Registration Statement No. 333 -
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification
organization) Code Number)
Frontline Ltd. Seward & Kissel LLP
Mercury House One Battery Park Plaza
101 Front Street New York, New York 10004
Hamilton Hm 12 (212) 574-1200
Bermuda (Name, address and telephone
(441) 295-6935 number of agent for service)
(Name, address and telephone
number of Registrant's
principal executive office)
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Copies to:
Kate Blankenship Gary J. Wolfe, Esq.
Frontline Ltd. Seward & Kissel LLP
c/o Mercury House One Battery Park Plaza
101 Front Street New York, New York 10004
Hamilton Hm (212) 574-1200
12 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. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of Maximum Maximum
Each Class of Offering Aggregate Amount of
Securities to Amount to be Price Per Offering Registration
be Registered Registered Security (1) Price (1) Fee (2)
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Debt Securities (3)
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Preferred Shares,
par value (3)
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Ordinary Shares,
par value $2.50 34,579,054 $18.40 $636,254,593 $159,063.65
per share (3)(4)
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Total $1,136,254,593(4) 100% $1,136,254,593(4) $284,063.65
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(1) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
(2) The registration fee has been calculated in accordance with
Rule 457(o) under the Securities Act of 1933 in respect of the
$1,136,254,593 of securities registered hereunder.
(3) There is being registered an indeterminate principal amount of Debt
Securities and an indeterminate number of Ordinary Shares and
Preferred Shares up to a total dollar amount of $500,000,000 as may
be issued from time to time by the Registrant, including issuance of
Debt Securities, Ordinary Shares and Preferred Shares upon the
exercise, conversion or exchange of Debt Securities or Preferred
Shares, to the extent any such securities are, by their terms,
exercisable or convertible into or exchangeable for Debt Securities,
Ordinary Shares or Preferred Shares. There are also being registered
hereunder 34,579,054 Ordinary Shares that may be offered from time to
time by the Selling Shareholders.
(4) The prospectus included herein relates to $500,000,000 of previously
unregistered securities that may be issued from time to time by the
Registrant and 34,579,054 Ordinary Shares that may be offered from
time to time by the Selling Shareholders.
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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.
Subject to completion - - dated July 13, 2001
[Frontline Logo]
$500,000,000
and
34,579,054 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 34,579,054 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 London Stock
Exchange under the symbol "FRO" and the Oslo Stock Exchange under
the symbol "FRO", and our ADSs are listed on the Nasdaq National
Market under the symbol "FRONY". We have applied to list our
ordinary shares on the New York Stock Exchange under the symbol
"FRO", and expect to terminate the listing of our ADSs on the
Nasdaq National Market simultaneously with the listing of our
ordinary shares on the New York Stock Exchange.
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 July , 2001
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.
TABLE OF CONTENTS
PROSPECTUS SUMMARY........................................3
RISK FACTORS..............................................6
FORWARD LOOKING STATEMENTS................................14
SELLING SHAREHOLDERS......................................15
CAPITALIZATION............................................16
USE OF PROCEEDS...........................................16
RATIO OF EARNINGS TO FIXED CHARGES........................17
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION.......17
DESCRIPTION OF ORDINARY SHARES............................21
DESCRIPTION OF PREFERRED SHARES...........................22
DESCRIPTION OF DEBT SECURITIES............................23
PLAN OF DISTRIBUTION......................................34
ENFORCEMENT OF CIVIL LIABILITIES..........................35
LEGAL MATTERS.............................................36
EXPERTS...................................................36
WHERE YOU CAN FIND ADDITIONAL INFORMATION.................37
INFORMATION PROVIDED BY THE COMPANY.......................38
FINANCIAL STATEMENTS......................................F-1
PART II...................................................A-1
In this prospectus, "we", "us" and "our" all refer to
Frontline Ltd. and its subsidiaries ("Frontline").
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 are a Bermuda based shipping company engaged primarily in
the ownership and operation of oil tankers, including
oil/bulk/ore, or OBO carriers. We operate tankers of two sizes:
very large crude carriers, or VLCCS, which are between 200,000
and 320,000 dwt, and Suezmaxes, which are vessels between 120,000
and 170,000 dwt. In addition, through our acquisition of Golden
Ocean Group Ltd. completed in October 2000, we acquired a fleet
of dry bulk carriers that includes Capesize, Panamax and Handymax
size bulk carriers. We operate through subsidiaries and
partnerships located in Bermuda, Liberia, Norway, Panama,
Singapore and Sweden. We are also involved in the charter,
purchase and sale of vessels. Since 1996, we have emerged as a
leading tanker company within the VLCC and Suezmax size sectors
of the market.
Our tanker fleet, which is one of the largest and most modern
in the world, consists of 31 owned, part-owned or controlled
VLCCs and 26 owned, part-owned or controlled Suezmax tankers, of
which 8 are Suezmax OBOs. In addition, we have a fleet of 8
wholly owned dry bulk carriers consisting of 3 Capesize, 2
Panamax and 3 Handymax size carriers and a 50% interest in two
additional Handymax size carriers. We also have eight newbuilding
contracts, a one-third interest in two further newbuilding
contracts and have purchase options or obligations to acquire a
further two VLCCs. We also charter three modern VLCCs and two
modern Suezmax tankers.
In 2000, we took delivery of three Suezmax and one VLCC
newbuildings and two secondhand Suezmax tankers. In addition, we
acquired three second-hand VLCCs and a 40% interest in a second-
hand VLCC. In acquiring Golden Ocean in October 2000, we acquired
its entire dry bulk fleet, seven wholly or partially owned VLCCs
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and five options or obligations to acquire VLCCs. Three of the
VLCCs covered by the options have since been delivered to us.
In 2001 to date, we have sold two 1993-built VLCCs and a 2000
built Suezmax tanker, all of which had been acquired in 2000, and
we bought a 50.1% interest in two 1993-built VLCCs., Through our
acquisition of Mosvold Shipping Limited in 2001, we have acquired
two VLCCs built in the mid-1970s and three newbuilding contracts
for VLCCs to be delivered, one in each of 2001, 2002 and 2003.
In addition, we have acquired a one-third interest in four VLCCs
acquired from Bergesen d.y. ASA.
Our fleet has a total tonnage of more than 17 million dwt,
and our vessels have an average age of less than six years
compared with an estimated industry average of over 12.5 years.
We believe that our vessels comply with the most stringent of
generally applicable environmental regulations for tankers.
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 US 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.
Acquisition of Mosvold Shipping Limited
On April 23, 2001, we announced an offer for all of the
shares of Mosvold Shipping Limited, a Bermuda company whose
shares are listed on the Oslo Stock Exchange. Through a
combination of shares acquired and acceptances of the offer, as
of May 31, 2001, we controlled 97% of the shares of Mosvold.
Mosvold owns two mid-70s built VLCCs, one of which has recently
been sold to be converted for use as a floating product storage
and offloading unit, and three newbuilding contracts for VLCCs to
be delivered, one in each of 2001, 2002 and 2003.
Newbuilding Commitments
We have eight newbuilding contracts and a one-third interest in
two further newbuilding contracts. The newbuildings are
scheduled to be delivered as follows:
Two Suezmaxes and one VLCC for delivery in 2001
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Six VLCCs for delivery in 2002
One VLCC for delivery in 2003
We expect to finance approximatley 30 per cent of each vessel,
equivalent to approximately $56 million, through cash generated
by operating activities and the remaining 70 per cent by
traditional bank financing. We will also consider alternatives
methods of financing as suitable opportunities arise.
Strategy
Our plan is to create one of the world's largest publicly
traded shipping companies, with a modern, high quality VLCC and
Suezmax fleet. Our business strategy is primarily based upon the
following principles:
- emphasizing operational safety and quality maintenance
for all of our vessels;
- complying with all current and proposed environmental
regulations;
- outsourcing technical operations and crewing;
- controlling operational costs of vessels;
- owning one of the most modern and homogeneous fleets of
tankers in the world;
- achieving high utilization of our vessels;
- achieving competitive financing arrangements and
- developing and maintaining relationships with major oil
companies and industrial charterers.
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 our OBO carriers and tankers.
We seek to maximize our earnings by employing our vessels in the
spot market, under time charters or under contracts of
affreightment.
Corporate Structure
We are incorporated under the laws of the Island of Bermuda.
We maintain our principal executive offices at Mercury House, 101
Front Street, Hamilton HM 12, Bermuda. Our telephone number at
that address is (441) 295-6935.
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RISK FACTORS
The following summarizes certain risks that may materially
affect our business, financial condition or results of
operations.
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 recharter 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:
- demand for oil and oil products;
- global and regional economic conditions;
- the distance oil and oil products are to be moved by
sea; and
- changes in seaborne and other transportation patterns.
The factors that influence the supply of tanker capacity include:
- the number of newbuilding deliveries;
- the scrapping rate of older vessels;
- the number of vessels that are out of service; and
- national or international regulations that may
effectively cause reductions in the carrying capacity of
vessels or early obsolescence of tonnage.
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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. Although spot
chartering is common in the tanker industry, the spot charter
market is highly competitive and spot charter rates may fluctuate
significantly based upon tanker and oil supply and demand. The
successful operation of our vessels in the spot charter market
depends upon, among other things, obtaining profitable spot
charters and minimizing, to the extent possible, time 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.
Our revenues experience seasonal variations that
may affect our income
We operate our tankers in markets that have historically
exhibited seasonal variations in demand and, therefore, charter
rates. Tanker markets are typically stronger in the winter
months in the Northern Hemisphere due to increased oil
consumption. In addition, unpredictable weather patterns in the
winter months tend to disrupt vessel scheduling. The oil price
volatility resulting from these factors has historically led to
increased oil trading activities and demand for vessels.
Changing demand for vessels may affect the charter rates that we
receive.
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 tankers may increase and decrease
depending on the following factors:
- general economic and market conditions affecting the
tanker industry;
- competition from other shipping companies;
- types and sizes of vessels;
- other modes of transportation;
- cost of newbuildings;
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- governmental or other regulations;
- prevailing level of charter rates; and
- technological advances.
If we sell a tanker at a time when tanker prices have fallen,
the sale may be at less than the vessel's carrying amount on our
financial statements, which may cause a loss and a reduction in
earnings. Recent market conditions in the tanker industry have
favourably affected the market value of our vessels. It is
possible that the market value of our vessels will decline in the
future.
If we violate environmental laws or regulations, the resulting
liability may adversely affect our earnings and financial
condition
Our operations are subject to extensive regulation designed
to promote tanker safety, prevent oil spills and generally
protect the environment. Local, national and foreign laws, as
well as international treaties and conventions, can subject us to
material liabilities in the event that there is a release of
petroleum or other hazardous substances from our vessels.
For example, the United States Oil Pollution Act of 1990, or
OPA, provides that owners, operators and bareboat charterers are
strictly liable for the discharge of oil in U.S. waters,
including the 200 nautical mile zone off the U.S. coasts. OPA
provides for unlimited liability in some circumstances, such as a
vessel operator's gross negligence or willful misconduct.
However, in most cases OPA limits liability to the greater of
$1,200 per gross ton or $10 million per vessel. OPA also permits
states to set their own penalty limits. Most states bordering
navigable waterways impose unlimited liability for discharges of
oil in their waters. The International Maritime Organization, or
IMO, has adopted a similar liability scheme that imposes strict
liability for oil spills, subject to limits that do not apply if
a vessel owner's intentional or reckless conduct causes a
release.
U.S. law, the law in many of the nations in which we operate,
and international treaties and conventions that impact our
operations also establish strict rules governing vessel safety
and structure, training, inspections, financial assurance for
potential cleanup liability and other matters. These
requirements can limit our ability to operate and substantially
increase our operating costs. The U.S. has established strict
deadlines for phasing-out single-hull oil tankers and both the
IMO and the European Union have adopted similar phase-out
periods.
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Under OPA, with certain limited exceptions, all newly built
or converted tankers operating in United States waters must be
built with double hulls conforming to particular specifications.
The OPA subjects tankers without double hulls to structural and
operational measures to reduce oil spills and precludes them
operating in United States waters between 1995 and 2015 according
to size, age, hull configuration and place of discharge, unless
retrofitted with double hulls. In addition, for both new and
existing vessels, OPA specifies annual standards and requirements
for inspections, vessel manning, equipment and vessel
construction in various stages of development.
The IMO recently announced a proposed revised timetable for
the phasing out of single-hull oil tankers by 2015. The proposal
identifies three categories of tankers based on cargo carrying
capacity and the presence or absence of protectively located
segregated ballast tanks. The new IMO proposal phases out, no
later than 2007, single-hull oil tankers with carrying capacities
of 20,000 dwt and above that carry crude oil, fuel oil, heavy
diesel oil or lubricating oil, and 30,000 dwt and above that
carry other oils, if they do not comply with IMO requirements for
protectively located segregated ballast tanks. Single-hull oil
tankers with similar carrying capacities which do comply with IMO
requirements for protectively located segregated ballast tanks
are to be phased out by 2015, depending on the date of delivery
of the vessel. It also phases out by 2015 all other single-hull
oil tankers with carrying capacities of 5,000 dwt and above and
not falling into one of the above categories, depending on a
vessel's delivery date.
These requirements can affect the resale value or useful
lives of our vessels. In addition, violations of applicable
requirements or a catastrophic release from one of our vessels
could have a material adverse impact on our financial condition
and results of operations.
Our earnings could suffer if we do not successfully employ our
dry bulk vessels when their bareboat charters and time charters
terminate
Most of the vessels (nine of the ten vessels) in the dry bulk
fleet that we acquired through our purchase of Golden Ocean Group
Limited in 2000 operate under long-term charters. Although these
long-term charters provide steady streams of revenue, the vessels
that are subject to these charters may not be available for spot
voyages during an upswing in the dry bulk market cycle, when spot
voyages might be more profitable. Additionally, if we cannot
recharter those vessels on long term charters or employ them in
the spot market profitably when their current charters expire,
this could have a material adverse impact on our financial
condition and results of operations.
9
The market for transportation of crude oil is highly competitive
and we may not be able effectively to compete
The operation of tanker vessels 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. 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.
We do not earn revenues when we have tankers constructed for us,
even though we must make progress payments
We currently have on order two Suezmax tankers for delivery
in the second half of 2001 and six VLCCs, of which one is for
delivery in late 2001, four for delivery in 2002 and the final
one for delivery in 2003. In addition, we have two partly owned
VLCC's for delivery in 2002. We are required to make progress
payments during the construction of the vessels, but we will not
derive any revenue from the vessels until after their delivery.
If the shipyards fail to complete the contracts, or if we fail to
obtain financing to pay for the vessels, we may forfeit all or a
portion of the instalments that we have paid.
Our debt service obligations could affect our ability to incur
additional indebtedness or engage in certain transactions
Our existing financing agreements impose operation and
financing restrictions on us which may significantly limit or
prohibit, among other things, our ability to incur additional
indebtedness, create liens, sell capital shares of subsidiaries,
make certain investments, engage in mergers and acquisitions,
purchase and sell vessels, enter into time or consecutive voyage
charters or pay dividends without the consent of our lenders. In
addition, our lenders may accelerate the maturity of indebtedness
under our financing agreements and foreclose upon 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.
Fluctuations in the yen could affect our earnings
The fleet of our subsidiary, Golden Ocean Group Limited,
which we acquired in 2000, has some charters and financing
arrangements that require payments of principal and interest or
charter hire in Yen. While many of the charters for the dry bulk
vessels that we acquired through Golden Ocean require the
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charterers to pay in Yen so as to cover related Yen denominated
debt service, the charterers may also pay a significant part of
the charter hire in U.S. Dollars. As we have not hedged our Yen
exposure against the U.S. Dollar, a rise in the Yen could have a
material adverse impact on our financial condition, cash flows
and results of operations.
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 Troim, 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. Troim, for any extended period of time, could have an
adverse effect on our business and results of operations.
Our vessels may suffer damage and we may face unexpected
drydocking costs which could affect our cash flow and our ability
to service our debt
If our vessels suffer damage they may need to be repaired at
a drydock or other type of ship repair facility. The costs of
drydock and/or repairs are unpredictable and can be substantial.
We may have to pay drydocking and repair costs that our insurance
does not cover. This would decrease earnings. Repairs may
involve long periods of inactivity which may have a negative
effect on earnings and our ability to service our debt.
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:
- marine disaster;
- piracy;
- environmental accidents;
- cargo and property losses or damage; and
- business interruptions caused by mechanical failure,
human error, war, terrorism, piracy, political action in
11
various countries, labour strikes, or adverse weather
conditions.
Any of these circumstances or events could increase our costs
or lower our revenues. The involvement of our vessels in an oil
spill or other environmental disaster may harm our reputation as
a safe and reliable tanker operator.
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.
Maritime claimants could arrest our tankers, which could
interrupt our cash flow
Crew members, suppliers of goods and services to a tanker,
shippers of cargo and other parties may obtain a maritime lien
against that tanker for unsatisfied debts, claims or damages. In
many jurisdictions a maritime lienholder may enforce its lien by
arresting a tanker through foreclosure proceedings. The arrest
or attachment of one or more of our tankers 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
the same owner owns or controls. 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
12
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.
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,
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.
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 managements',
directors' or controlling shareholders' actions than would
shareholders of a corporation incorporated in a United States
jurisdiction. In addition, 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.
We may have to pay tax on United States source income, which
would reduce our earnings
The United States Internal Revenue Code of 1986, or the Code,
may subject a vessel owning or chartering corporation, such as
ourselves and our subsidiaries, to a 4% United States federal
income tax on 50% of the gross shipping income we derive from
transportation that begins or ends, but that does not both begin
and end, in the U.S., unless the Code entitles that corporation
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, 2000.
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However, due to the absence of final Treasury regulations 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 the Code does not entitle us or our subsidiaries 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 would have an adverse
effect on our profitability.
SWEDISH TAX DISPUTE
We have recently received an adverse decision from the
Swedish Administrative Court of Appeal with respect to a tax
dispute with the Swedish tax authorities relating to ICB Shipping
(publ) Aktiebolag, or ICB, a wholly owned subsidiary that we
acquired in the fourth quarter of 1999. The dispute arises from
a limited partnership in which ICB invested, and which sold a
vessel on the exercise of a purchase option by a third party in
1990. The Swedish tax authorities assessed an "exit" tax on ICB
and the other members of the limited partnership and also sought
to tax ICB and the other members for income earned by the
partnership. ICB has contested these assessments. The Swedish
Administrative Court of appeal has recently upheld a decision by
a County Administrative Court finding ICB liable for these
assessments. Including accrued interest, the taxes found due by
the court total approximately SEK90 million, or $8.3 million at
the exchange rate prevailing in mid-July, 2001. We are currently
appealing this judgment.
FORWARD LOOKING STATEMENTS
Matters discussed in this document may constitute forward-
looking statements. The Private Securities Litigation Reform Act
of 1995 provides safe harbor protections for forward-looking
statements in order to encourage companies to provide prospective
information about their business. Forward-looking statements
include statements concerning plans, objectives, goals,
strategies, future events or performance, and underlying
assumptions and other statements, which are other than statements
of historical facts.
We desire to take advantage of the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 and are
including this cautionary statement in connection with this safe
harbor legislation. This document and any other written or oral
statements made by us or on our behalf may include forward-
14
looking statements which reflect our current views with respect
to future events and financial performance. The words "believe,"
"except," "anticipate," "intends," "estimate," "forecast,"
"project," "plan," "potential," "will," "may," "should," "expect"
and similar expressions identify forward-looking statements.
The forward-looking statements in this document are based
upon various assumptions, many of which are based, in turn, upon
further assumptions, including without limitation, management's
examination of historical operating trends, data contained in our
records and other data available from third parties. Although we
believe that these assumptions were reasonable when made, because
these assumptions are inherently subject to significant
uncertainties and contingencies which are difficult or impossible
to predict and are beyond our control, we cannot assure you that
we will achieve or accomplish these expectations, beliefs or
projections.
In addition to these important factors and matters discussed
elsewhere in this prospectus, and in the documents incorporated
by reference in this prospectus, important factors that, in our
view, could cause actual results to differ materially from those
discussed in the forward-looking statements include the strength
of world economies and currencies, general market conditions,
including fluctuations in charterhire rates and vessel values,
changes in demand in the tanker market, as a result of changes in
OPEC's petroleum production levels and world wide oil consumption
and storage, changes in the company's operating expenses,
including bunker prices, drydocking and insurance costs, changes
in governmental rules and regulations or actions taken by
regulatory authorities, potential liability from pending or
future litigation, general domestic and international political
conditions, potential disruption of shipping routes due to
accidents or political events, and other important factors
described from time to time in the reports we file with the
Securities and Exchange Commission and the New York Stock
Exchange.
SELLING SHAREHOLDERS
The following table describes our shareholders that have
requested to be included in this prospectus.
15
Shares Owned
Shares Owned Prior Shares Offered After This
To this Offering for Sale Offering
----------------------------------------------------
Selling
Shareholders
-------------
Hemen Holding Ltd. (1) 29,097,934 29,097,934 0
Meisha Inc. (1) 5,481,120 5,481,120 0
(1) Hemen Holding Ltd. is a Cyprus holding company indirectly controlled by
Mr. John Fredriksen, our Chairman and Chief Executive Officer. Meisha
Inc is a Bahamas holding company indirectly controlled by Mr. John
Fredriksen, our Chairman and Chief Executive Officer.
CAPITALIZATION
As of March 31, 2001
Actual
(in thousands of $)
Debt:
Current portion of long-term debt 227,482
Total long-term debt, net of current portion 1,352,811
Total debt 1,580,293
Stockholders' equity
Share capital 192,298
Additional paid-in capital 564,691
Warrants and options 7,178
Accumulated other comprehensive loss (8,933)
Retained earnings 415,283
Total stockholders' equity 1,170,517
Total Capitalization 2,750,810
16
USE OF PROCEEDS
Unless we specify otherwise in any prospectus supplement, we
will use the net proceeds from the sale of the securities offered
by this prospectus for capital expenditures, repayment of
indebtedness, working capital, to make acquisitions and for
general corporate purposes. We will not receive any proceeds
from the sale of any ordinary shares by the selling shareholders.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed
charges for each of the preceding five fiscal years.
FISCAL YEAR
-----------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
Ratio of earnings
to fixed charges..... 4.11 -- 1.26 1.37 1.81
Deficiency of earnings
available to cover
fixed charges -- 94,134 -- -- --
Ratio of earnings
to combined fixed
charges and
preferred stock
dividends (1) ........ --- --- --- --- ---
_______________
(1) We have not issued any preferred shares as of the date of this
prospectus.
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
On October 10, 2000, we took control of Golden Ocean Group
Limited ("Golden Ocean"), a shipping group which holds interest
in 14 VLCCs and 10 bulk carriers. On the same date Golden Ocean
emerged from bankruptcy protection under Chapter 11 of the U.S.
Bankruptcy Code. On January 14, 2000, Golden Ocean and its
immediate subsidiaries, Golden Ocean Tankers Limited and Channel
Rose Holdings Inc., filed for bankruptcy protection under Chapter
11 of the U.S. Bankruptcy Code with the Clerk of the United
States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"), and through this protection received an
exclusive period of up to 120 days to file a Plan of
Reorganization. On July 7, 2000, Frontline filed a proposed plan
of reorganization (the "Plan of Reorganization") and disclosure
statement (the "Disclosure Statement") with the Bankruptcy Court
which set forth the manner in which claims against and equity
interests in the Debtors would be treated. On August 4, 2000 the
17
Bankruptcy Court approved Frontline's Disclosure Statement. The
Plan of Reorganization was approved by an overwhelming majority
of holders of claims entitled to vote and was confirmed at a
hearing on September 15, 2000.
On October 10, 2000 the Plan of Reorganization became
effective and Frontline acquired the entire share capital of
Golden Ocean. The total acquisition price paid, including amounts
paid to settle allowed claims, was approximately $63.0 million,
including 1,245,998 shares issued at a price of $15.65 per share.
The following unaudited pro forma condensed combined
statement of operations give effect to the acquisition of Golden
Ocean by Frontline under the purchase method of accounting as if
the acquisition had taken place on January 1, 2000. The pro
forma condensed combined statement of operations is presented for
illustrative purposes only. The pro forma adjustments are based
upon available information and assumptions that management
believe are reasonable. The pro forma condensed combined
statement of operations does not purport to represent what the
results of operations would actually have been if the acquisition
had in fact occurred on such date, nor do they purport to project
the results of operations of Frontline for any future period or
as of any date, respectively.
Under the purchase method of accounting, tangible and
intangible assets acquired and liabilities assumed are recorded
at their estimated fair values. The excess of the purchase
price, including estimated fees and expenses relating to the
acquisition, over the net assets acquired is classified as
goodwill.
The unaudited pro forma condensed combined statement of
operations for the period presented was prepared by combining
Frontline's statement of operations for the year ended December
31, 2000 with Golden Ocean's statement of operations for the nine
months ended September 30, 2000, giving effect to the acquisition
as if it had occurred on January 1, 2000. These unaudited pro
forma condensed combined statements of operations do not give
effect to any restructuring costs or to any potential costs
savings or other operating efficiencies that could result from
the acquisition by Frontline. In addition, the unaudited pro
forma condensed information does not include the historical
results of operations of Golden Ocean for the first ten days of
October as the amounts are deemed immaterial.
The condensed consolidated historical statement of operations
for Frontline for the year ended December 31, 2000 is derived
from the audited consolidated historical statement of operations
incorporated by reference in this prospectus. The condensed
consolidated historical statement of operations for Golden Ocean
18
for the nine months ended September 30, 2000 is derived from the
unaudited condensed consolidated historical statement of
operations included in this prospectus.
19
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Frontline Golden Ocean Pro Forma Pro Forma
Historical Historical Adjustments Combined
12 months ended 9 months ended
December 31, September 30,
2000 2000
Net operating
revenues $599,944 $65,309 $ - $665,253
Gain (loss)
from sale of
vessels 1,160 7,697 - 8,857
Ship operating
expenses 88,455 7,797 - 96,252
Charterhire expenses 34,351 8,938 - 43,289
Administrative
expenses 9,326 4,081 - 13,407
-------- -------- -------- --------
Operating income
before depreciation
and amortization 468,972 52,190 - 521,162
-------- -------- -------- --------
Depreciation
and amortization 92,880 18,231 (204)(1) 107,192
95(2)
(3,810)(3)
Operating income
after depreciation
and amortization 376,092 33,959 3,919 413,970
Interest income 6,858 753 - 7,611
Interest expenses (96,174) (19,368) 2,508(4) (113,034)
Share or results
from associated
companies 12,817 8,506 - 21,323
Foreign exchange
gain (loss) 14,563 15,309 - 29,872
Other financial items (248) (414) - (662)
Income before
taxes and
minority interest 313,908 38,745 6,427 359,080
Reorganization items 7,618 - 7,618
Minority interest - 368 - 368
Taxes 41 - 41
-------- -------- -------- --------
Net income $313,867 $ 30,759 $ 6,427 $351,053
-------- -------- -------- --------
20
Weighted average
number of shares
issued and
outstanding(5)
-- Basic 73,391 980 74,371
-- Diluted 73,564 980 74,544
Earnings per
Share ($)
-- Basic $ 4.28 $ 4.72
-- Diluted $ 4.27 $ 4.71
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS
(1) This adjustment represents the estimated elimination of
amortization of goodwill in Golden Ocean.
(2) This adjustment gives effect to the estimated amortization
for the effect of the excess of consideration over net
assets acquired. The purchase price in the Golden Ocean
acquisition, approximately $63.0 million, has been allocated
based on estimated fair values at the date of acquisition.
The excess of consideration over the fair value of net
assets acquired, an amount of $2.8 million, has been
allocated to goodwill. For purposes of the unaudited pro
forma condensed combined statement of operations, goodwill
is being amortised over an estimated life of 22 years.
(3) This adjustment reflects the adjustment to depreciation
expense for the effect of the fair value adjustment of
Golden Ocean's vessels.
(4) This adjustment represents the estimated elimination of
amortization of deferred charges in Golden Ocean.
(5) The weighted average number of ordinary shares outstanding
has been calculated assuming that the 1,245,998 ordinary
shares issued as part of the consideration for the purchase
price for the acquisition of Golden Ocean, were issued on
January 1, 2000. The diluted weighted average number of
ordinary shares outstanding includes the effect of the
assumed conversion of potentially dilutive instruments.
21
DESCRIPTION OF ORDINARY SHARES
We are incorporated in the Islands of Bermuda. Bermuda law,
and our Memorandum of Association and Bye-Laws govern the rights
of our shareholders.
Generally, Bermuda law permits a company to enter into an
agreement to amalgamate, which sets forth the terms and
conditions of the amalgamation, the mode of carrying the
amalgamation into effect and the manner of converting shares of a
company into shares of another company. Under Bermuda law, a
company's Bye-Laws may prescribe the vote necessary to approve an
amalgamation involving that company. Presently, our Bye-Laws
effectively require the approval of 75% of our outstanding
ordinary shares to approve an amalgamation. Bermuda law requires
that each share of an amalgamating company be allowed to vote on
an amalgamation even if the share is otherwise is non-voting.
Bermuda law provides for appraisal rights for shareholders
who do not vote in favor of an amalgamation and who follow
certain procedures. However, under Bermuda law, no written
demand of payment to the amalgamating company is required, and
instead, the dissenting shareholder must apply to the Supreme
Court of Bermuda for a determination of the fair value of its
shares.
Bermuda law permits the Bye-Laws of a company to provide that
a majority is required to constitute a quorum for the transaction
of any action at a meeting of directors. Our Bye-Laws contain
such a provision.
In Bermuda, the Bye-Laws of a company may authorize a company
to indemnify its officers or directors against personal liability
for anything done or omitted to be done by such officer or
director except any acts of fraud or dishonesty. Our Bye-Laws
contain such indemnification provisions.
Bermuda law permits a company to purchase and maintain
insurance to indemnify any officer or director against loss or
liability imposed by a rule of law the officer or director
breached in his capacity as an officer or director of the
company. We currently maintains directors and officers liability
insurance and intend to maintain such coverage in the future.
Under Bermuda law, an officer or director who has a material
interest in a matter being considered by a company or is a party
to such a contract is deemed to have acted dishonestly if he
fails to disclose it to the company's directors.
Holders of our ordinary shares do not have any preemptive
rights or conversion rights, or sinking fund privileges. All of
22
the outstanding shares are duly authorized, validly issued, fully
paid and non-assessable.
SHARE HISTORY
The following is a description of our share history over the
past three years. As of January 1, 1998, we had 73,726,816
ordinary shares outstanding. After an amalgamation with the old
Frontline Ltd. in May, 1998, we had 461,058,609 ordinary shares
outstanding. Later in 1998, we effectuated a 1:10 reverse share
split and 1,000 ordinary shares were issued in connection with
the exercise of options. As of December 31, 1998, we had
46,106,860 ordinary shares outstanding. During 1999, we issued
14,855,000 shares, and had 60,961,860 shares outstanding as of
December 31, 1999. During 2000, we issued 19,256,967 ordinary
shares in private placements, in exchange for acquired assets or
pursuant to exercises of options or warrants. In addition, in
2000, we cancelled 171 treasury shares and 430,000 shares over
which we had a call option. We also repurchased pursuant to a
publicly announced repurchase plan 1,719,845 ordinary shares. As
of December 31, 2000 we had 78,068,811 ordinary shares
outstanding. In 2001 to date, we have issued 416,555 ordinary
shares pursuant to the exercise of options and warrants and we
have repurchased 1,572,800 ordinary shares so that as of June 30,
2001 we have 76,912,566 ordinary shares outstanding.
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 DEBT SECURITIES
We may issue 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 named in the indenture. These
indentures will be filed either as exhibits to an amendment to
this Registration Statement for 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 for a prospectus supplement, hereinafter collectively
referred to as the 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
set forth the specific terms of any series of debt securities or
provide that such terms shall 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.
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 and Bermuda 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
Neither indenture limits the amount of debt securities which
may be issued and each indenture provides 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.
24
You should read the Subsequent Filings relating to the
particular series of debt securities for the following terms of
the offered debt securities:
(1) the designation, aggregate principal amount and
authorized denominations;
(2) the issue price, expressed as a percentage of the
aggregate principal amount;
(3) the maturity date;
(4) the interest rate per annum, if any;
(5) 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 commence and the regular
record dates for interest payment dates;
(6) any optional or mandatory sinking fund provisions or
conversion or exchangeability provisions;
(7) 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;
(8) 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;
(9) 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;
(10) any events of default not set forth in this prospectus;
(11) 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;
(12) 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;
25
(13) 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;
(14) 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;
(15) 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;
(16) any restrictive covenants or other material terms
relating to the offered debt securities, which may not
be inconsistent with the applicable indenture;
(17) whether the offered debt securities will be issued in
the form of global securities or certificates in
registered or bearer form;
(18) any terms with respect to subordination;
(19) any listing on any securities exchange;
(20) additional provisions, if any, related to defeasance and
discharge of the offered debt securities; and
(21) the applicability of any guarantees.
Unless otherwise indicated in the 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 the Subsequent Filings or
supplemental indenture, principal, premium and interest will be
paid by checks mailed to the holders at their registered
addresses.
Unless otherwise indicated in the Subsequent Filings relating
thereto, 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 therewith.
26
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 stated principal amount.
United States federal income consequences and other special
considerations applicable to any discounted securities will be
described in the Subsequent Filings relating thereto.
Reference is made to the 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 the Subsequent Filings
prepared in connection with the offering of such securities,
limiting or restricting, among other things:
(1) our or our subsidiaries' incurrence of debt and/or our
or our subsidiaries, incurrence of secured debt;
(2) the making of certain payments, dividends, redemptions
or repurchases;
(3) our ability to create dividend and other payment
restrictions affecting our subsidiaries;
(4) our ability to make investments;
(5) mergers and consolidations by us;
(6) sales of assets by us;
(7) our ability to enter into transactions with affiliates;
(8) our ability to incur liens; and
(9) 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 the 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 one
class, but no modification altering the terms of payment of
principal or interest, changing the place or medium of payment of
principal or interest, impairing the rights of holders to
27
institute suit for payment or reducing the percentage required
for modification or altering such other terms as are provided in
the Subsequent Filings will be effective against any holder
without his consent. In addition, such other terms as specified
in the 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:
(1) default for 30 days in any payment of interest when due;
(2) default in any payment of principal or premium when due;
(3) default in the deposit of any sinking fund payment when
due;
(4) default for 60 days after appropriate notice in the
performance of any other covenant in the debt securities
or the applicable indenture;
(5) 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 within 30
days after written notice to us as provided in the
indenture; and
(6) events of bankruptcy, insolvency or reorganization.
There may be such other or different events of default as
described in the applicable Subsequent Filing with respect to any
class or series of offered debt securities.
In case an event of default shall occur and be continuing 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 of the debt securities of that series and the accrued
interest thereon to be due and payable. Any event of default for
the debt securities of any series which has been cured may be
28
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 thereunder 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 provisions of each indenture relating to the
duties of the trustee in case an event of default shall occur and
be continuing, each indenture provides that the trustee shall be
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 shall 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 shall 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.
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 thereof 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. Such
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.
29
DEFEASANCE OF CERTAIN COVENANTS
The terms of the debt securities provide us with the right to
omit to comply with specified covenants and that specified events
of default described in the 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 thereof in
accordance with their terms 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.
The Subsequent Filing may further describe the provisions, if
any, of any particular series of offered debt securities
permitting a discharge defeasance.
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 the
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 the 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 the applicable Subsequent Filing.
30
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 the 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
31
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 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 the 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 shall 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:
(1) 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,
32
(2) we in our sole discretion determine that the global
securities shall be exchangeable for certificated debt
securities, or
(3) 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 such 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 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
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
33
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.
34
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.
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:
-- a block trade in which a broker-dealer may resell a
portion of the block, as principal, in order to
facilitate the transaction;
-- purchases by a broker-dealer, as principal, and resale
by the broker-dealer for its account; or
-- ordinary brokerage transactions and transactions in
which a broker solicits purchasers.
The selling shareholders may enter into other transactions
with respect to our ordinary shares. For example, the selling
shareholders may:
-- 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
-- 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
35
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.
The selling shareholders may also sell our securities
pursuant to Rule 144 promulgated 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
36
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, Appleby,
Spurling & Kempe, 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 Appleby, Spurling & Kempe,
Hamilton, Bermuda, and by Seward & Kissel LLP, New York, New
York.
EXPERTS
The financial statements incorporated in this Prospectus by
reference from our Annual Report on Form 20-F for the year ended
December 31, 2000, as amended, have been incorporated in reliance
on the report of Pricewaterhouse Coopers DA, independent
accountants, given the authority of said firm as experts in
accounting and auditing. In addition, the Annual Report cited
above incorporated by reference the financial statements of ICB
Aktiebolag (publ) one of our subsidiaries, whose financial
statements for the years ended December 31, 1998 and 1997, were
audited by KPMG, independent accounts which have been
incorporated in reliance on the report of such firm as experts in
accounting and auditing. In addition, the financial statements
of Golden Ocean Group Limited for the year ended December 31,
1998 and the year ended December 31, 1997 appearing herein and
the financial statements of Golden Ocean Group Limited for the
year ended December 31, 1999, incorporated in our Report on Form
6-K filed on October 26, 2000, and the financial statements of
Golden Ocean Group Limited for the period October 10 to December
37
31, 2000, incorporated in an Annual Report on Form 20-F, for the
year ended December 31, 2000, as amended, were audited by Moore
Stephens, independent accountants. All of these financial
statements have been included in reliance of the respective
reports of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
GOVERNMENT FILINGS
We file annual and special reports within the Securities and
Exchange Commission. You may read and copy any document that we
file at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549 and at the Commission's Regional Offices at 7 World Trade
Center, Suite 1300, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Northwestern Atrium Center, Chicago, Illinois
60661. You may obtain information on the operation of the public
reference room by calling 1 (800) SEC-0330, and you may obtain
copies at prescribed rates from the Public Reference Section of
the Commission at its principal office in Washington, D.C. 20549.
The SEC maintains a website (http://www.sec.gov) that contains
reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC.
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, 2000, filed with the SEC
on June 13, 2001, as amended on July 13, 2001, which contains
audited consolidated financial statements for the most recent
fiscal year for which financial information has been filed. We
also incorporate by reference a report of our 2001 first quarter
results, filed with the SEC on May 10, 2001 on Form 6-K, which
contains unaudited consolidated financial information for the
most recent quarter for which financial information has been
filed. We incorporate the financial statements of Golden Ocean
for the fiscal year ended December 31, 1999 filed with the SEC on
October 26, 2000 on Form 6-K. 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
38
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 Mercury House
101 Front Street
Hamilton
Hm 12
Bermuda
(441) 295-6935
Attn: Kate Blankenship
INFORMATION PROVIDED BY THE COMPANY
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.
39
GOLDEN OCEAN GROUP LIMITED
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditor's Report.............................F-1
Consolidated Balance Sheets as of
December 31, 1997 and December 31, 1998..................F-3
Consolidated Statements of Operations
and Retained Earnings for the years
ended December 31, 1997 and 1998.........................F-5
Consolidated Statements of Cash Flows
for the years ended December 31, 1997
and 1998.................................................F-7
Notes to Consolidated Financial
Statements...............................................F-10
Consolidated Balance Sheet as of
September 30, 2000 (Unaudited)......F-40
Consolidated Statements of Operations
and Retained Earnings for the nine
months ended September 30, 1999 and 2000
(Unaudited)..............................................F-42
Consolidated Statements of Cash Flows
for the nine months ended September 30,
1999 and 2000 (Unaudited)................................F-43
Notes to Unaudited Financial Statements..................F-45
40
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Golden Ocean Group Limited
We have audited the accompanying consolidated balance sheets of
Golden Ocean Group Limited and subsidiaries as of December 31,
1998 and 1997 and the related consolidated statements of
operations and retained earnings and cash flows for each of the
years in the two year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Golden Ocean Group Limited and subsidiaries
as of December 31, 1998 and 1997, and the consolidated results of
their operations and their cash flows for each of the years in
the two year period ended December 31, 1998, in conformity with
generally accepted accounting principles in the United States.
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern.
As described in more detail in note 27 to the consolidated
financial statements, the Company has incurred a net loss of
$76.8 million in 1998 and has significant debt obligations. The
Company also does not have financing in place to fund capital
commitments of yen 37,432,150,000 ($331,845,300) and $97,350,000
for five vessels under construction with deliveries scheduled in
1999 and instalment payments due in 1999 for two vessels with
deliveries scheduled in the year 2000. These matters raise
substantial doubt about the Company's ability to continue as a
going concern. Management's plans to address these issues are
discussed in note 27 to the consolidated financial statements.
The consolidated financial statements do not include any
F-1
adjustments that might result from the outcome of this
uncertainty.
As more fully explained in note 29 to the consolidated financial
statements, the Company previously issued financial statements
which understated certain chartering liabilities arising from an
agreement with a third party. The accompanying consolidated
financial statements have been restated to reflect these
adjustments.
Moore Stephens
Chartered Accountants
St. Paul's House
Warwick Lane
London, England
March 26, 1999
(October 17, 2000 - notes 28, 29)
F-2
GOLDEN OCEAN GROUP LIMITED
CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of United States Dollars)
Assets December 31,
------------
Note 1998 1997
---- ----
CURRENT ASSETS
Cash and cash equivalents 3 $ 8,487 $ 6,419
Inventories 549 392
Trade accounts receivable 27 303
Investment in direct financing
sub-lease 6 - 1,554
Prepaid expenses and other
accounts receivable 1,358 1,374
Short term investments 11 28,747 19,581
Vessels under capital lease, net 5 - 40,149
-------- --------
Total current assets 39,168 69,772
Vessels owned, net 4,15 420,889 274,023
Vessels under capital lease, net 5 107,898 40,414
Vessels under construction 7,15 132,276 129,692
Options to purchase vessels 8 48,654 -
Investment in joint ventures 9 1,382 4,018
Loans to joint ventures 9,10 23,012 21,192
Investment in direct financing
sub-lease 6 - 31,183
Long term investments 11 - 18,490
Goodwill, net 12 18,439 19,219
Deferred note issue costs, net 13 8,917 9,313
-------- --------
Total assets $800,635 $617,316
======== ========
Liabilities and shareholders' equity
F-3
CURRENT LIABILITIES
Current maturities of long term debt 15 $23,050 $ 13,955
Obligations under capital leases 14 6,524 30,016
Trade accounts payable and accrued
expenses 3,765 3,344
Note interest payable 19 9,713 6,667
Accrued profit share 5 - 6,243
Other accounts payable 28,29 - 340
Time charter income received in
advance 1,949 2,572
Amounts due to related party 16 237 289
Drydocking and special survey
provisions 1,045 713
-------- --------
Total current liabilities 46,283 64,139
Other loans 17 13,262 12,265
Long term debt 15 324,527 188,646
Obligations under capital leases 14 104,893 61,119
Notes payable 19 236,372 150,281
Other accounts payable 28,29 5,000 -
Amounts due to shareholder 18,29 14,820 15,309
Drydocking and special survey
provisions 611 318
-------- --------
Total liabilities 745,768 492,077
Minority interest 41 -
SHAREHOLDERS' EQUITY
Share capital 20 - -
Additional paid in capital 20,29 71,795 65,410
Retained earnings/(deficit) 29 (16,969) 59,829
-------- --------
Total shareholders' equity 54,826 125,239
Commitments and contingent
liabilities 7,25 - -
-------- --------
Total liabilities and
shareholders' equity $800,635 $617,316
======== ========
See accompanying notes to the consolidated financial statements
F-4
GOLDEN OCEAN GROUP LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Expressed in thousands of United States Dollars)
Year ended December 31,
-----------------------
Note 1998 1997
---- ----
OPERATING REVENUES
Charter income 23(c) $ 50,326 $ 47,647
Brokers' commission (470) (709)
Share of earnings
(losses) of joint
ventures 9 (2,636) 2,581
Interest on direct
financing sub-lease 1,665 2,197
-------- --------
Total operating
revenues 48,885 51,716
OPERATING EXPENSES
Vessel operating costs 9,843 12,301
Administrative expenses 16 6,696 3,729
Depreciation and
amortisation expense 4,5 16,835 16,658
Write down of vessel 5,6 1,892 3,227
Amortisation of goodwill 779 260
Drydocking and special
survey costs 916 678
-------- --------
Total operating expenses 36,961 36,853
-------- --------
Net operating income 11,924 14,863
F-5
OTHER INCOME (EXPENSES)
Foreign exchange gain/(loss) 22 (32,281) 30,376
Interest income 3,804 970
Interest expense (52,363) (24,139)
Other income (expenses) 28,29 (6,558) (418)
Profit share payment 5 - (6,243)
Gain on disposal of vessel 7 - 1,551
Loss on disposal of vessels 4 (1,283) (8,331)
Loss on disposal of interest
in joint venture 9 - (600)
-------- --------
Net other income (expense) (88,681) (6,834)
-------- --------
Net income/(loss) before
minority interest (76,757) 8,029
Minority interest (41) -
-------- --------
Net income/(loss) (76,798) 8,029
Retained earnings at
beginning of the year 59,829 51,800
-------- --------
Retained earnings/(deficit)
at end of the year $ (16,969) $ 59,829
========= ========
See accompanying notes to the consolidated financial statements
F-6
GOLDEN OCEAN GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of United States Dollars)
Year ended December 31,
-----------------------
1998 1997
---- ----
OPERATING ACTIVITIES
Net income/(loss) $(76,798) $8,029
Adjustments to reconcile net
income/(loss) to net cash
provided by operating activities:
Foreign exchange (gain)/loss 32,281 (30,376)
Depreciation and amortisation
expense 16,835 16,658
Write down of vessel 1,892 3,227
Share of (earnings) losses of
joint ventures 2,636 (2,581)
Gain on disposal of vessel - (1,551)
Loss on disposal of vessels 1,283 8,331
Loss on disposal of interest
in joint venture - 600
Amortisation of note discount 16,951 3,881
Amortisation of goodwill 779 260
Amortisation of deferred note
issue costs 3,210 847
Interest receivable on loans to
joint ventures (496) (723)
Minority interest 41 -
Net change in:
Inventories (157) (41)
Trade accounts receivable 276 1,130
Prepaid expenses and other
accounts receivable (1,583) (1,480)
Trade accounts payable and
accrued expenses 558 (5,088)
Note interest payable 3,046 6,667
Accrued profit share (6,243) 6,243
Other accounts payable 4,660 (5,157)
Time charter income received
in advance (622) 67
Drydocking and special
survey provisions 625 (176)
-------- --------
Net cash provided by operating
activities (826) 8,767
F-7
INVESTING ACTIVITIES
Loans to joint ventures (1,324) 801
Received from disposal of
interest in joint venture - 3,250
Payments received on direct
financing sub-lease 1,299 3,029
Additions to vessels under
construction (224,882) (169,375)
Payments to acquire options on
vessels (48,654) -
Proceeds from sale of vessels 62,415 77,859
Payments to acquire investments (13,645) (37,334)
Proceeds from redemption of
investments 24,569 -
Acquisitions net of cash - (20,076)
-------- --------
Net cash used in investing
activities (200,222) (141,846)
F-8
GOLDEN OCEAN GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Expressed in thousands of United States Dollars)
FINANCING ACTIVITIES
Proceeds from long term debt 195,627 93,806
Repayment of long term debt (34,072) (86,425)
Repayment of capital leases (30,609) (6,452)
Proceeds from other loans - 10,513
Repayments of other loans - (21,856)
Amounts due to related party (52) (4,009)
Advances by shareholder 5,896 16,390
Capital contributions returned
to shareholder - -
Proceeds of note issue 69,140 144,716
Payments for deferred note
issue costs (2,814) (10,160)
-------- --------
Net cash provided by financing
activities 203,116 136,523
Net increase (decrease) in cash
and cash equivalents 2,068 3,444
Cash and cash equivalents at
beginning of year 6,419 2,975
-------- --------
Cash and cash equivalents at
end of year $ 8,487 $ 6,419
======== ========
Supplementary disclosure of
cash flow information
Interest paid 42,789 17,379
Interest capitalised (13,855) (4,635)
-------- --------
Interest paid, net of
capitalised interest $ 28,934 $ 12,744
======== ========
F-9
Supplementary schedule of non cash investing and financing activities:
The capital lease obligations for the Channel Poterne (in 1997), Golden Protea
and Golden Aloe (in 1998) did not involve cash and therefore the inception
values of the leases of $35,101,000, $17,234,000 and $17,319,000 respectively
have been excluded from the statements of cash flows.
See accompanying notes to the consolidated financial statements
F-10
GOLDEN OCEAN GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
1. General
Golden Ocean Group Limited ("the Company") was
incorporated in Liberia on February 8, 1995 under the
name of Channel Rose Investment Limited. On February 4,
1997, the name of the Company was changed from Channel
Rose Investment Limited to Golden Ocean Group Limited.
Golden Ocean Group Limited, through its subsidiaries and
joint venture companies, owns and operates a fleet of
tankers and bulk cargo vessels. The majority of its
revenues are derived from fixed, long-term time charter
arrangements. As at December 31, 1998 the wholly owned
fleet consists of four Very Large Crude Carriers
("VLCC's") and two capesize bulkers. There are also two
capesize bulkers and two handymax bulkers on capital
lease to the Company. Additionally, the joint venture
fleet comprises of one VLCC and two handymax bulkers.
There are seventeen vessels on order by subsidiaries and
joint venture companies and the Company has options to
purchase a further seven VLCCs. Until September 30,
1997, the fleet was managed by Golden Ocean Management
Limited, a company incorporated under the laws of
Bermuda and related through common control. As from
October 1, 1997, the fleet is managed by Golden Ocean
Services Inc., a subsidiary company.
The Company's activities are not limited to any
geographical area.
2. Accounting policies
The consolidated financial statements have been prepared
in accordance with generally accepted accounting
principles in the United States. The preparation of
financial statements in accordance with generally
accepted accounting principles requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of
revenues and expenses during the period. Actual results
could differ from those estimates. The following are
the significant accounting policies adopted by the
Company:
F-11
(a) CONSOLIDATION
The consolidated financial statements include the
assets, liabilities and results of operations of the
Company and its majority owned subsidiaries. All inter-
company balances and transactions have been eliminated
upon consolidation.
Entities in which the Company has a majority of the
voting rights are consolidated. Non-equity financing
provided by the minority interests is accounted for as
other loans. Minority interest in the results of
operations of subsidiaries is allocated in proportion to
the total minority shareholding.
Acquisitions of minority interests in subsidiaries in
1997 have been accounted for using the purchase method
of accounting.
(b) INVESTMENT IN JOINT VENTURES
The Company's investments in joint ventures are
accounted for using the equity method of accounting
whereby the carrying value is cost plus the Company's
share of post-acquisition net income (loss). Dividends
received from joint ventures reduce the carrying value
of the investment.
(c) VESSELS
The cost of vessels less estimated residual value is
depreciated on a straight-line basis over their
estimated useful lives. The vessels' lives are
estimated at 25 years from date of construction.
The Company leases certain vessels under agreements
which are classified as capital leases due to the
existence of bargain purchase options. Amortisation of
vessels under capital lease is calculated in the same
manner as owned vessels and included within depreciation
expense in the statement of operations.
(d) VESSELS UNDER CONSTRUCTION
The carrying value of the vessels under construction
represents the accumulated costs to the balance sheet
date which the Company has had to pay by way of purchase
instalments and other capital expenditures, together
with capitalised loan interest and other associated
financing fees. Capital commitments under contracts
with shipbuilders are not recorded as a liability until
F-12
instalments become due (note 7). No charge for
depreciation will be made until the vessels' delivery.
(e) ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
In Accordance with SFAS 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", the Company reviews expected
future cash flows on a vessel by vessel basis
(undiscounted and without interest charges) to determine
whether the carrying values of its vessels are
recoverable. If the expected future cash flows are less
than the carrying value of the vessel, provision is made
to write down the carrying value of the vessel to the
recoverable amount.
(f) OPTIONS TO PURCHASE VESSELS
Payments to acquire options to purchase vessels are
capitalised at the time of execution of the option
contract. The Company reviews expected future cash
flows which would result from exercise of each option
contract on a contract by contract basis to determine
whether the carrying value of the option is recoverable.
If the expected future cash flows are less than the
carrying value of the option plus further costs to
delivery, provision is made to write down the carrying
value of the option to the recoverable amount. The
carrying value of each option payment is written off as
and when the Company adopts a formal plan not to
exercise the option. Strike price payments are
capitalised and the total of the option payment and
strike price payment is transferred to cost of vessels,
net upon exercise of the option.
(g) INVENTORIES
Inventories, which comprise lubricating oils and bunkers
where applicable, are stated at the lower of cost or
market value. Cost is determined on a first-in, first-
out basis. Expenditure on other consumables is charged
against income when incurred.
(h) INVESTMENTS
Investments in marketable securities are recorded at
amortised cost. The Company classifies all investments
with maturity dates within one year of the balance sheet
date as short-term investments. Amortisation of
F-13
discount on held-to-maturity securities is included
within interest income.
(i) GOODWILL
Goodwill, recognised in business combinations accounted
for as purchases, is being amortised on a straight-line
basis over 25 years. The Company reviews expected
future cash flows from purchases (undiscounted and
without interest charges) to determine whether the
carrying value of goodwill is recoverable. If the
expected future cash flows are less than the carrying
value of each purchase including related goodwill,
provision is made to write down the carrying value of
goodwill to the recoverable amount.
(j) DEFERRED NOTE ISSUE COSTS
Deferred note issue costs, comprising professional fees
and other costs directly attributable to the Company's
issue of Senior Notes are capitalised and amortised over
the term to maturity of the Senior Notes. Amortisation
of deferred note issue costs is included within interest
expense.
(k) DRYDOCKING AND SPECIAL SURVEY PROVISIONS
Most of the expenditure on repairs and maintenance of
the vessels is incurred during drydockings, which take
place approximately every 30 months, with additional
costs when special surveys are carried out every five
years. Provisions are made so that each year's result
bears a proportion of these costs. Such provisions are
based on estimates made by management of the expected
cost and length of time between drydockings. Changes in
estimates of the expected cost and timing of the drydock
are recorded in the period in which they are determined.
(l) REVENUE AND EXPENSE RECOGNITION
Time, voyage and bareboat charter revenues and expenses
are recorded on a daily accruals basis.
(m) FOREIGN CURRENCIES
The Company's functional currency is the U.S. Dollar as
the majority of revenues are received in U.S. Dollars
and the majority of the Company's operating expenditures
are made in U.S. Dollars. Transactions in foreign
currencies during the year are translated into U.S.
Dollars at the rates of exchange in effect at the date
F-14
of transaction. Foreign currency monetary assets and
liabilities are translated using rates of exchange at
the balance sheet date. Non monetary assets and
liabilities are translated using historical rates. At
December 31, 1998 the exchange rate for Yen was
$1=112.80 yen (1997 $1=130.025 yen).
(n) INTEREST RATE SWAP AGREEMENTS
The Company enters into interest rate swap transactions
to hedge a portion of its exposure to floating interest
rates on its long-term debt. These transactions involve
paying a fixed rate and receiving a floating rate of
interest on a notional principal amount equivalent to
the loan designated as being hedged. The differential
to be paid or received is accrued as interest rates
change and is recognised as an adjustment to interest
expense. Premiums and receipts, if any, are recognised
as adjustments to interest expense over the lives of the
individual contracts. Any gain or loss realised on the
early termination of an interest rate swap agreement is
recognised as an adjustment of interest expense over the
remaining term of the hedged debt.
(o) CASH AND CASH EQUIVALENTS
For the purposes of the statements of cash flows,
certain highly liquid investments with original
maturities of three months or less when purchased are
considered equivalent to cash.
(p) RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued in June 1998 and is
effective for fiscal years beginning after June 15,
1999. It establishes accounting and reporting standards
for derivative instruments, including derivative
instruments that are embedded in other contracts, as
well as for hedging activities. The Company intends to
adopt the standard as from January 1, 2000. Management
is currently assessing the impact that SFAS 133 will
have on the consolidated financial statements.
3. Cash and cash equivalents
Included within cash and cash equivalents are amounts
totalling $1,946,000 (1997 $1,412,000) which have been
retained by lenders to repay the next principal
instalments and interest payments due on certain long
term loans (note 14). Included within cash and cash
F-15
equivalents is an amount of $3,000,000 which has been
retained by a lender in satisfaction of a loan covenant
whereby the outstanding amount of the loan is restricted
to a percentage of the current market value of the
vessel New Vista.
F-16
4. Vessels owned, net
1998 1997
---- ----
('000) ('000)
Cost
At beginning of the year 294,997 311,616
Transferred from vessels
under construction 185,179 49,979
Removed on disposal (23,921) (66,598)
--------- ---------
At end of the year $ 456,255 $ 294,997
========= =========
At beginning of the year 20,974 14,288
Charge for the year 14,614 13,589
Removed on disposal (222) (6,903)
--------- ---------
At end of the year $ 35,366 $ 20,974
========= =========
--------- ---------
Net book value $ 420,889 $ 274,023
========= =========
During the year, the Company sold the Golden Disa. Loss on
disposal was $1,283,000. During the year ended December 31, 1997,
the Company sold the vessels Channel Fortune and Channel
Prosperity. Losses on disposal were $4,347,000 and $3,984,000
respectively.
The Company tooke delivery of hull #5678 and hull #1158 in
January 1999 and hull #5889 in March 1999.
Date Deadweight Charter
Wholly owned fleet delivered Type tonnage (m.t.) expiration
Golden Stream 1995 VLCC 260,000 March 2002
Navix Astral 1996 VLCC 260,000 March 2011
Channel Alliance 1996 Capesize 170,000 October 1999
Channel Navigator 1997 Capesize 170,000 February 2001
New Vanguard 1998 VLCC 298,500 March 2008
New Vista 1998 VLCC 298,500 September 2008
The insured value of owned vessels is $460,900,000 plus
10,000,000,000 YEN (equivalent to $88,652,482).
F-17
5. Vessels under capital lease, net
1998 1997
---- ----
('000) ('000)
Cost
At beginning of the year 88,938 47,237
Transferred from vessels
under construction 38,057 41,701
Transferred from investment
in sub-lease 31,500 -
Removed on disposal (47,237) -
--------- ---------
At end of the year $ 111,258 $ 88,938
========= =========
Amortisation
At beginning of the year 8,375 2,079
Charge for the year 2,221 3,069
Additional writedown to
realisable value - 3,227
Removed on disposal (7,236) -
--------- ---------
At end of the year $ 3,360 $ 8,375
========= =========
--------- ---------
Net book value $ 107,898 $ 80,563
========= =========
Date Deadweight Charter
Wholly owned fleet delivered Type tonnage (m.t.) expiration
Golden Poteme 1996 Capesize 150,000 November 2000
Channel Poteme 1997 Capesize 170,000 February 2012
Golden Protea 1998 Handymax 45,000 September 2010
Golden Aloe 1998 Handymax 45,000 September 2010
The insured value of leased vessels is $160,000,000.
By a memorandum of agreement dated December 18, 1997, the Loire
Ore was sold to a third party for delivery on January 27, 1998
for a price of $40,000,000.
The difference between the net book value of the Loire Ore at
December 31, 1997 and the proceeds received on
sale has been recorded as a write down of $3,227,358 in 1997.
F-18
Under a profit share agreement in which profit was defined as
sale proceeds less debt outstanding, a payment of $6,243,262 was
made to the charterer of the Loire Ore on delivery to the new
owners. This payment was recorded as an expense in the statement
of operations in 1997.
6. Investment in direct financing sub-lease
The vessel Golden Poterne was time chartered for 15
years from delivery in 1996. Due to the existence of a
bargain purchase option in the time charter, this lease
was recorded as a direct financing sub-lease as the
vessel had in substance been sold to the time charterer
with no gain or loss on sale.
On November 15, 1998 the time charter was cancelled and
the vessel was redelivered to the Company. At the date
the time charter was cancelled, the carrying value of
the direct financing sub-lease had appreciated to
$33,392,000 from $32,736,000 as at December 31, 1997 as
a result of the strengthening of the Yen relative to the
Dollar over this period. The excess carrying value of
the direct financing sub-lease over the fair value of
the vessel as at November 15, 1998 amounted to
$1,892,000. This amount was written off. The fair value
of the vessel was transferred to vessels under capital
lease, net and will be depreciated over the vessel's
remaining life.
7. Vessels under construction
1998 1997
---- ----
('000) ('000)
Cost at beginning of
the year 129,692 69,976
Purchase instalments and
capital expenditure 207,093 159,953
Excess of fair values
over book values acquired - 2,330
Interest capitalised 14,791 4,635
Pre-delivery expenses 2,050 2,425
Other associated financing
fees capitalised 1,886 6,996
Disposal - (24,943)
Transferred to vessels
owned, net (185,179) (49,979)
F-19
Transferred to vessels under
capital lease, net (38,057) (41,701)
--------- ---------
Cost at end of the year $ 132,276 $ 129,692
========= =========
Hull #1118 was sold on delivery in 1997 to a third party
for net proceeds of $26,494,000.
A summary of the Company's capital commitments for
vessels under construction (excluding those owned by
joint ventures) at December 31, 1998 is as follows:
Capital
Commitments
----------------------
Scheduled Deadweight
Hull# delivery Builder Type tonnage (m.t.) 1999 2000 2001
---- ---- ----
('000) ('000) (000)
Yen contracts
1158 1999 Tsuneishi Handymax 45,000 Yen 1,867,500 Yen - Yen -
5898 1999 Hitachi Panamax 75,200 2,945,000 - -
5889 1999 Hitachi Panamax 75,200 2,480,000 - -
6288 2000 Hitachi Panamax 75,200 - 2,880,000 -
5788 1999 Hitachi VLCC 298,500 8,770,300 - -
5888 1999 Hitachi VLCC 298,500 8,751,550 - -
5988 1999 Hitachi VLCC 298,500 8,890,300 - -
1628 1999 Kawasaki VLCC 300,000 9,000,000 - -
6378 2000 Hitachi VLCC 298,500 2,020,000 7,070,000
6388 2000 Hitachi VLCC 298,500 - 9,090,000
6398 2000 Hitachi VLCC 298,500 9,090,000
1668 2000 Kawasaki VLCC 300,000 9,180,000
-------------- -------------- ------------
Total Yen commitments Yen 44,724,650 Yen 37,310,000 Yen -
-------------- -------------- ------------
Total US Dollar equivalent of Yen commitments $ 396,495,124 $ 330,762,411 $ -
============== ============== ============
Dollar contracts
5678 1999 Hitachi VLCC 298,500 $ 59,716,000 $ - $ -
1618 1999 Kawasaki VLCC 300,000 79,650,000 - -
1638 2000 Kawasaki VLCC 300,000 17,700,000 61,950,000 -
-------------- -------------- ------------
F-20
Total commitments $ 553,561,124 $ 392,712,411 $-
============= ============== ============
At December 31, 1998 the Company had yen 7,215,000,000
(approximately equal to $63,962,766) and $61,000,000 in
unused commitments for long-term financing arrangements.
Committed long term financing bears interest based on
Yen and Dollar Libor plus margins of between 1.5% and
1.75%. Repayment will be made between 7 and 8 years
from delivery of vessels or by sale and leaseback
transactions. Commitment fees of 0.25% to 0.5% are
charged by the lenders under the terms of such
arrangements. At December 31, 1998, Yen and Dollar Libor
were 0.5% (1997 0.5%) and 5.1% (1997 5.7%) respectively.
The Company took delivery of hull #5678 and hull #1158
in January 1999 and hull #5889 in March 1999.
F-21
8. Options to purchase vessels
In 1998 the Company purchased options to acquire vessels
at specified prices ordered by subsidiaries of its
parent company, Golden Ocean Limited. Each option is
exercisable between the delivery date of the respective
vessel and one year later.
A summary of the Company's options acquired as at
December 31, 1998 is as follows:
Scheduled Deadweight Option Strike
Hull # delivery Builder Type tonnage (m.t.) price price
1688 2000 Kawasaki VLCC 300,000 $6,950,000 $74,047,000
1698 2000 Kawasaki VLCC 300,000 6,950,000 78,734,000
6618 2000 Hitachi VLCC 298,500 6,950,000 73,273,000
6668 2000 Hitachi VLCC 298,500 6,950,000 74,047,000
6678 2001 Hitachi VLCC 298,500 6,950,000 74,438,000
6688 2001 Hitachi VLCC 298,500 6,950,000 75,224,000
6698 2001 Hitachi VLCC 298,500 6,950,000 76,256,000
The Company has received an opinion from an independent third
party that the options were priced are at fair market value at
the time the options were granted.
9. Investment in joint ventures
The Company has 50% interests in Golden Fountain Corporation,
Middleburg Properties Ltd. and Reese Development Inc., which are
vessel owning/operating joint ventures. Details of the vessels
owned joint ventures (at December 31, 1998) are as follows:
Date Deadweight Charter
Vessel name delivered Type tonnage (mt) expiration
Golden Fountain 1995 VLCC 280,000 -
Golden Daisy 1998 Handymax 46,902 February 2010
Golden Rose 1998 Handymax 46,902 April 2010
The Golden Fountain was trading on the voyage charter market at
the balance sheet date.
The insured value of joint venture owned vessels is $162,500,000.
Joint ventures (all of which the Company has a 50% interest in)
have capital commitments for vessels under construction at
December 31, 1998 as follows:
F-22
Capital
Commitments
----------------------
Scheduled Deadweight
Hull# delivery Builder Type tonnage (m.t.) 1999 2000 2001
---- ---- ----
('000) ('000) (000)
Yen contracts
2138 1999 Mitsubishi VLCC 305,000 Yen 8,370,000 Yen - Yen -
2139 1999 Mitsubishi VLCC 305,500 8,370,000 -
------- -------------- ------------ -------------
Total Yen commitments Yen 16,740,000 Yen - Yen -
============== ============ =============
Total US Dollar equivalent of
Yen commitments $ 148,404,250 $ - $ -
============= ============ ============
Hull #2138 was delivered in March 1999.
The joint venture companies had Y16,740,000,000 (approximately
equal to $148,404,250) in unused commitments for long-term
financing arrangements. Commitment fees of 0.25% are charged by
the lenders under the terms of such arrangements. As capital
commitments become due, drawings will be made against the unused
portion of the loans.
The Company's share of undistributed earnings of joint ventures
included in consolidated retained earnings is $1,382,000 (1997
$4,018,000) and is summarised as follows:
1998 1997
----- -----
('000) ('000)
At beginning of the year 4,018 2,142
Consolidated on change
to 100% ownership - 2,903
Disposal of interest in
aircraft joint venture - (3,608)
Share of net income (loss) (2,636) 2,581
------- -------
$ 1,382 $ 4,018
======= =======
F-23
The combined assets and liabilities of the joint venture
companies (prepared under United States generally accepted
accounting principles) were as follows:
1998 1997
---- ----
('000) ('000)
Total current assets 2,706 1,162
Vessels owned, net 125,317 90,174
Vessels under construction 21,640 28,640
--------- ---------
Total assets $ 149,663 $ 119,976
========= ========
Total current liabilities 7,855 7,105
Long term liabilities 88,367 56,364
Due to third party joint
venture partners 31,383 30,077
Due to the Company 26,731 23,989
--------- ---------
Total liabilities $ 154,336 $ 117,535
========= =========
Net assets $ (4,673) $ 2,441
========= =========
Company's 50% share of net assets (2,337) 1,221
Elimination of intercompany interest 3,719 2,797
--------- ---------
Company's total share of net assets $ 1,382 $ 4,018
========= =========
The joint ventures had a working capital deficiency of
$5,149,000. The joint ventures are expected to fund current
obligations in 1999 through profitable time and voyage charter
operations and the continued financial support of the joint
venture participants.
The results of joint venture operations (prepared under United
States generally accepted accounting principles) are summarised
as follows:
1998 1997
----- -----
('000) ('000)
Operating revenues
Net time charter revenues 16,733 12,202
F-24
-------- --------
Total operating revenues 16,733 12,202
-------- --------
Operating expenses
Vessel operating costs 4,391 3,353
Depreciation on vessels 5,064 4,459
Administrative expenses 255 158
Drydocking and special
survey costs 617 (325)
-------- --------
Total operating expenses 10,327 7,645
-------- --------
Net operating income 6,406 4,557
-------- --------
Other income (expense)
Foreign exchange gain/(loss) (8,498) 3,530
Interest expense (5,050) (5,567)
Interest income 28 50
-------- --------
Net other income (expense) (13,520) (1,987)
-------- --------
Net income (loss) $ (7,114) $ 2,570
======== ========
Company's 50% share of
net income (loss) (3,557) 1,285
Elimination of intercompany
interest 921 1,296
-------- --------
Company's share of
earnings (loss) of
joint ventures $ (2,636) $ 2,581
======== ========
Joint venture revenues were derived wholly from shipping
activities.
10. Loans to joint ventures
Loans to joint venture companies represent advances to
finance joint venture operations. These advances are
subordinate to the rights of long term debt holders.
Interest accrues at rates between 2% and 7%. Loans will
F-25
only be repaid out of profits arising from operations or
the sale of joint venture vessels.
F-26
11. Investments
The Company holds $29,138,000 (1997 $40,000,000)
principal amount of US Treasury securities with an
acquisition cost of $27,300,000 (1997 $37,334,000) to
fund the next two semi-annual interest payments due on
the Company's Notes payable (note 19). Management
considers these securities to be held-to-maturity
securities because management has both the ability and
the intent to hold these investments until they mature.
The treasury securities have maturity values which are
equivalent to the interest due on the interest payment
dates. The securities are held in an interest escrow
account for the benefit of the Note holders.
At December 31, 1998, the investments had a carrying
value of $28,747,000 (1997 $38,071,000) with market
value $28,852,000 (1997 $38,105,000). The investments
all mature within one year. Included in the carrying
value is $1,447,000 (1997 $737,000) of amortised
discount.
12. Goodwill
Goodwill of $19,479,000 before accumulated amortisation
of $1,040,000 (1997 $260,000), results from the
acquisition of certain minority interests in
subsidiaries.
13. Deferred note issue costs
The carrying value of deferred note issue costs
represents deferred costs of $12,973,000 (1997
$10,160,000) less accumulated amortisation of $4,056,000
(1997 $847,000). Amortisation is included within
interest expense in the statement of operations.
14. Obligations under capital leases
The vessels known as the Golden Poterne, Channel
Poterne, Golden Protea and Golden Aloe have been
acquired (in substance) due to the effect of bargain
purchase options in the bareboat charter agreements with
the legal vessel owners. The options (denominated in
Yen) can be exercised at any point during the term of
the charter. The option prices reduce on a sliding scale
over the term of the agreements. The Golden Poterne and
Channel Poterne have both been acquired under fifteen
year bareboat charters while the Golden Protea and
Golden Aloe have been acquired under ten year bareboat
charters.
F-27
The Company has the following commitments under capital
leases (in source currency and U.S. Dollar equivalents):
1998
---------------------------------
('000,000) ('000)
1999 Yen 1,161 $ 10,296
2000 1,174 10,411
2001 1,185 10,506
2002 1,197 10,613
2003 1,209 10,722
2004 and later 9,310 82,534
--------- ---------
Minimum lease payments 15,236 135,082
Less imputed interest 2,669 23,665
--------- ---------
Present value of
obligations under
capital leases Yen 12,567 $111,417
========= ========
At December 31, 1997, the present value of obligations
under capital leases was 11,747,000,000 Yen (equivalent
to $91,135,000).
15. Long term debt
The outstanding secured loans at December 31, 1998 are
repayable as follows:
Dollar
Yen denominated denominated Total
debt debt debt
------------------- ----------- ------
('000,000) ('000) ('000) ('000)
1999 1,186 10,513 12,537 23,050
2000 1,270 11,257 13,620 24,877
2001 1,255 11,122 14,822 25,944
2002 1,191 10,556 58,108 68,664
2003 1,187 10,526 10,876 21,402
2004 and later 10,277 91,106 92,534 183,640
------- -------- -------- --------
Yen 16,366 $145,080 $202,497 $347,577
====== ======== ======== ========
F-28
At December 31, 1997, the Company had long term debt of
16,552,000,000 Yen (equivalent to $127,304,000) and
$75,297,000 totalling $202,601,000.
Interest is payable based on Yen and Dollar Libor plus
margins of between 1.25% and 1.75% on all loans except
for 6,868,884,456 Yen (approximately equivalent to
$60,894,366) of debt which bears interest at 3.66% and
3,097,785,946 Yen (approximately equal to $27,462,641)
of debt which bears interest at 3.2%. At December 31,
1998, Yen and Dollar Libor were 0.5% (1997 0.5%) and
5.1% (1997 5.7%) respectively.
Loans to vessel owning subsidiaries are secured by first
and second mortgages on the vessels, assignments of
earnings and insurance proceeds and pledges of shares.
Loans to newbuilding owning subsidiaries are secured by
assignments of shipbuilding contracts. Covenants in the
loan agreements prohibit subsidiaries from paying
dividends or issuing guarantees. These covenants were
waived to enable the subsidiaries to guarantee the
Company's obligations to holders of Notes payable (note
19) and to pay dividends. Loan covenants still prohibit
subsidiaries from issuing further guarantees.
The Company also enters into interest rate swap
agreements in order to reduce its exposure to changes in
interest rates. At December 31, 1998 the Company had
interest rate swap agreements as follows:
Company pays Company receives Principal amount Expiry
7.288% Dollar Libor + 1.25% $68,256,481 March 7, 2006
7.49% Dollar Libor + 1.25% $70,819,979 August 28, 2008
The notional principal amounts of the interest rate
swaps decrease over the terms of the agreements.
On January 11, 1999, the Company entered into an
interest rate swap agreement with a lender whereby the
Company will pay a fixed rate of 7.175% and will receive
a floating rate of interest based on Dollar Libor plus
1.75% on $60,350,000 notional principal amount. The
notional principal amount of the interest rate swap will
decrease monthly from the time the interest rate swap
becomes effective, on February 11, 1999 until the
termination date of December 12, 2005.
F-29
16. Related party transactions
Until September 30, 1997, the fleet was managed by
Golden Ocean Management Limited (GOML), a related
company through common control. GOML, on behalf of the
company and its joint ventures, negotiated contracts for
construction of vessels and the related financing and
chartering arrangements. Additionally, GOML provided
administrative services and bore the legal
representation, travel and audit costs on the Company's
behalf. During the year ended December 31, 1997, GOML
charged the company $2,169,000 and its joint ventures
$39,000 in exchange for the above services.
Amounts due to related parties are interest free,
unsecured and have no specified terms of repayment. The
average balance due to related parties during 1998 was
$263,000 (1997 $1,019,000). Imputed interest has not
been recorded in these financial statements as it is not
considered to be material.
17. Other loans
Other loans represent advances by minority interests in
two subsidiaries engaged in VLCC newbuildings. Interest
accrues at rates between 7% and 12%. The loan plus
accrued interest is payable on the sale of the vessels.
The Company has guaranteed the return of the principal
of certain loans amounting to $10,908,000 within two
years of delivery of the vessel. The vessels delivered
in September 1998 and January 1999.
18. Amounts due to shareholder
Amounts due to shareholder are interest free and have no
specified terms of repayment. Imputed interest has not
been recorded in these financial statements. Imputed
interest for the year calculated at 7% amounts to
$960,000 (1997 $137,000). Advances from the shareholder
in the year were used provide additional working
capital.
19. Notes payable
On August 27, 1997, the Company issued $150 million
principal amount of 10% Senior Notes (the "Notes") and a
further $50 million principal amount on September 11,
1997 at a price of $732 per $1,000 principal amount.
Each $1,000 principal amount of the Notes included a
non-transferable Note warrant and a separately
transferable share warrant. Two Note warrants entitled
F-30
the holder to purchase $1,000 principal amount of Notes
at a price of $756.60 at the exercise date of March 1,
1998. Each share warrant entitles the holder to
purchase one common share of the Company at an exercise
price of $46.20 per common share. The share warrants
can be exercised on or prior to August 31, 2001.
On March 2, 1998, the Company issued a further
$91,382,000 principal amount of 10% Senior Notes at a
price of $756.60 per $1,000 principal amount as a result
of the Note warrant holders exercising the Note
warrants. After fees of $2,813,627, and use of
$13,645,372 to purchase investments to be held in Trust
to fund interest payments due on August 31, 1998, March
1, 1999 and August 31, 1999, the Company received net
proceeds of $52,680,622.
At December 31, 1998, the unamortised portion of the
Note discount amounted to $55,010,000 (1997 $49,719,000)
None of the proceeds of the Notes have been allocated to
the separately transferable share warrants as additional
paid in capital as the amount allocable to the share
warrants was deemed to be immaterial based on the fair
value of the share warrants on the issue date.
The Notes are due on August 31, 2001 and are senior
unsecured obligations of the Company, ranking senior in
right of repayment to all existing and future
subordinated indebtedness of the Company. The Notes are
guaranteed by all of the subsidiaries and certain of the
joint ventures of Golden Ocean Group Limited. Net
assets of non-guarantor joint ventures at December 31,
1998 amounted to a deficit of $1,290,467 (1997 net
assets of $1,929,187). Net income of non-guarantor
joint ventures for the year ended December 31, 1998 was
a loss of $3,219,653 (1997 net income of $1,389,882).
The Company has a 50% share in the non-guarantor joint
ventures. Waivers of covenants in loan agreements were
obtained to enable subsidiaries to guarantee the
Company's obligations to Note holders and to pay
dividends to the Company (note 15).
20. Share capital and additional paid-in capital
By a resolution dated August 22, 1997, the Company's
authorised share capital was increased from 500 to
50,000,000 bearer shares of no par value.
On August 26, 1997 the Company declared a share dividend
of 7,359 shares for each share held increasing issued
F-31
share capital from 500 to 3,680,000 issued and
outstanding shares of no par value. All of the issued
shares are owned by Golden Ocean Limited, a company
incorporated under the laws of Liberia.
The Company is subject to restrictions on the payment of
dividends imposed by covenants entered into in
connection with the issue of Notes payable (note 19).
There are a total of 320,000 share warrants in issue
comprising 200,000 share warrants which were issued to
subscribers to the Company's issue of Notes payable
(note 19) and 120,000 warrants which were issued to the
placement agents. Each share warrant entitles the
holder to purchase one common share of the Company at an
exercise price of $46.20 per common share. The share
warrants can be exercised on or prior to August 31,
2001.
21. Leasing arrangements
The Company has arranged long term charters for its
vessels under which payments are received in Yen and
Dollars. Future minimum rentals on non-cancellable
operating leases at December 31, 1998 are as follows:
Owned Vessels (note 4)
Yen denominated Dollar denominated Total
income income income
-------------- ----------------- ------
('000,000) ('000) ('000) ('000)
1999 1,661 14,723 51,138 65,861
2000 1,665 14,763 45,829 60,592
2001 1,661 14,723 37,572 52,295
2002 1,661 14,723 26,744 41,467
2003 1,661 14,723 23,529 38,252
2004 and later 12,927 114,598 126,645 241,243
------- ------- ------- -------
Yen 21,236 $ 188,253 $ 311,457 $ 499,710
========== ========= ========= =========
The Company has arranged long-term charters for four of
its vessels under construction under which payments will
be received in Yen and Dollars. Future minimum rentals
on non-cancellable operating leases at December 31, 1998
are as follows:
F-32
Vessels under construction (note 7)
Yen denominated Dollar denominated Total
income income income
-------------- ---------------- ------
(00,000) ('000) ('000) ('000)
1999 534 4,737 13,037 17,774
2000 739 6,554 14,681 21,235
2001 737 6,536 14,896 21,432
2002 737 6,536 15,152 21,688
2003 737 6,536 15,407 21,943
2004 and later 6,047 53,609 51,094 104,703
-------- -------- -------- ---------
Yen 9,531 $ 84,508 $ 124,267 $ 208,775
========= ======== ========= =========
22. Foreign exchange loss
The foreign exchange loss of $32,281,000 (1997 gain
$30,376,000) primarily relates to converting yen
denominated obligations into US dollars using the
balance sheet exchange rate.
23. Financial instruments
(a) Fair values
The following methods and assumptions were used by the
Company in estimating fair value disclosures for
financial instruments:
Long term debt (at floating rates): The carrying amounts
reported in the balance sheet for these instruments
approximate their fair value as the interest rates are
based on a floating rate.
Long term debt (at fixed rates): The fair value of the
Company's fixed rate debt is estimated using discounted
cash flow analysis, based on interest rates currently
available for debt with similar terms and maturities.
Loans to joint ventures/other loans: The carrying
amounts reported in the balance sheet for these
instruments approximate their fair value as the fixed
interest rates approximate current market rates for
similar loans.
Other assets and liabilities: The fair values of trade
accounts receivable, amount due to related party, other
F-33
accounts receivable and trade accounts payable
approximate their carrying value due to their short term
nature.
Interest rate swaps: The fair value of interest rate
swaps is the estimated amount that the Company would pay
or receive to terminate the swaps at the reporting date.
Notes payable: The fair value of Notes was determined
from quoted market prices at which the Notes traded.
A summary of fair values of the Company's financial
instruments as at December 31, 1998 is as follows:
1998 1997
----------------- ----------------
Carrying Fair Carrying Fair
amount value amount value
Long term debt 347,577 350,829 202,601 205,943
Notes payable 236,372 58,276 150,281 167,450
Note warrants - - - 550,000
Interest rate swap
agreements - 5,403 - -
- payable position
Guarantees: It is not practicable to determine the fair
value of guarantees. Further information on guarantees
is provided in note 25.
(b) Market risk
Market risk exists with respect to changes in foreign
currency exchange rates. At December 31, 1998, the
Company had a long-term debt of yen 16,366,000,000 (1997
yen 16,552,000,000) which is equivalent to $145,080,000
(1997 $127,304,000). None of this exposure is hedged
through purchasing forward exchange currency contracts.
However, the Company has charter contracts denominated
in Yen with contracted payments as outlined in note 21.
Also, since a portion of the Company's long term debt
bears interest at a rate linked to LIBOR, it is exposed
to movements in interest rates.
(c) The following are the charterers that comprise 10 per
cent or more of charter income.
F-34
1998 1997
---- ----
('000) ('000)
Argent Shipping Corporation $ 5,88 $ 6,397
Bocimar n.v. 12,788 12,136
Kawasaki Kisen Kaisha 12,100 10,758
N.C.S. Corporation. 6,392 6,075
Hong Kong Ming Wah
Shipping Co. Ltd 9,785 -
Cetragpa G.I.E. - 12,281
Bocimar and N.C.S. Corporation charter dry-bulk
carriers. Other charterers mentioned above charter
VLCCs.
(d) The Company has not entered into any speculative
derivative contracts.
24. Financial information relating to segments
The Company organises its business principally into two
operating segments. Both segments use the same
accounting policies as described in note 2. These
segments and their respective operations are as follows:
VLCC fleet - includes vessels that normally carry crude
oil and related "dirty" products with a deadweight
tonnage of over 200,000 m.t.
Dry-bulk carrier fleet - includes vessels that normally
carry "dry" cargoes such as grain, coal, ore, wood and
steel products etc. This fleet includes three sizes of
vessel, Handymax, Panamax and Capesize.
A summary of operations by major operating segments for
the three years ended December 31, 1998 is as follows:
F-35
1998 1997
---- ----
('000) ('000)
Revenues
VLCC fleet 27,547 16,940
Dry-bulk carrier fleet 23,974 32,195
--------- --------
51,521 49,135
Share of earnings/(losses)
of joint ventures (2,636) 2,581
---------- --------
$ 48,885 $ 51,716
========== ========
Share of earnings/(losses)
of joint ventures
VLCC fleet (689) 1,991
Dry-bulk carrier fleet (1,947) 590
---------- --------
(2,636) 2,581
Non-segment - -
---------- --------
$ (2,636) $ 2,581
========== ========
Interest income
VLCC fleet 159 86
Dry-bulk carrier fleet 19 37
---------- ---------
178 123
Non-segment 3,626 847
---------- ---------
$ 3,804 $ 970
========== =========
Interest expense
VLCC fleet 12,752 7,363
Dry-bulk carrier fleet 4,701 8,948
---------- --------
17,453 16,311
Non-segment 34,910 7,828
F-36
---------- --------
$ 52,363 $ 24,139
========== ========
Depreciation
VLCC fleet 10,637 7,445
Dry-bulk carrier fleet 6,198 9,213
---------- --------
$ 16,835 $ 16,658
========== ========
Exchange gains/(losses)
VLCC fleet (8,081) 6,850
Dry-bulk carrier fleet
Net income (24,200) 23,526
---------- --------
$ (32,281) $ 30,376
========== ========
Net Income
VLCC fleet (6,723) 6,374
Dry-bulk carrier fleet (22,893) 10,801
---------- --------
(29,616) 17,175
Non-segment (44,546) (11,727)
Share of earnings/(losses)
of joint ventures (2,636) 2,581
---------- --------
$ (76,798) $ 8,029
========== ========
Identifiable assets
VLCC fleet 497,566 287,822
Dry-bulk carrier fleet 217,918 222,368
---------- -------
715,484 510,190
Non-segment 83,769 103,108
Share of net assets of
joint ventures 1,382 4,018
---------- -------
$ 800,635 $ 617,316
========== =========
F-37
Expenditure for identifiable assets
VLCC fleet 206,353 80,343
Dry-bulk carrier fleet 67,183 89,032
---------- --------
$ 273,536 $ 169,375
========== =========
25. Contingent liabilities
(a) The Company insures the legal liability risk for its
shipping activities with The Steamship Mutual
Underwriting Association (Europe) Limited in respect of
dry cargo vessels and The Swedish Club in respect of
tankers. As a member of this protection and indemnity
association, the Company is subject to calls payable to
the association based on the Company's claims record in
addition to the claims record of all other members of
the association. A contingent liability exists to the
extent that the claims records of the members of the
association in the aggregate show significant
deterioration which result in additional calls on the
members.
(b) The Company has guaranteed the yen and dollar long term
borrowings of joint ventures for amounts of yen
7,317,257,830 (1997 yen 3,154,850,740) which is
equivalent to $64,869,307 (1997 $24,263,416) and
$30,054,720 (1997 $32,330,170).
(c) The Company has guaranteed the performance of a third
party under an overdraft facility amounting to $151,255
(1997 $298,478) at the balance sheet date.
(d) The Company has guaranteed the performance of two joint
venture companies under their respective shipbuilding
contracts. Contractual commitments at December 31, 1997
amounted to yen 16,740,000,000, which is equivalent to
$148,404,250 (note 9).
(e) The Company has contractual commitments to participate
in the profits and losses of the time charterer's
subcharters of the Channel Poterne and in the profits
only of the New Vanguard, New Vista and Golden Victory
(which delivered on January 7, 1999). A joint venture
participates in the bareboat charterer's profits and
losses on subcharters of the New Circassia, which
delivered on March 24, 1999. The Company has accrued
the revenue or expense arising from these arrangements
to the balance sheet date.
F-38
(f) The charterers have contractual rights to participate in
the profits on sale of five vessels. In the case of the
Channel Poterne, Channel Alliance and Cos Hero, the
charterer is entitled to 50% of the profit realised on
any qualifying sale. The Channel Alliance may only be
sold if the profit from the sale will exceed $1.0
million. The Cos Hero, which delivered on January 12,
1999, may only be sold if the profit from sale will
exceed $3.0 million. Profit is defined as sale proceeds
less debt outstanding in the relevant profit share
agreements. If the New Vanguard or New Vista are sold,
the charterer is entitled to claim up to $1 million to
cover losses incurred on subcharters of the vessel.
These vessels may only be sold after the second
anniversary of delivery. Any remaining profit is to be
split 60:40 in favour of the owner.
26. Taxation
Under current Liberian law, the Company is not required
to pay any taxes in Liberia on either income or capital
gains.
27. Liquidity
The consolidated financial statements have been prepared
assuming the Company will continue as a going concern.
The Company incurred a net loss of $76.8 million for the
year ended December 31, 1998 which has resulted in a
deficit of $17.0 million as at the balance sheet date.
The Company is highly leveraged and recent developments
have had a material adverse effect on the Company's
short term liquidity and the Company's ability to fund
its capital commitments in 1999. The Company's projected
cash flow from operations and current financing
arrangements will not be sufficient to fund currently
unfunded capital commitments due in 1999 of yen
37,432,150,000 ($331,845,300) and $97,350,000 for
vessels under construction. Management expects to
arrange first mortgage financing for each VLCC vessel in
the region of $60 million with the remaining balance due
on each vessel to be provided by alternative financing
and secured by second mortgages on the vessels.
Management is currently negotiating with its existing
financiers and has retained Chase Securities Inc. to
assist in exploring strategic alternatives which include
raising equity capital, the issue of new debt and
refinancing and /or restructuring its existing
indebtedness. There can be no assurance that the
F-39
Company will be successful in obtaining financing for
1999 capital commitments.
28. Other accounts payable
Other accounts payable are interest free and have the
following repayment terms: $1,250,000 due January 15,
2000, January 15, 2001, January 15, 2002, and January
15, 2003.
29. Restatement
The Company through its subsidiary Channel Rose Holdings
Inc. entered into an agreement with a third party
whereby the Company agreed to bear certain chartering
liabilities reported by that third party. The
shareholder, Golden Ocean Limited, orally agreed to meet
and has met the Company's obligations under this
agreement.
Previously, neither the liabilities to the third party
nor the additional paid in capital provided by the
shareholder were reported by the Company. The result of
this omission is a prior period adjustment against
income of $8,134,000 (being 1996 - $668,000, 1997 -
$1,081,000 and 1998 $6,385,000) which was offset by
additional paid in capital of the same amount.
Accordingly, the financial statements for 1998 and 1997
have been restated to reflect these adjustments.
F-40
Golden Ocean Group Limited
Balance Sheet
As of September 30, 2000
September 30,
2000
Cash and cash equivalents 9,843
Inventories 470
Trade Accounts receivable 2,483
Prepaid expenses and other
accounts receivable 5,266
Amounts due from related
party 3,615
--------
Total current assets 21,677
Vessels owned, net 449,078
Vessels under capital
lease, net 86,847
Investment in joint
ventures (2,539)
Loans to joint ventures 24,397
Goodwill 5,957
Deferred charges 3,065
--------
Total assets 588,482
========
Current maturities of
long term debt 23,557
Obligations under
capital leases 8,273
Trade accounts payable
and accrued expenses 7,555
Note interest payable 9,713
Other accounts payable 9,824
Time charter income
received in advance 3,055
Drydocking and special
survey provisions 1,230
--------
Total current liabilities 63,207
Long term debt 304,302
F-41
Obligations under
capital leases 110,156
10% Bonds 31st August 2001 255,702
Other accounts payable 1,750
Amounts due to shareholders 10,624
Amounts due to shareholders 15,032
--------
Total liabilities 760,773
Minority interest 589
Share capital -
Additional paid in capital 74,795
Retained earnings (deficit) (247,675)
Total shareholders' equity (172,880)
Total liabilities and
shareholders' equity 588,482
========
F-42
UNAUDITED FINANCIAL STATEMENTS
Golden Ocean Group Limited
Consolidated Statements of Operations
For the Nine Months Ended September 30, 2000 and 1999
Nine Months Ended
September 30,
2000 1999
Net operating revenues $65,309 60,959
Gain on sale of vessel 7,697 -
Vessel operating costs 7,797 10,505
Charterhire expenses 8,938
Administrative expenses 4,081 6,556
------- -------
Operating income before
depreciation and
amortization 52,190 43,898
Depreciation and
amortization expense 18,231 20,517
Operating income after
depreciation and amortization 33,959 23,381
Interest income 753 1,249
Interest expense (19,368) (49,562)
Share of earnings (losses)
of joint ventures 8,506 (8,945)
Foreign exchange gain (loss) 15,309 (19,234)
Other income (expenses) (414) (564)
Net income before
reorganization items
and minority interest 38,745 (53,675)
Reorganization items 7,618 -
Minority interest 368 (257)
Net income (loss) 30,759 (53,932)
F-43
Golden Ocean Group Limited
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999
Nine Months Ended
September 30,
2000 1999
OPERATING ACTIVITIES
Net income $30,759 $(53,932)
Adjustments to reconcile
net loss to net cash
Provided by operating
activities:
Foreign exchange gain (15,309) 19,234
Depreciation and
amortization expense 18,231 19,933
Share of results of
joint ventures (8,506) 8,945
Gain on disposal of assets (8,010) -
Amortization of goodwill 204 584
Amortization of note
discount - 14,344
Amortization of deferred
note issue costs 2,508 2,508
Interest receivable on
loans to joint ventures,
capitalised (384) (162)
Interest payable on
other loans capitalised 758 -
Minority interest 368 257
Net change in:
Inventories 161 (499)
Trade accounts receivable (2,441) (10)
Prepaid expenses and other
accounts receivable (1,069) (1,493)
Trade accounts payable
and accrued expenses (146) 3,833
Note interest payable - (7,285)
Time charter income
received in advance (797) 593
Drydocking and special
survey provisions 226 (488)
Net cash provided by
operating activities 16,349 6,362
INVESTING ACTIVITIES
Advances from joint ventures 1,286 -
Loans to joint ventures (1,059) (3,465)
F-44
Additions to vessels under
construction - (137,174)
Proceeds from redemption
of investments - 29,138
Net cash provided by
investing activities 227 (111,501)
FINANCING ACTIVITIES
Proceeds from long term debt - 131,011
Repayment of long term debt (17,318) (20,794)
Repayment of capital leases (6,445) (3,839)
Repayment of amounts due
to related party - (25)
Repayment to shareholder (13) (2,133)
DIP finance received 5,074 -
Net cash used in financing
activities (18,702) 104,220
Net decrease in cash and
cash equivalents (2,127) (919)
Cash and cash equivalents
at beginning of period 11,970 8,487
Cash and cash equivalents
at end of period $ 9,843 $ 7,568
======== ========
F-45
Notes to Unaudited Financial Statements
1. General
The accompanying financial statements and footnotes have been
condensed and therefore do not contain all disclosures required
by generally accepted accounting principles. Reference should be
made to the Company's Annual Report to Shareholders for the year
ended December 31, 1999 incorporated by reference herein.
The statements as of and for the nine month periods ended
September 30, 2000, and for the nine month periods ended
September 30, 1999 are unaudited. In the opinion of the Company,
all adjustments (which were of a normal recurring nature) have
been made to present fairly the results for such unaudited
interim periods.
The statement of income for the nine month period ended September
30, 1999 has been reclassified to conform with the 2000
presentation of certain items.
The results of operations for the nine month periods ended
September 30, 2000 are not necessarily indicative of those for a
full fiscal year.
Earnings and dividends per share are not presented since Golden
Ocean does not have publicly held shares and has an authorized
and issued share capital of 500 shares of no par value each.
2. Accounting Policies
In 2000, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which is effective for fiscal years
beginning after December 15, 1999. SFAS No. 130 establishes
standards for recording and presenting comprehensive income and
its components (revenues, expenses, gains and losses) in a full
set of general-purpose financial statements. Adoption of SFAS
130 has not had a material impact on the Company's financial
statements.
SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities" as amended by SFAS 138 is effective for fiscal years
beginning after June 15, 2000. It establishes accounting and
reporting standards for derivative instruments, including
derivative instruments that are embedded in other contracts, as
well as for hedging activities. The Company adopted the standard
as from October 10, 2000. The adoption of SFAS 133 did not have
a material impact on the Company's financial position and results
of operations.
F-46
3. Significant Events
On January 14, 2000 the Company and its subsidiaries Golden Ocean
Tankers Limited and Channel Rose Holdings Inc. (the "Debtors")
filed a voluntary petition under Chapter 11 of the Bankruptcy
Code with the Clerk of the United States Bankruptcy Court for the
District of Delaware.
On July 7, 2000, Frontline Ltd filed with the Court a proposed
Plan of Reorganization (the "Plan") which set forth the manner in
which Claims against and Equity Interests in the Debtors will be
treated.
The Plan was agreed by an overwhelming majority of holders of
Claims entitled to vote and was confirmed at a hearing on
September 15, 2000. The Plan became effective on October 10,
2000 and Frontline acquired the entire new share capital of
Golden Ocean.
The following table sets out the treatment of and recoveries made
by each class of Claim and Equity Interest in the Debtors:
F-47
Type of Allowed
Claim or Equity Estimated
Class Interest Treatment Recovery
-------- ------------------ -------------------- ---------
- Administrative Claims Unimpaired; paid in 100%
full in cash on the
effective Date or as
soon as practicable
thereafter.
-----------------------------------------------------------------------------
- Tax Claims Unimpaired 100%
-----------------------------------------------------------------------------
1 Secured Claims Unimpaired 100%
-----------------------------------------------------------------------------
2 Other Priority Claims Unimpaired; paid in 100%
full in Cash on the
Effective Date or as
soon as practicable
thereafter as
possible.
-----------------------------------------------------------------------------
3 Unsecured Claims Impaired; at the 17 to 20%
option of the
claimant, (i)
Frontline Ltd. common
stock with a value of
up to 20% of each
allowed claim or (ii)
17% of each allowed
claim in cash.
-----------------------------------------------------------------------------
4 Vessel Mortgage Impaired; reinstated 100%
Guarantee Claims in full
-----------------------------------------------------------------------------
5 Old Common Stock Impaired; did not 0%
receive or retain any
property or interest
under the Plan.
-----------------------------------------------------------------------------
6 Old Stock Rights Impaired; did not 0%
and Claims Arising receive or retain any
Out Of Old Stock property or interest
Rights under the Plan.
-----------------------------------------------------------------------------
7 Securities Claims Impaired; did not 0%
receive or retain any
property or interest
under the Plan.
-----------------------------------------------------------------------------
8 GOGL's 100% interest 100%
in Subsidiaries Unimpaired
-----------------------------------------------------------------------------
9 Intercompany Claims Impaired 0%
-----------------------------------------------------------------------------
F-48
It was determined that the Company's reorganization value
computed immediately before October 10, 2000, the date of Plan
confirmation was $536,564,000, which consisted of the following:
(in thousands of $)
Cash in excess of normal operating
requirements generated by operations 4,491
Net realisable value of asset disposals 37
Present value of discounted cash flows
of the emerging entity 532,036
----------------------------------------------------------------
Reorganization value 536,564
----------------------------------------------------------------
The Company adopted fresh-start reporting because holders of
existing voting shares immediately before filing and confirmation
of the Plan received less than 50% of the voting shares of the
emerging entity and its reorganization value is less than its
postpetition liabilities and allowed claims, as shown below:
(in thousands of $)
Postpetition current liabilities 56,492
Postpetition long-term debt 304,026
Post petition long-term obligations under
capital leases 110,156
Liabilities deferred pursuant to
Chapter 11 proceedings 306,751
----------------------------------------------------------------
Total postpetition liabilities and
allowed claims 777,425
Reorganization value 536,564
----------------------------------------------------------------
Excess of liabilities over reorganization value 240,861
----------------------------------------------------------------
The reorganization value of the Company was determined by
consideration of several factors and by reliance on various
valuation methods, including discounting cash flow and
independent valuations of the Company's assets. The factors
considered by the Company included the following:
- Forecasted operating and cash flow results, which gave effect
to the estimated impact of corporate restructuring and other
proposed operating changes.
- The discounted residual value at the end of the forecast
period based on the independent valuations of the Company's
assets.
- Market share and position
- Competition and general economic considerations
F-49
- Projected future developments in market charter rates for the
Company's vessels.
- Working capital requirements
After consideration of the Company's debt capacity and other
capital structure considerations, such as industry norms,
projected earnings to fixed charges, earnings before interest and
taxes to interest, free cash flow to interest, and free cash flow
to debt service and other applicable ratios, and after extensive
negotiations among parties in interest, it was agreed that the
Company's reorganization capital structure should be as follows:
(in thousands of $)
Postpetition current liabilities 56,492
Postpetition long-term debt 304,026
Post petition long-term obligations
under capital leases 110,156
Secured long-term loan from successor
parent company 50,000
Unsecured short-term credit facility
from successor parent company 890
Share capital 15,000
----------------------------------------------------------------
536,564
----------------------------------------------------------------
F-50
The following table summarises the effect of the Plan of
Reorganization on the Company's balance sheet as of October 10,
2000:
Reorganized
Pre- Debt Fresh Balance
(in thousands of $) confirmation Discharge start Sheet
ASSETS:
Current assets:
Cash and cash
equivalents 12,306 336 12,642
Other current
assets 7,983 (2,191) 5,792
----------------------------------------------------------------
20,289 336 (2,191) 18,434
Vessels and
equipment owned,
net 412,256 (57,706) 354,550
Vessels and
equipment under
capital lease,
net 122,878 (13,378) 109,500
Options to
purchase vessels - 8,370 8,370
Investment in
associated
companies 28,554 (18,465) 10,089
Goodwill 5,956 (5,956) -
Deferred debt
charges 3,065 (3,065) -
Interest rate
swap contracts - 2,341 2,341
Reorganization
value in excess
of amounts
allocable to
identifiable
assets - 33,280 33,280
----------------------------------------------------------------
Total assets 592,998 (2,729) (53,705) 536,564
================================================================
F-51
LIABILITIES
AND EQUITY:
Current
liabilities:
Current
maturities of
long-term debt 23,557 23,557
Current portion
of obligations
under capital
leases 8,273 8,273
Senior Note
accrued interest 9,713 (9,713) -
Amounts due
to successor
parent company - 890 890
Other current
liabilities 29,412 (4,750) 24,662
----------------------------------------------------------------
70,955 (13,573) 57,382
Long-term debt 304,026 304,026
Obligations
under capital
leases 110,156 110,156
Senior Notes
payable 255,702 (255,702) -
Amounts due
to successor
parent company - 50,000 50,000
Other
long-term
liabilities 27,291 (27,291) -
----------------------------------------------------------------
Total liabilities 768,130 (246,566) 521,564
Minority interest 589 (589) -
Share capital - 15,000 15,000
Additional
paid-in capital 74,795 (74,795) -
Retained earnings (250,516) 229,426 21,090 -
----------------------------------------------------------------
Total equity (175,721) 244,426 (53,705) 15,000
----------------------------------------------------------------
Total liabilities
and equity 592,998 (2,729) (53,705) 536,564
================================================================
F-52
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
A-1
without limiting the generality of the foregoing, 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.
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 Debt securities indenture (senior indenture)*
4.3 Debt securities indenture (subordinated indenture)*
5.1 Opinion of Appleby, Spurling & Kempe, 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 the validity of the Shares
12.1 Calculation of ratio of earnings to fixed changes
23.1 Consent of Appleby, Spurling & Kempe (included in
Exhibit 5.1)
23.2 Consent of Seward & Kissel LLP (included in Exhibit 5.2)
23.3 Consent of PricewaterhouseCoopers DA
23.4 Consent of KPMG
23.5 Consent of Moore Stephens
24 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.
A-2
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 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
A-3
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
A-4
sent or given, the latest quarterly report that is
specifically incorporated by reference in the
prospectus to provide such interim financial
information.
A-5
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 Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in
the city of Hamilton, Bermuda on July 13, 2001.
FRONTLINE LTD.
By: /s/ John Fredriksen
_______________________
Name: John Fredriksen
Title: Chairman
KNOW ALL PERSONS BY THESE PRESENTS, that each person
whose signature appears below constitutes and appoints each of
John Fredriksen, Tor Olav Troim, Ola Lorentzen, Kate Blankenship,
Gary J. Wolfe and Robert E. Lustrin his or her true and lawful
attorney-in-fact and agent, with full powers of substitution and
resubstitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every
act and thing requisite and necessary to be done, as fully for
all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-
in-fact and agent, or his substitute, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of
1933, this Registration Statement has been signed by the
following persons on July 13, 2001 in the capacities indicated.
SIGNATURE TITLE
/s/ John Fredriksen
-------------------
John Fredriksen Chairman, Chief Executive Officer,
President and Director
/s/ Tor Olav Troim
-------------------
Tor Olav Troim Vice-President and Director
/s/ A. Shaun Morris
-------------------
A-6
A. Shaun Morris Director
/s/ James Bodi
------------------- James Bodi Director
James Bodi
/s/ Kate Blankenship
--------------------
Kate Blankenship Chief Accounting Officer and Company
Secretary
/s/ Tom E. Jebsen
--------------------
Tom E. Jebsen Chief Financial Officer of Frontline
Management
A-7
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 13,
2001.
PUGLISI & ASSOCIATES
By: /s/ Donald J. Puglisi
_____________________
Name: Donald J. Puglisi
Title: Managing Director
A-8
EXHIBITS
FILED
Herewith DESCRIPTION
DESCRIPTION OF EXHIBITS
1.1 Underwriting Agreement (for equity securities)*
1.2 Underwriting Agreement (for debt securities)*
4.1 Share Certificate
4.2 Debt securities indenture (senior indenture)*
4.3 Debt securities indenture (subordinated indenture)*
5.1 Opinion of Appleby, Spurling & Kempe, 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 the validity of the Shares
12.1 Calculation of ratio of earnings to fixed charges
23.1 Consent of Appleby, Spurling & Kempe (included in
Exhibit 5.1)
23.2 Consent of Seward & Kissel LLP (included in Exhibit 5.2)
23.3 Consent of PricewaterhouseCoopers DA
23.4 Consent of KPMG
23.5 Consent of Moore Stephens
24 Power of Attorney (contained on 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.
A-9
02089018.AA0