UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-29106
KNIGHTSBRIDGE TANKERS LIMITED
_________________________________________________________________
(Exact name of Registrant as specified in its charter)
ISLANDS OF BERMUDA
_________________________________________________________________
(Jurisdiction of incorporation or organization)
Cedar House
41 Cedar Avenue
Hamilton HM EX
Bermuda
_________________________________________________________________
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section
12(b) of the Act: None
Securities registered or to be registered pursuant to Section
12(g) of the Act:
Title of each class
Common Shares
(par value $0.01)
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period
covered by the annual report.
Common Shares, par value $0.01 17,100,000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark which financial statement item the
Registrant has elected to follow.
Item 17 Item 18 X
TABLE OF CONTENTS (1)
Page
Part I Item 1 Description of Business...................
Item 2 Description of Property...................
Item 3 Legal Proceedings.........................
Item 4 Control of Registrant.....................
Item 5 Nature of Trading Market..................
Item 6 Exchange Controls and Other Limitations
Affecting Security Holders.............
Item 7 Taxation..................................
Item 8 Selected Financial Data...................
Item 9 Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................
Item 10 Directors and Officers of Registrant......
Item 11 Compensation of Directors and Officers....
Item 13 Interest of Management in Certain
Transactions...........................
Part IV Item 18 Financial Statements......................
Item 19 Financial Statements and Exhibits.........
___________________
(1) Items omitted are inapplicable.
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
General
Knightsbridge Tankers Limited (the "Company") was
incorporated in Bermuda in September, 1996, for the purpose of the
acquisition, disposition, ownership, leasing and chartering of,
through wholly-owned subsidiaries (the "Subsidiaries"), five very
large crude oil carriers ("VLCCs") (the "Vessels"), and certain
related activities. The Company charters the Vessels to Shell
International Petroleum Company Limited (the "Charterer") on
long-term "hell and high water" bareboat charters (the
"Charters"). The obligations of the Charterer under these
charters are jointly and severally guaranteed (the "Charter
Guarantees") by Shell Petroleum N.V. and The Shell Petroleum
Company Limited (the "Charter Guarantors"). The Charterer and the
Charter Guarantors are all companies of the Royal Dutch/Shell
Group of Companies. References herein to the Company include the
Company and the Subsidiaries, unless otherwise indicated.
Ownership and Management of the Company Generally
In February, 1997, upon the exercise by the underwriters
of their overallotment option, the Company offered and sold to the
public 16,100,000 common shares, par value $0.01 per share (the
"Common Share"), at an initial offering price of $20 per share.
Simultaneously, the Company sold 1,000,000 Common Shares at a
price of $20 per share to ICB International Limited ("ICB
International"), an indirect wholly-owned subsidiary of ICB
Shipping Aktiebolag (publ) ("ICB"), a Swedish publicly traded oil
tanker owning and operating company. As of December 31, 1997, ICB
International owns approximately 5.8% of the outstanding Common
Shares. ICB Shipping (Bermuda) Limited (the "Manager"), another
wholly-owned subsidiary of ICB, manages the business of the
Company. See Item 10.
Vessels
The Company used the net proceeds of the offerings
described above, together with advances totaling $145.6 million
under a credit facility from an international syndicate of lenders
(the "Credit Facility"), primarily to fund the purchase by the
Subsidiaries of the Vessels. Upon their purchase from their
previous owners on February 27, 1997 (the "Delivery Date") the
Vessels were delivered by the Company to the Charterer, under
separate "hell and high water" bareboat charters (the "Charters").
The term of each of these Charters is a minimum of seven years,
with an option for the Charterer to extend the period for each
Vessel's Charter for an additional seven-year term, to a maximum
of 14 years per Charter. Under the Charters, the Charterer pays
the greater of a base rate of hire or a spot market related rate.
See "Charterhire" below.
Each Vessel is an approximately 298,000 deadweight tonne
("dwt") double hull VLCC built by Daewoo Heavy Industries, Ltd.
(the "Builder") at its shipyard in Korea. The Vessels meet all
material existing regulatory requirements affecting the Vessels
and their operations. The name, dwt, hull type and date of
original delivery from the Builder's yard are set forth below,
together with certain of the Vessels' particulars:
Date of Delivery from
Vessel Name Approximate Dwt Hull Type Builder's Yard
Murex 298,000 Double June 2, 1995
Macoma 298,000 Double August 1, 1995
Magdala 298,000 Double September 28, 1995
Myrina 298,000 Double November 15, 1995
Megara 298,000 Double March 5, 1996
Vessel Particulars
Length Overall........................... 332.0 meters
Beam Overall............................. 58.0 meters
Depth.................................... 31.0 meters
Draught.................................. 22.0 meters
Cargo Cubic..............................343,000 cubic meters
Main Engine Sulzer 7RTA84T (Diesel) rated at 36,000 hp.
The Vessels are modern, high-quality double hull tankers
designed for enhanced safety and reliability and for relatively
low operating and maintenance costs. Design features include a
cargo system designed for optimum port performance, a high grade
anti-corrosion paint system and pipeline materials which have
been specified with a view to long service, an efficient power
generation system including shaft generator, additional
firefighting and safety equipment over and above minimum
standards and improved structural design.
The Vessels are all registered in the Isle of Man.
The U.K. Finance Leases
The Subsidiaries have each entered into conditional
sale/leaseback arrangements the ("U.K. Finance Leases") with a
subsidiary of National Westminster Bank plc, NatWest Leasing and
Asset Finance Ltd. (the "U.K. Lessor") pursuant to which each
Subsidiary has sold a Vessel to the U.K. Lessor under a
conditional sale agreement (the "CSA") and concurrently leased
its Vessel back from the U.K. Lessor for a term of 25 years. By
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virtue of certain benefits under United Kingdom tax laws which
will be passed to the Charterer, the U.K. Finance Leases enable
the Charterer to achieve a reduction in its costs of hiring and
using the Vessels, without reducing the Base Hire, Additional
Hire, if any, or Supplemental Hire (as these terms are defined
herein) payable to the Subsidiaries. During the term of the U.K.
Finance Leases, the Vessels will remain on the Company's
consolidated balance sheet and each Subsidiary will retain title
to the related Vessel.
On the Delivery Date, the U.K. Lessor paid to the
Subsidiaries an amount equal to $439.8 million in the aggregate
and each Subsidiary delivered its related Vessel to the Charterer
as agent for the U.K. Lessor. Each Subsidiary procured the
opening of a letter of credit (each a "Letter of Credit" and,
collectively, the "Letters of Credit") by a major commercial bank
(each a "LC Bank" and, collectively, the "LC Banks") from which
the U.K. Lessor will be paid rental and other payments due under
the U.K. Finance Leases. The Subsidiaries also established
letter of credit reimbursement accounts (each a "LC Account" and,
collectively, the "LC Accounts") with the LC Banks, as security
for their respective obligations to reimburse the LC Banks for
amounts paid under the Letters of Credit. Interest on the LC
Accounts will be added to such security, and, therefore, will not
benefit the Company.
The U.K. Lessor, the Charterer and each Subsidiary have
entered into a direct support agreement (each a "Direct Support
Agreement" and, collectively, the "Direct Support Agreements")
containing certain indemnification and other payment obligations
of the Charterer in favor of the U.K. Lessor. The U.K. Finance
Leases are structured so that the LC Banks may not make claims
for reimbursement against the Subsidiaries or the Vessels for
amounts paid or capable of being drawn under the Letters of
Credit, other than claims in respect of funds on deposit in the
LC Accounts (including interest thereon), except in the event
that such funds are returned to the Subsidiaries or paid to a
creditor or a trustee or similar official and then only to the
extent of such returned or paid funds. In addition, the U.K.
Lessor may not make claims against the Subsidiaries or the
Vessels for amounts otherwise due under the U.K. Finance Leases
and capable of being drawn under the Letters of Credit, except to
the extent that the Charterer has paid to a Subsidiary under the
Charters separate amounts denominated in Pounds Sterling
("Sterling Hire") for the sole purpose of enabling the
Subsidiaries to meet their obligations to the U.K. Lessor.
The U.K. Lessor, the Charterer and each Subsidiary (with
the consent of the Charterer) may not terminate the U.K. Finance
Leases apart from under certain conditions and upon such
termination a termination sum (the "Termination Sum") will be
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payable to the U.K. Lessor. One of those conditions includes the
termination of the Charter and the failure to substitute an
acceptable replacement charter. The recourse of the U.K. Lessor
against the Subsidiaries or the Vessels for all or any portion of
the Termination Sum will be limited to amounts capable of being
drawn under the Letters of Credit and to any amounts paid in
respect thereof by the Charterer to the Subsidiaries as Sterling
Hire. To the extent the Termination Sum exceeds the amount
capable of being drawn under the Letters of Credit, the Charterer
will be obligated to pay the U.K. Lessor the difference. Also,
upon termination, the U.K. Lessor will agree to sell its interest
in the related Vessel and to allow the relevant Subsidiary to
control the disposition of such interest in the related Vessel
and to receive the net proceeds of any sale thereof except in
limited circumstances. However, the Subsidiaries' rights will be
subject to the rights of the agent on behalf of the lenders under
the Credit Facility, as described below, who will be entitled to
control such disposition in certain circumstances.
The Credit Facility
The Company has entered into the Credit Facility with a
syndicate of international lenders, pursuant to which the Company
on the Delivery Date borrowed $145.6 million in the form of term
loans. Of such amount, $125.4 million was in respect of five
loans (the "Primary Loans"), each in respect of a Vessel, and
$20.2 million was in respect of five loans (the "Amortizing
Loans"), each in respect of a Vessel. The Primary and Amortizing
Loans are equal to approximately 31.65% of the purchase price of
the Vessels, which was $439,821,545 million in the aggregate.
Each Primary Loan will mature on August 27, 2004. Principal on
the Amortizing Loans is amortized in equal quarterly installments
beginning on April 15, 1997 through January 15, 2000. Whether or
not the term of any of the Charters is extended, the Company is
obligated to repay the borrowings under the Credit Facility on
the maturity date. The Credit Facility provides for payment of
interest on the outstanding principal balance of each of the
Primary Loans and on the Amortizing Loans quarterly, in arrears,
at a floating interest rate based on the rate in the London
interbank eurocurrency market. However, the Company has entered
into an interest rate swap transaction (the "Swap") with Goldman
Sachs Capital Markets, L.P., an affiliate of Goldman, Sachs & Co.
(the "Swap Counterparty"), so that it has effectively fixed its
interest rate on the Primary Loans and the Amortizing Loans at
the rate of approximately 7.14% and 6.51%, respectively, per
annum.
If a Subsidiary sells or disposes of the related Vessel
or the Company sells or disposes of its shareholding in such
Subsidiary, or the U.K. Lessor sells or otherwise disposes of its
interest in a Vessel and rebates the proceeds thereof to the
4
Subsidiary the Company will be obligated to make a loan
prepayment in respect of the Credit Facility which will be
applied against the Primary Loans and Amortizing Loans in a
manner depending upon whether the disposal occurred prior to, or
on or after February, 2004.
The Credit Facility is secured by, among other things, a
pledge by the Company of 100% of the issued and outstanding
capital stock of the Subsidiaries, a guarantee from each
Subsidiary, a mortgage on each Vessel (collectively, the
"Mortgages"), assignments of the Charters and the Charter
Guaranties and an assignment of the U.K. Lessor's rights to take
title to the Vessels and the proceeds from the sale or any
novation thereof. The Credit Facility is not guaranteed by the
Charterer or the Charter Guarantors. The failure by the Company
to make payments due and payable under the Credit Facility could
result in the acceleration of all principal and interest on the
Credit Facility, the enforcement by the lenders under the Credit
Facility of their rights with respect to the security therefor,
and the consequent forfeiture by the Company of one or more of
the Vessels. The Credit Facility and the Swap also provide for
other customary events of default.
The Credit Facility contains a number of covenants made
by the Company and each of the Subsidiaries that, among other
things, restrict the ability of the Company to incur additional
indebtedness, pay dividends if the Company is in default, change
the business conducted by the Company, create liens on assets or
dispose of assets. In addition, upon termination of a Charter,
the Company and the relevant Subsidiary will be subject to
additional covenants pursuant to the Credit Facility pertaining
primarily to the maintenance and operation of the Vessels.
The Charterer and Charters
The Charterer is Shell International Petroleum Company
Limited, a wholly-owned subsidiary of The Shell Petroleum Company
Limited, which, in turn, is a subsidiary of N.V. Koninklijke
Nederlandsche Petroleum Maatschappij, which owns 60% of its share
capital, the remaining 40% being owned by The "Shell" Transport
and Trading Company, p.l.c.
The principal activities of the Charterer are to buy,
sell and otherwise deal in, and to transport, crude oil,
petroleum products and coal and to provide services to the
companies of the Royal Dutch/Shell Group of Companies. The
Charterer currently charters the Vessels from the Subsidiaries
under the Existing Charters.
Pursuant to the Charters, each Vessel is chartered for
an initial term of seven years (ending in February, 2004) plus,
5
subject to the notice requirement described below, at the option
of the Charterer, if not extended as described below, up to 90
days plus up to 30 days thereafter. Each Charter is subject to
extension at the option of the Charterer for an additional period
of seven years plus, subject to the notice requirement described
below, at the option of the Charterer, up to 90 days plus up to
30 days thereafter upon at least eight months' prior notice of
such extension, which notice shall be irrevocable. The obligation
of the Charterer to pay charterhire for the Vessels commenced on
the Delivery Date. The Charterer is obligated to give written
notice (which shall be irrevocable), not less than three months
prior to the seventh or as applicable, the fourteenth,
anniversary of the Delivery Date (February, 2004 and February,
2011, respectively), of the number of days, if any, by which the
original term or the extended term, respectively, of a Charter
will extend beyond such anniversary.
Pursuant to the terms of the Charters, the Charterer's
obligation to pay charterhire for the entire charter period is
absolute, whether there is a loss or damage to a Vessel of any
kind or whether such Vessel or any part thereof is rendered unfit
for use or is requisitioned for hire or for title, and regardless
of any other reason whatsoever. The Charter Guarantors have
agreed to guarantee all of the Charterer's obligations under each
of the Charters.
A Subsidiary has the right to assign the income it
receives under the relevant Charter without the Charterer's
consent; however, the Subsidiary may not otherwise assign its
rights and obligations under such Charter, without the prior
written consent of the Charterer, which consent shall not be
unreasonably withheld, provided that for this purpose (i) a
transfer of the legal ownership of the shares of a Subsidiary
shall be deemed to be an assignment of such rights and
obligations by such Subsidiary for which the Charterer's consent
shall be required, and (ii) without limitation, it shall be
reasonable for the Charterer to withhold its consent to a
transfer and assignment by a Subsidiary of its rights and
obligations under the relevant Charter to a person or entity with
whom the Charterer does not wish, in good faith, for policy or
other reasons to enter into a business relationship.
The Charterer may not assign its rights and obligations
under each of the Charters nor may it charter a Vessel by demise,
to any company other than a company of the Royal Dutch/Shell
Group of Companies without the prior written consent of the
relevant Subsidiary, which consent shall not be unreasonably
withheld. The Charterer may otherwise charter a Vessel without
the prior consent of the relevant Subsidiary, provided that the
Charterer remains responsible as principal (or appoints another
person to be responsible in its stead) for navigating and
6
managing such Vessel throughout the period of such Charter and
for defraying all expenses in connection with such Vessel
throughout such period. In any such case the Charterer will
remain liable for payment and performance of the Charterer's
obligations under such Charter and the relevant Charter Guaranty
shall remain in effect with respect to such Charter.
Under each Charter, the Charterer is liable for all
expenses of operating, repairing and maintaining the related
Vessel, other than the initial registration expenses of such
Vessel, and bears all risk of loss of or damage to such Vessel
during the term of such Charter. In addition, a Subsidiary (i)
has no liability to the Charterer for breaches of any of its
representations or warranties made to the Charterer with respect
to the Vessel owned by such Subsidiary, except to the extent of
actual recoveries made by a Subsidiary from third parties in
relation thereto, and (ii) is not liable to continue to supply a
Vessel or any part thereof if, following the delivery of such
Vessel under a Charter, such Vessel or any part thereof is lost,
damaged rendered unfit for use, confiscated, seized,
requisitioned, restrained or appropriated and, in any such case
or for any reason whatsoever, the charterhire payable in respect
of such Vessel shall continue to be payable.
The Charterer is obligated under each Charter to
indemnify the relevant Subsidiary and the Company in respect of
events arising prior to and through the term of the Charters with
respect to, among other things (i) all costs and expenses of
operating, maintaining and replacing all parts in respect of the
Vessels and (ii) all liabilities, claims and proceedings claimed
by anyone arising in any manner out of, among other things, the
operation or chartering of the Vessels, including environmental
liabilities, other than liabilities arising out of the gross
negligence or willful misconduct of such Subsidiary or the
Company. The indemnities provided in the Charters continue in
full force (in respect of events occurring during the pendency of
a Charter) notwithstanding termination or expiration of such
Charter. All amounts payable under the Charters by the Charterer,
including indemnity payments, are required to be paid free from
and without deduction for certain taxes specified in the Charter.
The Charterer has the right at its expense to assume the defense
of indemnified claims.
During the term of each Charter, the Charterer is
required, at its own cost, (a) to maintain the related Vessel, as
well as the machinery, cargo handling and other equipment,
appurtenances and spare parts thereof, in the same good state of
repair and efficient operating condition as other vessels owned
or operated by companies of the Royal Dutch/Shell Group of
Companies, ordinary wear and tear excepted, and (b) to keep each
Vessel with unexpired classification of Lloyds Register of
7
Shipping and with other required certificates (including, without
limitation, those required by the Vessel's country of registry).
In addition, the Charterer is required to drydock such Vessel and
clean and paint its underwater parts whenever the same shall be
necessary, in accordance with the practices applied to other
vessels owned or operated by companies of the Royal Dutch/Shell
Group of Companies. A Subsidiary shall have the right, at any
time on reasonable notice to the Charterer and at such
Subsidiary's expense, to inspect or survey the relevant Vessel,
to ascertain that such Vessel is being properly repaired and
maintained, provided that such inspection or survey will not
interfere with such Vessel's trading requirements and such
Subsidiary shall be required to rebate to Charterer a sum
equivalent to charterhire payable during any period of drydocking
caused solely by the subsidiary's inspection and survey.
Pursuant to the Charters, the Charterer is obliged to
maintain marine (hull and machinery), war, protection and
indemnity and pollution risk insurance on each Vessel in a manner
consistent with insurance arrangements currently in force in
relation to similar vessels owned or operated by companies of the
Royal Dutch/Shell Group of Companies, provided that the Charterer
is entitled to self insure with respect to marine (hull and
machinery) and war risks.
Charterhire
The daily charterhire rate payable under each Charter is
comprised of two primary components: (i) the Base Rate, which is
a fixed minimum rate of charterhire equal to $22,069 per Vessel
per day, payable quarterly in arrears, and (ii) Additional Hire,
which is additional charterhire (determined and paid quarterly in
arrears and may equal zero) that will equal the excess, if any,
of a weighted average of the daily time charter rates for three
round-trip trade routes traditionally served by VLCCs, less an
agreed amount of $10,500 during the initial term of the Charters,
and $14,900 for any extended term, representing daily operating
costs over the Base Rate. This charterhire computation is
intended to enable the Company to receive the greater of (i) an
average of prevailing spot charter rates for VLCCs trading on
such routes after deducting daily operating costs of $10,500
during the initial term of the Charters, and $14,900 for any
extended term and (ii) the Base Rate.
The Charterer is also obligated to pay Supplemental Hire
quarterly in arrears through January 15, 2000 in fixed amounts
that have been calculated with reference to the swap fixed
interest rate under the Credit Facility and which are equivalent
to amounts due under the Amortizing Loan. Supplemental Hire
therefore serves the Company's business purpose of repaying the
8
Amortizing Loan. The Charterer is obligated to pay supplemental
Hire as set forth below:
January 15, 1998 .............................$1,930,078
April 15, 1998 ...............................$1,897,658
July 15, 1998.................................$1,872,745
October 15, 1998..............................$1,847,231
January 15, 1999 .............................$1,819,615
April 15, 1999 ...............................$1,789,599
July 15, 1999 ................................$1,763,484
October 15, 1999..............................$1,736,769
January 15, 2000..............................$1,709,153
The amount of Additional Hire, if any, that is payable
is calculated based on a determination of the London Tanker
Brokers Panel (the "Brokers Panel") or another panel of brokers
mutually acceptable to the Subsidiaries and the Charterer of the
average spot rates (the "Average Spot Rates") in Worldscale
points over the three months ending on the last day of the month
preceding the relevant charterhire payment date (the "Hire
Payment Date") on the following three standard notional round
voyage routes and cargo sizes for similar ships:
(A) Arabian Gulf to Rotterdam with 280,000 tonnes of
cargo;
(B) Arabian Gulf to Singapore with 260,000 tonnes of
cargo; and
(C) Arabian Gulf to Japan with 260,000 tonnes of cargo.
The determination of the Brokers Panel shall be binding upon both
the Subsidiaries and the Charterer. "Worldscale" is an index
commonly used in the tanker industry for calculating freight
rates in the spot charter market
The Charter Guaranties
The Charter Guarantors have entered into the separate
joint and several Charter Guaranties in favor of the Company and
each Subsidiary. Pursuant to the Charter Guaranties, the Charter
Guarantors on a joint and several basis fully and unconditionally
guarantee the prompt payment and performance by the Charterer of
all its obligations under and in connection with each Charter to
the relevant Subsidiary and certain indemnification obligations
under the Charters to the Company. The Charter Guaranties do not
confer any rights or remedies thereunder on any person, other
than the Company and the Subsidiaries, and are not guaranties of
the payment of dividends or any other amounts to the holders of
Common Shares. As the Charter Guarantors are holding companies,
9
the Charter Guaranties are effectively subordinated to the debt
of their subsidiaries which are operating companies.
Dividend Policy
The Company policy is to pay quarterly distributions to
holders of record of Common Shares in each January, April, July
and October in amounts substantially equal to the charterhire
received by the Company under the Charters, less cash expenses
and less any reserves required in respect of any contingent
liabilities. Currently, the Company does not have any material
cash expenses other than (i) a management fee of $750,000 per
annum, payable to the Manager (the "Management Fee") (ii) certain
directors' and officers' liability insurance premiums in the
current amount of $90,000 per annum, (iii) payment of interest on
the Primary Loans and (iv) payments of interest and principal on
the Amortizing Loans through January 15, 2000, (which are
equivalent to the amounts of Supplemental Hire). Any lease
payments under the U.K. Finance Leases are expected to be paid
under the Letters of Credit or otherwise by the Charterer, and
therefore are not considered cash expenses of the Company and are
not expected to reduce amounts available to the Company for the
payment of distributions to shareholders. Declaration and
payment of any dividend is subject to the discretion of the
Company's Board of Directors. The declaration and payment of
distributions to shareholders is prohibited if the Company is in
default under the Credit Facility or if such payment would be or
is reasonably likely to result in an event of default under the
Credit Facility. Any payment of distributions to shareholders by
the Company in any year may also be dependent upon the adoption
by the holders of a majority of the Common Shares voting at the
annual meeting of shareholders of the Company of a resolution
effectuating a reduction in the Company's share premium and a
credit to the Company's contributed capital surplus account. The
timing and amount of dividend payments will be dependent upon the
Company's earnings, financial condition, cash requirements and
availability, the provisions of Bermuda law affecting the payment
of distributions to shareholders and other factors.
There can be no assurance that the Company will not have
other expenses, including extraordinary expenses, which could
include costs of claims and related litigation expenses, which
are not covered by the indemnification provisions of the
Charters, or that the Company will not have contingent
liabilities for which reserves are required. As an "exempted"
Bermuda company, the Company does not expect to pay any income
taxes in Bermuda. The Company also does not expect to pay any
income taxes in the Cayman Islands (the jurisdiction of
organization of the Subsidiaries) or the Isle of Man (the
jurisdiction in which the Vessels are registered).
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In 1997, the Company paid the following distributions to
shareholders per Common Share:
Record Date Payment Date Amount per Share
April 25, 1997 May 9, 1997 $0.17
July 25, 1997 August 11, 1997 $0.45
October 27, 1997 November 13, 1997 $0.64
Because each of the Primary Loans matures after the
initial term of the Charters and must be repaid or refinanced at
such time, the Company may, in the last year of the initial term
of a Charter, set aside amounts for payment of interest and
principal which would be due on the related Primary Loan
following termination of such Charter in the event the Charterer
does not renew such Charter or the Company cannot arrange to
recharter or sell the Vessel as of the expiration date of such
Charter. In addition, the Company may have to set aside amounts
in the last year of the initial term of a Charter in anticipation
of costs that may be incurred in connection with the resale or
rechartering of the Vessel in the event the Charterer does not
renew such Charter. These amounts would not be available for the
payment of distributions to shareholders at such time.
It is expected that any cash distributions by the
Company will exceed the Company's earnings and profits for U.S.
tax purposes, with the result that for each full year that the
Charters are in place a portion of such distributions may be
treated as a return of the "basis" of a U.S. holder's Common
Shares. The Company is a passive foreign investment company
("PFIC"), and as a result U.S. Holders must make a timely tax
election known as "QEF Election" with respect to the Company in
order to prevent certain tax penalties from applying to such U.S.
holder. The Company intends to provide all necessary tax
information to shareholders by February 15 of each year in order
that they may make such election.
Limited Purposes of the Company
The business of the Company is limited by its Bye-Laws
to the consummation of the transactions described above and
related activities including the ownership of the Subsidiaries
engaged in the acquisition, disposition, ownership, leasing and
chartering of the Vessels and engaging in activities necessary,
suitable or convenient to accomplish, or in connection with or
incidental to, the foregoing, including entering into the Credit
Facility and the U.K Finance Leases and the refinancing thereof.
During the terms of the Charters, the Company expects that its
only source of operating revenue from which the Company may pay
11
distributions to shareholders on the Common Shares will be cash
payments from the Subsidiaries to the Company. Also, during the
terms of the Charters, the Subsidiaries' only source of operating
revenue will be charterhire paid to the Subsidiaries by the
Charterer. The Company's Bye-Laws may be amended only upon the
affirmative vote of 66-2/3% of the outstanding Common Shares,
and, insofar as the Company's purposes or powers are concerned or
insofar as the interests of the lenders under the Credit Facility
are prejudiced, with the approval of the lenders under the Credit
Facility. In addition, the Company and the Subsidiaries have
agreed with the Charterer not to take certain acts which would
subject them to general jurisdiction of the U.S. courts.
Industry Conditions
Highly Cyclical Nature. The amount of Additional Hire
payable under the Charters, if any, as well as the ability of the
Manager to sell or recharter a Vessel upon the expiration or
termination of the related Charter and the amount of any proceeds
therefrom, will be dependent upon, among other things, economic
conditions in the oil tanker industry. The oil tanker industry
has been highly cyclical, experiencing volatility in charterhire
rates and vessel values resulting from changes in the supply of
and the demand for crude oil and in tanker capacity. The demand
for tankers is influenced by, among other factors, the demand for
crude oil, global and regional economic conditions, developments
in international trade, changes in seaborne and other
transportation patterns, weather patterns, oil production, armed
conflicts, port congestion, canal closures, embargoes and
strikes. In addition, the Company anticipates that the future
demand for VLCCs, such as the Vessels, will also be dependent
upon continued economic growth in the United States, Continental
Europe and the Far East and competition from pipelines and other
sizes of tankers. While many of the countries in each of these
regions have experienced economic growth in recent years, there
can be no assurance that this trend will continue. Adverse
economic, political, social or other developments in these
regions could have an adverse effect on the Company's business
and results of operations. In addition, even if demand for crude
oil grows in these areas, demand for VLCCs may not necessarily
grow and may even decline. Demand for crude oil is affected by,
among other things, general economic conditions, commodity
prices, environmental concerns, taxation, weather and competition
from alternatives to oil. Demand for the seaborne carriage of
oil depends partly on the distance between areas that produce
crude oil and areas that consume it and their demand for oil.
The incremental supply of tanker capacity is a function of the
delivery of new vessels and the number of older vessels scrapped,
in lay-up, converted to other uses, reactivated or lost. Such
supply may be affected by regulation of maritime transportation
practices by governmental and international authorities. All of
12
the factors influencing the supply of and demand for oil tankers
are outside the control of the Company, and the nature, timing
and degree of changes in industry conditions are unpredictable.
Furthermore, the amount of Additional Hire will be determined
quarterly with reference to three round-trip trade routes between
the following locations: (i) the Arabian Gulf and Rotterdam, The
Netherlands, (ii) the Arabian Gulf and Japan and (iii) the
Arabian Gulf and Singapore. Therefore, the demand for oil in the
areas serviced by such routes could have a significant effect on
the amount of Additional Hire that may be payable. There can be
no assurance that Additional Hire will be payable for any
quarter.
Limited Opportunities for VLCCs; Dependence on Arabian
Gulf Crude Oil. VLCCs are specifically designed for the
transportation of crude oil and, due to their size, are used to
transport crude oil primarily from the Arabian Gulf to the Far
East, Northern Europe, the Caribbean and the Louisiana Offshore
Oil Port ("LOOP"). While VLCCs are beginning to be used to carry
crude oil from other areas, any decrease in shipments of crude
oil from the Arabian Gulf would have a material adverse effect on
the Company at any time after the expiration or termination of
the Charters (or earlier if such decrease adversely affects
charterhire rates for shipments from the Arabian Gulf). Among
the factors which could lead to such a decrease are (i) increased
crude oil production from non-Arabian Gulf areas, (ii) increased
refining capacity in the Arabian Gulf area, (iii) increased use
of existing and future crude oil pipelines in the Arabian Gulf
area, (iv) a decision by Arabian Gulf oil-producing nations to
increase their crude oil prices or to further decrease or limit
their crude oil production, (v) armed conflict in the Arabian
Gulf or along VLCC trading routes, (vi) political or other
factors and (vii) the development and the relative costs of
nuclear power, natural gas, coal and other alternative sources of
energy.
Economic Trends. VLCC demand is primarily a function of
demand for Arabian Gulf crude oil, which in turn is primarily
dependent on the economies of the world's industrial countries
and competition from alternative energy sources. A wide range of
economic, political, social and other factors can significantly
affect the strength of the world's industrial economies and their
demand for Arabian Gulf crude oil. One such factor is the price
of worldwide crude oil. The world's oil markets have experienced
high levels of volatility in the last 25 years. If oil prices
were to rise dramatically, the economies of the world's
industrial countries may experience a significant downturn.
13
Vessel Values
General. Tanker values have generally experienced high
volatility. The fair market value of oil tankers, including the
Vessels, can be expected to fluctuate, depending upon general
economic and market conditions affecting the tanker industry and
competition from other shipping companies, types and sizes of
vessels, and other modes of transportation. In addition, as
vessels grow older, they may be expected to decline in value.
These factors will affect the value of the Vessels at the
termination of their respective Charters or earlier at the time
of their sale.
Oversupply. Since the mid-1970s, during most periods
there has been a substantial worldwide oversupply of crude oil
tankers, including VLCCs. In addition, the market for secondhand
VLCCs has generally been weak since the mid-1970s.
Notwithstanding the aging of the world tanker fleet and the
adoption of new environmental regulations which will result in a
phaseout of many single hull tankers, significant deliveries of
new VLCCs would adversely affect market conditions.
Environmental and Other Regulations
The IMO is an agency organized in 1958 by the United
Nations. Over 100 national governments are members of the IMO,
whose purpose is to develop international regulations and
practices affecting shipping and international trade and to
encourage the adoption of standards of safety and navigation.
During the last 35 years, the IMO has initiated over 700
resolutions and 30 major conventions and protocols. All IMO
agreements must be ratified by the individual government
constituents. Outside the United States, many countries have
ratified and follow the liability scheme adopted by the IMO and
set out in the International Convention on Civil Liability for
Oil Pollution Damage, 1969, as amended by a 1976 protocol and a
1984 protocol (the "CLC"). Under the CLC, a vessel's registered
owner is strictly liable for pollution damage caused on the
territorial waters of a contracting state by discharge of
persistent oil, subject to certain complete defenses. For vessels
of 5,000 gross tons or under, liability is currently limited to
approximately $4,381,500. For vessels larger than 5,000 gross
tons, liability is limited to $4,381,500 plus approximately
$613.41 for each gross ton above 5,000 gross tons. However, the
maximum liability is limited to approximately $87.2 million. The
exact amount of liability is tied to a unit of account which
varies according to a basket of currencies. The right to limit
liability is forfeited where the spill is caused by the owner's
actual fault or privity. Vessels trading to contracting states
must establish evidence of insurance covering the limited
liability of the owner. In jurisdictions where the CLC has not
14
been adopted, various legislative schemes or common law govern,
and liability is imposed either on the basis of fault or in a
manner similar to the CLC.
On March 6,1992, the IMO adopted regulations which set
forth new and upgraded requirements for pollution prevention for
tankers. These regulations went into effect on July 6,1995 in the
Isle of Man, the jurisdiction in which the Vessels are
registered. The regulations state, in part, that (i) tankers
between 25 and 30 years old must be of double hull construction
or of a mid-deck design with double side construction, unless
they have wing tanks or double bottom spaces, not used for the
carriage of oil, which cover at least 30% of the length of the
cargo tank section of the hull or trades the vessel in
hydrostatistical balance which ensures at least the same level of
protection against oil spills in the event of collision or
stranding, (ii) tankers 30 years or older must be of double hull
construction or mid-deck design with double side construction,
and (iii) all tankers will be subject to enhanced inspections.
Some classification societies, the certificates of which evidence
compliance with the IMO regulations, may implement these enhanced
inspection requirements prior to the effective date of such
regulations. In addition, the regulations provide, in part, that
a tanker must be of double hull construction or a mid-deck design
with double side construction or be of another approved design
ensuring the same level of protection against oil pollution in
the event that such tanker (i) is the subject of a contract for a
major conversion or original construction on or after July
6,1993, (ii) commences a major conversion or has its keel laid on
or after January 6, 1994, or (iii) completes a major conversion
or is a newbuilding delivered on or after July 6, 1996. All of
the Vessels have double hulls and comply with the IMO
regulations.
The operation of the Vessels is also affected by the
IMO's newly adopted ISM Code, which requires shipowners and
bareboat charterers to develop an extensive "Safety Management
System," which includes policy statements, manuals, standard
procedures and lines of communication. Noncompliance with the ISM
Code may subject the shipowner or bareboat charterer to increased
liability and may lead to decreases in available insurance
coverage for affected Vessels. Although compliance with the ISM
Code is the responsibility of the Charterer, the Company may
become primarily responsible for compliance with the ISM Code if
the Charterer were to default in its obligations under the
Charters.
The IMO continues to review and introduce new
regulations on a regular basis. It is impossible to predict what
additional regulations, if any, may be passed by the IMO, whether
those regulations will be adopted by member countries and what
15
effect, if any, such regulations might have on the operation of
oil tankers. The Charterer has advised the Company that it
currently intends to use the Vessels to deliver crude oil
primarily to Northern Europe, East Asia, the United States and
the Gulf of Mexico (primarily LOOP) from oil producing areas in
the Arabian Gulf. Because patterns of world crude oil trade are
not constant, the Vessels may load crude oil in any crude oil
producing areas of the world for delivery to areas where oil
refineries are located. In the Company's opinion, trading of the
Vessels in such areas will not expose the Vessels to regulations
more stringent than those of the United States and/or the IMO.
However, additional laws and regulations may be adopted which
could limit the use of oil tankers such as the Vessels in oil
producing and refining regions.
United States Regulation
On August 18,1990, OPA was enacted and became effective
in the United States. OPA applies to all owners, operators and
bareboat charterers of vessels that trade to the United States or
its territories or possessions or operate in United States
waters, which include the United States territorial seas and the
two hundred nautical mile exclusive economic zone of the United
States. Under OPA, Responsible Parties (as defined therein) are
strictly liable on a joint and several basis for discharges of
oil (unless the discharge results solely from the act or omission
of a third party (subject to certain statutory qualifications the
effects of which have not been determined by any judicial
interpretation), an act of God or an act of war) for all oil
spill containment and clean-up costs and other damages arising
from actual and threatened discharges of oil pertaining to their
vessels in the 200 mile exclusive economic zone of the United
States. These other damages include (i) natural resources damages
and the costs of assessment thereof, (ii) real and personal
property damages, (iii) net loss of taxes, royalties, rent, fees
and other lost government revenues, (iv) lost profits or
impairment of earning capacity due to property or natural
resources damage, (v) net cost of public services necessitated by
a spill response, such as protection from fire, safety or health
hazards, and (vi) loss of subsistence use of natural resources.
OPA limits the strict liability of Responsible Parties to the
greater of $1,200 per gross ton or $10 million per tanker
(subject to possible adjustment for inflation), or approximately
$188.4 million per Vessel. However, this limit does not apply if
the incident is caused by violation of applicable United States
federal safety, construction or operating regulations, or gross
negligence or willful misconduct by the Responsible Party or that
of a person in a contractual relationship with the Responsible
Party, or if the Responsible Party failed or refused to report
the incident or to cooperate and assist in connection with oil
16
removal activities. There are no limits to U.S. state law
liability.
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. Tankers that do not have double hulls are subject
to structural and operational measures to reduce oil spills and
will be phased out by the year 2015. All of the Vessels will
comply at delivery with the double hull requirements. In
addition, OPA specifies vessel manning, equipment and other
construction requirements that are in various stages of
development by the USCG applicable to new and to existing
vessels.
The USCG has issued a rule which requires evidence of
financial responsibility equal to the aggregate of OPA's strict
liability limit of $1,200 per gross ton and $300 per gross ton
for potential liability for discharges of hazardous substances
pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"),
Such financial responsibility, evidenced by issuance of a
Certificate of Financial Responsibility ("COFR"), may be
demonstrated by a guaranty in the form of acceptable insurance,
surety bond, self-insurance or other means approved by the USCG.
The rule states that claimants may bring suit directly against an
insurer, surety or other party that furnishes the guaranty. In
the event that such insurer, surety or other party is sued
directly, it is limited to asserting the following defenses: (i)
the defense that the incident was caused by the willful
misconduct of the responsible party; (ii) the defenses available
to the Responsible Party under OPA or CERCLA; (iii) the defense
that the claim exceeds the amount of the guaranty; (iv) the
defense that the claim exceeds the property amount of the
guaranty based on the gross tonnage of the vessel; and (v) the
defense that the claim has not been made under either OPA or
CERCLA. Certain insurance organizations, which typically provide
guaranties, including the major P&I Associations which cover
pollution risks, have refused to furnish guaranties for
Responsible Parties under the USCG rule. Accordingly, Responsible
Parties have procured other sources of financial guaranties at
additional cost. Under the Charters, the Charterer will be
responsible for obtaining a COFR covering the Vessels and for all
other costs of compliance with environmental laws and
regulations.
Owners or operators of tankers operating in United
States waters must file vessel response plans with the USCG, and
their tankers must operate in compliance with USCG approved
plans. Such response plans must, among other things: (i) identify
and ensure, through contract or other approved means, the
17
availability of necessary private response resources to respond
to a "worst case" discharge or to a substantial threat of a worst
case discharge of oil or a hazardous substance; (ii) describe
crew training and drills; and (iii) identify a qualified
individual with full authority to implement removal actions. If
the Charterer intends to trade a Vessel to or from the United
States, it must, pursuant to the terms of the Charter, prepare
and file such a plan with the USCG at its own expense.
OPA specifically permits individual states to impose
their own liability regimes with regard to oil pollution
incidents occurring within their boundaries, and many states have
enacted legislation providing for unlimited liability for oil
spills. In some cases, states which have enacted such legislation
have not yet issued implementing regulations defining tanker
owners' or operators' responsibilities under these laws.
It is impossible to predict what additional legislation,
if any, may be promulgated by the United States or any other
country or authority.
Loss and Liability Insurance
General. There are a number of risks associated with
the operation of the Vessels, including mechanical failure,
collision, property loss, cargo loss or damage and business
interruption due to political circumstances in foreign countries,
hostilities and labor strikes. In addition, the operation of any
vessel is subject to the inherent possibility of marine disaster,
including oil spills and other environmental mishaps, and the
liabilities arising from owning and operating vessels in
international trade. OPA, which imposes virtually unlimited
liability upon owners, operators and demise charterers of any
vessel trading in the United States exclusive economic zone for
certain oil pollution accidents in the United States, has made
liability insurance more expensive for ship owners and operators
trading in the United States market and has also caused insurers
to consider reducing available liability coverage. Pursuant to
the Charters, the Charterer will bear all risks associated with
the operation of the Vessels, including, without limitation, any
total loss of one or more Vessels. The Charterer will also
indemnify each Subsidiary and the Company, and the Charter
Guarantors have agreed to guarantee such obligation, for all
liabilities arising prior to and during the term of the Charters
in connection with the chartering and operation of the Vessels,
including, under environmental protection laws and regulations,
other than liabilities arising out of the gross negligence or
willful misconduct of such Subsidiary or the Company.
Hull and Machinery Insurance. The Charterer will be
entitled to self-insure the marine (hull and machinery) and war
18
risk on each Vessel. In event of loss, following full payments
of charterhire under the Charter's "hell and high water"
provisions, a lump sum payment will be made to the relevant
Subsidiary on expiration of a Charter, based upon three
independent shipbrokers' evaluations of fair market values of
similar vessels at the expiry of the Charter.
Protection and Indemnity Insurance. Protection and
indemnity insurance covers the legal liability of the Charterer,
the Subsidiaries and, as required, their respective associated
companies or managers for their shipping activities. This
includes the legal liability and other related expenses of injury
or death of crew, passengers and other third parties, loss or
damage to cargo, claims arising from collisions with other
vessels, damage to other third-party property, pollution arising
from oil or other substances, and salvage, towing and other
related costs, including wreck removal. The Company expects that
the Charterer will obtain coverage to the fullest extent from
time to time available on normal terms from members of the
International Group of P&I Associations (currently unlimited
coverage, with the exception of oil pollution liability, which is
only available up to $500 million per Vessel per accident). The
Company believes that the Charterer has entered each of the
Vessels into a P&I Association that is a member of the
International Group of P&I Associations. As a member of a mutual
association, the Charterer (and, under certain circumstances, a
Subsidiary) will be subject to calls payable to the association
based on its claim records as well as the claim record of all
other members of the association.
Excess Oil Pollution Insurance. In addition to the $500
million of oil pollution insurance currently available through
the P&I Associations, the Company believes that the Charterer has
purchased from an insurer $200 million of excess coverage for the
Vessels for liabilities arising from oil pollution for a total
coverage of $700 million per Vessel per incident.
ITEM 2 - DESCRIPTION OF PROPERTY
Other than its interests in the Vessels, the Company has
no interest in any other property.
ITEM 3 - LEGAL PROCEEDINGS
To the best of the Company's knowledge, no material
legal proceedings including the Company or any directors,
officers or affiliates of the registrant are currently pending
and no such proceedings are known to be contemplated by any
governmental authorities.
19
ITEM 4 - CONTROL OF REGISTRANT
The Company is not directly or indirectly owned or
controlled by another corporation or entity or by any foreign
government. The following table sets forth certain information
as of March 10, 1998 concerning the beneficial ownership of the
Company's voting securities by each person known to the Company
to be the beneficial owner of more than 10% of such securities.
Common Shares
Owner Amount Percent
_____ __________________
AXA Assurances, I.A.R.D. Mutuelle 1,960,600 11.5%
ITEM 5 - NATURE OF TRADING MARKET
NASDAQ
For the quarter ended: HIGH LOW
March 31, 1977 24 7/8 20 1/2
June 30, 1997 25 5/8 20 3/8
September 30, 1997 29 24 5/8
December 31, 1997 33 3/8 27 1/4
On February 19, 1998, the closing price of the Common
Shares as quoted on the NASDAQ was $27 5/8. On such date there
were 17,100,000 Common Shares outstanding, 16,097,000 of which, ,
representing 94.1% of the Common Shares outstanding, were held of
record in the United States.
ITEM 6 - EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING
SECURITY HOLDERS
The Company has been designated as a non-resident of Bermuda
for exchange control purposes by the Bermuda Monetary Authority,
whose permission for the issue of the Common Shares was obtained
prior to the offering thereof.
The transfer of shares between persons regarded as resident
outside Bermuda for exchange control purposes and the issuance of
Common Shares to or by such persons may be effected without
specific consent under the Bermuda Exchange Control Act of 1972
and regulations thereunder. Issues and transfers of Common Shares
involving any person regarded as resident in Bermuda for exchange
control purposes require specific prior approval under the
Bermuda Exchange Control Act 1972.
Subject to the foregoing, there are no limitations on the
rights of owners of the Common Shares to hold or vote their
shares. Because the Company has been designated as non-resident
for Bermuda exchange control purposes, there are no restrictions
20
on its ability to transfer funds in and out of Bermuda or to pay
dividends to United States residents who are holders of the
Common Shares, other than in respect of local Bermuda currency.
In accordance with Bermuda law, share certificates may be
issued only in the names of corporations or individuals. In the
case of an applicant acting in a special capacity (for example,
as an executor or trustee), certificates may, at the request of
the applicant, record the capacity in which the applicant is
acting. Notwithstanding the recording of any such special
capacity, the Company is not bound to investigate or incur any
responsibility in respect of the proper administration of any
such estate or trust.
The Company will take no notice of any trust applicable to
any of its shares or other securities whether or not it had
notice of such trust.
As an "exempted company", the Company is exempt from Bermuda
laws which restrict the percentage of share capital that may be
held by non-Bermudians, but as an exempted company, the Company
may not participate in certain business transactions including:
(i) the acquisition or holding of land in Bermuda (except that
required for its business and held by way of lease or tenancy for
terms of not more than 21 years) without the express
authorization of the Bermuda legislature; (ii) the taking of
mortgages on land in Bermuda to secure an amount in excess of
$50,000 without the consent of the Minister of Finance of
Bermuda; (iii) the acquisition of securities created or issued
by, or any interest in, any local company or business, other than
certain types of Bermuda government securities or securities of
another "exempted company, exempted partnership or other
corporation or partnership resident in Bermuda but incorporated
abroad; or (iv) the carrying on of business of any kind in
Bermuda, except in so far as may be necessary for the carrying on
of its business outside Bermuda or under a license granted by the
Minister of Finance of Bermuda.
There is a statutory remedy under Section 111 of the
Companies Act 1981 which provides that a shareholder may seek
redress in the Bermuda courts as long as such shareholder can
establish that the Company's affairs are being conducted, or have
been conducted, in a manner oppressive or prejudicial to the
interests of some part of the shareholders, including such
shareholder. However, this remedy has not yet been interpreted
by the Bermuda courts.
The Bermuda government actively encourages foreign investment
in "exempted" entities like the Company that are based in Bermuda
but do not operate in competition with local business. In
addition to having no restrictions on the degree of foreign
21
ownership, the Company is subject neither to taxes on its income
or dividends nor to any exchange controls in Bermuda. In
addition, there is no capital gains tax in Bermuda, and profits
can be accumulated by the Company, as required, without
limitation. There is no income tax treaty between the United
States and Bermuda pertaining to the taxation of income other
than applicable to insurance enterprises.
ITEM 7 - TAXATION
The Company is incorporated in Bermuda. Under current
Bermuda law, the Company is not subject to tax on income or
capital gains, and no Bermuda withholding tax will be imposed
upon payments of dividends by the Company to its shareholders.
No Bermuda tax is imposed on holders with respect to the sale or
exchange of Common Shares. Furthermore, the Company has received
from the Minister of Finance of Bermuda under the Exempted
Undertakings Tax Protection Act 1966, as amended, an assurance
that, in the event that Bermuda enacts any legislation imposing
any tax computed on profits or income, including any dividend or
capital gains withholding tax, or computed on any capital asset,
appreciation, or any tax in the nature of an estate, duty or
inheritance tax, then the imposition of any such tax shall not be
applicable. The assurance further provides that such taxes, and
any tax in the nature of estate duty or inheritance tax, shall
not be applicable to the Company of any of its operations, nor to
the shares, debentures or other obligations of the Company, until
March 2016.
There are no provisions of any reciprocal tax treaty
between Bermuda and the United States affecting withholding.
ITEM 8 - SELECTED FINANCIAL DATA
The following consolidated balance sheet as of
December 31, 1997, and statement of operations for the period of
September 18, 1996 through December 31, 1997, have been derived
from the Financial Statements of the Company which are included
herein and which have been audited by Deloitte & Touche,
independent auditors, whose report thereon is also included
herein. The balance sheet information provided should be read in
conjunction with the accompanying Financial Statements and the
related notes thereto, and the discussion under "Item 9 -
Managements Discussion and Analysis of Financial Condition and
Results of Operation" included elsewhere herein.
22
CONSOLIDATED BALANCE SHEET
(in U.S. Dollars)
ASSETS
Current assets Dec 31, 1997
______________ ____________
Cash $ 217,374
Current installments of notes 6,726,151
receivable
Charter hire receivable 15,449,599
Prepaid expenses 14,000
__________
Total current assets 22,407,124
Notes receivable 8,407,690
Vessels under capital lease 424,965,352
Capitalized financing fees 2,287,056
and expenses ___________
TOTAL ASSETS $458,067,222
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
___________________
Accrued expenses and other $ 2,377,736
current liabilities
Current installments of 6,726,151
credit facility ___________
Total current liabilities 9,103,887
Credit facility 133,805,088
23
Shareholders' equity
____________________
Common shares, par value
0.01 per share:
Authorized and outstanding 171,000
17,100,000
Additional paid-in capital 314,987,247
___________
Total shareholders' equity 315,158,247
___________
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $458,067,222
============
See notes to consolidated financial statements.
24
CONSOLIDATED STATEMENT OF OPERATIONS
(in U.S. Dollars)
Sept 18, 1996
- Dec 31, 1997
______________
Charter hire revenue $42,138,180
Operating expenses:
Depreciation of vessels under -14,856,193
capital leases
Management fee -630,308
Administration expenses -77,993
___________
Operating income 26,573,686
Interest income 1,737,023
Interest expense and other -8,831,412
financial costs __________
Net income $19,479,297
===========
Earnings per common share $1.61
Weighted average number of
shares outstanding 12,127,021
See notes to consolidated financial statements.
ITEM 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
In February, 1997, the Company offered and sold to the public
16,100,000 Common Shares at the initial public offering price of
$20 per share. Simultaneously the Company sold 1,000,000 Common
Shares at a price of $20 per share to ICB International Ltd. The
Company is managed by the Manager, which is another wholly owned
subsidiary of ICB Shipping AB.
The Company's five subsidiaries each purchased one VLCC from
their previous owner on February 27, 1997 and immediately
delivered the Vessels to the Charterer under five separate "hell
and high water" bareboat charters, each with a minimum term of
25
seven years with an option for the Charterer to extend the period
for each Vessel with another seven year period.
The Charters
Under the Charters, the Charterer pays the higher of a base rate
of hire or a spot market related rate. The charterhire is
payable quarterly in arrears and the spot market rate of hire is
assessed on a quarterly basis. In each quarter where the spot
market related rate is lower than the base rate the charterhire
payable is the base rate. In each quarter where the spot market
related rate is higher than the base rate, the spot market
related rate is payable.
The base rate is the aggregate of a bareboat charter component of
$22,069 per vessel per day and an operating element of $10.500
per day (in the first seven years) which add to a time charter
equivalent rate of $32.569 per day.
The spot market related rate is assessed through a formula agreed
between the Company and the Charterer and based on market awards
provided by the London Tanker Broker Panel. The London Tanker
Broker Panel is asked to provide for each quarter the average
spot rates for three standard notional round voyages for ships
similar to the Vessels:
i) Arabian Gulf to Rotterdam with 280,000 tonnes of cargo;
ii) Arabian Gulf to Singapore with 260,000 tonnes of cargo;
and
iii) Arabian Gulf to Japan with 260,000 tonnes of cargo.
The relevant spot rates are weighted so that (i) is taken into
account with 50% and (ii) and (iii) each with 25% when the spot
market related rate is determined.
The calculated spot market related rates for
1997 were for the first quarter (from
delivery of the Vessels until 31 March 1997) $28,750
for the second quarter $27,972
for the third quarter $39,374
for the fourth quarter $43,628
As a consequence charterhire was payable at the base rate
for the first and second quarters in 1997 and at the spot
market related rate in the third and fourth quarters of
1997. The charterhire payment for the fourth quarter was
received in 1998.
26
Results of Operations
In total, the charterhire earned during 1997 from delivery
of the Vessels on February 27, amounted to $42,138,180.
Out of this amount, $33,920,740 was charterhire paid at the
base rate. The remaining $8,217,440 was additional hire.
Operating expenses during the report period were
$15,564,494. Such expenses resulted from depreciation of
the Vessels from the delivery date in an amount equal to
$14,856,193, the management fee from commencement of
operations in an amount equal to $630,308 and
administration expenses in an amount equal to $77,993. The
Company expects that the management fee on an annual basis
will amount to $750,000 and does not expect to incur
significant administrative expenses, apart from premiums in
respect of the Company's directors' and officers' and
general liability insurance, which the Company expects to
purchase and prepay on an annual basis.
There can be no assurance, however, that the Company will
not have other cash expenses or contingent liabilities for
which reserves will be required.
Interest income of $1,737,023, includes interest received
in respect of the Company's liquid funds of $779,244 and
interest received from the Charterer in respect of the
amortising loan of $957,779.
Interest expense and other financial cost of $8,831,412
include interest relating to the primary loan in an amount
equal to $7,561,055, interest relating to the amortising
loan in an amount equal to $956,609 and depreciation of the
credit facility expense in an amount equal to $313,748.
For the fiscal year 1998 the Company is expecting to incur
a fee to the agent bank in respect of the financing in an
amount equal to $50,000 and there can be no assurance that
the Company will not have other financial expenses for
which reserves will be required.
Liquidity and capital resources
Total assets of the Company at December 31, 1997, were
$458,067,222 compared to $12,000 at September 18, 1996.
The increase was due to the net proceeds from the share
issues and consecutive acquisition of the Vessels, the
granting of the supplementary loan to the Charterer and the
arrangement of the loans, which were used as part of the
financing for the acquisition of the Vessels.
27
The Company's shareholders' equity at December 31, 1997 was
$315,158,247 as compared with $12,000 at September 18,
1996. The increase was due to net proceeds from share
offerings in an amount equal to $317,224,950, net income
for the year of $19,479,297 less original share redemption
$12,000 and distributions to the shareholders of
$21,546,000.
Inflation
Management does not believe that inflation will
significantly affect the Company's expenses over the term
of the Charters. However, during the term of the Charters,
inflationary pressures could result in increased spot
charter rates, thereby resulting in an increase in
Additional Hire being payable by the Charterer. On the
other hand, in the event that inflation becomes a
significant factor in the world economy, management
believes that inflationary pressures could materially and
adversely affect the market for crude oil and oil tankers
(including the Vessels) and result in increased vessel
operating costs. These factors may affect the Charterer's
decision as to whether to extend the term with respect to
one or more of the Charters and may be significant to the
Company in the event that the Charterer does not exercise
such rights of extension.
The Company's borrowings under the Credit Facility will
bear interest at a floating rate. The Company has entered
into the Swap, which effectively converts its obligations
to a fixed rate, assuming the Swap Counterparty performs
its obligations thereunder. In the event of a default by
such Swap Counterparty, the Company could face increased
interest expense.
Currency Exchange Rates
Although the Company's activities will be conducted
worldwide, the international shipping industry's functional
currency is the United States Dollar and virtually all of
the Company's operating revenues and most of its
anticipated cash expenses are expected to be denominated in
United States Dollars. Accordingly, the Company's
operating results following expiration of termination of
the Charters are not expected to be adversely affected by
movements in currency exchange rates or the imposition of
currency controls in the jurisdictions in which the Vessels
operate.
28
The Tanker Market
Global oil consumption increased by about 2 Million Barrels
Per Day ("MBPD") through 1997 to about 74 MBPD as an
average for the year. The increase in demand was strong
both in the western hemisphere and in Far Eastern
countries. Production increased significantly in the
Middle East following i.a. permission for Iraq to export
certain quantities of oil through 1997.
The consumption growth and especially the export growth
from the Middle East region led to an increase in demand
for VLCC-tonnage and a firming tanker market in the second
half of 1997.
The financial difficulties in certain Asian economies
impacted the tanker market towards the end of the year.
Demand for oil transport declined when South Korea drew
from its crude oil stocks instead of importing oil.
Developments in Malaysia and Indonesia only marginally
impact VLCC demand, since those countries are oil producers
and Thailand is, in relative terms, a small oil importer.
After the initial decline, oil imports have again increased
and the VLCC-market showed signs of strengthening towards
the end of January after a lowest level in December.
In 1997, 8 VLCCs were scrapped and a further 6 ships were
removed from trading and sold for storage or offshore
production projects. Only 10 VLCCs were delivered from
shipyards in the year, which was the lowest number since
1987. At year-end the VLCC-fleet comprised about 435
ships.
The spot rates for modern VLCCs started at about $25,000
per day (time charter equivalent rate) in January 1997.
The rates declined in April down to $20,000 per day, but
the market started to firm up in the middle of May. In the
summer certain vessels received rates close to $50,000 per
day. The seasonal downturn towards the end of September
experienced in previous years was very short in 1997 and
rates recovered, after having dropped to $40,000 per day,
to well above $50,000 per day for eastern destinations in
November. From the later part of November VLCC-rates were
impacted by developments in the Far East and fell at
yearend, whereafter a recovery started in the end of
January, 1998.
The market improvement in the autumn of 1997 enticed owners
to order newbuildings and altogether 66 VLCCs were ordered
in 1997, bringing the order book to 76 units at yearend.
29
In 1998 deliveries are scheduled for 16 VLCCs followed by
36 in 1999 and 24 in the year 2000. (All information given
above is collected from general market sources and there
can be no guarantee that the information given is correct.)
ITEM 10 - DIRECTORS AND OFFICERS OF REGISTRANT
Directors and Senior Management of the Company and the Manager
Pursuant to a Management Agreement with the Company (the
"Management Agreement"), the Manager provides management,
administrative and advisory services to the Company.
Set forth below are the names and positions of the
directors and executive officers of the Company and the Manager.
Directors of both the Company and the Manager are elected
annually, and each director elected holds office until a
successor is elected. Officers of both the Company and the
Manager are elected from time to time by vote of the respective
board of directors and hold office until a successor is elected.
The Company
Name Age Position
Clarence Dybeck.............. 67 Director and Chairman
Ola Lorentzon ............... 48 Director; Deputy Chairman
and Treasurer
Douglas C. Wolcott .......... 66 Director
David M. White .............. 57 Director
Peter Bubenzer .............. 42 Director
Douglas Molyneux ............ 40 Secretary
The Manager
Name Age Position
Johannes C.J. Michel......... 49 Director and Chairman
Per Eriksson ................ 47 Director; Deputy Chairman
and Treasurer
James Keyes ................. 34 Director
Carol Summers ............... 52 Secretary
Certain biographical information with respect to each
director and executive officer of the Company and the Manager is
set forth below.
Clarence Dybeck has been Chairman and a director of the
Company since September 18, 1996. Mr. Dybeck has also served as
Chairman of the Board and as a director of ICB since 1988 and
30
1986, respectively. Mr. Dybeck has also been Chairman of
Stockholm Chartering AB since 1990 and of Arvak Ltd. since 1997.
Mr. Dybeck has been involved in the commercial shipping industry
since 1956.
Ola Lorentzon has been Deputy Chairman, Treasurer and a
director of the Company since September 18, 1996. Mr. Lorentzon
has also been a director and President of ICB since 1987. Mr.
Lorentzon is also currently a director of The Swedish Protection
and Indemnity Club (SAAF), Swedish Ships Mortgage Bank and The
Swedish Shipowners' Association. Mr. Lorentzon is also Deputy
Chairman of the Liberian Shipowners Council and a member of the
International Association of Tanker Owners (Intertanko) Council.
Douglas C. Wolcott has been a director of the Company
since September 18, 1996. Mr. Wolcott has also served as
President of Chevron Shipping Corporation until 1994, and as a
director of London & Overseas Freighters Limited until 1997. Mr.
Wolcott was formerly the Chairman of the Oil Companies
International Forum (OCIMF), the Interim Supplement to Tanker
Liability for Oil Pollution (CRISTAL) and the Marine Preservation
Association (MPA). Mr. Wolcott also served as Deputy Chairman
and Director of the United Kingdom Protection and Indemnity Club.
Mr. Wolcott is also currently a director of The American Bureau
of Shipping, Golden Ocean Group Limited and the On-the-Go
Software Co. Mr. Wolcott is also Chairing the U.S. National
Research Council's Committee on the "Oil Pollution Act of 1990
(Section 4115) Implementation Review."
David M. White has been a director of the Company since
September 18, 1996. Mr. White is Chairman of Dan White
Investment Limited. Mr. White has also served as a director of
NatWest Equity Primary Markets Limited from January 1992 to March
1996, and was previously a director of both NatWest Markets
Corporate Finance Limited and NatWest Markets Securities Limited
until December 1991.
Peter Bubenzer has been a director of the company since
November 22, 1996. Mr. Bubenzer has been a partner of the law
firm of Appleby, Spurling & Kempe, Bermudian counsel to the
Company and the Manager, since November 1986 and became Head of
the Company Department of Appleby, Spurling & Kempe in April,
1993. Mr. Bubenzer has served as a director of ADT Limited from
September 1989 to August 1991 and BT Shipping Limited since April
1989.
Douglas Molyneux has been Secretary of the Company since
November 22, 1996. Mr. Molyneux has been an associate of the law
firm of Appleby, Spurling & Kempe, Bermudian counsel to the
Company and the Manager, since November 1995.
31
Johannes C.J. Michel has been the Chairman and a
director of the Manager since October 23, 1996. Mr. Michel has
also served as Managing Director of Clermont Shipping B.V., a
wholly-owned subsidiary of ICB, since 1990 and as Corporate
Controller and Managing Director of Chester International B.V.
since 1987.
Per Eriksson has been Deputy Chairman and a director of
the Manager since October 23, 1996. Mr. Eriksson has also served
as Managing Director of Ipiranga Shipping Ltd., an indirect
wholly-owned subsidiary of ICB, since 1991. Before his
employment in the ICB group, Mr. Eriksson served as Financial
Controller of Alfa Romeo Svenska AB from 1988 to 1991.
James Keyes has been a director of the Manager since
October 23, 1996. Mr. Keyes has been an associate of the law
firm of Appleby, Spurling & Kempe, Bermudian counsel to the
Company and the Manager, since March 1993.
Carol Summers has been Secretary of the Manager since
October 23, 1996. Mrs. Summers has been a Corporate
Administrator and Company Secretary employed by the law firm of
Appleby, Spurling & Kempe, Bermudian counsel to the Company and
the Manager, since 1980.
Committees of the Board of Directors
Pursuant to the rules of the National Association of
Securities Dealers, Inc., relating to companies whose shares are
quoted on the Nasdaq National Market, the Company has established
an audit committee comprised of Messrs. White and Wolcott,
independent directors of the Company.
Management Agreement
General. Under the Management Agreement the Manager is
required to manage the day-to-day business of the Company
subject, always, to the objectives and policies of the Company as
established from time to time by the Board. All decisions of a
material nature concerning the business of the Company are
reserved to the Company's Board of Directors. The Management
Agreement will terminate in 2012, unless earlier terminated
pursuant to the terms thereof, as discussed below.
Management Fee and Other Expenses. For its services
under the Management Agreement, the Manager is entitled to a
Management Fee equal to $750,000 per annum. The Company believes
that these fees are substantially on the same terms that would be
obtained from a non-affiliated party. The Manager was not
affiliated with the Company, the Charterer or Guarantors at the
time these fees were negotiated.
32
Pursuant to the Management Agreement, the Manager is
required to pay from the Management Fee, on behalf of the
Company, all of the Company's expenses including the Company's
directors' fees and expenses; provided, however, that the Manager
is not obligated to pay, and the Company is required to pay from
its own funds (i) all expenses, including attorneys' fees and
expenses, incurred on behalf of the Company in connection with
(A) the closing of the Company's public offering and all fees and
expenses related thereto and to the documents and agreements
described herein, including in connection with the Credit
Facility and the U.K. Finance Leases, (B) any litigation
commenced by or against the Company unless arising from the
Manager's gross negligence or willful misconduct, and (C) any
investigation by any governmental, regulatory or self-regulatory
authority involving the Company or the Offerings unless arising
from the Manager's gross negligence or willful misconduct,
(ii) all premiums for insurance of any nature, including
directors' and officers' liability insurance and general
liability insurance, (iii) all costs in connection with the
administration and the registration and listing of the Common
Shares, (iv) principal and interest on the Credit Facility,
(v) brokerage commissions, if any, payable by the Company,
(vi) all costs and expenses required to be incurred or paid by
the Company in connection with the redelivery of any Vessel
following the expiration or earlier termination of the related
Charter, (including, without limitation, any drydocking fees and
the cost of special surveys and appraisals) and (vii) any amount
due to be paid by the Company pursuant to the U.K. Finance Lease
Transactions.
Notwithstanding the foregoing, the Manager will have no
liability to the Company under the Management Agreement for
errors of judgment or negligence other than its gross negligence
or willful misconduct.
Manager's Role at Expiration of Charters. In the event
the Charterer shall notify a Subsidiary that it will not extend
or renew a Charter for a Vessel, the Manager is required under
the Management Agreement to analyze the alternatives available to
the Company for the use or disposition of such Vessel, including
the sale of such Vessel (or the Subsidiary owning such Vessel)
and the distribution of the proceeds to the Company's
shareholders, and to report to the Board with its recommendations
and the reasons for such recommendations at least five months
before the expiration of such Charter. If directed by the
Company's shareholders to sell a Vessel (or the Subsidiary owning
such Vessel), the Manager is required upon the Board's request to
solicit bids for the sale of such Vessel (or the Subsidiary
owning such Vessel) for the presentation to the Board. In such
case, the Manager will be obligated to recommend the sale of the
Vessel to the bidder which has offered the bid most economically
33
favorable to the Company and the holders of the Common Shares.
The Manager will receive a commission equal to 1% of the net
proceeds of such sale unless sold to the Manager or an affiliate
of the Manager. If not directed by the Company shareholders to
sell the Vessel, the Manager is required to attempt to recharter
the Vessel on an arms-length basis upon such terms as the Manager
deems appropriate, subject to the approval of the Board. The
Manager will receive a commission equal to 1.25% of the gross
freight earned from such rechartering (which is the standard
industry commission). In either such case, the Manager, on
behalf of the Company, may utilize the services of brokers and
lawyers, and enter into such compensation arrangements with them,
subject to the Board's approval, as the Manager deems
appropriate.
If, upon the expiration of a Charter, the Company
undertakes any operational responsibility with respect to the
related Vessel and requests the Manager to perform any of such
responsibility on the Company's behalf, the parties will
negotiate a new fee and expense arrangement. If the parties are
unable to reach a new fee and expense arrangement, either party
may terminate the Management Agreement on 30 days' notice to the
other party.
Termination of Management Agreement. In addition to the
circumstance set forth above, the Company may terminate the
Management Agreement at any time upon 30 days' notice to the
Manager for any reason, provided that any such termination shall
have been approved by a resolution duly adopted by the
affirmative vote of the holders of at least 66-2/3% of the
Company's outstanding Common Shares. The Company may terminate
the Management Agreement at any time upon five business days'
prior written notice to the Manager in the event of the Manager's
material breach thereof, the failure of the Manager to maintain
adequate authorization to perform its duties thereunder, the
Manager's insolvency, in the event that it becomes unlawful for
the Manager to perform its duties thereunder or if the Manager
ceases to be wholly-owned, directly or indirectly, by ICB. The
Manager may terminate the Management Agreement upon ten business
days' prior written notice to the Company in the event that the
Company undergoes a "change of control" which is the election of
any director whose election was not recommended by the then
current Board. Upon any termination of the Management Agreement,
the Manager is required to promptly wind up its services
thereunder in such a manner as to minimize any interruption to
the Company's business and submit a final accounting of funds
received and disbursed under the Management Agreement to the
Company and any undisbursed funds of the Company in the Manager's
possession or control will be promptly paid by the Manager as
directed by the Company. The Company believes that in the case
of any termination of the Management Agreement, the Company could
34
obtain an appropriate alternative arrangement for the management
of the Company, although there can be no assurance that such
alternative arrangement would not cause the Company to incur
additional cash expenses. In the case of a termination without
cause by the Company upon a resolution adopted by the holders of
at least 66 2/3% of the Company's Common Shares (as described
above) or by the Manager in the case of a "change in control,"
the Company shall pay to the Manager an amount equal to the
present value calculated at a discount rate of 5% per annum of
all fees which the Manager would have received through the
seventh anniversary of the Delivery Date in the absence of such
termination, and following the seventh anniversary of the
Delivery Date, the Company shall pay to the Manager an amount
equal to the present value calculated at a discount rate of 5%
per annum of all fees which the Manager would have received
through the fifteenth anniversary of the Delivery Date in the
absence of such termination.
ITEM 11 - COMPENSATION OF DIRECTORS AND OFFICERS
Pursuant to the Management Agreement, the Manager pays
from the Management Fee the annual directors' fees of the
Company. For 1997, the directors received from the Manager
$72,000 in fees in the aggregate. No separate compensation was
paid to the Company's officers.
ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR
SUBSIDIARIES
Not Applicable.
ITEM 13 - INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Messrs. Dybeck and Lorentzon are, respectively, Chairman
and Chief Executive Officer of ICB, which is the indirect parent
of the Manager. In addition, the Company paid Stockholm
Chartering AB, an affiliate of ICB, the amount of $25,000 for
certain data gathering services in connection with The Company's
initial public offering. Mr. Dybeck, a director and Chairman of
the Company, is Chairman of the Board of Stockholm Chartering AB.
ITEM 15 - DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 16 - CHANGES IN SECURITIES, CHANGES IN SECURITIES
FOR REGISTERED SECURITIES AND USE OF PROCEEDS
Not Applicable.
35
ITEM 17 - FINANCIAL STATEMENTS
Not Applicable.
ITEM 18 - FINANCIAL STATEMENTS
See the financial statements listed in Item 19 below and
set forth on pages F-1 through F-8.
ITEM 19 - FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements
The following financial statements, together with the
report of Deloitte & Touche thereon, are filed as part of this
annual report:
Index to Financial Statements
Page
Independent Auditors' Report F-1
Consolidated Financial Statements:
Consolidated Balance Sheets as of F-2
December 31, 1997 and September 18, 1996
Consolidated Statement of Operations
for the Period September 18, 1996 through
December 31, 1997 F-3
Consolidated Statement of Cash Flows
for the Period September 18, 1996 through
December 31, 1997 F-4
Consolidated Statement of Shareholders' Equity
for the Period September 18, 1996 through
December 31, 1997 F-5
Notes to Consolidated Financial Statements F-6
36
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Knightsbridge Tankers Limited
Bermuda
We have audited the accompanying consolidated balance sheets of
Knightsbridge Tankers Limited and subsidiaries as of December 31,
1997 and September 18, 1996 and the related consolidated
statements of operations, shareholders' equity and cash flows for
the period from September 18, 1996 through December 31, 1997.
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. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the consolidated financial
position of Knightsbridge Tankers Limited as of December 31, 1997
and September 18, 1996 and the results of their operations and
their cash flows for the period from September 18, 1996 through
December 31, 1997 in conformity with generally accepted
accounting principles in the United States.
Deloitte & Touche
Stockholm, Sweden
March 11, 1998
F-37
CONSOLIDATED BALANCE SHEETS
(in U.S. Dollars)
ASSETS
Current assets Dec 31, 1997 Sept 18, 1996
Cash $ 217,374 $12,000
Current installments of notes 6,726,151 -
receivable
Charter hire receivable 15,449,599 -
Prepaid expenses 14,000 -
__________ ______
Total current assets 22,407,124 12,000
Notes receivable 8,407,690 -
Vessels under capital lease 424,965,352 -
Capitalized financing fees 2,287,056 -
and expenses ___________ ______
TOTAL ASSETS $458,067,222 $12,000
============ =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accrued expenses and other $ 2,377,736 $ -
current liabilities
Current installments of 6,726,151 -
credit facility ____________ _______
Total current liabilities 9,103,887 -
Credit facility 133,805,088 -
F-38
Shareholders' equity
Common shares, par value
$0.01 per share:
Authorized and outstanding 171,000 12,000
17,100,000
Additional paid-in capital 314,987,247 -
___________ _______
Total shareholders' equity 315,158,247 12,000
___________ ______
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $458,067,222 $12,000
============ ========
See notes to consolidated financial statements.
F-39
CONSOLIDATED STATEMENT OF OPERATIONS
(in U.S. Dollars)
Sept 18, 1996
- Dec 31, 1997
______________
Charter hire revenue $ 42,138,180
Operating expenses:
Depreciation of vessels under -14,856,193
capital leases
Management fee -630,308
Administration expenses -77,993
___________
Operating income 26,573,686
Interest income 1,737,023
Interest expense and other -8,831,412
financial costs ___________
Net income $ 19,479,297
============
Earnings per common share $1.61
Weighted average number of
shares outstanding 12,127,021
See notes to consolidated financial statements.
F-40
CONSOLIDATED STATEMENT OF CASH FLOWS
(in U.S. Dollars)
Sept 18, 1996
- Dec 31, 1997
______________
Operating activities
Net income $19,479,297
Depreciation 14,856,193
Amortization of capitalized 313,748
fees and expenses
Changes in operating assets
and liabilities:
Receivables -22,189,750
Accrued expenses and other 9,103,887
current liabilities ___________
Net cash provided by operating 21,563,375
activities
Investing activities
Notes receivable from -15,133,841
Shell International
Purchase of vessels under -439,821,545
capital lease ____________
Net cash used in investing -454,955,386
activities
Financing activities
Loan proceeds 142,975,049
Repayments of loan -5,044,614
Net proceeds from share 317,224,950
offerings
Redemption of original -12,000
share capital
Distribution to shareholders -21,546,000
___________
F-41
Net cash provided by financing 433,597,385
activities
Net increase/decrease in cash 205,374
and cash equivalents
Cash and cash equivalents at 12,000
beginning of period ______
Cash and cash equivalents at $217,374
end of period ========
See notes to consolidated financial statements.
F-42
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in U.S. Dollars)
Additional
Share paid-in Retained
Capital capital earnings Total
Original issue $12,000 $ - $ - $12,000
Sept 18, 1996
Net proceeds from 171,000 317,053,950 - 317,224,950
share issuance
Original share -12,000 - - -12,000
redemption
Net income - - 19,479,297 19,479,297
Distribution to -
the shareholders -2,066,703 -19,479,297 -21,546,000
____________________________________________________________
Balance at
December 31, 1997 $171,000 $314,987,247 $ - $315,158,247
============================================================
Distributions per common share $1.26
See notes to consolidated financial statements.
F-43
KNIGHTSBRIDGE TANKERS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD SEPTEMBER 18, 1996 THROUGH DECEMBER 31,1997
1 Description of business
General
Knightsbridge Tankers Limited (the "Company") was incorporated in
Bermuda in September, 1996, for the purpose of the acquisition,
disposition, ownership, leasing and chartering of five very large
crude oil carriers (the "Vessels"), and certain related
activities. The Vessels are owned through wholly-owned
subsidiaries (the "Subsidiaries"). The Company charters the
Vessels to Shell International Petroleum Company Limited (the
"Charterer") on long-term "hell and high water" bareboat charters
(the "Charters"). The obligations of the Charterer under these
charters are jointly and severally guaranteed by Shell Petroleum
N.V. and The Shell Petroleum Company Limited (the "Charter
Guarantors"). The Charter and the Charter Guarantors are all
companies of the Royal Dutch/Shell Group of Companies. The term
of each of these Charters is a minimum of seven years, with an
option for the Charterer to extend the period for each Vessel's
Charter for an additional seven-year term, to a maximum of
approximately 14 years per Charter. Under the Charters, the
Charterer pays the greater of a base rate of hire or a spot
market related rate.
Ownership and Management of the Company
In February, 1997, the Company offered and sold to the public
16,100,00 common shares, par value $0.01 per share, at an initial
offering price of $20 per share. Simultaneously, the Company
sold 1,000,000 common shares at a price of $20 per share to ICB
International Limited ("ICB International"), an indirect wholly-
owned subsidiary of ICB Shipping Aktiebolag (publ) ("ICB"), a
Swedish publicly traded oil tanker owning and operating company.
As of December 31, 1997, ICB International owned approximately
5.8% of the outstanding Common Shares.
ICB Shipping (Bermuda) Limited (the "Manager"), another wholly-
owned subsidiary of ICB, manages the business of the Company.
2 Summary of Significant Accounting Policies
Basis of Presentation - The consolidated financial statements are
prepared in accordance with accounting principles generally
accepted in the United States. They include the accounts of
Knightsbridge Tankers Limited and its wholly-owned subsidiaries.
F-44
Significant intercompany items and transactions have been
eliminated upon consolidation.
Reporting Currency - The consolidated financial statements are
stated in U.S. dollars because the Company receives its revenues
and incurs its expenses in U.S. dollars.
Vessels and Depreciation - Vessels are stated at cost less
accumulated depreciation. Depreciation is calculated based on
cost, using the straight-line method, over the useful life of
each vessel. The useful life of each vessel is deemed to be 25
years.
Capitalized Financing Fees and Expenses - Costs relating to the
credit facility are capitalized and amortized over seven years.
Earnings per Share - Earnings per share are based on the weighted
average number of common shares outstanding for the period
presented.
Distribution to Shareholders - Distribution to shareholders is
applied primarily to retained earnings. When retained earnings
are not sufficient, distribution is applied to additional paid-in
capital.
3 Capital Leases
In connection with the original Vessels purchase transaction, the
Company entered into a conditional sale/leaseback transaction
with a third party banking institution. The lease agreement does
not incumber or obligate the Company's current or future cash
flows and has no effect on the Company's financial position.
4 The Credit Facility
The Company has entered into the Credit Facility with a syndicate
of international lenders, pursuant to which the Company borrowed
$145.6 million in the form of two term loans (the "Loans", or the
"Primary Loan" and the "Amortizing Loan"). Of such amount, $125.4
million was in respect of the Primary Loan, and $20.2 million was
in respect of the Amortizing Loan.
Aggregate maturities of the Credit Facility in each of the five
years subsequent to December 31, 1997 are as follows:
1998 $ 6,726,151
1999 $ 6,726,151
2000 $ 1,681,538
2001 -
2002 -
Thereafter $125,397,399
F-45
The Credit Facility is secured by, among other things, a pledge
by the Company of 100% of the issued and outstanding capital
stock of the Subsidiaries, a guarantee from each Subsidiary, a
mortgage on each Vessel, assignments of the Charters and the
Charter Guaranties and an assignment of the Lessor's rights to
take title to the Vessels and the proceeds from the sale or any
novation thereof.
The Credit Facility provides for payment of interest on the
outstanding principal balance of the Loans quarterly, in arrears,
at a floating interest rate based on the rate in the London
interbank eurocurrency market.
The Company has entered into an interest rate swap transaction so
that it has effectively fixed its interest rate obligations on
the Primary Loan and the Amortizing Loan at the rate of
approximately 7.14% and 6.51%, respectively, per annum.
5 Taxation
The Company is incorporated in Bermuda. Under current Bermuda
law, the Company is not subject to tax on income.
6 Related Party Transaction
The Company has entered into a management agreement with ICB
under which ICB will provide certain administrative, management
and advisory services to the Company for an amount of $750,000
per year. In addition, a fee of $3.5 million was paid by the
Company to ICB on the date of the issuance of the shares in
consideration of certain of ICB's previous activities on behalf
of the Company prior to the consummation of the offering.
F-46
Designation
of Exhibit in
this Form 20-F Description of Exhibit
_______________ ______________________
1 Underwriting Agreement among Knightsbridge Tankers
Limited (the ``Company''), Cedarhurst Tankers LDC
(``Cedarhurst''), Hewlett Tankers LDC
(``Hewlett''), Inwood Tankers LDC (``Inwood''),
Lawrence Tankers LDC (``Lawrence'') and Woodmere
Tankers LDC (``Woodmere'') (each of Cedarhurst,
Hewlett, Inwood, Lawrence and Woodmere a
``Subsidiary'' and collectively the
``Subsidiaries''), Lazard Freres & Co. LLC and
Goldman, Sachs & Co., as representatives for the
U.S. underwriters (the ``Representatives''), ICB
Shipping (Bermuda) Limited (the ``Manager'') and
ICB International Ltd. (``ICB International'')**
3.1 Memorandum of Association of the Company (Exhibit
3.1)*
3.2 Bye-Laws of the Company (Exhibit 3.2)*
3.2.1 Execution version of Bareboat Charter dated
February 12, 1997 between Woodmere and Shell
International Petroleum Company Limited ("SIPC")
relating to the M.T. Myrina.**
3.2.2 Execution version of Bareboat Charter dated
February 12, 1997 between Hewlett and SIPC relating
to the M.T. Megara.**
3.2.3 Execution version of Bareboat Charter dated
February 12, 1997 between Inwood and SIPC relating
to the M.T. Murex.**
3.2.4 Execution version of Bareboat Charter dated
February 12, 1997 between Lawrence and SIPC
relating to the M.T. Macoma.**
3.2.5 Execution version of Bareboat Charter dated
February 12, 1997 between Cedarhurst and SIPC
relating to the M.T. Magdala.**
3.3.1 Execution version of Charter Guaranty dated
February 12, 1997 made by Shell Petroleum N.V.
("SPNV") and The Shell Petroleum Company Limited
("SPCo") (collectively the "Guarantors") in favor
of Woodmere relating to the M.T. Myrina.**
A-1
3.3.2 Execution version of Charter Guaranty dated
February 12, 1997 made by the Guarantors in favor
of Hewlett relating to the M.T. Megara.**
A-2
Designation
of Exhibit in
this Form 20-F Description of Exhibit
______________ ______________________
3.3.3 Execution version of Charter Guaranty dated
February 12, 1997 made by the Guarantors in favor
of Inwood relating to the M.T. Murex.**
3.3.4 Execution version of Charter Guaranty dated
February 12, 1997 made by the Guarantors in favor
of Lawrence relating to the M.T. Macoma.**
3.3.5 Execution version of Charter Guaranty dated
February 12, 1997 made by the Guarantors in favor
of Cedarhurst relating to the M.T. Magdala.**
3.3.6 Execution version of Pooling Agreement dated
February 27, 1997 among the Subsidiaries as owners,
and Shell International Trading and Shipping
Company Limited on behalf of SIPC (collectively the
"Charterers") relating to the fleet spares.**
3.4 Execution version of Charter Guaranty dated
February 12, 1997 made by the Guarantors in favor
of the Company.**
3.5 Execution version of Management Agreement dated
February 12, 1997 between the Manager and the
Company (incorporated by reference from
Exhibit 10.5 of the Registration Statement).**
3.6.1 Memorandum of Agreement dated October 24, 1996
among Ocala Shipping Limited ("Ocala"), the
Charterers and Shell Tankers (UK) Limited ("STUK"),
as buyer, relating to the M.T. Myrina (incorporated
by reference from Exhibit 10.6 of the Registration
Statement).**
3.6.2 Memorandum of Agreement dated October 24, 1996
among Kerbela Shipping Corp. ("Kerbela") the
Charterers and STUK relating to the M.T. Megara
(incorporated by reference from Exhibit 10.7 of the
Registration Statement).**
3.6.3 Memorandum of Agreement dated October 24, 1996
among Trevose Shipping Corp. ("Trevose"), the
Charterers and STUK relating to the M.T. Murex
(incorporated by reference from Exhibit 10.8 of the
Registration Statement).**
A-3
3.6.4 Memorandum of Agreement dated October 24, 1996
among Tourmaline Shipping Limited ("Tourmaline"),
the Charterers and STUK relating to the M.T. Macoma
(incorporated by reference from Exhibit 10.9 of the
Registration Statement).**
3.6.5 Memorandum of Agreement dated October 24, 1996
among Fluid Navigation Ltd. ("Fluid"), the
Charterers and STUK relating to the M.T. Magdala
(incorporated by reference from Exhibit 10.10 of
the Registration Statement).**
3.7.1 Assignment Agreement dated November 25, 1996 from
STUK and Shell International Trading & Shipping
Company Limited to the Company and the Subsidiaries
relating to the relevant Memorandum of Agreement
(incorporated by reference from Exhibit 10.11 of
the Registration Statement).**
3.7.2 Assignment of Rights dated February 27, 1997
between Ocala as seller and Woodmere as buyer
relating to the M.T. Myrina.**
3.7.3 Assignment of Rights dated February 27, 1997
between Kerbela as seller and Hewlett as buyer
regarding the M.T. Megara.**
3.7.4 Assignment of Rights dated February 27, 1997
between Trevose as seller and Inwood as buyer
regarding the M.T. Murex.**
3.7.5 Assignment of Rights dated February 27, 1997
between Tourmalene as seller and Lawrence as buyer
regarding the M.T. Macoma.**
3.7.6 Assignment of Rights dated February 27, 1997
between Fluid as seller and Cedarhurst as buyer
regarding the M.T. Magdala.**
3.8.1 Execution version of Letter Agreement dated
February 6, 1997 among the Company, SIPC, ICB
International, the Subsidiaries and the Manager
(incorporated by reference from Exhibit 10.12.1 of
the Registration Statement).**
3.8.2 Execution version of Letter Agreement dated
February 6, 1997 among the Company, the Manager,
ICB International, SIPC and the Guarantors
(incorporated by reference from Exhibit 10.12.2 of
the Registration Statement).**
A-4
3.9 U.K. Finance Lease Transaction Offer Letter dated
November 12, 1996 made by National Westminster Bank
Plc in favor of the Company and SIPC (incorporated
by reference from Exhibit 10.13 of the Registration
Statement).**
3.10.1 Conditional Sale Agreement dated November 25, 1996
between NatWest Leasing (GB) Limited ("NLL") and
Woodmere relating to the M.T. Myrina (incorporated
by reference from Exhibit 10.14 of the Registration
Statement).**
3.10.2 Conditional Sale Agreement dated November 25, 1996
between NLL and Hewlett relating to the M.T. Megara
(incorporated by reference from Exhibit 10.15 of
the Registration Statement).**
3.10.3 Conditional Sale Agreement dated November 25, 1996
between NLL and Inwood relating to the M.T. Murex
(incorporated by reference from Exhibit 10.16 of
the Registration Statement).**
3.10.4 Conditional Sale Agreement dated November 25, 1996
between NLL and Lawrence relating to the M.T.
Macoma (incorporated by reference from
Exhibit 10.17 of the Registration Statement).**
3.10.5 Conditional Sale Agreement dated November 25, 1996
between NLL and Cedarhurst relating to the M.T.
Magdala (incorporated by reference from
Exhibit 10.18 of the Registration Statement).**
3.11.1 Execution version of Charterparty by way of Demise
dated February 12, 1997 between NLL as lessor and
Woodmere as leasee relating to the M.T. Myrina.**
3.11.2 Execution version of Charterparty by Way of Demise
dated February 12, 1997 between NLL as lessor and
Hewlett as leasee relating to the M.T. Megara.**
3.11.3 Execution version of Charterparty by Way of Demise
dated February 12, 1997 between NLL as lessor and
Inwood as leasee relating to the M.T. Murex.**
3.11.3(a) Amendment Agreement to the Charterparty by Way of
Demise dated February 27, 1997 among NLL, Inwood
and SIPC.**
3.11.4 Execution version of Charterparty by Way of Demise
dated February 12, 1997 between NLL as lessor and
Lawrence as leasee relating to the M.T. Macoma.**
A-5
3.11.5 Execution version of Charterparty by Way of Demise
dated February 12, 1997 between NLL as lessor and
Cedarhurst as leasee relating to the M.T.
Magdala.**
3.12.1 Execution version of Direct Support Agreement dated
February 12, 1997 among NLL as lessor, SIPC and
Woodmere as leasee.**
3.12.2 Execution version of Direct Support Agreement dated
February 12, 1997 among NLL as lessor, SIPC and
Hewlett as leasee.**
3.12.3 Execution version of Direct Support Agreement dated
February 12, 1997 among NLL as lessor, SIPC and
Inwood as leasee.**
3.12.4 Execution version of Direct Support Agreement dated
February 12, 1997 among NLL as lessor, SIPC and
Lawrence as leasee.**
3.12.5 Execution version of Direct Support Agreement dated
February 12, 1997 among NLL as lessor, SIPC and
Cedarhurst as leasee.**
3.13 Execution version of Lessor Direct Agreement dated
February 12, 1997 among the Company as borrower,
the Subsidiaries as leasees, NLL as lessor and
GSI.**
3.13(a) Amendment Agreement to the Lessor Direct Agreement
dated February 27, 1997 among the Company as
borrower, the Subsidiaries as leasees, NLL as
lessor and Royal Bank of Scotland Plc ("RBS") as
agent.**
3.14.1 Execution version of Lessor Mortgage and Assignment
dated February 12, 1997 from NLL as chargor to
Woodmere as chargee.**
3.14.2 Execution version of Lessor Mortgage and Assignment
dated February 12, 1997 from NLL as chargor to
Hewlett as chargee.**
3.14.3 Execution version of Lessor Mortgage and Assignment
dated February 12, 1997 from NLL as chargor to
Inwood as chargee.**
3.14.4 Execution version of Lessor Mortgage and Assignment
dated February 12, 1997 from NLL as chargor to
Lawrence as chargee.**
A-6
3.14.5 Execution version of Lessor Mortgage and Assignment
dated February 12, 1997 from NLL as chargor to
Cedarhurst as chargee.**
3.15.1 Execution version of Deposit Agreement and Deposit
Charge dated February 12, 1997 between Woodmere as
leasee and Midland Bank PLC as a letter of credit
issuing bank ("Midland").**
3.15.2 Execution version of Deposit Agreement and Deposit
Charge dated February 12, 1997 between Hewlett as
leasee and Midland.**
3.15.3 Execution version of Deposit Agreement and Deposit
Charge dated February 12, 1997 between Inwood as
leasee and Royal Bank of Canada Europe Limited as a
letter of credit issuing bank ("RBC").**
3.15.4 Execution version of Deposit Agreement and Deposit
Charge dated February 12, 1997 between Lawrence as
leasee and National Australia Bank Limited as a
letter of credit issuing bank ("NAB").**
3.15.5 Execution version of Deposit Agreement and Deposit
Charge dated February 12, 1997 between Cedarhurst
as leasee and NAB.**
3.16.1 Execution version of Irrevocable Standby Letter of
Credit by Midland in favor of Woodmere as leasee.**
3.16.2 Execution version of Irrevocable Standby Letter of
Credit by Midland in favor of Hewlett as leasee.**
3.16.3 Execution version of Irrevocable Standby Letter of
Credit by RBC in favor of Inwood as leasee.**
3.16.4 Execution version of Irrevocable Standby Letter of
Credit by NAB in favor of Lawrence as leasee.**
3.16.5 Execution version of Irrevocable Standby Letter of
Credit by NAB in favor of Cedarhurst as leasee.**
3.17.1 Execution version of Reimbursement Agreement dated
February 12, 1997 between Woodmere as leasee and
Midland.**
3.17.2 Execution version of Reimbursement Agreement dated
February 12, 1997 between Hewlett as leasee and
Midland.**
A-7
3.17.3 Execution version of Reimbursement Agreement dated
February 12, 1997 between Inwood as leasee and
RBC.**
3.17.4 Execution version of Reimbursement Agreement dated
February 12, 1997 between Lawrence as leasee and
NAB.**
3.17.5 Execution version of Reimbursement Agreement dated
February 12, 1997 between Cedarhurst as leasee and
NAB.**
3.18.1 Execution version of Residual Obligation Agreement
dated February 12, 1997 between SIPC as obligor and
Midland relating to Woodmere as lessee.**
3.18.2 Execution version of Residual Obligation Agreement
dated February 12, 1997 between SIPC as obligor and
Midland relating to Hewlett as lessee.**
3.18.3 Execution version of Residual Obligation Agreement
dated February 12, 1997 between SIPC as obligor and
RBC relating to Inwood as lessee.**
3.18.4 Execution version of Residual Obligation Agreement
dated February 12, 1997 between SIPC as obligor and
NAB relating to Lawrence as lessee.**
3.18.5 Execution version of Residual Obligation Agreement
dated February 12, 1997 between SIPC as obligor and
NAB relating to Cedarhurst as lessee.**
3.19 Execution version of Term Loan Facility Agreement
dated February 6, 1997 among the Company as
borrower, the Subsidiaries as guarantors, GSI as
arranger and as agent, Goldman Sachs Capital
Partners L.P. as bank ("GSCP") and Goldman Sachs
Capital Markets L.P. as swap counterparty
("GSCM").**
3.19(a) Amendment Agreement to Term Loan Facility Agreement
dated February 27, 1997 among the Company as
borrower, the Subsidiaries as guarantors, GSI as
arranger and retiring agent, Goldman Sachs
International Bank as bank ("GSIB"), GSCM as swap
counterparty and RBS as successor agent.**
3.19(b) Side Letter to the Term Loan Facility Agreement
dated February 27, 1997 among the Company, the
Subsidiaries, SIPC, NLL and GSI.**
A-8
3.20.1 Vessel Mortgage dated February 27, 1997 granted by
Woodmere in favor of GSI relating to the M.T.
Myrina.**
3.20.2 Vessel Mortgage dated February 27, 1997 granted by
Hewlett in favor of GSI relating to the M.T.
Megara.**
3.20.3 Vessel Mortgage dated February 27, 1997 granted by
Inwood in favor of GSI relating to the M.T.
Murex.**
3.20.4 Vessel Mortgage dated February 27, 1997 granted by
Lawrence in favor of GSI relating to the M.T.
Macoma.**
3.20.5 Vessel Mortgage dated February 27, 1997 granted by
Cedarhurst in favor of GSI relating to the M.T.
Magdala.**
3.21.1 Execution version of Floating Charge dated
February 12, 1997 between Woodmere as chargor and
GSI as agent.**
3.21.2 Execution version of Floating Charge dated
February 12, 1997 between Hewlett as chargor and
GSI as agent.**
3.21.3 Execution version of Floating Charge dated
February 12, 1997 between Inwood as chargor and GSI
as agent.**
3.21.4 Execution version of Floating Charge dated
February 12, 1997 between Lawrence as chargor and
GSI as agent.**
3.21.5 Execution version of Floating Charge dated
February 12, 1997 between Cedarhurst as chargor and
GSI as agent.**
3.22 Execution version of Floating Charge dated
February 12, 1997 between the Company as chargor
and GSI as agent.**
3.23 Execution version of Mortgage of Shares dated
February 12, 1997 between the Company as chargor
and GSI as agent.**
3.24 Execution version of Borrower Assignment dated
February 12, 1997 between the Company as assignor
and GSI as agent.**
A-9
3.25.1 Execution version of Guarantor (Subsidiary)
Assignment dated February 12, 1997 between Woodmere
as assignor and GSI as agent.**
3.25.2 Execution version of Guarantor (Subsidiary)
Assignment dated February 12, 1997 between Hewlett
as assignor and GSI as agent.**
3.25.3 Execution version of Guarantor (Subsidiary)
Assignment dated February 12, 1997 between Inwood
as assignor and GSI as agent.**
3.25.4 Execution version of Guarantor (Subsidiary)
Assignment dated February 12, 1997 between Lawrence
as assignor and GSI as agent.**
3.25.5 Execution version of Guarantor (Subsidiary)
Assignment dated February 12, 1997 between
Cedarhurst as assignor and GSI as agent.**
3.26 Execution version of ISDA Master Agreement dated
February 6, 1997 between GSCM and the Company.**
3.27 Execution version of Intercreditor Agreement dated
February 12, 1997 among the Company as borrower,
the Subsidiaries as leasees (collectively with the
Company as Obligors), GSI as arranger and as agent,
GSCP as bank and GSCM as swap bank and SIPC, SPCo,
SPNV and the Manager, each as a subordinated
creditor.**
3.27(a) Amendment Agreement dated February 27, 1997 to the
Intercreditor Agreement among the Company as
borrower, the Subsidiaries as leasees (collectively
with the Company as Obligors), GSI as arranger, RBS
as agent, GSIB as bank, GSCM as swap bank and SIPC,
SPCo, SPNV and the Manager, each as a subordinated
creditor.**
3.27(b) Finance Party Accession/Designation Agreement dated
February 27, 1997 among the Company and the
Subsidiaries as obligors, GSI as existing party and
arranger, RBS as new party, NLL as lessor, GSIB as
bank, GSCM as swap bank and SIPC, SPCo, SPNV and
the Manager, each as a subordinated creditor.**
3.28 Execution version of Multipartite Agreement dated
February 12, 1997 among the Company as borrower,
the Subsidiaries as guarantors, SIPC as charterer,
GSI as arranger and agent, GSCP as bank and GSCM as
swap bank.**
A-10
3.29 Execution version of Subordination Agreement dated
February 12, 1997 among the Company, the
Subsidiaries, ICB International, the Manager, the
Guarantors, SIPC and Goldman, Sachs & Co. as
representative of the U.S. Underwriters, and GSI as
representative of the International Underwriters.**
3.30 Execution version of Share Purchase Agreement dated
February 12, 1997 between the Company and ICB
International (incorporated by reference from
Exhibit 10.37 of the Company's Registration
Statement on Form F-1, filed December 13, 1996
(File No. 333-6170).
* Incorporated by reference to same Exhibit No. in the Company's
Registration Statement on Form F-1, filed December 13, 1996 (File
No. 333-6170)
**Incorporated by reference to same Exhibit No. in the Company's
Report on Form 6-K, filed March 20, 1997 (File No. 0-29106)
A-11
SIGNATURES
Pursuant to the requirements of Section 12 of the
Securities Exchange Act of 1934, the registrant certifies that it
meets all of the requirements for filing on Form 20-F and has
duly caused this annual report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KNIGHTSBRIDGE TANKERS
LIMITED
By: /s/Ola Lorentzon
_____________________
Ola Lorentzon
President
Dated: March 12, 1998
A-12
01655002.AC8
Designation Page no. in
of Exhibit in sequentially
this Form 20-F Description of Exhibit numbered copy
1 Underwriting Agreement among
Knightsbridge Tankers Limited (the
``Company''), Cedarhurst Tankers LDC
(``Cedarhurst''), Hewlett Tankers
LDC (``Hewlett''), Inwood Tankers
LDC (``Inwood''), Lawrence Tankers
LDC (``Lawrence'') and Woodmere
Tankers LDC (``Woodmere'') (each of
Cedarhurst, Hewlett, Inwood,
Lawrence and Woodmere a
``Subsidiary'' and collectively the
``Subsidiaries''), Lazard Freres &
Co. LLC and Goldman, Sachs & Co., as
representatives for the U.S.
underwriters (the
``Representatives''), ICB Shipping
(Bermuda) Limited (the ``Manager'')
and ICB International Ltd. (``ICB
International'')**
3.1 Memorandum of Association of the
Company (Exhibit 3.1)*
3.2 Bye-Laws of the Company (Exhibit
3.2)*
3.2.1 Execution version of Bareboat
Charter dated February 12, 1997
between Woodmere and Shell
International Petroleum Company
Limited ("SIPC") relating to the
M.T. Myrina.**
3.2.2 Execution version of Bareboat
Charter dated February 12, 1997
between Hewlett and SIPC relating to
the M.T. Megara.**
3.2.3 Execution version of Bareboat
Charter dated February 12, 1997
between Inwood and SIPC relating to
the M.T. Murex.**
3.2.4 Execution version of Bareboat
Charter dated February 12, 1997
A-1
between Lawrence and SIPC relating
to the M.T. Macoma.**
3.2.5 Execution version of Bareboat
Charter dated February 12, 1997
between Cedarhurst and SIPC relating
to the M.T. Magdala.**
3.3.1 Execution version of Charter
Guaranty dated February 12, 1997
made by Shell Petroleum N.V.
("SPNV") and The Shell Petroleum
Company Limited ("SPCo")
(collectively the "Guarantors") in
favor of Woodmere relating to the
M.T. Myrina.**
3.3.2 Execution version of Charter
Guaranty dated February 12, 1997
made by the Guarantors in favor of
Hewlett relating to the M.T.
Megara.**
3.3.3 Execution version of Charter
Guaranty dated February 12, 1997
made by the Guarantors in favor of
Inwood relating to the M.T. Murex.**
Designation Page no. in
of Exhibit in sequentially
this Form 20-F Description of Exhibit numbered copy
3.3.4 Execution version of Charter
Guaranty dated February 12, 1997
made by the Guarantors in favor of
Lawrence relating to the M.T.
Macoma.**
3.3.5 Execution version of Charter
Guaranty dated February 12, 1997
made by the Guarantors in favor of
Cedarhurst relating to the M.T.
Magdala.**
3.3.6 Execution version of Pooling
Agreement dated February 27, 1997
among the Subsidiaries as owners,
and Shell International Trading and
Shipping Company Limited on behalf
of SIPC (collectively the
A-2
"Charterers") relating to the fleet
spares.**
3.4 Execution version of Charter
Guaranty dated February 12, 1997
made by the Guarantors in favor of
the Company.**
3.5 Execution version of Management
Agreement dated February 12, 1997
between the Manager and the Company
(incorporated by reference from
Exhibit 10.5 of the Registration
Statement).**
3.6.1 Memorandum of Agreement dated
October 24, 1996 among Ocala
Shipping Limited ("Ocala"), the
Charterers and Shell Tankers (UK)
Limited ("STUK"), as buyer, relating
to the M.T. Myrina (incorporated by
reference from Exhibit 10.6 of the
Registration Statement).**
3.6.2 Memorandum of Agreement dated
October 24, 1996 among Kerbela
Shipping Corp. ("Kerbela") the
Charterers and STUK relating to the
M.T. Megara (incorporated by
reference from Exhibit 10.7 of the
Registration Statement).**
3.6.3 Memorandum of Agreement dated
October 24, 1996 among Trevose
Shipping Corp. ("Trevose"), the
Charterers and STUK relating to the
M.T. Murex (incorporated by
reference from Exhibit 10.8 of the
Registration Statement).**
3.6.4 Memorandum of Agreement dated
October 24, 1996 among Tourmaline
Shipping Limited ("Tourmaline"), the
Charterers and STUK relating to the
M.T. Macoma (incorporated by
reference from Exhibit 10.9 of the
Registration Statement).**
3.6.5 Memorandum of Agreement dated
October 24, 1996 among Fluid
Navigation Ltd. ("Fluid"), the
A-3
Charterers and STUK relating to the
M.T. Magdala (incorporated by
reference from Exhibit 10.10 of the
Registration Statement).**
3.7.1 Assignment Agreement dated
November 25, 1996 from STUK and
Shell International Trading &
Shipping Company Limited to the
Company and the Subsidiaries
relating to the relevant Memorandum
of Agreement (incorporated by
reference from Exhibit 10.11 of the
Registration Statement).**
3.7.2 Assignment of Rights dated
February 27, 1997 between Ocala as
seller and Woodmere as buyer
relating to the M.T. Myrina.**
3.7.3 Assignment of Rights dated
February 27, 1997 between Kerbela
as seller and Hewlett as buyer
regarding the M.T. Megara.**
3.7.4 Assignment of Rights dated
February 27, 1997 between Trevose
as seller and Inwood as buyer
regarding the M.T. Murex.**
3.7.5 Assignment of Rights dated
February 27, 1997 between Tourmalene
as seller and Lawrence as buyer
regarding the M.T. Macoma.**
3.7.6 Assignment of Rights dated
February 27, 1997 between Fluid as
seller and Cedarhurst as buyer
regarding the M.T. Magdala.**
3.8.1 Execution version of Letter
Agreement dated February 6, 1997
among the Company, SIPC, ICB
International, the Subsidiaries and
the Manager (incorporated by
reference from Exhibit 10.12.1 of
the Registration Statement).**
3.8.2 Execution version of Letter
Agreement dated February 6, 1997
among the Company, the Manager, ICB
A-4
International, SIPC and the
Guarantors (incorporated by
reference from Exhibit 10.12.2 of
the Registration Statement).**
3.9 U.K. Finance Lease Transaction Offer
Letter dated November 12, 1996 made
by National Westminster Bank Plc in
favor of the Company and SIPC
(incorporated by reference from
Exhibit 10.13 of the Registration
Statement).**
3.10.1 Conditional Sale Agreement dated
November 25, 1996 between NatWest
Leasing (GB) Limited ("NLL") and
Woodmere relating to the M.T. Myrina
(incorporated by reference from
Exhibit 10.14 of the Registration
Statement).**
3.10.2 Conditional Sale Agreement dated
November 25, 1996 between NLL and
Hewlett relating to the M.T. Megara
(incorporated by reference from
Exhibit 10.15 of the Registration
Statement).**
3.10.3 Conditional Sale Agreement dated
November 25, 1996 between NLL and
Inwood relating to the M.T. Murex
(incorporated by reference from
Exhibit 10.16 of the Registration
Statement).**
3.10.4 Conditional Sale Agreement dated
November 25, 1996 between NLL and
Lawrence relating to the M.T. Macoma
(incorporated by reference from
Exhibit 10.17 of the Registration
Statement).**
3.10.5 Conditional Sale Agreement dated
November 25, 1996 between NLL and
Cedarhurst relating to the M.T.
Magdala (incorporated by reference
from Exhibit 10.18 of the
Registration Statement).**
3.11.1 Execution version of Charterparty by
way of Demise dated February 12,
A-5
1997 between NLL as lessor and
Woodmere as leasee relating to the
M.T. Myrina.**
3.11.2 Execution version of Charterparty by
Way of Demise dated February 12,
1997 between NLL as lessor and
Hewlett as leasee relating to the
M.T. Megara.**
3.11.3 Execution version of Charterparty by
Way of Demise dated February 12,
1997 between NLL as lessor and
Inwood as leasee relating to the
M.T. Murex.**
3.11.3(a) Amendment Agreement to the
Charterparty by Way of Demise dated
February 27, 1997 among NLL, Inwood
and SIPC.**
3.11.4 Execution version of Charterparty by
Way of Demise dated February 12,
1997 between NLL as lessor and
Lawrence as leasee relating to the
M.T. Macoma.**
3.11.5 Execution version of Charterparty by
Way of Demise dated February 12,
1997 between NLL as lessor and
Cedarhurst as leasee relating to the
M.T. Magdala.**
3.12.1 Execution version of Direct Support
Agreement dated February 12, 1997
among NLL as lessor, SIPC and
Woodmere as leasee.**
3.12.2 Execution version of Direct Support
Agreement dated February 12, 1997
among NLL as lessor, SIPC and
Hewlett as leasee.**
3.12.3 Execution version of Direct Support
Agreement dated February 12, 1997
among NLL as lessor, SIPC and Inwood
as leasee.**
3.12.4 Execution version of Direct Support
Agreement dated February 12, 1997
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among NLL as lessor, SIPC and
Lawrence as leasee.**
3.12.5 Execution version of Direct Support
Agreement dated February 12, 1997
among NLL as lessor, SIPC and
Cedarhurst as leasee.**
3.13 Execution version of Lessor Direct
Agreement dated February 12, 1997
among the Company as borrower, the
Subsidiaries as leasees, NLL as
lessor and GSI.**
3.13(a) Amendment Agreement to the Lessor
Direct Agreement dated February 27,
1997 among the Company as borrower,
the Subsidiaries as leasees, NLL as
lessor and Royal Bank of Scotland
Plc ("RBS") as agent.**
3.14.1 Execution version of Lessor Mortgage
and Assignment dated February 12,
1997 from NLL as chargor to Woodmere
as chargee.**
3.14.2 Execution version of Lessor Mortgage
and Assignment dated February 12,
1997 from NLL as chargor to Hewlett
as chargee.**
3.14.3 Execution version of Lessor Mortgage
and Assignment dated February 12,
1997 from NLL as chargor to Inwood
as chargee.**
3.14.4 Execution version of Lessor Mortgage
and Assignment dated February 12,
1997 from NLL as chargor to Lawrence
as chargee.**
3.14.5 Execution version of Lessor Mortgage
and Assignment dated February 12,
1997 from NLL as chargor to
Cedarhurst as chargee.**
3.15.1 Execution version of Deposit
Agreement and Deposit Charge dated
February 12, 1997 between Woodmere
as leasee and Midland Bank PLC as a
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letter of credit issuing bank
("Midland").**
3.15.2 Execution version of Deposit
Agreement and Deposit Charge dated
February 12, 1997 between Hewlett as
leasee and Midland.**
3.15.3 Execution version of Deposit
Agreement and Deposit Charge dated
February 12, 1997 between Inwood as
leasee and Royal Bank of Canada
Europe Limited as a letter of credit
issuing bank ("RBC").**
3.15.4 Execution version of Deposit
Agreement and Deposit Charge dated
February 12, 1997 between Lawrence
as leasee and National Australia
Bank Limited as a letter of credit
issuing bank ("NAB").**
3.15.5 Execution version of Deposit
Agreement and Deposit Charge dated
February 12, 1997 between Cedarhurst
as leasee and NAB.**
3.16.1 Execution version of Irrevocable
Standby Letter of Credit by Midland
in favor of Woodmere as leasee.**
3.16.2 Execution version of Irrevocable
Standby Letter of Credit by Midland
in favor of Hewlett as leasee.**
3.16.3 Execution version of Irrevocable
Standby Letter of Credit by RBC in
favor of Inwood as leasee.**
3.16.4 Execution version of Irrevocable
Standby Letter of Credit by NAB in
favor of Lawrence as leasee.**
3.16.5 Execution version of Irrevocable
Standby Letter of Credit by NAB in
favor of Cedarhurst as leasee.**
3.17.1 Execution version of Reimbursement
Agreement dated February 12, 1997
between Woodmere as leasee and
Midland.**
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3.17.2 Execution version of Reimbursement
Agreement dated February 12, 1997
between Hewlett as leasee and
Midland.**
3.17.3 Execution version of Reimbursement
Agreement dated February 12, 1997
between Inwood as leasee and RBC.**
3.17.4 Execution version of Reimbursement
Agreement dated February 12, 1997
between Lawrence as leasee and
NAB.**
3.17.5 Execution version of Reimbursement
Agreement dated February 12, 1997
between Cedarhurst as leasee and
NAB.**
3.18.1 Execution version of Residual
Obligation Agreement dated
February 12, 1997 between SIPC as
obligor and Midland relating to
Woodmere as lessee.**
3.18.2 Execution version of Residual
Obligation Agreement dated
February 12, 1997 between SIPC as
obligor and Midland relating to
Hewlett as lessee.**
3.18.3 Execution version of Residual
Obligation Agreement dated
February 12, 1997 between SIPC as
obligor and RBC relating to Inwood
as lessee.**
3.18.4 Execution version of Residual
Obligation Agreement dated
February 12, 1997 between SIPC as
obligor and NAB relating to Lawrence
as lessee.**
3.18.5 Execution version of Residual
Obligation Agreement dated
February 12, 1997 between SIPC as
obligor and NAB relating to
Cedarhurst as lessee.**
3.19 Execution version of Term Loan
Facility Agreement dated February 6,
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1997 among the Company as borrower,
the Subsidiaries as guarantors, GSI
as arranger and as agent, Goldman
Sachs Capital Partners L.P. as bank
("GSCP") and Goldman Sachs Capital
Markets L.P. as swap counterparty
("GSCM").**
3.19(a) Amendment Agreement to Term Loan
Facility Agreement dated
February 27, 1997 among the Company
as borrower, the Subsidiaries as
guarantors, GSI as arranger and
retiring agent, Goldman Sachs
International Bank as bank ("GSIB"),
GSCM as swap counterparty and RBS as
successor agent.**
3.19(b) Side Letter to the Term Loan
Facility Agreement dated
February 27, 1997 among the Company,
the Subsidiaries, SIPC, NLL and
GSI.**
3.20.1 Vessel Mortgage dated February 27,
1997 granted by Woodmere in favor of
GSI relating to the M.T. Myrina.**
3.20.2 Vessel Mortgage dated February 27,
1997 granted by Hewlett in favor of
GSI relating to the M.T. Megara.**
3.20.3 Vessel Mortgage dated February 27,
1997 granted by Inwood in favor of
GSI relating to the M.T. Murex.**
3.20.4 Vessel Mortgage dated February 27,
1997 granted by Lawrence in favor of
GSI relating to the M.T. Macoma.**
3.20.5 Vessel Mortgage dated February 27,
1997 granted by Cedarhurst in favor
of GSI relating to the M.T.
Magdala.**
3.21.1 Execution version of Floating Charge
dated February 12, 1997 between
Woodmere as chargor and GSI as
agent.**
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3.21.2 Execution version of Floating Charge
dated February 12, 1997 between
Hewlett as chargor and GSI as
agent.**
3.21.3 Execution version of Floating Charge
dated February 12, 1997 between
Inwood as chargor and GSI as
agent.**
3.21.4 Execution version of Floating Charge
dated February 12, 1997 between
Lawrence as chargor and GSI as
agent.**
3.21.5 Execution version of Floating Charge
dated February 12, 1997 between
Cedarhurst as chargor and GSI as
agent.**
3.22 Execution version of Floating Charge
dated February 12, 1997 between the
Company as chargor and GSI as
agent.**
3.23 Execution version of Mortgage of
Shares dated February 12, 1997
between the Company as chargor and
GSI as agent.**
3.24 Execution version of Borrower
Assignment dated February 12, 1997
between the Company as assignor and
GSI as agent.**
3.25.1 Execution version of Guarantor
(Subsidiary) Assignment dated
February 12, 1997 between Woodmere
as assignor and GSI as agent.**
3.25.2 Execution version of Guarantor
(Subsidiary) Assignment dated
February 12, 1997 between Hewlett as
assignor and GSI as agent.**
3.25.3 Execution version of Guarantor
(Subsidiary) Assignment dated
February 12, 1997 between Inwood as
assignor and GSI as agent.**
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3.25.4 Execution version of Guarantor
(Subsidiary) Assignment dated
February 12, 1997 between Lawrence
as assignor and GSI as agent.**
3.25.5 Execution version of Guarantor
(Subsidiary) Assignment dated
February 12, 1997 between Cedarhurst
as assignor and GSI as agent.**
3.26 Execution version of ISDA Master
Agreement dated February 6, 1997
between GSCM and the Company.**
3.27 Execution version of Intercreditor
Agreement dated February 12, 1997
among the Company as borrower, the
Subsidiaries as leasees
(collectively with the Company as
Obligors), GSI as arranger and as
agent, GSCP as bank and GSCM as swap
bank and SIPC, SPCo, SPNV and the
Manager, each as a subordinated
creditor.**
3.27(a) Amendment Agreement dated
February 27, 1997 to the
Intercreditor Agreement among the
Company as borrower, the
Subsidiaries as leasees
(collectively with the Company as
Obligors), GSI as arranger, RBS as
agent, GSIB as bank, GSCM as swap
bank and SIPC, SPCo, SPNV and the
Manager, each as a subordinated
creditor.**
3.27(b) Finance Party Accession/Designation
Agreement dated February 27, 1997
among the Company and the
Subsidiaries as obligors, GSI as
existing party and arranger, RBS as
new party, NLL as lessor, GSIB as
bank, GSCM as swap bank and SIPC,
SPCo, SPNV and the Manager, each as
a subordinated creditor.**
3.28 Execution version of Multipartite
Agreement dated February 12, 1997
among the Company as borrower, the
Subsidiaries as guarantors, SIPC as
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charterer, GSI as arranger and
agent, GSCP as bank and GSCM as swap
bank.**
3.29 Execution version of Subordination
Agreement dated February 12, 1997
among the Company, the Subsidiaries,
ICB International, the Manager, the
Guarantors, SIPC and Goldman, Sachs
& Co. as representative of the U.S.
Underwriters, and GSI as
representative of the International
Underwriters.**
3.30 Execution version of Share Purchase
Agreement dated February 12, 1997
between the Company and ICB
International (incorporated by
reference from Exhibit 10.37 of the
Company's Registration Statement on
Form F-1, filed December 13, 1996
(File No. 333-6170).
* Incorporated by reference to same Exhibit No. in the Company's
Registration Statement on Form F-1, filed December 13, 1996 (File
No. 333-6170)
**Incorporated by reference to same Exhibit No. in the Company's
Report on Form 6-K, filed March 20, 1997 (File No. 0-29106)
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01655002.AC8