duration equal to the unexpired portion of the current Interest Period relating to that Loan; and

 

  (ii) the rate of interest applying to the overdue amount during that first Interest Period shall be two (2) per cent higher than the rate which would have applied if the overdue amount had not become due.

 

c) Default interest (if unpaid) arising on an overdue amount will be compounded with the overdue amount at the end of each Interest Period applicable to that overdue amount but will remain immediately due and payable.

 

10.4 Notification of rates of interest

The Agent shall promptly notify the Lenders and the Borrower of the determination of a rate of interest under this Agreement.

 

11 INTEREST PERIODS

 

11.1 Selection of Interest Periods

 

a) The Borrower may select an Interest Period for a Loan in the Utilisation Request for that Loan.

 

b) Subject to this Clause 11, the Borrower may select an Interest Period of three (3) or six (6) Months or any other period agreed between the Borrower and the Agent (acting on the instructions of all the Lenders).

 

c) An Interest Period for a Loan shall not extend beyond the Termination Date.

 

d) Each Interest Period for a Loan shall start on the Utilisation Date.

 

e) A Loan has one Interest Period only.

 

11.2 Non-Business Days

If an Interest Period would otherwise end on a day which is not a Business Day, that Interest Period will instead end on the next Business Day in that calendar month (if there is one) or the preceding Business Day (if there is not).

 

12 CHANGES TO THE CALCULATION OF INTEREST

 

12.1 Absence of quotations

Subject to Clause 12.2 ( Market disruption ), if LIBOR is to be determined by reference to the Reference Banks but a Reference Bank does not supply a quotation by 11:00 hours (London time) on the Quotation Day, LIBOR shall be determined on the basis of the quotations of the remaining Reference Banks.

 

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12.2 Market disruption

 

a) If a Market Disruption Event occurs in relation to a Loan for any Interest Period, then the rate of interest on each Lender’s share of that Loan for the Interest Period shall be the percentage rate per annum which is the sum of:

 

  (i) the Margin;

 

  (ii) the rate notified to the Agent by that Lender as soon as practicable and in any event before interest is due to be paid in respect of that Interest Period, to be that which expresses as a percentage rate per annum the cost to that Lender of funding its participation in that Loan from whatever source it may reasonably select; and

 

  (iii) The Mandatory Cost, if any, applicable to that Lender’s participation in the Loan.

 

b) In this Agreement, “ Market Disruption Event ” means:

 

  (i) at or about noon on the Quotation Day for the relevant Interest Period the applicable interest settlement rate for the relevant period as displayed on Reuters screen page LIBOR01 or LIBOR02 (or any replacement Reuters page which displays that rate), as appropriate, is not available and none or only one of the Reference Banks supplies a rate to the Agent to determine LIBOR for the relevant currency and Interest Period; or

 

  (ii) before close of business in London on the Quotation Day for the relevant Interest Period, the Agent receives notifications from a Lender or Lenders (whose participation in a Loan exceed fifty per cent (50.00%) of that Loan) that the cost to it of obtaining matching deposits in the Relevant Interbank Market would be in excess of LIBOR.

 

12.3 Alternative basis of interest or funding

 

a) If a Market Disruption Event occurs and the Agent or the Borrower so requires, the Agent and the Borrower shall enter into negotiations (for a period of not more than thirty (30) days) with a view to agreeing a substitute basis for determining the rate of interest.

 

b) Any alternative basis agreed pursuant to paragraph a) above shall, with the prior consent of all the Lenders and the Borrower, be binding on all Parties.

 

12.4 Break Costs

 

a) The Borrower shall, within three (3) Business Days of demand by a Finance Party, pay to that Finance Party its Break Costs attributable to all or any part of a Loan or Unpaid Sum being paid by the Borrower on a day other than the last day of an Interest Period for that Loan or Unpaid Sum.

 

b) Each Lender shall, as soon as reasonably practicable after a demand by the Agent, provide a certificate confirming the amount of its Break Costs for any Interest Period in which they accrue.

 

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13 FEES

 

13.1 Commitment fee

 

a) The Borrower shall pay to the Agent (for the account of each Lender) a fee computed at the rate of 100 basis points (100 bps) per annum to be calculated on the daily undrawn part of the Total Commitments, accruing from 26 November 2013 until and including the last day of the Availability Period.

 

b) The accrued commitment fee is payable on the last day of each successive period of three (3) Months which ends during the Availability Period, on the last day of the Availability Period and, if cancelled in full, on the cancelled amount of the relevant Lender’s Commitment at the time the cancellation is effective.

 

13.2 Arrangement fee

The Borrower shall pay to the Arranger (for further distribution to the Lenders) a non-refundable arrangement fee of one hundred and ten basis points (110 bps) to be calculated on the Total Commitments, payable on the date of this Agreement, and to be distributed to the Lenders in accordance with their Commitments.

 

13.3 Agency fee

The Borrower shall pay to the Agent (for its own account) an agency fee in the amount and at the times agreed in a Fee Letter.

 

13.4 Structuring fee

The Borrower shall pay to the Agent (for its own account) a structuring fee in the amount and at the times agreed in a Fee Letter.

 

14 TAX GROSS UP AND INDEMNITIES

 

14.1 Definitions

 

a) In this Agreement:

Protected Party ” means a Finance Party which is or will be subject to any liability, or required to make any payment, for or on account of Tax in relation to a sum received or receivable (or any sum deemed for the purpose of Tax to be received or receivable) under a Finance Document.

Tax Credit ” means a credit against, relief or remission for, or repayment of any Tax.

Tax Deduction ” means a deduction or withholding for or on account of Tax from a payment under a Finance Document, other than a FATCA Deduction.

Tax Payment ” means either the increase in payment made by the Borrower to a Finance Party under Clause 14.2 ( Tax Gross-Up ) or a payment made under Clause 14.3 ( Tax indemnity ).

 

b) Unless a contrary indication appears, in this Clause 14 a reference to “ determine ” or “ determined ” means a determination made in the absolute discretion of the person making the determination.

 

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14.2 Tax gross-up

 

a) The Borrower shall make all payments to be made by it to any Finance Party under the Finance Documents without any Tax Deduction, unless a Tax Deduction is required by law.

 

b) The Borrower shall promptly upon becoming aware that it is required by law to make a Tax Deduction (or that there is a change in the rate or the basis of any Tax Deduction) notify the Agent accordingly. Similarly, a Lender shall notify the Agent on becoming so aware in respect of a payment payable to that Lender. If the Agent receives such notification from a Lender, it shall notify the Borrower.

 

c) If a Tax Deduction is required by law to be made by the Borrower, the amount of the payment due from the Borrower shall be increased to an amount which (after making any Tax Deduction) leaves an amount equal to the payment which would have been due if no Tax Deduction had been required.

 

d) If the Borrower is required to make a Tax Deduction, the Borrower shall make that Tax Deduction and any payment required in connection with that Tax Deduction within the time allowed and in the minimum amount required by law.

 

e) Within thirty (30) days of making either a Tax Deduction or any payment required in connection with that Tax Deduction, the Borrower shall deliver to the Agent for the Finance Party entitled to the payment evidence reasonably satisfactory to that Finance Party that the Tax Deduction has been made or (as applicable) any appropriate payment paid to the relevant taxing authority.

 

14.3 Tax indemnity

 

a) The Borrower shall (within three (3) Business Days of demand by the Agent) pay to a Protected Party an amount equal to the loss, liability or cost which that Protected Party determines, will be or has been (directly or indirectly) suffered for or on account of Tax by that Protected Party in respect of a Finance Document.

 

b) Paragraph a) above shall not apply:

 

  (i) with respect to any Tax assessed on a Finance Party:

 

  (A) under the law of the jurisdiction (or jurisdictions) in which that Finance Party is treated as resident for tax purposes; or

 

  (B) under the law of the jurisdiction in which that Finance Party’s Facility Office is located in respect of amounts received or receivable in that jurisdiction,

if that Tax is imposed on or calculated by reference to the net income received or receivable (but not any sum deemed to be received or receivable) by that Finance Party; or

 

  (ii) to the extent a loss, liability or cost:

 

  (A) is compensated for by an increased payment under Clause 14.2 ( Tax gross-up ), ;

 

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  (B) would have been compensated for by an increased payment under Clause 14.2 ( Tax gross-up ) but was not so compensated solely because one of the exclusions in paragraph d) of Clause 14.2 ( Tax gross-up ) applied; or

 

  (C) relates to a FATCA Deduction required to be made by a Party under Clause 14.8 ( FATCA Deduction ).

 

c) A Protected Party making, or intending to make, a claim under paragraph a) above shall promptly notify the Agent of the event which will give, or has given, rise to the claim, following which the Agent shall notify the Borrower, provided that nothing herein shall require such Protected Party to disclose any confidential information relating to the organisation of its affairs.

 

d) A Protected Party shall, on receiving a payment from the Borrower under this Clause 14.3, notify the Agent.

 

14.4 Tax Credit

If the Borrower makes a Tax Payment and the relevant Finance Party determines that:

 

a) a Tax Credit is attributable either to an increased payment of which that Tax Payment forms part, to that Tax Payment or to a Tax Deduction in consequence of which that Tax Payment; and

 

b) that Finance Party actually has obtained, utilised and retained a Tax Credit,

the Finance Party shall pay an amount to the Borrower which that Finance Party determines will leave it (after that payment) in the same after-Tax position as it would have been in had the Tax Payment not been required to be made by the Borrower.

 

14.5 Stamp taxes

The Borrower shall pay and, within three (3) Business Days of demand, indemnify each Finance Party against any cost, loss or liability that Finance Party incurs in relation to all stamp duty, registration and other similar Taxes payable in respect of any Finance Document.

 

14.6 Value added tax

 

a) All amounts set out or expressed in a Finance Document to be payable by any Party to a Finance Party which (in whole or in part) constitute the consideration for a supply or supplies for VAT purposes shall be deemed to be exclusive of any VAT which is chargeable on such supply or supplies, and accordingly, subject to paragraph b) below, if VAT is chargeable on any supply made by any Finance Party to any Party under a Finance Document, that Party shall pay to the Finance Party (in addition to and at the same time as paying the consideration for such supply) an amount equal to the amount of such VAT (and such Finance Party shall promptly provide an appropriate VAT invoice to such Party).

 

b)

If VAT is or becomes chargeable on any supply made by any Finance Party (the “ Supplier ”) to any other Finance Party (the “ Recipient ”) under a Finance Document, and any Party other than the Recipient (the “ Subject Party ”) is required by the terms of any Finance Document to pay an amount equal to the consideration for such supply to the Supplier (rather than being required to reimburse the Recipient in respect of that consideration), such Party shall also pay to the Supplier (in addition to and at the same

 

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  time as paying such amount) an amount equal to the amount of such VAT. The Recipient will promptly pay to the Subject Party an amount equal to any credit or repayment obtained by the Recipient from the relevant tax authority which the Recipient reasonably determines is in respect of such VAT.

 

c) Where a Finance Document requires any Party to reimburse or indemnify a Finance Party for any costs or expenses, that Party shall reimburse and indemnify (as the case may be) that Finance Party for the full amount of such cost or expense, including such part thereof as represents VAT, save to the extent that such Finance Party reasonably determines it is entitled to credit or repayment in respect of such VAT.

 

14.7 FATCA Information

 

a) Subject to paragraph c) below, each Party shall, within ten (10) Business Days of a reasonable request by another Party:

 

  (i) confirm to that other Party whether it is:

 

  (A) a FATCA Exempt Party; or

 

  (B) not a FATCA Exempt Party; and

 

  (ii) supply to that other Party such forms, documentation and other information relating to its status under FATCA (including its applicable “passthru payment percentage” or other information required under the US Treasury Regulations or other official guidance including intergovernmental agreements) as that other Party reasonably requests for the purposes of that other Party’s compliance with FATCA.

 

b) If a Party confirms to another Party pursuant to sub-paragraph a)(i) above that it is a FATCA Exempt Party and it subsequently becomes aware that it is not, or has ceased to be a FATCA Exempt Party, that Party shall notify that other Party reasonably promptly.

 

c) Paragraph a) above shall not oblige any Finance Party to do anything which would or might in its reasonable opinion constitute a breach of:

 

  (i) any law or regulation;

 

  (ii) any fiduciary duty; or

 

  (iii) any duty of confidentiality.

 

d) If a Party fails to confirm its status or to supply forms, documentation or other information requested in accordance with paragraph a) above (including, for the avoidance of doubt, where paragraph c) above applies), then:

 

  (i) if that Party failed to confirm whether it is (and/or remains) a FATCA Exempt Party then such Party shall be treated for the purposes of the Finance Documents as if it is not a FATCA Exempt Party; and

 

  (ii) if that Party failed to confirm its applicable “passthru payment percentage” then such Party shall be treated for the purposes of the Finance Documents (and payments made thereunder) as if its applicable “passthru payment percentage” is one hundred per cent. (100%),

 

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until (in each case) such time as the Party in question provides the requested confirmation, forms, documentation or other information.

 

14.8 FATCA Deduction

 

a) Each Party may make any FATCA Deduction it is required to make by FATCA, and any payment required in connection with that FATCA Deduction, and no Party shall be required to increase any payment in respect of which it makes such a FATCA Deduction or otherwise compensate the recipient of the payment for that FATCA Deduction.

 

b) Each Party shall promptly, upon becoming aware that it must make a FATCA Deduction (or that there is any change in the rate or the basis of such FATCA Deduction) notify the Party to whom it is making the payment and, in addition, shall notify the Company, the Agent and the other Finance Parties.

 

15 INCREASED COSTS

 

15.1 Increased costs

 

a) Subject to Clause 15.3 ( Exceptions ) the Borrower shall, within three (3) Business Days of a demand by the Agent, pay for the account of a Finance Party the amount of any Increased Costs incurred by that Finance Party or any of its Affiliates as a result of (i) the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation or (ii) compliance with any law or regulation made after the date of this Agreement. For the avoidance of doubt, it is agreed that any Increased Costs attributable to the implementation or application of or compliance with Basel III Standards shall be paid by the Borrower in accordance with this Clause 15.1.

 

b) Increased Costs ” means:

 

  (i) a reduction in the rate of return from the Facility or on a Finance Party’s (or its Affiliate’s) overall capital;

 

  (ii) an additional or increased cost; or

 

  (iii) a reduction of any amount due and payable under any Finance Document,

which is incurred or suffered by a Finance Party or any of its Affiliates to the extent that it is attributable to that Finance Party having entered into its Commitment or funding or performing its obligations under any Finance Document.

 

c) For the purpose of this Clause 15.1, “ Basel III Standards ” means the consultations, including the agreements on capital requirements, a leverage ratio and liquidity standards contained in such consultations, published by the Basel Committee of Banking Supervision in December 2010 with the titles “Basel III: International framework for more resilient banks and banking systems” and “Basel III: International framework for liquidity risk measurement, standards and monitoring” and “Guidance for national authorities operating the countercyclical capital buffer” and “Global systemically important banks: assessment methodology and the additional loss absorbency requirement – Rules text” published by the Basel Committee on Banking Supervision in November 2011, each as amended, supplemented or restated, together with any further guidance of standards in relation to the Basel III Standards published or to be published by the Basel Committee on Banking Supervision

 

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15.2 Increased cost claims

 

a) A Finance Party intending to make a claim pursuant to Clause 15.1 ( Increased costs ) shall notify the Agent of the event giving rise to the claim, following which the Agent shall promptly notify the Borrower.

 

b) Each Finance Party shall, as soon as practicable after a demand by the Agent, provide a certificate confirming the amount of its Increased Costs.

 

15.3 Exceptions

 

a) Clause 15.1 ( Increased costs ) does not apply to the extent any Increased Cost is:

 

  (i) attributable to a Tax Deduction required by law to be made by the Borrower;

 

  (ii) attributable to a FATCA Deduction required to be made by a Party;

 

  (iii) compensated for by Clause 14.3 (Tax indemnity) (or would have been compensated for under Clause 14.3 (Tax indemnity) but was not so compensated solely because any of the exclusions in paragraph b) of Clause 14.3 (Tax indemnity) applied);

 

  (iv) compensated for by the payment of the Mandatory Cost; or

 

  (v) attributable to the wilful breach by the relevant Finance Party or its Affiliates of any law or regulation.

 

b) In this Clause 15.3, a reference to “ Tax Deduction ” has the same meaning given to the term in Clause 14.1 ( Definitions ).

 

16 OTHER INDEMNITIES

 

16.1 Currency indemnity

 

a) If any sum due from the Borrower under the Finance Documents (a “ Sum ”), or any order, judgment or award given or made in relation to a Sum, has to be converted from the currency (the “ First Currency ”) in which that Sum is payable into another currency (the “ Second Currency ”) for the purpose of:

 

  (i) making or filing a claim or proof against the Borrower;

 

  (ii) obtaining or enforcing an order, judgment or award in relation to any litigation or arbitration proceedings,

the Borrower shall as an independent obligation, within three (3) Business Days of demand, indemnify each Finance Party to whom that Sum is due against any cost, loss or liability arising out of or as a result of the conversion including any discrepancy between a) the rate of exchange used to convert that Sum from the First Currency into the Second Currency and b) the rate or rates of exchange available to that person at the time of its receipt of that Sum.

 

b) The Borrower waives any right it may have in any jurisdiction to pay any amount under the Finance Documents in a currency or currency unit other than that in which it is expressed to be payable.

 

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16.2 Other indemnities

The Borrower shall, within three (3) Business Days of demand, indemnify each Finance Party against any cost, loss or liability incurred by that Finance Party as a result of:

 

a) the occurrence of any Event of Default;

 

b) a failure by the Borrower to pay any amount due under a Finance Document on its due date, including without limitation, any cost, loss or liability arising as a result of Clause 31 ( Sharing among the Finance Parties );

 

c) funding, or making arrangements to fund, its participation in a Loan requested by a Borrower in a Utilisation Request but not made by reason of the operation of any one or more of the provisions of this Agreement (other than by reason of default or negligence by that Finance Party alone); or

 

d) a Loan (or part of a Loan) not being prepaid in accordance with a notice of prepayment given by the Borrower.

 

16.3 Indemnity to the Agent

The Borrower shall promptly indemnify the Agent against any cost, loss or liability incurred by the Agent (acting reasonably) as a result of:

 

a) investigating any event which it reasonably believes is a Default; or

 

b) acting or relying on any notice, request or instruction which it reasonably believes to be genuine, correct and appropriately authorized.

 

17 MITIGATION BY THE LENDERS

 

17.1 Mitigation

 

a) Each Finance Party shall, in consultation with the Borrower, take all reasonable steps to mitigate any circumstances which arise and which would result in any amount becoming payable under or pursuant to, or cancelled pursuant to, any of Clause 7 ( Illegality, Voluntary Prepayment and Cancellation ) Clause 14 ( Tax gross-up and indemnities ), or Clause 15 ( Increased costs ) including (but not limited to) transferring its rights and obligations under the Finance Documents to another Affiliate or Facility Office.

 

b) Paragraph a) above does not in any way limit the obligations of the Borrower under the Finance Documents.

 

17.2 Limitation of liability

 

a) The Borrower shall promptly indemnify each Finance Party for all costs and expenses reasonably incurred by that Finance Party as a result of steps taken by it under Clause 17.1 ( Mitigation ).

 

b) A Finance Party is not obliged to take any steps under Clause 17.1 ( Mitigation ) if, in the opinion of that Finance Party (acting reasonably), to do so might be prejudicial to it.

 

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18 COSTS AND EXPENSES

 

18.1 Transaction expenses

The Borrower shall promptly on demand pay the Agent and the Arrangers the amount of all costs and expenses (including internal and external legal and collateral fees) reasonably incurred by any of them in connection with the negotiation, preparation, printing, execution and syndication of:

 

a) this Agreement and any other documents referred to in this Agreement; and

 

b) any other Finance Documents executed after the date of this Agreement.

 

18.2 Amendment costs

If:

 

a) the Borrower requests an amendment, waiver or consent; or

 

b) an amendment is required pursuant to Clause 32.10 ( Change of currency ),

the Borrower shall, within three (3) Business Days of demand, reimburse the Agent for the amount of all costs and expenses (including legal fees) reasonably incurred by the Agent in responding to, evaluating, negotiating or complying with that request or requirement.

 

18.3 Enforcement costs

The Borrower shall, within three (3) Business Days of demand, pay to each Finance Party the amount of all costs and expenses (including legal fees) incurred by that Finance Party in connection with the enforcement of, or the preservation of any rights under, any Finance Document.

 

19 GUARANTEE AND INDEMNITY

 

19.1 Guarantee and indemnity

Subject to Clause 19.12 ( Limitations ), each Additional Guarantor jointly and severally irrevocably and unconditionally:

 

a) guarantees to each Finance Party as and for its own debt and not merely as surety the punctual performance by each other Obligor of that Obligor’s obligations under the Finance Documents;

 

b) undertakes with each Finance Party that whenever another Obligor does not pay any amount when due under or in connection with any Finance Document, that Additional Guarantor shall immediately on demand (No. pâkravsgaranti ) by the Agent pay that amount as if it was the principal obligor; and

 

c) agrees with each Finance Party that if an obligation guaranteed by it is or becomes unenforceable, invalid or illegal, it will, as an independent and primary obligation, indemnify that Finance Party immediately on demand against any cost, loss or liability it incurs as a result of the Borrower not paying any amount which would, but for such unenforceability, invalidity or illegality, have been payable by it under any Finance Document on the date when it would have been due.

 

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19.2 Continuing guarantee

This guarantee is a continuing guarantee and will extend to the ultimate balance of sums payable the Borrower under the Finance Documents, regardless of any intermediate payment or discharge in whole or in part,

 

19.3 Maximum guarantee liability

The liability of each Additional Guarantor under this Clause 19 shall be limited to USD 72,000,000, plus any unpaid amount of interest, fees, liability, costs and expenses under the Finance Documents.

 

19.4 Reinstatement

If any discharge, release or arrangement (whether in respect of the obligations of the Borrower or any security for those obligations or otherwise) is made by a Finance Party in whole or in part on the basis of any payment, security or other disposition which is avoided or must be restored in insolvency, liquidation, administration or otherwise, without limitation, then the liability of each Additional Guarantor under this Clause 19 shall continue or be reinstated as if the discharge, release or arrangement had not occurred.

 

19.5 Waiver of defences and confirmations

 

a) The obligations of each Additional Guarantor under this Clause 19 will not be affected by an act, omission, matter or thing which, but for this Clause, would reduce, release or prejudice any of its obligations under this Clause 19 (without limitation and whether or not known to it or any Finance Party) including:

 

  (i) any time, waiver or consent granted to, or composition with, any Obligor or any other person;

 

  (ii) the release of any other Obligor or any other person under the terms of any composition or arrangement with any creditor of any member of the Group;

 

  (iii) the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect, take up or enforce, any rights against, or security over assets of, any Obligor or other person or any non-presentation or non-observance of any formality or other requirement in respect of any instrument or any failure to realise the full value of any security;

 

  (iv) any incapacity or lack of power, authority or legal personality of or dissolution or change in the members or status of an Obligor or any other person;

 

  (v) any amendment, novation, supplement, extension, restatement (however fundamental and whether or not more onerous) or replacement of any Finance Document or any other document or security including without limitation any change in the purpose of, any extension of or any increase in any facility or the addition of any new facility under any Finance Document or other document or security;

 

  (vi) any unenforceability, illegality or invalidity of any obligation of any person under any Finance Document or any other document or security; or

 

  (vii) any insolvency or similar proceedings.

 

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b) Furthermore, each Additional Guarantor specifically waives all rights under the provisions of the FA Act not being mandatory provisions, including (but not limited to) the following provisions (the main contents of the relevant provisions being as indicated in the brackets):

 

  (i) § 62 (1)(a)  (to be notified of any Security Documents the giving of which was a precondition for the advance of any Loan, but which has not been validly granted or has lapsed);

 

  (ii) § 63 (l)-(2)  (to be notified of any Event of Default hereunder and to be kept informed thereof);

 

  (iii) § 63 (3)  (to be notified of any extension granted to the Borrower in payment of principal and/or interest);

 

  (iv) § 63 (4)  (to be notified of an Obligor’s bankruptcy proceedings or debt reorganisation proceedings and/or any application for the latter);

 

  (v) § 65 (3)  (that the consent of the Additional Guarantors is required for the Additional Guarantors to be bound by amendments to the Finance Documents that may be detrimental to its interest);

 

  (vi) § 66 (l)-(2)  (that the Additional Guarantors shall be released from its liabilities hereunder if Security which was given, or the giving of which was a precondition for the utilisation of a Facility, is released by the Finance Parties without the consent of the Additional Guarantor);

 

  (vii) § 66 (3)  (that the Additional Guarantors shall be released from its liabilities hereunder if, without its consent, Security the giving of which was a precondition for the utilisation of a Loan was not validly granted);

 

  (viii) § 67 (l)-(2)  (about any reduction of the Additional Guarantors’ liabilities hereunder, since no such reduction shall apply as long as any amount is outstanding under the Finance Documents);

 

  (ix) § 67 (4)  (that the Additional Guarantors’ liabilities hereunder shall lapse after ten (10) years, as the Additional Guarantors shall remain liable hereunder as long as any amount is outstanding under any of the Finance Documents);

 

  (x) § 70 (as no Additional Guarantor shall have any right of subrogation into the rights of the Finance Parties under the Finance Documents until and unless the Finance Parties shall have received all amounts due or to become due to them under the Finance Documents);

 

  (xi) § 71 (as the Finance Parties shall have no liability first to make demand upon or seek to enforce remedies against an Obligor or any other Security provided in respect of the Borrower’s liabilities under the Finance Documents before demanding payment under or seeking to enforce the obligations of the Additional Guarantors hereunder);

 

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  (xii) § 72 (as all interest and default interest due under any of the Finance Documents shall be secured by the obligations of the Additional Guarantors hereunder);

 

  (xiii) § 73 (l)-(2)  (as all costs and expenses related to an Event of Default under this Agreement shall be secured by the obligations of the Additional Guarantors hereunder); and

 

  (xiv) § 74 (l)-(2)  (as no Additional Guarantor shall make any claim against an Obligor or any other person for payment until and unless all amounts payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full to the Finance Parties and all Commitments have been cancelled or otherwise cease to be available).

 

c) Each Additional Guarantor further confirms that it has received and noted the following information in accordance with § 61(2) of the FA Act:

 

  (i) such information as required thereunder in respect of all Security created under the Finance Documents; and

 

  (ii) with respect to an Additional Guarantor:

 

  (A) that no Event of Default has occurred or is continuing as at the date it becomes a Guarantor (and, unless informed or indicated otherwise by the Agent, the Agent confirms that it has no information to the contrary); and

 

  (B) that the guarantee granted by it under this Clause 19 shall also cover obligations which have been incurred prior to it becoming an Additional Guarantor.

 

19.6 Additional Guarantor intent

Without prejudice to the generality of Clause 19.5 ( Waiver of defences and confirmations ), each Additional Guarantor expressly confirms that it intends that this guarantee shall extend from time to time to any (however fundamental) variation, increase, extension or addition of or to any of the Finance Documents and/or any facility or amount made available under any of the Finance Documents for the purposes set out herein, any other variation or extension of the purposes for which any such facility or amount might be made available from time to time; and any fees, costs and/or expenses associated with any of the foregoing.

 

19.7 Immediate recourse

Each Additional Guarantor waives any right it may have of first requiring any Finance Party (or any trustee or agent on its behalf) to proceed against or enforce any other rights or security or claim payment from any person before claiming from that Additional Guarantor under this Clause 19. This waiver applies irrespective of any law or any provision of a Finance Document to the contrary.

 

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19.8 Appropriations

Until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full, each Finance Party (or any trustee or agent on its behalf) may:

 

a) refrain from applying or enforcing any other moneys, security or rights held or received by that Finance Party (or any trustee or agent on its behalf) in respect of those amounts, or apply and enforce the same in such manner and order as it sees fit (whether against those amounts or otherwise) and no Additional Guarantor shall be entitled to the benefit of the same; and

 

b) hold in an interest-bearing suspense account any moneys received from any Additional Guarantor or on account of any Additional Guarantor’s liability under this Clause 19.

 

19.9 Deferral of Guarantors’ rights

Until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full and unless the Agent otherwise directs, no Additional Guarantor will exercise any rights which it may have by reason of performance by it of its obligations under the Finance Documents:

 

a) to be indemnified by an Obligor;

 

b) to claim any contribution from any other guarantor of any Obligor’s obligations under the Finance Documents;

 

c) to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Finance Parties under the Finance Documents or of any other guarantee or security taken pursuant to, or in connection with, the Finance Documents by any Finance Party;

 

d) to bring legal or other proceedings for an order requiring any Obligor to make any payment, or perform any obligation, in respect of which any Guarantor has given a guarantee, undertaking or indemnity under this Clause 19 ( Guarantee and indemnity );

 

e) to exercise any right of set-off against any Obligor; and/or

 

f) to claim or prove as a creditor of any Obligor in competition with any Finance Party.

If an Additional Guarantor receives any benefit, payment or distribution in relation to such rights it shall hold that benefit, payment or distribution to the extent necessary to enable all amounts which may be or become payable to the Finance Parties by the Obligors under or in connection with the Finance Documents to be repaid in full on trust for the Finance Parties and shall promptly pay or transfer the same to the Agent or as the Agent may direct for application in accordance with Clause 32 ( Payment mechanics ) of this Agreement.

 

19.10 Release of Guarantors’ right of contribution

If any Additional Guarantor (a “ Retiring Guarantor ”) ceases to be an Additional Guarantor in accordance with the terms of the Finance Documents for the purpose of any sale or other disposal of that Retiring Guarantor, then on the date such Retiring Guarantor ceases to be an Additional Guarantor:

 

a) that Retiring Guarantor is released by each other Additional Guarantor from any liability (whether past, present or future and whether actual or contingent) to make a contribution to any other Additional Guarantor arising by reason of the performance by any other Guarantor of its obligations under the Finance Documents; and

 

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b) each other Additional Guarantor waives any rights it may have by reason of the performance of its obligations under the Finance Documents to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Finance Parties under any Finance Document or of any other security taken pursuant to, or in connection with, any Finance Document where such rights or security are granted by or in relation to the assets of the Retiring Guarantor.

 

19.11 Additional security

This guarantee is in addition to and is not in any way prejudiced by any other guarantee or security now or subsequently held by any Finance Party.

 

19.12 Limitations

The guarantee liability of any Additional Guarantor is subject to any limitations relating to that Additional Guarantor set out in any relevant Accession Letter.

 

20 SECURITY

 

20.1 Security – Loan

The Obligors’ obligations and liabilities under the Finance Documents, including (without limitation) the Obligors’ obligation to repay the Loans together with all unpaid interest, default interest, commissions, charges, expenses and any other derived liability whatsoever of the Obligors towards the Finance Parties in connection with this Agreement and any Finance Document, shall at any and all times during the Security Period, be secured by:

 

  (i) the Mortgages;

 

  (ii) the Assignment Agreement; and

 

  (iii) any Charterparty Assignment,

 

  (iv) if requested by the Majority Lenders, a security interest over the shares in an Additional Guarantor; and

 

  (v) if requested by the Majority Lenders, a security interest over any intercompany loan or credit granted by the Borrower to an Additional Guarantor.

(together the “ Security Documents ”).

 

20.2 Perfection etc.

The Borrower and each Additional Guarantor undertakes to ensure that the above Security Documents are duly executed by the parties thereto in favour of the Security Agent (on behalf of the Finance Parties) on or about the date of this Agreement, legally valid and in full force and effect, and to execute or procure the execution of such further documentation as the Security Agent may reasonable require in order for the relevant Finance Parties to maintain the security position envisaged hereunder, however so that the obligation to obtain an acknowledgment from the relevant Charterer of the notices of assignment under any Charterparty Assignment shall be on a best efforts basis only.

 

20.3 Security and subordination – Swap Agreement(s)

 

a) The Finance Parties have agreed that the Obligors’ obligations under the Swap Agreement(s), if any, shall be secured by the Security Documents with the rights of the

 

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  Swap Banks under the Security Documents being fully subordinated to and ranking in all respects after the right of the Agent (on behalf of the Finance Parties) under the Security Documents as set out in Clause 19.1 ( Security – Loans ).

 

b) The obligations of the Borrower and any Additional Guarantor towards the Swap Banks under any Swap Agreements shall be fully subordinated to and rank in priority after the rights of the Finance Parties under the Finance Documents and so that upon the occurrence of an Event of Default, no payments shall be made to any of the Swap Banks under the Swap Agreements as long as any amount is outstanding under any Finance Document.

 

c) The Swap Bank shall promptly notify the Agent in writing upon doing or entering into any transactions under the Swap Agreement(s).

 

20.4 Enforcement of the Security Documents

 

a) Each of the Swap Banks undertakes with the Agent (on behalf of the Finance Parties) that it will not take any action to enforce any claim or seek to exercise any of its rights and powers of enforcement under the Security Documents unless:

 

  (i) the Security Agent (on behalf of the Finance Parties) shall have given its prior written consent thereto (which the Agent shall have full liberty to withhold); or

 

  (ii) all monies due or to become due to the Agent and the Finance Parties (including all accrued interest and other monies) under the terms of this Agreement and/or the other Finance Documents have been paid in full to the Agent (on behalf of the Finance Parties).

 

b) The Security Agent (on behalf of the Finance Parties) will notify the Swap Banks as soon as practicable if it intends to enforce any of its rights or powers under the Security Documents (other than its right to demand payment of any monies secured thereby) whereupon the Swap Banks shall have the option (to be exercised immediately upon receipt of such notification if there is a case of emergency and the Security Agent (on behalf of the Finance Parties) has to act without delay, or otherwise within fifteen (15) Business Days from receipt of such notification during which period the Security Agent (on behalf of the Finance Parties) will not complete enforcement of any of its said rights and powers) of paying to the Security Agent within the said fifteen (15) Business Days all monies due to the Finance Parties under this Agreement and the Security Documents against an assignment and transfer (on a non-recourse basis) of this Agreement and the Security Documents that may be transferable to, and at the expense of, the Swap Bank(s). Such assignment and transfer of this Agreement and the Security Documents shall be without any express or implied warranty or representation by the Security Agent or any of the other Finance Parties as to the validity or enforceability of this Agreement and/or the Security Documents and/or such related documents or as to the recoverability of any moneys thereunder. The Security Agent shall not be liable to any of the Swap Banks for any failure or delay in giving notice of its intention to enforce and shall not be liable to any of the Swap Banks in respect of any loss, damage or liability incurred by any of the Swap Banks arising out of or in connection with the Agent’s failure or delay in giving such notice.

 

c) Without prejudice to this Clause 20.4, nothing herein shall preclude the right of the Security Agent to demand payment of any money secured by the Security Documents or preclude the Security Agent from taking any action whatsoever in accordance with the Security Documents.

 

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d) Nothing herein shall preclude the right of the Swap Banks to demand and/or receive payments of any monies secured by the Security Documents or performance of other obligations set out in any Swap Agreement (hereunder the un-winding of swap transactions thereunder), always as long as such action does not interfere with the rights of the Finance Parties and is not inconsistent with its obligations contained in this Agreement (including, but not limited to, Clause 20.3 ( Security and subordination – Swap Agreement(s) ) .

 

21 REPRESENTATIONS

Each Obligor (or, if the relevant provision so states, the Borrower) makes the representations and warranties set out in this Clause 21 on the date of this Agreement.

 

21.1 Status

 

a) It is a corporation, duly incorporated and validly existing under the law of its jurisdiction of incorporation.

 

b) It has the power to own its assets and carry on its business as it is being conducted.

 

21.2 Binding obligations

The obligations expressed to be assumed by it in each Finance Document to which it is party are legal, valid, binding and enforceable obligations.

 

21.3 Non-conflict with other obligations

The entry into and performance by it of, and the transactions contemplated by, the Finance Documents do not and will not conflict with:

 

a) any law or regulation applicable to it;

 

b) its constitutional documents; or

 

c) any agreement or instrument binding upon it or any of its assets.

 

21.4 Power and authority

It has the power to enter into, perform and deliver, and has taken all necessary action to authorize its entry into, performance and delivery of, the Finance Documents to which it is or will be a party and the transactions contemplated by those Finance Documents.

 

21.5 Validity and admissibility in evidence

All Authorisations required or desirable:

 

a) to enable it lawfully to enter into, exercise its rights and comply with its obligations in the Finance Documents to which it is a party;

 

b) to make the Finance Documents to which it is a party admissible in evidence in its jurisdiction of incorporation; and

 

c) necessary for the conduct of the business, trade and ordinary activity of the Borrower, have been obtained or effected and are in full force and effect.

 

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21.6 Governing law and enforcement

 

a) The choice of Norwegian law as the governing law of the Finance Documents will be recognized and enforced in its jurisdiction of incorporation.

 

b) Any judgment obtained in Norway in relation to a Finance Document will be recognised and enforced in its jurisdiction of incorporation.

 

21.7 Taxes

 

a) It is not required to make any deduction for or on account of Tax from any payment it may make under any Finance Document.

 

b) It has complied with all material taxation laws in all jurisdictions where it is subject to taxation and has paid all material Taxes and other amounts due to governments and other public bodies. No claims are being asserted against it with respect to any Taxes or other payments due to public or governmental bodies.

 

21.8 No filing or stamp taxes

Under the law of its jurisdiction of incorporation it is not necessary that the Finance Documents be filed, recorded or enrolled with any court or other authority in that jurisdiction or that any stamp, registration or similar tax be paid on or in relation to the Finance Documents or the transactions contemplated by the Finance Documents, except registration of the Mortgages in the relevant of the Norwegian Ordinary Ship Registry and the Norwegian International Ship Registry.

 

21.9 No default

 

a) No Event of Default is continuing or might reasonably be expected to result from the making of any Utilisation or the entry into, performance of, or any transaction contemplated by, any Finance Document.

 

b) No other event or circumstance is outstanding which constitutes (or, with the expiry of a grace period, giving of notice or the making of any determination or the fulfilment of any other applicable conditions or any combination of the foregoing would constitute) a default or might constitute a default or termination event (howsoever described) under any other agreement or instrument which is binding on it or to which its assets are subject which has or might have a Material Adverse Effect.

 

21.10 No misleading information

 

a) Any factual information, documents, exhibits or reports relating to the Obligor and which have been furnished to the Finance Parties by or on behalf of the relevant Obligor are complete and accurate in all material respects as at the date it was provided or as at the date (if any) at which it is stated and do not contain any misstatement of fact or omit to state a fact making such information, documents, exhibits or reports misleading in any material respect.

 

b) Any financial projections provided by or on behalf of the Borrower in connection with the Agreement have been prepared on the basis of recent historical information and on the basis of reasonable assumptions.

 

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c) Nothing has occurred or been omitted from the information so provided and no information has been given or withheld that results in the information so provided being untrue or misleading in any material respect

 

21.11 Financial statements

 

a) The Borrower’s Original Financial Statements were prepared in accordance with GAAP consistently applied.

 

b) The Borrower’s Original Financial Statements fairly and accurately represent its assets, liabilities, financial condition and operations during the relevant financial year.

 

c) As of the date of the Original Financial Statements, the Borrower had no material liabilities, direct or indirect, actual or contingent, and there is no material, unrealized or anticipated losses from any unfavourable commitments not disclosed by or reserved against in the Original Financial Statements or in the notes thereto.

 

d) Its most recent financial statements delivered pursuant to Clause 22.1 ( Financial Statements ):

 

  (i) have been prepared in accordance with GAAP as applied to the Original Financial Statements; and

 

  (ii) give a true and fair view of (if audited) or fairly represent (if unaudited) its financial condition as at the end of the period to which they relate.

 

e) Since the date of the most recent financial statements delivered pursuant to clause Clause 22.1 ( Financial Statements ) there has been no material adverse change in its business, operation, assets or condition (financial or otherwise) which might have a Material Adverse Effect.

 

21.12 Pari passu ranking

Its payment obligations under the Finance Documents rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law applying to companies generally.

 

21.13 No proceedings pending or threatened

No litigation, arbitration, administrative proceedings or labour disputes of or before any court, arbitral body or agency which, if adversely determined, might reasonably be expected to have a Material Adverse Effect have (to the best of its knowledge and belief) been started or threatened against it.

 

21.14 No existing Security Interest

Save as described in Clause 19 ( Security ), no Security Interest exists over all or any of the Vessels, Earnings or its other present or future revenues or assets that are or shall become subject to the Security contemplated under this Agreement.

 

21.15 No immunity

The execution and delivery by it of each Transaction Document to which it is a party constitute, and its exercise of its rights and performance of its obligations under each Transaction Document will constitute, private and commercial acts performed for private and commercial purposes, and it will not (except for bankruptcy or any similar proceedings) be entitled to claim for itself or any or

 

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all of its assets immunity from suit, execution, attachment or other legal process in any other proceedings taken in Norway and/or the Marshall Islands and in the jurisdictions of any other Approved Ship Registries in relation to any Transaction Document.

 

21.16 No winding-up

It has not taken any corporate action nor have any other steps been taken or legal proceedings been started or threatened against it for its reorganisation, winding-up, dissolution or administration or for the appointment of a receiver, administrator, administrative receiver, trustee or similar officer of it or any or all of its assets.

 

21.17 Environmental compliance

Each Obligor and the Charterers (as the case may be) have performed and observed in all material respects all Environmental Laws, Environmental Approvals and all other material covenants, conditions, restrictions or agreements directly or indirectly concerned with any contamination, pollution or waste or the release or discharge of any toxic or hazardous substance in connection with the Vessels, and is in compliance with Clause 23.13 ( Environmental compliance ) and (to the best of each Obligor’s knowledge and belief, having made due and careful enquiry) no circumstances have occurred which would prevent such compliance in a manner or to an extent which has or is reasonably likely to have a Material Adverse Effect.

 

21.18 Environmental Claims

No Environmental Claim and no other event or circumstances is outstanding which (with the expiry of a grace period, giving of notice or the making of any determination or the fulfilment of any other applicable conditions or any combination of the foregoing) might constitute an Environmental Claim has been commenced or (to the best of its knowledge and belief) is threatened against any of the Obligors or the Charterers where that claim would be reasonably likely, if adversely determined, to have a Material Adverse Effect.

 

21.19 ISM Code and ISPS Code Compliance

All requirements of the ISM Code and the ISPS Code as they relate to it, the Managers, the Charterers and the Vessels have been complied with in all material respects.

 

21.20 The Vessels

Each of the Vessels will on each Utilisation Date be:

 

a) in the absolute ownership of the relevant Obligor, free and clear of all encumbrances (other than Permitted Encumbrances) and the relevant Obligor be the sole, legal and beneficial owner of such Vessel;

 

b) registered in the name of the relevant Obligor with the Approved Ship Registry under the laws and flag of such Approved Ship Registry;

 

c) operationally seaworthy in every way and fit for service; and

 

d) classed with DNV GL, American Bureau of Shipping, Lloyds or any other classification society acceptable to the Majority Lenders, free of all overdue material requirements, recommendations or adverse notations.

 

21.21 No money laundering

 

a) It is acting for its own account in relation to the Facility and in relation to the performance and the discharge of its obligations and liabilities under the Finance

 

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  Documents and the transactions and other arrangements effected or contemplated by the Finance Documents to which it is a party, and the foregoing will not involve or lead to contravention of any law, official requirement or other regulatory measure or procedure implemented to combat money laundering (as defined in Article 1 of the Directive (2005/60/EC) and Directive 2001/97 of the European Parliament and of 4 December 2001 amending Council Directive 91/308).

 

b) The Borrower will use the proceeds of the Facility for its own benefit, under its full responsibility and exclusively for the purposes specified in this Agreement.

 

21.22 Governing law and enforcement

 

a) The choice of Norwegian law as the governing law of this Agreement and the relevant laws of the Security Documents to which it is a party will be recognised and enforced in its jurisdiction of incorporation.

 

b) Any judgment obtained in Norway in relation to this Agreement or a Finance Document will be recognised and enforced in its jurisdiction of incorporation.

 

c) Any judgment obtained in the relevant jurisdiction in relation to the Security Documents will be recognised and enforced in its jurisdiction of incorporation.

 

21.23 No insolvency proceedings

To the best of its knowledge, after due enquiry, no action has been commenced or threatened for the winding-up, administration, judicial management, dissolution or reorganisation of it (by way of voluntary arrangement, scheme of arrangement or otherwise).

 

21.24 No breach of laws

It has not breached any law or regulation which breach has or is reasonably likely to have a Material Adverse Effect.

 

21.25 Sanctions

None of the Obligors, nor any of their respective Affiliates or any of their joint ventures, nor any of its respective directors, officers, employees, agents or representatives nor any other person acting on any of their behalf:

 

a) is a Restricted Party; or

 

b) has received notice of or is aware of any claim, action, suit, proceedings or investigation against it with respect to Sanctions by any Sanction Authority.

 

21.26 Repetition

The Repeating Representations are deemed to be made by the each Obligor by reference to the facts and circumstances then existing on the date of each Utilisation Request and the first day of each Interest Period.

 

22 INFORMATION UNDERTAKINGS

The undertakings in this Clause 22 remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents or any Commitment is in force.

 

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22.1 Financial statements

The Borrower shall supply to the Agent in sufficient copies for all the Lenders:

 

a) as soon as the same become available, but in any event within one hundred and thirty-five (135) days after the end of each of its financial years, its audited consolidated financial statements for that financial year;

 

b) as soon as the same become available, but in any event within sixty (60) days after the end of each quarter of each of its financial years, its consolidated financial statements for that financial quarter; and

 

c) any other financial information as any Finance Party (through the Agent) may reasonably request.

 

22.2 Compliance Certificates

 

a) The Borrower shall supply to the Agent with each set of financial statements delivered pursuant to Clause 21.1 a) and 21.1 b) ( Financial statements ) a Compliance Certificate – Financial Covenants substantially in the form set out in Schedule 5A ( Form of Compliance Certificate – Financial Covenants ) setting out (in reasonable detail) computations as to compliance with Clause 22 ( Financial covenants ) as at the date as at which those financial statements were drawn up.

 

b) The Borrower shall supply to the Agent at the latest ten (10) Business Days after the last day of each financial quarter a Compliance Certificate – Total Market Value substantially in the form set out in Schedule 5B ( Form of Compliance Certificate – Total Market Value ) setting out (in reasonable detail) computations as to compliance with Clause 26.4 ( Minimum Total Market Value ) and attaching the valuation reports received for the relevant brokers as at the last day of each financial quarter.

 

c) Each Compliance Certificate shall be signed by the Chief Financial Officer of the Borrower.

 

22.3 Requirements as to financial statements

 

a) Each set of financial statements delivered by the Borrower pursuant to Clause 22.1 ( Financial statements ) shall be certified by the Chief Financial Officer of the Borrower as fairly representing its financial condition as at the date as at which those financial statements were drawn up.

 

b) The Borrower shall procure that each set of financial statements of the Borrower delivered pursuant to Clause 22.1 ( Financial statements ) is prepared using GAAP, accounting practices and financial reference periods consistent with those applied in the preparation of the Original Financial Statements for the Borrower unless, in relation to any set of financial statements, it notifies the Agent that there has been a change in GAAP, the accounting practices or reference periods and its auditors (or, if appropriate, the auditors of the Borrower) deliver to the Agent:

 

  (i) a description of any change necessary for those financial statements to reflect the GAAP, accounting practices and reference periods upon which the Borrower’s Original Financial Statements were prepared; and

 

  (ii) sufficient information, in form and substance as may be reasonably required by the Agent, to enable the Lenders to determine whether Clause 23 ( Financial

 

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  covenants ) has been complied with and make an accurate comparison between the financial position indicated in those financial statements and the Borrower’s Original Financial Statements.

Any reference in this Agreement to those financial statements shall be construed as a reference to those financial statements as adjusted to reflect the basis upon which the Original Financial Statements were prepared.

 

22.4 Information: miscellaneous

The Borrower shall notify the Agent and/or supply to the Agent (in sufficient copies for all the Lenders, if the Agent so requests):

 

a) copies of any Charterparty if and when requested by the Agent;

 

b) copies of all material documents dispatched by any Obligor to its shareholders (or any class of them) or its creditors generally at the same time as they are dispatched;

 

c) promptly upon becoming aware of them, the details of any event which has occurred or may occur which have a material impact on the condition (financial or otherwise) of any of the Obligors;

 

d) promptly upon becoming aware of them, the details of any litigation, arbitration or administrative proceedings which are current, threatened or pending against an Obligor, and which might, if adversely determined, have a Material Adverse Effect; and

 

e) promptly, such further information regarding the financial condition, business, operations (financial or otherwise) or assets of the Obligors as any Finance Party (through the Agent) may reasonably request.

 

22.5 Notification of default

 

a) The Borrower shall notify the Agent of any Default (and the steps, if any, being taken to remedy it) promptly upon becoming aware of its occurrence.

 

b) Promptly upon a request by the Agent, the Borrower shall supply to the Agent a certificate signed by two of its directors or senior officers on its behalf certifying that no Default is continuing (or if a Default is continuing, specifying the Default and the steps, if any, being taken to remedy it).

 

22.6 Notification of Environmental Claims

The Borrower shall inform the Agent in writing as soon as reasonably practicable upon becoming aware of the same:

 

a) if any Environmental Claim has been commenced or (to the best of the Borrower’s knowledge and belief) is threatened against any of the Obligors, the Charterers, the Managers or any of the Vessels; and

 

b) of any fact and circumstances which will or are reasonably likely to result in any Environmental Claim being commenced or threatened against any of the Obligors, the Charterers, the Managers or any of the Vessels,

where the claim would be reasonably likely, if determined against the Obligors or any of the Vessels, to have a Material Adverse Effect.

 

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22.7 Use of websites

 

a) The Borrower may satisfy its obligation under this Agreement to deliver any information in relation to those Lenders ( the “Website Lenders” ) who accept this method of communication by posting this information onto an electronic website designated by the Borrower and the Agent (the “Designated Website” ) if:

 

  (i) the Agent expressly agrees (after consultation with each of the Lenders) that it will accept communication of the information by this method;

 

  (ii) both the Borrower and the Agent are aware of the address of and any relevant password specifications for the Designated Website; and

 

  (iii) the information is in a format previously agreed between the Borrower and the Agent.

If any Lender (a “Paper Form Lender” ) does not agree to the delivery of information electronically then the Agent shall notify the Borrower accordingly and the Borrower shall supply the information to the Agent (in sufficient copies for each Paper Form Lender) in paper form. In any event the Borrower shall supply the Agent with at least one copy in paper form of any information required to be provided by it.

 

b) The Agent shall supply each Website Lender with the address of and any relevant password specifications for the Designated Website following designation of that website by the Borrower and the Agent.

 

c) The Borrower shall promptly upon becoming aware of its occurrence notify the Agent if:

 

  (i) the Designated Website cannot be accessed due to technical failure;

 

  (ii) the password specifications for the Designated Website change;

 

  (iii) any new information which is required to be provided under this Agreement is posted onto the Designated Website;

 

  (iv) any existing information which has been provided under this Agreement and posted onto the Designated Website is amended; or

 

  (v) the Borrower becomes aware that the Designated Website or any information posted onto the Designated Website is or has been infected by any electronic virus or similar software.

If the Borrower notifies the Agent under paragraph c)(i) or paragraph c)(v) above, all information to be provided by the Borrower under this Agreement after the date of that notice shall be supplied in paper form unless and until the Agent and each Website Lender is satisfied that the circumstances giving rise to the notification are no longer continuing.

 

d) Any Website Lender may request, through the Agent, one paper copy of any information required to be provided under this Agreement which is posted onto the Designated Website. The Borrower shall comply with any such request within ten (10) Business Days.

 

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22.8 “Know your customer” checks

 

  a) If:

 

  (i) the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of this Agreement;

 

  (ii) any change in the status of the Borrower after the date of this Agreement;

 

  (iii) a proposed assignment or transfer by a Lender of any of its rights and obligations under this Agreement to a party that is not a Lender prior to such assignment or transfer; or

 

  (iv) the accession of a Subsidiary of the Borrower as an Additional Guarantor pursuant to clause 28 (Changes to the Obligors) ,

obliges the Agent or any Lender (or, in the case of paragraph (iii) above, any prospective new Lender) to comply with “know your customer” or similar identification procedures in circumstances where the necessary information is not already available to it, the Borrower shall promptly upon the request of the Agent or any Lender supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself or on behalf of any Lender) or any Lender (for itself or, in the case of the event described in paragraph (iii) above, on behalf of any prospective new Lender) in order for the Agent, such Lender or, in the case of the event described in paragraph (iii) above, any prospective new Lender to carry out and be satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.

 

b) Each Lender shall promptly upon the request of the Agent supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself) in order for the Agent to carry out and be satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.

 

23 FINANCIAL COVENANTS

 

23.1 Financial definitions

For the purposes of the financial covenants set out herein, the following definitions shall apply:

 

a) “Charterparties’ Value” means the value of Charterparties with a duration of three (3) years or more (not including any extension options not exercised) with Charterers approved by the Majority Lenders (such approval to be based on the Majority Lenders sole discretionary opinion of the solidity of the relevant Charterer), such value to be subject to the approval of the Majority Lenders (in their sole discretion), and, if requested by the Majority Lenders, documented by calculations presented to and accepted by the Majority Lenders.

 

b) “Current Assets” means at any time, in accordance with GAAP, the book value of current assets.

 

c) “Current Liabilities” means at any time, in accordance with GAAP, the book value of current liabilities.

 

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d) “Liquidity” means:

 

  (i) cash in hand or on freely available deposit with any financial institution; and

 

  (ii) any undrawn and available amount (always provided that the availability of such amount is subject to compliance with the financial covenants set out in this clause 23 (Financial covenants) and Minimum Total Market Value) under this Agreement and any other instrument, security or investment approved in writing by the Agent, and in each case, to which the Borrower is beneficially entitled at that time and which can be promptly realised and applied against the Loans and not subject to any security interest or any other conditions.

 

e) “Total Debt” means, on a consolidated basis, the aggregate book value of all provisions, other long term liabilities and current liabilities of the Borrower.

 

f) “Value Adjusted Equity” means Value Adjusted Total Assets less Total Debt of the Borrower.

 

g) “Value Adjusted Equity Ratio” means, on any date, the ratio of Value Adjusted Equity to Value Adjusted Total Assets.

 

h) “Value Adjusted Total Assets” means, on a consolidated basis, the total market value of all of the assets of the Borrower, which shall be determined as follows:

 

  (i) the Market Value of the Vessels and adding the Charterparties’ Value (as approved by the Majority Lenders), however the Charterparties’ Value may not exceed one third of (1/3) of the Value Adjusted Total Assets; and

 

  (ii) the market value, if assessable (in the reasonable opinion of the Majority Lenders), or otherwise the book value of all other assets of the Borrower (including any vessels other than the Vessels), less any capitalised goodwill or other intangible assets.

 

i) “Working Capital” means Current Assets less Current Liabilities at any time.

 

23.2 Financial covenants

 

23.2.1 Minimum Value Adjusted Equity

The Borrower shall at all times during the Security Period maintain a Value Adjusted Equity of minimum USD 135,000,000.

 

23.2.2 Minimum Value Adjusted Equity Ratio

The Borrower shall at all times during the Security Period maintain a Value Adjusted Equity Ratio of minimum forty-five per cent (45.00%).

 

23.2.3 Minimum Liquidity

The Liquidity of the Borrower, on a consolidated basis, shall at all times during the Security Period exceed the higher of (i) USD 10,000,000 and (ii) USD 1,000,000 per vessel the Borrower and any Additional Obligor operates.

 

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23.2.4 Positive Working Capital

The Borrower shall, on a consolidated basis, at all times during the Security Period maintain a positive Working Capital.

 

24 GENERAL UNDERTAKINGS

The undertakings in this Clause 23 remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents or any Commitment is in force.

 

24.1 Authorisations

Each Obligor shall promptly:

 

a) obtain, comply with and do all that is necessary to maintain in full force and effect; and

 

b) supply certified copies to the Agent of,

any Authorisation required under any law or regulation of its jurisdiction of incorporation to enable it to perform its obligations under the Transaction Documents and to ensure the legality, validity, enforceability or admissibility in evidence in its jurisdiction of incorporation of any Transaction Document.

 

24.2 Compliance with laws

Each Obligor shall comply in all respects with all laws to which it may be subject, if failure so to comply would materially impair its ability to perform its obligations under the Transaction Documents.

 

24.3 Sanctions

 

a) The Borrower shall ensure that no part of the proceeds of any Loan or other transaction(s) contemplated by any Finance Document shall, directly or indirectly, be used or otherwise made available:

 

  (i) to fund any trade, business or other activity involving any Restricted Party;

 

  (ii) for the direct or indirect benefit of any Restricted Party; or

 

  (iii) in any manner that would reasonably be expected to result in (A) the occurrence of an Event of Default under Clause 24.14 (Sanctions), or (B) any Party (other than the Borrower) or any Affiliate of such party/any other person being party to or which benefits from any Finance Document being in breach of any Sanctions (if an to the extent applicable to either of them) or becoming a Restricted Party.

 

b) Each Obligor shall ensure that none of its assets shall be used directly or indirectly:

 

  (i) by or for the direct or indirect benefit of any Restricted Party; or

 

  (ii) in any trade which is prohibited under applicable Sanctions or which could expose any of the Obligors, their assets, any Finance Party or any of its Affiliates to enforcement proceedings or any other consequences whatsoever arising from Sanctions.

 

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24.4 Title

The relevant Obligor will hold legal title to and own the entire beneficial interest in the relevant Vessels, Insurances, Earnings and Earnings Accounts, free of all Security Interest and other interests and rights of every kind, except for those created by the Financial Documents and as set out in Clause 23.5 ( Negative pledge ).

 

24.5 Negative pledge

The Obligors shall not create or permit to subsist any Security Interest over any of the Vessels, the Earnings, the Insurances, the Charterparties, nor the Earnings Accounts, other than:

 

a) Security Interest under the Finance Documents;

 

b) Permitted Encumbrances; and

 

c) Security Interests consented to in writing by the Agent (acting upon instructions from the Majority Lenders).

 

24.6 Financial Indebtedness restrictions

 

a) The Borrower shall not without the prior written consent of the Agent (on behalf of the Majority Lenders) incur or permit to be outstanding any Financial Indebtedness other than any Financial Indebtedness outstanding under the Finance Documents prior to the Borrower being listed on the New York Stock Exchange or such other recognized stock exchange acceptable to the Lenders.

 

b) No Additional Guarantor shall incur or permit to be outstanding any Financial Indebtedness other than any Financial Indebtedness outstanding under the Finance Documents without the prior written consent of the Agent (acting on behalf of the Majority Lenders).

 

24.7 Distributions

 

a) The Borrower shall not distribute any dividend, reduce any of its share capital or make any other distributions in whatever form to its shareholder(s) or any other person(s) if (i) it is not or will, following such distribution, not be in compliance with the covenants set out in this Agreement (including but not limited to the financial covenants in Clause 22 ( Financial covenants )) or (ii) an Event of Default has occurred or occurs as a consequence of such distribution.

 

b) No Additional Guarantor shall enter into or permit to subsist any agreement of any kind which restricts such Additional Guarantor from distributing dividends to the Borrower.

 

24.8 Bank accounts

The Obligors shall hold and maintain all its bank accounts (including the Earnings Accounts) with the Agent and ensure that all Earnings are paid to the Earnings Accounts.

 

24.9 Change of business

Each Obligor shall procure that no change is made to the general nature of its business from that carried out at the date of this Agreement being offshore support vessel operation, unless consented to in writing by the Majority Lenders.

 

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24.10 Taxation

The Obligors shall pay and discharge all Taxes imposed upon it or its assets within the time period allowed without incurring penalties unless and only to the extent that such payment is being contested in good faith or can be lawfully withheld.

 

24.11 Merger

None of the Obligors shall enter into any amalgamation, demerger, merger, split-up, divest, consolidation or corporate reconstruction without the prior written consent of the Agent (on behalf of the Majority Lenders).

 

24.12 Environmental compliance

Each Obligor shall (and shall procure that the Charterers and the Managers will) comply in all material respects with all Environmental Laws subject to the terms and conditions of any Environmental Approval, implement procedures to monitor compliance with and to prevent liability under any Environmental Law and obtain and maintain any Environmental Approval.

 

24.13 Commercial management

Each Obligor shall procure that the Commercial Manager shall continue to be commercial manager of that Obligor and there shall be no material change to such commercial management and/or the Commercial Management Agreement (if applicable) without the prior written consent of the Agent.

 

24.14 Transaction Documents

Each Obligor shall procure that none of the Transaction Documents to which it is a party (other than the Charterparties) are amended or terminated, or any waiver or any material terms thereof are agreed thereunder without the prior written consent of the Agent (on behalf of the Majority Lenders).

 

24.15 Listing

The Borrower shall, no later than on the date falling twelve (12) months from the date of this Agreement, be listed, and shall remain listed, on the New York Stock Exchange or such other recognised stock exchange acceptable to the Lenders.

 

24.16 Investment restrictions

 

a) Except with the prior written consent of the Majority Lenders, the Borrower shall not (and the Borrower shall ensure that no entity controlled by it (directly or indirectly) shall not) make any Investment in an amount exceeding the Value Adjusted Equity (as defined in Clause 22.1 ( Financial definitions )) at the time of the Investment.

 

b) Except with the prior written consent of the Majority Lenders, an Additional Obligor shall not make any Investment.

 

24.17 Ownership of Borrower

The Borrower shall procure that:

 

a) no person or group of persons, other than Mr. Herbjørn Hansson or companies controlled by Mr. Herbjørn Hansson, shall become the owner (directly or indirectly), of more than fifty per cent (50.00%) of the outstanding shares and/or voting rights in the Borrower; and

 

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b) no person or group of persons, other than the Borrower, shall become the owner (directly or indirectly), of any of the outstanding shares and/or voting rights in any Additional Obligor.

 

24.18 Transaction terms

The Obligors will ensure that all transactions, Charterparties and other agreements, including but not limited to agreements made with companies affiliated to the Borrower, shall be on a commercial basis and done on an arms-length-basis.

 

24.19 Interest hedging

 

a) The Borrower shall not enter into any interest hedging arrangements or Swap Agreements with other parties than the Swap Banks, subject to such interest hedging arrangements being offered on competitive terms.

 

b) If any of the Swap Banks cannot offer promptly when requested during business hours interest hedging arrangements and Swap Agreements on competitive terms, the Borrower may conclude interest hedging arrangements and Swap Agreements with other parties than the Swap Banks (or their respective Affiliates). Any such interest hedging agreements shall not be subject of any Security under any of the Security Documents.

 

25 VESSEL COVENANTS

 

25.1 General

The Obligors gives the undertakings set out in this Clause 25 to each Finance Party and such undertakings shall remain in force throughout the Security Period.

 

25.2 Insurance

 

a) The Obligors shall maintain or ensure that each of the Vessels is insured against such risks, including but not limited to, Hull and Machinery, Protection & Indemnity (including maximum cover for pollution liability as normally adopted by the industry for similar vessels), Hull Interest and/or Freight Interest and War Risk insurances (including acts of piracy and terrorism), in such amounts, on such terms and with such insurers as the Agent shall approve.

 

b) The value of the Hull and Machinery insurance (excluding Hull Interest and Freight Interest) for each Vessel shall cover at least eighty per cent (80.00%) of the Market Value of the relevant Vessel and the aggregate insurance value of the Vessels (including Hull Interest and Freight Interest, but excluding Protection & Indemnity), shall be at least equal to the Market Value of such Vessel and the aggregate insurance value of the Vessels (including Hull Interest and Freight Interest, but excluding Protection and Indemnity) shall be at least equal to the higher of the Total Market Value and one hundred and twenty per cent (120.00%) of the outstanding Loans under this Agreement.

 

c) The Obligors shall procure that the Agent (on behalf of the Finance Parties and the Swap Banks) is noted as first priority mortgagee and sole loss payee in the insurance contracts, together with the confirmation from the insurers/broker(s) to the Agent thereof that the notice of assignment with regards to the Insurances and the loss payable clauses are noted in the insurance contracts and that standard letters of undertaking are executed by the insurers/broker(s).

 

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d) Not later than seven (7) days prior to the expiry date of the relevant Insurances the relevant Obligor shall procure the delivery to the Agent of a certificate from the insurers/broker(s) through whom the Insurances referred to in paragraph a) have been renewed and taken out in respect of the Vessels with insurance values as required by paragraph b), that such Insurances are in full force and effect and that the Agent (on behalf of the Finance Parties and the Swap Banks) have been noted by the relevant insurers/broker(s).

 

e) The Agent may, for the account of the relevant Obligor, take out a Mortgagee’s Interest Insurance and a Mortgagee’s Interest – Additional Perils Pollution Insurance in respect of each Vessel (covering no less than one hundred and twenty per cent (120.00%) of the Loans).

 

f) If any of the Insurances referred to in paragraph a) form part of a fleet cover, the Obligors shall procure that the insurers/broker(s) shall undertake to the Agent that they shall neither set-off against any claims in respect of any of the Vessels any premiums due in respect of other vessels under such fleet cover or any premiums due for other insurances, nor cancel this Insurance for reason of non-payment of premiums for other vessels under such fleet cover or of premiums for such other insurances, and shall undertake to issue a separate policy in respect of any of the Vessels if and when so requested by the Agent.

 

g) Each relevant Obligor shall procure that the Vessels always are employed in conformity with the terms of the instruments of Insurances (including any warranties expressed or implied therein) and comply with such requirements as to extra premium or otherwise as the insurers may prescribe.

 

h) None of the relevant Obligors will make any change to the Insurances described under paragraph a) and b) above without the prior written consent of the Agent (on behalf of the Lenders).

 

i) The Agent may, at the time and for the account of the Borrower, obtain an insurance report from an independent insurance consultant, however, for as long as all Insurances are taken out in accordance with the version 2010 Nordic Marine Insurance Plan of 2013 (as amended from time to time), no such report shall be deemed necessary.

 

25.3 Classification and repairs

Each relevant Obligor shall keep the Vessels in a good, safe and efficient condition consistent with first class ownership and management practice and in particular:

 

a) so as to maintain its class at the highest level with DNV GL, American Bureau of Shipping, Lloyds or another classification society approved by the Majority Lenders, free of overdue material recommendations, qualifications or adverse notations; and

 

b) so as to comply with the laws and regulations (statutory or otherwise) applicable to vessels registered under the flag state of the Vessels or to vessels trading to any jurisdiction to which any of the Vessels may trade from time to time.

 

25.4 Minimum Total Market Value

 

a) The Total Market Value shall at all times be higher than one hundred and fifty per cent (150%) of the Loans outstanding under this Agreement.

 

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b) The Borrower shall, at its own expense, arrange for the Market Value of each Vessel to be determined semi-annually (or quarterly if requested by the Majority Lenders) and include the amount of such Market Value in the relevant Compliance Certificate – Total Market Value to be delivered no later than ten (10) Business Days after the end of each half year or quarterly accounting date (as the case may be).

 

25.5 Restrictions on chartering, appointment of Managers etc.

None of the Obligors shall without the prior written consent of the Agent (on behalf of the Majority Lenders):

 

a) enter into any Charterparty which is not on arm’s length terms and conditions;

 

b) enter into any agreements for the chartering in of any vessels other than in respect of agreements with a duration of less than twelve (12) months;

 

c) appoint a technical or commercial manager for the Vessels which is not reputable (in the opinion of the Agent) or enter into any Technical Management Agreement(s) and/or Commercial Management Agreement(s) which are not on arm’s length terms and conditions; or

 

d) change the classification society of any of the Vessels, unless to any of DNV GL, American Bureau of Shipping, Lloyds, in which case the prior written consent of the Agent (on behalf of the Majority Lenders) shall not be required.

 

25.6 Notification of certain events

The Borrower shall immediately notify the Agent of:

 

a) any of the events set out in clause 25.5 b) to d);

 

b) any accident to any of the Vessels involving repairs where the costs will or is likely to exceed USD 500,000 (or the equivalent in any other currency);

 

c) any requirement or recommendation made by any insurer or classification society or by any competent authority which is not, or cannot be, immediately complied with;

 

d) any exercise or purported exercise of any lien on any of the Vessels, the Earnings, the Insurances or the Earnings Accounts;

 

e) any occurrence as a result of which any of the Vessels has become or is, by the passing of time or otherwise, likely to become a Total Loss;

 

f) any claim for a material breach of the ISM Code or the ISPS Code being made against any of the Obligors, the Managers, the Charterers or otherwise in connection with any of the Vessels; and

 

g) any arrest or detention of any of the Vessels, any exercise or purported exercise of any lien on any of the Vessels, their Earnings, the Insurances and/or the Earnings Accounts.

 

25.7 Operation of the Vessels

 

a) The Obligors shall comply, or procure the compliance in all respects with the ISM Code and the ISPS Code, all Environmental Laws and all other laws or regulations relating to a Vessel, its ownership, operation and management or to the business of the Obligors and shall not employ a Vessel nor allow its employment:

 

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  (i) in any manner contrary to law or regulation in any relevant jurisdiction including but not limited to the ISM Code;

 

  (ii) in any manner contrary to any Sanctions; and

 

  (iii) in the event of hostilities in any part of the world (whether war is declared or not), in any zone which is declared a war zone by any government or by the war risk insurers of a Vessel unless the Borrower has (at its expense) effected any special, additional or modified insurance cover which shall be necessary or customary for first class shipowners trading vessels within the territorial waters of such country at such time and has provided evidence of such cover to the Agent.

 

b) Without limitation to the generality of this Clause 25.7, the Obligors shall comply or procure compliance, with, as applicable, all requirements of the International Convention for the Safety of Life at Sea (SOLAS) 1974 as adopted, amended or replaced from time to time including, but not limited to, the STCW 95, the ISM Code or the ISPS Code.

 

25.8 ISM Code compliance

Each Obligor shall:

 

a) procure that each of the Vessels remains subject to a SMS for the duration of the Facility;

 

b) procure that a valid and current SMC is maintained for each of the Vessels for the duration of the Facility;

 

c) if not itself, procure that the Technical Manager of the Vessels maintains a valid and current DOC for the duration of the Facility;

 

d) immediately notify the Agent in writing of any actual or threatened withdrawal, suspension, cancellation or modification of the SMC of any of the Vessels or of the DOC of the Technical Manager; and

 

e) immediately notify the Agent in writing of any “accident” or “major non-conformity”, each as those terms is defined in the Guidelines in the application of the IMO International Safety Management Code issued by the International Chamber of Shipping and International Shipping Federation.

 

25.9 Inspections and class records

 

a) The Obligors shall permit, and shall procure that any charterers permit, one person appointed by the Agent to inspect the Vessels once a year for the account of the Borrower upon the Agent giving prior written notice.

 

b) The Obligors shall instruct the classification society to send to the Agent, following a written request from the Agent, copies of all class records held by the classification society in relation to the Vessels.

 

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25.10 Surveys

The Obligors shall submit to or cause the Vessels to be submitted to such periodic or other surveys as may be required for classification purposes and to ensure full compliance with regulations of the relevant flag state of the Vessels and to supply or to cause to be supplied to the Agent copies of all survey reports and confirmations of class issued in respect thereof whenever such is required by the Agent, however limited to once a year.

 

25.11 Arrest

The Obligors shall or shall procure that the Charterers shall, promptly pay and discharge:

 

a) all liabilities which give or may give rise to maritime or possessory liens on or claims enforceable against any of the Vessels, the Earnings, the Insurances or the Earnings Accounts;

 

b) all tolls, taxes, dues, fines, penalties and other amounts charged in respect of any of the Vessels, the Earnings or the Insurances; and

 

c) all other outgoings whatsoever in respect of any of the Vessels, the Earnings and the Insurances,

and forthwith upon receiving a notice of arrest of any of the Vessels, or their detention in exercise or purported exercise of any lien or claim, the Obligors shall or shall procure that the Charterers shall procure their release by providing bail or providing the provision of security or otherwise as the circumstances may require.

 

25.12 Total Loss

In the event that any of the Vessels shall suffer a Total Loss, the Obligors shall, within a period of one hundred and twenty (120) days after the Total Loss Date, obtain and present to the Agent, a written confirmation from the relevant insurers that the claim relating to the Total Loss has been accepted in full, and the Insurance proceeds shall be applied in prepayment of the relevant Loan in accordance with Clause 8.1 ( Total Loss or sale ).

 

25.13 Ownership, flag, name and registry

The Obligors shall not change the ownership, flag, name or registry of any of the Vessels, without the prior written consent of the Agent (on behalf of the Lenders) (not to be withheld in case of change of flag to an Approved Ship Registry).

 

26 EVENTS OF DEFAULT

Each of the events or circumstances set out in Clause 26 is an Event of Default (save for Clause 26.15 ( Acceleration )).

 

26.1 Non-payment

The Borrower does not pay on the due date any amount payable pursuant to a Finance Document at the place and in the currency in which it is expressed to be payable unless:

 

a) its failure to pay is caused by:

 

  (i) administrative or technical error; or

 

  (ii) a Disruption Event; and

 

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b) payment is made within three (3) Business Days of its due date.

 

26.2 Financial covenants

Any requirement of Clause 23 ( Financial covenants ) is not satisfied.

 

26.3 Other obligations

The Obligors does not comply with any provision of the Finance Documents (other than those referred to in Clause 26.1 ( Non-payment ) and Clause 26.2 ( Financial covenants )).

 

26.4 Misrepresentation

Any representation or statement made or deemed to be made by the Obligors in the Finance Documents or any other document delivered by or on behalf of the Obligors under or in connection with any Finance Document is or proves to have been incorrect or misleading in any material respect when made or deemed to be made.

 

26.5 Cross default

 

a) Any Financial Indebtedness of the Obligors is not paid when due nor within any originally applicable grace period.

 

b) Any Financial Indebtedness of the Obligors is declared to be or otherwise becomes due and payable prior to its specified maturity as a result of an event of default (however described).

 

c) Any commitment for any Financial Indebtedness of the Obligors is cancelled or suspended by a creditor of the Borrower as a result of an event of default (however described).

 

d) Any creditor of the Obligors becomes entitled to declare any Financial Indebtedness of the Borrower due and payable prior to its specified maturity as a result of an event of default (however described).

 

e) No Event of Default will occur under this Clause 26.5 if the aggregate amount of Financial Indebtedness or commitment for Financial Indebtedness falling within paragraphs a) to d) above is less than USD 2,500,000 (or its equivalent in any other currency or currencies) in respect of each of the Obligors.

 

26.6 Insolvency

Any of the Obligors is unable or admits inability to pay its debts as they fall due, suspends making payments on any of its debts or, by reason of actual or anticipated financial difficulties, commences negotiations with one or more of its creditors with a view to rescheduling any of its indebtedness.

 

a) The value of the assets of any Obligor is less than its liabilities (taking into account contingent and prospective liabilities).

 

b) A moratorium is declared in respect of any indebtedness of any of the Obligors.

 

26.7 Insolvency proceedings

Any corporate action, legal proceedings or other procedure or step is taken in relation to:

 

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a) the suspension of payments, a moratorium of any indebtedness, winding-up, dissolution, administration or reorganisation (by way of voluntary arrangement, scheme of arrangement or otherwise);

 

b) a composition, compromise, assignment or arrangement with any creditor of any of the Obligors;

 

c) the appointment of a liquidator, receiver, administrative receiver, administrator, compulsory manager or other similar officer in respect of any of the Obligors or any of their assets; or

 

d) enforcement of any Security Interest over any assets of any of the Obligors, or any analogous procedure or step is taken in any jurisdiction.

 

26.8 Creditors’ process

Any maritime lien or other lien (not being a Permitted Encumbrances) expropriation, attachment, sequestration, distress or execution affects any asset or assets of any of the Obligors having an aggregate value of USD 500,000 or more and is not discharged within thirty (30) days.

 

26.9 Material adverse change

Any event or series of events occur which, in the reasonable opinion of the Agent (on behalf of the Lenders), might have a Material Adverse Effect.

 

26.10 Permits

Any licence, consent, permission or approval required in order to enforce, complete or perform any of the Transaction Documents is revoked, terminated or modified having a Material Adverse Effect.

 

26.11 Litigation

There is current, pending or threatened any claims, litigation, arbitration or administrative proceedings against any of the Obligors which might, if adversely determined, has a Material Adverse Effect.

 

26.12 Effectiveness of Finance Documents

 

a) It is or becomes unlawful for any of the Obligors to perform any of its obligations under the Finance Documents.

 

b) Any Finance Document is not effective in accordance with its terms or is alleged by any of the Obligors to be ineffective in accordance with its terms for any reason.

 

c) Any of the Obligors repudiates a Finance Document or evidences an intention to repudiate a Finance Document.

 

26.13 Cessation of business

Any of the Obligors suspends or ceases to carry on (or threatens to suspend or cease to carry on) all or a material part of its business.

 

26.14 Sanctions

Any of the Obligors, any Affiliate of the Obligors, any of their joint ventures or any of their respective directors, officers, employees, agents or representatives or any other persons acting on any of their behalf, becomes a Restricted Party.

 

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26.15 Acceleration

On and at any time after the occurrence of an Event of Default (which is continuing), the Agent may, and shall if so directed by the Majority Lenders, by notice to the Borrower:

 

a) cancel the Total Commitments whereupon they shall immediately be cancelled;

 

b) declare that all or part of the Loans, together with accrued interest, and all other amounts accrued or outstanding under the Finance Documents be immediately due and payable, whereupon they shall become immediately due and payable; and/or

 

c) start enforcement in respect of the Security Interests established by the Security Documents; and/or

 

d) declare that all or part of the Loans be payable on demand, whereupon they shall immediately become payable on demand by the Agent on the instructions of the Majority Lenders.

 

27 CHANGES TO THE LENDERS

 

27.1 Assignments and transfers by the Lenders

Subject to this Clause 27.2, a Lender (the “Existing Lender” ) may assign any of its rights or obligations to another bank or financial institution (the “New Lender” ).

 

27.2 Conditions of assignment or transfer

 

a) The consent of the Borrower is required for an assignment or transfer by an Existing Lender, unless the assignment or transfer is:

 

  (i) to another Lender or an Affiliate of a Lender; or

 

  (ii) made at the time when an Event of Default is continuing.

 

b) The consent of the Borrower to an assignment or transfer must not be unreasonably withheld or delayed. The Borrower will be deemed to have given its consent five (5) Business Days after the Existing Lender has requested it unless consent is expressly refused by the Borrower within that time.

 

c) An assignment will only be effective on:

 

  (i) receipt by the Agent (whether in the Transfer Certificate or otherwise) of written confirmation from the New Lender (in form and substance satisfactory to the Agent) that the New Lender will assume the same obligations to the other Finance Parties as it would have been under if it was an Original Lender; and

 

  (ii) performance by the Agent of all necessary “know your customer” or other similar checks under all applicable laws and regulations in relation to such assignment to a New Lender, the completion of which the Agent shall promptly notify to the Existing Lender and the New Lender.

 

d) A transfer will only be effective if the procedure set out in Clause 27.5 ( Procedure for transfer ) is complied with.

 

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e) If:

 

  (i) a Lender assigns or transfers any of its rights or obligations under the Finance Documents or changes its Facility Office; and

 

  (ii) as a result of circumstances existing at the date the assignment, transfer or change occurs, the Borrower would be obliged to make a payment to the New Lender or Lender acting through its new Facility Office under Clause 14 ( Tax gross-up and indemnities ) or Clause 15 ( Increased Costs ),

then the New Lender or Lender acting through its new Facility Office is only entitled to receive payment under those Clauses to the same extent as the Existing Lender or Lender acting through its previous Facility Office would have been if the assignment, transfer or change had not occurred. This paragraph f) shall not apply in respect of an assignment or transfer made in the ordinary course of the primary syndication of the Facility.

 

f) Each New Lender, by executing the relevant Transfer Certificate, confirms, for the avoidance of doubt, that the Agent has authority to execute on its behalf any amendment or waiver that has been approved by or on behalf of the requisite Lender or Lenders in accordance with this Agreement on or prior to the date on which the transfer or assignment becomes effective in accordance with this Agreement and that it is bound by that decision to the same extent as the Existing Lender would have been had it remained a Lender.

 

27.3 Assignment or transfer fee

The New Lender shall, on the date upon which an assignment or transfer takes effect, pay to the Agent (for its own account) a fee of USD 5,000.

 

27.4 Limitation of responsibility of Existing Lenders

 

a) Unless expressly agreed to the contrary, an Existing Lender makes no representation or warranty and assumes no responsibility to a New Lender for:

 

  (i) the legality, validity, effectiveness, adequacy or enforceability of the Finance Documents or any other documents;

 

  (ii) the financial condition of the Borrower;

 

  (iii) the performance and observance by the Borrower of its obligations under the Finance Documents or any other documents; or

 

  (iv) the accuracy of any statements (whether written or oral) made in or in connection with any Finance Document or any other document,

and any representations or warranties implied by law are excluded.

 

b) Each New Lender confirms to the Existing Lender and the other Finance Parties that it:

 

  (i) has made (and shall continue to make) its own independent investigation and assessment of the financial condition and affairs of the Borrower and its related entities in connection with its participation in this Agreement and has not relied exclusively on any information provided to it by the Existing Lender in connection with any Finance Document; and

 

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  (ii) will continue to make its own independent appraisal of the creditworthiness of the Borrower and its related entities whilst any amount is or may be outstanding under the Finance Documents or any Commitment is in force.

 

c) Nothing in any Finance Document obliges an Existing Lender to:

 

  (i) accept a re-transfer or re-assignment from a New Lender of any of the rights and obligations assigned or transferred under this Clause 27.4; or

 

  (ii) support any losses directly or indirectly incurred by the New Lender by reason of the non-performance by the Borrower of its obligations under the Finance Documents or otherwise.

 

27.5 Procedure for transfer

 

a) Subject to the conditions set out in Clause 27.2 ( Conditions of assignment or transfer ) a transfer is effected in accordance with paragraph c) below when the Agent executes an otherwise duly completed Transfer Certificate delivered to it by the Existing Lender and the New Lender. The Agent shall, subject to paragraph b) below, as soon as reasonably practicable after receipt by it of a duly completed Transfer Certificate appearing on its face to comply with the terms of this Agreement and delivered in accordance with the terms of this Agreement, execute that Transfer Certificate.

 

b) The Agent shall only be obliged to execute a Transfer Certificate delivered to it by the Existing Lender and the New Lender once it is satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations in relation to the transfer to such New Lender.

 

c) on the Transfer Date:

 

  (i) to the extent that in the Transfer Certificate the Existing Lender seeks to transfer by novation its rights and obligations under the Finance Documents the Borrower and the Existing Lender shall be released from further obligations towards one another under the Finance Documents and their respective rights against one another under the Finance Documents shall be cancelled (being the “ Discharged Rights and Obligations ”);

 

  (ii) the Borrower and the New Lender shall assume obligations towards one another and/or acquire rights against one another which differ from the Discharged Rights and Obligations only insofar as the Borrower and the New Lender have assumed and/or acquired the same in place of the Borrower and the Existing Lender;

 

  (iii) the Agent, the Arranger, the New Lender and other Lenders shall acquire the same rights and assume the same obligations between themselves as they would have acquired and assumed had the New Lender been an Original Lender with the rights and/or obligations acquired or assumed by it as a result of the transfer and to that extent the Agent, the Arranger and the Existing Lender shall each be released from further obligations to each other under the Finance Documents; and

 

  (iv) the New Lender shall become a Party as a “ Lender ”.

 

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27.6 Copy of Transfer Certificate

The Agent shall, as soon as reasonably practicable after it has executed a Transfer Certificate, send to the Borrower a copy of that Transfer Certificate.

 

27.7 Security over Lenders’ rights

In addition to the other rights provided to Lenders under this Clause 27, each Lender may without consulting with or obtaining consent from the Borrower, at any time charge, assign or otherwise create Security Interest in or over (whether by way of collateral or otherwise) all or any of its rights under any Finance Document to secure obligations of that Lender including, without limitation:

 

a) any charge, assignment or other Security Interest to secure obligations to a federal reserve or central bank; and

 

b) in the case of any Lender which is a fund, any charge, assignment or other Security Interest granted to any holders (or trustee or representatives of holders) of obligations owed, or securities issued, by that Lender as security for those obligations or securities,

except that no such charge, assignment or Security Interest shall:

 

  (i) release a Lender from any of its obligations under the Finance Documents or substitute the beneficiary of the relevant charge, assignment or Security for the Lender as a party to any of the Finance Documents; or

 

  (ii) require any payments to be made by the Borrower other than or in excess of, or grant to any person any more extensive rights than, those required to be made or granted to the relevant Lender under the Finance Documents.

 

28 CHANGES TO THE OBLIGORS

 

28.1 Assignments and transfer by Obligors

No Obligor may assign any of its rights or transfer any of its rights or obligations under the Finance Documents without the prior written consent of all the Lenders.

 

28.2 Additional Guarantors

 

a) Any Subsidiary which at any time during the Security Period becomes or contemplates becoming the owner of any of the Vessels, shall, always subject to the consent of the Agent (acting on behalf of the Lenders), be an Additional Guarantor.

 

b) Provided the Agent (acting on behalf of the Lenders) has given consent to the accession of a Subsidiary as an Additional Guarantor, the Agent shall notify the Borrower of the conditions precedent applicable to such accession.

 

c) The Borrower shall, provided the Agent (acting on behalf of the Lenders) has provided its consent to the accession of a Subsidiary as an Additional Guarantor, promptly deliver to the Agent a duly completed and executed Accession Letter in respect of such Additional Guarantor.

 

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d) The Security Agent shall notify the Borrower, the Additional Guarantor, the Agent and the Lenders promptly upon being satisfied that it has received (in form and substance satisfactory to it) all the conditions precedent applicable to the accession of the Subsidiary as an Additional Guarantor.

 

28.3 Repetition of Representations

Delivery of an Accession Letter constitutes confirmation by the relevant Subsidiary that the Repeating Representations are true and correct in relation to it as at the date of delivery as if made by reference to the facts and circumstances then existing.

 

29 ROLE OF THE AGENT, THE SECURITY AGENT AND THE ARRANGER

 

29.1 Appointment of the Agent

 

a) Each other Finance Party and Swap Bank appoints the Agent to act as its agent under and in connection with the Finance Documents.

 

b) Each other Finance Party authorizes the Agent to exercise the rights, powers, authorities and discretions specifically given to the Agent under or in connection with the Finance Documents together with any other incidental rights, powers, authorities and discretions.

 

29.2 Appointment of Security Agent

Each of the Lenders and each of the Swap Banks appoints the Security Agent as security agent on its behalf with regard to (i) the security, powers, rights, titles, benefits and interests (both present and future) constituted by and conferred on the Lenders or any of them or for the benefit thereof under or pursuant to the Mortgages, (ii) all moneys, property and other assets paid or transferred to or vested in any Lender or any agent of any Lender or received or recovered by any Lender or any agent of any Lender pursuant to, or in connection with, the Mortgages, whether from the Borrower or any other Person and (iii) all money, investments, property and other assets at any time representing or deriving from any of the foregoing, including all interest, income and other sums at any time received or receivable by any Lender or any agent of any Lender in respect of the same (or any part thereof). The Security Agent hereby accepts such appointment

 

29.3 Duties of the Agent and the Security Agent

 

a) Subject to paragraph b) below, the Agent and the Security Agent shall promptly forward to a Party the original or a copy of any document which is delivered to the Agent or the Security Agent for that Party by any other Party.

 

b) Without prejudice to Clause 27.6 ( Copy of Transfer Certificate ), paragraph a) above shall not apply to any Transfer Certificate.

 

c) Except where a Finance Document specifically provides otherwise, neither the Agent nor the Security Agent is obliged to review or check the adequacy, accuracy or completeness of any document it forwards to another Party.

 

d) If either the Agent or the Security Agent receives notice from a Party referring to this Agreement, describing a Default and stating that the circumstance described is a Default, it shall promptly notify the Finance Parties.

 

e) If either the Agent or the Security Agent is aware of the non-payment of any principal, interest, commitment fee or other fee payable to a Finance Party (other than the Agent, the Security Agent or the Arranger) under this Agreement it shall promptly notify the other Finance Parties.

 

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f) The Agent’s duties and the Security Agent’s duties under the Finance Documents are solely mechanical and administrative in nature.

 

29.4 Role of the Arranger

Except as specifically provided in the Finance Documents, the Arranger has no obligations of any kind to any other Party under or in connection with any Finance Document.

 

29.5 No fiduciary duties

 

a) Nothing in this Agreement constitutes the Agent or the Arranger as a trustee or fiduciary of any other person.

 

b) Neither the Agent nor the Arranger shall be bound to account to any Lender for any sum or the profit element of any sum received by it for its own account.

 

29.6 Business with the Borrower

The Agent, the Arranger and the Security Agent may accept deposits from, lend money to and generally engage in any kind of banking or other business with the Borrower.

 

29.7 Rights and discretions of the Agent and the Security Agent

 

a) The Agent and the Security Agent may rely on:

 

  (i) any representation, notice or document believed by it to be genuine, correct and appropriately authorized; and

 

  (ii) any statement made by a director, authorized signatory or employee of any person regarding any matters which may reasonably be assumed to be within his knowledge or within his power to verify.

 

b) The Agent and the Security Agent may assume (unless it has received notice to the contrary in its capacity as agent for the Lenders) that:

 

  (i) no Default has occurred (unless it has actual knowledge of a Default arising under Clause 26.1 ( Non-payment ));

 

  (ii) any right, power, authority or discretion vested in any Party or the Majority Lenders has not been exercised; and

 

  (iii) any notice or request made by the Borrower (other than a Utilisation Request) is made on behalf of and with the consent and knowledge of the Borrower.

 

c) The Agent and the Security Agent may engage, pay for and rely on the advice or services of any lawyers, accountants, surveyors or other experts.

 

d) The Agent and the Security Agent may act in relation to the Finance Documents through its personnel and agents.

 

e) The Agent and the Security Agent may disclose to any other Party any information it reasonably believes it has received as agent under this Agreement.

 

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f) Notwithstanding any other provision of any Finance Document to the contrary, none of the Agent, the Security Agent and the Arranger is obliged to do or omit to do anything if it would or might in its reasonable opinion constitute a breach of any law or regulation or a breach of a fiduciary duty or duty of confidentiality.

 

29.8 Majority Lenders’ instructions

 

a) Unless a contrary indication appears in a Finance Document, the Agent and the Security Agent shall (i) exercise any right, power, authority or discretion vested in it as Agent or as Security Agent, as the case may be, in accordance with any instructions given to it by the Majority Lenders (or, if so instructed by the Majority Lenders, refrain from exercising any right, power, authority or discretion vested in it as Agent or as Security Agent) and (ii) not be liable for any act (or omission) if it acts (or refrains from taking any action) in accordance with an instruction of the Majority Lenders.

 

b) Unless a contrary indication appears in a Finance Document, any instructions given by the Majority Lenders will be binding on all the Finance Parties.

 

c) The Agent or the Security Agent may refrain from acting in accordance with the instructions of the Majority Lenders (or, if appropriate, the Lenders) until it has received such security as it may require for any cost, loss or liability (together with any associated VAT) which it may incur in complying with the instructions.

 

d) In the absence of instructions from the Majority Lenders, (or, if appropriate, the Lenders) the Agent and the Security Agent may act (or refrain from taking action) as it considers to be in the best interest of the Lenders.

 

e) Neither the Agent nor the Security Agent is authorized to act on behalf of a Lender (without first obtaining that Lender’s consent) in any legal or arbitration proceedings relating to any Finance Document. This paragraph e) shall not apply to any legal or arbitration proceeding relating to the perfection, preservation or protection of rights under the Security Documents or enforcement of the Security Interest thereunder.

 

29.9 Responsibility for documentation

None of the Agent, the Security Agent and the Arranger:

 

a) is responsible for the adequacy, accuracy and/or completeness of any information (whether oral or written) supplied by the Agent, the Security Agent, the Arranger, the Borrower or any other person given in or in connection with any Finance Document; or

 

b) is responsible for the legality, validity, effectiveness, adequacy or enforceability of any Finance Document or any other agreement, arrangement or document entered into, made or executed in anticipation of or in connection with any Finance Document; or

 

c) is responsible for any determination as to whether any information provided or to be provided to any Finance Party is non-public information the use of which may be regulated or prohibited by applicable law or regulation relating to insider dealing or otherwise.

 

29.10 Exclusion of liability

 

a)

Without limiting paragraph b) below (and without prejudice to the provisions of paragraph e) of Clause 32.11 ( Disruption to Payment Systems etc. )), neither the Agent

 

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  nor the Security Agent will be liable (including, without limitation, for negligence or any other category of liability whatsoever) for any action taken by it under or in connection with any Finance Document, unless directly caused by its gross negligence or willful misconduct.

 

b) No Party (other than the Agent) may take any proceedings against any officer, employee or agent of the Agent in respect of any claim it might have against the Agent or in respect of any act or omission of any kind by that officer, employee or agent in relation to any Finance Document and any officer, employee or agent of the Agent may rely on this Clause 29.10.

 

c) Neither the Agent nor the Security Agent will be liable for any delay (or any related consequences) in crediting an account with an amount required under the Finance Documents to be paid by the Agent or the Security Agent if the Agent or the Security Agent, as the case may be, has taken all necessary steps as soon as reasonably practicable to comply with the regulations or operating procedures of any recognized clearing or settlement system used by the Agent or the Security Agent for that purpose.

 

d) Nothing in this Agreement shall oblige the Agent, the Security Agent or the Arranger to carry out any “know your customer” or other checks in relation to any person on behalf of any Lender and each Lender confirms to the Agent, the Security Agent and the Arranger that it is solely responsible for any such checks it is required to carry out and that it may not rely on any statement in relation to such checks made by the Agent, the Security Agent or the Arranger.

 

29.11 Lenders’ indemnity to the Agent

Each Lender shall (in proportion to its share of the Total Commitments or, if the Total Commitments are then zero, to its share of the Total Commitments immediately prior to their reduction to zero) indemnify the Agent, within three (3) Business Days of demand, against any cost, loss or liability (including, without limitation, for negligence or any other category of liability whatsoever) incurred by the Agent (otherwise than by reason of the Agent’s gross negligence or willful misconduct) (or, in the case of any cost, loss or liability pursuant to Clause 32.11 ( Disruption to Payment Systems etc. ) notwithstanding the Agent’s negligence, gross negligence or any other category of liability whatsoever but not including any claim based on the fraud of the Agent) in acting as Agent under the Finance Documents (unless the Agent has been reimbursed by the Borrower pursuant to a Finance Document).

 

29.12 Resignation of the Agent and the Security Agent

 

a) Each of the Agent and the Security Agent may resign and appoint one of its Affiliates as successor by giving notice to the other Finance Parties and the Borrower.

 

b) Alternatively either the Agent or the Security Agent may resign by giving thirty (30) days’ notice to the other Finance Parties and the Borrower, in which case the Majority Lenders (after consultation with the Borrower) may appoint a successor Agent or Security Agent, as applicable.

 

c) If the Majority Lenders have not appointed a successor Agent or Security Agent, as applicable, in accordance with paragraph b) above within twenty (20) days after notice of resignation was given, the retiring Agent or retiring Security Agent (after consultation with the Borrower) may appoint a successor Agent or Security Agent, as applicable.

 

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d) The retiring Agent or retiring Security Agent shall, at its own cost, make available to the successor Agent or successor Security Agent such documents and records and provide such assistance as the successor Agent or successor Security Agent may reasonably request for the purposes of performing its functions as Agent or as Security Agent, as the case may be, under the Finance Documents.

 

e) The resignation notice provided by either the Agent or the Security Agent shall only take effect upon the appointment of a successor.

 

f) Upon the appointment of a successor, the retiring Agent or the retiring Security Agent shall be discharged from any further obligation in respect of the Finance Documents but shall remain entitled to the benefit of this Clause 28. Any successor and each of the other Parties shall have the same rights and obligations amongst themselves as they would have had if such successor had been an original Party.

 

g) After consultation with the Borrower, the Majority Lenders may, by notice to the Agent or the Security Agent, require it to resign in accordance with paragraph b) above. In this event, the Agent or the Security Agent shall resign in accordance with paragraph b) above.

 

h) The Agent shall resign in accordance with paragraph b) above (and, to the extent applicable, shall use reasonable endeavours to appoint a successor Agent pursuant to paragraph c) above) if on or after the date which is three (3) months before the earliest FATCA Application Date relating to any payment to the Agent under the Finance Documents, either:

 

  (i) the Agent fails to respond to a request under Clause 14.7 ( FATCA Information ) and the Company or reasonably believes that the Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that FATCA Application Date;

 

  (ii) the information supplied by the Agent pursuant to Clause 14.7 ( FATCA Information ) indicates that the Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that FATCA Application Date; or

 

  (iii) the Agent notifies the Company that the Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that FATCA Application Date;

 

  (iv) and (in each case) the Company reasonably believes that a Party will be required to make a FATCA Deduction that would not be required if the Agent were a FATCA Exempt Party, and the Company, by notice to the Agent, requires it to resign.

 

29.13 Confidentiality

 

a) In acting as agent for the Finance Parties, the Agent and the Security Agent shall be regarded as acting through its agency division which shall be treated as a separate entity from any other of its divisions or departments.

 

b) If information is received by another division or department of the Agent or the Security Agent, it may be treated as confidential to that division or department and the Agent or the Security Agent, as applicable, shall not be deemed to have notice of it.

 

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29.14 Relationship with the Lenders

 

a) Both the Agent and the Security Agent may treat the person shown in its records as Lender at the opening of business (in the place of the Agent’s or the Security Agent’s principal office as notified to the Finance Parties from time to time) as the Lender acting through its Facility Office:

 

  (i) entitled to or liable for any payment due under any Finance Document on that day; and

 

  (ii) entitled to receive and act upon any notice, request, document or communication or make any decision or determination under any Finance Document made or delivered on that day,

unless it has received not less than five (5) Business Days’ prior notice from that Lender to the contrary in accordance with the terms of this Agreement.

 

b) Each Lender shall supply the Agent or the Security Agent with any information required by the Agent or the Security Agent, as applicable, in order to calculate the Mandatory Cost.

 

c) Any Lender may by notice to the Agent or the Security Agent appoint a person to receive on its behalf all notices, communications, information and documents to be made or dispatched to that Lender under the Finance Documents. Such notice shall contain the address, fax number and electronic mail address and/or any other information required to enable the sending and receipt of information by that means (and, in each case, the department or officer, if any, for whose attention communication is to be made) and be treated as a notification of a substitute address, fax number, electronic mail address, department and officer by that Lender for the purposes of Clause 34.2 ( Addresses ) and the Agent shall be entitled to treat such person as the person entitled to receive all such notices, communications, information and documents as though that person were that Lender.

 

29.15 Credit appraisal by the Lenders

Without affecting the responsibility of the Borrower for information supplied by it or on its behalf in connection with any Finance Document, each Lender confirms to the Agent, the Security Agent and the Arranger that it has been, and will continue to be, solely responsible for making its own independent appraisal and investigation of all risks arising under or in connection with any Finance Document including but not limited to:

 

a) the financial condition, status and nature of the Borrower;

 

b) the legality, validity, effectiveness, adequacy or enforceability of any Finance Document and any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document;

 

c) whether that Lender has recourse, and the nature and extent of that recourse, against any Party or any of its respective assets under or in connection with any Finance Document, the transactions contemplated by the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document; and

 

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d) the adequacy, accuracy and/or completeness of the Information Memorandum and any other information provided by the Agent, any Party or by any other person under or in connection with any Finance Document, the transactions contemplated by the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document.

 

29.16 Reference Banks

If a Reference Bank (or, if a Reference Bank is not a Lender, the Lender of which it is an Affiliate) ceases to be a Lender, the Agent shall (in consultation with the Borrower) appoint another Lender or an Affiliate of a Lender to replace that Reference Bank.

 

29.17 Deduction from amounts payable by the Agent or the Security Agent

If any Party owes an amount to the Agent or the Security Agent under the Finance Documents the Agent or the Security Agent may, after giving notice to that Party, deduct an amount not exceeding that amount from any payment to that Party which the Agent or the Security Agent would otherwise be obliged to make under the Finance Documents and apply the amount deducted in or towards satisfaction of the amount owed. For the purposes of the Finance Documents that Party shall be regarded as having received any amount so deducted.

 

30 CONDUCT OF BUSINESS BY THE FINANCE PARTIES

No provision of this Agreement will:

 

a) interfere with the right of any Finance Party to arrange its affairs (tax or otherwise) in whatever manner it thinks fit;

 

b) oblige any Finance Party to investigate or claim any credit, relief, remission or repayment available to it or the extent, order and manner of any claim; or

 

c) oblige any Finance Party to disclose any information relating to its affairs (tax or otherwise) or any computations in respect of Tax.

 

31 SHARING AMONG THE FINANCE PARTIES

 

31.1 Payments to Finance Parties

If a Finance Party (a “ Recovering Finance Party ”) receives or recovers any amount from the Borrower other than in accordance with Clause 32 ( Payment mechanics ) (a “ Recovered Amount ”) and applies that amount to a payment due under the Finance Documents then:

 

a) the Recovering Finance Party shall, within three (3) Business Days, notify details of the receipt or recovery to the Agent;

 

b) the Agent shall determine whether the receipt or recovery is in excess of the amount the Recovering Finance Party would have been paid had the receipt or recovery been received or made by the Agent and distributed in accordance with Clause 32 ( Payment mechanics ), without taking account of any Tax which would be imposed on the Agent in relation to the receipt, recovery or distribution; and

 

c) the Recovering Finance Party shall, within three (3) Business Days of demand by the Agent, pay to the Agent an amount (the “ Sharing Payment ”) equal to such receipt or recovery less any amount which the Agent determines may be retained by the Recovering Finance Party as its share of any payment to be made, in accordance with Clause 32.5 ( Partial payments ).

 

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31.2 Redistribution of payments

The Agent shall treat the Sharing Payment as if it had been paid by the Borrower and distribute it between the Finance Parties (other than the Recovering Finance Party) (the “ Sharing Finance Parties ”) in accordance with Clause 32.5 ( Partial payments ) towards the obligations of the Borrower to the Sharing Finance Parties.

 

31.3 Recovering Finance Party’s rights

On a distribution by the Agent under Clause 30.2 (Redistribution of payments) of a payment received by a Recovering Finance Party from the Borrower, as between the Borrower and the Recovering Finance Party, an amount of the Recovered Amount equal to the Sharing Payment will be treated as not having been paid by the Borrower.

 

31.4 Reversal of redistribution

If any part of the Sharing Payment received or recovered by a Recovering Finance Party becomes repayable and is repaid by that Recovering Finance Party, then:

 

a) each Sharing Finance Party shall, upon request of the Agent, pay to the Agent for the account of that Recovering Finance Party an amount equal to the appropriate part of its share of the Sharing Payment (together with an amount as is necessary to reimburse that Recovering Finance Party for its proportion of any interest on the Sharing Payment which that Recovering Finance Party is required to pay) (the “ Redistributed Amount ”); and

 

b) as between the Borrower and each relevant Sharing Finance Party, an amount equal to the relevant Redistributed Amount will be treated as not having been paid by the Borrower.

 

31.5 Exceptions

 

a) This Clause 31 shall not apply to the extent that the Recovering Finance Party would not, after making any payment pursuant to this Clause, have a valid and enforceable claim against the Borrower.

 

b) A Recovering Finance Party is not obliged to share with any other Finance Party any amount which the Recovering Finance Party has received or recovered as a result of taking legal or arbitration proceedings, if:

 

  (i) it notified that other Finance Party of the legal or arbitration proceedings; and

 

  (ii) that other Finance Party had an opportunity to participate in those legal or arbitration proceedings but did not do so as soon as reasonably practicable having received notice and did not take separate legal or arbitration proceedings.

 

32 PAYMENT MECHANICS

 

32.1 Payments to the Agent

 

a) On each date on which the Borrower or a Lender is required to make a payment under a Finance Document, the Borrower or Lender shall make the same available to the Agent

 

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  (unless a contrary indication appears in a Finance Document) for value on the due date at the time and in such funds specified by the Agent as being customary at the time for settlement of transactions in the relevant currency in the place of payment.

 

b) Payment shall be made to such account in the principal financial centre of the country of that currency (or, in relation to euro, in a principal financial centre in a Participating Member State or London) with such bank as the Agent specifies.

 

32.2 Distributions by the Agent

Each payment received by the Agent under the Finance Documents for another Party shall, subject to Clause 32.3 ( Distributions to the Borrower ) and Clause 32.4 ( Clawback ) be made available by the Agent as soon as practicable after receipt to the Party entitled to receive payment in accordance with this Agreement (in the case of a Lender, for the account of its Facility Office), to such account as that Party may notify to the Agent by not less than five (5) Business Days’ notice with a bank in the principal financial centre of the country of that currency (or, in relation to euro, in the principal financial centre of a Participating Member State or London).

 

32.3 Distributions to the Borrower

The Agent may (with the consent of the Borrower or in accordance with Clause 33 ( Set-off )) apply any amount received by it for the Borrower in or towards payment (on the date and in the currency and funds of receipt) of any amount due from the Borrower under the Finance Documents or in or towards purchase of any amount of any currency to be so applied.

 

32.4 Clawback

 

a) Where a sum is to be paid to the Agent under the Finance Documents for another Party, the Agent is not obliged to pay that sum to that other Party (or to enter into or perform any related exchange contract) until it has been able to establish to its satisfaction that it has actually received that sum.

 

b) If the Agent pays an amount to another Party and it proves to be the case that the Agent had not actually received that amount, then the Party to whom that amount (or the proceeds of any related exchange contract) was paid by the Agent shall on demand refund the same to the Agent together with interest on that amount from the date of payment to the date of receipt by the Agent, calculated by the Agent to reflect its cost of funds.

 

32.5 Partial payments

 

a) If the Agent receives a payment that is insufficient to discharge all the amounts then due and payable by the Borrower under the Finance Documents, the Agent shall apply that payment towards the obligations of the Borrower under the Finance Documents in the following order:

 

  (i) first , in or towards payment pro rata of any unpaid fees, costs and expenses of the Agent under the Finance Documents;

 

  (ii) secondly , in or towards payment pro rata of any accrued interest, fee or commission due but unpaid under this Agreement;

 

  (iii) thirdly , in or towards payment pro rata of any principal due but unpaid under this Agreement; and

 

  (iv) fourthly , in or towards payment pro rata of any other sum due but unpaid under the Finance Documents.

 

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b) Paragraphs a) above will override any appropriation made by the Borrower.

 

32.6 Application following an Event of Default

After an Event of Default, on either (i) the completion of a sale of a Vessel, either by forced auction or private treaty, or (ii) the receipt of any monies by the Agent pursuant to the sale proceeds of such Vessel or any enforcement proceeds following the enforcement of any Security under any Security Document (as the case may be), such monies shall be applied in the following order:

 

a) firstly , in respect of all costs and expenses whatsoever incurred in connection with or about incidental to the said sale;

 

b) secondly , in or towards payment of all sums owed to the Finance Parties (on a pro rata basis) under the Finance Documents

 

c) thirdly , in or towards payment of all sums owed to the Swap Banks (on a pro rata basis) under any Swap Agreement at the time of default; and

 

d) fourthly , the balance, if any to the Borrowers or to their order.

 

32.7 No set-off by the Borrower

All payments to be made by the Borrower under the Finance Documents shall be calculated and be made without (and free and clear of any deduction for) set-off or counterclaim.

 

32.8 Business Days

 

a) Any payment which is due to be made on a day that is not a Business Day shall be made on the next Business Day in the same calendar month (if there is one) or the preceding Business Day (if there is not).

 

b) During any extension of the due date for payment of any principal or Unpaid Sum under this Agreement interest is payable on the principal or Unpaid Sum at the rate payable on the original due date.

 

32.9 Currency of account

 

a) Subject to paragraphs b) to e) below, USD is the currency of account and payment for any sum due from the Borrower under any Finance Document.

 

b) A repayment of a Loan or Unpaid Sum or a part of a Loan or Unpaid Sum shall be made in USD.

 

c) Each payment of interest shall be made in USD.

 

d) Each payment in respect of costs, expenses or Taxes shall be made in the currency in which the costs, expenses or Taxes are incurred.

 

e) Any amount expressed to be payable in a currency other than USD shall be paid in that other currency.

 

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32.10 Change of currency

 

a) Unless otherwise prohibited by law, if more than one currency or currency unit are at the same time recognized by the central bank of any country as the lawful currency of that country, then:

 

  (i) any reference in the Finance Documents to, and any obligations arising under the Finance Documents in, the currency of that country shall be translated into, or paid in, the currency or currency unit of that country designated by the Agent (after consultation with the Borrower); and

 

  (ii) any translation from one currency or currency unit to another shall be at the official rate of exchange recognized by the central bank for the conversion of that currency or currency unit into the other, rounded up or down by the Agent (acting reasonably).

 

b) If a change in any currency of a country occurs, this Agreement will, to the extent the Agent (acting reasonably and after consultation with the Borrower) specifies to be necessary, be amended to comply with any generally accepted conventions and market practice in the Relevant Interbank Market and otherwise to reflect the change in currency.

 

32.11 Disruption to Payment Systems, etc.

If either the Agent determines (in its discretion) that a Disruption Event has occurred or the Agent is notified by the Borrower that a Disruption Event has occurred:

 

a) the Agent may, and shall if requested to do so by the Borrower, consult with the Borrower with a view to agreeing with the Borrower such changes to the operation or administration of the Facility as the Agent may deem necessary in the circumstances;

 

b) the Agent shall not be obliged to consult with the Borrower in relation to any changes mentioned in paragraph a) if, in its opinion, it is not practicable to do so in the circumstances and, in any event, shall have no obligation to agree to such changes;

 

c) the Agent may consult with the Finance Parties in relation to any changes mentioned in paragraph a) but shall not be obliged to do so if, in its opinion, it is not practicable to do so in the circumstances;

 

d) any such changes agreed upon by the Agent and the Borrower shall (whether or not it is finally determined that a Disruption Event has occurred) be binding upon the Parties as an amendment to (or, as the case may be, waiver of) the terms of the Finance Documents notwithstanding the provisions of Clause 36 ( Amendments and waivers );

 

e) the Agent shall not be liable for any damages, costs or losses whatsoever (including, without limitation for negligence, gross negligence or any other category of liability whatsoever but not including any claim based on the fraud of the Agent) arising as a result of its taking, or failing to take, any actions pursuant to or in connection with this Clause 32.11; and

 

f) the Agent shall notify the Finance Parties of all changes agreed pursuant to paragraph d) above.

 

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33 SET-OFF

 

a) A Finance Party may, to the extent permitted by law, set off any matured obligation due from the Borrower under the Finance Documents (to the extent beneficially owned by that Finance Party) against any matured obligation owed by that Finance Party to the Borrower, regardless of the place of payment, booking branch or currency of either obligation. If the obligations are in different currencies, the Finance Party may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off.

 

b) The Borrower hereby agrees and accepts that this Clause 33 shall constitute a waiver of the provisions of Section 29 of the FA Act and further agrees and accepts that, to the extent permitted by law, Section 29 of the FA Act shall not apply to this Agreement.

 

34 NOTICES

 

34.1 Communications in writing

Any communication to be made under or in connection with the Finance Documents shall be made in writing and, unless otherwise stated, may be made by fax, letter or electronic mail.

 

34.2 Addresses

The contact details (and the department or officer, if any, for whose attention the communication is to be made) of each Party for any communication or document to be made or delivered under or in connection with the Finance Documents is:

 

a) in the case of the Borrower:

NORDIC AMERICAN OFFSHORE LTD.

Att: Turid Sørensen

Fax No: + 47 33 42 73 01

E-mail: turid@sorensen@scandicamerican.com

 

b) in the case of each Lender, that notified in writing to the Agent on or prior to the date on which it becomes a Party; and

 

c) in the case of the Agent:

DNB Bank ASA

Dronning Eufemias gate 30, Bygg M15S

N-0191 Oslo, Norway

Att.: Credit Middle Office and Agency

Att: Anne-Lise Iversen

Fax No: +47 22 48 28 94

E-mail: anne-lise.iversen@dnb.no

or any substitute address, fax number, electronic mail address or department or officer as the Party may notify to the Agent (or the Agent may notify to the other Parties, if a change is made by the Agent) by not less than five (5) Business Days’ notice.

 

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34.3 Delivery

 

a) Any communication or document made or delivered by one person to another under or in connection with the Finance Documents will only be effective:

 

  (i) if by way of fax, when received in legible form; or

 

  (ii) if by way of letter, when it has been left at the relevant address or five (5) Business Days after being deposited in the post postage prepaid in an envelope addressed to it at that address;

and, if a particular department or officer is specified as part of its address details provided under Clause 34.2 ( Addresses ), if addressed to that department or officer.

 

b) Any communication or document to be made or delivered to the Agent will be effective only when actually received by the Agent and then only if it is expressly marked for the attention of the department or officer identified with the Agent’s signature below (or any substitute department or officer as the Agent shall specify for this purpose).

 

c) All notices from or to the Borrower shall be sent through the Agent.

 

d) Any communication or document made or delivered to the Borrower in accordance with this Clause will be deemed to have been made or delivered to the Borrower.

 

34.4 Notification of address and fax number

Promptly upon receipt of notification of an address, fax number or electronic mail address or change of address, fax number or electronic mail address pursuant to Clause 34.2 (Addresses) or changing its own address, fax number or electronic mail address, the Agent shall notify the other Parties.

 

34.5 Electronic communication

 

a) Any communication to be made between any two Parties under or in connection with the Finance Documents may be made by electronic mail or other electronic means to the extent that those two Parties agree that, unless and until notified to the contrary, this is to be an accepted form of communication and if those two Parties:

 

  (i) notify each other in writing of their electronic mail address and/or any other information required to enable the sending and receipt of information by that means; and

 

  (ii) notify each other of any change to their address or any other such information supplied by them by not less than five (5) Business Days’ notice.

 

b) Any electronic communication made between those two Parties will be effective only when actually received in readable form and in the case of any electronic communication made by a Party to the Agent only if it is addressed in such a manner as the Agent shall specify for this purpose.

 

c) Any electronic communication which becomes effective, in accordance with paragraph b) above, after 5.00 p.m. in the place of receipt shall be deemed only to become effective on the following day.

 

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34.6 English language

 

a) Any notice given under or in connection with any Finance Document must be in English.

 

b) All other documents provided under or in connection with any Finance Document must be:

 

  (i) in English; or

 

  (ii) if not in English, and if so required by the Agent, accompanied by an English translation and, in this case, the English translation will prevail unless the document is a constitutional, statutory or other official document.

 

35 CALCULATIONS AND CERTIFICATES

 

35.1 Accounts

In any litigation or arbitration proceedings arising out of or in connection with a Finance Document, the entries made in the accounts maintained by a Finance Party are prima facie evidence of the matters to which they relate.

 

35.2 Certificates and Determinations

Any certification or determination by a Finance Party of a rate or amount under any Finance Document is, in the absence of manifest error, conclusive evidence of the matters to which it relates.

 

35.3 Day count convention

Any interest, commission or fee accruing under a Finance Document will accrue from day to day and is calculated on the basis of the actual number of days elapsed and a year of 360 days or, in any case where the practice in the Relevant Interbank Market differs, in accordance with that market practice.

 

36 PARTIAL INVALIDITY

If, at any time, any provision of the Finance Documents is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other jurisdiction will in any way be affected or impaired.

 

37 REMEDIES AND WAIVERS

No failure to exercise, nor any delay in exercising, on the part of any Finance Party, any right or remedy under the Finance Documents shall operate as a waiver of any such right or remedy or constitute an election to affirm any of the Finance Documents. No election to affirm any of the Finance Documents on the part of any Finance Party shall be effective unless it is in writing. No single or partial exercise of any right or remedy shall prevent any further or other exercise or the exercise of any other right or remedy. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law.

 

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38 AMENDMENTS AND WAIVERS

 

38.1 Required consents

 

a) Subject to Clause 38.2 ( Exceptions ) any term of the Finance Documents may be amended or waived only with the consent of the Majority Lenders and the Borrower and any such amendment or waiver will be binding on all Parties.

 

b) The Agent may effect, on behalf of any Finance Party, any amendment or waiver permitted by this Clause.

 

38.2 Exceptions

 

a) An amendment or waiver that has the effect of changing or which relates to:

 

  (i) the definition of “ Majority Lenders ” in Clause 1.1 ( Definitions );

 

  (ii) an extension to the date of payment of any amount under the Finance Documents;

 

  (iii) a reduction in the Applicable Margin or a reduction in the amount of any payment of principal, interest, fees or commission payable;

 

  (iv) an increase in or an extension of any Commitment or any requirement that a cancellation of Commitments reduces the Commitments of the Lenders rateably under the Facility;

 

  (v) a change to the Obligors other than in accordance with Clause 28.1 ( Changes to the Obligors );

 

  (vi) any provision which expressly requires the consent of all the Lenders;

 

  (vii) Clause 2.2 ( Finance Parties’ rights and obligations ), Clause 19 ( Security ), Clause 24.1 ( Insurances ), Clause 27 ( Changes to the Parties ) or this Clause 38,

shall not be made without the prior consent of all the Lenders.

 

b) An amendment or waiver which relates to the rights or obligations of the Agent or the Arranger (each in their capacity as such) may not be effected without the consent of the Agent or, as the case may be, the Arranger.

 

c) A Fee Letter may be amended or waived with the agreement of the relevant party to that Fee Letter and the Borrower.

 

39 CONFIDENTIALITY

 

39.1 Confidential Information

Each Finance Party agrees to keep all Confidential Information confidential and not to disclose it to anyone, save to the extent permitted by Clause 39.2 ( Disclosure of Confidential Information ), and to ensure that all Confidential Information is protected with security measures and a degree of care that would apply to its own confidential information.

 

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39.2 Disclosure of Confidential Information

Any Finance Party may disclose:

 

a) to any of its Affiliates and Related Funds any of its or their officers, directors, employees, professional advisers, auditors, partners and representatives such Confidential Information as that Finance Party shall consider appropriate if any person to whom the Confidential Information is to be given pursuant to this paragraph a) is informed in writing of its confidential nature and that some or all of such Confidential Information may be price-sensitive information, except that there shall be no such requirement to so inform if the recipient is subject to professional obligations to maintain the confidentiality of the information or is otherwise bound by requirements of confidentiality in relation to the Confidential Information;

 

b) to any person:

 

  (i) to (or through) whom it assigns or transfers (or may potentially assign or transfer) all or any of its rights and/or obligations under one or more Finance Documents and to any of that person’s Affiliates, Related Funds, representatives and professional advisers;

 

  (ii) with (or through) whom it enters into (or may potentially enter into), whether directly or indirectly, any sub-participation in relation to, or any other transaction under which payments are to be made or may be made by reference to, one or more Finance Documents and/or the Borrower and to any of that person’s Affiliates, Related Funds, representatives and professional advisers;

 

  (iii) appointed by any Finance Party or by a person to whom paragraph b)(i) or (ii) above applies to receive communications, notices, information or documents delivered pursuant to the Finance Documents on its behalf (including, without limitation, any person appointed under paragraph c) of Clause 29.14 ( Relationship with the Lenders ));

 

  (iv) who invests in or otherwise finances (or may potentially invest in or otherwise finance), directly or indirectly, any transaction referred to in paragraph b)(i) or b)(ii) above;

 

  (v) to whom information is required or requested to be disclosed by any court of competent jurisdiction or any governmental, banking, taxation or other regulatory authority or similar body, the rules of any relevant stock exchange or pursuant to any applicable law or regulation;

 

  (vi) to whom information is required to be disclosed in connection with, and for the purposes of, any litigation, arbitration, administrative or other investigations, proceedings or disputes;

 

  (vii) to whom or for whose benefit that Finance Party charges, assigns or otherwise creates Security Interest (or may do so) pursuant to Clause 27.7 ( Security over Lenders’ rights );

 

  (viii) who is a Party; or

 

  (ix) with the consent of the Borrower;

 

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in each case, such Confidential Information as that Finance Party shall consider appropriate if:

 

  (A) in relation to paragraphs b)(i), b)(ii) and b(iii) above, the person to whom the Confidential Information is to be given has entered into a confidentiality undertaking except that there shall be no requirement for a confidentiality undertaking if the recipient is a professional adviser and is subject to professional obligations to maintain the confidentiality of the Confidential Information;

 

  (B) in relation to paragraph b)(iv) above, the person to whom the Confidential Information is to be given has entered into a confidentiality undertaking or is otherwise bound by requirements of confidentiality in relation to the Confidential Information they receive and is informed that some or all of such Confidential Information may be price-sensitive information;

 

  (C) in relation to paragraphs b)(v), b)(vi) and b)(vii) above, the person to whom the Confidential Information is to be given is informed of its confidential nature and that some or all of such Confidential Information may be price-sensitive information except that there shall be no requirement to so inform if, in the opinion of that Finance Party, it is not practicable so to do in the circumstances;

 

c) to any person appointed by that Finance Party or by a person to whom paragraph b)(i) or b)(ii) above applies to provide administration or settlement services in respect of one or more of the Finance Documents including without limitation, in relation to the trading of participations in respect of the Finance Documents, such Confidential Information as may be required to be disclosed to enable such service provider to provide any of the services referred to in this paragraph c) if the service provider to whom the Confidential Information is to be given has entered into a confidentiality agreement substantially in the form of the LMA Master confidentiality undertaking for Use With Administration/Settlement Service Providers or such other form of confidentiality undertaking agreed between the Borrower and the relevant Finance Party;

 

d) to any rating agency (including its professional advisers) such Confidential Information as may be required to be disclosed to enable such rating agency to carry out its normal rating activities in relation to the Finance Documents and/or the Borrower if the rating agency to whom the Confidential Information is to be given is informed of its confidential nature and that some or all of such Confidential Information may be price-sensitive information.

 

39.3 Disclosure to numbering service providers

 

a) Any Finance Party may disclose to any national or international numbering service provider appointed by that Finance Party to provide identification numbering services in respect of this Agreement, the Facility and/or the Borrower the following information:

 

  (i) name of the Borrower;

 

  (ii) country of domicile of the Borrower;

 

  (iii) place of incorporation of the Borrower;

 

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  (iv) date of this Agreement;

 

  (v) the names of the Agent and the Arranger;

 

  (vi) date of each amendment and restatement of this Agreement;

 

  (vii) amount of Total Commitments;

 

  (viii) currencies of the Facility;

 

  (ix) type of Facility;

 

  (x) ranking of Facility;

 

  (xi) Termination Date;

 

  (xii) changes to any of the information previously supplied pursuant to paragraphs (i) to (xi) above; and

 

  (xiii) such other information agreed between such Finance Party and the Borrower,

to enable such numbering service provider to provide its usual syndicated loan numbering identification services.

 

b) The Parties acknowledge and agree that each identification number assigned to this Agreement, the Facility and/or the Borrower by a numbering service provider and the information associated with each such number may be disclosed to users of its services in accordance with the standard terms and conditions of that numbering service provider.

 

c) The Borrower represents that none of the information set out in paragraphs (i) to (xiii) of paragraph a) above is, nor will at any time be, unpublished price-sensitive information.

 

39.4 Entire agreement

This Clause 39 ( Confidentiality ) constitutes the entire agreement between the Parties in relation to the obligations of the Finance Parties under the Finance Documents regarding Confidential Information and supersedes any previous agreement, whether express or implied, regarding Confidential Information.

 

39.5 Inside information

Each of the Finance Parties acknowledges that some or all of the Confidential Information is or may be price-sensitive information and that the use of such information may be regulated or prohibited by applicable legislation including securities law relating to insider dealing and market abuse and each of the Finance Parties undertakes not to use any Confidential Information for any unlawful purpose.

 

39.6 Notification of disclosure

Each of the Finance Parties agrees (to the extent permitted by law and regulation) to inform the Borrower:

 

a) of the circumstances of any disclosure of Confidential Information made pursuant to paragraph b)(ii) of Clause 39.2 ( Disclosure of Confidential Information ), except where such disclosure is made to any of the persons referred to in that paragraph during the ordinary course of its supervisory or regulatory function; and

 

b) upon becoming aware that Confidential Information has been disclosed in breach of this Clause 39 ( Confidentiality ).

 

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39.7 Continuing obligations

The obligations in this Clause 39 ( Confidentiality ) are continuing and, in particular, shall survive and remain binding on each Finance Party for a period of twelve (12) months from the earlier of:

 

a) the date on which all amounts payable by the Borrower under or in connection with this Agreement have been paid in full and all Commitments have been cancelled or otherwise cease to be available; and

 

b) the date on which such Finance Party otherwise ceases to be a Finance Party.

 

40 COUNTERPARTS

Each Finance Document may be executed in any number of counterparts, and this has the same effect as if the signatures on the counterparts were on a single copy of the Finance Document.

 

41 GOVERNING LAW

This Agreement is governed by Norwegian law.

 

42 ENFORCEMENT

 

42.1 Jurisdiction

 

a) Subject to paragraph c) below, the courts of Oslo, Norway have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement) (a “ Dispute ”).

 

b) The Parties agree that the courts of Oslo, Norway are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary.

 

c) This Clause 42 is for the benefit of the Finance Parties only. As a result, no Finance Party shall be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction. To the extent allowed by law, the Finance Parties may take concurrent proceedings in any number of jurisdictions.

 

42.2 Service of process

Without prejudice to any other mode of service, the Borrower:

 

a) irrevocably appoints Scandic American Shipping Ltd (European Branch), Norway, as its agent for service of process relating to any proceedings before the Norwegian courts in connection with any Finance Documents;

 

b) agree that failure by its process agent to notify it or the process will not invalidate the proceedings concerned; and

 

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c) consent to the service of process to any such proceedings before the Norwegian courts by prepaid posting of a copy of the process to its address for the time being applying under Clause 32 ( Notices ).

* * *

This Agreement has been entered into on the date stated at the beginning of this Agreement.

 

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SCHEDULE 1

THE ORIGINAL PARTIES

Part I: The Lenders

 

Original Lender

   Commitment  

DNB Bank ASA

Dronning Eufemias gate 30, Bygg M15S, N-0191 Oslo, Norway

     USD 30,000,000   

Business reg. number: 984 851 006

  

Skandinaviska Enskilda Banken AB (publ), Oslo Branch

Fillipstad Brygge 1, N0-0123 Oslo

     USD 30,000,000   

Business reg. number: 971 049 944

  
  

 

 

 
     USD 60,000,000   

Part II: The Swap Banks

 

Name and address of Swap Banks:

  

Address:

DNB Bank ASA   

Dronning Eufemias gate 30, Bygg M15S, N-0191 Oslo, Norway

 

Business reg. number: 984 851 006

Skandinaviska Enskilda Banken AB (publ), Oslo Branch   

Fillipstad Brygge 1, N0-0123 Oslo

 

Business reg. number: 971 049 944

 

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SCHEDULE 2

CONDITIONS PRECEDENT

 

1 CORPORATE AUTHORISATION

 

1.1 In respect of the Borrower:

 

a) Certificate of Incorporation;

 

b) Articles of Incorporation and By-laws;

 

c) Updated Good Standing Certificate;

 

d) Resolutions passed at a board meeting of the Borrower evidencing:

 

  (i) the approval of the terms of, and the transactions contemplated by, the Transaction Documents and the registration of the relevant Mortgages; and

 

  (ii) the authorisation of its appropriate officer or officers or other representatives to execute the Transaction Documents and any other documents necessary for the transactions contemplated by the Transaction Documents, on its behalf;

 

e) Power of Attorney (notarised and legalised if requested by the Agent);

 

f) Secretary’s Certificate (notarised and legalised);

 

g) Specimen signatures of its authorized representatives referred to in d) above in original; and

 

h) Certified copies of the passports of the directors and the authorised representatives of the Borrower together with proof of their address and any other identification or similar document any Lender may reasonably require on the basis of mandatory regulatory laws of the country of such Lender or such other “know your customer” and “anti money laundering” documentation required by the Agent (or any Lender through the Agent).

 

2 AUTHORISATIONS

All Authorisations required by any government or other authorities for the Borrower to enter into and perform their obligations under this Agreement and/or any of the Transaction Documents (and a pdf copy of any such Authorisations to be delivered to the Agent).

 

3 THE VESSELS

In respect of each of the Vessels:

 

a) The Charterparties (if any);

 

b) Evidence (by way of transcript of registry) that the Vessel is, or will be, registered in the name of the Borrower in the relevant Approved Ship Registry, that the Mortgage has been, or will in connection with the utilisation of the relevant Loan be, executed and recorded with its intended first priority against the Vessel and that no other encumbrances, maritime liens, mortgages or debts whatsoever are registered against the Vessel;

 

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c) An updated class certificate related to the Vessel from the relevant classification society, confirming that the Vessel is classed with the highest class in accordance with Clause 243 ( Classification and repairs ), free of extensions and overdue recommendations;

 

d) Copies of insurance policies/cover notes documenting that insurance cover has been taken out in respect of the Vessel in accordance with Clause 24.2 ( Insurance ), and evidencing that the Agent’s (on behalf of the Finance Parties and the Swap Banks) Security Interest in the insurance policies have been noted in accordance with the relevant notices as required under the Assignment Agreement;

 

e) The Vessel’s current SMC;

 

f) A copy of the ISSC; and

 

g) The Technical Manager’s current DOC.

 

4 FINANCE DOCUMENTS

 

a) The Agreement;

 

b) The Assignment Agreement;

 

c) Notice of Assignment of Earnings under Charterparties with a duration of more than twelve (12) months and the Charterers’ acknowledgement thereof;

 

d) Notice of Assignment of Insurances and the insurers’ acknowledgement thereof; and

 

e) The Charterparty Assignments (if any);

 

f) Notice of Assignment of the relevant Charterparty and the relevant Charterer’s acknowledgement thereof; and

 

g) The Mortgages.

 

5 TRANSACTION DOCUMENTS

 

a) The Commercial Management Agreement (if any);

 

b) The Technical Management Agreements (if any); and

 

c) The Swap Agreement(s) (if any).

 

6 MISCELLANEOUS

 

a) The composition of the management and board of directors of the Borrower to be acceptable to the Lenders.

 

b) Evidence that the Borrower has been listed on the N-OTC.

 

c) Evidence in form and content satisfactory to the Lenders of an equity raise in the Borrower.

 

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d) The Utilisation Request at least three (3) Business Days prior to the relevant Utilisation Date;

 

e) Evidence that all fees referred to in Clause 11 ( Fees ), as are payable on or prior to the Initial Utilisation Date, have or will be paid on its due date;

 

f) A Compliance Certificate - Financial Covenants;

 

g) A Compliance Certificate - Total Market Value, including valuations;

 

h) Appointment of Scandic American Shipping Ltd. and the acceptance by Scandic American Shipping Ltd. as the Borrower’s process agent in Norway (or in any other relevant jurisdiction) under the Finance Documents;

 

i) A favourable opinion (at the cost of the Borrowers) from an independent insurance consultant acceptable to the Agent in accordance with Clause 24.2 ( Insurances ) (if applicable);

 

j) The Fee Letter;

 

k) The Original Financial Statements;

 

l) The letter regarding effective interest duly counter-signed by the Borrower;

 

m) Evidence that any withholding tax will be paid or application to tax authorities in respect of any withholding tax is or will be sent (if relevant);

 

n) Evidence of discharge of any existing Security Interests (if any); and

 

o) Any other document, authorization, opinion or assurance reasonably requested by the Lenders.

 

7 LEGAL OPINIONS

 

a) A legal opinion as regards Marshall Island laws matters issued by Seward & Kissel LLP; and

 

b) A legal opinion as regards Norwegian law matters issued by Advokatfirmaet Thommessen AS.

All such legal opinions to be in agreed form (as approved by the Agent (on behalf of the Lenders)) prior to the relevant Utilisation Date and to be issued immediately after the relevant Utilisation Date.

 

8 AUTHORISATIONS

All Authorisations required by any government or other authorities for the Borrower to enter into and perform its obligations under this Agreement and/or any of the Transaction Documents (and a pdf copy of any such Authorisations to be delivered to the Agent).

 

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SCHEDULE 3

FORM OF UTILISATION REQUEST

 

From:    Nordic American Offshore Ltd
To:    DNB Bank ASA
Dated:    [                    ]

Dear Sirs

NORDIC AMERICAN OFFSHORE LTD. - USD 60,000,000 REVOLVING CREDIT FACILITY AGREEMENT DATED 19 DECEMBER 2013 (THE “AGREEMENT”)

 

1 We refer to the Agreement. This is a Utilisation Request. Terms defined in the Agreement have the same meaning in this Utilisation Request unless given a different meaning in this Utilisation Request.

 

2 We wish to borrow a Loan on the following terms:

 

  Proposed Utilisation Date:    [            ] (or, if that is not a Business Day, the next Business Day)
  Purpose:    [            ]
  Amount:    [            ]
  Interest Period:    [            ]

 

3 We confirm that each condition specified in Clause 4.2 ( Further conditions precedent ) is satisfied on the date of this Utilisation Request.

 

4 The proceeds of this Loan should be credited to [ account ].

 

5 This Utilisation Request is irrevocable.

 

Yours faithfully
NORDIC AMERICAN OFFSHORE LTD.
By:  

 

Name:  
Title:  

 

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SCHEDULE 4

FORM OF TRANSFER CERTIFICATE

 

To:    DNB Bank ASA as Agent
From:    [ The Existing Lender ] (the “ Existing Lender ”) and [ The New Lender ] (the “ New Lender ”)
Dated:    [                    ]

NORDIC AMERICAN OFFSHORE LTD. - USD 60,000,000 REVOLVING CREDIT FACILITY AGREEMENT DATED 19 DECEMBER 2013 (THE “AGREEMENT”)

 

1 We refer to the Agreement. This is a Transfer Certificate. Terms defined in the Agreement have the same meaning in this Transfer Certificate unless given a different meaning in this Transfer Certificate.

 

2 We refer to Clause 27.5 ( Procedure for transfer ):

 

  a) The Existing Lender and the New Lender agree to the Existing Lender transferring to the New Lender by novation all or part of the Existing Lender’s Commitment, rights and obligations referred to in the Schedule in accordance with Clause 27.5 ( Procedure for transfer ).

 

  b) The proposed Transfer Date is [                    ].

 

  c) The Facility Office and address, fax number and attention details for notices of the New Lender for the purposes of Clause 34.2 ( Addresses ) are set out in the Schedule.

 

3 The New Lender expressly acknowledges the limitations on the Existing Lender’s obligations set out in paragraph c) of Clause 27.4 ( Limitation of responsibility of Existing Lenders ).

 

4 This Transfer Certificate may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of this Transfer Certificate.

 

5 This Transfer Certificate is governed by Norwegian law.

 

6 This Transfer Certificate has been entered into on the date stated at the beginning of this Transfer Certificate.

 

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The Schedule

Commitment/rights and obligations to be transferred

 

Existing Lender:    [                                         ]
New Lender:    [                                         ]
Total Commitment of Existing Lender:    USD [                               ]
Total Commitment of New Lender:    USD [                               ]
Transfer Date:    [                                         ]

Administrative Details / Payment Instructions of New Lender

[ Facility Office address, fax number and attention details for notices and account details for payments. ]

 

Existing Lender:    New Lender:
[                                         ]    [                                         ]
By:    By:
Name:    Name:
Title:    Title:

This Transfer Certificate is accepted by the Agent and the Transfer Date is confirmed as [            ].

 

Agent:
DNB Bank ASA
By:  
Name:  
Title:  

 

92


SCHEDULE 5A

FORM OF COMPLIANCE CERTIFICATE

– FINANCIAL COVENANTS

 

To:    DNB Bank ASA as Agent
From:    Nordic American Offshore Ltd.
Dated:   

Dear Sirs

NORDIC AMERICAN OFFSHORE LTD. - USD 60,000,000 REVOLVING CREDIT FACILITY AGREEMENT DATED 19 DECEMBER 2013 (THE “AGREEMENT”)

 

1 We refer to the Agreement. This is a Compliance Certificate - Financial Covenants. Terms defined in the Agreement have the same meaning when used in this Compliance Certificate unless given a different meaning in this Compliance Certificate.

 

2 With reference to Clauses 21.2 ( Compliance certificate ) and 22 ( Financial covenants ) of the Agreement, we confirm that as at [ ] [insert relevant reporting date]:

 

  a) Minimum Value Adjusted Equity. The Value Adjusted Equity of the Borrower was USD [ ]. The Equity shall at all times during the Security Period be minimum USD 135,000,000 and the covenant in Clause 22.2.1 ( Minimum Value Adjusted Equity ) is thus [not] satisfied.

 

  b) [[if applicable] Charterparties’ Value. The Charterparties’ Value is [ ]. The Charterparties’ Value represents [[ insert fraction ] [ ]/[ ]] of the Value Adjusted Total Assets.]

 

  c) Minimum Value Adjusted Equity Ratio. The Value Adjusted Equity Ratio of the Borrower was [ ]. The Value Adjusted Equity Ratio of the Borrower shall at all times during the Security Period be minimum forty-five per cent (45.00%) and the covenant in Clause 22.2.2 ( Minimum Value Adjusted Equity Ratio ) is thus [not] satisfied.

 

  d) Minimum Liquidity. The Liquidity of the Borrower was [ ]. The Liquidity of the Borrower shall at all times during the Security Period exceed the higher of (i) USD 10,000,000 and (ii) USD 1,000,000 per vessel the Borrower operates and the covenant in Clause 22.2.3 ( Minimum Liquidity ) is thus [not] satisfied.

 

  e) Positive Working Capital. The Working Capital of the Borrower was [ ]. The Working Capital of the Borrower shall at all timed during the Security Period be positive and the covenant in Clause 22.2.4 ( Positive Working Capital ) is thus [not] satisfied.

 

3 We attach our calculations establishing the figures in paragraph 2 (other than 2 b), unless specifically requested by the Agent) above.

 

93


4 We confirm that, as of the date hereof, (i) each of the representations and warranties set out in Clause 20 ( Representations ) of the Agreement is true and correct; and (ii) no event or circumstances has occurred and is continuing which constitute or may constitute an Event of Default.

 

Yours faithfully
NORDIC AMERICAN OFFSHORE LTD.
By:  
Name:  
Title:   Chief Financial Officer

 

94


SCHEDULE 5B

Compliance Certificate

– Total Market Value

 

To:    DNB Bank ASA, as Agent
Date:    [ ]

NORDIC AMERICAN OFFSHORE LTD. - USD 60,000,000 REVOLVING CREDIT FACILITY AGREEMENT DATED 19 DECEMBER 2013 (THE “AGREEMENT”)

We refer to the above Agreement. Capitalised terms defined in the Loan Agreement shall have the same meaning when being used in this Compliance Certificate – Total Market Value.

With reference to Clauses 21.2 ( Compliance Certificates ) and 24.4 ( Minimum Total Market Value ) of the Agreement, we confirm that as at [ ] [insert relevant quarterly date]: the Total Market Value was USD [ ].

The Total Market Value to the Facility shall not at any time be in less than one hundred and fifty per cent (150%) of the outstanding Loans under the Agreement. The covenant in Clause 24.4 ( Minimum Total Market Value ) is thus [not] complied with.

Attached hereto are copies of the valuation reports received from the relevant brokers in respect of the above.

 

Yours sincerely
for and on behalf of
NORDIC AMERICAN OFFSHORE LTD.
By:  

 

Name:  
Title:  

 

95


SCHEDULE 6

Form of Accession Letter

 

To:    DNB BANK ASA, as Agent
From:    [SUBSIDIARY] and NORDIC AMERICAN OFFSHORE LTD.
Date:    [                    ]

NORDIC AMERICAN OFFSHORE LTD. - USD 60,000,000 REVOLVING CREDIT FACILITY AGREEMENT DATED 19 DECEMBER 2013 (THE “AGREEMENT”)

 

2 We refer to the Agreement. This is an Accession Letter. Terms defined in the Agreement have the same meaning in this Accession Letter unless given a different meaning in this Accession Letter.

 

3 [SUBSIDIARY] agrees to become an Additional Guarantor and to be bound by the terms of the Agreement as an [Additional Guarantor pursuant to Clause 28.2 ( Additional Guarantors ) of the Agreement. [SUBSIDIARY] is a company duly incorporated under the laws of [name of relevant jurisdiction].

 

4 [SUBSIDIARY’S] administrative details are as follows:

 

Address:                    [                                         ]
Fax No:                     [                                         ]
Attention:        [                                         ]

 

5 This Accession Letter is governed by Norwegian law.

 

NORDIC AMERICAN OFFSHORE LTD.     [SUBSIDIARY]
By:  

 

    By:  

 

Name:       Name:  
Title:       Title:  

 

96


SIGNATORIES:

 

The Borrower:
NORDIC AMERICAN OFFSHORE LTD.
By:   LOGO
 

 

Name:  
Title:  
The Original Lenders:
DNB BANK ASA
By:   LOGO
 

 

Name:   Cathinka Kahrs Rognsvåg
Title:   Attorney-in-fact
SKANDINAVISKA ENSKILDA BANKEN AB (PUBL)
By:   LOGO
 

 

Name:   Cathinka Kahrs Rognsvåg
Title:   Attorney-in-fact

The Arrangers:

DNB Bank ASA

By:   LOGO
 

 

Name:   Cathinka Kahrs Rognsvåg
Title:   Attorney-in-fact
SKANDINAVISKA ENSKILDA BANKEN AB (PUBL)
By:   LOGO
 

 

Name:   Cathinka Kahrs Rognsvåg
Title:   Attorney-in-fact

 

97


The Swap Banks:
DNB BANK ASA
By:   LOGO
 

 

Name:   Cathinka Kahrs Rognsvåg
Title:   Attorney-in-fact
SKANDINAVISKA ENSKILDA BANKEN AB (PUBL)
By:   LOGO
 

 

Name:   Cathinka Kahrs Rognsvåg
Title:   Attorney-in-fact

 

98

Exhibit 21.1

Nordic American Offshore Ltd.

Subsidiaries

 

Subsidiary

   Jurisdiction of Incorporation
Blue Power Limited    Bermuda
Nordic American Offshore (UK) Ltd    United Kingdom

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the use in this Registration Statement on Form F-1 of our report dated March 14, 2014 relating to the financial statements of Nordic American Offshore Limited, appearing in this Prospectus, which is part of this Registration Statement.

We also consent to the reference to us under the heading “Experts” in such Prospectus.

/s/ Deloitte AS

Oslo, Norway

March 14, 2014