MARINE SUBSEA AS RESTRUCTURING PLAN INFORMATION MEMORANDUM

Transcription

1 MARINE SUBSEA AS RESTRUCTURING PLAN INFORMATION MEMORANDUM 9 th OCTOBER 2009

2 DISCLAIMER This Information Memorandum has been prepared by Marine Subsea AS ( Marine Subsea or the Company ) in connection with the proposed restructuring of the Company s financial debt. This Information Memorandum has not been review or registered with any public authority or stock exchange. There may have been changes in matters which affect the Company and its subsidiaries and affiliates, as set out in Appendix I Corporate Structure, subsequent to the date of this Information Memorandum. Neither the issue nor the delivery of this Information Memorandum shall under any circumstance create any implication that the information contained herein is correct as of any time subsequent to the date hereof or that the affairs of the Company and the affiliates have not since changed, and the Company does not intend, and does not assume any obligation, to update or correct any information included in this Information Memorandum. This Information Memorandum includes and is based on, among other things, forward-looking information and statements which reflects the Company s current views with respect to future events and are subject to risk, uncertainties, assumptions and other factors which may cause the actual results, performance or achievements of the Company and its subsidiaries and affiliates to be materially different from any future results, performance or achievements that may be expressed or implied by statements and information in this Information Memorandum, including, among others, risks or uncertainties associated with the Company s and its subsidiaries and affiliates business, segments, development, growth management, financing, market acceptance and relations with customers, and more generally, general economic and business conditions, changes in domestic and foreign laws and regulations, taxes, changes in competition and pricing environments, fluctuations in currency exchange rates and interest rates and other factors. Should one or more of these risks or uncertainties materialise, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this Information Memorandum. Hence, the Company cannot give any assurance as to the correctness of such information and statements. Distribution of this Information Memorandum may be restricted by law in certain jurisdictions. Recipients are required to inform themselves of and observe these restrictions and the Company and its subsidiaries and affiliates, and their respective directors, officers, employee and agents do not accept any responsibility for any violation by any person of such restrictions. This Information Memorandum is subject to Norwegian law, and any dispute arising in respect of this Information Memorandum is subject to the exclusive jurisdiction of the Norwegian courts. CONTACTS Marine Subsea AS Strandveien 50 Lysaker 1366 Norway Finance Kristen Jakobsen Financial Director Erik Sandøy Financial Manager Tel: Fax: Mobile: Tel: Fax: Mobile: (0) (0) kristen@trafalgar.no +47 (0) (0) (0) esandoy@marinesubsea.no 1

3 TABLE OF CONTENTS DISCLAIMER 1 CONTACTS 1 1. Letter from the Board of Directors 4 2. Corporate Overview 6 3. Restructuring Plan Objective & Background Sources & Uses Exchange Bonds Bondholder Consent Overview of Proposed Changes in Security Interests Conclusion Consequences if Restructuring Plan Not Implemented Current Operations & Future Business Plan Well-Intervention Vessels Management s view on well-intervention market conditions Acquisition of TSMarine Barges Management s view on accommodation market conditions Safe Challenger Joint Venture Drill Ship Project Acquisition of On & Offshore AS Historical Financials Balance Sheets Income Statements Cash Flow Statements Performance in Performance in first half of Financial Forecasts Conditions Precedent 47 Appendix I Corporate Structure 50 Appendix II Board Members & Senior Management 51 Appendix III Term Sheets for Exchange Bond Series I and Series II 53 Appendix IV Term Sheets for Export-Credit Backed Facilities 83 Appendix V Risk Factors 115 2

4 TABLE OF TABLES Table 1: Sources & Uses of Funds - November 2009 (delivery of Sarah) Table 2: Sources & Uses of Funds - October to December 2010 (delivery of Karianne) Table 3: Exchange Bond Series I and Series II: Forecast Repayment Profile Table 4: Exchange Bond Series I: Forecast Cash Flow Profile Table 5: Exchange Bond Series II: Forecast Cash Flow Profile Table 6: Status and proposed changes in vessel and barge security Table 7: TSMarine - summary forecast financial information Table 8: Barges - summary of the barges and their contract terms is as follows Table 9: Summary terms of sale and leaseback transactions Table 10: Financial forecasts for Marine Subsea without consolidation of Sarah and Karianne Table 11: Selected Group financial ratios with consolidation of Sarah and Karianne Table 12: Breakdown of Revenue and EBITDA by group entity TABLE OF FIGURES Figure 1: Well-intervention vessels (Sarah / Karianne) Figure 2: Key features of well-intervention vessels Figure 3: Angolan Operational Base of Subsea Wells by Water Depth Source Figure 4: Overview of TSMarine s operations Figure 5: Caribe Figure 6: Fjord Figure 7: Installer Figure 8: Lifter Figure 9: Worker Figure 10: Key features of Safe Challenger

5 1. Letter from the Board of Directors To the bondholders in: (i) ISIN NO FRN Marine Subsea AS (formerly known as Africa Offshore Services AS) Senior Secured Bond Issue 2007/2012; (ii) ISIN NO FRN Marine Subsea AS (formerly known as Africa Offshore Services AS) Callable Bond Issue 2007/2012; and (iii) ISIN NO per cent Marine Subsea AS Senior Secured Callable Convertible Bond Issue 2007/2012 PROPOSED RESTRUCTURING PLAN Marine Subsea AS ( Marine Subsea or the Company ) has called for bondholder meetings in all its outstanding bond issues in order to seek acceptance for a proposed restructuring of the Company s financial debt. This Information Memorandum has been provided for background information in connection with the Restructuring Plan. The Board of Directors of Marine Subsea can confirm that the information provided in this memorandum is, to the best of their knowledge, accurate as at the date of this Information Memorandum. The Company has worked since late 2008 on securing the financing required in order to ensure its continued operation. In order to achieve this financing, the Board has no alternative but to ask for bondholder acceptance for the restructuring of Marine Subsea s financial debt. The Board has however endeavoured to achieve the following objectives through the restructuring: I. Full repayment of bondholders principal and the continued payment of interest; II. Enhancement of bondholders prospect of repayment by providing financing for the completion and delivery of all vessels and barges; III. Matching of Marine Subsea s debt maturities with its projected cash flow generation capacity; and IV. Enabling the raising of new long-term financing to fully fund all existing projects to completion and see the Company s assets become income producing and cash flow generative. The Board believes that the Restructuring Plan being proposed is the best possible solution available for bondholders meeting all the objectives set out above. We are also pleased that we have secured the full support of our new financing institutions, our construction yards, our partners 4

6 in Angola and most importantly Sonangol Pesquisa & Produção S.A. Through the support and contribution of all involved parties, we are confident that this proposal will provide bondholders with the best possible outcome and we therefore ask for their support by approving the Restructuring Plan. Oslo, 30 th September 2009 The Board of Marine Subsea AS Mårten Rød (Chairman) Gian Angelo Perrucci Kristen Jakobsen Giorgio Reggio 5

7 2. Corporate Overview Marine Subsea is headquartered in Lysaker, Norway with administrative, commercial and technical management functions in Limassol (Cyprus), Aberdeen (Scotland), Kristiansand (Norway) and Luanda (Angola). Marine Subsea continues to work towards establishing itself as a significant player in the oil and gas off-shore service sector with core expertise in West Africa. The company currently has three support barges in operation, being the Caribe, Fjord and Installer. In the next 12 months Marine Subsea expects to increase its fleet to seven units, taking delivery of two premier subsea oil well-intervention vessels, the Sarah and Karianne, and two further support barges, the Lifter and Worker. Through its founding shareholders, Mårten Rød and Gian Angelo Perrucci, Marine Subsea has developed a key partnership with Sonangol Pesquisa & Produção S.A. ( Sonangol ), an exploration and production subsidiary of the Angolan national oil company. Upon expected delivery of the Sarah in October 2009 the vessel will be accepted by Sonangol under a 10-year take or pay back-stop contract for deployment in Angolan waters. A similar 10- year contract has been agreed with Sonangol for the Karianne. Sonangol has a 25% shareholding in Sarah in consideration for entering into the long-term contract in respect of Sarah and will receive, post the acceptance of the Restructuring Plan, a 25% shareholding in Karianne in consideration for entering into a long-term contract in respect of Karianne. Delivery and deployment of the Karianne is expected in October Additionally, Marine Subsea has secured future service contracts from Sonangol for (i) the Lifter on a 5 year contract in return for Sonangol receiving a 25% shareholding in the Lifter entity, (ii) the Safe Challenger, a semisubmersible crane vessel under construction for delivery in late 2011, in which Marine Subsea holds a 40% equity interest and (iii) a deepwater Drillship expected to commence operations in 2012, in which Marine Subsea will hold a 40% equity interest. In the near-term Marine Subsea intends to significantly enhance its sales and marketing capability with the acquisition of 60% of the shares in TS Marine Subsea Ltd ( TSMarine ), a newly established entity to acquire the European and West African operational team and contracts of TSMarine (Contracting) Limited. The initial purchase price will be a nominal sum, with an undertaking to purchase the remaining 40% in equal tranches over the next 3 years based on an earn-out structure. A copy of Marine Subsea s group corporate structure is contained in Appendix I. 6

8 Current Financial Position & Financing Requirements Notwithstanding the above opportunities Marine Subsea is facing a liquidity crisis requiring in excess of USD million in new funding during the next 12 months to secure the delivery of the Sarah and Karianne vessels and the Lifter and Worker barges and to prepare for their operational start-up. In addition, Marine Subsea has identified further capital expenditure requirements amounting to approximately USD 21.2 million, including: I. the option to re-purchase the shareholder loan in Marine Subsea & Consafe Ltd for USD 12.5 million (refer section 5.6) recently sold to Yantai Raffles Shipyard ( Yantai ); II. a USD 3.0 million break fee payable for not exercising its option to acquire 92.2% of On & Offshore Holding AS ( On & Offshore ) (refer section 5.8); and III. USD 5.7 million for maintenance and other operational capital expenditure. As at 30 June 2009, Marine Subsea had current assets of USD 38.1 million including cash and cash equivalents of USD 9.7 million, current liabilities of USD 24.4 million and long-term liabilities of USD million, of which interest bearing debt falling due in 2012 amounted to USD million. In the first half of 2009, Marine Subsea generated revenues of USD 46.5 million and earnings before interest, tax, depreciation and amortisation of USD 6.6 million, with negative cash flow after operating, investment and financing activities of USD 32.3 million (please refer to section 6 Historical Financials). Management has worked on addressing Marine Subsea s financial distress by raising new financing in a challenging market through a combination of measures: I. Proposed new borrowings totalling USD million under two export-credit backed facilities (each for USD million) to be underwritten by Eksportfinans ASA and Standard Bank Plc as lenders and guarantees from Garanti-instituttet for eksportkreditt and Standard Bank Plc, secured against inter alia a corporate guarantee from Marine Subsea, assignments of construction contracts and first ranking mortgages over the Sarah and Karianne vessels, and other priority security of their vessel owning subsidiaries including share pledges, assignment of respective cash flows, contracts and insurances and charges over other assets; II. A NOK 160 million (USD 28.1 million) reallocation by Ulstein Verft AS ( Ulstein ) of monies prepaid against the delivery of the Karianne (YNO 287) vessel, to be applied as a partial down payment on the balance due on Sarah (YNO 283) vessel, with the transferred funds 7

9 temporarily secured (until repaid on payment for the Karianne) by a first priority mortgage over the Installer barge and its respective cash flows, in favour of Ulstein; III. A rescheduling of the USD 25.2 million due to Jaya Holding Shipyard ( Jaya ) for construction of the Worker (#7) barge, with USD 8.5 million payable on delivery in October 2009 and monthly instalments after a 3-month grace period of USD250,000 plus interest at 8.0% per annum on the balance outstanding, to be repaid on the earlier of delivery of the Karianne or 31 December 2010, with ownership of the Worker barge to pass to Marine Subsea once full repayment is received by Jaya; IV. The sale in June 2009 of Marine Subsea s USD 40.5 million shareholder loan to Marine Subsea & Consafe Ltd to Yantai for USD 12.5 million with a call option to repurchase the loan together with accrued interest for USD 12.5 million expected in Term Sheets provided by the respective financial institutions for the proposed export-credit backed facilities (item I) for the Sarah and Karianne vessels are contained in Appendix IV Term Sheets for Export-Credit Backed Facilities. These financing terms will be drafted into facility agreements, conditional upon, inter alia, the implementation of the Restructuring Plan outlined in this Information Memorandum and customary conditions precedent to closing and funding facilities of this nature. The export-credit backed financing also includes a conditional offer by Standard Bank Plc to provide Marine Subsea with a foreign exchange forward contract to hedge the exposure to potential appreciation of the NOK against the USD inherent in its NOK denominated Karianne construction contract with Ulstein. Each of the other pending sources of financing outlined above (II - III) have been commercially agreed and documented with the respective creditors, conditional upon, inter alia, Marine Subsea s financial capability to fulfil its revised contractual undertakings. The steps and requirements to achieving the new financing are set out in section 3. 8

10 3. Restructuring Plan 3.1. Objective & Background Marine Subsea is proposing a restructuring of its existing USD million 2012 FRN Callable Bond Issue (ISIN NO ) ( USD million FRN February Bond ), USD million 2012 FRN Bond Issue (ISIN NO ) ( USD 136 million FRN June Bond ) (collectively the FRN Bonds ) and NOK 390 million % Callable Convertible Bond Issue (ISIN NO ) ( NOK 390 million Convertible Bond ), (the Restructuring Plan ), with a view to achieving the following objectives: I. Full repayment of bondholders principal and the continued payment of interest; II. Enhancement of bondholders prospect of repayment by providing financing for the completion and delivery of all vessels and barges; III. Matching of Marine Subsea s debt maturities with its projected cash flow generation capacity; and IV. Enabling the raising of new long-term financing to fully fund all existing projects to completion and see the Company s assets become income producing and cash flow generative. The Restructuring Plan will provide Marine Subsea with a solid financial foundation to transform itself from being a start-up operator to an established provider of subsea well-intervention and offshore services to major Exploration and Production ( E&P ) companies. Marine Subsea will be able to retain and monetise its key client relationship with Sonangol including the 10-year take or pay contracts for the Sarah and Karianne vessels and the Safe Challenger crane ship. Furthermore, Marine Subsea and its creditors will benefit from expansion of its fleet from three to seven units (being two well-intervention vessels and five support / accommodation barges), and greater diversification of its customer base and sources of cash flow. The Restructuring Plan requires a lock-in of Marine Subsea s founding shareholders, Mårten Rød and Gian Angelo Perrucci, with no dividends or distributions to shareholders until bondholders and the new export-credit lenders are repaid in full. Subject to the proposed terms and conditions of the export-credit backed facilities, excess cash generated within the Sarah and Karianne operating subsidiaries will, subject to agreed carve outs and compliance with covenants, be permitted to be up-streamed to the group parent, Marine Subsea. This excess cash, together with excess cash from Marine Subsea s barge and other operating subsidiaries, will enable it to service its indebtedness to bondholders. 9

11 The Restructuring Plan will, however, necessitate inter alia the granting of assignments of the construction contracts and first ranking mortgages over the Sarah and Karianne vessels, a pledge over Marine Subsea s shareholding in the Sarah and Karianne entities (with Sonangol to hold the other 25%), and first priority security over the entities assets and cash flows in favour of new lenders, Eksportfinans ASA, Standard Bank Plc and any other commercial lenders brought into the syndicate. To achieve the change in contractual payment terms with Ulstein for the construction of the Karianne (releasing NOK 160 million from the Karianne prepayment in partial settlement of the final payment for Sarah), Ulstein requires temporary security over the Installer barge and its cash flows until it has received full payment for the Karianne. In addition, bondholders are asked to approve the granting of a 25% shareholding in the Karianne entity in consideration for entering into a long-term contract in respect of Karianne and a 25% shareholding in the Lifter entity to Sonangol, in return for Sonangol taking the barge on a 5-year charter contract. Implementation and closing of the Restructuring Plan is subject to the fulfilment of multiple conditions precedent as discussed in greater detail in Section 8. These conditions precedent are significant and should be carefully considered in their entirety. 10

12 3.2. Sources & Uses The proposed sources and uses of funds as at drawdown of the respective export-credit backed facilities are as follows: Table 1: Sources & Uses of Funds - November 2009 (delivery of Sarah) Sources USD m Uses USD m Sarah export credit facility Payment to Ulstein for Sarah Transfer of Karianne prepayment 28.1 Payment to Jaya for Worker 8.5 Payment to Yantai for Lifter 9.9 Fees & Expenses Restricted cash - Sarah Available cash / cash generated 10.6 Available cash on balance sheet ¹ USD 28.1 million will be transferred to Marine Subsea Karianne Ltd in settlement of Ulstein s reallocation of monies previously prepaid against the delivery of the Karianne 2 Fees & Expenses include fees for the Karianne export-credit backed facility 3 includes the debt service reserve account and funds for working capital Table 2: Sources & Uses of Funds - October to December 2010 (delivery of Karianne) Sources USD m Uses USD m Karianne export credit facility Payment to Ulstein for Karianne 93.3 Payment to Jaya for Worker 17.4 Repurchase of Consafe loan 12.5 Capex - other 9.7 Restricted cash Karianne¹ 15.0 Available cash / cash generated 43.5 Available cash on balance sheet ¹ includes the debt service reserve account and funds for working capital 11

13 3.3. Exchange Bonds To implement the Restructuring Plan and release the necessary security and guarantees, all of the holders in each FRN Bond are asked to accept a mandatory exchange of their bonds held as at the exchange date into a single new senior secured USD denominated bond, called the Exchange Bond Series I. The USD million FRN February Bond will be exchanged at a ratio of 1.095:1 leading to a principal amount in the Exchange Bond Series I post exchange date of USD 121 million. Similarly, the USD 136 million FRN June Bond will be exchanged at a ratio of 0.923:1 leading to a principal amount in the Exchange Bond Series I post exchange date of USD million. The aggregate amount of the Exchange Bond Series I will therefore be USD million. Any accrued and unpaid interest on the FRN Bonds as at exchange date will be paid in cash (to the holder of the Exchange Bond Series I for which the relevant FRN Bonds were exchanged) on or before the first interest payment date (being three months after exchange date) for the Exchange Bond Series I together with interest at 9.00% to the date of payment. The Exchange Bond Series I will have a 10-year scheduled final maturity date and pay a quarterly coupon of 9.00% per annum for the first two years and thereafter 12.00% per annum in cash or, during the first two years after issue as further set out in the proposed terms and conditions of the Exchange Bond Series I, 12.00% per annum pay-in-kind ( PIK ) in the event of a shortfall in Marine Subsea s available cash (subject to agreed carve outs). The PIK feature will be a fixed mechanism (and not at Marine Subsea s discretion) only to be applied, or partially applied as the case may be, in the event that Marine Subsea, pursuant to the proposed terms and conditions of the Exchange Bond Series I, has insufficient cash to pay all or part of the interest coupon due, to operate only when and if the entire coupon under Exchange Bond Series II is paid as PIK. The Exchange Bond Series I will benefit from an excess cash sweep mechanism (post delivery of the Karianne vessel) to be repaid in semi-annual repayments from available cash generated by Marine Subsea s vessel and barge subsidiaries (subject to various carve-outs). The Convertible Bond holders are similarly asked to accept a mandatory exchange of their bonds as at exchange date into a new senior secured USD denominated bond using the official USD/NOK fixing rate of exchange provided by the Norwegian Central Bank as at close of business in Oslo on the day falling two business days prior to the exchange date, called the Exchange Bond Series II. Any accrued and unpaid interest on the Convertible Bonds as at the exchange date will be paid in cash (to the holder of the Exchange Bond Series II for which the relevant Convertible Bonds were exchanged) on or before the first interest date (being three months after exchange date) for the Exchange Bond Series II together with interest at 9.00% to the date of payment. 12

14 The Exchange Bond Series II will have no equity conversion rights with a 10-year scheduled final maturity date, paying a quarterly coupon of 9.00% per annum for the first two years and thereafter 12.00% per annum in cash or, during the first two years after issue as further set out in the proposed terms and conditions of the Exchange Bond Series II, 12.00% per annum PIK in the event of a shortfall in Marine Subsea s available cash (subject to agreed carve outs). As is the case with the Exchange Bond Series I, the PIK feature will be a fixed mechanism (and not at Marine Subsea s discretion) only to be applied, or partially applied as the case may be, in the event that Marine Subsea, pursuant to the proposed terms and conditions of the Exchange Bond Series II, has insufficient cash to pay all or part of the interest coupon due. The PIK feature for the Exchange Bond Series II will operate first before any coupons due and payable under Exchange Bond Series I are paid as PIK. The Exchange Bond Series II will benefit from an excess cash sweep mechanism (post delivery of the Karianne vessel) to be repaid from excess cash generated by and upstreamed from Marine Subsea & Consafe Limited and TSMarine. Once the Exchange Bond Series I is fully repaid, the Exchange Bond Series II will be repaid from excess cash generated by all operating subsidiaries (subject to various carve-outs). Notwithstanding their 10 year final maturity dates, the excess cash sweep mechanisms applicable to both Exchange Bonds is, in accordance with the base case financial forecasts contained in section 0, expected to result in a weighted average life for Exchange Bond Series I of 4.3 years and for Exchange Bond Series II of 5.2 years with both Exchange Bonds expected to be fully redeemed by The Exchange Bond Series I will be secured over inter alia a second ranking mortgage in the Sarah and Karianne vessels (post delivery), governed by an inter-creditor agreement with the security trustee for the export-credit backed facilities (to become a first ranking mortgage once export-credit backed facilities are fully repaid), together with security over any residual proceeds in the Sarah and Karianne entities following any enforcement of security by the export-credit backed facility secured parties (after repayment of such secured parties claims in full), a second ranking mortgage and assignment of earnings in the Installer barge (to become a first ranking mortgage once released by Ulstein), an assignment of the Lifter barge construction contract followed by a first ranking mortgage and assignment of earnings (post delivery), an assignment of the Worker barge construction contract followed by a first ranking mortgage and assignment of earnings (post delivery) and share pledges over the shares held by Marine Subsea Cyprus Holding Limited in the barge owning entities for the Installer (100% shareholding), Lifter (to be 75% post delivery) and Worker (100% shareholding). 13

15 The Exchange Bond Series II will be secured by a first ranking pledge over both Marine Subsea s 40% shareholding in Marine Subsea & Consafe Ltd (owning the Safe Challenger crane ship) and Marine Subsea s shareholding in TSMarine, which increases from 60% shortly after closing to potentially 100% over 3 years, together with a first ranking claim over Marine Subsea s shareholder loan to Marine Subsea & Consafe (once repurchased from Yantai). The security trustee for both series of Exchange Bonds will be Norsk Tillitsmann and their respective loan agreements will be subject to Norwegian law. The proposed term sheets for the Exchange Bond Series I and Series II are contained in Appendix III Term Sheets for Exchange Bond Series I and Series II. As part of the process to achieve the Restructuring Plan, the Trustee and its advisors are exploring with the Company the possibility of the Exchange Bond Series I and Series II being issued (rather than by the Company) by a new borrower which would be a newly formed wholly owned subsidiary of the Company. In this event the Exchange Bond Series I and Series II would maintain the terms and conditions contemplated herein, subject to conforming changes and possibly additional terms, including to the export-credit backed facilities, to ensure that a reasonable but appropriate level of funds can be transferred to the Company to meet its day to day expenses and other permitted expenditures. The approval of bondholders is therefore also being sought to such a change to the borrower where this is agreed by the Company, and the Trustee (in consultation with Bingham McCutchen) considers that this change of borrower would be beneficial (or at least not detrimental) to bondholders. 14

16 Table 3: Exchange Bond Series I and Series II: Forecast Repayment Profile 15

17 Table 4: Exchange Bond Series I: Forecast Cash Flow Profile 16

18 Table 5: Exchange Bond Series II: Forecast Cash Flow Profile 17

19 3.4. Bondholder Consent The Restructuring Plan requires approval by a requisite majority of bondholders in accordance with the voting procedures governing the USD million FRN February Bond, USD 136 million FRN June Bond and NOK 390 million Convertible Bond. Approval is required from a requisite majority of the bondholders of each bond issue. If one or more bondholder votes are not carried then all votes will be deemed void, the conditions precedent to drawdown of the export-credit backed facilities for the Sarah and Karianne (and associated hedging) will not be satisfied, and the financing will be void. USD million 2012 FRN In accordance with section 17 of the Loan Agreement for the USD million FRN February Bond, the respective Bond holders are asked to approve: I. Mandatory exchange of their outstanding bonds subject to an exchange ratio of 1.095:1 to receive Exchange Bond Series I amounting to USD million; II. Release or assignment of all security interests as per sections 1 and 8 of the Loan Agreement consistent with the summary of security interests in Section 3.5, comprising: 1) the escrow account pledge; 2) the guarantees from the barge subsidiaries (Marine Subsea Installer Ltd and Marine Subsea Worker Ltd) and the vessel subsidiary (Marine Subsea Inc / Marine Subsea Sarah Ltd); 3) in respect of the Installer and Worker barges: i. a first priority assignment of barge construction contracts; ii. a first priority share pledge; iii. a first priority assignment of barge earnings (post delivery); iv. a first priority mortgage (post delivery); and v. a first priority assignment of barge insurances (post delivery); 4) in respect of the Sarah vessel: i. a first priority assignment of vessel construction contract; ii. a second priority vessel share pledge (75%); iii. a second ranking assignment of vessel earnings (post delivery); iv. a second ranking vessel mortgage (post delivery); and v. a second ranking assignment of vessel insurances (post delivery); 18

20 III. Termination of all other rights and obligations under the Loan Agreement of the borrower (Marine Subsea, formally known as Africa Offshore Services AS), the security trustee (Norsk Tillitsmann ASA) and holders in the bond issue; and IV. Extinguishment of the USD million FRN February Bond. USD million 2012 FRN In accordance with section 17 of the Loan Agreement for the USD million FRN June Bond, the respective Bond holders are asked to approve: I. Mandatory exchange of their outstanding bonds subject to an exchange ratio of :1 to receive Exchange Bond Series I amounting to USD million; II. Release or assignment of all security interests as per sections 1 and 8 of the Loan Agreement consistent with the summary of security interests in Section 3.5, comprising: 1) the escrow account pledge; 2) the guarantees from the barge subsidiary (Marine Subsea Lifter Ltd) and the vessel subsidiary (Marine Subsea II Inc / Marine Subsea Karianne Ltd); 3) a first priority pledge over all shares issued by the barge subsidiary (Marine Subsea Lifter Ltd) and the vessel subsidiary (Marine Subsea II Inc / Marine Subsea Karianne Ltd) and their Cypriot holding company (Marine Subsea Cyprus Holding Ltd); 4) a first priority assignment of the Lifter barge construction contracts; 5) a first priority assignment of the Karianne vessel construction contract; 6) a first priority assignment of all other contracts entered into for the completion of the Lifter barge and the Karianne vessel; 7) a floating charge in respect of the Lifter barge construction contracts and the Karianne vessel construction contract including all equipment; 8) in respect of the Lifter barge and Karianne vessel: i. a first assignment of earnings; ii. a first priority mortgage; and iii. a first assignment of insurances; III. Termination of all other rights and obligations under the Loan Agreement of the borrower (Marine Subsea, formally known as Africa Offshore Services AS), the security trustee (Norsk Tillitsmann ASA) and holders in the bond issue; and IV. Extinguishment of the USD million FRN June Bond. 19

21 NOK million 2012 FRN In accordance with section 20 of the Loan Agreement for the NOK 390 million Convertible Bond, the respective Bond holders are asked to approve: I. Mandatory exchange of their outstanding bonds for the USD equivalent of NOK million using the official USD/NOK fixing rate of exchange provided by the Norwegian Central Bank at close of business in Oslo on the day falling two business days prior to the Exchange Date; II. Release or assignment of all security interests as per sections 1 and 8 of the Loan Agreement consistent with the summary of security interests in Section 3.5, comprising: 1) the escrow account pledge; 2) the debt service reserve account pledge; and 3) the share pledge over the borrower s 40% shares in Marine Subsea & Consafe Ltd; III. Release of all equity conversion rights as per sections 13 and 14 of the Loan Agreement; IV. Termination of all other rights and obligations under the Loan Agreement of the borrower (Marine Subsea), the security trustee (Norsk Tillitsmann ASA) and holders in the bond issue; and V. Extinguishment of the NOK 390 million Convertible Bond. 20

22 3.5. Overview of Proposed Changes in Security Interests Table 6 below provides a summary of the existing vessel and barge security held by bondholders and creditors of Marine Subsea and the changes that will be effected by approval of the Restructuring Plan: Table 6: Status and proposed changes in vessel and barge security Vessel / Entity Current Security & Beneficiary Proposed Security & Beneficiary Sarah well-intervention vessel (now constructed, not yet delivered) Karianne wellintervention vessel (partially constructed) Post delivery a 1 st ranking mortgage, 1 st ranking share pledge (75%) and 1 st ranking assignment of earnings and insurances in favour of lenders to the previously proposed (now expired) export-credit facility provided by Nordea Bank AB, Glitnir Bank and BNP Paribas 1 st ranking assignment of the construction contract and post delivery a 2 nd ranking mortgage, 2 nd ranking share pledge (75%), 2 nd ranking assignment of earnings and insurances and guarantee from Marine Subsea Sarah Limited in favour of the USD110.5m FRN holders 1 st ranking assignment of the construction contract (and any other construction / equipment contracts) and post delivery a 1 st ranking mortgage, 1 st ranking share pledge (100%), 1 st ranking assignment of earnings and insurances and guarantee from Marine Subsea Karianne Limited in favour of the USD136.0m FRN holders 1 st ranking mortgage and inter alia a 1 st ranking assignment of the construction contract and Sonangol lease agreement, 1 st ranking share pledge (75%), 1 st ranking assignment of insurances in favour of new lenders Eksportfinans ASA and Standard Bank Plc (and other commercial lenders) and 1 st ranking security over any residual proceeds of enforcement of security over Sarah in favour of new lenders to Karianne entity, Eksportfinans ASA and Standard Bank Plc (and other commercial lenders) 2 nd ranking mortgage and 1 st ranking claim over residual proceeds of any enforcement (after new lenders are repaid in full) in favour of Exchange Bond Series I 1 st ranking mortgage and inter alia a 1 st ranking assignment of the construction contract and Sonangol lease agreement, 1 st ranking share pledge (75%), 1 st ranking assignment of insurances in favour of new lenders Eksportfinans ASA and Standard Bank Plc (and other commercial lenders) and 1 st ranking security over any residual proceeds of enforcement of security over Karianne in favour of new lenders to Sarah entity, Eksportfinans ASA and Standard Bank Plc (and other commercial lenders) 2 nd ranking mortgage and 1 st ranking claim over residual proceeds of any enforcement (after new lenders are 21

23 Vessel / Entity Current Security & Beneficiary Proposed Security & Beneficiary repaid in full) in favour of Exchange Bond Series I Caribe barge (on charter) Fjord barge (on charter) Installer barge (on charter) Lifter (now constructed, ready for delivery) Worker (now constructed, ready for delivery) Owned by Parbarge AS and made available to Marine Subsea under the terms of a 10 year sale and lease back agreement 1 st ranking share pledge (100%) and guarantee from Marine Subsea Caribe Limited in favour of the USD110.5m FRN holders Owned by Parbarge AS and made available to Marine Subsea under the terms of a 10 year sale and lease back agreement 1 st ranking share pledge (100%) and guarantee from Marine Subsea Fjord Limited in favour of the USD136.0m FRN holders 1 st ranking mortgage, 1 st ranking share pledge (100%), 1 st ranking assignment of earnings and insurances and guarantee from Marine Subsea Installer Limited in favour of the USD110.5m FRN holders 1 st ranking assignment of the construction contract (and any other construction / equipment contracts) and post delivery a 1 st ranking mortgage, 1 st ranking share pledge (100%), 1 st ranking assignment of earnings and insurances and guarantee from Marine Subsea Lifter Limited in favour of the USD136.0m FRN holders 1 st ranking assignment of the construction contract and post delivery a 1 st ranking mortgage, 1 st ranking share pledge (100%), 1 st ranking assignment of No change to ownership 1 st ranking share pledge (100%) and guarantee from Marine Subsea Caribe Limited in favour of the Exchange Bond Series I No change to ownership 1 st ranking share pledge (100%) and guarantee from Marine Subsea Fjord Limited in favour of the Exchange Bond Series I 1 st ranking mortgage and assignment of earnings and insurances in favour of Ulstein until payment of Karianne 2 nd ranking mortgage, 1 st ranking share pledge (100%), 2 nd ranking assignment of earnings and insurances and guarantee from Marine Subsea Installer Limited in favour of Exchange Bond Series I (to become 1 st ranking as appropriate on release by Ulstein), 1 st ranking assignment of the construction contract and post delivery a 1 st ranking mortgage, 1 st ranking share pledge (75%), 1 st ranking assignment of earnings and insurances and guarantee from Marine Subsea Lifter Limited in favour of Exchange Bond Series I 1 st ranking assignment of the construction contract or any subsequent contracts, 1 st ranking share pledge (100%) and a guarantee from Marine 22

24 Vessel / Entity Current Security & Beneficiary Proposed Security & Beneficiary earnings and insurances and guarantee from Marine Subsea Worker Limited in favour of the USD110.5m FRN holders Subsea Worker Limited, and post final payment to Jaya (and transfer of title) a 1 st ranking mortgage and 1 st ranking assignment of earnings and insurances in favour of Exchange Bond Series I Safe Challenger (not yet delivered) 40% share pledge in favour of the NOK 390 million Convertible Bond holders 40% share pledge in favour of the Exchange Bond Series II TSMarine (not yet acquired) Not applicable Post acquisition a 60% share pledge increasing to 100% in favour of the Exchange Bond Series II 23

25 3.6. Conclusion The Restructuring Plan is the culmination of the Board of Directors seeking an appropriate viable financing solution for Marine Subsea over the bulk of the past year, with lengthy negotiations between advisors and numerous financiers. Bondholder approval of the Restructuring Plan and its implementation is necessary to enable the raising of new long-term financing to secure Marine Subsea s future and transform it into becoming an established provider of subsea well-intervention and offshore services to major E&P companies. On the basis of a successful completion of the Restructuring Plan and satisfaction of the conditions precedent to the export-credit backed facilities, the Board of Directors is confident that Marine Subsea will be fully funded to complete its existing projects and for its assets to become sufficiently cash flow generative to meet its financial obligations. With the FRNs and Convertible Bonds currently trading at low levels in the secondary market, the Restructuring Plan, if approved, provides bondholders with an immediate solution to achieve a full recovery with continued payment of interest. If the Restructuring Plan is not approved, Marine Subsea will very likely not have sufficient liquid assets to make continued payments under the FRN and Convertible Bonds. See further Section 4 - Consequences if Restructuring Plan Not Implemented. On this basis, bondholders face a long and uncertain recovery process. 24

26 4. Consequences if Restructuring Plan Not Implemented As noted above, implementation of the Restructuring Plan is critical for Marine Subsea to be able to raise new long-term financing. If the Restructuring Plan is not approved by a voting majority at the meetings of each of the FRN and Convertible Bond holders, then the following consequences will or are highly likely to occur: I. Marine Subsea will be unable to continue as a going concern; II. Marine Subsea will be unable to retain key senior management and operational staff; III. The offer of USD million in aggregate debt financing from Eksportfinans ASA and Standard Bank Plc as lenders under guarantees from Garanti-instituttet for eksportkreditt and Standard Bank Plc, to deliver and deploy the Sarah and Karianne vessels will be cancelled; IV. Marine Subsea will be unable to generate sufficient cash to continue to meet future coupon payments due on its USD million FRN February Bond, USD million FRN June Bond and NOK 390 million Convertible Bond Issue; V. Marine Subsea will be unable to generate sufficient cash to repay or otherwise be in a position to re-finance its USD million FRN February Bond, USD million FRN June Bond and NOK 390 million Convertible Bond; VI. Marine Subsea will be unable to honour its vessel construction contracts with Ulstein for the Sarah (YNO 283) and Karianne (YNO 287) well-intervention vessels, with Jaya for the Worker (#7) barge, and with Yantai for the Lifter (YRS 221) barge; VII. Marine Subsea will be unable to take delivery of the Sarah and Karianne vessels, thereby failing to fulfil or monetise its 10 year take or pay off-take contracts with Sonangol; VIII. Marine Subsea will be unable to continue as a 40% joint venture partner in the Safe Challenger project with Consafe MSV AB and Sonangol (including the re-purchase of its shareholder loan from Yantai); IX. Marine Subsea will be unable to complete its proposed 60% acquisition (for a nominal sum) of the vessel contracting company TSMarine ; and X. Marine Subsea will be unable to take a 40% equity participation in the potential Drillship project with Tsakos Energy Navigation and Sonangol. 25

27 5. Current Operations & Future Business Plan 5.1. Well-Intervention Vessels Marine Subsea has a 10-year take or pay lease contract with Sonangol in respect of the Sarah well-intervention vessel. It also has a agreed a similar 10-year contract for the Karianne vessel, pending the approval of the Restructuring Plan and thereby providing Sonangol with a 25% equity interest in the vessel s holding company (Marine Subsea Karianne Ltd) as in the case of the Sarah (Marine Subsea Sarah Ltd). Sonangol s financial backing, achieved through the relationships of Marine Subsea s founding shareholders, Mårten Rød and Gian Angelo Perrucci, is therefore critical to Marine Subsea s financial future. In return, Sonangol gains access to two high specification multi-purpose well-intervention vessels providing it with the means to increase levels of production and profits from oil fields in Angola s territorial waters. Sarah s initial daily lease rental is set at USD135,000 and Karianne s at USD149,500. The daily rental rates under the two contracts will increase annually by the 12 month USD Libor rate on the 1st of January each year plus 2%. Sonangol is obligated under each contract to pay the daily rental rates for a minimum of 20/21 days per month up to a maximum of 250 days per annum. Sonangol can terminate the contracts but are required to pay Marine Subsea this minimum amount through the term of the contracts subject to reasonable efforts by Marine Subsea to secure alternative work and reimburse a portion of the rates obtained to Sonangol. Marine Subsea is however permitted to market the vessels to other E&P companies for spot and contract work with these days being deducted from the amount Sonangol is contractually obliged to pay (Sonangol has a right to match). To the extent these earnings exceed the revenues of Sonangol contracts it will provide Marine Subsea with up-side to its base case business plan. The Sarah and Karianne well-intervention vessels are designed to perform maintenance and installation work to wells which have been drilled into the sea floor, with the primary objective of improving oil recovery. The vessels will be equipped with a remotely operating vehicle ( ROV ) and a lubricator to access the well bore to perform remediation work. Assisting with the commissioning of the vessels and equipment will be On & Offshore, providing operational management expertise and Marine Subsea s specialised engineering subsidiary, Lewis Ltd. 26

28 Figure 1: Well-intervention vessels (Sarah / Karianne) Wilhelmsen Ship Management ( Wilhelmsen ) will provide the operational staff (e.g. captain, electrician, etc.) to sail and position the vessels for working on wells or installations. Wilhelmsen has a 150-year history owning and operating merchant vessels with approximately 175 vessels currently under technical management. Their services are to be provided under an industry standard contract. Figure 2: Key features of well-intervention vessels Length: 120m Width: 25m Deck Area: 1,470m 2 Accommodation: 100 Derrick/Tower: 140t Deck Crane: 150t DP3 2 ROV Systems for 3,000m Capability to take onboard Riser-less Subsea Lubricator Heave-compensated down to 2,500m 27

29 5.2. Management s view on well-intervention market conditions Well-intervention services involve the maintenance and repair of wellbore equipment, improvement in well diagnostics and/or altering a well s geometry with the aim of improving or extending production levels. The global installed base of operational subsea oil wells has grown to over 3,000 wells as E&P companies have sought to develop deeper water wells. Generally, the older the well, the more likely the need for well-intervention to maintain and extend the well s useful life. The North Sea is the largest market for subsea well-intervention, whilst the majority of deepwater intervention demand comes from the off-shore oil fields of West Africa, the Gulf of Mexico and Brazil. Angola in West Africa has currently approximately 200 operational subsea wells, and the number is expected to increase dramatically over the next decade. Well-intervention services have historically been provided by mobile drilling units but in recent times the market has shifted towards purpose built multifunctional monohull vessels. The multifunctional Sarah and Karianne vessels will rank at the higher end of the currently available monohull well-intervention vessels, able to perform deepwater intervention, Inspection, repair and maintenance ( IRM ), ROV, survey and installation work. The Sarah and Karianne vessels will provide Sonangol and other E&P companies with a cost-effective solution to subsea wellintervention compared to a semi-submersible drilling platform, with typically a shorter operation period and lower overall daily cost. In addition, the partnership with Sonangol and the access to infrastructure and local content in Angola should provide the potential for premium day rates. Currently, all segments of the offshore vessel market are under pressure due to weaker oil company demand and due to newbuild activity. Accordingly, Marine Subsea expects dayrates to remain weak over the next months. In this period, take or pay contract with Sonangol will support operations and we do not expect to earn rates in excess of the guarantee. Marine Subsea is however in the process of working with Sonangol and several of the international operators in West Africa. Management sees an increasing need for deepwater services on the back of a growing and aging base of subsea wells with a lack of credible local competition with access to infrastructure and local content. Management therefore expects to be able to lift earnings above the Sonangol take or pay contract in the medium term. 28

30 Figure 3: Angolan Operational Base of Subsea Wells by Water Depth Source source: Infield Systems Limited 29

31 5.3. Acquisition of TSMarine In order to enhance its subsea intervention marketing and service execution, Marine Subsea is seeking to acquire for a nominal sum (GBP1,800), 60% of the shares in TSMarine, a newly established entity to own the European and West African operational team and contracts of TSMarine (Contracting) Limited. Based on current budgets, the total payment for the remaining 40% of the shares will be approximately GBP 14.0 million compared to total EBITDA for the period of GBP 28.0 million. Headquartered in Aberdeen, Scotland and previously a global provider of subsea well-intervention and decommissioning services, TSMarine (Contracting) Limited was acquired in early 2008 by 3i and ABN AMRO Merchant Banking for GBP 53.0 million. The acquisition subsequently proved unsuccessful owing to problems with the construction of two vessels in Spain, resulting in a default under its debt financing facilities provided by Royal Bank of Scotland. The previous business is now in the process of being liquidated. TSMarine will be established through a management buyout led by Alasdair Cowie, the former CEO of TSMarine (Contracting) Limited. Its business plan will be predicated on project execution (engineering and management) in the North Sea and West Africa, leasing (rather than owning) of vessels on short- to medium-term contracts and marketing activities. The acquisition of TSMarine will provide Marine Subsea with a number of strategic and financial advantages: I. Complementary operational and engineering capabilities to support the operations of the Sarah and Karianne; II. Accredited and transferable health and safety policies and procedures; III. A strengthened marketing organisation with a view to securing a broader activity base for the deployment of Marine Subsea s fleet of vessels and barges; and IV. Cost synergies and dividends. 30

32 Figure 4: Overview of TSMarine s operations TSMarine will be a standalone company operated on an arms-length basis but its employees will be operationally integrated with Marine Subsea s team on a project to project basis. Marine Subsea will control its Board of Directors with two of the three board members. The 40% of shares not owned by Marine Subsea will initially be held by TSMarine management and employees before being compulsorily acquired by Marine Subsea in equal parcels in 2012, 2013 and 2014 at an acquisition multiple of 5.25x earnings before interest tax, depreciation and amortisation. Based on current budgets the total payment for the remaining 40% of shares will be approximately GBP 14.0 million which is anticipated to be funded largely by dividends received from TSMarine. Closing of the acquisition is scheduled to take place 5 working days after implementation of the Restructuring Plan and drawdown of the Sarah export-credit facility. At closing TSMarine will own no vessels and will be debt free except for shareholder loans from Marine Subsea and Alasdair Cowie for GBP800,000 and GBP100,000 respectively. The acquisition may require additional investment by Marine Subsea of up to GBP 2.0 million to fund TSMarine s working capital needs in the first quarter of 2010 with all shareholder loans expected to be repaid by end of TSMarine currently has contracted work for 2009 and is positive on the prospects for This work includes construction support, IRM and decommissioning work, being part of a multi-client operation. The vessel used is REM Poseidon, owned by REM Offshore. Future chartering of 31

33 vessels will be dependent on securing adequate work at profitable margins, a summary of TSMarine s forecast future performance is shown below. Table 7: TSMarine - summary forecast financial information GBP million Q3 Q4 2009F 2010F 2011F 2012F Revenue EBITDA Capex (0.3) (0.8) (1.6) (1.7) Total Assets

34 5.4. Barges Marine Subsea is in the process of building a fleet of five support / accommodation barges, three of which have already been delivered and are income-producing, while the other two will be delivered in the fourth quarter of Marine Subsea has use of the Caribe and Fjord under sale and leaseback arrangements and owns the Installer. The Lifter and Worker barges are ready for delivery from Yantai and Jaya, respectively, with Sonangol in the process of agreeing to take the Lifter on a 5-year contract (post delivery) in return for receiving a 25% shareholding in the barge s holding company (subject to approval of the Restructuring Plan). Marine Subsea is also currently bidding on a number of charters with E&P companies to deploy the Worker barge once delivered. Table 8: Barges - summary of the barges and their contract terms is as follows Vessel: Type: Shipyard: Contract Details: Expiry Date: Caribe YRS 205 Barge Yantai, China Chevron, Angola months June 2010 Fjord H 7030 Barge Batamec, ENI, Congo x 1 years March 2011 Indonesia Installer Jaya 6 Barge Jaya, Singapore Pemex, Mexico x 6 months December 2009 Lifter YRS 221 Barge Yantai, China Sonangol 5 years (contract pending) December 2014 (contract pending) Worker Jaya 7 Barge Jaya, Singapore Unit name Type Yard Caribe Delivery 2008 LOA Beam Accommodation Mooring Ballasting System Helideck Steel Loaded Draft Deadweight Accommodation barge Yantai Raffles, PR China 102 metres 30 metres 349 people: 76 x 4-man; 19 x 2-man; 7 x 1-man 8-point wire 1,200 metres (3,937 feet) Seven sea water ballast tank totalling 4300m 3. The ballast water enters every ballast tank through hydrants and hoses above main deck. Ballast water direct discharge overboard. S16N 0 degrees C 4.30 metres 7,000 tons Clear deck space 822 m 2 Crane Deck crawler crane of 150 tonnes Fifi Contract Compies with ABS rules and IMO SOLAS code. Helideck in accordance CAP 437 regulations. Working for Saipem to Cabinda Gulf, Angola, for two years to June Figure 5: Caribe 33

35 Unit name Type Yard Fjord Delivery 2008 LOA Beam Accommodation Accommodation barge PT. BATAMEC Shipyard, Batam, Indonesia 100 metres 30.5 metres 300 people: 66 x 4-man; 12 x 2-man; 8 x 1-man Mooring 8-point wire 1,500 metres (4,921 feet) Ballasting System 2 self-priming centrifugal ballast pumps each 500m 3 Helideck Steel Loaded Draft 5 metres Clear deck space 1,800 m 2 Crane Fifi Contract S16N In compliance with Classification Society Anhoist 75 tons Compies with ABS rules and IMO SOLAS code. Helideck in accordance CAP 437 regulations. Working for Diamond International to ENI Congo for three years plus 2 x 1 year options. Figure 6: Fjord Unit name Type Yard Installer Delivery 2008 LOA Beam Accommodation Mooring Ballasting System Helideck Steel Accommodation barge Jaya Shipbuilding & Engineering Pte Ltd, Batam metres 31.7 metres 300 people: 66 x 4-man; 12 x 2-man; 8 x 1-man 8-point wire 1,200 metres (3,937 feet) 2 self-priming centrifugal ballast pumps each 500m 3 /hr. 10 SW Ballast Tanks fitted M18 Mild steel plates Loaded Draft 4.50 metres Deadweight 8,608 tons Clear deck space 1,600 m 2 Crane Fifi Contract 300 tonnes Huisman pedestal mounted Compies with ABS rules and IMO SOLAS code. Helideck in accordance CAP 437 regulations. Working for Condux S.A. de C.V. to Pemex, Mexico for 6 months plus 3 x 6 month options. Figure 7: Installer Unit name Lifter Type Accommodation barge Yard Yantai Raffles, PR China Delivery 4Q2009 LOA 102 metres Beam 30 metres Accommodation 400 people: 88 x 4-man; 18 x 2-man; 12 x 1-man Mooring 8-point wire 1,200 metres (3,937 feet) Ballasting System 3 sets x 300m 3 /h x 35 mwc AC electric driven, vertical, single stage, centrifugal pumps. Ballast water distributed via a ring main. Main suction line and stripping line provided for each tank. Helideck S16N Steel 0 degrees C Loaded Draft 4.30 metres Deadweight 7,000 tons Clear deck space 822 m 2 Crane 150 tonne crawler crane Fifi Compies with ABS rules and IMO SOLAS code. Helideck in accordance CAP 437 regulations. Contract 5 year contract with Sonangol pending Figure 8: Lifter 34

36 Unit name Type Yard Delivery LOA Beam Accommodation Mooring Ballasting System Helideck Steel Loaded Draft Worker Accommodation barge Jaya Shipbuilding & Engineering Pte Ltd, Batam 4Q metres 31.7 metres 300 people: 66 x 4-man; 14 x 3-man; 8 x 1-man 8-point wire 1,400 metres (4,593 feet) 2 self-priming centrifugal ballast pumps each 500m 3 /hr. 10 SW Ballast Tanks fitted M18 Mild steel 4.30 metres Deadweight 8,608 tons Clear deck space 1,300 m 2 Crane Fifi Contract 300 tonnes Huisman pedestal mounted Compies with ABS rules and IMO SOLAS code. Helideck in accordance CAP 437 regulations. No contracted yet awarded Figure 9: Worker 5.5. Management s view on accommodation market conditions Support barges are broadly used 70% of the time for repair and maintenance of existing offshore platforms, 20% for hook-up of new platforms and 10% for decommissioning of wells. The barges can work in up to 300m water depth in benign regions. The market is however not as transparent as for example the rig market, primarily because there are few players and the oil company projects can often be managed in alternative ways. In general, day rates are currently under pressure due to softer demand from oil companies, especially in the Gulf of Mexico and the Far East. Marine Subsea s primary focus is in West Africa. Here management believes that the lack of local supply and the number, size and economics of the ongoing and planned oil company projects are such that it can continue to secure work at targeted day rates. Management expects contract lengths to vary from 3-6 months to up to 5 years. 35

37 5.6. Safe Challenger Joint Venture Marine Subsea, Consafe MSV AB and Sonangol are joint venture partners, with 40%, 40% and 20% shareholdings respectively, in Marine Subsea & Consafe Ltd, established for the construction and deployment of a semi-submersible crane vessel named the Safe Challenger. Consafe MSV AB is controlled by former Marine Subsea board member Jan Christer Ericsson and Yantai in China, who has the construction contract to build the Safe Challenger. The project has been subject to technical challenges and construction delays with Yantai informing Marine Subsea in May 2009 that it was unable to deliver the Safe Challenger to specification by its scheduled delivery date of July In June 2009 agreement was reached with Yantai to construct the Safe Challenger to a revised specification for delivery in the 4 th quarter of In parallel, Marine Subsea sold its USD 40.5 million shareholder loan investment in Marine Subsea & Consafe Ltd to Yantai for a consideration of USD 12.5 million, with a call option to buy the loan plus accrued interest back for USD 12.5 million in Following delivery of the Safe Challenger it is to be deployed with Sonangol under a 5 year, USD200,000 / 250 days per year backstop contract. Once the Safe Challenger is operational with Sonangol it is expected to provide Marine Subsea with a source of cash flow through repayment of the intercompany loan and dividends. This cash flow has been incorporated into the base case financial forecasts contained in section 0. Figure 10: Key features of Safe Challenger Length: m Beam: 81m Depth: 12m Height 39m keel to main deck Deck Box: 81m x 81m x 9m Transit Draft: 10.5m Operation Draft: 20m Crane: 2,400 (2 x 1,200 t) Living Quarter: 618 persons Station keeping: DPS-2 36

38 5.7. Drill Ship Project Marine Subsea has the opportunity to take a 40% equity interest in a joint venture with Sonangol and Tsakos Energy Navigation, one of the world s leading maritime groups, for the construction of a drillship capable of operating in water depth of 10,000 feet and to drill to a depth of 40,000 feet. The project remains subject to financing and is to be underpinned by a 5 year backstop contract with Sonangol. Competitive tenders are currently being sought from leading shipyards for the vessels construction, expected to commence in 2010 with delivery in Marine Subsea has no financial commitment to the project and given its uncertainty, no cash flows associated with the project or the vessel s ultimate deployment have been included in the financial forecasts contained in section Acquisition of On & Offshore AS Marine Subsea entered into an agreement to acquire 92.2% of the shares in On & Offshore by May 2010, subject to financing, from existing shareholders. On & Offshore provides operations, manning and contracting services which would complement the value proposition of the Marine Subsea group. The acquisition price is fixed at USD 24 million, but will be reduced by dividends paid in interim period. In the event that Marine Subsea is unable to secure the necessary finance to meet this acquisition price, it must pay a drop-dead fee of USD 3 million to the existing shareholders. On & Offshore is listed on the Norwegian OTC market, has 160 employees and generated turnover of USD 20 million in

39 6. Historical Financials Balance Sheets USD 000s 31-Dec Dec Jun-09 ASSETS Non-current assets Property, plant and equipment 135, , ,518 Intangible assets - 16,371 16,533 Investment in joint venture 12,496 15,023 16,892 Non-current receivables 41,115 50,913 56,835 Total non-current assets 189, , ,778 Current assets Inventories Trade and other receivables 13,466 21,360 27,626 Cash and cash equivalents 222,278 41,112 9,688 Total current assets 235,744 63,375 38,092 TOTAL ASSETS 425, , ,870 EQUITY AND LIABILITIES Shareholders' equity Share capital Share premium 50,882 60,207 60,207 Other reserves Retained earnings 3,307 23,290 20,578 Total shareholders equity 55,134 84,447 81,734 Minority interest in Equity - (5) (32) Total Equity 55,134 84,442 81,702 Other long-term liabilities Interest bearing-debt 365, , ,203 Deferred tax liabilities 397 4,549 4,815 Retirement benefit obligation Non-current liabilities - 6,305-1 Extracted from published audited annual report and unpublished unaudited interim report 38

40 Total other long-term liabilities 365, , ,723 Current liabilities Trade and other payables 4,216 14,519 21,756 Income tax liabilities - 1,286 2,689 Total current liabilities 4,216 15,805 24,445 TOTAL EQUITY AND LIABILITIES 425, , ,870 39

41 6.2. Income Statements USD 000s 31-Dec Dec-08 6 mths to 30-Jun-09 Sales - 47,221 46,483 Gain on sale of assets - 16,242 - Total revenue - 63,463 46,483 Cost of sales - 17,850 33,778 Employee benefit expenses 1,495 5,020 1,862 Other operating expenses 5,511 17,327 4,260 Impairment - 7,418 - Depreciation and amortisation Total operating expenses 7,034 48,114 40,876 Net operating profit (loss) (7,034) 15,349 5,607 Share of loss of associates (2) (9) (27) Financial income 26,185 18, Financial expenses (15,359) (9,107) (3,002) Net financial income (loss) 10,827 9,784 (2,908) Net profit (loss) before income tax 3,791 25,124 2,672 Income tax expense 397 5,145 2,278 Net profit (loss) 3,394 19, Attributable to: Equity holders of the company - 19, Minority interest - (5) (27) - 19,

42 6.3. Cash Flow Statements USD 000s 31-Dec Dec-08 6 mths to 30-Jun-09 Cash generated from operations Net profit (loss) before income tax 3,791 25,124 (462) Depreciation, amortisation and impairment 28 7, Amortisation of debt issuance cost 9,693 2,567 1,971 Change in fair value ( bond loan and convertible bond loan 4,434 (10,808) - Share based payment Exchange gain / (loss) (16,760) (5,026) 3,134 Changes in assets and liabilities Trade and other receivables (13,466) (18,041) (12,064) Trade and other payables ,607 12,880 Interest paid (4,860) - - Taxes paid - (243) (875) Net cash flow from operating activities (15,646) 18,097 5,560 Cash flow from investing activities Investment in property, plant and equipment (102,151) (141,061) (35,953) Investment in joint venture and non-current receivables (53,611) (2,528) (1,868) Net cash flow from investing activities (155,762) (143,589) (37,822) Cash flow from financing activities Proceeds of issuance from ordinary shares (net of share issuance cost) 50,970 9,329 - Proceed from issuance of bond loans (net of debt issuance cost) 291,682 (53,500 - Proceeds from issuance of convertible loan (net of debt issuance cost) 65, Net cash flows from financing activities 408,537 (44,171) - Cash and cash equivalents at 1 January ,278 41,112 Exchange (losses)/gains on cash and cash equivalents 18,963 (11,503) 838 Net (decrease)/increase in cash and cash equivalents 203,299 (169,663) (32,262) Cash and cash equivalents at 31 December 222,278 41,112 9,688 41

43 6.4. Performance in 2008 The barges Caribe and Fjord were sold to Parbarge AS under sale and leaseback transactions (refer to Table 9 below for summary of terms) and entered operation in 2008 generating income under 2-year and 3-year charter contracts with Chevron and ENI, respectively. In the year Marine Subsea generated operating revenues of USD 63.5 million with operating expenses amounting to USD 48.1 million. Financial income for the year was USD 18.9 million providing Marine Subsea with a net profit after tax of USD 20.0 million. Total revenues include USD 16.2 million in gains realised from the sale of the Caribe and Fjord barges with these units leased back to the company on 10 year charters. Total capitalised expenditures for the year were USD million, primarily relating to the payments made in respect of the new vessel building programme. Marine Subsea s total assets as at 31 December 2008 amounted to USD million, with total cash and cash equivalents of USD 41.1 million. Marine Subsea raised USD 9.3 million in a new equity issue in Table 9: Summary terms of sale and leaseback transactions Caribe Fjord Net proceeds on sale to Parbarge (USDm) Lease Payments (USD per day) years 1 to 3 19,750 19,750 years 4 to 6 14,750 14,750 years 7 to 10 9,750 9,750 years 10 to 15 7,000 7,000 Parbarge's put option (USDm) year year Marine's call option (USDm) year year Performance in first half of 2009 Installer was put into operation in the Gulf of Mexico on a 6 month charter with Pemex commencing in June Marine Subsea s revenues for the half year were USD 46.5 million with operating expenses of USD 40.9 million, resulting in an operating profit of USD 5.6 million. The net profit after tax for the half year was USD 0.4 million. Total capitalised expenditures for the half year were USD 37.8 million, mainly related to the new vessel building programme. Marine Subsea s total assets as at 30 June 2009 amounted to USD million with cash and cash equivalents of USD 9.7 million. Total liabilities stood at USD million including interest bearing debt of USD million. 42

44 7. Financial Forecasts Detailed below is the 10-year forecast financial performance of the Marine Subsea group. The forecasts reflected below have been prepared on a cash flow basis and not in accordance with Norwegian GAAP. These forward looking projections are based on management estimates and assumptions, and by their nature, are subject to significant risks and uncertainties. Actual results, performance or achievements may be materially different from those expressed below. Attention should also be paid to the Risk Factors contained in Appendix V Risk Factors. A number of the assumptions made in preparing the financial forecasts include: I. Lease payments from Sonangol for the Sarah and Karianne to be the minimum contracted daily rate and utilisation of 250 days; II. Barges to be on charter for 365 days per year consistent with the Caribe, Fjord and Installer charters with one month gap between current and new contract; III. Operating costs for all vessels and barges are budgeted on a 365 day per annum basis, to increase by 2% per annum; IV. Working capital requirements include taxes payable and 30 day payment terms on charter payments from customers; V. Maintenance capital expenditure is included in operating expenses; VI. Accrued and unpaid interest on intercompany loans between Marine Subsea and its subsidiaries is capitalised; VII. Excess cash flow generated in operating subsidiaries, over and above their debt service, debt service reserve and minimum operating cash requirements, as applicable, is transferred to Marine Subsea via intercompany loan interest payments, intercompany loan principal repayments or dividends (subject to in the case of Marine Subsea Sarah Limited and Marine Subsea Karianne Limited full compliance with the covenants of the export-credit backed facilities); VIII. The final payment to Ulstein in respect of the Karianne to be hedged via a forward foreign exchange contract maturing in October 2010; IX. Average NOK/USD exchange rates of 6.26 for 2009 and 5.70 thereafter; and X. 3-month and 12-month USD Libor rates based on independent economic forecasts. 43

45 Table 10: Financial forecasts for Marine Subsea without consolidation of Sarah and Karianne 44

46 Table 11: Selected Group financial ratios with consolidation of Sarah and Karianne 45

47 Table 12: Breakdown of Revenue and EBITDA by group entity 46

48 8. Conditions Precedent Implementation and closing is subject to the following conditions precedent: I. Approval by the requisite majority of bondholders of each of the USD million FRN February Bond, USD million FRN June Bond and NOK 390 million Convertible Bond in accordance with their voting procedures (if one or more bondholder votes are not carried then all votes will be deemed void); II. Final agreed form of the Loan Agreement for the Exchange Bond Series I and Series II, all security documentation and any ancillary documents thereto; III. Release of all necessary security and guarantees by Norsk Tillitsmann, acting for the holders of the USD million FRN February Bond, USD million FRN June Bond and NOK 390 million Convertible Bond, with relevant security to be subsequently secured for the benefit of the export credit lenders to satisfy the conditions precedent to drawdown of the Sarah and subsequently the Karianne export-credit backed facilities; IV. Conversion and extinguishment of the FRN Bonds into Exchange Bond Series I at the applicable exchange ratio; and V. Conversion and extinguishment of the Convertible Bonds into Exchange Bond Series II at the applicable exchange ratio and foreign exchange rate. Closing will be designed so that (subject to all other conditions precedent having been met or waived) the conversion and extinguishment of the FRN Bonds and Convertible Bonds, the release or assignment of all existing security and the entering into of the new security will automatically become effective at the moment of drawdown of the USD million Sarah export-credit backed facility provided by Eksportfinans ASA and Standard Bank Plc as lenders under guarantees from Garanti-instituttet for eksportkreditt and Standard Bank Plc (which will occur substantially concurrently with the delivery of the Sarah). The USD million Sarah export-credit backed facility described above will be available for drawdown for a period of up to the 11 th of December The availability and drawdown of the Sarah and Karianne export-credit backed facilities however remain subject to the fulfilment of multiple conditions precedent, each in form and substance satisfactory to Eksportfinans ASA and Standard Bank Plc. While Marine Subsea is confident that these conditions precedent will be addressed as quickly as possible, neither Marine Subsea nor Eksportfinans ASA nor Standard Bank Plc make any representation as to if or when such conditions precedent will be satisfactorily completed to allow for drawdown. A complete list of all such conditions precedent is beyond the 47

49 scope of this document, but a summary of the types of conditions precedent which remain outstanding are as follows: I. Approval of the Restructuring Plan (in a form and substance satisfactory to Eksportfinans ASA and Standard Bank Plc) by the requisite majority of bondholders; II. Satisfaction with the final loan and security documentation for the Exchange Bond Series I and Exchange Bond Series II to come into effect on the exchange date, as prepared by Norsk Tillitsmann in accordance with their approved term sheets; III. Satisfaction of all documentary conditions precedent to the export-credit financings including various borrower resolutions and the completion and signing of all transaction documents, finance documents and security documents; IV. Clarification and amendment (where necessary) of various provisions of the Sarah and Karianne lease contracts with Sonangol, including the novation of the Sarah lease contract to Sarah; V. Determination of the protocol of delivery of the Sarah and Karianne vessels by Ulstein Verft AS and their acceptance by Sonangol; VI. Satisfaction of all security arrangements to the export-credit financings including: a. written acknowledgement by Sonangol acknowledging the transaction security; b. evidence that each construction contract has been novated to each respective borrower; c. evidence that a first priority mortgage has, or will upon the relevant advance being made, be granted over the Sarah and Karianne vessels for the benefit of the exportcredit lenders; d. evidence that all other relevant security has, or will upon the relevant advance being made, be granted in favour of the export-credit lenders; VII. Evidence that no operative documents have been terminated, cancelled or rescinded and remain in full force and effect; VIII. Verification of adequate insurances over the Sarah (and Karianne) vessels; IX. Opening of required bank accounts; X. Receipt of satisfactory legal opinions from Angolan, Cypriot, Norwegian and UK counsel; XI. Customary representations and warranties from each borrower and each other obligor (i.e. Marine Subsea Cyprus Holding Limited and Marine Subsea) being true and accurate; XII. Completion of all know your customer checks; XIII. Evidence that all minimum operating account and debt service reserve account balances will be met; XIV. Evidence that all fees, costs and expenses due from each borrower have been paid or will be paid, and 48

50 XV. Provision of other documents and evidence as appropriate. Once a date is identified upon which all conditions precedent to the Sarah and Karianne (where relevant) export-credit backed facilities are capable of being satisfied in form and substance satisfactory to Eksportfinans ASA and Standard Bank Plc, a date for drawdown of the Sarah facility will be determined between lenders and Marine Subsea which shall occur substantially concurrently with the delivery of the Sarah. This date of drawdown will be communicated to Norsk Tillitsmann and shall become the exchange date for conversion and extinguishment of the FRN Bonds into Exchange Bond Series I and the Convertible Bonds into Exchange Bond Series II and the date of effectiveness for the related loan and security documentation (subject to the post closing acquisition of TSMarine). 49

51 Appendix I Corporate Structure 50