Registration Statement No. 333 -65154
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 2 to
FORM F-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FRONTLINE LTD.
(Exact name of registrant as specified in its charter)
Islands of Bermuda 4412 N/A
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
Frontline Ltd. Seward & Kissel LLP
Attn: Kate Blankenship Attention: Gary J. Wolfe, Esq.
Par la Ville Place, 4th Floor One Battery Park Plaza
14 Par la Ville Road New York, New York 10004
Hamilton HM 08 (212) 574-1200
Bermuda (Name, address and telephone number
(441) 295-6935 of agent for service)
(Name, address and telephone number of
Registrant's principal executive office)
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Copies to:
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Kate Blankenship Gary J. Wolfe, Esq.
Frontline Ltd. Seward & Kissel LLP
c/o Par la Ville Place, 4th Floor One Battery Park Plaza
14 Par la Ville Road New York, New York 10004
Hamilton HM 08 (212) 574-1200
Bermuda
(441) 295-6935
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
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 of
1933, check the following box. |X|
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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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 or until the Registration Statement shall become
effective on such date as the 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 state where the offer or sale is not permitted.
Subject to completion - - dated September, 2004
[Frontline Logo]
$500,000,000
and
26,079,053 Ordinary Shares
Frontline Ltd.
Through this prospectus, we may periodically offer:
- our ordinary shares
- our preferred shares and
- our debt securities,
up to a total dollar amount of $500,000,000 and one or more of our shareholders
may periodically offer up to 26,079,053 of our ordinary shares.
The prices and other terms of the securities that we or our shareholders
will offer will be determined at the time of their offering and will be
described in a supplement to this prospectus.
We will not receive any of the proceeds from the sale of any ordinary
shares offered by the selling shareholders. We will bear approximately $318,000
and the selling shareholders will bear approximately $409,000 of the costs
relating to the registration of all of the securities registered under this
Registration Statement, which we estimate to be approximately $727,000.
Our ordinary shares are currently listed on the New York Stock Exchange,
the London Stock Exchange and the Oslo Stock Exchange under the symbol "FRO". An
investment in our ordinary shares, preferred shares and debt securities involves
risks. See the section entitled "Risk Factors" beginning on page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 2004
TABLE OF CONTENTS
PROSPECTUS SUMMARY............................................................3
RISK FACTORS.................................................................10
FORWARD LOOKING STATEMENTS...................................................16
SELLING SHAREHOLDERS.........................................................16
CASH BALANCES AND CAPITALIZATION.............................................17
UNAUDITED PRO FORMA FINANCIAL INFORMATION....................................18
USE OF PROCEEDS..............................................................29
RATIO OF EARNINGS TO FIXED CHARGES...........................................30
PLAN OF DISTRIBUTION.........................................................30
ENFORCEMENT OF CIVIL LIABILITIES.............................................32
LEGAL MATTERS................................................................32
INDEPENDENT ACCOUNTANTS......................................................32
DESCRIPTION OF PREFERRED SHARES..............................................33
DESCRIPTION OF ORDINARY SHARES...............................................33
DESCRIPTION OF DEBT SECURITIES...............................................35
WHERE YOU CAN FIND ADDITIONAL INFORMATION....................................43
Through and including , 2004, all dealers effecting transactions in the
securities covered by the prospectus, whether or not participating in this
distribution, may be required to deliver a prospectus.
2
In this prospectus, "Frontline", "we", "us" and "our" all refer to
Frontline Ltd. and its subsidiaries.
PROSPECTUS SUMMARY
This section summarizes some of the information that is contained in other
documents incorporated by reference in this prospectus. As an investor or
prospective investor, you should review carefully the risk factors and the more
detailed information contained in such other documents.
We use the term deadweight, or dwt, in describing the size of tanker
vessels. Dwt, expressed in metric tons each of which is equivalent to 1000
kilograms, refers to the maximum weight of cargo and supplies that a tanker can
carry.
Our Company
We believe that we are a world leader in the international seaborne
transportation of crude oil. Our tanker fleet, which we believe is one of the
largest and most modern in the world, consists of 25 wholly owned, and two
part-owned VLCCs and 28 wholly -owned Suezmax tankers, of which eight are
Suezmax OBOs. In addition, we have three wholly -owned dry bulk carriers,
consisting of two Capesize carriers and one Handymax size carrier. We also
charter in 13 modern VLCCs and three modern Suezmax tankers. At June 15, 2004 we
also have a purchase option to acquire a further VLCC.
In 2003, we took delivery of one wholly-owned double-hulled VLCC
newbuilding for total delivered cost of $79.2 million which was subsequently
sold prior to the end of 2003 for net proceeds of $75.2 million resulting in a
loss on sale of $2.7 million. We also sold two 2001 built Suezmax tankers for
total net proceeds of $100.3 million resulting in gains on sale totaling $7.1
million. In addition, in 2003 we sold and leased back two 2000 built VLCCs for
$75.0 million each and two 2001 built Suezmax tankers for $54.0 million each.
These transactions resulted in total gains on sale of $16.0 million which, in
accordance with US GAAP, are deferred and amortised over the period of each
lease back which is 12.5 years. In 2003 we disposed of our 50% interests in two
VLCCs and increased our investment in five VLCCs from 33.33% to 50.1% through a
combination of sale, acquisition and exchange of interest transactions. Our net
cash investment in these transactions was $3.3 million and we recorded
impairment losses of $5.2 million. In 2003 we also acquired the remaining 50% of
a VLCC from a joint venture partner for $9.5 million , being $2.4 million net of
cash acquired, thereby obtaining 100% ownership.
In December 2003, we agreed with our joint venture partner, Overseas
Shipholding, Group, Inc., which we refer to as OSG, to swap interests in six
joint venture companies, which each own a VLCC. In February 2004, these
agreements resulted in us exchanging our 50.1% interests in the vessels Dundee,
Sakura I and Tanabe for OSG's 49.9% interests in the vessels Edinburgh, Ariake
and Hakata, thereby increasing our interests in these vessels to 100% each. We
accounted for these exchanges as non-cash exchanges of productive assets. The
Company recorded the increases of its investments at the book value of its
investments given up in the exchanges. We received a net cash settlement of $2.3
million as a result of equalization of the values of the assets exchanged and
recorded a gain of $0.2 million insofar as it related to the ash element
received in the transaction.
In May, 2004 we exercised our option to acquire all of the shares of
Independent Tankers Corporation, which we refer to as ITC, from Hemen Holding
Ltd, a related party indirectly controlled by our Chairman and Chief Executive
Officer, John Fredriksen. We paid $4.1 million to Hemen on exercise of the
option. ITC operates a fleet of six VLCCs and four Suezmax tankers which are all
on long-term charters to BP and Chevron.
In October, 2003 we formed Ship Finance International Limited, which we
refer to as Ship Finance, as our wholly-owned subsidiary to acquire and operate
some of our crude oil tankers. Ship Finance purchased from us a fleet of 46
crude oil tankers and an option to purchase one additional tanker
3
from a third party. The sales price for the assets transferred to Ship Finance
was determined as the book value of each asset as at December 31, 2003 and the
transfers were also recorded at book value. Ship Finance has chartered its fleet
of 46 vessels under long term, fixed rate time charters to Frontline Shipping
Limited, also a wholly-owned subsidiary of ours, to which we refer as the
Charterer. Ship Finance has entered into fixed rate management and
administrative services agreements with Frontline Management (Bermuda) Ltd., to
which we refer as Frontline Management, also a wholly-owned subsidiary of ours.
Frontline Management provides the technical management of Ship Finance's vessels
and will also provide administrative support services.
Ship Finance paid an aggregate purchase price of $950 million, excluding
working capital and other intercompany balances retained by us, for the 46
vessels and purchase option that it acquired from us. Ship Finance also assumed
senior secured indebtedness with respect to its fleet in the amount of
approximately $1.158 billion. The purchase price for the 46 vessels and the
option and the refinancing of the existing senior secured indebtedness on those
vessels, which was completed in January of 2004, were financed through a
combination of the net proceeds from Ship Finance's issuance of $580 million of
8 1/2% Senior Notes, due 2013, funds from a $1.058 billion senior secured credit
facility and a deemed equity contribution from us to Ship Finance. The charters
and the management agreements were each given economic effect as of January 1,
2004.
The transactions discussed above are also discussed in "Liquidity and
Capital Resources - Acquisitions and Disposals" in Item 5 of our Annual Report
on Form 20-F for 2003.
On May 24, 2004, we approved the partial spin-off of Ship Finance.
Approximately 25% of the common shares of Ship Finance were distributed to our
shareholders by way of a dividend, effective June 17, 2004. On September 24,
2004 a further 10% of our shareholding in ship finance was distributed to our
shareholders by way of a dividend. Following the completion of the partial
spin-off, we continue to own approximately 63.5% of Ship Finance's common
shares.
It is our Board of Directors' intention that during 2004, we will divest
all of our Ship Finance common shares either through a straight sale, a
corporate transaction or through further distributions to our shareholders.
Our strategy is to become, over time, a world leading operator and
charterer of oil tankers with flexibility to adjust our exposure to the tanker
market depending on existing factors such as charter rates, newbuilding costs,
vessel resale and scrapping values and vessel operating expenses resulting from,
among other things, changes in the supply of and demand for tanker capacity. In
addition, we will, when the financing arrangements permit, consider divesting
the "non Ship Finance" vessels. This may be done through sale and leaseback or
straight sales of the vessels.
Following the spin off of Ship Finance, we will be more financially exposed
to the chartering market. This is likely to increase our activity in the
chartering market with respect to both short and long-term charters of vessels
in and out. Our purpose will be to manage risk through a portfolio of charters.
Consolidation of the tanker market will remain an important objective for us.
As of June 15, 2004, the fleet that we operate has a total tonnage of
approximately 17.1 million dwt, and our tanker vessels have an average age of
7.8 years compared with an estimated industry average of over 8.6 years. We
believe that our vessels comply with the most stringent of generally applicable
environmental regulations for tankers.
On July 12, 2004, we announced the purchase of two newbuilding VLCCs to be
delivered in 2006. In addition, on July 13, 2004, we announced the acquisition
of three 1989 to 1990 built Suezmax
4
tankers. This acquisition was part-financed by the issuance and private
placement of 600,000 ordinary shares to a group of institutional investors at a
purchase price of NOK 246 per share, equivalent to a total of approximately
$21.5 million.
On October 6, 2004 we announced the issuance and private placement of
300,000 ordinary shares to institutional investors at a purchase price of NOK
352 per share. The total proceeds of $15.7 million have been being used to
assist in financing the purchase of a 1992 built Suezmax tanker that we acquired
on October 5, 2004.
We are committed to providing quality transportation services to all of our
customers and to developing and maintaining long term relationships with the
major charterers of tankers. Increasing global environmental concerns have
created a demand in the petroleum products/crude oil seaborne transportation
industry for vessels that are able to conform to the stringent environmental
standards currently being imposed throughout the world. Our fleet of modern
single hull VLCCs may discharge crude oil at the Louisiana Offshore Oil Port
until the year 2015, and our modern single hull Suezmax tankers may call at U.S.
ports until the year 2010 under the phase-in schedule for double hull tankers
presently prescribed under the U.S. Oil Pollution Act of 1990.
Strategy
Our plan is to create one of the world's largest publicly traded charterers
and operators of modern, high quality VLCC and Suezmax tankers. Our business
strategy is primarily based upon the following principles:
o emphasizing operational safety and quality maintenance for all of our
vessels;
o complying with all current and proposed environmental regulations;
o outsourcing technical operations and crewing;
o controlling operational costs of vessels;
o operating one of the most modern and homogeneous fleets of tankers in
the world;
o achieving high utilization of the vessels we manage; and
o developing and maintaining relationships with major oil companies and
industrial charterers.
It is our intention to use the strong financial position which we believe
our strategy and governing principles will create to continue the consolidation
of the tanker market.
After having delivered their cargo, spot market vessels typically operate
in ballast until being rechartered. It is the time element associated with these
ballast legs that we seek to minimize by efficiently chartering OBO carriers and
tankers that we manage. Our strategies to minimize time spent on ballast legs
include arranging dry bulk cargoes originating from discharge ports for our OBO
carriers and allocating cargoes among our vessels so as to achieve the minimum
total time spent on ballast legs across our fleet.
Corporate Structure
We are incorporated under the laws of the Island of Bermuda. We maintain
our principal executive offices at Par-la-Ville Place, 4th Floor, 14 Par-la
Ville-Road, Hamilton HM 08, Bermuda. Our telephone number at that address is
(441) 295-6935.
5
The following table sets out the details of our significant subsidiaries and
equity interests as of September 17, 2004:
Subsidiaries and Equity Interests Owned Directly
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Name Country of Ownership
Vessel/Activity Incorporation Percentage
CalPetro Tankers (Bahamas I) Ltd Cygnus Voyager Bahamas 100%
CalPetro Tankers (Bahamas II) Ltd Altair Voyager Bahamas 100%
CalPetro Tankers (Bahamas III) Ltd Virgo Voyager Bahamas 100%
Frontline Management (Bermuda) Ltd Management company Bermuda 100%
ICB Shipping (Bermuda) Limited Management company Bermuda 100%
Mosvold Shipping Limited Holding company Bermuda 100%
Ship Finance International Limited Holding company Bermuda 63.5%
Buckingham Shipping Plc British Pioneer Isle of Man 100%
Caernarfon Shipping Plc British Progress Isle of Man 100%
CalPetro Tankers (IOM) Ltd Sirius Voyager Isle of Man 100%
Golden State Petro (IOM 1-A) PLC Antares Voyager Isle of Man 100%
Golden State Petro (IOM 1-B) PLC Phoenix Voyager Isle of Man 100%
Holyrood Shipping Plc British Pride Isle of Man 100%
Sandringham Shipping Plc British Purpose Isle of Man 100%
Front Eagle Corporation Front Eagle Liberia 100%
Front Tobago Inc. Front Tobago Liberia 40%
Front Target Inc. Front Target Liberia 100%
Front Transporter Inc. Front Transporter Liberia 100%
Front Traveller Inc. Front Traveller Liberia 100%
Golden Aquarian Corporation Cos Hero Liberia 100%
Golden Channel Corporation Front Commodore Liberia 100%
Golden Fjord Corporation Omala (ex Front Commerce) Liberia 100%
Golden Fountain Corporation Golden Fountain Liberia 50%
Golden Hilton Shipping Corporation Channel Navigator Liberia 100%
Golden President Shipping Corporation Channel Alliance Liberia 100%
Golden Strait Corporation Golden Victory Liberia 100%
Golden Stream Corporation Golden Stream Liberia 100%
Golden Tide Corporation Omala (ex New Circassia) Liberia 100%
Hitachi Hull # 4983 Corporation Otina (ex Hakata) Liberia 100%
Kea Navigation Ltd Front Melody Liberia 100%
Millcroft Maritime SA Front Champion Liberia 100%
Otina Inc. Front Tina Liberia 100%
Optimal Shipping SA Front Symphony Liberia 100%
Pablo Navigation SA Front Chief Liberia 100%
Ryan Shipping Corporation Front Warrior Liberia 100%
Saffron Rose Shipping Limited Front Crown Liberia 100%
Tidebrook Maritime Corporation Front Commander Liberia 100%
Ultimate Shipping Ltd. Front Century Liberia 100%
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Frontline Management AS Management company Norway 100%
Subsidiaries and Equity Interests Owned Through Ship Finance International Limited
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Name Country of SFIL Ownership
Vessel/Activity Incorporation Percentage
Granite Shipping Co. Ltd. Front Granite Bahamas 100%
Golden Current Limited Opalia Isle of Man 100%
Oscilla Shipping Ltd Option to acquire VLCC Isle of Man 100%
Ariake Transport Corporation Ariake Liberia 100%
Bonfield Shipping Ltd. Front Driver Liberia 100%
Edinburgh Navigation SA Edinburgh Liberia 100%
Fourways Marine Limited Front Spirit Liberia 100%
Front Ardenne Inc. Front Ardenne Liberia 100%
Front Brabant Inc. Front Brabant Liberia 100%
Front Falcon Inc Front Falcon Liberia 100%
Front Glory Shipping Inc. Front Glory Liberia 100%
Front Pride Shipping Inc. Front Pride Liberia 100%
Front Saga Inc Front Page Liberia 100%
Front Serenade Inc. Front Serenade Liberia 100%
Front Splendour Shipping Inc. Front Splendour Liberia 100%
Front Stratus Inc. Front Stratus Liberia 100%
Front Stratus Inc. Front Stratus Liberia 100%
Golden Bayshore Shipping Corporation Navix Astral Liberia 100%
Golden Estuary Corporation Front Comanche Liberia 100%
Golden Fjord Corporation Ocana (ex Front Commerce) Liberia 100%
Golden Seaway Corporation New Vanguard Liberia 100%
Golden Sound Corporation New Vista Liberia 100%
Golden Tide Corporation Omalia (ex New Circassia) Liberia 100%
Hitachi Hull # 4983 Corporation Otina (ex Hakata) Liberia 100%
Katong Investments Ltd. Front Breaker Liberia 100%
Langkawi Shipping Ltd. Front Birch Liberia 100%
Patrio Shipping Ltd. Front Hunter Liberia 100%
Rakis Maritime SA Front Fighter Liberia 100%
Sea Ace Corporation Front Ace Liberia 100%
Sibu Shipping Ltd. Front Maple Liberia 100%
South West Tankers Inc Front Sunda Liberia 100%
West Tankers Inc. Front Comor Liberia 100%
Puerto Reinosa Shipping Co SA Front Lillo Panama 100%
Aspinall Pte Ltd. Front Viewer Singapore 100%
Blizana Pte Ltd. Front Rider Singapore 100%
Bolzano Pte Ltd. Mindanao Singapore 100%
Cirebon Shipping Pte Ltd. Front Vanadis Singapore 100%
Fox Maritime Pte Ltd. Front Sabang Singapore 100%
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Front Dua Pte Ltd. Front Duchess Singapore 100%
Front Empat Pte Ltd. Front Highness Singapore 100%
Front Enam Pte Ltd. Front Lord Singapore 100%
Front Lapan Pte Ltd. Front Climber Singapore 100%
Front Lima Pte Ltd. Front Lady Singapore 100%
Front Tiga Pte Ltd. Front Duke Singapore 100%
Front Tujuh Pte Ltd. Front Emperor Singapore 100%
Front Sembilan Pte Ltd. Front Leader Singapore 100%
Rettie Pte Ltd. Front Striver Singapore 100%
Transcorp Pte Ltd. Front Guider Singapore 100%
8
The following diagram depicts our ownership structure:
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| Frontline Ltd. |
| (NYSE:FRO) |
-------------------------
|
|
|
---------------------------------------------------------------
| | |
100% 100% 63.5%
| | |
------------------- ------------------------- ---------------------
Frontline Management Frontline Shipping Limited Ship Finance
(Bermuda) Ltd. (Charterer) International Limited
------------------- ------------------------- ---------------------
| | |
| | Fixed rate 100%
| | charter payments |
| | -------------
| -----------------------> Vessel Owning
--------------------------------------------------------- Subsidiaries
Fixed payments for vessel management and administration
9
RISK FACTORS
We are engaged primarily in transporting crude oil and oil products. The
following summarises the risks that may materially affect our business,
financial condition or results of operations. Please note, in this section,
"we", "us" and "our" all refer to Frontline Ltd. and its subsidiaries.
THE CYCLICAL NATURE OF THE TANKER INDUSTRY MAY LEAD TO VOLATILE CHANGES IN
CHARTER RATES AND VESSEL VALUES WHICH MAY ADVERSELY AFFECT OUR EARNINGS
Historically, the tanker industry has been highly cyclical, with volatility
in profitability and asset values resulting from changes in the supply of and
demand for tanker capacity. If the tanker market is depressed in the future our
earnings and available cash flow may decrease. Our ability to re-charter our
vessels on the expiration or termination of their current spot and time charters
and the charter rates payable under any renewal or replacement charters will
depend upon, among other things, economic conditions in the tanker market.
Fluctuations in charter rates and vessel values result from changes in the
supply and demand for tanker capacity and changes in the supply and demand for
oil and oil products.
The factors affecting the supply and demand for oil tankers are outside of
our control, and the nature, timing and degree of changes in industry conditions
are unpredictable. The factors that influence demand for tanker capacity
include:
o demand for oil and oil products;
o global and regional economic conditions;
o the distance oil and oil products are to be moved by sea; and
o changes in seaborne and other transportation patterns.
The factors that influence the supply of tanker capacity include:
o the number of newbuilding deliveries;
o the scrapping rate of older vessels;
o the number of vessels that are out of service; and
o national or international regulations that may effectively cause
reductions in the carrying capacity of vessels or early obsolescence
of tonnage.
WE ARE HIGHLY DEPENDENT ON SPOT OIL VOYAGE CHARTERS. ANY DECREASE IN SPOT
CHARTER RATES IN THE FUTURE MAY ADVERSELY AFFECT OUR EARNINGS
The majority of our vessels currently operate on a spot charter basis or
under contracts of affreightment under which we carry an agreed upon quantity of
cargo over a specified route and time period. Although spot chartering is common
in the tanker industry, the spot charter market is highly competitive and spot
charter rates may fluctuate significantly based upon tanker and oil supply and
demand. The successful operation of our vessels in the spot charter market
depends upon, among other things, obtaining profitable spot charters and
minimising, to the extent possible, time spent waiting for charters and time
spent travelling unladen to pick up cargo. We cannot assure you that future spot
charters will be available at rates sufficient to enable our vessels trading in
the spot market to operate profitably. In addition, bunkering, or fuel, charges
that account for a substantial portion of the operating costs, and generally
reflect prevailing oil prices, are subject to sharp fluctuations.
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OUR REVENUES EXPERIENCE SEASONAL VARIATIONS THAT MAY AFFECT OUR INCOME
We operate our tankers in markets that have historically exhibited seasonal
variations in demand for oil and oil products and, therefore, charter rates.
Tanker markets are typically stronger in the winter months in the northern
hemisphere due to increased oil consumption. The oil price volatility resulting
from these factors has historically led to increased oil trading activities and
demand for vessels. The change in demand for vessels may affect the charter
rates that we receive.
WE CHARTER 46 VESSELS FROM OUR SUBSIDIARY SHIP FINANCE INTERNATIONAL LIMITED AT
FIXED RATES ON LONG-TERM CHARTERS. WE ARE OBLIGED TO MAKE FIXED RATE HIRE
PAYMENTS TO SHIP FINANCE EVEN THOUGH OUR INCOME MAY DECREASE TO LEVELS THAT MAKE
THESE CHARTERS UNPROFITABLE
The long term time charters to us extend for various periods depending on
the age of the vessels, ranging from approximately seven to 22 years. With
certain exceptions, the daily base charter rates, which are payable by us are as
follows:
Year VLCC Suezmax
---- ---- -------
2003 to 2006...................... $25,575 $21,100
2007 to 2010...................... $25,175 $20,700
2011 and beyond................... $24,175 $19,700
If our earnings from use of these vessels fall below these rates we will incur
losses.
BECAUSE THE MARKET VALUE OF OUR VESSELS MAY FLUCTUATE SIGNIFICANTLY, WE MAY
INCUR LOSSES WHEN WE SELL VESSELS WHICH MAY ADVERSELY AFFECT OUR EARNINGS
The fair market value of vessels may increase and decrease depending on the
following factors:
o general economic and market conditions affecting the shipping
industry;
o competition from other shipping companies;
o types and sizes of vessels;
o other modes of transportation;
o cost of newbuildings;
o governmental or other regulations;
o prevailing level of charter rates; and
o technological advances.
If we sell a vessel at a time when ship prices have fallen, the sale may be
at less than the vessel's carrying amount on our financial statements, with the
result that we could incur a loss and a reduction in earnings. In addition, if
we determine at any time that a vessel's future limited useful life and earnings
require us to impair its value on our financial statements, that could result in
a charge against our earnings and the reduction of our shareholder's equity. It
is possible that the market value of our vessels will decline in the future.
AN ACCELERATION OF THE CURRENT PROHIBITION TO TRADE DEADLINES FOR OUR NON-DOUBLE
HULL TANKERS COULD ADVERSELY AFFECT OUR OPERATIONS
Our tanker fleet includes 19 non-double hull tankers. The United States,
the European Union and the International Maritime Organization, or the IMO, have
all imposed limits or prohibitions on the use of these types of tankers in
specified markets after certain target dates, which range from 2010 to 2015. The
11
sinking of the single hull m.t. Prestige offshore Spain in November 2002 has led
to proposals by the European Union and the IMO to accelerate the prohibition to
trade of all non-double hull tankers, with certain limited exceptions. In
December 2003, the Marine Environmental Protection Committee of the IMO adopted
a proposed amendment to the International Convention for the Prevention of
Pollution from Ships to accelerate the phase out of single hull tankers from
2015 to 2010 unless the relevant flag states extend the date to 2015. This
proposed amendment will take effect in April 2005 unless objected to by a
sufficient number of states. We do not know whether any of our vessels will be
subject to this accelerated phase-out, but this change could result in a number
of our vessels being unable to trade in many markets after 2010. As a result,
the estimated useful lives of fourteen of the Company's wholly owned vessels and
two vessels owned by associated companies were reduced in the fourth quarter of
2003. We did not reduce the estimated useful lives of three non-double hull
tankers we own that are fitted with double sides, as we believe their useful
lives are not affected by these proposals. A change in accounting estimate was
recognised to reflect this decision, resulting in an increase in depreciation
expense and consequently decreasing net income by $1.3 million and basic and
diluted earnings per share by $0.02, for 2003. Moreover, the IMO may still adopt
regulations in the future that could adversely affect the useful lives of our
non-double hull tankers as well as its ability to generate income from them.
COMPLIANCE WITH SAFETY, ENVIRONMENTAL AND OTHER GOVERNMENTAL AND OTHER
REQUIREMENTS MAY ADVERSELY AFFECT OUR BUSINESS
The shipping industry is affected by numerous regulations in the form of
international conventions, national, state and local laws and national and
international regulations in force in the jurisdictions in which such tankers
operate, as well as in the country or countries in which such tankers are
registered. These regulations include the U.S. Oil Pollution Act of 1990, or
OPA, the International Convention on Civil Liability for Oil Pollution Damage of
1969, International Convention for the Prevention of Pollution from Ships, the
IMO International Convention for the Safety of Life at Sea of 1974, or SOLAS,
the International Convention on Load Lines of 1966 and the U.S. Marine
Transportation Security Act of 2002. In addition, vessel classification
societies also impose significant safety and other requirements on our vessels.
We believe our vessels are maintained in good condition in compliance with
present regulatory and class requirements relevant to areas in which they
operate, and are operated in compliance with applicable safety/environmental
laws and regulations. However, regulation of vessels, particularly in the areas
of safety and environmental impact may change in the future and require
significant capital expenditures be incurred on our vessels to keep them in
compliance.
WE MAY BE UNABLE TO SUCCESSFULLY COMPETE WITH OTHER TANKER OPERATORS FOR
CHARTERS
The operation of tankers and transportation of crude and petroleum products
and the other businesses in which we operate are extremely competitive. Through
our operating subsidiaries we compete with other oil tanker and dry bulk carrier
owners (including major oil companies as well as independent companies), and, to
a lesser extent, owners of other size vessels. The tanker market is highly
fragmented, and our market share currently is insufficient to enforce any degree
of pricing discipline in the markets in which we compete. It is possible that
our competitive position will erode in the future.
OUR DEBT SERVICE OBLIGATIONS COULD AFFECT OUR ABILITY TO INCUR ADDITIONAL
INDEBTEDNESS OR ENGAGE IN CERTAIN TRANSACTIONS
Our existing financing agreements impose operational and financing
restrictions on us which may significantly limit or prohibit, among other
things, our ability to incur additional indebtedness, create liens, sell capital
shares of subsidiaries, make certain investments, engage in mergers and
acquisitions, purchase and sell vessels, enter into time or consecutive voyage
charters or pay dividends without the consent of our lenders. In addition, our
lenders may accelerate the maturity of indebtedness under our
12
financing agreements and foreclose on the collateral securing the indebtedness
upon the occurrence of certain events of default, including our failure to
comply with any of the covenants contained in our financing agreements, not
rectified within the permitted time. For instance, declining vessel values could
lead to a breach of covenants under our financing agreements. If we are unable
to pledge additional collateral or obtain waivers from our lenders, our lenders
could accelerate our debt and foreclose on our vessels.
AN INCREASE IN INTEREST RATES COULD MATERIALLY AND ADVERSELY AFFECT OUR
FINANCIAL PERFORMANCE
At June 30, 2004 we had total long-term debt outstanding of $2,227.3 million, of
which $1,085.2 million is floating rate debt. The Company uses interest rate
swaps to manage interest rate risk. As at June 30, 2004 the Company's interest
rate swap arrangements effectively fix the Company's interest rate exposure on
$636.3 million of floating rate debt. Our maximum exposure to interest rate
fluctuations is $448.9 million at June 30, 2004. A one per cent change in
interest rates would increase or decrease interest expense by $4.4 million per
year as of June 30, 2004.
FLUCTUATIONS IN THE YEN COULD AFFECT OUR EARNINGS
Certain of our vessels have charters and financing arrangements that
require payments of principal and interest or charter hire in Yen. As we have
not hedged our Yen exposure against the Dollar, a change in the exchange rate
for Yen could have an adverse impact on our financial condition and results of
operations. At June 30, 2004 the Company has Yen debt outstanding with a
principal amount of JPY 1.5 billion, a one Yen increase in the exchange rate
would increase or decrease debt outstanding by $0.1 million and $0.1 million
respectively. The Company also has Yen charter income receivable in the amount
of JPY 2.4 billion in relation to a bareboat charter agreement. A one Yen
increase in the exchange rate would increase or decrease income from operations
by $0.2 and $0.2 million respectively. At June 30, 2004 the Company has Yen
denominated foreign currency contracts with a notional principal of JPY 10.6
billion. A one Yen increase or decrease in the exchange rate would increase or
decrease net income by $0.8 million and $0.8 millionrespectively.
WE MAY BE UNABLE TO ATTRACT AND RETAIN KEY MANAGEMENT PERSONNEL IN THE TANKER
INDUSTRY, WHICH MAY NEGATIVELY IMPACT THE EFFECTIVENESS OF OUR MANAGEMENT AND
OUR RESULTS OF OPERATION
Our success depends to a significant extent upon the abilities and efforts
of our senior executives, and particularly John Fredriksen, our Chairman and
Chief Executive Officer, and Tor Olav Tr0im, our Vice-President, for the
management of our activities and strategic guidance. While we believe that we
have an experienced management team, the loss or unavailability of one or more
of our senior executives, and particularly Mr. Fredriksen or Mr. Tr0im, for any
extended period of time could have an adverse effect on our business and results
of operations.
RISKS INVOLVED WITH OPERATING OCEAN-GOING VESSELS COULD AFFECT OUR BUSINESS AND
REPUTATION, WHICH WOULD ADVERSELY AFFECT OUR REVENUES
The operation of an ocean-going vessel carries inherent risks. These risks
include the possibility of:
o marine disaster;
o piracy;
o environmental accidents;
o cargo and property losses or damage; and
13
o business interruptions caused by mechanical failure, human error, war,
terrorism, piracy, political action in various countries, labour
strikes, or adverse weather conditions.
Although our results of operations have not been materially affected by the
occurrence of any of these events in the past, the occurrence of any of these
circumstances or events in the future could increase our costs or lower our
revenues. In addition, the involvement of our vessels in an oil spill or other
environmental disaster may harm our reputation as a safe and reliable tanker
operator.
WE MAY NOT HAVE ADEQUATE INSURANCE TO COMPENSATE US IF OUR VESSELS ARE DAMAGED
OR LOST
We procure insurance for our fleet against those risks that we believe the
shipping industry commonly insures against. These insurances include hull and
machinery insurance, protection and indemnity insurance, which includes
environmental damage and pollution insurance coverage, and war risk insurance.
We can give no assurance that we are adequately insured against all risks. We
may not be able to obtain adequate insurance coverage at reasonable rates for
our fleet in the future. Additionally, our insurers may not pay particular
claims. Our insurance policies contain deductibles for which we will be
responsible, limitations and exclusions which, although we believe are standard
in the shipping industry, may nevertheless increase our costs or lower our
revenue.
AN INCREASE IN COSTS COULD MATERIALLY AND ADVERSELY AFFECT OUR FINANCIAL
PERFORMANCE
Our vessel operating expenses depend on a variety of factors including crew
costs, provisions, deck and engine stores, lubricating oil, bunker fuels on
which our vessels' propulsion engines operate, insurance, maintenance and
repairs, many of which are beyond our control and affect the entire shipping
industry. Some of these costs, primarily insurance and enhanced security
measures implemented after September 11, 2001, are increasing. The terrorist
attack of the VLCC Limburg in Yemen during October 2002 has resulted in even
more emphasis on security and pressure on insurance rates. If costs continue to
rise, that could materially and adversely affect our results of operations.
MARITIME CLAIMANTS COULD ARREST OUR TANKERS, 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 that vessel
for unsatisfied debts, claims or damages. In many jurisdictions a maritime
lienholder may enforce its lien by arresting a vessel through foreclosure
proceedings. The arrest or attachment of one or more of our vessels could
interrupt our cash flow and require us to pay a significant amount of money to
have the arrest lifted.
In addition, in some jurisdictions, such as South Africa, under the "sister
ship" theory of liability, a claimant may arrest both the vessel which is
subject to the claimant's maritime lien and any "associated" vessel, which is
any vessel owned or controlled by the same owner. Claimants could try to assert
"sister ship" liability against one vessel in our fleet for claims relating to
another of our ships.
GOVERNMENTS COULD REQUISITION OUR VESSELS DURING A PERIOD OF WAR OR EMERGENCY,
RESULTING IN LOSS OF EARNINGS
A government could requisition for title or seize our vessels. Requisition
for title occurs when a government takes control of a vessel and becomes her
owner. Also, a government could requisition our vessels for hire. Requisition
for hire occurs when a government takes control of a vessel and effectively
becomes her charterer at dictated charter rates. Generally, requisitions occur
during a period of war or emergency. Government requisition of one or more of
our vessels would negatively impact our revenues.
14
OUR OPERATIONS OUTSIDE THE UNITED STATES EXPOSE US TO GLOBAL RISKS THAT MAY
INTERFERE WITH THE OPERATION OF OUR VESSELS
We are an international company and primarily conduct our operations
outside of the United States. Changing economic, regulatory, political and
governmental conditions in the countries where we are engaged in business or
where our vessels are registered affect us. Hostilities or other political
instability in regions where our vessels trade could affect our trade patterns
and adversely affect our operations and performance. The terrorist attacks
against targets in the United States on September 11, 2001 and the military
response by the United States has increased the likelihood of acts of terrorism
worldwide. Acts of terrorism, regional hostilities or other political
instability, as shown by the attack on the VLCC Limburg in Yemen in October
2002, attacks on oil pipelines during and subsequent to the Iraq war in 2003 and
attacks on expatriate workers in the Middle East could adversely affect the oil
trade and reduce our revenue or increase our expenses.
TERRORIST ATTACKS, SUCH AS THE ATTACKS ON THE UNITED STATES ON SEPTEMBER 11,
2001, AND OTHER ACTS OF VIOLENCE OR WAR MAY AFFECT THE FINANCIAL MARKETS AND OUR
BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION
As a result of the September 11, 2001 terrorist attacks and subsequent
events, there has been considerable uncertainty in the world financial markets.
The full effect of these events, as well as concerns about future terrorist
attacks, on the financial markets is not yet known, but could include, among
other things, increased volatility in the price of securities. These
uncertainties could also adversely affect our ability to obtain additional
financing on terms acceptable to us or at all. Future terrorist attacks may also
negatively affect our operations and financial condition and directly impact our
vessels or our customers. Future terrorist attacks could result in increased
volatility of the financial markets in the United States and globally and could
result in an economic recession in the United States or the world. Any of these
occurrences could have a material adverse impact on our operating results,
revenue, and costs.
BECAUSE WE ARE A FOREIGN CORPORATION, YOU MAY NOT HAVE THE SAME RIGHTS THAT A
SHAREHOLDER IN A U.S. CORPORATION MAY HAVE
We are a Bermuda corporation. Our memorandum of association and bye-laws
and the Bermuda Companies Act 1981, as amended, govern our affairs. Investors
may have more difficulty in protecting their interests in the face of actions by
management, directors or controlling shareholders than would shareholders of a
corporation incorporated in a United States jurisdiction. Under Bermuda law a
director generally owes a fiduciary duty only to the company; not to the
company's shareholder. Our shareholders may not have a direct course of action
against our directors. In addition, Bermuda law does not provide a mechanism for
our shareholders to bring a class action lawsuit under Bermuda law. Further, our
Bye-laws provide for the indemnification of our directors or officers against
any liability arising out of any act or omission except for an act or omission
constituting fraud, dishonesty or illegality.
BECAUSE OUR OFFICES AND MOST OF OUR ASSETS ARE OUTSIDE OF THE UNITED STATES, YOU
MAY NOT BE ABLE TO BRING SUIT AGAINST US, OR ENFORCE A JUDGMENT OBTAINED AGAINST
US, IN THE UNITED STATES
Our executive officers, administrative activities and assets are located
outside the United States. As a result, it may be more difficult for investors
to effect service of process within the United States upon us, or to enforce
both in the United States and outside the United States judgments against us in
any action, including actions predicated upon the civil liability provisions of
the federal securities laws of the United States.
15
WE MAY NOT BE EXEMPT FROM U.S. TAXATION ON OUR U.S. SOURCE SHIPPING INCOME,
WHICH WOULD REDUCE OUR NET INCOME AND CASH FLOW BY THE AMOUNT OF THE APPLICABLE
TAX
Under the United States Internal Revenue Code of 1986, or the Code, a
portion of the gross shipping income of a vessel owning or chartering
corporation, such as ourselves and our subsidiaries, may be subject to a 4%
United States federal income tax on 50% of the gross shipping income that is
attributable to transportation that begins or ends, but that does not both begin
and end, in the U.S., unless that corporation is entitled to a special tax
exemption under the Code which applies to the international shipping income
derived by some non-United States corporations. We believe that we and each of
our subsidiaries qualify for this statutory tax exemption for the year ended
December 31, 2003.
However, due to the absence of final Treasury regulations applicable to
calendar year 2003 and earlier, or other definitive authority concerning some
aspects of this tax exemption under the relevant provisions of the Code and to
the factual nature of the issues involved, we can give no assurances on our
tax-exempt status or that of any of our subsidiaries.
If we or our subsidiaries are not entitled to this statutory tax exemption
for any taxable year, we or our subsidiaries could be subject for those years to
an effective 4% United States federal income tax on the portion of the income we
or our subsidiaries derive during the year from United States sources. The
imposition of this taxation could have an adverse effect on our net income and
cash flow.
FORWARD LOOKING STATEMENTS
This prospectus includes assumptions, expectations, projections, intentions
and beliefs about future events. These statements are intended as
"forward-looking statements." We caution that assumptions, expectations,
projections, intentions and beliefs about future events may and often do vary
from actual results and the differences can be material.
All statements in this document that are not statements of historical fact
are forward-looking statements. Forward-looking statements include, but are not
limited to, such matters as:
o future operating or financial results;
o statements about pending or recent acquisitions, business strategy and
expected capital spending or operating expenses;
o statements about tanker market trends, including charter rates and
factors affecting supply and demand;
o our ability to obtain additional financing;
o expectations regarding the availability of tanker acquisitions; and
o anticipated developments with respect to pending litigation.
When used in this document, the works "anticipate," "estimate," "project,"
"forecast," "plan," "potential," "will," "may," "should," and "expect" reflect
forward-looking statements.
SELLING SHAREHOLDERS
16
The following table describes our shareholders that have requested to be
included in this prospectus.
Shares owned prior to Shares owned after
Selling Shareholder Shares offered for Sale offering offering
-------------------------------- ---------------------------- --------------------------- --------------------------
Hemen Holding Ltd. (1) 26,079,053 Ordinary Shares, 26,079,053 Ordinary - 0 -
c/o Seatankers Management Co. par value $2.50; Shares, par value $2.50;
Ltd. representing 34.99% of all representing 34.99% of
PO Box 53562 issued and outstanding all issued and
CY-3399 Limassol ordinary shares outstanding ordinary
Cyprus shares
(1) Hemen Holding Ltd. is a Cyprus holding company indirectly controlled by Mr.
John Fredriksen, our Chairman and Chief Executive Officer.
CASH BALANCES AND CAPITALIZATION
As of June 30, 2004
---------------------
(in thousands)
Cash Balances:
Cash and cash equivalents 112,821
Restricted cash(1) 594,478
---------
Total Cash Balances 707,299
=========
Debt:
Short term debt and current portion of long-term debt 184,605
Current portion of obligations under capital lease 20,787
Long term debt, net of current portion 2,047,057
Obligations under capital leases, net of current portion 743,536
---------
Total debt and obligations under capital leases 2,995,985
Stockholder's equity
Share capital 184,813
Additional paid-in capital 270,112
Accumulated other comprehensive income (loss) 74,458
Retained earnings 278,137
---------
Total shareholder's equity 807,520
---------
Total Capitalization 3,803,505
=========
On July 13, 2004 we issued 600,000 ordinary shares in a private placement of to
a group of institutional investors at a purchase price of NOK 246 per share,
increasing our total capitalization by $21.5 million.
On September 13, 2004 we paid a dividend of $1.60 per share. This reduced our
total capitalization by $119.2 million.
17
On September 24, 2004, we paid a stock dividend in which our shareholders of
record as of September 10, 2004, received one share in Ship Finance for every
ten shares they held in Frontline.
(1) Restricted cash represents cash balances which may only be used for specific
purposes. Our subsidiary, Frontline Shipping Ltd. (the Charterer) is required to
maintain a minimum restricted cash balance of $250.0 million in order to secure
hire payments due to Ship Finance. Our subsidiary, ITC, has restricted cash
balances amounting to $307.0 million at March 31, 2004 which may only be used to
make hire and loan payments for six VLCCs.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma statement of operations information for the year
ended December 31, 2003 and the six months ended June 30, 2004 has been prepared
to give effect to the following events as if they occurred on January 1, 2003:
o The distribution of 25% of the common shares of Ship Finance by way of
a share dividend to our shareholders on June 16, 2004;
o The private placement of 1,600,000 common shares, or 2%, of Ship
Finance for cash proceeds of $25.2 million on July 13, 2004;
o The distribution of a further 10% of our holding of the common shares
of Ship Finance by way of a share dividend to our shareholders on
September 24, 2004.
The unaudited pro forma financial information is provided for illustrative
purposes only and does not represent what our statements of operations would
actually have been if the transactions had in fact occurred on those dates and
is not representative of our results of operations for any future periods.
Investors are cautioned not to place undue reliance on this unaudited pro forma
financial information.
The footnotes to the pro forma financial information contain a more
detailed discussion of how adjustments to reflect the events described above are
presented. The unaudited pro forma statements of operations information should
be read in conjunction with:
o our audited financial statements and the related notes thereto and
other financial information included in our annual report on Form 20-F
for the year ended December 31, 2003 incorporated by reference into
this prospectus;
o our interim financial information as of and for the six months ended
June 30, 2004 included in our interim report on Form 6-K incorporated
by reference into this prospectus;
The historical statement of operations information for the six months ended
June 30, 2004 has been derived from our unaudited interim financial statements
for the six months ended June 30, 2004 included in our interim report on Form
6-K. The historical statement of operations information for the year ended
December 31, 2003 has been derived from the audited financial statements
included in our annual report on Form 20-F for the year ended December 31, 2003.
18
Unaudited Pro Forma Statement of Operations Information
for the Six Months Ended June 30, 2004
Pro forma
Actual Adjustments Notes Pro forma
(dollars in thousands except per share amounts)
Net income before income taxes and
minority interest $ 388,114 - $ 388,114
Minority interest (4,381) (23,843) A (28,224)
Taxes (113) - (113)
-------------- -----------------
Net income $ 383,620 $359,777
-------------- -----------------
Earnings per Share:
Basic and diluted earnings per share $5.20 B $4.88
-------------- -----------------
Unaudited Pro Forma Statement of Operations Information
for the Year Ended December 31, 2003
Actual Adjustments Notes Pro forma
(dollars in thousands except per share amounts)
Net income before income taxes and
minority interest $ 443,130 - $ 443,130
Minority interest - (54,912) A (54,912)
Taxes (3) - (3)
-------------- -----------------
Net income before cumulative change in
accounting principle $ 443,127 $ 388,215
-------------- -----------------
Earnings per Share:
Basic earnings per share before cumulative
effect of change in accounting principle $5.92 B $5.18
-------------- -----------------
Diluted earnings per share before cumulative
effect of change in accounting principle $5.90 B $5.17
-------------- -----------------
19
Notes to Adjustments to Unaudited Pro Forma Statements of Operations
A. This adjustment gives effect to:
o The distribution of 25% of the common shares of Ship Finance by way of
a share dividend to our shareholders on June 16, 2004;
o The private placement of 1,600,000 common shares, or 2%, of Ship
Finance for cash proceeds of $25.2 million on July 13, 2004;
o The distribution of a further 10% of the common shares of Ship Finance
by way of a share dividend to our shareholders effective September 24,
2004.
Following these transactions, the Company owns 64% of the outstanding common
shares of Ship Finance.
The pro forma adjustments for the six months ended June 30, 2004 and year ended
December 31, 2003 are calculated as follows:
Six months Year ended
ended June December 31,
30, 2004 2003
---------- -----------
Ship Finance pro forma net income (refer to Ship
Finance Unaudited Pro forma Financial
Information).................................... $77,325 $150,443
Pro forma minority interest representing 36% of
common shares of Ship Finance..................... 28,224 54,912
---------------------------
Minority interest as reported..................... 4,381 -
---------------------------
Total pro forma adjustment........................ $23,843 $54,912
============ ===============
20
B. Pro forma earnings per share for the periods presented is calculated as
follows:
Six months
ended June
30, 2004
Pro forma net income...................................... $359,777
------------
Weighted average number of shares outstanding ............ 73,773
Pro forma earnings per share (basic and
diluted)................................................ $4.88
-------------
Year ended
December
31, 2003
Pro forma net income before cumulative change in
accounting principle.................................... $388,215
-------------
Weighted average number of shares outstanding - basic..... 74,902
Weighted average number of shares outstanding - diluted... 75,060
Pro forma earnings per share before cumulative effect of
change in accounting principle - basic.................. $5.18
-------------
Pro forma earnings per share before cumulative
effect of change in accounting
principle - diluted.................................... $5.17
-------------
21
SHIP FINANCE UNAUDITED PRO FORMA FINANCIAL INFORMATION
This unaudited pro forma financial information of Ship Finance gives effect
to the following events as if they had occurred on and from January 1,
2003:
o Ship Finance's purchase from us of subsidiaries that own a fleet of 46
crude oil tankers and an option to acquire the vessel Oscilla, which
assumes the exercise of the option to acquire the vessel Oscilla.
o The charter by us of the fleet from Ship Finance under long term fixed
rate charters.
o Our entry into the charter ancillary agreement with Ship Finance.
o Our entry into vessel management agreements and an administrative
services agreement with Ship Finance.
o The refinancing of Ship Finance's subsidiaries' existing senior
secured indebtedness.
o Ship Finance's issuance of $580 million of 8.5% Senior Notes due 2013.
This unaudited pro forma financial information is provided for illustrative
purposes only and does not represent what Ship Finance's statements of
operations would actually have been if the transactions had in fact occurred on
those dates and is not representative of its results of operations for any
future periods.
The historical statement of operations for the six months ended June 30,
2004 is derived from Ship Finance's unaudited interim statement of operations
for the six months ended June 30, 2004. The historical statement of operations
for year ended December 31, 2003 is derived from Ship Finance's audited stand
alone statement of operations for the year ended December 31, 2003.
Eight of the 46 vessels purchased by Ship Finance from the Company are
currently under bareboat or time charter to third parties. Two of these existing
charter arrangements will expire prior to December 31, 2004 and the remainder
will expire on or before December 31, 2007, subject to options to extend certain
of these charters. Ship Finance also acquired an option from us to purchase one
additional VLCC tanker, the Oscilla, which it expects to exercise before the end
of 2004. This vessel is currently under a variable rate bareboat charter to a
third party until March 30, 2005.
The cash flow obligations from the charter agreements between Ship Finance
and the Company became effective as of January 1, 2004; however, no change in
the status of the current charter arrangements with third parties for those that
expire after September 30, 2004 has been reflected in the pro forma statements
of operations. Ship Finance accounts for 38 of the long-term charters as sales
type leases under U.S. GAAP in the unaudited pro forma statement of operations.
The remaining 8 vessels and Oscilla are currently accounted for as chartered
under operating leases. Classification of charters as sales type leases or as
operating leases is determined with reference to, among other things,
assumptions about useful lives, fair values at the inception of the lease on
January 1, 2004 and scrap values of the vessels. The lease classification of the
charters for the purposes of preparing this unaudited pro forma financial
information is based on assumptions that reflect Ship Finance's best estimates
and reasonably available information.
The following table summarizes the key assumptions about fair values on
January 1, 2004, useful lives and scrap values of Ship Finance's fleet,
including the VLCC that Ship Finance has an option to
22
purchase, which have been used in classifying the charters as operating leases
or sales type leases. Fair values of vessels are generally estimated using the
average of three independent broker valuations (which assume a sale between a
willing buyer and a willing seller under no compulsion to sell).
Average of
Average of estimated
Number of Dates of Estimated estimated fair scrap
Type of vessel vessels construction scrapping dates values values
-------------- ------- ------------ --------------- ------ ------
(dollars in millions)
Double hull Suezmax OBO..... 8 1991 to 1992 2016 to 2017 $34.8 $2.4
Double hull Suezmax......... 8 1993 to 1998 2018 to 2023 $44.6 $3.3
Non-double hull Suezmax..... 8 1991 to 1993 2015 to 2017 $24.6 $3.0
Double hull VLCC............ 13 1998 to 2002 2023 to 2027 $79.3 $6.0
Non-double hull VLCC........ 10 1990 to 1996 2015 to 2017 $34.7 $4.2
Unaudited Pro Forma Statement of Operations for the Six months Ended June 30,
2004
Pro forma
Actual Adjustments Notes Pro forma
Operating revenues
Time, bareboat and voyage charter revenues 121,975 (67,983) A 53,992
Finance lease interest income 64,056 16,005 A 80,061
Finance lease service revenues 33,482 6,740 A 40,222
---------- -----------
Total operating revenues................ 219,513 174,275
---------- -----------
Operating expenses
Voyage expenses and commission........ 8,971 (7,726) B 1,245
Ship operating expenses............... 48,377 224 B 48,601
Depreciation and amortisation......... 21,786 (9,556) C 12,230
Administrative expenses............... 1,514 D 1,514
---------- -----------
Total operating expenses................ 80,648 63,590
---------- -----------
Net operating income.................... 138,865 110,685
Other income (expenses)
Interest income....................... 2,269 2,269
Interest expense...................... (48,929) (612) E (49,736)
(548) F
353 G
Foreign currency exchange gain........ 117 117
Other financial items, net............ 13,990 13,990
---------- -----------
Net other income (expenses)........... (32,553) (33,360)
---------- -----------
Net income.............................. 106,312 77,325
========== ===========
23
Unaudited Pro Forma Statement of Operations for the Year Ended December 31, 2003
Pro forma
Actual Adjustments Notes Pro forma
------ ----------- ----- ---------
Operating revenues
Time, bareboat and voyage charter revenues - 121,470 A 121,470
Finance lease interest income - 168,010 A 168,010
Finance lease service revenues - 80,665 A 80,665
---------- -----------
Total operating revenues................ - 370,145
---------- -----------
Operating expenses
Voyage expenses and commission........ - 17,988 B 17,988
Ship operating expenses............... - 97,273 B 97,273
Depreciation and amortisation......... - 24,026 C 24,026
Administrative expenses............... 14 960 D 974
---------- -----------
Total operating expenses................ 14 140,261
---------- -----------
Net operating income.................... (14) 229,884
Other income (expenses)
Interest income....................... 199 199
Interest expense...................... (2,123) (25,723) E (79,650)
(47,931) F
(3,873) G
---------- -----------
Net other income (expenses)........... (1,924) (79,451)
---------- -----------
Net income (loss)....................... (1,938) 150,433
========== ===========
Notes to Adjustments to Unaudited Pro Forma Statements of Operations
A. Ship Finance has chartered all of the 46 vessels acquired from the Company
to the Charterer, Frontline Shipping Ltd., our subsidiary, under long term
charters. These charters were entered into, and take economic effect, on
January 1, 2004. Eight of these vessels are currently under charter to
third parties.
Thirty eight of these vessels have completed or will complete their current
voyage or time charter prior to September 30, 2004 and are assumed to be free
and available as of January 1, 2004 and January 1, 2003 for the purposes of this
unaudited pro forma financial information. Charters of these vessels have been
accounted for as sales type leases and Ship Finance's net investment in the
lease is recorded at the inception of the lease. For sales type leases, Ship
Finance has removed the depreciated cost of the associated vessel from its
balance sheet and recorded a net investment in sales type leases. The net
investment in a sales type lease is calculated as the sum of the net present
values of the minimum lease cash flows, calculated at the inception of the
lease.
Lease cash flows from sales type leases, net of executory costs, are allocated
between finance lease interest income, finance lease service revenues and a
reduction in the balance of the net investment in a manner that results in a
constant periodic return based on the reducing balance of the net investment.
24
For the purposes of this unaudited pro forma financial information the remaining
8 vessels and Oscilla are classified as chartered under operating leases in
accordance with U.S. GAAP. These 8 vessels and Oscilla are currently on charters
that end after September 30, 2004 and are therefore assumed by Ship Finance to
be not free and available as of January 1, 2004 and January 1, 2003.
Lease cash flows from operating leases are recorded wholly as revenues. For
these vessels, including Oscilla, pro forma charter revenues reflect the rates
due under existing charter arrangements. These charters will be accounted for by
Ship Finance as operating leases until the expiration of the existing charters.
As the economic effect of the new charters to the Charterer took effect January
1, 2004, Ship Finance pays to or receives from the Charterer the difference
between the new charter rates and the underlying charter rates until vessels
complete their current charter arrangements. These payments are recorded as
deemed dividends in Ship Finance's statements of changes in stockholders' equity
and are therefore not reflected in this unaudited pro-forma financial
information.
As the remaining 8 vessels and Oscilla complete their current charter
arrangements, actual operating revenues will change as the current charters are
on different rates than those that will be in effect after entering into the new
lease arrangements with the Charterer. As such, the pro forma financial
information does not reflect such future effect of the completion of the current
charters.
Under the provisions of the lease agreements, the Charterer has exercised its
option to lease 4 of the vessels from Ship Finance under bareboat charters and
pay us a charter rate that is reduced by $6,500 per day in comparison with the
equivalent time charter rates. Under a bareboat charter, Ship Finance does not
provide services to the Charterer as provided under an equivalent time charter
and accordingly does not receive revenues from services under a bareboat
charter. Revenues from services are reported as finance lease service revenues
in Ship Finance's statement of operations. Additionally, Ship Finance does not
incur the corresponding management fee expenses of $6,500 per day for those 4
vessels as are incurred by it for vessels leased under time charters. Management
fee expenses are reported as ship operating expenses. See also pro forma
adjustment B.
Current charter arrangements for the 8 vessels on charters expiring after
September 30, 2004 expire as follows:
Period of charter expiration Number of vessels
---------------------------- -----------------
October 1, 2004 to December 31, 2004........................ 2
January 1, 2005 to December 31, 2005........................ 0
January 1, 2006 to December 31, 2006........................ 5
January 1, 2007 to December 31, 2007........................ 1
Total..................................................... 8
25
The pro forma adjustments for the six months ended June 30, 2004 are calculated
as follows:
Six months
ended June
30, 2004
Adjustment to eliminate historical revenues from vessels that
will be chartered to the Charterer by September 30, 2004
under sales type leases..................................... $(76,428)
Adjustment to recognize estimated revenues from Oscilla from
January 1, 2004............................................. 8,445
------------
Total pro forma adjustment.................................... $(67,983)
===========
Adjustment to recognize finance lease interest income from
charters accounted for as sales type leases................. 16,005
------------
Total pro forma adjustment.................................... $16,005
===========
Adjustment to recognize finance lease service revenues from
charters accounted for as sales type leases................. 6,740
------------
Total pro forma adjustment.................................... $6,740
===========
The pro forma adjustments for the year ended December 31, 2003 are calculated as
follows: Year ended December 31, 2003
Adjustment to recognize historical revenues from 8 vessels
currently chartered under operating leases.................. $108,739
Adjustment to recognize estimated revenues from Oscilla from
January 1, 2003............................................. 12,731
------------
Total pro forma adjustment.................................... $121,470
===========
Adjustment to recognize finance lease interest income from
charters accounted for as sales type leases................. 168,010
------------
Total pro forma adjustment.................................... $168,010
===========
Adjustment to recognize finance lease service revenues from
charters accounted for as sales type leases................. 80,665
------------
Total pro forma adjustment.................................... $80,665
===========
In addition to the charters to the Charterer, which are given effect in
this unaudited pro forma financial information, Ship Finance has entered
into a profit sharing agreement with the Charterer. Under the terms of this
agreement, beginning with the final 11-month period in 2004 and for each
calendar year thereafter, the Charterer has agreed to pay Ship Finance a
profit sharing payment equal to 20% of the charter revenues for the
applicable period, calculated and paid annually in arrears on a TCE basis,
realized by the Charterer from their use of our fleet in excess of a
weighted average rate of $25,575 per day for each VLCC and $21,100 per day
for each Suexmax tanker. We have assumed that there would be no profit
sharing payments made to Ship Finance in the 2003 pro-forma statement of
operations and no adjustment has been made to this pro forma financial
information to reflect any effect of this arrangement. Ship Finance interim
financial statements for the six months ended June 30, 2004 include profit
sharing revenues of $5.7 million.
26
B. This adjustment is to recognize voyage expenses and ship operating expenses
for the 46 vessels Ship Finance acquired and the exercise of their option
to acquire the vessel Oscilla, to reflect the $6,500 per day per vessel
that Ship Finance pays us under the vessel management agreements in the
pro-forma statement of operations for the year ended December 31, 2003 and
to eliminate historical voyage expenses from vessels that will be chartered
to the Charterer by September 30, 2004 under sales-type leases in the
pro-forma statement of operations for the six months ended June 30, 2004.
The adjustment to recognize $6,500 per day per vessel under the vessel
management agreement does not include the 4 vessels and Oscilla chartered
under bareboat charters, see also pro forma adjustment A. Management fees
payable in respect of Ship Finance's vessels are classified as ship
operating costs, and, as such are recorded as a component of operating
expenses.
C. This adjustment is to recognize the depreciation charge relating to the 8
vessels accounted for as chartered under operating leases in Ship Finance's
pro-forma statement of operations for the year ended December 31, 2003, to
eliminate historical depreciation from vessels that will be chartered to
the Charterer by September 30, 2004 under sales-type leases in Ship
Finance's pro-forma statement of operations for the six months ended June
30, 2004 and to adjust depreciation to reflect the acquisition of Oscilla
for the year ended December 31, 2003 and the six months ended June 30,
2004.
D. This adjustment is to recognize administrative expenses of $20,000 per year
for the year ended December 31, 2003 payable by Ship Finance and each of
its subsidiaries under the administrative services agreement in the
pro-forma statement of operations for the year ended December 31, 2003. No
adjustment has been made to the amount of third party expenses which
comprise out of pocket expenses incurred on behalf of the service
recipients, including legal fees, independent auditors, printers, mailing
costs, depositories, transfer agents, insurance, proxy solicitors, filing
fees, self-regulatory agencies, listing fees, stock exchange maintenance
fees, directors' fees as set by the relevant service recipient, and similar
fees and expenses. These costs are not covered by the administrative
services agreement and will be borne by Ship Finance. These administrative
expenses are included within Ship Finance's historical expenses for the six
months ended June 30, 2004.
E. Ship Finance refinanced the senior secured indebtedness of its subsidiaries
at the time that Ship Finance acquired them from the Company with the
proceeds of a new senior secured credit facility. This new credit facility
has an original principal balance of $1,058 million and is repayable over
six years. This adjustment is to recognize the change in interest expense
that we would have incurred if the refinancing had taken place as of
January 1, 2004 and January 1, 2003. We will make annual total repayments
of $93.7 million based on the repayment profile of the new credit facility
and have based our estimated average balance on these repayments. The pro
forma adjustments for the six months ended June 30, 2004 and year ended
December 31, 2003 are calculated as follows:
Six months ended
June 30, 2004
-------------
Estimated average balance.............................. $1,046.286
Effective Interest rate................................ 2.37%
Estimated interest on new credit facility.............. $12,520
Adjustment to eliminate historical interest expense.... $(11,908)
Total pro forma adjustment............................. $612
==================
27
Year ended
December 31, 2003
-----------------
Estimated average balance.............................. $1,022,634
Effective Interest rate................................ 2.48%
Estimated interest on new credit facility.............. $25,723
Total pro forma adjustment............................. $25,723
==================
Interest on the new credit facility is payable at an interest rate based on
LIBOR plus a margin of 1.25%. We estimated interest payable on the new
credit facility using average LIBOR rates of 1.12% for the six months ended
June 30, 2004 and 1.235% for the year ended December 31, 2003. These rates
are based on an average of three month LIBOR over the applicable period. An
increase or decrease in assumed interest rates of 0.125% would increase or
decrease estimated interest expense by $0.7 million and $1.3 million in the
six months ended June 30, 2004 and year ended December 31, 2003
respectively.
In accordance with the terms of Ship Finance's new credit facility, it has
entered into new interest rate swap agreements to effectively fix the
interest rate payable on $500 million of its new credit facility for five
years. Ship Finance has not made any adjustments to this unaudited pro forma
financial information to reflect the estimated effect of these new interest
rate swap agreements. Ship Finance has effectively fixed the LIBOR element
of the interest rate payable at 3.38% and its total interest rate including
margin at 4.63% on $500 million of its new credit facility. The estimated
effect of effectively fixing its interest rate at 4.63% on $500 million
principal amount of debt would be to record additional interest expense of
$1.5 million for the six months ended June 30, 2004 and $10.9 million for
the year ended December 31, 2003. Ship Finance's interim financial
statements for the six months ended June 30, 2004 include $4.2 million
interest expense in respect of these swaps and $1.8 million interest expense
in respect of other swaps. We have not estimated the effect of changes in
market values of interest rate swap contracts in this unaudited pro forma
financial information. Ship Finance interim financial statements for the six
months ended June 30, 2004 include gains of $15.1 million in respect of
changes in market valuations of interest rate swaps.
F. This adjustment is to reflect the interest expense on Ship Finance's notes
at an interest rate of 8.5% per year as if they had been issued on January
1, 2004 and January 1, 2003.
The pro forma adjustments for the six months ended June 30, 2004 and the
year ended December 31, 2003 are calculated as follows:
Six months ended Year ended
June 30, 2004 December 31, 2003
------------- -----------------
Estimated interest on the notes......................... 24,924 49,985
Adjustment to eliminate historical interest expense.... (24,376) (2,054)
Total pro forma adjustment............................. $548 $47,931
========== ===========
28
G. This adjustment represents the estimated adjustment of amortization of
deferred charges and financing fees resulting from our refinancing. The pro
forma adjustments for the six months ended June 30, 2004 and the year ended
December 31, 2003 are calculated as follows:
Six months ended
June 30, 2004
-------------
Amortization of deferred charges and financing fees associated with the
refinancing of the existing bank debt................................................ 1,134
Amortization of deferred charges and financing fees associated with the notes.......... 1,542
Adjustment to eliminate historical amortization of deferred charges and
financing fees....................................................................... (2,323)
-----------------
Total pro forma adjustment............................................................. $353
=================
Year ended
December 31, 2003
-----------------
Amortization of deferred charges and financing fees associated with the
refinancing of the existing bank debt................................................ 2,268
Amortization of deferred charges and financing fees associated with the notes.......... 1,674
Adjustment to eliminate historical amortization of deferred charges
and financing fees................................................................... (69)
------------------
Total pro forma adjustment............................................................. $3,873
=================
Ship Finance's pro forma income statements for the six months ended June
30, 2004 and year ended December 31, 2003 include 4 vessels recorded as
operating under finance leases that are included in their interim financial
statements as operating under operating leases. The impact on Ship Finance's
balance sheet in their interim financial statements for the six months ended
June 30, 2004 of recording these 4 vessels as operating under finance leases
would be to decrease vessels and equipment, net by $199.2 million and to
increase net investments in finance leases by $199.2 million
USE OF PROCEEDS
Unless indicated otherwise in an applicable prospectus supplement, we
expect to use the net proceeds from the sale of common stock that we may offer
with this prospectus and any accompanying prospectus supplement for general
corporate purposes, including: working capital, capital expenditures, possible
acquisitions, investments and any other purposes that we may specify in that
prospectus supplement. Additional information on the use of proceeds from the
sale of securities offered by this prospectus may be set forth in the applicable
prospectus supplement relating to that offering. Our management will have broad
discretion to allocate the proceeds from this offering to uses that it believes
are appropriate.
We will not receive any proceeds from the sale of the ordinary shares sold
by the selling shareholders pursuant to this prospectus. The selling
shareholders will receive all of the proceeds from
29
those sales.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for the
six months ended June 30, 2004 and each of the preceding five fiscal years.
Six Months
ended YEAR ENDED DECEMBER 31,
-------- --------------------------------
June 30,
2004 2003 2002 2001 2000 1999
Ratio of earnings to fixed charges..... 4.40 5.00 1.18 3.90 3.72 n/a
Ratio of earnings to combined
fixed charges and preferred stock
dividends(1)......................... 4.40 5.00 1.18 3.90 3.72 n/a
----------
(1) We have not issued any preferred shares as of the date of this prospectus.
PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
Six Months ended Year ended
June 30, 2004 December 31, 2003
----------------- -----------------
Ratio of earnings to fixed charges ...... 4.19 4.47
Ratio of earnings to combined
fixed harges and perferred stock
dividends(2) ............................ 4.19 4.47
----------
(1) We have not issued any preferred shares as of the date of this
prospectus
(2) Our computation of this item is included as Exhibit 12 to this filing.
PLAN OF DISTRIBUTION
We are registering the securities covered by this prospectus for ourselves
and for the selling shareholders.
The selling shareholders will act independently of us in making decisions
with respect to the timing, manner and size of each sale. We and/or the selling
shareholders may sell the ordinary shares on The New York Stock Exchange, in
private transactions, at market prices prevailing at the time of sale, at prices
related to the prevailing market prices, or at negotiated prices.
In addition, we and/or the selling shareholders may sell some or all of our
ordinary shares included in this Registration Statement through:
o a block trade in which a broker-dealer may resell a portion of the
block, as principal, in order to facilitate the transaction;
30
o purchases by a broker-dealer, as principal, and resale by the
broker-dealer for its account; or
o ordinary brokerage transactions and transactions in which a broker
solicits purchasers.
The selling shareholders may enter into hedging transactions with respect
to our ordinary shares. For example, the selling shareholders may:
o enter into transactions involving short sales of the ordinary shares
by broker-dealers;
o sell ordinary shares short themselves and deliver the shares to close
out short positions;
o enter into option or other types of transactions that require the
selling shareholders to deliver ordinary shares to a broker-dealer,
who will then resell or transfer the ordinary shares under this
prospectus; or
o loan or pledge the ordinary shares to a broker-dealer, who may sell
the loaned shares or, in the event of default, sell the pledged
shares.
The selling shareholders and any broker-dealers or other persons acting on
the behalf of parties that participate with us in the distribution of the shares
may be deemed to be underwriters and any commissions received or profit realized
by them on the resale of the shares may be deemed to be underwriting discounts
and commissions under the Securities Act of 1933. As of the date of this
prospectus, we are not a party, nor are we aware that the selling shareholders
are a party to any agreement, arrangement or understanding between any broker or
dealer and the selling shareholders or us with respect to the offer or sale of
the shares pursuant to this prospectus.
At the time that any particular offering of shares is made, to the extent
required by the Securities Act, a prospectus supplement will be distributed,
setting forth the terms of the offering, including the aggregate number of
shares being offered, the names of any underwriters, dealers or agents, any
discounts, commissions and other items constituting compensation from the
selling shareholders or us and any discounts, commissions or concessions allowed
or reallowed or paid to dealers.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated.
Securities and Exchange Commission registration fee............. $284,000
New York Stock Exchange listing fee............................. 23,000
Blue sky fees and expenses...................................... 25,000
Printing and engraving expenses................................. 100,000
Legal fees and expenses......................................... 100,000
Accounting fees and expenses.................................... 100,000
Transfer agent and registrar.................................... 20,000
Miscellaneous................................................... 75,000
Total ................................................. 727,000
======
We will bear costs relating to all of the securities being registered under
this Registration Statement, other than underwriters' discounts, commissions and
transfer taxes accrued for ordinary shares sold for the account of the selling
shareholders.
31
The selling shareholders may also sell our ordinary shares pursuant to Rule
144 promulgated under the Securities Act or in other transactions that are
exempt from registration under the Securities Act.
ENFORCEMENT OF CIVIL LIABILITIES
We are a Bermuda company, and our executive offices and administrative
activities and assets, as well as those of certain of the experts named in this
prospectus, are located outside the United States. As a result, it may be
difficult for investors to effect service of process within the United States
upon us or those persons or to enforce both in the United States and outside the
United States judgments against us or those persons obtained in United States
courts in any action, including actions predicated upon the civil liability
provisions of the federal securities laws of the United States. In addition, our
directors and officers are residents of jurisdictions other than the United
States, and all or a substantial portion of the assets of those persons are or
may be located outside the United States. As a result, it may be difficult for
investors to effect service of process within the United States on those persons
or to enforce against them judgments obtained in United States courts, including
judgments predicated upon the civil liability provisions of the federal
securities laws of the United States. We have been advised by our legal counsel
in Bermuda, Mello, Jones & Martin, that there is uncertainty as to whether the
courts of Bermuda would (i) enforce judgments of United States courts obtained
against us or such persons predicated upon the civil liability provisions of the
federal securities laws of the United States or (ii) entertain original actions
brought in Bermuda courts against us or such persons predicated upon the federal
securities laws of the United States.
LEGAL MATTERS
The validity of the securities offered by this prospectus will be passed
upon for us by Mello, Jones & Martin, Hamilton, Bermuda, and by Seward & Kissel
LLP, New York, New York.
INDEPENDENT ACCOUNTANTS
The financial statements as of and for the year ended December 31, 2003
incorporated in this prospectus by reference to our Annual Report on Form 20-F
have been so incorporated in reliance on the report of PricewaterhouseCoopers DA
Oslo, Norway, an independent registered public accounting firm, given on the
authority of said firm as experts in auditing and accounting.
The financial statements as of and for the year ended December 31, 2002,
incorporated in this prospectus by reference to our Annual Report on Form 20-F
for the year ended December 31, 2003, except as they relate to Golden Ocean
Group Limited, have been audited by PricewaterhouseCoopers, Hamilton, Bermuda,
an independent registered public accounting firm, and, insofar as they relate to
Golden Ocean Group Limited, by Moore Stephens, London, England, independent
accountants, whose reports thereon are incorporated by reference. Such financial
statements have been so included on reliance on the reports of such independent
accountants given on the authority of such firms as experts in auditing and
accounting.
The audited financial statements for the year ended December 31, 2001
incorporated in this prospectus by reference to our Annual Report on Form 20-F
for the year ended December 31, 2003, except as they relate to Golden Ocean
Group Limited, have been audited by PricewaterhouseCoopers DA, Oslo, Norway, an
independent registered public accounting firm, and, insofar as they relate to
Golden Ocean Group Limited, by Moore Stephens, London, England independent
accountants, whose reports thereon are incorporated by reference. Such financial
statements have been so included on reliance on the reports of such independent
accountants given on the authority of such firms as experts in auditing and
accounting. With respect to the unaudited financial information of Frontline
Ltd. for the six-month period ended June 30, 2004, incorporated by reference in
this Registration Statement, PricewaterhouseCoopers AS reported
32
that they have applied limited procedures in accordance with professional
standards for a review of such information. However, their separate report dated
October 6, 2004 incorporated by reference herein, states that they did not audit
and they do not express an opinion on that unaudited financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
PricewaterhouseCoopers AS is not subject to the liability provisions of Section
11 of the Securities Act of 1933 for their report on the unaudited financial
information because that report is not a "report" or a "part" of the
Registration Statement prepared or certified by PricewaterhouseCoopers AS with
the meaning of Sections 7 and 11 of the Act.
DESCRIPTION OF PREFERRED SHARES
The material terms of any series of preferred shares that we offer through
a prospectus supplement will be described in that prospectus supplement. Our
board of directors is authorized to provide for the issuance of preferred shares
in one or more series with designations as may be stated in the resolution or
resolutions providing for the issue of such preferred shares. At the time that
any series of our preferred shares are authorized, our board of directors will
fix the dividend rights, any conversion rights, any voting rights, redemption
provisions, liquidation preferences and any other rights, preferences,
privileges and restrictions of that series, as well as the number of shares
constituting that series and their designation. Our board of directors could,
without shareholder approval, cause us to issue preferred stock which has
voting, conversion and other rights that could adversely affect the holders of
our ordinary shares or make it more difficult to effect a change in control. Our
preferred shares could be used to dilute the share ownership of persons seeking
to obtain control of us and thereby hinder a possible takeover attempt which, if
our shareholders were offered a premium over the market value of their shares,
might be viewed as being beneficial to our shareholders. In addition, our
preferred shares could be issued with voting, conversion and 23 other rights and
preferences which would adversely affect the voting power and other rights of
holders of our ordinary shares.
DESCRIPTION OF ORDINARY SHARES
Under our Amended Memorandum of Association, our authorized capital
consists of 125,000,000 ordinary shares having a par value of $2.50 each, of
which 74,525,169 are issued and outstanding.
The purposes and powers of the Company are set forth in Items 6(1) and 7(a)
through (h) of our Memorandum of Association and in the Second Schedule of the
Bermuda Companies Act of 1981 which is attached as an exhibit to our Memorandum
of Association. These purposes include exploring, drilling, moving, transporting
and refining petroleum and hydro-carbon products, including oil and oil
products; the acquisition, ownership, chartering, selling, management and
operation of ships and aircraft; the entering into of any guarantee, contract,
indemnity or suretyship and to assure, support, secure, with or without the
consideration or benefit, the performance of any obligations of any person or
persons; and the borrowing and raising of money in any currency or currencies to
secure or discharge any debt or obligation in any manner.
Bermuda law permits the Bye-laws of a Bermuda company to contain a
provision eliminating personal liability of a director or officer to the company
for any loss arising or liability attaching to him by virtue of any rule of law
in respect of any negligence default, breach of duty or breach of trust of which
the officer or person may be guilty. Bermuda law also grants companies the power
generally to indemnify directors and officers of the company if any such person
was or is a party or threatened to be made a party to a threatened, pending or
completed action, suit or proceeding by reason of the fact that he
33
or she is or was a director and officer of the company or was serving in a
similar capacity for another entity at the company's request.
Special rights attaching to any class of our shares may be altered or
abrogated with the consent in writing of not less than 75% of the issued and
shares of that class or with the sanction of a resolution passed at a separate
general meeting of the holders of such shares voting in person or by proxy.
Our Bye-laws do not prohibit a director from being a party to, or otherwise
having an interest in, any transaction or arrangement with the Company or in
which the Company is otherwise interested. Our Bye-laws provide our board of
directors the authority to exercise all of the powers of the Company to borrow
money and to mortgage or charge all or any part of our property and assets as
collateral security for any debt, liability or obligation. Our directors are not
required to retire because of their age, and our directors are not required to
be holders of our ordinary shares. Directors serve for one year terms, and shall
serve until re-elected or until their successors are appointed at the next
annual general meeting.
Our Bye-laws provide that no director, alternate director, officer, person
or member of a committee, if any, resident representative, or his heirs,
executors or administrators, which we refer to collectively as an indemnitee, is
liable for the acts, receipts, neglects, or defaults of any other such person or
any person involved in our formation, or for any loss or expense incurred by us
through the insufficiency or deficiency of title to any property acquired by us,
or for the insufficiency of deficiency of any security in or upon which any of
our monies shall be invested, or for any loss or damage arising from the
bankruptcy, insolvency, or tortuous act of any person with whom any monies,
securities, or effects shall be deposited, or for any loss occasioned by any
error of judgment, omission, default, or oversight on his part, or for any other
loss, damage or misfortune whatever which shall happen in relation to the
execution of his duties, or supposed duties, to us or otherwise in relation
thereto. Each indemnitee will be indemnified and held harmless out of our funds
to the fullest extent permitted by Bermuda law against all liabilities, loss,
damage or expense (including but not limited to liabilities under contract, tort
and statute or any applicable foreign law or regulation and all reasonable legal
and other costs and expenses properly payable) incurred or suffered by him as
such director, alternate director, officer, person or committee member or
resident representative (or in his reasonable belief that he is acting as any of
the above). In addition, each indemnitee shall be indemnified against all
liabilities incurred in defending any proceedings, whether civil or criminal, in
which judgment is given in such indemnitee's favor, or in which he is acquitted.
We are authorized to purchase insurance to cover any liability it may incur
under the indemnification provisions of its Bye-laws.
Share History
The following is a description of our share history over the past three
years. As of January 1, 2001, we had 76,068,811 ordinary shares outstanding.
During 2001, we issued 129,500 ordinary shares pursuant to exercises of employee
share options at an average price of $3.49 per ordinary share and 416,555
ordinary shares pursuant to the exercise of warrants at $15.91 per ordinary
share. In addition, in 2001, we repurchased pursuant to a publicly announced
repurchase plan 2,207,300 ordinary shares. These shares were repurchased at an
average price of $15.58 per ordinary share. During 2002, we issued 59,000
ordinary shares at an average price of $4.47 per ordinary share pursuant to
exercises of employee share options. During 2003, we issued 251,364 ordinary
shares at an average price of $6.86 per ordinary share pursuant to the exercise
of employee share options. In addition, in 2003, we repurchased pursuant to a
publicly announced repurchase plan 3,070,000 ordinary shares at an average price
of $8.97 per ordinary share. In 2004 to date, we have issued 297,436 shares
pursuant to the exercise of employee share options at an average price of $5.91
per ordinary share and 600,000 ordinary shares in a private placement at a price
of Norwegian Kroner 246 per ordinary share. In addition, in 2004 we compulsorily
repurchased and cancelled 20,197 ordinary shares so that as of September 17,
2004 we have 74,525,169
34
ordinary shares outstanding. These shares were repurchased at the closing market
price of our ordinary shares on April 5, 2004 which was $31.22 per ordinary
share.
The transactions discussed above are also discussed in Note 20. Share Capital
and Note 21. Warrants and Share Option Plans to our financial statements
included in our Annual Report on Form 20-F for 2003.
DESCRIPTION OF DEBT SECURITIES
We may issue additional debt securities from time to time in one or more
series, under one or more indentures, each dated as of a date on or prior to the
issuance of the debt securities to which it relates. We may issue senior debt
securities and subordinated debt securities pursuant to separate indentures, a
senior indenture and a subordinated indenture, respectively, in each case
between us and the trustee that will be named in any indentures as may be filed
as exhibits to an amendment to this Registration Statement or a prospectus
supplement, or as an exhibit to a Securities Exchange Act of 1934, or Exchange
Act, report that will be incorporated by reference to the Registration Statement
or a prospectus supplement. We will refer to any or all of these reports as
"subsequent filings". The senior indenture and the subordinated indenture, as
amended or supplemented from time to time, are sometimes referred to
individually as an "indenture" and collectively as the "indentures". Each
indenture will be subject to and governed by the Trust Indenture Act. The
aggregate principal amount of debt securities which may be issued under each
indenture will be unlimited and each indenture will contain the specific terms
of any series of debt securities or provide that those terms must be set forth
in or determined pursuant to, an authorizing resolution, as defined in the
applicable prospectus supplement, and/or a supplemental indenture, if any,
relating to such series.
Debt securities may bear interest at a fixed rate, which may be zero, or a
floating rate, or at a rate that varies during the lifetime of the debt
security. Debt securities bearing no interest or interest at a rate that at the
time of issuance is below the prevailing market rate may be sold at a discount
below their stated principal amount.
Our statements below relating to the debt securities and the indentures are
summaries of their anticipated provisions, are not complete and are subject to,
and are qualified in their entirety by reference to, all of the provisions of
the applicable indenture and any applicable U.S. federal income tax
consideration as well as any applicable modifications of or additions to the
general terms described below in the applicable prospectus supplement or
supplemental indenture.
General
An indenture will not limit the amount of debt securities which may be
issued, and may provide that debt securities may be issued up to the aggregate
principal amount from time to time. The debt securities may be issued in one or
more series. The senior debt securities will be unsecured and will rank on a
parity with all of our other unsecured and unsubordinated indebtedness. Each
series of subordinated debt securities will be unsecured and subordinated to all
present and future senior indebtedness of debt securities will be described in
an accompanying prospectus supplement.
You should read the subsequent filings relating to the particular series of
debt securities for the following terms of the offered debt securities:
o the designation, aggregate principal amount and authorized
denominations;
o the issue price, expressed as a percentage of the aggregate principal
amount;
o the maturity date;
o the interest rate per annum, if any;
o if the offered debt securities provide for interest payments, the date
from which interest will accrue, the dates on which interest will be
payable, the date on which payment of interest will
35
commence and the regular record dates for interest payment dates;
o any optional or mandatory sinking fund provisions or conversion or
exchangeability provisions;
o the date, if any, after which and the price or prices at which the
offered debt securities may be optionally redeemed or must be
mandatorily redeemed and any other terms and provisions of optional or
mandatory redemptions;
o if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which offered debt securities of the
series will be issuable;
o if other than the full principal amount, the portion of the principal
amount of offered debt securities of the series which will be payable
upon acceleration or provable in bankruptcy;
o any events of default not set forth in this prospectus;
o the currency or currencies, including composite currencies, in which
principal, premium and interest will be payable, if other than the
currency of the United States of America;
o if principal, premium or interest is payable, at our election or at
the election of any holder, in a currency other than that in which the
offered debt securities of the series are stated to be payable, the
period or periods within which, and the terms and conditions upon
which, the election may be made;
o whether interest will be payable in cash or additional securities at
our or the holders' option and the terms and conditions upon which the
election may be made;
o if denominated in a currency or currencies other than the currency of
the United States of America, the equivalent price in the currency of
the United States of America for purposes of determining the voting
rights of holders of those debt securities under the applicable
indenture;
o if the amount of payments of principal, premium or interest may be
determined with reference to an index, formula or other method based
on a coin or currency other than that in which the offered debt
securities of the series are stated to be payable, the manner in which
the amounts will be determined;
o any restrictive covenants or other material terms relating to the
offered debt securities, which may not be inconsistent with the
applicable indenture;
o whether the offered debt securities will be issued in the form of
global securities or certificates in registered or bearer form;
o any terms with respect to subordination;
o any listing on any securities exchange or quotation system;
o additional provisions, if any, related to defeasance and discharge of
the offered debt securities; and
o the applicability of any guarantees.
Unless otherwise indicated in subsequent filings relating to the indenture,
principal, premium and interest will be payable and the debt securities will be
transferable at the corporate trust office of the applicable trustee. Unless
other arrangements are made or set forth in subsequent filings or a supplemental
indenture, principal, premium and interest will be paid by checks mailed to the
holders at their registered addresses.
36
Unless otherwise indicated in subsequent filings, the debt securities will
be issued only in fully registered form without coupons, in denominations of
$1,000 or any integral multiple thereof. No service charge will be made for any
transfer or exchange of the debt securities, but we may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
with these debt securities.
Some or all of the debt securities may be issued as discounted debt
securities, bearing no interest or interest at a rate which at the time of
issuance is below market rates, to be sold at a substantial discount below the
stated principal amount. United States federal income consequences and other
special considerations applicable to any discounted securities will be described
in subsequent filings relating to those securities.
We refer you to applicable subsequent filings with respect to any deletions
or additions or modifications from the description contained in this prospectus.
Covenants
Any series of offered debt securities may have covenants in addition to or
differing from those included in the applicable indenture which will be
described in subsequent filings prepared in connection with the offering of such
securities, limiting or restricting, among other things:
o the ability of us or our subsidiaries to incur either secured or
unsecured debt, or both;
o the ability to make certain payments, dividends, redemptions or
repurchases;
o our ability to create dividend and other payment restrictions
affecting our subsidiaries;
o our ability to make investments;
o mergers and consolidations by us;
o sales of assets by us;
o our ability to enter into transactions with affiliates;
o our ability to incur liens; and
o sale and leaseback transactions.
Modification of the Indentures
Each indenture and the rights of the respective holders may be modified by
us only with the consent of holders of not less than a majority in aggregate
principal amount of the outstanding debt securities of all series under the
respective indenture affected by the modification, taken together as a class.
But no modification that:
(1) changes the amount of securities whose holders must consent to an
amendment, supplement or waiver;
(2) reduces the rate of or changes the interest payment time on any
security or alters its redemption provisions (other than any
alteration to any such Section which would not materially adversely
affect the legal rights of any holder under the indenture) or the
price at which we are required to offer to purchase the securities;
(3) reduces the principal or changes the maturity of any security or
reduce the amount of,
37
or postpone the date fixed for, the payment of any sinking fund or
analogous obligation;
(4) waives a default or event of default in the payment of the principal
of or interest, if any, on any security (except a rescission of
acceleration of the securities of any series by the holders of at
least a majority in principal amount of the outstanding securities of
that series and a waiver of the payment default that resulted from
such acceleration);
(5) makes the principal of or interest, if any, on any security payable in
any currency other than that stated in the Security;
(6) makes any change with respect to holders' rights to receive principal
and interest, the terms pursuant to which defaults can be waived,
certain modifications affecting shareholders or certain
currency-related issues; or
(7) waives a redemption payment with respect to any Security or change any
of the provisions with respect to the redemption of any securities
will be effective against any holder without his consent. In addition, other
terms as specified in subsequent filings may be modified without the consent of
the holders.
Events of Default
Each indenture defines an event of default for the debt securities of any
series as being any one of the following events:
o default in any payment of interest when due which continues for 30
days;
o default in any payment of principal or premium when due;
o default in the deposit of any sinking fund payment when due;
o default in the performance of any covenant in the debt securities or
the applicable indenture which continues for 60 days after we receive
notice of the default;
o default under a bond, debenture, note or other evidence of
indebtedness for borrowed money by us or our subsidiaries (to the
extent we are directly responsible or liable therefor) having a
principal amount in excess of a minimum amount set forth in the
applicable subsequent filing, whether such indebtedness now exists or
is hereafter created, which default shall have resulted in such
indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise have become due and payable, without
such acceleration having been rescinded or annulled or cured within 30
days after we receive notice of the default; and
o events of bankruptcy, insolvency or reorganization.
An event of default of one series of debt securities does not necessarily
constitute an event of default with respect to any other series of debt
securities.
There may be such other or different events of default as described in an
applicable subsequent filing with respect to any class or series of offered debt
securities.
In case an event of default occurs and continues for the debt securities of
any series, the applicable trustee or the holders of not less than 25% in
aggregate principal amount of the debt securities then outstanding of that
series may declare the principal and accrued but unpaid interest of the debt
securities of that series to be due and payable. Any event of default for the
debt securities of any series
38
which has been cured may be waived by the holders of a majority in aggregate
principal amount of the debt securities of that series then outstanding.
Each indenture requires us to file annually after debt securities are
issued under that indenture with the applicable trustee a written statement
signed by two of our officers as to the absence of material defaults under the
terms of that indenture. Each indenture provides that the applicable trustee may
withhold notice to the holders of any default if it considers it in the interest
of the holders to do so, except notice of a default in payment of principal,
premium or interest.
Subject to the duties of the trustee in case an event of default occurs and
continues, each indenture provides that the trustee is under no obligation to
exercise any of its rights or powers under that indenture at the request, order
or direction of holders unless the holders have offered to the trustee
reasonable indemnity. Subject to these provisions for indemnification and the
rights of the trustee, each indenture provides that the holders of a majority in
principal amount of the debt securities of any series then outstanding have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the trustee or exercising any trust or power conferred on
the trustee as long as the exercise of that right does not conflict with any law
or the indenture.
Defeasance and Discharge
The terms of each indenture provide us with the option to be discharged
from any and all obligations in respect of the debt securities issued thereunder
upon the deposit with the trustee, in trust, of money or U.S. government
obligations, or both, which through the payment of interest and principal in
accordance with their terms will provide money in an amount sufficient to pay
any installment of principal, premium and interest on, and any mandatory sinking
fund payments in respect of, the debt securities on the stated maturity of the
payments in accordance with the terms of the debt securities and the indenture
governing the debt securities. This right may only be exercised if, among other
things, we have received from, or there has been published by, the United States
Internal Revenue Service a ruling to the effect that such a discharge will not
be deemed, or result in, a taxable event with respect to holders. This discharge
would not apply to our obligations to register the transfer or exchange of debt
securities, to replace stolen, lost or mutilated debt securities, to maintain
paying agencies and hold moneys for payment in trust.
Defeasance of Certain Covenants
The terms of the debt securities provide us with the right to omit
complying with specified covenants and that specified events of default
described in a subsequent filing will not apply. In order to exercise this
right, we will be required to deposit with the trustee money or U.S. government
obligations, or both, which through the payment of interest and principal will
provide money in an amount sufficient to pay principal, premium, if any, and
interest on, and any mandatory sinking fund payments in respect of, the debt
securities on the stated maturity of such payments in accordance with the terms
of the debt securities and the indenture governing such debt securities. We will
also be required to deliver to the trustee an opinion of counsel to the effect
that we have received from, or there has been published by, the IRS a ruling to
the effect that the deposit and related covenant defeasance will not cause the
holders of such series to recognize income, gain or loss for federal income tax
purposes.
A subsequent filing may further describe the provisions, if any, of any
particular series of offered debt securities permitting a discharge defeasance.
39
Global Securities
The debt securities of a series may be issued in whole or in part in the
form of one or more global securities that will be deposited with, or on behalf
of, a depository identified in an applicable subsequent filing and registered in
the name of the depository or a nominee for the depository. In such a case, one
or more global securities will be issued in a denomination or aggregate
denominations equal to the portion of the aggregate principal amount of
outstanding debt securities of the series to be represented by the global
security or securities. Unless and until it is exchanged in whole or in part for
debt securities in definitive certificated form, a global security may not be
transferred except as a whole by the depository for the global security to a
nominee of the depository or by a nominee of the depository to the depository or
another nominee of the depository or by the depository or any nominee to a
successor depository for that series or a nominee of the successor depository
and except in the circumstances described in an applicable subsequent filing.
We expect that the following provisions will apply to depository
arrangements for any portion of a series of debt securities to be represented by
a global security. Any additional or different terms of the depository
arrangement will be described in an applicable subsequent filing.
Upon the issuance of any global security, and the deposit of that global
security with or on behalf of the depository for the global security, the
depository will credit, on its book-entry registration and transfer system, the
principal amounts of the debt securities represented by that global security to
the accounts of institutions that have accounts with the depository or its
nominee. The accounts to be credited will be designated by the underwriters or
agents engaging in the distribution of the debt securities or by us, if the debt
securities are offered and sold directly by us. Ownership of beneficial
interests in a global security will be limited to participating institutions or
persons that may hold interest through such participating institutions.
Ownership of beneficial interests by participating institutions in the global
security will be shown on, and the transfer of the beneficial interests will be
effected only through, records maintained by the depository for the global
security or by its nominee. Ownership of beneficial interests in the global
security by persons that hold through participating institutions will be shown
on, and the transfer of the beneficial interests within the participating
institutions will be effected only through, records maintained by those
participating institutions. The laws of some jurisdictions may require that
purchasers of securities take physical delivery of the securities in
certificated form. The foregoing limitations and such laws may impair the
ability to transfer beneficial interests in the global securities.
So long as the depository for a global security, or its nominee, is the
registered owner of that global security, the depository or its nominee, as the
case may be, will be considered the sole owner or holder of the debt securities
represented by the global security for all purposes under the applicable
indenture. Unless otherwise specified in an applicable subsequent filing and
except as specified below, owners of beneficial interests in the global security
will not be entitled to have debt securities of the series represented by the
global security registered in their names, will not receive or be entitled to
receive physical delivery of debt securities of the series in certificated form
and will not be considered the holders thereof for any purposes under the
indenture. Accordingly, each person owning a beneficial interest in the global
security must rely on the procedures of the depository and, if such person is
not a participating institution, on the procedures of the participating
institution through which the person owns its interest, to exercise any rights
of a holder under the indenture.
The depository may grant proxies and otherwise authorize participating
institutions to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action which a holder is entitled to give or
take under the applicable indenture. We understand that, under existing industry
practices, if we request any action of holders or any owner of a beneficial
interest in the global security
40
desires to give any notice or take any action a holder is entitled to give or
take under the applicable indenture, the depository would authorize the
participating institutions to give the notice or take the action, and
participating institutions would authorize beneficial owners owning through such
participating institutions to give the notice or take the action or would
otherwise act upon the instructions of beneficial owners owning through them.
Unless otherwise specified in an applicable subsequent filings, payments of
principal, premium and interest on debt securities represented by global
security registered in the name of a depository or its nominee will be made by
us to the depository or its nominee, as the case may be, as the registered owner
of the global security.
We expect that the depository for any debt securities represented by a
global security, upon receipt of any payment of principal, premium or interest,
will credit participating institutions' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the global security as shown on the records of the depository. We also expect
that payments by participating institutions to owners of beneficial interests in
the global security held through those participating institutions will be
governed by standing instructions and customary practices, as is now the case
with the securities held for the accounts of customers registered in street
names, and will be the responsibility of those participating institutions. None
of us, the trustees or any agent of ours or the trustees will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interests in a global security, or for
maintaining, supervising or reviewing any records relating to those beneficial
interests.
Unless otherwise specified in the applicable subsequent filings, a global
security of any series will be exchangeable for certificated debt securities of
the same series only if:
o the depository for such global securities notifies us that it is
unwilling or unable to continue as depository or such depository
ceases to be a clearing agency registered under the Exchange Act and,
in either case, a successor depository is not appointed by us within
90 days after we receive the notice or become aware of the
ineligibility,
o we in our sole discretion determine that the global securities shall
be exchangeable for certificated debt securities, or
o there shall have occurred and be continuing an event of default under
the applicable indenture with respect to the debt securities of that
series.
Upon any exchange, owners of beneficial interests in the global security or
securities will be entitled to physical delivery of individual debt securities
in certificated form of like tenor and terms equal in principal amount to their
beneficial interests, and to have the debt securities in certificated form
registered in the names of the beneficial owners, which names are expected to be
provided by the depository's relevant participating institutions to the
applicable trustee.
In the event that the Depository Trust Company, or DTC, acts as depository
for the global securities of any series, the global securities will be issued as
fully registered securities registered in the name of Cede & Co., DTC's
partnership nominee.
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participating institutions deposit with DTC. DTC also
facilitates the settlement among
41
participating institutions of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in participating institutions' accounts, thereby eliminating the need
for physical movement of securities certificates. Direct participating
institutions include securities brokers and dealers, banks, trust companies,
clearing corporations and other organizations. DTC is owned by a number of its
direct participating institutions and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others, such as
securities brokers and dealers and banks and trust companies that clear through
or maintain a custodial relationship with a direct participating institution,
either directly or indirectly. The rules applicable to DTC and its participating
institutions are on file with the Commission.
To facilitate subsequent transfers, the debt securities may be registered
in the name of DTC's nominee, Cede & Co. The deposit of the debt securities with
DTC and their registration in the name of Cede & Co. will effect no change in
beneficial ownership. DTC has no knowledge of the actual beneficial owners of
the debt securities. DTC's records reflect only the identity of the direct
participating institutions to whose accounts debt securities are credited, which
may or may not be the beneficial owners. The participating institutions remain
responsible for keeping account of their holdings on behalf of their customers.
Delivery of notices and other communications by DTC to direct participating
institutions, by direct participating institutions to indirect participating
institutions, and by direct participating institutions and indirect
participating institutions to beneficial owners of debt securities are governed
by arrangements among them, subject to any statutory or regulatory requirements
as may be in effect.
Neither DTC nor Cede & Co. consents or votes with respect to the debt
securities. Under its usual procedures, DTC mails a proxy to the issuer as soon
as possible after the record date. The proxy assigns Cede & Co.'s consenting or
voting rights to those direct participating institution to whose accounts the
debt securities are credited on the record date.
If applicable, redemption notices shall be sent to Cede & Co. If less than
all of the debt securities of a series represented by global securities are
being redeemed, DTC's practice is to determine by lot the amount of the interest
of each direct participating institutions in that issue to be redeemed.
To the extent that any debt securities provide for repayment or repurchase
at the option of the holders thereof, a beneficial owner shall give notice of
any option to elect to have its interest in the global security repaid by us,
through its participating institution, to the applicable trustee, and shall
effect delivery of the interest in a global security by causing the direct
participating institution to transfer the direct participating institution's
interest in the global security or securities representing the interest, on
DTC's records, to the applicable trustee. The requirement for physical delivery
of debt securities in connection with a demand for repayment or repurchase will
be deemed satisfied when the ownership rights in the global security or
securities representing the debt securities are transferred by direct
participating institutions on DTC's records.
DTC may discontinue providing its services as securities depository for the
debt securities at any time. Under such circumstances, in the event that a
successor securities depository is not appointed, debt security certificates are
required to be printed and delivered as described above.
We may decide to discontinue use of the system of book-entry transfers
through the securities depository. In that event, debt security certificates
will be printed and delivered as described above.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to he reliable, but we take no
responsibility for its accuracy.
42
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Government Filings
We are subject to the reporting requirements of Sections 13 or 15(d) of the
Securities Exchange Act of 1934 and file such reports and other information with
the SEC. You can read and copy any materials we file with the SEC at its Public
Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. You can obtain
information about the operation of the SEC's Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC also maintains a Web site that contains
information we file electronically, which you can access over the internet at
http://www.sec.gov.
You may request a copy of our filings at no cost, by writing us at the
following address:
Frontline Ltd.
c/o Par la Ville Place, 4th Floor
14 Par la Ville Road
Hamilton HM 08, Bermuda
(441) 295-6935
Attn: Kate Blankenship
Information Incorporated by Reference
The SEC allows us to "incorporate by reference" information that we file
with it. This means that we can disclose important information to you by
referring you to those filed documents. The information incorporated by
reference is considered to be a part of this prospectus, and information that we
file later with the SEC prior to the termination of this offering will also be
considered to be part of this prospectus and will automatically update and
supersede previously filed information, including information contained in this
document.
We incorporate by reference our Annual Report on Form 20-F for the fiscal
year ended December 31, 2003, filed with the SEC on June 30, 2004, which
contains audited consolidated financial statements for the most recent fiscal
year for which those statements have been filed. We also incorporate by
reference a report of our 2004 second quarter results, filed with the SEC on
October 6, 2004 on Form 6-K, which contains unaudited consolidated financial
statements for the most recent quarter for which those statements have been
filed. Additionally, we incorporate by reference any future filings we will make
with the SEC under the Securities Exchange Act of 1934 if such filings state
that they are incorporated by reference into this prospectus, until we file a
post-effective amendment indicating that the offering of securities made by this
prospectus has been completed.
You may request a free copy of the above mentioned filing or any subsequent
filing we incorporated by reference to this prospectus by writing or telephoning
us at the following address:
Frontline Ltd.
c/o Par la Ville Place, 4th Floor
14 Par la Ville Road
Hamilton HM 08, Bermuda
(441) 295-6935
Attn: Kate Blankenship
Information Provided by the Company
43
We will furnish holders of our ordinary shares with annual reports
containing audited financial statements and a report by our independent public
accountants, and intend to furnish 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 United States
generally accepted accounting principles 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 of 1934 prescribing
the furnishing and content of proxy statements to shareholders. However, we
intend to furnish proxy statements to any shareholder in accordance with the
rules of the New York Stock Exchange. Those proxy statements are not expected to
conform to Schedule 14A of the proxy rules promulgated under the Exchange Act.
In addition, as a "foreign private issuer," we are exempt from the rules under
the Exchange Act relating to short swing profit reporting and liability.
44
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
--------------------------------------
Item 8. Indemnification of Directors and Officers.
Section 98 of the Companies Act of 1981 of the Islands of Bermuda, as
amended, or the Companies Act, permits the Bye-Laws of a Bermuda company to
contain a provision eliminating personal liability of a director or officer
to the company for any loss arising or liability attaching to him by virtue
of any rule of law in respect of any negligence default, breach of duty or
breach of trust of which the officer or person may be guilty.
Section 98 of the Companies Act grants companies the power generally
to indemnify directors and officers of the company if any such person was
or is a party or threatened to be made a party to a threatened, pending or
completed action, suit or proceeding by reason of the fact that he or she
is or was a director and officer of the company or was serving in a similar
capacity for another entity at the company's request.
Section 98 of the Companies Act permits a company to purchase and
maintain insurance or make other financial arrangements on behalf of any
officer for any liability asserted against him or her and liability and
expenses incurred in his or her capacity as a director, officer, employee
or agent arising out of his or her status as such, whether or not the
company has the power to indemnify him or her against such liability and
expenses. While the Company has not previously maintained such insurance,
it is currently in the process of applying for and attempting to procure
such a policy for current and prior directors.
The Company's Bye-law No. 130 provides as follows:
Subject to the provisions of the Act and so far as may be permitted by
the Act, the Directors, Secretary and other Officers for the time being of
the Company and the Liquidator or Trustees (if any) for the time being
acting in relation to any of the affairs of the Company and everyone of
them, and everyone of their heirs, executors and administrators, shall be
indemnified and secured harmless out of the assets and profits of the
Company to the maximum extent permitted by law from and against all
actions, costs, charges, losses, damages and expenses which they or any of
them, their or any of their heirs, executors, or administrators, shall or
may incur or sustain by or by reason of any act done, concurred in or
omitted in or about the execution of their duty, or supposed duty, in their
respective offices or trusts (including without limiting the generality of
the aforegoing, any act done, concurred in or omitted, being an act
contemplated or permitted in these Bye-Laws); and none of them shall be
answerable for the acts, receipts, neglects or defaults of the other or
others of them or for joining in any receipts for the sake of conformity,
or for any bankers or other persons with whom any moneys or effects
belonging to the Company shall or may be hedged or deposited for safe
custody, or for insufficiency or deficiency of any security upon which any
moneys of or belonging to the Company shall be placed on or invested, or
for any other loss, misfortune or damage which may happen in the execution
of their respective offices or trusts, or in relation thereto, PROVIDED
THAT this indemnity shall not extend to any matter in respect of any
willful negligence, willful default, fraud or dishonesty which may attach
to any of said persons.
45
Item 9. Exhibits
Exhibit Number Description
-------------- -----------
1.1 Underwriting Agreement (for equity securities)*
1.2 Underwriting Agreement (for debt securities)*
4.1 Share certificate+
4.2 Form of Debt securities indenture (senior indenture)
4.3 Form of Debt securities indenture (subordinated indenture)
5.1 Opinion of Mello, Jones & Martin, Bermuda counsel to
Frontline Ltd. (the "Company"), as to the validity of the Shares
5.2 Opinion of Seward & Kissel LLP, United States counsel to the
Company, as to enforceability of debt instruments
8.1 Opinion of Seward & Kissel LLP, with respect to certain
tax matters*
12.1 Computation of earnings to fixed charges
23.1 Consent of Mello, Jones & Martin (included in Exhibit 5.1)
23.2 Consent of Seward & Kissel LLP (included in Exhibit 5.2)
23.3 Consent of PricewaterhouseCoopers AS, Oslo
23.4 Consent of PricewaterhouseCoopers, Bermuda
23.5 Consent of Moore Stephens, London
23.6 Letter of Awareness from PricewaterhouseCoopers AS, Oslo
24.1 Power of Attorney (contained in signature page)+
25.1 T-1 Statement of Eligibility (senior indenture) *
25.2 T-1 Statement of Eligibility (subordinated indenture) *
* To be filed either as an amendment or as an exhibit to a report filed pursuant
to the Securities Exchange Act of 1934 of the Registrant and incorporated by
reference in this Registration Statement.
+ Previously filed as an exhibit to this Registration Statement filed on Form
F-3, File No. 333-65154.
Item 10. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which
46
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended (the "Act"), each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include
any financial statements required by Item 8.A. of Form 20-F at
the start of any delayed offering or throughout a continuous
offering. Financial statements and information otherwise required
by Section 10(a)(3) of the Act need not be furnished, provided,
that the registrant includes in the prospectus, by means of a
post-effective amendment, financial statements required pursuant
to this paragraph (a)(4) and other information necessary to
ensure that all other information in the prospectus is at least
as current as the date of those financial statements.
Notwithstanding the foregoing, with respect to registration
statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by
Section 10(a)(3) of the Act or Rule 3-19 of this chapter if such
financial statements and information are contained in periodic
reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by
reference in the Form F-3.
(5) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933,
each filing of the registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration
statement 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.
(6) The undersigned registrant hereby undertakes to deliver or cause
to be delivered with the prospectus, to each person to whom the
prospectus is sent or given, the latest annual report, to
security holders that is incorporated by reference in the
prospectus and furnished pursuant to and meeting the requirements
of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be
presented by Article 3 of Regulation S-X is not set forth in the
prospectus, to deliver, or cause to be delivered to each person
to whom the prospectus is sent or given, the latest quarterly
report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
(7) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 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
47
against public policy as expressed in the Securities Act of 1933
and will be governed by the final adjudication of such issue.
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-3 and has duly caused this Amendment No. 2 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Hamilton, Bermuda.
FRONTLINE LTD.
By: /s/ John Fredriksen
--------------------------------
Name: John Fredriksen
Title: Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons
onSeptember , 2004 in the capacities indicated.
Signature Title
--------- -----
/s/ John Fredriksen Chairman, Chief Executive Officer, President and Director
-------------------
/s/ Tor Olav Tr0im Vice-President and Director
-------------------
/s/ Kate Blankenship Chief Accounting Officer , Company Secretary and Director
-------------------
48
Authorized Representative
Pursuant to the requirement of the Securities Act of 1933, the undersigned,
the duly undersigned representative in the United States of Frontline Ltd., has
signed this registration statement in the City of Newark, State of Delaware, on
July 30, 2004.
PUGLISI & ASSOCIATES
By: /s/ Donald J. Puglisi
---------------------------------
Name: Donald J. Puglisi
Title: Managing Director
49
Exhibits
Filed DESCRIPTION
Herewith -----------
--------
Description of Exhibits
1.1 Underwriting Agreement (for equity securities)*
1.2 Underwriting Agreement (for debt securities)*
4.1 Share certificate+
4.2 Form of Debt securities indenture (senior indenture)
4.3 Form of Debt securities indenture (subordinated indenture)
5.1 Opinion of Mello, Jones & Martin, Bermuda counsel to Frontline
Ltd. (the "Company"), as to enforceabiity of debt instruments
5.2 Opinion of Seward & Kissel LLP, United States counsel to the
Company, as to the validity of the Shares
8.1 Opinion of Seward & Kissel LLP, with respect to certain
tax matters*
12.1 Computation of earnings to fixed charges
23.1 Consent of Mello, Jones & Martin (included in Exhibit 5.1)
23.2 Consent of Seward & Kissel LLP (included in Exhibit 5.2)
23.3 Consent of PricewaterhouseCoopers AS, Oslo
23.4 Consent of PricewaterhouseCoopers, Bermuda
23.5 Consent of Moore Stephens, London
23.6 Letter of Awareness from PricewaterhouseCoopers AS, Oslo
24.1 Power of Attorney (contained in signature page)+
25.1 T-1 Statement of Eligibility (senior indenture) *
25.2 T-1 Statement of Eligibility (subordinated indenture) *
* To be filed either as an amendment or as an exhibit to a report filed pursuant
to the Securities Exchange Act of 1934 of the Registrant and incorporated by
reference in this Registration Statement.
+ Previously filed as an exhibit to this Registration Statement filed on Form
F-3, File No. 333-65154.
50
02089.0009 #513297v2