Prospectus. Songa Offshore SE

Transcription

1 Prospectus Songa Offshore SE (a European public company limited by shares organised under the laws of the Republic of Cyprus) Listing of (i) 610,000,000 New Shares issued in connection with a Private Placement completed in December 2013 at a Subscription Price of NOK 2.50 per New Share and (ii) Convertible Bonds issued in a USD 150 million convertible unsecured subordinated bond issue with maturity in December 2019 Subsequent Offering and listing of up to 61,000,000 Offer Shares at a Subscription Price of NOK 2.50 per Offer Share with Subscription Rights for Eligible Shareholders This prospectus (the Prospectus ) relates to, and has been prepared in connection with (i) the listing (the Listing ) on Oslo Børs, a stock exchange operated by Oslo Børs ASA ( Oslo Børs ), of 610,000,000 new shares, each with a nominal value of EUR 0.11 (the New Shares ) in Songa Offshore SE (the Company, and together with its consolidated subsidiaries, Songa Offshore or the Group ) issued in connection with a private placement (the Private Placement ) conducted on 25 November 2013, and which was approved by an extraordinary general meeting in the Company on 18 December 2013 at a subscription price of NOK 2.50 per New Share, (ii) the listing on Oslo Børs of bonds (the Convertible Bonds ) issued by the Company on 23 December 2013 in a 4.00% USD 150 million convertible unsecured subordinated bond issue with maturity in December 2019 (the Convertible Bond Issue ), and (iii) a subsequent offering (the Subsequent Offering ) and listing on Oslo Børs of up to 61,000,000 offer shares, each with a nominal value of EUR 0.11, in the Company (the Offer Shares ) at a subscription price of NOK 2.50 per Offer Share (together with the subscription price in the Private Placement, the Subscription Price ). The existing shareholders of the Company holding less than 110,000 Shares as at the end of 22 November 2013, as registered in the Norwegian Central Securities Depository (the VPS ) on 27 November 2013 (the Record Date ), who were not allocated New Shares in the Private Placement and who are not resident in a jurisdiction where such offering would be unlawful, or would (in jurisdictions other than Norway) require any prospectus filing, registration or similar action (the Eligible Shareholders ), are being granted nontransferable subscription rights (the Subscription Rights ), that, subject to applicable law, provide the right to subscribe for and be allocated Offer Shares at the Subscription Price. The Subscription Rights are non-transferable. Subscription Rights that are not used to subscribe for Offer Shares before the expiry of the Subscription Period will have no value and will lapse without compensation to the holder. Investing in the Company and the Shares (including but not limited to the Offer Shares) involves material risks and uncertainties. See Section 2 Risk Factors and Section 4 Cautionary Note Regarding Forward- Looking Statements. Joint Lead Managers and Joint Bookrunners Fearnley Securities AS Swedbank This Prospectus is dated 4 February 2014

2 Important information Please refer to Section 18 Definitions and glossary of terms for definitions of terms used throughout this Prospectus, which also apply to the preceding pages. This Prospectus has been prepared in order to provide information about Songa Offshore and its business in relation to the listing of the New Shares to be issued in the Private Placement, the listing of the Convertible Bonds and the offering and listing of Offer Shares in the Subsequent Offering, and to comply with the Norwegian Securities Trading Act of June 29, 2007 no. 75 (the Norwegian Securities Trading Act ) and related secondary legislation, including EC Commission Regulation (EC) no. 809/2004 implementing Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive) regarding information contained in prospectuses (the Prospectus Directive ). This Prospectus has been prepared solely in the English language. The Company has furnished the information in this Prospectus. The Company has engaged Fearnley Securities AS and Swedbank Norway, part of Swedbank AB (publ) as joint lead managers and joint bookrunners (the "Managers") for the Listing, the Private Placement, the listing of the Convertible Bonds on Oslo Børs and the Subsequent Offering. Neither the Company nor any of the Managers has authorised any other person to provide investors with any other information related to the Listing, the Private Placement or the Subsequent Offering and neither the Company nor any of the Managers will assume any responsibility for any information other persons may provide. Unless otherwise indicated, the information contained herein is current as of the date hereof and the information is subject to change, completion and amendment without notice. In accordance with Section 7-15 of the Norwegian Securities Trading Act, every significant new factor, material mistake or inaccuracy that is capable of affecting the assessment of the Shares arising after the time of approval of this Prospectus and before the date of listing of the New Shares and the Offer Shares on Oslo Børs will be published and announced promptly as a supplement to this Prospectus. Neither the publication nor distribution of this Prospectus shall under any circumstances create any implication that there has been no change in the Group s affairs since the date hereof or that the information herein is correct as of any time since its date. An investment in the Company involves inherent risks. Potential investors should carefully consider the risk factors set out in Section 2 Risk factors in addition to the other information contained herein before making an investment decision. An investment in the Company is suitable only for investors who understand the risk factors associated with this type of investment and who can afford a loss of their entire investment. Investors should be aware that they may be required to bear the financial risks of an investment in the Shares for an indefinite period of time. The contents of this Prospectus are not to be construed as legal, business or tax advice. Each prospective investor should consult with its own legal adviser, business adviser and tax adviser as to legal, business and tax advice. In the ordinary course of their respective businesses, the Managers and certain of their respective affiliates have engaged, and will continue to engage, in investment and commercial banking transactions with the Group. The Shares are subject to restrictions on transferability and resale under applicable securities legislation of certain jurisdictions and may not be transferred or resold except as permitted under applicable securities laws and regulations. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. Without limiting the manner in which the Company may choose to make any public announcements, and subject to the Company s obligations under applicable law, announcements relating to the matters described in this Prospectus will be considered to have been made once they have been received by Oslo Børs and distributed through its information system. The distribution of this Prospectus and the offer and sale of the Offer Shares in certain jurisdictions may be restricted by law. The Company and the Managers require persons in possession of this Prospectus, in possession of Subscription Rights or considering to subscribe for Offer Shares to inform themselves about, and to observe, any such restrictions. This Prospectus does not constitute an offer of, or an invitation to subscribe or purchase, any of the Offer Shares in any jurisdiction in which such offer or subscription or purchase would be unlawful. No one has taken any action that would permit a public offering of the Shares, the Subscription Rights or the Offer Shares to occur outside of Norway. Furthermore, the restrictions and limitations listed and described herein are not exhaustive, and other restrictions and limitations in relation to the Private Placement, the Subsequent Offering and/or the Prospectus that are not known or identified by the Company and the Managers at the date of this Prospectus may apply in various jurisdictions as they relate to the Prospectus. For other selling and transfer restrictions, see Section 15 Restrictions on sale and transfer of this Prospectus. This Prospectus, the Private Placement, the Convertible Bonds and the Subsequent Offering shall be governed by, and construed in accordance with, Norwegian law. The courts of Norway, with Oslo City Court as legal venue, shall have exclusive jurisdiction to settle any dispute which may arise out of, or in connection with, the Private Placement, the Convertible Bonds, the Subsequent Offering or this Prospectus. ii

3 TABLE OF CONTENTS 1 SUMMARY RISK FACTORS Risks relating to the industry in which the Group operates Risks factors relating to the Group and its business Risks relating to the Group s financial situation Risks relating to the Shares and the Convertible Bonds RESPONSIBILITY FOR THE PROSPECTUS GENERAL INFORMATION Important investor information Presentation of financial and other information Industry and market data Cautionary note regarding forward-looking statements BACKGROUND Announcement of the Refinancing Components of the Refinancing THE PRIVATE PLACEMENT, THE CONVERTIBLE BOND ISSUE, AND THE LISTING General information regarding the Private Placement and the Convertible Bond Issue Information specific to the Private Placement and the Listing Information specific to the Convertible Bond Issue THE SUBSEQUENT OFFERING Overview of the Subsequent Offering Terms of the Subsequent Offering MARKET OVERVIEW Introduction General industry drivers Contract drilling and rig classification Global floater fleet evolution Floater fleet by company Midwater rig supply and key market players Global midwater utilisation/demand Global midwater dayrates BUSINESS AND GROUP OVERVIEW Overview Songa Offshore s object and business strategy Business overview Corporate information History and development Legal structure of the Group QSMS HSE ( Quality, Safety Management System, Health, Safety and Environment ) policy Property, plant and equipment Research and development and patents Environmental issues Dependence on contracts and licences Material contracts Significant events after the end of the last reporting period Trend information and other factors that may affect the operations of Songa Offshore New products and/or services Basis for statements regarding competitive position Significant external factors iii

4 10 BOARD OF DIRECTORS, MANAGEMENT AND EMPLOYEES Board of Directors Management Loans and guarantees Conflicts of interests and other disclosures Corporate governance Employees SELECTED FINANCIAL INFORMATION General Selected condensed financial information Segment information Statutory auditors OPERATIONAL AND FINANCIAL REVIEW Comments to the financial statements Investments Working capital Significant changes in the Group s financial or trading position since 30 September Capitalisation and indebtedness Capital resources Cash flows Borrowings Restrictions on use of capital Non-current assets SHARES, SHARE CAPITAL AND SHAREHOLDERS MATTERS Description of the Shares and share capital Stock exchange listing Historical development in share capital and number of Shares Major shareholders Outstanding authorisations Shareholders rights Additional rights of shareholders Limitations on the right to own and transfer Shares Dividend policy and payment of dividends General Meetings Alteration of capital Purchase of own shares and redemption Voting rights Pre-emption rights Regulation of dividends Liability of directors Distribution of assets on liquidation Summary of the Company s constitutional documents Cyprus law disclosure obligations Applicable takeover bid regulations Applicable squeeze out and sell out regulations SECURITIES TRADING IN NORWAY Trading of equities and bonds Settlement Information, control and surveillance Shareholder register, the VPS and transfer of Shares Foreign investment in Norwegian shares Disclosure obligations Insider trading Takeover bids Squeeze out and sell out iv

5 15 RESTRICTIONS ON SALE AND TRANSFER General Notices in respect of specific jurisdictions TAXATION Cyprus taxation Redomiciliation to Cyprus in 2009 Exit tax Norwegian taxation of shareholders and bondholders in the Company; overview Norwegian shareholders and bondholders Non-Norwegian shareholders and bondholders Duties on transfer of Shares ADDITIONAL INFORMATION Related party transactions Disputes Incorporation by reference Documents on display Confirmation regarding sources Statements regarding expert opinions DEFINITIONS AND GLOSSARY OF TERMS APPENDICES Appendix 1: Subscription form for the Subsequent Offering Appendix 2: Bond agreement in respect of the Convertible Bonds v

6 1 SUMMARY Summaries are made up of disclosure requirements known as Elements. These elements are numbered in Sections A E (A.1 E.7). This summary contains all the Elements required to be included in a summary for this type of securities and Issuer. Because some Elements are not required to be addressed, there may be gaps in the numbering sequence of the Elements. Even though an Element may be required to be inserted in the summary because of the type of securities and Issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in the summary with the mention of not applicable. Section A Introduction and warnings A.1 Warning to prospective investors Prospective investors should be warned that: this summary should be read as introduction to the prospectus; any decision to invest in the securities should be based on consideration of the prospectus as a whole by the investor; where a claim relating to the information contained in the prospectus is brought before a court, the plaintiff investor might, under the national legislation of the Member States, have to bear the costs of translating the prospectus before the legal proceedings are initiated; and civil liability attaches only to those persons who have tabled the summary including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of the prospectus or it does not provide, when read together with the other parts of the prospectus, key information in order to aid investors when considering whether to invest in such securities. A.2 Consent to use of prospectus by financial intermediaries Not applicable Section B - Issuer B.1 Legal and commercial name Songa Offshore SE, being the group parent company for the companies referred to as Songa Offshore B.2 Domicile, legal form, etc. Songa Offshore SE is a European public company limited by shares organised under the laws of the Republic of Cyprus, with registration number SE 9. 1

7 B.3 Nature of operations and activities Songa Offshore is a group of companies whose principal business is to construct, own and operate offshore drilling rigs to be used in the exploration and production of hydrocarbons. Songa Offshore owns five semisubmersible drilling rigs and has four additional semisubmersible drilling rigs under construction, for planned delivery in 2014 and Three of the existing rigs, and all of the four rigs under construction, are contracted for long term employment in Norwegian waters, with Statoil as charterer. These rigs have an aggregate contract backlog of approximately USD 6.7 billion, with options corresponding to approximately USD 8.2 billion of additional revenues. The two remaining existing rigs are currently on short term employment in South East Asian waters. Songa Offshore intends to sell these rigs to focus on its core business in the Norwegian sector. B.4 Trends In light of the long term contract base for the majority of Songa Offshore s drilling rigs, Songa Offshore is less affected by short term trends in the drilling rig market. In a longer perspective, however, Songa Offshore is exposed to the general trends affecting drilling rigs. Songa Offshore believes that the Norwegian sector drilling market will continue to give good employment opportunities for its drilling rigs in the foreseeable future. B.5 Group description Songa Offshore SE is the group parent company for the companies referred to as Songa Offshore. The group has active subsidiaries incorporated in Cyprus, Norway, Singapore, and Malaysia, as well as branches in Bermuda and Norway. The principal place of business is in Cyprus (Limassol). Songa Offshore also has offices in Norway (Stavanger, Oslo and Bergen), Singapore, Malaysia (Kuala Lumpur), Korea (Okpo), and Vietnam (Ho Chi Min City). B.6 Persons with notifiable interest As of the date of this Prospectus, Songa Offshore has been notified of the following persons with notifiable interest: Perestroika AS, a company controlled by Mr. Frederik W. Mohn, which holds (together with related parties) a total of 54.95% of the shares of Songa Offshore, as latest notified on 22 January 2014; and Kistefos AS, including related companies, which gave notice of holding above 5% on 5 August

8 B.7 Selected historical key financial information The following financial information has been extracted from the audited consolidated financial statements as at and for the years ended 31 December 2012, 2011 and 2010 and the unaudited consolidated interim financial statements as at and for the nine months ended 30 September 2013, incorporated by reference to the prospectus. The selected financial information presented below should be read in conjunction with the financial statements and interim financial statements incorporated by reference to the Prospectus. Nine month period ending 30 September Year ended 31 December (in USD millions) (unaudited) (unaudited) (audited) (audited) (audited) (restated) Statement of comprehensive income Total revenues EBITDA EBIT 50 (55) (256) Profit / loss for the period 20 (87) (305) Statement of financial position Total non-current assets 1,999 2,012 1,992 2,195 1,290 Total current assets Total assets 2,220 3,004 2,739 2,443 1,547 Total equity 959 1, ,154 1,042 Non-current liabilities 934 1,021 1,077 1, Current liabilities Total equity and liabilities 2,220 1,836 2,739 2,443 1,547 Statement of cash flows Operating activities, net Investing activities, net 390 (590) (808) (922) 151 Financing activities, net (369) (329) Net change in cash and (48) (54) 63 equivalents Cash and equivalents at period end, excluding restricted cash Significant subsequent changes Since 11 November 2013, the date of issuing the third quarter 2013 report, Songa Offshore has completed a comprehensive refinancing under which it has raised NOK 1,525 million in new equity through the Private Placement, raised USD 150 million in new bond financing through the Convertible Bond Issue, and re-negotiated terms of its bank and bond arrangements. In addition, as part of re-negotiated contract terms for Songa Offshore s CAT-D rigs, Songa Offshore has repaid USD 111 million of debt owed to Statoil. Songa Offshore has also repaid USD 50 million of debt owed 3

9 to Swedbank. Events under the ordinary course of business have not given significant changes to Songa Offshore s financial condition and operating result since the end of the last reporting period. B.8 Pro forma financial information Not applicable B.9 Profit forecasts Not applicable B.10 Auditor qualifications No qualifications were expressed by auditors in respect of the accounts for 2012, 2011, or B.11 Working capital deficiency In the view of the Company, Songa Offshore does not as of the date of this Prospectus have sufficient working capital for its present requirements, being understood as its requirements over the next minimum 12 months from the date of this Prospectus. Songa Offshore anticipates that it will have an aggregate funding requirement of approximately USD 1.2 billion over the next 12 months to take delivery of the first two CAT-D rigs and to meet its other requirements, including cash buffers. Beyond the first 12 months, Songa Offshore anticipates that it will have a further funding requirement of approximately USD 1.0 billion to take delivery of the last two CAT-D rigs. Songa Offshore expects to debt finance approximately USD 1.0 billion against security in the first two CAT-D rigs, and believes that similar or higher debt financing can be obtained for the last two CAT-D rigs. The amounts in respect of each CAT-D rig will be required to be in place upon the respective delivery dates for each rig, with the first CAT-D rig being due for delivery in the fourth quarter of It is expected that the intended sale of Songa Venus and Songa Mercur will cover the balance of the financing requirement, but no agreement has been concluded for the sale of these rigs. The failure to complete the anticipated debt financing in respect of the CAT-D rigs, or the failure to sell Songa Venus and Songa Mercur at prices deemed satisfactory, would leave a financing shortfall which could have severe implication on Songa Offshore and which could result in the need for significant amounts of additional equity, which may not be available at that time. The Company has not as of today made specific alternative plans to cover such potential shortfall, although under those circumstances alternatives 4

10 may exist to sell one or more of the CAT-D rigs to relieve the Group of its funding requirements, or to sell one or more of the existing North Sea rigs, or to make other financing arrangements. In the event that none of these financing arrangements come in place, it would have a significant negative effect on the Company s financing situation and its ability to continue operations. Section C - Securities C.1 Type and class of securities offered and admitted to trading The securities being offered by means of this Prospectus are 61,000,000 ordinary shares of the Company, referred to as the Offer Shares. The Offer Shares will be registered under the same ISIN number as the Company s existing Shares, being CY and will also be admitted to trading by means of this Prospectus. The securities being admitted to trading by means of this Prospectus are 610,000,000 ordinary shares of the Company, referred to as the New Shares, which were placed and issued as part of the Private Placement. The new Shares were initially registered on a separate ISIN CY to ensure that they could not be traded on Oslo Børs. Following the publication of this Prospectus, the New Shares will be registered under the same ISIN as the Company s existing Shares, being CY This Prospectus also serves as a listing prospectus for the 4% USD 150 million convertible unsecured subordinated bonds with maturity in December 2019, referred to as the Convertible Bonds, which are registered under ISIN NO An application for listing of the Convertible Bonds on Oslo Børs is expected to be submitted to Oslo Børs upon approval and publication of this Prospectus. C.2 Currency of the securities issue The currency for the Offer Shares and the New Shares is Norwegian Kroner (NOK). The currency for the Convertible Bonds is United States Dollars (USD). C.3 Number of shares and par value C.4 Rights attached to the securities As of the date of this Prospectus, the Company s authorised share capital is EUR 154,093, divided into 1,400,854,762 shares of nominal value EUR 0.11 each and the issued share capital is EUR 89,420, divided into 812,912,544 ordinary shares of nominal value EUR 0.11 each. All the Shares are authorised, issued and fully paid up. The Shares carry voting rights and the right to receipt of dividends when such are declared. The holders of the Shares also have a right to share in any surplus assets available for 5

11 distribution in a winding up of the Company. C.5 Restrictions on free transferability C.6 Application for other listing The Company s Shares are freely transferable. No application has been made for the listing of any of the Company s securities on other markets than Oslo Børs. C.7 Dividend policy The Company has not paid dividends during any of the three last years. The Company s current ability to pay dividends is restricted by its significant capital requirements for investment, as well as by contractual arrangements including restrictions under its different loan agreements. Over time, when and as the Company has adequate financial resources, dividends will be considered by the Board of Directors. Section D - Risks D.1 Key risks specific to the issuer or its industry Prospective investors should consider, among other factors, the following risks relating to the market in which Songa Offshore operates: Potential volatility in oil and gas prices; Potential oversupply of drilling rigs in the industry or in any specific market; Reliance on a limited number of customers and third parties; Regulations that govern the operations of drilling contractors, and changes in such regulations; Geopolitical risks; Risks of war, other armed conflicts, and terrorist attacks; Market volatility. Prospective investors should consider, among other factors, the following risks related to Songa Offshore and its business: Project risk, including cost overrun risks and margin risks on contract; Insurance and uninsured risk; Vessel operation and dependency on few core assets; Charter risks and ability to secure new profitable contracts; 6

12 Construction risks; Mobilisation risks; Risk of accidents; Service life and technical risks, including risks of unexpected repair costs; Dependency on key personnel for operations and profitability; Risks relating to Songa Offshore s financal situation, including the significant amount of third party indebtedness, exposure for financial covenants, availabilitity of long term funding, and risks caused by high leverage; Potential fluctuation in value of drilling rigs and in market rates; Redomiciliation to Cyprus in 2009, and risk of being charged with exit tax in Norway; Risk of being charged with Australian tax based on past operations. D.3 Key risks specific to the securities Prospective investors should consider, among other factors, the following risks related to the securities described herein: The market price of the securities of Songa Offshore may fluctuate significantly in response to a number of factors; Future sales of securities by Songa Offshore s major shareholders or by any of the primary insiders may depress the price of the securities; Risks of potential conflicts of interest between Songa Offshore and Perestroika as its largest shareholder; Large holding by Perestroika may have negative impact on trading liquidity for other holders; Holders registered under nominee may not be able to exercise all of their shareholder rights, including voting rights; Shareholders not participating in the Subsequent Offering and other potential future issues may be diluted; There may be limitations on the ability for investors to make claim against Songa Offshore; Investors outside Norway bear an additional currency 7

13 exchange risk on the shares; Holders of convertible bonds bear an additional risk of fluctuation in the price of Songa Offshore s shares; The convertible bonds are subordinated to all senior indebtedness of Songa Offshore. Section E Offer E.1 Proceeds and expenses The offer being made by means of this Prospectus, referred to as the Subsequent Offering, will, if fully subscribed, give gross proceeds of NOK million. The fees and expenses related to the Subsequent Offering, if fully subscribed, are expected to be approximately NOK 5.5 million which will be borne by the Company, thereby giving net proceeds of approximately NOK 147 million. E.2 Reasons for the offer and use of proceeds The Subsequent Offering is being made as a repair offering with subscription rights for Eligible Shareholders. On 25 November 2013, the Company announced its plans for the Refinancing by way of raising up to USD 425 million in new capital by way of a combination of (i) the Private Placement, a fully guaranteed equity issue through a private placement with gross proceeds in the amount of NOK 1,525 million (approximately USD 250 million), in combination with the Subsequent Offering, and (ii) the Convertible Bond Issue, an issue of the Convertible Bond through a private placement of bonds with gross proceeds in the amount of USD 150 million. The Private Placement and the Convertible Bond Issue were mutually conditional and subject to resolutions by an extraordinary general meeting of the Company which was held on 18 December 2013, and were also contingent upon the other components of the Refinancing being (a) amendments to the existing CAT-D charter contracts, (b) waivers and amendment agreements with the Company s bondholders as well as (c) amended agreements with the Company s syndicated bank facility. The proceeds from the Subsequent Offering will, together with the proceeds from the Private Placement and the Convertible Bond Issue, be used to strengthen the Company s working capital and will, in particular, be used to fund the equity part of the Company s investment in the four CAT-D rigs. USD 111 million of the net proceeds from the Private Placement and the Convertible Bond Issue were used to repay part of the loan of USD 222 million from Statoil, which had been provided to the Company in order to pre- 8

14 fund the first installment for CAT-D-3 and CAT-D-4. USD 50 million of the net proceeds were used to repay a loan from Swedbank, which had been provided to the Company as part of the funding of the first installment for CAT-D-1 and CAT-D- 2. The Refinancing is expected to facilitate successful delivery of the Company s CAT-D rigs as well as creating a solid and sustainable long term financial platform for the Company in the best interest of all stakeholders. E.3 Terms and conditions The following key terms and conditions apply to the Subsequent Offering, being the share offer being made by means of this Prospectus: Offer Shares: 61,000,000 new ordinary shares of Songa Offshore SE. Subscription Price: NOK Subscription period: February 2014, both dates inclusive. Eligible subscribers: The existing shareholders of the Company holding less than 110,000 Shares as at the end of 22 November 2013, as registered in the Norwegian Central Securities Depository (the VPS ) on 27 November 2013 (the Record Date ), who were not allocated New Shares in the Private Placement and who are not resident in a jurisdiction where such offering would be unlawful, or would (in jurisdictions other than Norway) require any prospectus filing, registration or similar action, are being granted nontransferable subscription rights that, subject to applicable law, provide the right to subscribe for and be allocated Offer Shares at the Subscription Price. Delivery and payment: Delivery of the Offer Shares is expected to take place on or about 7 March 2014 based on payment being made on 28 February Upon delivery, the subscribed Offer Shares will become tradeable on Oslo Børs under the trading symbol SONG E.4 Material interests and conflicts Perestroika AS, a company wholly owned by Mr. Frederik W. Mohn who is a member of the Company s Board of Directors, was the largest single subscriber in the Private Placement and the Convertible Bond Issue, thereby reaching an ownership (in combination with related parties, and also taking into account the shares offered in the Subsequent Offering) of more than 50%. No other New Shares or Convertible Bonds were issued to members of management or the Board of Directors. 9

15 E.5 Selling persons and lockup Not applicable. E.6 Dilution effects Shareholders who did not participate in the Private Placement were subject to a direct dilution of their ownership by approximately 75%. Shareholders who do not participate in the Subsequent Offering will be subject to a direct dilution of their ownership by approximately 7%. E.7 Expenses charged to the investor No expenses will be charged to the investor by Songa Offshore in connection with the Subsequent Offering. 10

16 2 RISK FACTORS Investing in the Shares or the Convertible Bonds issued by the Company (together, the Securities ) involves inherent risks. Before deciding whether or not to invest in the Securities, a prospective investor should consider carefully all of the information set forth in this Prospectus, and in particular, the specific risk factors set out below. An investment in the Securities is suitable only for investors who understand the risk factors associated with this type of investment and who can afford a loss of all or part of the investment, without notice. If any of the risks described below materialise, individually or together with other circumstances, they may have a material adverse effect on the Group s business, revenues, financial condition, results of operations and/or cash flow, which may cause a decline in the value and trading price of the Shares and the Convertible Bonds as well as impairing the Company's ability to meet its obligations (including the payment of principal and interest) under the Convertible Bonds and other financial indebtedness of the Company and which could result in a loss of all or part of any investment in the Shares or the Convertible Bonds. The order in which the risks are presented below is not intended to provide an indication of the likelihood of their occurrence nor of their severity or significance. 2.1 Risks relating to the industry in which the Group operates Oil and gas prices The profitability and cash flow of the Group s operations will depend upon the market price of oil and gas, which in turn is affected by numerous factors beyond the Group s control, including, but not limited to, worldwide economic and political conditions, levels of supply and demand, the policies of OPEC (the Organization of Petroleum Exporting Countries), advances in exploration and development technology, and the availability and exploitation of alternate fuel sources. Oil and gas commodity prices have been high and have therefore increased the cost of oilfield goods and services worldwide and in the countries in which the Group operates. A substantial or prolonged decrease in oil prices could cause a delay or depress exploration, development and production activity, which could lead to a lower utilisation of rigs. Each of these factors could have a material adverse effect on the Group s results of operations and profitability Oversupply of drilling units in the industry The offshore drilling industry is highly competitive with numerous industry participants. Drilling contracts are traditionally awarded on a competitive bid basis, where intense price competition is one of the primary factors, together with the quality and technical capability of service and equipment. The industry has historically been cyclical and is impacted by oil and gas price levels and volatility. There have been periods of high demand, short rig supply and high dayrates, followed by periods of low demand, excess rig supply and low dayrates. Any excess in the supply of drilling units in the industry is affected by, inter alia, assessments of the demand for these units by oil and drilling companies. Any over-estimation of the demand may result in an excess supply of new drilling units. During prior periods of high utilisation and dayrates, industry participants have increased the supply of rigs by ordering the construction of new units. This has often created an oversupply of rigs and has caused a decline in utilisation and low dayrates. The entry into service of newly constructed, upgraded or reactivated units will increase marketed supply and could reduce, or curtail a strengthening of, dayrates in the affected markets. In addition, the new construction of high specification rigs, as well as changes in the drilling rig fleets 11

17 of the Group s competitors, could require the Group to make material additional capital investments to keep its rig fleet competitive. Excess supply could result, when existing contracts expire or are otherwise terminated, in lower contract rates, which could have a material adverse effect on the business and results of operations of the Group. Reliance on customers and third parties The Group provides offshore drilling services to a customer base that includes major integrated oil and natural gas companies, state-owned national oil and natural gas companies and independent oil and natural gas companies. As of 30 September 2013, the Group s largest customer (Statoil) accounted for the majority of the consolidated operating revenues, representing 99% of the contract revenue backlog of the Group. Rigs operating in the North Atlantic basin are entirely contracted with Statoil. While it is expected that Statoil will continue to be a significant customer going forward, there can be no assurance that this will be the case, and a discontinuation of the cooperation with major customers could have a material adverse effect on the Group s financial position and future prospects. The Group relies on third party suppliers, manufacturers and service providers. A failure by one or more of these third parties to satisfactorily provide, on a timely basis, the agreed upon equipment or services may have an adverse impact on the Group s ability to perform its obligations under drilling contracts. Such performance deficiencies could expose the Group to liability and have a material adverse effect on the ability to compete for future drilling contracts. These risks could result in reduced revenue or, in some cases, significant losses for the Group, which would have a material adverse effect on the Group s financial position and/or results of operations International operations and risks of external disturbances Many aspects of the Company s operations are affected by governmental laws and regulations that may relate directly or indirectly to the contract drilling and well servicing industries, including those requiring it to obtain and maintain specified permits or other governmental approvals and to control the discharge of oil and other contaminants into the environment or otherwise relating to environmental protection. Many governments favor or effectively require the awarding of drilling contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. These practices may adversely affect the Group s ability to compete. In addition, the Company is, or may in the future be, subject to or affected by governmental laws and regulations related to the equipping and operation of rigs, repatriation of foreign earnings, oil exploration and development, taxation of offshore earnings and earnings of expatriate personnel and the use and compensation of local employees and suppliers by foreign contractors. As the Group conducts operations in a variety of jurisdictions, it is subject to multiple regulatory risks. Changes in applicable laws or regulations or in the interpretation or enforcement of such laws or regulations could require the Group to modify the manner in which it operates, increase the costs of its operations, require significant capital expenditures or to curtail aspects of its operations. Any of the foregoing could have a material adverse effect on the Group s financial condition and results of operations. There are risks inherent in doing business internationally. These include unexpected changes in regulatory requirements, difficulties in staffing and managing foreign operations, social and political instability, fluctuations in currency exchange rates, potentially adverse tax consequences, legal uncertainties regarding liability and enforcement, and changes in local laws and controls on the repatriation of capital or profits. Any of these risks could materially affect the Group s overseas operations and, consequently, the financial position and profit of the Group. 12

18 The members of the Group and their respective operations are located in a number of jurisdictions worldwide. Tax rules may be amended on short notice and the Group may become subject to taxation in new jurisdictions. Thus, although the Group may, to some extent, predict future taxation of the Group based on this current business, it is impossible to foresee with certainty the future level of taxation. War, military tension and terrorist attacks have among other things caused instability in the world s financial and commercial markets. This has in turn significantly increased political and economic instability in some of the geographic markets in which the Group operates (or may operate in the future), and has contributed to high levels of volatility in prices for among other things oil and gas. In addition, acts of terrorism and threats of armed conflicts in or around various areas in which the Group operates (or may operate in the future), and piracy or assaults on property or personnel, kidnapping of personnel and changing political conditions could limit or disrupt the Group s markets and operations, including by causing disruptions of oil exploration and production activities, loss, arrest or requisitioning of the fleet, loss or evacuation of personnel, cancellation of contracts, restriction of the movement and exchange of funds or limitation of the Group s access to markets for periods of time. Armed conflicts, terrorism and their effects on the Company, the Group or its markets may have a significant adverse affect on the Group s business and results of operations in the future. Market volatility The world s principal financial markets have experienced extreme volatility and disruption for more than three years, due in large part to the turmoil affecting the liquidity of the banking system and the market reaction thereto. These adverse market conditions have led to, and could lead to further, significant trading losses and write-downs by banks and other financial institutions. It is unclear whether the severity of the downturn in the global financial markets and/or economic conditions will continue to worsen, or when conditions might improve. It is difficult for the Group to predict what the impact of continued market turbulence will be on the Group from a general business perspective or from a capital or liquidity perspective. The recent credit crisis adversely affected lenders globally. Any future credit crisis or deterioration of the credit markets could affect lenders participating in the Group s credit facilities, making them unable to fulfill their commitments and obligations to the Group. Any reductions in drilling activity owing to such conditions or failure by the Group s customers, suppliers or lenders to meet their contractual obligations to the Group could adversely affect its financial position, results of operations and/or cash flows Risks factors relating to the Group and its business Project risk It is customary in the business in which the Group operates that all contracts are charter related, e.g. structured as time charters or bareboat charters. The rationale for this is that oil service companies provide a service where the schedule and scope of work is controlled and ultimately directed by its customers. In some instances market participants may accept fixed prices for certain components of the overall contract work scope. Such instances include mobilisation and demobilisation of a unit to/from a worksite, and the conversion/upgrade of units to meet specific requirements as may be required for a specific project. The Group s corporate policy is to seek to mitigate project risk at all times by having a strict policy on termination risk, breakdown risk, off-hire situations, force majeure risk etc. 13

19 However, there can be made no assurance that the Group will be able to sufficiently mitigate these project risks. Insurance and uninsured risk Operational risks can inter alia cause personal injury, the loss of a unit, operational disruption, off hire and termination of contract. In order to mitigate these risks, the Group has instigated an insurance program in line with market practice, and additional insurance is always considered when a specific project is considered to be of a high risk nature. However, the Group has no loss off hire protection, and there can be no assurance that other potential damages or claims towards the Company or the Group will be covered by the Group's insurance program. Pollution and environmental risks generally are not fully insurable, and the Group does not typically retain loss-of-hire insurance policies to cover its rigs. The Group s insurance policies and contractual rights to indemnity may not adequately cover the Group s losses, or may have exclusions of coverage for some losses. The Group does not have insurance coverage or rights to indemnity for all risks, including, among other things, liability risk for certain amounts of excess coverage and certain physical damage risk. If a significant accident or other event occurs which is not fully covered by insurance or contractual indemnity, it could adversely affect the financial position, results of operations and cash flows of the Group. Vessel operation The Group has a limited number of rigs and is vulnerable in the event of a loss of revenue from any of these rigs. The Group s fleet is exposed to operational risks associated with offshore operations such as breakdown, bad weather, technical problems, force majeure situations (e.g. nationwide strikes), collisions, grounding and similar events, which may have a material adverse effect on the earnings and value of the Group. The drilling fleet of the Group is heavily concentrated in the semi-submersible rig market. If demand for semi-submersible rigs were to decline relative to demand for other drilling rig types, the operating results of the Group could be adversely affected. Moreover, as the Group s fleet is configured to operate in the midwater segment, a reduction in demand for mid-water drilling would have an adverse effect on the Group. It would also be adversely affected by a reduction in demand for deep-water drilling, as some rigs configured for the deep-water segment (typically those equipped with mooring systems) can also operate in the midwater segment, thereby increasing the number of rigs operating in the midwater segment. Some of the Group s competitors have semi-submersible rigs with generally higher specifications than those in the current fleet of the Group. While the Group does not believe that all higher specification rigs are suited to the midwater segment of the drilling industry, particularly during market downturns when there is decreased rig demand, some higher specification rigs may be more likely to compete with the Group s rigs in obtaining drilling contracts in the segment in which the Group operates. In addition, higher specification rigs may be more adaptable to different operating conditions and have greater flexibility to move to areas of demand in response to changes in market conditions. Furthermore, in recent years, an increasing amount of exploration and production expenditures have been concentrated in deeper water drilling programs and deeper formations, thereby requiring higher specification rigs. This trend is expected to continue and could result in a material decline in demand for the lower specification rigs in the Group s fleet. 14

20 Charter risks The Group provides its services on the basis of drilling contracts that are awarded through competitive bidding or to a lesser extent through direct negotiations with oil companies. These contracts typically have terms of between one and five years (although for the Group s CAT-D rigs the contracts are for eight years with four optional periods of three years each) or they can be for a specific number of wells. Most of the Group s rigs are contracted to one customer, and a discontinued cooperation between the Group and the customer could lead to a termination of most, or all, charter agreements. The ability of the Group to renew contracts or obtain new contracts and the terms of any such contracts will depend, among other things, on market conditions, the specifications, suitability and deployment potential of its rigs, and the contractual terms, including dayrates, that the Group agrees to operate under. The Group may be unable to renew expiring contracts or obtain new contracts for its rigs under contracts that have expired or been terminated, and the dayrates under any new contracts may be substantially below existing dayrates, which could materially reduce the revenues and profitability of the Group. The Company can provide no assurance that the Group will be able to perform under its contracts due to events beyond its control or that the Group will be able to ultimately execute a definitive agreement in cases where one does not currently exist. In addition, the Group can provide no assurance that its customers will be able to or willing to fulfill their contractual commitments to the Group. The Group can provide no assurance that the contracts included in the contract revenue backlog will generate the specified revenues or that the specified revenues will in fact be generated during the periods indicated. The duration of offshore drilling contracts is generally determined by customer requirements and, to a lesser extent, the respective management strategies of the offshore drilling contractors. In periods of rising demand for offshore rigs, contractors typically prefer shorter contracts that allow them to more quickly profit from increasing dayrates. In contrast, during these periods customers with reasonably definite drilling programs typically prefer longer-term contracts to maintain dayrate prices at a consistent level. Conversely, in periods of decreasing demand for offshore rigs, contractors generally prefer longer-term contracts, but often at flat or slightly lower dayrates, to preserve dayrates at existing levels and ensure utilisation, while customers prefer shorter contracts that allow them to more quickly obtain the benefit of lower dayrates. To the extent possible within the scope of the requirements of the Group s customers, the Group seeks to have a foundation of long-term contracts with a reasonable balance of shorter-term exposure to the spot market in an attempt to maintain upside potential while endeavouring to limit the downside impact of a decline in the market. However, the Group can provide no assurance that it will be able to achieve or maintain such a balance from time to time. The inability to maintain such a balance could have a material adverse effect on the financial condition and results of operation of the Group. Currently, all of the Group s contracts with customers are dayrate contracts. While the Group plans to continue to perform services on a dayrate basis, market conditions may dictate that the Group enters into footage contracts (where the Group is paid a fixed amount for each foot drilled regardless of the time required or the problems encountered in drilling the well) or turnkey contracts (whereby the Group agrees to drill a well to a specific depth for a fixed price and bear some of the well equipment costs). These types of contracts are subject to greater risks than dayrate contracts as the Group would be subject to downhole geological conditions in the well that cannot always be accurately determined and subject the Group to greater risks associated with equipment and downhole tool failures. Unfavorable downhole geologic conditions and equipment and downhole tool failures may result in significant cost increases or may result in a decision to 15

21 abandon a well project, which would result in the Group not being able to invoice revenues for providing services. The Group s financial condition, operating results and cash flows could be materially adversely affected by early termination of contracts, contract renegotiations or cessation of dayrates under any of the foregoing circumstances. Construction risk The Group has been awarded four marine drilling contracts with Statoil for the CAT-D rigs. The rigs are currently under construction by Daewoo Shipbuilding & Marine Engineering Co., Ltd. in South Korea. Although the construction contracts are entered into on a turnkey basis and on a back-toback basis with respect to the specifications outlined by Statoil, the Group has taken on some interface risk and project management. Delays have occurred, and there can be no assurances that further delays or cost-overruns will not occur and such events, if occurring, could lead to the cancellation of the marine drilling contracts with Statoil and have a material adverse impact on the financial position and/or results of operations of the Group. Mobilisation risk Mobilisation of rigs involves a number of risks which can cause damage to the rigs and/or result in delays in start-up. The Company's rigs could be subject to capsizing, sinking, grounding, collision, damage from severe weather and marine life infestations. In addition regulatory approval in Norway and acceptance testing could result in delays. The Company will also be relying on third party equipment in connection with mobilisation, and the quality and timeliness of such third party deliveries will often be outside the Company's control Risk of accidents Offshore drilling units may work in harsh environments. The Group s operations are subject to the usual hazards inherent in drilling for oil offshore, such as breakdowns of vessels, blowouts, reservoir damage, loss of production, loss of well control, punch-throughs, craterings, groundings, collisions, fires, adverse weather conditions and natural disasters such as cyclones, storms and hurricanes. The Group s operations are also subject to accidents, which could be caused by various factors, including human error, adverse weather conditions or faulty construction. The occurrence of any of these events could result in the suspension of drilling operations, damage to or destruction of the equipment involved and injury or death to rig personnel, damage to producing or potentially productive oil formations and environmental damage. Operations also may be suspended because of machinery breakdowns, abnormal drilling conditions, failure of subcontractors to perform or supply goods or services or personnel shortages. In addition, offshore drilling operators are subject to perils peculiar to marine operations, including capsizing, grounding, collision and loss or damage from severe weather. Damage to the environment could also result from its operations, particularly through oil spillage, extensive uncontrolled fires or a spill, leak or accident involving other hazardous substances that are stored on a rig. The Group may also be subject to damage claims by oil and gas companies or other parties. An accident can have a material adverse effect on the Group s financial condition, and there can be no assurance that the Group will have sufficient insurance against such losses and/or expenses. Vessel operations are further subject to potential environmental liabilities which could be substantial. Such liabilities are difficult to estimate as the scope and amount of liability would, inter alia, depend on where the vessels are operated at the time when environmental damages occur. Service life and technical risk The service life of a rig and/or vessel is generally assumed to be more than 40 years, but will ultimately depend on its efficiency. There can be no assurance that the Group s drilling units will be 16

22 successfully deployed for such period of time. Although the Group has four high specification midwater semi-submersible rigs under construction, the remaining five rigs were all built in the 1970s and 1980s. The capital associated with the repair and maintenance of each rig increases with age. In addition, there may be technical and environmental risks associated with ageing rigs, including operational problems and regulatory requirements leading to unexpectedly high operating/maintenance costs and/or lost earnings, and which may have a material adverse effect on the financial position of the Group. Unexpected repair costs The timing and costs of repairs on the Group s drilling units are difficult to predict with certainty and may be substantial. Many of these expenses, such as dry-docking and certain repairs for normal wear and tear, are typically not covered by insurance. Large repair expenses could decrease the Group s profits. In addition, repair time may imply a loss of revenue for the Group. Key personnel for operations and profitability The Group s ability to continue to attract, retain and motivate key personnel, and other senior members of the management team and experienced personnel will have an impact on the Company s operations. The competition for such employees is intense, and the loss of the services of one or more of these individuals without adequate replacements or the inability to attract new qualified personnel at a reasonable cost could have a material adverse effect. If increased competition for qualified personnel were to intensify in the future, the Group may experience increases in costs or limits on operations. 2.3 Risks relating to the Group s financial situation General financial risk The Group is facing a challenging financial position due to, inter alia, the level of capital needed to finance its rigs under construction. The Group monitors and manages the financial risks related to the operations of the Group through internal reports and analysis. However, the Group is exposed to various risks such as market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk, and no assurances can be given that the monitoring of such risks will be adequate or sufficient The Group has a significant amount of third party indebtedness The Group has a significant amount of third party indebtedness. A breach of the terms of the Group s loan agreements may cause the lenders to require repayment of the financing immediately and to enforce the security granted over substantially all of the Group s assets, including its rigs. If the Group s operating cash flows are not sufficient to meet its operating expenses and the debt payment obligations of the Group, the Group may be forced to do one or more of the following: (i) delay or reduce capital expenditures; (ii) sell certain of its assets; and/or (iii) forego business opportunities. The Group has exposure for financial covenants The Group s credit and borrowing facilities contain financial and other covenants. There can be no assurance that the Group will be able to meet all such covenants relating to current or future indebtedness contained in its funding agreements or that its lenders will extend waivers or amend terms to avoid any actual or anticipated breaches of such covenants. Failure to comply with its financial and other covenants may have an adverse affect on the Group s financial condition, and also potential increased financial costs, requirements for additional security or cancellation of loans. 17

23 Market risk management and foreign currency risk management USD is the functional currency of the Company and all its subsidiaries. The Group is exposed to foreign currency risks related to its operations. The Group s expenses are primarily in USD and NOK. As such, the Group s earnings are exposed to fluctuations in the foreign currency market for NOK in relation to USD. The Company will attempt to minimise these risks by implementing hedging arrangements as appropriate, and uses the foreign currency spot and forward market to buy foreign currencies. The Group is mainly exposed to the currency of Norway (NOK). In addition, to a lesser extent, the Group is exposed to the currencies of Malaysia (MYR), Singapore (SGD), South Korea (KRW), the United Kingdom (GBP) and the European currency (EUR). Contracts are entered into when treasury finds it in line with the overall currency risk strategy. The Group enters into derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including but not limited to forward exchange contracts to hedge the exchange rate risk arising on debt in foreign currency Interest rate risk management The Group is exposed to fluctuations in interest rates for USD. A major part of the Group s interest costs on its bank loans are subject to floating interest rate (LIBOR) plus a margin. Consequently, the Group is exposed to fluctuation in interest rates. The risk is managed by maintaining an appropriate mix between fixed and floating rate borrowings and by the use of interest rate swap contracts Credit risk management Due to the nature of the Group s operations, revenues and related receivables are typically concentrated amongst a relatively small customer base of international oil and gas companies. The majority of the revenues are generated by contracts with Statoil, which has a credit rating of AA-. The Company continually evaluates the credit risk associated with customers and, when considered necessary, requires certain guarantees, either in the form of parent company guarantees, bank guarantees or escrow accounts. The maximum credit risk is equal to the capitalised value of trade receivables and incurred revenue not billed Availability of funding The Group is dependent upon having access to long term funding. There can be no assurance that the Group may not experience net cash flow shortfalls exceeding the Group s available funding sources nor can there be any assurance that the Group will be able to raise new equity, or arrange new borrowing facilities, on favorable terms and in amounts necessary to conduct its ongoing and future operations, should this be required. Songa Offshore anticipates that it will have an aggregate funding requirement of approximately USD 1.2 billion over the next 12 months to take delivery of the first two CAT-D rigs and to meet its other requirements, including cash buffers. Beyond the first 12 months, Songa Offshore anticipates that it will have a further funding requirement of approximately USD 1.0 billion to take delivery of the last two CAT-D rigs. Songa Offshore expects to debt finance approximately USD 1.0 billion against security in the first two CAT-D rigs, and believes that similar or higher debt financing can be obtained for the last two CAT-D rigs. The amounts in respect of each CAT-D rig will be required to be in place upon the 18

24 respective delivery dates for each rig, with the first CAT-D rig being due for delivery in the fourth quarter of It is expected that the intended sale of Songa Venus and Songa Mercur will cover the balance of the financing requirement, but no agreement has been concluded for the sale of these rigs. The failure to complete the anticipated debt financing in respect of the CAT-D rigs, or the failure to sell Songa Venus and Songa Mercur at prices deemed satisfactory, would leave a financing shortfall which could have severe implication on Songa Offshore and which could result in the need for significant amounts of additional equity, which may not be available at that time. The Company has not as of today made specific alternative plans to cover such potential shortfall, although under those circumstances alternatives may exist to sell one or more of the CAT-D rigs to relieve the Group of its funding requirements, or to sell one or more of the existing North Sea rigs, or to make other financing arrangements. In the event that none of these financing arrangements come in place, it would have a significant negative effect on the Company s financing situation and its ability to continue operations. Borrowing and leverage To the extent income derived from assets obtained with borrowed funds exceeds the interest and other expenses that the Group will have to pay, the Group s net income will be greater than if borrowings were not made. Conversely, if the income from the assets obtained with borrowed funds is insufficient to cover the cost of such borrowings, the net income of the Group will be less than if borrowings were not made. The Group will borrow only when it is believed that such borrowings will benefit the Group and the Group after taking into account considerations such as the costs of the borrowing and the likely returns on the assets purchased with the borrowed monies, but no assurances can be given that the Group will be successful in this respect Value of the drilling units and market rates The value of the drilling units owned by the Group may fluctuate with market conditions. A downturn in the market could have a material adverse effect on the Group s liquidity and may result in breaches of the financial covenants in its loan agreements. In such a case, sales of the Group s drilling units could be forced at prices that represent a potential loss of value Redomiciliation to Cyprus in 2009 Exit tax According to the Norwegian Tax Act Section in 2009, a company that emigrates and ceases to be tax resident in Norway is subject to exit tax. The exit tax is calculated on any potential gain related to the assets, rights and liabilities that the exiting company owned the day preceding the redomiciliation. The capital gain/loss would be calculated as if the assets, rights and liabilities were realised for tax purposes at this time. In contrast, capital gains on assets or shares of similar domestic transactions are not taxable until they are realised. The Company redomiciled from Norway to Cyprus in May In the tax return the Company maintained the view that no exit tax should apply. In the event that the Company has to pay immediate exit tax, the Company estimates that the tax can be offset against available losses which have been mostly recognised as deferred tax asset and which can be used and set off against future profit. In 2010, the tax office notified the Company that it is considering assessing an exit tax, and the matter remains unresolved. The Group has been advised that the Norwegian exit tax rules in 2009 are in conflict with the European Economic Area ( EEA ) Agreement with respect to the principle of freedom of establishment. The Company therefore filed a complaint with the EFTA Surveillance Authority, who sent a "reason opinion" to the Norwegian Ministry of Finance on 2 March 2011 for failing to comply 19

25 with its obligations under the EEA Agreement by imposing an immediate tax on companies, or the shareholders of companies, that transfer their seat to another EEA State. As a consequence, with effect from 2011, the tax liability on owner and company level for companies relocating to normal (not low tax) tax countries within the EEA was dismantled. Assets that are taken out of the Norwegian area of taxation will be governed by the Tax Act Section 9-14, whereby a payment of the assessed tax for physical assets can be deferred until the time when the gains are actually realised. The Company is of the opinion that its redomiciliation to Cyprus in 2009 will not result in immediate taxation. This view is supported by National Grid (C-371/10) and Arcade Drilling (E 15/11). In the event that the Company has to pay immediate exit tax, the Company estimates that the tax can be offset against available losses. No provision has been made in its financial statement for any such potential tax liability. Australian withholding tax The Austrialian tax commissioner (the Commissioner ) has served a notice of withholding tax payable for AUD 31.1 million for the 2009 income year and imposed a shortfall penalty for AUD 7.8 million. The withholding tax payable and shortfall penalty are subject to general interest charge. As at 1 Nov 2013 the total contingent liability is AUD 58.4 million. Songa Offshore strongly disputes the determination made by the Commissioner. Songa has received legal advice and the Group believes it will ultimately prevail in this matter. As such, Songa Offshore has not made any provisions in its financial statement at 31 December On October 26, 2013 the Commissioner advised that it has dismissed Songa Offshore s objection toward the Part IVA determination. Songa Offshore lodged an appeal against the Commissioners decision with the Federal Court of Australia on December 23, A scheduling conference will be held on February 14, 2014 where Songa Offshore will present its case to the presiding justice and a date will be set for a court hearing, estimated to be at the end of Q Songa Offshore, through its legal representatives, has entered negotiations with the Commissioner in relation to arrangements to secure the liability during the objection period and any Federal Court Australian tax issue on transfer pricing and depreciation The Australian Tax Office (the ATO ) disputes certain transfer pricing and depreciation matters. In September 2013, the ATO issued amended assessments based on its review, resulting in a tax claim of AUD 8.4 million. Songa Offshore has formally commenced negotiations with the ATO to consider settlement of both matters. On October 11th, 2013, Songa Offshore forwarded a letter to the ATO offering AUD 151,000 (net of Songa Offshore s claim for AUD 1.7m of overpaid corporate income tax) in full settlement. Songa Offshore has also reserved its rights, in case of failure to reach a settlement with the ATO. Negotiations have been held during January, Up to the date of this prospectus, the ATO has accepted the additional information presented by Songa Offshore and has significantly reduced the amount of the amended assessment. However, Songa Offshore is of the opinion that for the final assessment, the ATO has yet to consider certain concessions on interest rates requested by Songa Offshore, Songa Offshore s correction of depreciation position and the amount of erroneously paid withholding tax made by Songa Offshore, all of which will potentially reduce the claimed tax amount. Songa Offshore will continue to negotiate with the ATO and expects to have the matter resolved in the near future. 20

26 2.4 Risks relating to the Shares and the Convertible Bonds The market price of the Shares may fluctuate significantly in response to a number of factors The share price of publicly traded companies can be highly volatile, and the shares of the Company have been subject to substantial volatility. The price at which the Shares may be quoted and the price which shareholders may realise for their Shares will be influenced by a large number of factors, some specific to the Group and its operations and some which may affect the industry as a whole or stock exchange listed companies generally. These factors include those referred to in this Section 2 Risk factors, as well as the Group s financial performance, the impact of shareholders being released from lock-in restrictions, stock market fluctuations and general economic conditions. Share price volatility arising from such factors may adversely affect the value of an investment in the Shares. The market price of the Shares may not reflect the underlying value of the Group s net assets. The trading price of the Shares could fluctuate significantly in response to a number of factors beyond the Group s control, including, but not limited to, quarterly variations in operating results, adverse business developments, changes in financial estimates and investment recommendations or ratings by securities analysts, or any other risk discussed herein materializing or the anticipation of such risk materializing. In recent years, the global stock markets have experienced extreme price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies. Those changes may occur without regard to the operating performance of these companies. The price of the Company s Shares may therefore fluctuate based upon factors that have little or nothing to do with the Group, and these fluctuations may materially affect the price of its Shares Future sales of Shares by the Company s major shareholder or any of its primary insiders may depress the price of the Shares The market price of the Shares could decline as a result of sales of a large number of Shares in the market or the perception that such sales could occur, or any sale of Shares by any of the Company s major shareholders or primary insiders from time to time. Such sales, or the possibility that such sales may occur, might also make it more difficult for the Company to issue or sell equity securities in the future at a time and at a price it deems appropriate. Liquidity of the Shares and the Convertible Bonds Following the Private Placement, at least 50.1% of the share capital of the Company will be controlled by one shareholder. This may limit the Shares liquidity in the trading market, which could have an adverse effect on the then prevailing market price for the Shares. In addition, the interests of the largest shareholder will not necessarily always be aligned with minority shareholders of the Company. No liquid market currently exists for trading of the Convertible Bonds and it is not possible to predict whether, if the Convertible Bonds are listed on the Oslo Børs, this will provide satisfactory liquidity. Shareholders may not be able to exercise their voting rights for Shares registered in a nominee account Beneficial owners of the Shares that are registered in a nominee account or otherwise through a nominee arrangement (such as through brokers, dealers or other third parties) may not be able to exercise voting rights and other shareholder rights as readily as shareholders whose Shares are registered in their own names with the VPS prior to the Company s General Meetings. The 21

27 Company cannot guarantee that beneficial owners of the Shares will receive the notice for a general meeting in time to instruct their nominees to either effect a re-registration of their Shares or otherwise vote their Shares in the manner desired by such beneficial owners. Any persons that hold their shares through a nominee arrangement, should consult with the nominee to ensure that any Shares beneficially held are voted in the manner desired by such beneficial owner. Dilution Shareholders not participating in future share issues may be diluted. Should the Company decide on an issue of securities with preferential rights for existing shareholders, such rights may not be available for shareholders in the U.S. and in any other jurisdictions where delivery of such rights may be restricted or be subject to registration filings or similar. Should such rights not be available for shareholders, these shareholders will not be able to realise any potential profits on subscription rights or preferential allocation rights, and these shareholders may be diluted as a result. The Company may in the future issue warrants and/or options to subscribe for Shares, including (without limitation) to certain advisers, employees, directors, senior management and consultants. The exercise of such warrants and/or options would result in dilution of the shareholdings of other investors. At the extraordinary general meeting held on 18 December 2013, the Company's general meeting granted the board of directors an authorisation to issue up to 233,000,000 Shares out of the unissued authorised share capital of the Company, and provided the Board with a general waiver of the existing shareholders' right to pre-emption in connection with such issuances. Limitations on the ability to make claims against the Company The Company is a European public company limited by shares organised under the laws of the Republic of Cyprus. The Company s directors and executive officers are residents of Cyprus, Norway, Switzerland and the United Kingdom, and a substantial portion of the Group s assets are located in Cyprus and Bermuda. As a result, it may be difficult for investors in other jurisdictions to effect service of process upon the Company, its affiliates or its directors and executive officers in such other jurisdictions or to enforce judgments obtained in other jurisdictions against the Company, its affiliates or its directors and executive officers The Company s investors outside of Norway are subject to exchange rate risk The Shares are traded in NOK and any investor outside of Norway who wishes to invest in the Shares, or to sell Shares, will be subject to an exchange rate risk which may cause additional costs to the investor. Bondholders will bear the risk of fluctuation in the price of the Company's shares The market price of the Convertible Bonds is expected to be affected by fluctuations in the market price of the Company s shares and it is impossible to predict whether the price of the shares will rise or fall. Any decline in the price of the Shares may have an adverse effect on the market price of the Convertible Bonds. Risk related to subordination of the Convertible Bond The Convertible Bonds and accrued interest thereon is subordinated to all senior indebtedness of the Issuer. Rights to receive payment on the Convertible Bonds in a default situation will therefore be subject to all senior lenders first receiving due payment. 22

28 3 RESPONSIBILITY FOR THE PROSPECTUS The Board of Directors of Songa Offshore SE accepts responsibility for the information contained in this Prospectus. The members of the Board of Directors confirm that, after having taken all reasonable care to ensure that such is the case, the information contained in this Prospectus is, to the best of their knowledge, in accordance with the facts and contains no omission likely to affect its import. Limassol, 4 February 2014 The Board of Directors of Songa Offshore SE Frederik W. Mohn (Chairperson of the Board) Jon E. Bjørstad (Board member) Arnaud Bobillier (Board member) Christina Ioannidou (Board member) Michael Mannering (Board member) 23

29 4 GENERAL INFORMATION 4.1 Important investor information In making an investment decision, each investor must rely on its own examination, and analysis of, and enquiry into the Group, including the merits and risks involved. None of the Company or the Managers, or any of their respective affiliates, representatives or advisors, is making any representation to any subscriber or purchaser of Shares regarding the legality of an investment in the Shares by such subscriber or purchaser under the laws applicable to such subscriber or purchaser. Each investor should consult with his or her own advisors as to the legal, tax, business, financial and related aspects of a purchase of the Shares. The information contained herein is current as of the date hereof and subject to change, completion and amendment without notice. In accordance with Section 7-15 of the Norwegian Securities Trading Act, any significant new factors, material mistakes or inaccuracies relating to the information included in this Prospectus, which are capable of affecting the assessment of the Shares between the time when this Prospectus is approved and the date of listing of the New Shares on Oslo Børs, will be included in a supplement to this Prospectus. Neither the publication nor distribution of this Prospectus, shall under any circumstances create any implication that there has been no change in the Group s affairs or that the information herein is correct as of any date subsequent to the date of this Prospectus. Unless indicated otherwise, the source of information included in this Prospectus is the Company. The contents of this Prospectus shall not be construed as legal, business or tax advice. Each reader of this Prospectus should consult its own legal, business or tax advisor as to legal, business or tax advice. If the reader is in any doubt about the contents of this Prospectus, a stockbroker, bank manager, lawyer, accountant or other professional advisor should be consulted. The Company has furnished the information in this Prospectus. The Managers make no representation or warranty, express or implied, as to the accuracy or completeness of such information, and nothing contained in this Prospectus is, or shall be relied upon as, a promise or representation by the Managers. The Managers disclaim, to the fullest extent permissible by applicable law, any and all liability, whether arising in tort or contract or otherwise, which they might otherwise have in respect of this Prospectus or any such statement. In the ordinary course of their respective businesses, the Managers and certain of their respective affiliates have engaged, and may continue to engage, in investment and commercial banking transactions with the Company. 4.2 Presentation of financial and other information In this Prospectus, all references to NOK are to the lawful currency of Norway; all references to USD, are to the lawful currency of the United States of America; and all references to EUR are to the lawful currency of the members states of the European Union (the EU ) who have adopted the EUR as their sole national currency. Certain figures included in this Prospectus have been subject to rounding adjustments; accordingly, figures shown for the same category presented in different tables may vary slightly. The Group s consolidated audited financial statements as of and for the years ended 31 December 2012, 2011 and 2010 have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (IFRS) and the Cyprus Company Law, Chapter 113. The Group s unaudited financial statements as of and for the nine months ended 30 September 2013 and 2012 have been prepared in accordance with International Accounting Standard ( IAS )

30 The financial statements for the years ended 31 December 2012, 2011 and 2010 have been audited by PricewaterhouseCoopers Limited. The Company prepares its financial statements in USD (presentation currency). 4.3 Industry and market data In this Prospectus, the Company has used industry and market data obtained from independent industry publications, market research, and other publicly available information. While the Company has compiled, extracted and reproduced industry and market data from external sources, the Company has not independently verified the correctness of such data. Thus, the Company takes no responsibility for the correctness of such data and makes no representation as to the accuracy or completeness of such data. The Company cautions prospective investors not to place undue reliance on the above mentioned data. Although the industry and market data is inherently predictive and not necessarily reflective of actual industry conditions, the Company confirms that where information has been sourced from a third party, such information has been accurately reproduced and that as far as the Company is aware and is able to ascertain from information published by that third party, no facts have been omitted that would render the reproduced information inaccurate or misleading. Where information sourced from third parties has been presented, the source of such information has been identified. 4.4 Cautionary note regarding forward-looking statements This Prospectus includes forward-looking statements that reflect the Company s current views with respect to future events and financial and operational performance. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms anticipates, assumes, believes, can, could, estimates, expects, forecasts, intends, may, might, plans, projects, should, will, would or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements are not historic facts. They appear in a number of places throughout this Prospectus, and include, among other things, statements regarding the Company s intentions or current expectations concerning financial position, operating results, liquidity, prospects, growth, strategies and the industry in which the Group operates. Prospective investors in the Shares are cautioned that forward-looking statements are not guarantees of future performance and that they are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described or suggested in the forward looking statements. These factors include the risks discussed in Section 2 Risk Factors of this Prospectus, among them the: the competitive environment of the business and industry in which the Group operates; earnings, cash flow, dividends and other expected financial results and conditions; the price volatility of oil and gas products; technological changes and new products and services introduced into the Group s market and industry; changes in general economic and industry conditions; political, governmental, social, legal and regulatory changes; access to funding; legal proceedings; 25

31 operating costs and other expenses. Prospective investors in the Shares are urged to read all Sections of this Prospectus and, in particular, Section 2 Risk factors for a more complete discussion of the factors that could affect the Group s future performance and the industry in which the Group operates when considering an investment in the Company. These forward-looking statements speak only as of the date of this Prospectus. Save as required according to Section 7-15 of the Norwegian Securities Trading Act, the Company undertakes no obligation to publicly update or publicly revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to the Company or to persons acting on the Company s behalf are expressly qualified in their entirety by the cautionary statements referred to above and contained elsewhere in this Prospectus. 26

32 5 BACKGROUND 5.1 Announcement of the Refinancing On 25 November 2013, Songa Offshore announced its plans for a comprehensive refinancing (the Refinancing ) by way of raising up to USD 425 million in new capital by way of a combination of (i) the Private Placement, a fully guaranteed equity issue through a private placement with gross proceeds in the amount of NOK 1,525 million (approximately USD 250 million), in combination with the Subsequent Offering, a contemplated subsequent repair offering with gross proceeds of up to NOK million (approximately USD 25 million), and (ii) the Convertible Bond Issue, an issue of the Convertible Bond through a private placement of bonds with gross proceeds in the amount of USD 150 million. The Private Placement and the Convertible Bond Issue were mutually conditional and subject to the approvals by an extraordinary general meeting of the Company which was held on 18 December 2013, and were also contingent upon the other components of the Refinancing being (a) amendments to the existing CAT-D charter contracts, (b) waivers and amendment agreements with the Company s bondholders as well as (c) amended agreements with the Company s syndicated bank facility. The background for the Refinancing was Songa Offshore s large funding requirements for the completion of its CAT-D rigs, combined with the significant losses made in 2012 and 2013 in connection with the upgrades and SPSs of two rigs and the loss made upon the sale of its rig Songa Eclipse. Songa Offshore did not expect that its funding through own cash flow, in combination with normal financing on the CAT-D rigs, would be sufficient to provide full financing for taking delivery of the CAT-D rigs. During 2013, Songa Offshore experienced a deteriorating cash position, and required certain temporary waivers to meet its bond covenants. In context of this financial situation, the Refinancing was intended as an integrated plan which, when completed, is intended to make Songa Offshore able to meet its industrial and financial obligations. In the view of Songa Offshore, the Refinancing is expected to facilitate successful delivery of the Company s CAT-D rigs as well as creating a solid and sustainable long term financial platform for the Company in the best interest of all stakeholders. The Company retained Fearnley Securities AS and Swedbank Norway, part of Swedbank AB (publ) as Managers for the Private Placement, the Convertible Bond Issue, and the Subsequent Offering. SEB acted as an independent financial advisor to the Company and its Board of Directors Components of the Refinancing CAT-D contracts amended terms As part of the Refinancing, the Company has agreed certain amendments to the existing charter agreements with Statoil as charterer of the CAT-D rigs. Among other adjustments, the new terms include a 5% average rate increase for the CAT-D units during the fixed contract period in a declining rate profile from 9.0% the first full year to 0.0% in year 8, partly offset by a repayment to Statoil of USD 12,500,000 per rig upon Statoil s declaration of each of the two initial three-year option periods (i.e. an aggregate repayment of up to USD 50,000,000 in 2023 and up to USD 50,000,000 in 2026). The Company has also agreed certain amendments to ensure increasing bankability of certain variable rate components and to cancel the purchase options at the end of the fixed contract period for CAT-D-1 and CAT-D-2. The above amendments were subject to approval by Statoil and the respective licence partners, as granted on 11 December As part of the Refinancing, the loan of USD 222,000,000 from Statoil, which was provided to the Company 27

33 in order to pre-fund the first installment for CAT-D-3 and CAT-D-4, was agreed to be repaid in the amount of USD 111,000,000 after settlement of the Private Placement (repaid on 15 January 2014), and the remaining balance shall be repaid equally upon delivery of CAT-D-1 and CAT-D-2 from the yard. Waivers and amendment agreements with bondholders As part of the Refinancing, the Company has agreed certain waivers and amendments to its outstanding bonds including, but not limited to: Extension of the maturity date of the 2016 bond (ISIN NO ) to May 2018; Extension of the maturity date of the 2015 bond (ISIN NO ) to December 2018; Amendments of the current floating interest rates of each bond issue to fixed interest rates of 7.5% fixed for the 2015 bond and 8.4% fixed for the 2016 bond (together with, for the 2016 bond, a redemption at maturity of 103.5%); Amendments to certain covenants including waiver of the leverage covenant to and including Q4 2014, waiver for the book equity ratio covenant to and including Q and a waiver of the minimum value covenant for the remaining terms of the bonds. The further details of the revised terms of the bond loans, which were approved by bondholder meetings on 11 December 2013, are set out in Section 12.8 Borrowings. Amendment agreements with lending banks As part of the Refinancing, the Company agreed certain amendments to its bank debt. The quarterly amortisation was reduced by 50%, the maturity date extended by one year until Q and the mandatory prepayment on sale of vessels reduced from 120% of the mortgage amount to 50% of the mortgage amount for each of Songa Venus and Songa Mercur, as well as amendments to certain covenants, including without limitation e.g. the equity ratio covenant. The further details of the revised terms of the bank loans are set out in Section 12.8 Borrowings The Private Placement The Private Placement was completed through issue of 610,000,000 New Shares with gross proceeds of NOK 1,525 million (approximately USD 250 million), and with preference for existing shareholders of the Company. The subscription price applied in the Private Placement was NOK 2.50 per share. The Private Placement was fully guaranteed by certain of the Company's largest shareholders, including Perestroika AS, Kistefos AS, and Fondsfinans Spar. Perestroika AS had conditioned its guarantee on being allocated shares in the Private Placement which would secure Perestroika AS and related parties at least 50.1% ownership in the Company post the Private Placement (also taking into account the maximum number of shares which may be subscribed for in the Subsequent Offering). Perestroika AS' subscription of shares triggered a mandatory offer for the shares of the Company. The mandatory offer launched by Perestroika AS is further described in Section Applicable takeover bid regulations. The New Shares issued by the Private Placement become tradeable on Oslo Børs upon publication of this Prospectus. Further information about the Private Placement, the New Shares, and the listing of the New Shares is given in Section 6 The Private Placement, the Convertible Bond Issue, and the Listing. 28

34 The Subsequent Offering In order to protect the interests of the minority shareholders of the Company, the Company offers a total of 61 million Offer Shares on the terms set out in this Prospectus. The subscription price in this Subsequent Offering is NOK 2.50 per share, identical to the subscription price applied in the Private Placement. If the Subsequent Offering is fully subscribed, the total gross proceeds to the Company will be NOK million (approximately USD 25 million). Eligible Shareholders, being shareholders holding less than 110,000 shares on the Record Date and who were not allocated shares in the Private Placement will receive non-transferable subscription rights. The terms of the Subsequent Offering are set out in Section 7 The Subsequent Offering. The Convertible Bond Issue Under the Convertible Bond Issue, the Company raised USD 150 million of gross proceeds through the issuance of the Convertible Bonds, being subordinated unsecured obligations of the Company. The Convertible Bond is denominated in USD and can be converted into new shares of the Company at a strike price of USD The Convertible Bond has semi-annual coupon payments of 4.00% p.a. The Convertible Bonds were allocated with preference to existing shareholders of the Company and investors participating in the Private Placement. Bondholders in the Company s 2011/2016 and 2012/2015 bonds were given preferential allocation for USD 20 million of the Convertible Bond. The Convertible Bonds become tradeable on Oslo Børs by means of this Prospectus. Further information about the Convertible Bonds and the listing of these is given in Section 6 The Private Placement, the Convertible Bond Issue, and the Listing Other elements related to the Refinancing As a part of its agreement with Statoil and the lending banks in relation to the Refinancing, Songa Offshore agreed that it will use its best endeavours to sell the two rigs Songa Venus and Songa Mercur, being the two only rigs in its fleet that are not related to operations in Norway. Songa Offshore is in negotiations with potential buyers of these rigs, but no agreement has been concluded. Songa Offshore is not yet in a position to give indication of the outcome of these negotiations or the timing of a potential sale. 29

35 6 THE PRIVATE PLACEMENT, THE CONVERTIBLE BOND ISSUE, AND THE LISTING 6.1 General information regarding the Private Placement and the Convertible Bond Issue Background The background for the Private Placement and the Convertible Bond Issue is described in Section 5 Background The Private Placement and the Convertible Bond Issue were both announced on 25 November 2013 as part of the Refinancing of Songa Offshore. The Private Placement and the Convertible Bond Issue were documented by an investor presentation, term sheets and terms of application. On 26 November 2013, Songa Offshore announced that both of the Private Placement and the Convertible Bond Issue had been fully subscribed. Proceeds, expenses, and use of proceeds The gross proceeds from the Private Placement and the Convertible Bond Issue amounted to approximately USD 400 million, being made up of NOK 1,525 million from the Private Placement and USD 150 million from the Convertible Bond Issue. Fees and expenses related to the Private Placement and the Convertible Bond Issue amounted to approximately USD 21.2 million, giving net proceeds of approximately USD million. Fees to managers in respect of the Private Placement and the Convertible Bond Issue were based on a management fee of 1% and a placement fee of 2.5% of the gross proceeds raised. USD 111 million of the net proceeds were used to repay part of the loan of USD 222 million from Statoil, which was provided to the Company in order to pre-fund the first installment for CAT-D-3 and CAT-D-4. USD 50 million of the net proceeds were used to repay a loan from Swedbank, which had been provided to the Company as part of the funding of the first installment for CAT-D-1 and CAT-D-2. The remaining net proceeds are used to strengthen the Company s working capital and will, in particular, be used to fund the equity part of the Company s investment in the four CAT-D rigs Advisors Fearnley Securities AS and Swedbank were managers for the Company in connection with the Private Placement, the Convertible Bond Issue, and the Listing. Advokatfirmaet Schjødt AS (Norwegian law) and Harneys Aristodemou Loizides Yiolitis LLC (Cyprus law) acted as legal advisors to the Company in relation to the Private Placement, the Convertible Bond Issue, and the Listing SEB acted as an independent financial advisor to the Company and its Board of Directors. Interests of natural and legal persons involved The Managers and their affiliates may have interests in the New Shares and the Convertible Bonds as they have provided from time to time, and may in the future provide, investment and commercial services to the Company and its affiliates in the ordinary course of their respective businesses, for which they may have received and may continue to receive customary fees and commissions. The Managers, their employees and any affiliate may currently own existing Shares and Convertible Bonds in the Company. The Managers have received a commission in connection with the Private Placement and the Convertible Bonds Issue and, as such, have an interest in the Private Placement and the Convertible Bond Issue. Swedbank, in its capacity as bank lender to the Company, received USD 30

36 50 million of the net proceeds from the Private Placement and Convertible Bond Issue as repayment of bank debt. Reference is made to Section Proceeds, expenses, and use of proceeds. Swedbank remains a member of a bank lending syndicate to the Company. Swedbank was also engaged as advisor by the Company during the negotiation of amendments to outstanding bonds with the bondholders as part of the Refinancing, as further set out in Section 5 Background, and received a commission therefor. Mrs. Nancy Erotocritou, the Company s former board member until her resignation on 24 January 2014, is a partner of the law firm Harneys Aristodemou Loizides Yiolitis LLC, legal advisors to the Company with respect to Cyprus law. 6.2 Information specific to the Private Placement and the Listing The New Shares The following main terms are applicable to the New Shares which were issued under the Private Placement. A more detailed overview of the share capital of Songa Offshore SE and the rights attached to the shares is provided in Section 13 Shares, share capital and shareholders matters. Potental investors seeking information about the Offer Shares being offered under the Subsequent Offering are referred to Section 7 The Subsequent Offering. Type and class of the New Shares... Legislation under which the New Shares are created... Form of securities... Ordinary shares of Songa Offshore SE. Pending the publication of this Prospectus, the New Shares were registered with ISIN CY , which is different from the ISIN of the Company s existing Shares, to ensure that they could not be traded on Oslo Børs. Following the publication of this Prospectus, such Shares will be registered under the same ISIN as the Company s existing Shares, being CY , and automatically become listed and tradable on Oslo Børs under the trading symbol SONG. The New Shares have been issued as ordinary shares in Songa Offshore SE pursuant to the Articles of Association and in accordance with the Cyprus Companies Law, Chapter 113. The Company s register of shareholders is maintained by the Company and kept in physical form at its registered office. Cyprus law requires that the Company s primary register is kept in Cyprus. To achieve compatibility of the requirements under Cyprus company law as to the registration and transfer of shares with Norwegian requirements, the shares are in uncertificated form. Since the Company s primary shareholders register is kept in Cyprus, the VPS is treated as an overseas supplemental register which is deemed to form part of the main register of shareholders. The VPS registrar for the shares of Songa Offshore SE is Nordea Bank Norge ASA, Verdipapirservice, P.O. Box 1166, N-0107 Oslo, Norway. Rights attached to the New Shares... The New Shares were entitled to any dividend declared by Songa Offshore SE from the date of their issuance and payment which was on 23 December All shares of Songa Offshore SE are entitled to dividends, if so declared, and there are no particular restrictions applicable on payment of dividends to non-residents of Cyprus. Any dividends will be declared in EUR; however, shareholders who have supplied the Norwegian Central Securities Depository with a NOK account will receive their dividend in NOK to such account. All shares of Songa Offshore SE are entitled to one vote in a general 31

37 meeting of the shareholders. Shareholders have pre-emptive rights in offers for subscription of new shares unless the right is revoked. The general meeting has authorised the board to revoke pre-emptive rights. All shares of Songa Offshore SE have the right to their pro-rata share in profits and any surplus in the event of liquidation. Resolution... The Private Placement was resolved by the Board in two steps: The first step was made on 16 December 2013 with the resolution to issue 132,287,456 New Shares to Perestroika AS as partial settlement of the New Shares subscribed for by Perestroika AS in the Private Placement, reflecting the maximum number of shares available under the then prevailing authorisation to the Board. The second step was made on 18 December 2013, following the passing of a number of resolutions and granting of authorisations by the extraordinary general meeting on 18 December 2013 enabling the Board to resolve the remainder of the Private Placement (being 477,712,544 New Shares), the Convertible Bond Issue, and the Subsequent Issue. Issue date... Restrictions on transferability.. Rules on mandatory takeover bids, squeeze-out and sellout.. Public takeover bids... Withholding tax The New Shares were issued on 17 December 2013 (in respect of 132,287,456 shares) and 23 December 2013 (in respect of 477,712,544 shares). The New Shares are freely transferable. See Sections Applicable takeover bid regulations and Applicable squeeze out and sell out regulations. The shares of Songa Offshore SE have been subject to a mandatory offer by Perestroika AS, a company related to Mr. Frederik W. Mohn and the largest shareholder of Songa Offshore SE. Under the offer, which was triggered by Perestroika AS passing of 50% ownership as an effect of the Private Placement, Perestroika AS offered to purchase the remaining shares of Songa Offshore SE against a cash consideration of NOK 2.50 per share. The offer expired on 21 January The approximate number of shares tendered in this mandatory offer was 559,793, representing less than 0.1% of the outstanding shares of Songa Offshore SE. Under current tax regulations applicable to Songa Offshore SE, no tax is being withheld in Cyprus in respect of dividends paid by Songa Offshore SE to non-cyprus resident shareholders. No withholding tax is imposed as an effect of the Private Placement being made or by the Listing of the New Shares. Summary of the terms of the Private Placement The following main terms applied to the Private Placement, under which the New Shares were issued. The Private Placement has been completed and no further shares are being issued under the Private Placement by means of this Prospectus or otherwise. Potental investors seeking information about the Offer Shares being offered under the Subsequent Offering are referred to Section 7 The Subsequent Offering. Conditions for the offer... The Private Placement is completed and irrevokable, and no further conditions apply for the issuance of the New Shares. 32

38 Amount of the offer... Time period and application process... Minimum and maximum application... Method of payment and settlement... Announcement... Pre-emptive rights... Categories of investors... Allocation to related parties and large investors... A total of 610,000,000 New Shares of Songa Offshore SE were offered in the Private Placement. No existing shares were offered for sale by any shareholder as part of the Private Placement. The New Shares were offered in a private placement with a subscription period commencing on 25 November 2013 and ending on 26 November The minimum application in the Private Placement was the NOK equivalent of EUR 100,000. No maximum application applied. Settlement of the New Shares took place against payment in cash on 23 December 2013, with settlement being made in the Norwegian Central Securities Depository against such cash payment. Announcement of the completion of the Private Placement was made on Oslo Børs on 26 November No pre-emptive rights applied to the Private Placement. The Private Placement was made to known existing shareholders of Songa Offshore SE on 25 November 2013 and to other investors, with no specific tranche being allocated to any category of investors. 62.1%% of the New Shares were allocated to Perestroika AS, a company wholly owned by one of the Songa Offshore SE s board members, Mr. Frederik W. Mohn. No other New Shares were allocated to members of the Songa Offshore SE s management, supervisory or administrative bodies in the Private Placement. With the exception of Perestroika AS, the only other subscriber to be allocated more than 5% of the New Shares was Kistefos who was allocated 8.1% of the New Shares (through allocations given to Kistefos Investment AS and Kistefos AS). Pre-allotment disclosure... Notification of allocation... Over-allotment / green shoe. As the Private Placement has been completed, such pre-allotment disclosures are not relevant. The Private Placement was not split into specific tranches (such as retail or employee tranches). Allocation to each investor was done by the Board of Directors of Songa Offshore SE with a preferential treatment given to persons who were known to be shareholders of Songa Offshore SE on 25 November 2013, the date when the Private Placement was announced. The minimum allocation applied in the Private Placement was 332,000 shares. Each subscriber was informed by mail of his or her conditional allocation, which was subject to the resolution thereof being made by the Board of Directors under authorisation by resolution of an extraordinary general meeting of Songa Offshore SE held on 18 December Until such condition was met, the subscribers were allowed to trade their conditionally allocated shares on an if-issued basis. No over-allotment was applied in the Private Placement and no stabilisation measures were undertaken as part of the Private Placement. Pricing... The Private Placement was done at a fixed subscription price of NOK 2.50 per share. Basis for pricing; reasons for The subscription price applied in the Private Placement represented a discount to the market price of the shares of Songa Offshore SE prior to the 33

39 revoked pre-emptive rights... Potential disparity between the subscription price and cost to related persons... Managers... Depository agent... Underwriting... Private Placement, being NOK 5.01 at the close of trading on the preceding trading day. The basis for deciding the subscription price was the large capital requirement under the Refinancing and a negotiation with Perestroika AS, the largest shareholder of Songa Offshore SE, who undertook to guarantee the full subscription at this price. The basis for revoking pre-emptive rights in the Private Placement was the timing constraints under which the Private Placement needed to be concluded as part of the Refinancing, combined with the view of the Board of Directors that other shareholders would be allowed to maintain the majority of their relative exposure to Songa Offshore SE s shares though their participation in the Private Placement or the Subsequent Offering. To the knowledge of Songa Offshore SE, no member of administrative, management or supervisory bodies or senior management have acquired shares in Songa Offshore SE during the past year, or have rights to acquire such shares, at a share price which is lower than the subscription price applied in the Private Placement. The managers of the Private Placement were Fearnley Securities AS, P.O.Box 1158 Sentrum, N-0107 Oslo, and Swedbank Norway, part of Swedbank Ab (publ), Filipstad Brygge 1, N-0250 Oslo, Norway. Nordea Bank Norge ASA, Verdipapirservice, P.O. Box 1166, N-0107 Oslo, Norway. The following entities provided a guarantee for the full subscription of the Private Placement against a fee of 1% of their respective guarantee amounts as set out below: Perestroika AS (Paradis, Norway) NOK 1,098,875,000 Kistefos AS (Oslo, Norway) NOK 183,000,000 T Berset Holding AS (Harstad, Norway) NOK 61,000,000 Nortura Pensjonskasse (Oslo, Norway) NOK 61,000,000 Fondsfinans Spar (Oslo, Norway) NOK 50,000,000 Westco AS (Stavanger, Norway) NOK 25,000,000 Ponderus Invest AB (Stockholm, Sweden) NOK 7,000,000 Fondsfinans Aktiv (Oslo, Norway) NOK 1,000,000 Admission to trading and dealing arrangements The following main terms apply to the listing of the New Shares, being the shares issued under the Private Placement. Potental investors seeking information about listing of the Offer Shares being offered under the Subsequent Offering are referred to Section 7 The Subsequent Offering. Listing of the New Shares... Market maker arrangements... Stabilisation arrangements... The New Shares issued by the Private Placement become tradeable on Oslo Børs upon publication of this Prospectus under the trading symbol SONG. No arrangements have been made for the trading of the New Shares on other regulated markets. Songa Offshore SE does not have arrangements with entities to provide market making or similar activities. No price stabilisation arrangements are in place or have been made in respect of the New Shares. 34

40 Shares following the Private Placement As a consequence of the Private Placement, the number of issued Shares in the Company was increased from 202,912,544 to 812,912,544 Shares, each with a nominal value of EUR The Company has only one class of shares outstanding and all Shares are freely transferable. Dilution Shareholders who did not participate in the Private Placement were subject to a direct dilution of their ownership as set forth in the table below: Prior to the Private Placement Subsequent to the Private Placement Number of Shares, each with a nominal value of EUR ,919, ,912,544 % dilution... 0% 75% Publication of information relating to the Private Placement and the Listing In addition to press releases, which will be posted on the Company s website, the Company will use the Oslo Børs information system to publish information relating to the Private Placement and the Listing. 6.3 Information specific to the Convertible Bond Issue The Convertible Bonds The following main terms are applicable to the Convertible Bonds. The full terms in respect of the Convertible Bonds are given in the bond agreement which is appended hereto as Appendix 2. Name, type and class of the Convertible Bonds... Legislation... Registration and registrar... Currency... Ranking per cent Songa Offshore SE Subordinated Convertible Bonds Issue 2013/2019, ISIN NO The Convertible Bonds have been created under Cyprus law. The bond agreement has been prepared under Norwegian law with disputes thereunder to be subject to Norwegian courts (at the competent legal vnue of the trustee). The Convertible Bonds are registered in the Norwegian Central Securities Depository (Nw.: Verdipapirsentralen, VPS) with Nordea Bank Norge ASA, Middelthunsgt 17, N-0368 Oslo, Norway as the registrar. The currency of the Convertible Bonds is USD. The Convertible Bonds (including any interest accrued thereon) shall constitute subordinated unsecured obligations of Songa Offshore SE. The Convertible Bonds and accrued interest shall be subordinated to the senior debt of Songa Offshore SE, however the Convertible Bonds and accrued interest shall rank pari passu with any other subordinated debt of Songa Offshore SE (save for such claims which are preferred by bankruptcy, insolvency, liquidation or other similar laws of general application), and shall rank ahead of all amounts payable in respect of the share capital of the Songa Offshore SE. The Convertible Bonds are unsecured. Rights attached to the Convertible Bonds... The bondholders meeting represents the supreme authority of the bondholders community in all matters relating to the Convertible Bonds, 35

41 and has the power to make all decisions altering the terms and conditions of the Convertible Bonds, including, but not limited to, any reduction of principal or interest and any conversion of the Convertible Bonds into other capital classes. The authority, procedures and resolutions applicable to the bondholders meeting are further set out in Section 20 of the bond agreement. Right to convert into shares... Each bondholder shall be entitled to convert any or all of their Convertible Bonds into common shares of the Songa Offshore SE at the conversion price, as set out below, at any time during the period commencing on the 40th banking day following the settlement date, being 23 December 2013, and ending on the earlier of (i) the tenth (10th) banking day prior to the 5th anniversary of the resolution by Songa Offshore SE's general meeting or board meeting (as applicable) to issue the Convertible Bonds, and (ii) if a subsequent general meeting of Songa Offshore SE has extended or authorised such extensions, until the tenth (10) Banking Day prior to the maturity date, being 23 December 2019 (the Conversion Prolongation ). Songa Offshore SE shall ensure that a shareholders' meeting is held to approve the Conversion Prolongation, such shareholder's meeting to be held after the date falling 4 years and 11 months prior to the maturity date, but before 4 years and 9 months prior to the maturity date. Songa Offshore SE s largest shareholder, Perestroika AS, has undertaken to vote in favour of such Conversion Prolongation. In the event the Conversion Prolongation has not been granted within the period set out above, the coupon rate shall be increased with 0.50 percentage points per annum from and including the interest payment day in June 2015 and until such Conversion Prolongation is approved. If such conversion gives rise to fractional shares, the number of shares converted into shall be rounded down to the nearest whole common share (fractional shares will not be issued). Interest accrued since the latest Interest Payment Date but not due on the Conversion Date will not be paid and will not be converted into Shares, but it will fall to the Issuer (should the Conversion Date fall on the Payment Date interest due will be paid). For avoidance of doubt Bondholders shall be entitled to convert any of the suspended and accumulated interest not paid. The conversion right cannot be separated from the Bonds. The conversion date is the tenth banking agent after the conversion agent has received the relevant conversion notice. The conversion price shall be USD , being calculated as a premium of 25% over the share issue price applied in the Private Placement converted into USD at the exchange rate applicable on 25 November The bond agreement, Section 14, contains standard provisions for adjustment of the conversion price to avoid dilution of the bondholder s option value (including adjustment for dividends, rights issues, share splits, and any other distributions to all or any substantial part of the Issuer s shareholders, etc). Interest rate and provisions relating to interests payable... The coupon rate is 4% p.a. payable semi-annual in arrears, calculated from the settlement date for the Convertible Bonds on 23 December Interest is payable on 23 June and 23 December each year, with the first interest payment date being 23 June 2014 and the last interest payment 36

42 date being 23 December If the relevant interest payment date is not a banking day in Oslo, interest shall be paid on the next banking day in Oslo. The day count fraction in respect of the calculation of the payable interest amount shall be 30/360. Payment of interest shall be increased with 5.00% p.a., suspended and accumulated for as long as an event of default has occurred and is continuing under any senior bond issues or bank facilities. In the event of such suspension and accumulation, any accumulated, unpaid interests shall be convertible into new shares on the terms herein. The time limit on the validity of claims to interest and repayment of principal in respect of the Convertible Bonds is in accordance with the Norwegian Limitation Act of May 18, 1979 No. 18, being 10 years. Maturity and amortisation... The Convertible Bonds shall be repaid in full at final maturity date, being 23 December 2019, at 100% of par value (plus accrued interests on redeemed amount), if not converted into shares. Settlement may be given in shares or cash at Songa Offshore SE s option, subject to terms set forth in the bond agreement, Section 10 and in particular Section 10.5 in respect of the share settlement option. Upon a change of control event (as used in the bond agreement Section 10.4), each bondholder shall have the right for a period of sixty days to either require early redemption of the Convertible Bonds at par value plus accrued interest, or to convert the bonds at a specifically regulated change of control conversion price. Issuer s call option... Songa Offshore SE may, on or after the date falling one (1) year and (20) trading days after the settlement date, call the remaining part of the Convertible Bond, or part thereof based on a pro-rata calculation in respect of each bondholder, at its par value plus accrued interest, provided that the parity value (as set forth below) on each of at least twenty (20) trading days within a period of thirty (30) consecutive trading days have exceeded USD Each bondholder may, within the exercise period, elect to exercise their conversion right. If such call option is exercised, an exercise notice shall be sent to the bondholders with a redemption notice period of not less than twenty (20) banking days. Parity value means, in respect of any trading day, the USD amount calculated as follows: PV = N x VWAP where PV = the parity value N = the number of shares determined by dividing USD 1 by the conversion price in effect on such trading day. VWAP = the Volume Weighted Average Price of a share on such trading day (provided that if on any such trading day the shares shall have been quoted cum-dividend or cum-any other entitlement, the closing price on such trading day shall be deemed to be the amount thereof reduced by an amount equal to the fair market value of any such dividend or entitlement 37

43 per share as at the date of first public announcement of such dividend or entitlement (or, if that is not a trading day, the immediately preceding trading day)), translated into USD at the prevailing NOKUSD exchange rate as made public by Norges Bank on such trading day. Songa Offshore may also, at any time during the term of the Convertible Bonds, provided that 90 per cent or more of the original issued Convertible Bonds have been redeemed, repurchased or converted into shares, call the remaining outstanding Bonds at their principal amount (100%) plus accrued interest. If such clean-up call is exercised, an exercise notice shall be sent to the bondholders with a redemption notice period of not more than fourty (40) and not less than twenty (20) banking days. For avoidance of doubt, the bondholder s conversion rights may be exercised following such redemption call provided the conversion notice is issued within the said redemption notice period. Yield... The convertible bond carries a coupon of 4% p.a. with semi-annual interest payments, which equals a yield to maturity of 4.04% on the basis of the par value of the Convertible Bonds, assuming the loan is not converted. The yield to any investor will depend on the market price of the Convertible Bonds. The yield is calculated in the following way, where r is the effective annual yield, i the nominal rate, and n the number of compounding periods per year (2 for semi-annual compounding): Bondholders representatives.. Resolution... Norsk Tillitsmann AS acts as trustee for the bondholders. The Convertible Bond Issue was resolved by the Board of Directors of Songa Offshore SE on 18 December 2013, following the passing of a number of resolutions and granting of authorisations by the extraordinary general meeting on 18 December Issue date... The Convertible Bonds were issued on 23 December Transferability... The convertible bonds are not subject to restrictions on transfer, and will be tradeable on Oslo Børs. The Convertible Bonds and any shares issued upon a conversion of the Convertible Bonds have not been, and will not be, registered under the US Securities Act. Bondholders will not be permitted to transfer the Convertible Bonds in or into the US except (a) subject to an effective registration statement under the US Securities Act, (b) to a person that the bondholder reasonably believes is a qualified institutional buyer within the meaning of Rule 144A that is purchasing for its own account, or the account of another qualified institutional buyer, to whom notice is given that the resale, pledge or other transfer may be made in reliance on Rule 144A, (c) an offshore transaction in accordance with Regulation S under the US Securities Act, including, in a transaction on Oslo Børs, and (d) pursuant to any other exemption from registration under the US Securities Act, including Rule 144 thereunder (if available). The Convertible Bonds may not, subject to applicable Canadian laws, be traded in Canada for a period of four months and a day from the date when the Convertible Bonds were originally issued. 38

44 Similar or other restrictions may also exist for investors in other jurisdictions in respect of the Convertible Bonds and any shares issued upon a conversion of the Convertible Bonds. Withholding tax... The Issuer shall pay any stamp duty and other public fees in connection with the Bond, but not in respect of trading in the secondary market, except to the extent by reason of operation of applicable laws, and shall deduct at source any applicable withholding tax payable pursuant to law, subject to standard gross-up and gross-up call provisions. Under current tax regulations applicable to Songa Offshore SE, no tax is being withheld in Cyprus in respect of interest payments or repayment of the Convertible Bonds to non-cyprus resident lenders. No withholding tax is imposed as an effect of the Convertible Bond Issue being made or by the listing of the Convertible Bonds. Summany of the terms of the Convertible Bond Issue The following main terms applied to the Convertible Bond Issue. The Convertible Bond Issue has been completed and no further Convertible Bonds are being offered by means of this Prospectus or otherwise. Conditions for the offer... Total amount of the offer... Time period and application process... Minimum and maximum application... Method of payment and settlement... Announcement... Pre-emptive rights... Categories of investors... Allocation to related parties and large investors... The Convertilble Bond Issue is completed and irrevokable, and no further conditions apply for the issuance of the Convertible Bonds. The total amount of Convertible Bonds issued in the Convertible Bond Issue was USD 150,000,000, with the nominal value of each bond being USD 1. The Convertible Bonds were offered in a private placement with a subscription period commencing on 25 November 2013 and ending on 26 November The minimum application in the Convertible Bond Issue was USD 200,000 and for integral multiples of USD 100,000 thereafter. No maximum application applied. Settlement of the Convertible Bonds took place against payment in cash on 23 December 2013, with settlement being made in the Norwegian Central Securities Depository against such cash payment. Announcement of the completion of the Convertible Bond Issue was made on Oslo Børs on 26 November No pre-emptive rights applied to the Convertible Bond Issue. The Convertible Bond Issue was made to known existing shareholders of Songa Offshore SE on 25 November 2013 and to other investors, with no specific tranche being allocated to any category of investors. The Convertible Bonds were allocated with preference to existing shareholders of the Company and investors participating in the Private Placement. Bondholders in the Company s 2011/2016 and 2012/2015 bonds were given preferential allocation for USD 20 million of the Convertible Bonds. 50.1% of the Convertible Bonds were allocated to Perestroika AS, a company wholly owned by Songa Offshore SE s board member Mr. Frederik W. Mohn. No Convertible Bonds were allocated to other members of Songa Offshore SE s management, supervisory or administrative bodies in the Convertible 39

45 Bond Issue. Notification of allocation... Pricing... Managers... Agent... Underwriting... Each subscriber was informed by mail of his or her allocation. The convertible bonds were issued at 100% of par. The managers of the Private Placement were Fearnley Securities AS, P.O.Box 1158 Sentrum, N-0107 Oslo, and Swedbank Norway, part of Swedbank Ab (publ), Filipstad Brygge 1, N-0250 Oslo, Norway. The paying, depositary and conversion agent for the Convertible Bonds is Nordea Bank Norge ASA, Middelthunsgt 17, N-0368 Oslo, Norway. No underwriting or guarantee for the full subscription of the Convertible Bond Issue was provided. Listing of the Convertible Bonds The following main terms apply to the listing and trading of the Convertible Bonds Application for listing... Listing on other markets... Market making... Under the bondholder agreement, the issuer has committed to apply for listing of the Convertible Bonds on Oslo Børs or Nordic AMB by 1 June 2014 at the latest. An application for listing of the Convertible Bonds on Oslo Børs is expected to be submitted to Oslo Børs upon approval and publication of this Prospectus. No arrangements have been made for the trading of the Convertible Bonds on other regulated markets. No market-maker arrangements have been for the Convertible Bonds Publication of information relating to the Convertible Bonds In addition to press releases, which will be posted on the Company s website, the Company will use the Oslo Børs information system to publish information relating to the Convertible Bonds. 40

46 7 THE SUBSEQUENT OFFERING 7.1 Overview of the Subsequent Offering Background The intention of the Subsequent Offering is to allow all shareholders in the Company the opportunity to participate, as close as possible to a pro-rata basis, in the equity portion of the Refinancing of the Company, as further described in Section 5 Background. The Subsequent Offering is done as a public offering of new shares, with non-tradable subscription rights being granted to Eligible Shareholders, being existing shareholders of the Company holding less than 110,000 Shares as at the end of 22 November 2013, as registered in VPS on the Record Date (27 November 2013), and who were not allocated New Shares in the Private Placement and who are not resident in a jurisdiction where such offering would be unlawful, or would (in jurisdictions other than Norway) require any prospectus filing, registration or similar action. Proceeds, expenses, and use of proceeds The gross proceeds from the Subsequent Offering will be a maximum of NOK million. Fees and expenses related to the Subsequent Offering, if fully subscribed, are expected to amount to approximately NOK 5.5 million, giving net proceeds of approximately NOK 147 million. Fees are calculated on the basis of a management fee of 1% to be paid irrespective of the subscribed amount, and a subscription fee of 2.5% calculated the actual subscribed and allocated amount. The net proceeds will be used to strengthen the Company s working capital and will, in particular, be applied towards the equity part of the Company s investment in the four CAT-D rigs Advisors Fearnley Securities AS and Swedbank are managers for the Company in connection with the Subsequent Offering. Advokatfirmaet Schjødt AS (Norwegian law) and Harneys Aristodemou Loizides Yiolitis LLC (Cyprus law) act as legal advisors to the Company in relation to the Subsequent Offering Interests of natural and legal persons involved The Managers and their affiliates may have interests in the Offer Shares as they have provided from time to time, and may in the future provide, investment and commercial services to the Company and its affiliates in the ordinary course of their respective businesses, for which they may have received and may continue to receive customary fees and commissions. The Managers, their employees and any affiliate may currently own existing Shares and Convertible Bonds in the Company. The Managers will receive a commission in connection with the Subsequent Offering and, as such, have an interest in the Subsequent Offering. Reference is made to Section above. Mrs. Nancy Erotocritou, the Company s former board member until her resignation on 24 January 2014, is a partner of the law firm Harneys Aristodemou Loizides Yiolitis LLC, legal advisors to the Company with respect to Cyprus law. 41

47 7.2 Terms of the Subsequent Offering The Offer Shares The following main terms are applicable to the Offer Shares being offered under the Subsequent Offering. A more detailed overview of the share capital of Songa Offshore SE and the rights attached to the shares is provided in Section 13 Shares, share capital and shareholders matters Type and class of the Offer Shares... Legislation under which the Offer Shares are being created Form of securities... Ordinary shares of Songa Offshore SE, ISIN CY The Offer Shares will be issued as ordinary shares in Songa Offshore SE pursuant to the Articles of Association and in accordance with the Cyprus Companies Law, Chapter 113. The Company s register of shareholders is maintained by the Company and kept in physical form at its registered office. Cyprus law requires that the Company s primary register is kept in Cyprus. To achieve compatibility of the requirements under Cyprus company law as to the registration and transfer of shares with Norwegian requirements, the shares are in uncertificated form. Since the Company s primary shareholders register is kept in Cyprus, the VPS is treated as an overseas supplemental register which is deemed to form part of the main register of shareholders. The VPS registrar for the shares of Songa Offshore SE is Nordea Bank Norge ASA, Verdipapirservice, P.O. Box 1166, N-0107 Oslo, Norway. Rights attached to the Offer Shares... The Offer Shares will be entitled to any dividend declared by Songa Offshore SE from the date of their issuance and payment, which is expected to be on or about 7 March All shares of Songa Offshore SE are entitled to dividends, if so declared, and there are no particular restrictions applicable on payment of dividends to non-residents of Cyprus. Any dividends will be declared in EUR; however, shareholders who have supplied the Norwegian Central Securities Depository with a NOK account will receive their dividend in NOK to such account. All shares of Songa Offshore SE are entitled to one vote in a general meeting of the shareholders. Shareholders have pre-emptive rights in offers for subscription of new shares unless the right is revoked. The general meeting has authorised the board to revoke pre-emptive rights. All shares of Songa Offshore SE have the right to their pro-rata share in profits and any surplus in the event of liquidation. Resolution... The resolution to launch the Subsequent Offering was made in a board meeting on 31 January The resolution to allocate and issue the Offer Shares is expected to be made by the board of directors on or about 26 February 2014, based on the authorised share capital resolved by the general meeting of Songa Offshore SE on 18 December Issue date... The Offer Shares are expected to be issued on or about 7 March Restrictions on trasferability... The Offer Shares will be freely transferable once issued and paid for. Rules on mandatory takeover See Sections Applicable takeover bid regulations and

48 bids, squeeze-out and sellout.. Public takeover bids... Withholding tax... Applicable squeeze out and sell out regulations. The Offer Shares are not currently subject to any mandatory takeover bids. Note, however, that the shares of Songa Offshore SE have been subject to a mandatory offer by Perestroika AS, a company related to Mr. Frederik W. Mohn and the largest shareholder of Songa Offshore SE, which expired on 21 January Under current tax regulations applicable to Songa Offshore SE, no tax is being withheld in Cyprus in respect of dividends paid by Songa Offshore SE to non-cyprus resident shareholders. No withholding tax is imposed as an effect of the Subsequent Offering being made or by the listing of the Offer Shares. Terms of the Subsequent Offering The following terms apply to the Subsequent Offering, under which the Offer Shares will be issued Conditions for the offer... The Subsequent Offering is unconditional. Amount of the offer... Time period and application process... A total of 61,000,000 Offer Shares of Songa Offshore SE are offered in the Subsequent Offering. No existing shares are offered for sale by any shareholder as part of the Subsequent Offering. The subscription period for the Subsequent Offering will be 10 February 2014 to 24 February 2014, both dates inclusive. In order to subscribe for Offer Shares, a subscription form (a copy of which is appended hereto as appendix 1) must be correctly and completely filled out, signed, submitted to and received by the Managers before the expiration of the subscription period at the following address: Fearnley Securities AS, P.O.Box 1158 Sentrum, N-0107 Oslo, Norway, fax Swedbank Norway, part of Swedbank Ab (publ), Filipstad Brygge 1, N-0250 Oslo, Norway, fax Subscribers who are Norwegian residents with a Norwegian personal identification number may also subscribe for Offer Shares through the VPS online subscription system (or by following the link on or which will redirect the subscriber to the VPS online subscription system). All online subscribers must verify that they are Norwegian residents by entering their national identification number (Norwegian: personnummer ). If multiple subscriptions are received in respect of a subscriber, only the highest subscription number will be registered; and if a suscription has already been registered from such subscriber, amendment will only be done if the more recent subscription is for a higher number of Offer Shares. Neither Songa Offshore nor the Managers may be held responsible for delays in the mail system or subscription forms sent by fax not being received in time by the Managers. The subscriber is responsible for the correctness of the information inserted in the subscription form. No text must be added to the subscription form other than in the designated fields. Subscription forms received after the end of the subscription period and/or subscription forms being incorrect or incomplete may be disregarded at the 43

49 sole discretion of the Company or the Managers without notice. Investors who wish to subscribe must have a VPS account and a bank account with a Norwegian bank in order to apply for and be allotted shares in the Offering. If an investor does not have a VPS account, this can be established through the Managers or a Norwegian bank. To subscribe for shares, the investor must satisfy the applicable requirements pursuant to the Money Laundering Act No. 41 of 20 June 2003 and associated regulations. The investor is responsible for complying with applicable identification verification requirements, and each investor is encouraged to complete any such required procedures as early as possible in the subscription period. Insufficient identification may lead to the subscription being disregarded. Revocation or suspension of the Subsequent Offering... Possibility to reduce number of subscriptions... Minimum and/or maximum subscription... Withdrawal of subscriptions... Method of payment and settlement... The board resolution for the Subsequent Offering does not provide for situations under which the Subsequent Offering can be revoked or suspended. All subscriptions from Eligible Shareholders will be registered and given allocation as set forth herein. Subscriptions from persons not being Eligible Shareholders may, at the sole discretion of Songa Offshore SE, be rejected or reduced. There is no minimum or maximum amount of subscription. Oversubscription and subscription without subscription rights is allowed. Subscriptions are irrevocable and binding for the investor when received by the Managers. In completing a subscription form, each subscriber in the Subsequent Offering will authorise the Managers to debit the subscriber s Norwegian bank account for the total amount due for the shares allocated to him or her. The subscriber s bank account number must be stated on the subscription form. Accounts will be debited on or about 28 February 2014 for the shares allocated. Sufficient funds must be available in the bank account from 27 February The payments will be transferred to a blocked bank account of Nordea Bank Norge ASA until the new shares have been registered and issued in VPS. Subscribers who do not have a Norwegian bank account must either establish such account or contact the Managers to arrange for payment of the subscription amount. It is the sole responsibility of such subscribers to contact the Managers sufficiently early and to take the necessary steps to arrange for timely payment. Neither the Managers nor the Company assume any responsibility for the consequences of a subscriber s failure to arrange for payment of the subscription amount. Should any subscriber have insufficient funds in his or her account, or should payment be delayed for any reason, or should it be impossible to debit the account, interest will be payable on the amount due at a rate equal to the prevailing interest rate under the Norwegian Act on Interest on Overdue Payments of 17 December 1976 No At the date of this Prospectus, such rate is 9.5% per annum. The Managers reserve the right, but shall have no obligation, to make [two] additional debits through 6 March 2014 if there are insufficient funds on the debiting date. Should payment not be made when due, the Managers reserve the right, at the risk and cost of the subscriber, to cancel the subscription and to re-allot or otherwise dispose of the allocated shares, on such terms and in such 44

50 manners as the Managers may decide in accordance with applicable law. The original subscriber will remain liable for payment of the subscription price, together with any interest, costs, charges and expenses accrued, and the Managers may enforce payment for any such amount outstanding. The increase in the share capital is expected to be registered on 7 March 2014 and the Offer Shares are expected to be issued in VPS on the same date. Subject to receipt of payment from each subscriber, delivery of the Offer Shares is expected to take place on 7 March Any delay in the issuance of the Offer Shares will cause a corresponding delay in their delivery. The Offer Shares will be delivered in registered book-entry form in VPS. Announcement... Pre-emptive rights... Announcement of the completion of the Subsequent Offering will be made on Oslo Børs upon completion, expected to be made on or about 7 March Eligible Shareholders are being granted non-tradable subscription rights which each give the right to subscribe for and be allocated one Offer Share in the Subsequent Offering. A total of approximately 55 million subscription rights are being issued. The persons qualifying as Eligible Shareholders are the existing shareholders of the Songa Offshore SE Company holding less than 110,000 Shares as at the end of 22 November 2013, as registered in VPS on the Record Date (27 November 2013), and who were not allocated New Shares in the Private Placement and who are not resident in a jurisdiction where such offering would be unlawful, or would (in jurisdictions other than Norway) require any prospectus filing, registration or similar action. Eligible Shareholders are being granted 1.2 Subscription Rights for each share held on the Record Date, rounded down to the nearest integral number. The Subscription Rights are being credited to each Eligible Shareholder s VPS account. The number of Subscription Rights granted to each Eligible Shareholder is also printed on the information letter sent to each Eligible Shareholder. The Subscription Rights are non-tradable and are restricted from transfer. Upon the end of the subscription period for the Subsequent Offering the subscription rights will lapse without compensation to the holder. Categories of investors... Allocation to related parties and large investors... The Subsequent Offering is being made to the Eligible Shareholders and to other investors, with preferential allocation to Eligible Shareholders based on their subscription rights. No specific tranche being allocated to any category of investors. Perestroika AS, the largest shareholder of Songa Offshore SE, will not subscribe for Offer Shares in the Subsequent Offering. Songa Offshore SE is not aware of the intention of any of its major shareholders or members of its management, supervisory or administrative bodies to subscribe for Offer Shares, nor of the intention of any person to subscribe for more than 5% of the Offer Shares. Pre-allotment disclosure... The Subsequent Offering will not be split into specific tranches (such as retail or employee tranches). No claw-back arrangement is in place for the Offer Shares. With the exception of the Offer Shares allocated to holders of 45

51 subscription rights, there is no other pre-determined preferential treatment to any class of investors or affinity groups. Allocation will be independent on which manager the subscription is received by. No minimum allocation will be applied. Allocation of Offer Shares will take place on or about 26 February In determining the allocation, subscriptions that are based on subscription rights will be allotted one Offer Share for each subscription right owned. In the event that not all issued subscription rights are exercised, subscribers who have subscribed on the basis of subscription rights and who have oversubscribed, will be allocated further Offer Shares proportionally to the number of subscription rights they have exercised. Out of the 61 million shares covered by the Subsequent Offering, approximately 6 million Offer Shares are not covered by subscription rights. The Company reserves the right to allocate these approximately 6 million Offer Shares at its discretion in order to remedy any inconsistencies in connection with the allocation of subscription rights, determination of the eligibility of Eligible Shareholders (e.g. as a consequence of nominee arrangments) or otherwise. Any Offer Shares remaining after allocation to the holders of subscription rights and the allocation being done at the discretion of the Company, including any allocated as a result of an over-subscription, will be allocated to other investors based on their pro rata subscribed amount. Fractions of shares will not be issued. Notification of allocation... The allocation will be communicated to each subscriber who has been allotted shares by means of a letter from Nordea Bank Norge ASA in its capacity as the Company s registrar. The letter will state the number of shares allotted and the corresponding amount to be paid. The letter is expected to be sent on or about 26 February The allotted Offer Shares will not be transferable until they have been fully paid and registered at the subscriber s account in VPS. Over-allotment / green shoe. Pricing... Basis for pricing; reasons for revoked pre-emptive rights... Potential disparity between the subscription price and cost to related persons... Managers... No over-allotment will be applied in the Subsequent Offering and no stabilisation measures will be undertaken as part of the Subsequent Offering. The subscription price for Offer Shares in the Subsequent Offering is fixed at NOK 2.50 per shares, which is the same subscription price as was applied in the Private Placement. No expenses or taxes are charged to the subscriber for their subscription in the Subsequent Offering. The right to preferential allocation in the Subsequent Offering is afforded to the Eligible Shareholders and not to the shareholder base as a whole. As such, pre-emptive rights have been restricted. The background for the restriction of such pre-emptive rights in the Subsequent Offering is to offer the Eligible Shareholders the right to subscribe for Offer Shares on the same terms as were applied in the Private Placement. To the knowledge of Songa Offshore SE, no member of administrative, management or supervisory bodies or senior management have acquired shares in Songa Offshore SE during the past year, or have rights to acquire such shares, at a share price which is lower than the subscription price applied in the Subsequent Offering. The managers of the Subsequent Offering are Fearnley Securities AS, P.O.Box 1158 Sentrum, N-0107 Oslo, and Swedbank Norway, part of 46

52 Swedbank Ab (publ), Filipstad Brygge 1, N-0250 Oslo, Norway. Depository agent... Underwriting... Nordea Bank Norge ASA, Verdipapirservice, P.O. Box 1166, N-0107 Oslo, Norway. No underwriting or guarantee for the full subscription of the Subsequent Offering is being provided. Admission to trading and dealing arrangements The following main terms apply to the listing of the Offer Shares, being the shares issued under the Subsequent Offering Listing of the Offer Shares... Market maker arrangements... Stabilisation arrangements... The Offer Shares issued by the Subsequent Offering become tradeable on Oslo Børs under the trading symbol SONG upon their issuance and payment, which is expected to take place on or about 7 March No arrangements have been made for the trading of the Offer Shares on other regulated markets. Songa Offshore SE does not have arrangements with entities to provide market making or similar activities. No price stabilisation arrangements are in place or have been made in respect of the Offer Shares. Shares following the Subsequent Offering As a consequence of the Subsequent Offering, the number of issued Shares in the Company may be increased from 812,912,544 up to a maximum of 873,912,544 Shares, each with a nominal value of EUR The Company has only one class of shares outstanding and all Shares are freely transferable Dilution Shareholders who do not participate in the Subsequent Offering will be subject to a direct dilution of their ownership as set forth in the table below, calculated on the basis that the Subsequent Offering is fully subscribed: Prior to the Subsequent Offering Subsequent to the Subsequent Offering Number of Shares, each with a nominal value of EUR ,912, ,912, % dilution... 0% 7% Publication of information relating to the Subsequent Offering In addition to press releases, which will be posted on the Company s website, the Company will use Oslo Børs information system to publish information relating to the Subsequent Offering. 47

53 8 MARKET OVERVIEW 8.1 Introduction Songa Offshore operates in the international oil service industry within offshore drilling, and owns a fleet of five semi-submersible rigs, all operating in the midwater segment. Rigs, related equipment and crews are generally contracted on a dayrate basis to oil exploration and production companies. Currently, Songa Offshore operates in the offshore crude oil basins in the North Sea and offshore Malaysia and Vietnam. Songa Offshore has four additional semi-submersible drilling rigs under construction, for planned delivery in 2014 and 2015, all of which are contracted for long term employment in Norwegian waters, with Statoil as charterer. 8.2 General industry drivers Growth and demand within the offshore oil and gas services industry are affected by the following key factors: i. Oil and gas prices and demand: Oil and gas E&P spending is the key driver of demand in the oil and gas services industry. E&P spending is directly linked to the earnings of oil and gas companies which are, in turn, dependent on average oil and gas prices. Volatility in oil prices can therefore reduce the ability of oil and gas companies to budget for increased E&P spending. However, while market expectations of a potential decline in oil prices will affect E&P spending and activity, ultra-deepwater projects, being large projects with longer lead times and long-term outlooks, are less affected by short-term changes in oil price. According to the IEA, global oil demand is expected to increase steadily to 99.7 mb/d in 2035, from 87.4 mb/d in 2011, and the average price of crude oil is predicted to rise to USD 125/barrel (in year 2011 dollars) by 2035 (IEA, World Energy Outlook 2012, 12 November 2012). Non-OECD oil consumption is forecast to average out at approximately 46.5 mb/d in 2014, an increase of 1.4 mb/d (or 3.1%) compared to 2013 and well above the OECD average of 45.5 mb/d. China is forecast to remain the main engine of demand growth in 2014, followed by the rest of Asia and the Middle East, with demand projected to increase by 385 kb/d, 325 kb/d and 225 kb/d, respectively (IEA Oil Market Report, 10 July 2013). ii. Reserve replacements: The future production capacity of the oil and gas industry depends on the ability of oil and gas companies to maintain a sustainable reserve replacement ratio through the discovery and development of new reservoirs or improvements in oil recovery techniques. Currently, oil and gas companies are barely able to fully replace the hydrocarbons they produce, and the IEA reports that proven reserves of oil worldwide (an indication of the near- to medium-term potential for new production) increased slightly by 1,523 billion barrels, or 3.6%, at the end of 2011, compared to the year before (IEA, World Energy Outlook 2012, 12 November 2012). iii. Increased emphasis on E&P spending: Oil and gas companies are increasing both their total E&P spending as well as their proportion of E&P spending on offshore activities. According to the IEA (IEA, World Energy Outlook 2012, 12 November 2012), upstream oil and gas investments rose by approximately 8% in 2012 relative to 2011, reaching a new record of USD 619 billion an increase of 20% compared to 2008 and five times the level of investments in The largest growth in E&P spending in recent years has been in deepwater exploration and production, partly driven by the lack of new, large, onshore and shallow water discoveries. The IEA predicts that upstream oil and gas investments will 48

54 remain high in the coming years, with global investments averaging USD 615 billion per year (IEA, World Energy Outlook 2012, 12 November 2012). Future upstream investments will have an increased offshore focus, as exploration and development continues to move towards harsher and deeper waters. Offshore E&P spending (USDbn) Opex Exploration Capex Capex Source: Rystad Energy UCube, December 2013 iv. Drilling technology and innovation: Recent advances in offshore technology have improved the ability of oil and gas companies to develop reservoirs in deeper waters, and in harsh and more remote locations. A new class of drilling rigs has emerged, with the ability to drill wells of up to 40,000 feet and in some cases even up to 60,000 feet, in water depths of up to 12,000 feet, and with them, new types of subsea construction vessels and production facilities. v. General political and economic environment: Changes in the political, economic and regulatory environment across regions affect global demand for oil services. The political and regulatory regimes of a country also have a significant impact on the level of oil and gas extraction activity within its territory. Changes in tax rules could also alter the profitability of certain projects and accordingly, E&P spending. vi. Increased focus on QHSE: Due to the potentially serious consequences of an accident within the offshore oil and gas industry, the industry has developed high standards to mitigate risks associated with QHSE. There has been increased focus on this area after the Macondo incident in 2010, and, to an increasing extent, oil and gas companies will contract only with oil and gas companies that have the procedures and know-how to adequately manage these risks. This trend has increased the barriers to entry in the industry. 8.3 Contract drilling and rig classification Most drilling rigs are owned by industry participants that engage in drilling operations as their primary or only activity. The drilling rig industry is populated to a large extent by U.S. industry participants, although Norwegian industry participants have increased their presence in recent years. Drilling rigs are broadly divided into onshore rigs and offshore rigs. Offshore rigs are in turn categorised by rig design and drilling capability at various water depths. 49

55 Jack-ups Semi-submersibles Drillships Jack-ups are mobile bottom-supported self-elevating drilling platforms that stand on three legs on the seabed. When the rig is to move from one location to another, it will jack itself down on the water until it floats, and will be towed by a supply vessel or similar to its next location. A modern jack-up will normally have the ability to move its drill floor aft of its own hull (cantilever), so that multiple wells can be drilled at open water locations or over wellhead platforms without repositioning the rig. Ultra premium jackup rigs are rigs with enhanced operational capabilities which can work in water depths >300ft. Semi-submersible rigs are floating platforms and feature a ballasting system that can vary the draft of the partially submerged hull from a shallow transit draft, to a predetermined operational and/or survival draft (50-80 feet) when drilling operations are underway at a well location. This reduces the rig s exposure to ocean conditions (waves, winds, and currents) and increases stability. Semisubmersible rigs maintain their position above the wellhead either by means of a conventional mooring system, consisting of anchors and chains and/or cables, or by a computerised dynamic positioning system Drillships are ships with on-board propulsion machinery, often constructed for drilling in deep water. They are based on conventional ship hulls, but have certain modifications. Drilling operations are conducted through openings in the hull ( moon pools ). Drillships normally have a higher load capacity than semisubmersible rigs and are well suited to offshore drilling in remote areas due to their mobility and high load capacity. Like semi-submersible rigs, drillships can be equipped with conventional mooring systems or DP systems. Drilling at water depths of less than 400 feet generally requires drilling barges or jackup rigs. Drilling barges are used primarily for inland, shallow water drilling. This form of drilling typically takes place in lakes, swamps, rivers, and canals. Jackup rigs are similar to drilling barges, with the difference that once a jack-up rig is towed to the drilling site, three or four legs of the rig are lowered until they rest on the sea floor. This allows the working platform to rest above the surface of the water, as opposed to a floating barge. Jackup rigs are only suitable for shallow waters, as extending these legs beyond a certain depth would be impractical. Drilling at water depths exceeding 400 feet generally requires the use of semi-submersible rigs or drill ships, commonly referred to as floaters. Semi-submersible rigs are floating platforms that feature a ballasting system that can lower parts of the hull to a predetermined depth (typically feet). Drill ships are ships that have been constructed in order to conduct drilling operations through openings in the hull. Drill ships normally have greater mobility and a higher load carrying capacity than semi-submersible rigs, but are less stable in harsh weather conditions. Both types of rigs retain their position above the wellhead either by means of a conventional mooring system, consisting of anchors and chains, or cables, or by a computerised dynamic positioning system. The Company currently operates five semi-submersible rigs and has another four semisubmersibles on order, and therefore operates in the floater segment of the offshore drilling industry. Depending on the depth of the water in the location of the wells, the oil drilling industry comprises four separate segments: the shallow water segment (for depths less than 400 feet), the midwater segment (for depths between 400 and 4,000 feet), the deepwater segment (for depths between 4,001 and 7,500 feet) and the ultra-deepwater segment (for depths between 7,501 and 12,000 feet). All five existing units operate in the midwater segment while are capable of operating in the ultra-deepwater segment. All of the four newbuildings are midwater units. 50

56 Market segment Water depth Typical rig type(s) Shallow water... Less than 400 feet Midwater ,000 feet Deepwater... 4,001 7,500 feet Ultra-deepwater... 7,501 12,000 feet Jackup rigs and barges Second and third generation semisubmersible rigs and drillships Second, third, fourth and fifth generation semi-submersible rigs and drill ships equipped with dynamic positioning systems Fifth, sixth and seventh generation semi-submersible rigs and drill ships equipped with dynamic positioning systems 8.4 Global floater fleet evolution In the mid-1970s and early 1980s, a large number of floaters were ordered and delivered due to various factors, including supportive commodity prices. Between 1979 and 1988, in particular, 74 floaters were delivered, which led to significant over-supply of rigs in the offshore drilling market until the middle of the1990s. Consequently, few floaters were built over the last two decades. A new construction cycle commenced a few years ago, and is expected to match the building cycle of the mid 1970s and mid 1980s in certain water-depth segments, with 103 new-builds expected to be delivered. Global floater fleet by year of delivery (# rigs) Planned On Order Under Construction Delivered 5 0 Source: ODS Petrodata, Decemeber 2013 The global floater fleet currently consists of 312 units. In recent years, there has been a sharp increase in the construction of floaters as large companies have increased their focus on offshore and deepwater exploration. 53 floaters are currently under construction, 46 floaters are on order and 4 are planned. 19 of the newbuilds are scheduled for 2013, 28 for 2014, 28 for 2015 and 20 for

57 Cumulative global floater fleet by year of delivery (# rigs) Ultra deepwater Deepwater Midwater Source: ODS Petrodata, December Floater fleet by company The established U.S. industry participants, such as Transocean and Diamond Offshore, dominate the market for floaters, owning 79 and 38 floaters, respectively. The second tier of industry participants consists of Seadrill (31), Ensco (29) and Noble (27). Global floater fleet by company (# rigs) On Order Under Construction Delivered Source: ODS Petrodata, December 2012 Offshore drilling markets are primarily supply/demand driven because different types of offshore drilling rigs are relatively similar in functions and qualities (after adjusting for differences in waterdepth capabilities, which is the primary differentiating factor among different types of rigs). Consequently, the offshore drilling industry has witnessed consolidation since the early days and this trend is expected to continue in the future. 8.6 Midwater rig supply and key market players Global supply. The global midwater market contains 123 floaters, of which 114 are semisubmersible rigs and nine are drill ships. The current order book consists of eight new-builds; 52

58 seven semi-submersible rigs and one drillship. The midwater segment is one of the most consolidated in the offshore drilling market, with the top five industry participants owning 67 units representing 54% of the current fleet. Transocean and Diamond Offshore are the largest midwater drilling companies with 47 units alone (of which, seven and three are currently cold-stacked, respectively). Songa Offshore is the third largest industry participant with 9 (counting the four currently on order), followed by COSL with six and Ensco and Dolphin with five midwater floaters each. Global midwater floater fleet by company (# rigs) Under Construction Delivered 0 Source: ODS Petrodata, December 2013 Midwater floater supply is relatively regional, thereby limiting rig mobilisation between regions. For example, drilling contracts in offshore Brazil (where 14 of the floaters are currently stationed) tend to have exceptionally long terms and are expensive to move to other regions. On the other hand, drilling operations in the Norwegian midwater segment (where 19 of the floaters are currently stationed) is subject to stringent regulatory requirements, which increase the compliance costs and operate as indirect barriers to entry to new competitors. This creates favourable competitive environments for incumbent drilling companies. In the later years many drilling companies have favoured building deepwater and ultra-deepwater rigs. As a result the current dedicated midwater fleet has large bias of older rigs and there has been a large degree of deepwater units working in waters where such high depth rating has not been required. Of current 115 units delivered, 105 units are more than 20 years of age. Songa Offshore s CAT-D units are purpose built units for the midwater segment. Of the 105 midwater units currently in operation, only 20 units are authorised to operate in Norwegian waters. There are currently five midwater units under construction targeting the Norwegian market, including the four CAT-D units for Songa Offshore. 53

59 Global midwater floater fleet by year in service (# rigs) Source: ODS Petrodata, December 2013 Norway. The Norwegian midwater market is relatively closed with fewer industry participants due to a stringent regulatory environment. Rigs operating in Norway are required to receive an Acknowledgement of Compliance (AoC) from the Norwegian government. The AoC is contingent on adherence to strict regulations in areas such as safety, documentation and accommodation. Upgrading non-aoc rigs to comply with the AoC requirements can be costly and may require significant time. Currently, only 19 floaters in the midwater segment are qualified to operate in the Norwegian midwater segment, three of which belong to Songa Offshore (in addition all four on order will have AoC). Other players in the market include Transocean, Fred Olsen Energy (Dolphin), COSL, Stena, Diamond Offshore, NADL and Odfjell Drilling. The following chart illustrates the market shares of the delivered midwater floaters certified to operate in offshore Norway. Norwegian midwater floater fleet by company Diamond Offshore; 1 Stena; 1 North Atlantic Drilling; 1 Transocean; 5 Odfjell Drilling; 2 COSL; 3 Dolphin; 3 Songa Offshore; 3 Source: ODS Petrodata, December Global midwater utilisation/demand The utilisation rates discussed below are not representative of the utilisation rates that the Company may be able to achieve in the future. The midwater segment has had stable utilisation at around 90% the last 7 years. In historical down-cycles, utilisation rates decreased to approximately 75%, falling as low as 60% in the 1980s due to the increase in the supply of drilling units in the previous years. The current order book for 54

60 des. 85 jul. 87 feb. 89 sep. 90 apr. 92 nov. 93 jun. 95 jan. 97 aug. 98 mar. 00 okt. 01 mai. 03 des. 04 jul. 06 feb. 08 sep. 09 apr. 11 nov. 12 (# rigs) (Utilization %) des. 85 jul. 87 feb. 89 sep. 90 apr. 92 nov. 93 jun. 95 jan. 97 aug. 98 mar. 00 okt. 01 mai. 03 des. 04 jul. 06 feb. 08 sep. 09 apr. 11 nov. 12 (# rigs) (Utilization %) newbuild midwater floaters consists of only five units, compared to 52 midwater rigs delivered in the years 1980 to It is estimated that 17 midwater rigs are currently cold-stacked while nine are hot or warm-stacked, further reducing the marketable supply of the midwater rigs. Many midwater rigs that are currently in operation were built in the 1980s building cycle These rigs will likely require extensive yard stays for repairs and upgrades to continue drilling in increasingly regulated markets going forward. Global midwater floater fleet utilisation % 90 % 80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0 % Supply (# rigs) Demand (# rigs) Marketed Util % Source: ODS Petrodata, December 2013 Due to the indirect barriers of entry to the Norwegian offshore drilling market imposed by the stringent regulatory framework, utilisation rates in Norway have historically remained high with operators largely operating at full capacity. The average Norwegian midwater utilisation rate has been close to 100% since North Sea midwater floater fleet by activity with utilisation % 90 % 80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0 % Supply (# rigs) Demand (# rigs) Marketed Util % Source: ODS Petrodata, April 2012 The high utilisation rates are expected to continue given the revitalised interest and activety on the NCS following major discoveries and the anticipation of opening previously closed areas for exploration (e.g. Arctic Ocean and Northern Norwegian Sea). 55

61 Norway has been the second most prolific offshore oil and gas region over recent years, with large discoveries in the North Sea and in the Barents Sea. The North Sea region is still the largest offshore market in the world and activity will increase going forward. From its peak in 2000, Norwegian oil production has declined. To compensate for this declining trend, the number of drilled wells has increased significantly to a level well above 120 wells per year (drilled from mobile offshore drilling units). According to the CEO of Petoro, manager of the Norwegian Government s oil and gas licenses on the NCS, there is a substantial challenge to secure sufficient rigs to drill production wells for securing the value in existing fields as well as exploration wells (Petoro Annual Results 2012). Of all the wells drilled on the Norwegian Continental Shelf, 64% has been within the midwater segment. 36% has been within the shallow water segment, ether covered by jack-up rigs or by midwater semi-submersibles. Only 16 wells has to date been drilled in waters where a deepwater rig was required. # wells drilled on NCS by water depth (m) ft (Deepwater ft (Midwater) < 400ft (Shallow water) Source: NPD Some of the largest discoveries on the NCS to date were made in 2011 and 2012: the major Johan Sverdrup oil and gas field in the North Sea and the Skrugard and Havis discoveries in the Barents Sea. Drilling contracts in Norway generally have shown longer durations and longer lead times compared to other comparable offshore drilling markets. Most of the recent awarded day rates for modern and high-specification semi-submersibles in Norway range from USD 480,000 USD 580,000, depending on contract type and length. Another indication of the uptick in activity on the NCS is Kvaerner s long list of new North Sea field developments. 56

62 des 1985 nov 1986 okt 1987 sep 1988 aug 1989 jul 1990 jun 1991 mai 1992 apr 1993 mar 1994 feb 1995 jan 1996 des 1996 nov 1997 okt 1998 sep 1999 aug 2000 jul 2001 jun 2002 mai 2003 apr 2004 mar 2005 feb 2006 jan 2007 des 2007 nov 2008 okt 2009 sep 2010 aug 2011 jul 2012 jun 2013 Kvaerner s list of upcoming projects Source: Kvaerner 8.8 Global midwater dayrates The following discussion of dayrate development is not representative of the dayrates that the Company may be able to obtain in the future. Dayrates in the midwater segment have increased significantly over the last five years. Rising commodity prices, falling oil production and strong demand, particularly from China and the Middle East, were factors that increased E&P budgets and dayrates. However, the recent global economic downturn, combined with a lower oil price environment making fewer oil fields profitable, resulted in the midwater floater market experiencing a setback in terms of dayrates in The industry witnessed declines in dayrates in the midwater segment from USD 400,000 USD 500,000 levels to USD 250,000 USD 375,000 levels, reflecting a more cautious approach by oil companies to E&P spending. Global midwater floater fleet dayrates (USDth/day) Worldwide - Semi <= Average (US$) Worldwide - Semi Average (US$) Norway - Semi Harsh Standard - Average (US$) Source: ODS Petrodata, December 2013 Norway. Dayrates in the Norwegian midwater segment are currently at historical high levels, averaging approximately USD 450,000 for midwater rigs, up from approximately USD 150,000 in 2004, with recent fixtures significantly above average. In October 2013 Transocean Winner (1,500ft wtd, built 1983) was fixed for 18 months at USD 499,000/d with start up in January 2015, and in October 2012 Stena Don (1,640ft wtd, built 2001) was fixed with Statoil, starting late 2013 at USD 496,350/d. 57

63 9 BUSINESS AND GROUP OVERVIEW 9.1 Overview Songa Offshore is a group of companies, with Songa Offshore SE as the group parent company, whose principal business is to construct, own and operate drilling rigs to be used in the exploration and production of hydrocarbons. Songa Offshore owns five semisubmersible drilling rigs and has four additional semisubmersible drilling rigs under construction, for planned delivery in 2014 and Three of the existing rigs, and all of the four rigs under construction, are contracted for long term employment in Norwegian waters, with Statoil as charterer. These rigs have an aggregate contract backlog of approximately USD 6.7 billion, with options corresponding to approximately USD 8.2 billion of additional revenues. 9.2 Songa Offshore s object and business strategy As stated in the Memorandum of Association of Songa Offshore SE, its object is ownership, acquisition and operation of vessels, rigs and offshore installations, as well as other related business, and it may also acquire and own shares, securities and ownership interests in other companies. Songa Offshore has defined its vision as follows: Songa Offshore shall be the preferred Midwater Drilling Contractor with a strong presence in the harsh environment North Atlantic Basin. Songa Offshore intends to accomplish this vision by: Providing safe and cost efficient operations which exceeds its customers expectations; Following its customers world wide; Being recognised for having competent and passionate employees combined with robust systems and procedures; Working with its customers to effectively utilise value added technologies; Taking on management contracts, with a special focus on South East Asia; and Offering high-quality engineering and Rental Services Business overview Nature of operations Songa Offshore is, and has been since its formation, primarily involved in ownership, acquisition and operations of mobile offshore drilling units. Songa Offshore refers to its business as being a drilling contractor, a term used to signify that it provides drilling services to oil and gas companies. The term mobile offshore drilling units, which is often abbreviated as MODUs, is used to describe rigs, drillships, and other equipment used in the offshore drilling activities. Songa Offshore focuses its business on semisubmersible drilling rigs, although Songa Offshore has also in the past (from 2005 to 2010) been involved in the ownership of a drillship. 58

64 Offshore drilling takes place in several geographical locations worldwide. Songa Offshore currently focuses on the Norwegian sector of the North Sea and the Norwegian Sea for a majority of its fleet and for all of its rigs under construction, although it does also have two rigs operating in South East Asia. In the past, Songa Offshore has also had drilling operations in Angola ( for a rig now sold), in Cuba ( for a rig now operating in South East Asia), and in Central and North Africa ( ). Songa Offshore generates its revenues from providing drilling services. Revenues are a product of the applicable day rate and the number of days in operation. Songa Offshore s ability to generate a profit stems from the margin between such revenues and the expenses associated with the rigs, the applicable overhead expenses, depreciation, financing costs, and taxes. Overview of rigs and contracts The Group s core asset base consists of five semisubmersible drilling rigs and four semisubmersible rigs under construction at the Korean yard DSME. A summary of the technical details of each of these units are set out below. For a detailed overview of the rig and equipment, please refer to the Company s web site at Songa Dee Rig type: Built: Design: Upgraded: 2004 / 2012 Next main survey: Flag: Class: Water depth: Drilling capacity: Accommodation: Operation: Contract status: Semi-submersible drilling rig, winterised 1984, Mitsubishi Heavy Industries, Ltd. Mitsubishi type MD-602 enhanced 3Q 2014, estimated at USD 90 million Marshall Islands DNV Class A1 Column Stabilised Unit 1,800 ft 30,000 ft sick berths Songa Offshore Employed on Norwegian Continental Shelf with Statoil as customer on a five year contract ending in third quarter The current day rate is approximately USD 353,000. Statoil has the right to extend the contract with up to one year at the then prevailing market rate. 59

65 Songa Delta Rig type: Built: Design: Semi-submersible drilling rig, winterised 1981, Rauma Repola Oy, Pori Finland Modified Ocean Ranger design Upgraded: 1996, 2011, extensive upgrade completed in 2012 Next main survey: 4Q 2016 Flag: Class: Water depth: Drilling capacity: Accommodation: 100 Norwegian DNV + 1A1 Column Stabilised Unit 2,300 ft 25,000 ft Operation: Songa Offshore since 2012 Contract status: Employed on Norwegian Continental Shelf with Statoil as customer on a four year contract ending in third quarter The current day rate is approximately USD 360,000. Statoil has the right to extend the contract with up to one year at the then prevailing market rate. Songa Trym Rig type: Built: Semi-submersible drilling rig, winterised 1976, Verdal/Bergen Design: Modified Aker H-3 Upgraded: Next main survey: 1Q 2018 Flag: Class: Water depth: Drilling capacity: Accommodation: 1996, 2002, 2005, extensive upgrade completed in 2012 and 2013 Norwegian DNV Class A1 Column Stabilised Unit 1,312 ft 25,000 ft sick berths Operation: Songa Offshore since 2012 Contract status: Employed on Norwegian Continental Shelf with Statoil as customer on a contract ending in first quarter The current day rate is approximately USD 368,000. Statoil has the right to extend the contract with up to 20 months at the then prevailing market rate. 60

66 4 x CAT-D rigs under construction Equinox, Endurance, Encourage, Enabler Rig type: Built: Design: Upgraded: - Next main survey: - Flag: - Class: Water depth: Drilling capacity: Accommodation: 130 Operation: Contract status: Semisubmersible drilling rig, harsh environment Scheduled delivery in 4Q 2014 (Equinox, Endurance) and 2Q 2015 (Encourage, Enabler), all from DSME GVA 4000 NCS 1A1 Column Stabilised Drilling unit, DP-3 1,640 ft 28,000 ft Songa Offshore Each of Songa Offshore s CAT-D rigs is contracted with Statoil for 8 year contracts with options to extend for up to four periods of three years each. The current base rate is approximately USD 440,000 per day and is subject to an cost based escalation, as well as an 5% average rate increase during the fixed contract period in a declining rate profile from 9.0% the first full year to 0.0% in year 8, partly offset by a repayment to Statoil of USD 12,500,000 per rig upon Statoil s declaration of each of the two initial three-year option periods. Songa Venus Rig type: Built: Design: F&G L-900 Upgraded: 2005, 2006 Next main survey: 1Q 2015 Flag: Class: Water depth: Drilling capacity: Semi-submersible drilling rig 1975, Bethlehem Steel Corporation Marshall Islands ABS Accommodation: 110 Operation: Contract status: 1,500 ft 25,000 ft Songa Offshore Employed for Mubadala Petroleum in Malaysia and Vietnam on a contract ending in first quarter The current day rate is approximately USD 230,

67 Songa Mercur Rig type: Built: Design: F&G 9500 Semi-submersible drilling rig 1989, Vyborg Shipyard JSC Upgraded: 1999, 2006, 2007 Next main survey: 2Q 2015 Flag: Class: Water depth: Drilling capacity: Marshall Islands DNV Accommodation: 120 Operation: Contract status: 1,200 ft 25,000 ft Songa Offshore Employed for Idemitsu in Vietnam on a contract with estimated completion in June The current day rate is USD 260,000. As a part of its agreement with Statoil and the lending banks in relation to the Refinancing, Songa Offshore agreed that it will use its best endeavours to sell the two rigs Songa Venus and Songa Mercur, being the two only rigs in its fleet that are not related to operations in Norway. Songa Offshore is in negotiations with potential buyers of these rigs, but no agreement has been concluded. Songa Offshore is not yet in a position to give indication of the outcome of these negotiations or the timing of a potential sale Offshore drilling contracts in general The Company expects its future contracts for the provision of offshore drilling services to vary in their terms and conditions. The Company may obtain drilling contracts either through competitive bidding or through direct negotiations with oil companies. Drilling contracts generally provide for a fixed day rate that is payable regardless of whether the drilling results in a successful well. Drilling contracts usually provide for lower rates for days on which the rig is in transit or drilling operations are interrupted by adverse weather conditions or other conditions beyond the Company s or the customer s control. Likewise, the Company may receive lower day rates or no day rates at all, for periods during which drilling is restricted or interrupted as a result of equipment breakdowns. Under typical drilling contracts, such interruptions in drilling operations that accumulates to more than one to two days per month result in a loss of day rate, and longer interruptions (typically lasting for more than 15 to 30 consecutive days) may permit the oil company to cancel the drilling contract. The Company typically would continue to incur full operating costs during any interruptions in the operation of its rigs. Certain interruptions caused by technical breakdowns may be covered by the Company s insurance. However, the Company has a policy of not having Loss of Hire insurance. Some day rate contracts provide for the payment of performance bonuses. Payments under day rate contracts are expected to account for the most substantial portion of the Company s revenues. As a result, it is unlikely that the Company will realise revenues from its rigs for periods during which they are not under contract or are not in use due to repairs or maintenance. Under day-rate contracts, the Company will be responsible for all operating expenses of its rigs, including wages, supplies, insurance, repair and maintenance costs and the fees payable under its rig management contracts with third parties. The duration of day rate contracts generally encompasses either the drilling of a single well or group of wells or a stated calendar period (the latter being known as term contracts ). Drilling 62

68 contracts may usually be terminated by the customer if the rig is destroyed or lost, if the performance of the contractor does not meet the contractual obligations, or if drilling operations are suspended for a set period of time due to a breakdown of equipment or certain events beyond the control of the parties. Contract overview The graph below shows the contracts for the drilling fleet: Unit Customer Current Option Day rate Day rate Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Norwegian Continental Shelf Songa Dee Statoil 353 Songa Trym Statoil 368 Songa Delta Statoil 360 Rate end of firm contract Rate end of firm contract Rate end of firm contract NCS Newbuilds Cat D-1 Statoil 440 Cat D-2 Statoil 440 Cat D-3 Statoil 443 Cat D-4 Statoil 447 Firm contract end rate + $15 k Firm contract end rate + $15 k Firm contract end rate Firm contract end rate 8 year firm + 4x3 year options 8 year firm + 4x3 year options 8 year firm + 4x3 year options 8 year firm + 4x3 year options International Songa Venus Petronas Malaysia/Mubadala Songa Mercur Eni/Idemitsu/Muba dala Contract Yard and mobilization Option IS / SPS / Shipyard Operating statistics and operating expenses The tables below sets forth the operational efficiency and earnings efficiency for the drilling rigs currently owned by Songa Offshore for the respective years. Operational efficiency is a measure to illustrate how much of the available time that the the rig is actually operating, and illustrates the time lost due to factors specific to the rig and/or its crew. Earnings efficiency is a measure to illustrate how much of actual time that the rig is on day rate, and will often (but not always) be lower than operating efficiency since it takes into account days used for reduced or no revenue such as yard stays, rig moves, etc. Operational efficiency (averages) Q 2013 Norwegian rigs (Dee, Delta, and Trym) 95.5% 95.7% 96.0% 96.2% International rigs (Mercur and Venus) 91.9% 75.1% 99.2% 93.5% Earnings efficiency (averages) Q 2013 Norwegian rigs (Dee, Delta, and Trym) 96.8% 96.4% 89.0% 96.8% International rigs (Mercur and Venus) 89.6% 66.7% 98.4% 79.0% The table below sets forth the average daily operating expenses relating to the drilling rigs currently owned by Songa Offshore for the respective years. These expenses include direct costs attributable to the rigs, but do not take into account shoreside costs or overheads, depreciation, financing costs, or taxes. The calculations are based on actual historical costs (including periods when rigs have been out of service with lower than normal operating expenses) divided by calendar days in each period. 63

69 Operational efficiency (averages) Q 2013 Norwegian rigs (Dee, Delta, and Trym) 197, , , ,000 International rigs (Mercur and Venus) 120,000 98, , ,000 Further detail on the CAT-D project In July 2011, Songa Offshore received and announced a letter of agreement from Statoil for two new build CAT-D semisubmersibles with firm terms of 8 years each with four option periods, each of three years, that could extend the period to 20 years. Statoil awarded the contract for the two new build Cat D rigs on behalf of the participants in the Troll license. Subsequently, in February 2012, Songa Offshore received and announced a letter of agreement from Statoil for two additional CAT-D semisubmersible rigs. The contract period is for 8 years with four option periods, each of three years, that could extend the period to 20 years. The CAT-D project is a large industrial project which is undertaken in close contact between Songa Offshore and Statoil. The rigs have been designed and specified by Statoil to meet with the long term demands of its drilling requirement on the Norwegian continental shelf, and are expected to be workhorses in its development and exploration drilling activities. The contracts with Songa Offshore were awarded after a competitive bidding process. As counterpart to the respective contracts with Statoil, Songa Offshore has contracted with the Korean yard DSME to deliver the four new CAT-D drilling rigs in accordance with the specifications provided by Statoil. Songa Offshore expects that the average ready-to-drill cost for each CAT-D rig will be approximately USD 660 million, plus capitalised interest. As per end October 2013, the construction progress for each of the CAT-D rigs was: Songa Equinox Songa Endurance Songa Encourage Songa Enabler 75.70% overall progress 72.80% overall progress 38.30% overall progress 12.10% overall progress The rigs are somewhat delayed compared to original schedule due to yard and sub-suppliers capacity issues, but are expected to be delivered in fourth quarter 2014 (CAT-D-1, Songa Equinox, and CAT-D-2, Songa Endurance ) and second quarter 2015 (CAT-D-3, Songa Encourage, and CAT-D-4, Songa Enabler ). Upon delivery from yard, the contract with Statoil provides for a payment of USD 40 million per rig to compensate for mobilisation and commissioning costs. Songa Offshore expects to mobilise the CAT-D rigs to Norway by means of the rigs own propulsion systems, after which the CAT-D rigs will undergo final testing and approval for operation in Norwegian waters (Nw: SUT, Samsvarsuttalelse ). The contracts with Statoil will commence upon the delivery of the respective rigs onto the field in Norway. The structures for the marine drilling contracts for each of the CAT-D rigs are similar in most respects, and are based on a firm contract period of 8 years with four option periods, each of three years, that can extend the contract period up to 20 years. Statoil must declare any such options within one year remaining of the respective period. The rate applicable when drilling is currently at approximately USD 440,000 per rig per day, and is adjusted annually according to defined indices. The difference in rate between the rigs, as shown in the table in Section 9.3.4, primarily reflects a somewhat higher expected operating cost on the CAT-D-4 ( Songa Enabler ), which is planned for operations in the Barents Sea. 64

70 Upon commencement of option periods, if declared, the rates for CAT-D-1 and CAT-D-2 ( Songa Equinox and Songa Endurance ) will be subject to an additional USD 15,000 increase, which will also be subject to further escalation. In November 2013, and as part of the comprehensive refinancing of Songa Offshore, it was proposed to make certain adjustments to the rate structure for the CAT-D rigs. These adjustments were agreed by Statoil and its licence partners in December Under these adjustments, Statoil and its partners agreed to a 5% average rate increase during the fixed contract period in a declining rate profile from 9.0% the first full year to 0.0% in year 8, partly offset by a repayment to Statoil of USD 12,500,000 per rig upon Statoil s declaration of each of the two initial three-year option periods. In addition, Statoil and its licence partners agreed to certain contract amendments that contributed to higher predictability of certain variable rate components. Revenues from the upgrades of Songa Dee, Songa Delta and Songa Trym in 2012 and As part of the extensive upgrades undertaken on Songa Dee, Songa Delta and Songa Trym in 2012 and 2013, Statoil contributed approximately USD 127 million in order to enhance the operational capabilities of the rigs. Statoil s contribution in this respect has been fully paid. The contribution is recognised as revenue over the firm contract period on a straight line basis in accordance with the applicable accounting regulations (IFRS). As such, at initial recognition the contribution has been capitalised as deferred revenue in the balance sheet, and is subsequently recognised as revenue over the firm contract period. The quarterly revenue amounts to approximately USD 3.0 million. 9.4 Corporate information Songa Offshore SE, the parent company of the Songa Offshore group of companies, is a European public company limited by shares organised under the laws of the Republic of Cyprus. Its predecessor company, Songa Offshore ASA, was incorporated on 18 April 2005 as a Norwegian public limited liability company and converted to an SE, by means of a merger between Songa Offshore ASA and Songa Offshore Cyprus Plc, on 12 December With effect from 11 May 2009, the survivor of the merger, renamed Songa Offshore SE, transferred its registered office to Cyprus in accordance with Article 8 of the SE Regulation and Section 7 of the SE Act. The Company is registered with the Cyprus Registrar of Companies with registration number SE 9 and is subject to the laws of Cyprus, and in particular the Cyprus Companies Law. The Company s principal place of business is in Limassol, Cyprus. Its registered office is 4 Profiti Elia Street, Kanika International Business Center, 6th Floor, Germasogeia, Limassol, 4046, Cyprus, visiting address is 25 Kolonakiou Street, Zavos Kolonakiou Centre, Block B, Flat 101, 4103 Limassol, Cyprus, telephone , telefax and its web address is Songa Offshore also has offices in Norway (Stavanger, Oslo and Bergen), Singapore, Malaysia (Kuala Lumpur), Korea (Okpo), and Vietnam (Ho Chi Min City). The Company had a total of 783 employees as of 31 December 2013, whereof 619 employees offshore based. The Company s shares have been listed on Oslo Børs since 26 January 2006 under the ticker code SONG. 65

71 9.5 History and development The following table sets forth a brief overview of the main events in the history and development of the Group. Year Event 2005 Company founded and listed on the Norwegian OTC list Songa Venus and Songa Mercur acquired from IPC Songa Saturn acquired from GlobalSantaFe 2006 Listed on Oslo Børs in January Songa Dee acquired from Stena Songa Venus and Songa Mercur underwent major refitting and upgrading in Singapore 2007 Songa Trym acquired from Odfjell Drilling 2008 Songa Delta acquired from Odfjell Drilling New corporate headquarters established in Limassol, Cyprus Converted to Societas Europaea, Songa Offshore SE 2009 Songa Offshore SE redomiciled to Cyprus 2010 USD 50 million investment in Deepwater Driller Ltd, the owner of UDW rig Songa Eclipse, giving Songa Offshore a 31.25% stake Songa Saturn sold 2011 Increased ownership in Songa Eclipse to 100% Awarded 18 months contract plus 1 firm well for Songa Eclipse with Total E&P in Angola following delivery from Jurong in August Awarded contracts for the two initial CAT-D rigs with Statoil on 8 year tenors, to be constructed at DSME in South Korea 2012 Awarded contracts for two additional CAT-D rigs with Statoil on 8 year tenors, to be constructed at DSME in South Korea Extensive upgrades on Songa Dee, Songa Delta and Songa Trym Songa Eclipse sold with closing in January New management team and strengthening of the Board of Directors Comprehensive refinancing to facilitate successful delivery of the Company s CAT-D rigs as well as to create a solid and sustainable long term financial platform for the Company 9.6 Legal structure of the Group The Company is the parent company for the Songa Offshore group of companies. All group companies are fully owned or controlled, and are direct subsidiaries under Songa Offshore SE unless otherwise stated. The chart below illustrates the organisation structure of the Group. 66

72 SONGA OFFSHORE GROUP LEGAL STRUCTURE AS PER 31 DECEMBER 2013 Songa Offshore SE, CY (SASA) Cyprus Holding Songa Rig AS, (DELA) Norway Operating RIGs Songa Management AS, (SMAN) Norway Mgt Services Songa Services AS, (BOAS) Norway Crew/Pers. Services Songa Services Inter. AS, (SSAT) Norway Crew/Pers. Services Songa Offshore Pte Ltd, (SOPL) Singapore Rig Agent Songa Saturn Ltd, (SATL) Cyprus Songa Delta Ltd, (DELL) Cyprus Songa Management Ltd, (SMAL) Cyprus Mgt Services Songa Eclipse Ltd, CY (SELT) Cyprus Songa Encourage Ltd, (SENC) Cyprus Rig Owner Shenga Trading Company Ltd, (SHEN) Cyprus Songa Offshore Malaysia Sdn Bhd, (SOMA) Malaysia Operating Entity Deepwater Driller Ltd, (DEEP) Cayman Island Songa Pty Ltd, (SPTY) Australia Songa Offshore SE, (SNUF) Norway Financing/IR Songa Management Inc, (SMAI) Songa Saturn Chart. Pte Ltd, (SSCH) Songa Eclipse Manag. Pte Ltd, (SEMP) Pegasus Invest Pte Ltd, (PEGI) Songa Offshore Drilling Ltd, (SODL) Songa Endurance Ltd, (SEND) USA Singapore Singapore Singapore Cyprus Cyprus Operating Entity Rig Owner Songa Offshore SE, (SOBB) Bermuda RIG Owner Songa Saturn Chartering Pte Ltd, (SLIB) Songa Delta Ltd, (DELB) Bermuda RIG Owner (Delta) Songa Eclipse Ltd, (SELB) Bermuda Songa Equinox Ltd, (SEQU) Cyprus Rig Owner (Dee, Mercur, Venus, Trym) Libya Songa Enabler Ltd, (SENA) Cyprus Rig Owner DORMANT / CLOSING DOWN LEGAL ENTITY BRANCH The tables below sets forth the companies and branches constituting the Group, divided between the active companies and dormant companies. Active companies in the Group Name Registration Function Songa Offshore SE Cyprus, SE 9 Group parent company. No operating activities. Songa Rig AS Norway, To operate the Group s drilling rigs operating on the Norwegian continental shelf ( Songa Dee, Songa Delta, and Songa Trym ) as well as the four CAT-D rigs following delivery by the yard and commencement of the marine drilling contracts with Statoil. Songa Management AS Norway, Provides management services to Norwegian operations Songa Management Ltd Cyprus, HE Provides management services to rig owning entities, and provides crew and personnel services for offshore employees on international rigs Songa Offshore Drilling Ltd. Songa Offshore Pte. Ltd. Songa Endurance Ltd (formerly Songa Tor Ltd) Songa Equinox Ltd (formerly Songa Odin Ltd) Cyprus, HE Singapore, R Cyprus, HE Cyprus, HE This company is a subsidiary of Songa Management Ltd. and is an operating entity Provides agency services Will be the owner of Songa Endurance upon its delivery Will be the owner of Songa Equinox upon its delivery Songa Enabler Ltd. Cyprus, HE Will be the owner of Songa Enabler upon its delivery Songa Encourage Ltd Cyprus, HE Will be the owner of Songa Encourage upon its delivery Songa Offshore Malaysia Sdn. Bhd. Malaysia, D Operating company in Malaysia Songa Services AS Norway, Provides crew and personnel services for Norwegian 67

73 Songa Services International AS Norway, crew Provides crew and personnel services for offshore international employees in Norway Songa Offshore SE Norway branch Financing, investor relations, tax Songa Offshore SE Bermuda branch Rig owner of Songa Dee, Songa Mercur, Songa Trym and Songa Venus Songa Delta Ltd Cyprus, HE Rig owner Songa Delta Ltd Bermuda branch Rig owner of Songa Delta Dormant companies Name Registration Function Songa Management Inc. USA Dormant subsidiary of Songa Management AS. Songa Saturn Chartering Pte. Ltd. Songa Saturn Chartering Pte. Ltd. Songa Eclipse Management Pte. Ltd. Singapore Libya branch Singapore Dormant subsidiary of Songa Offshore Pte. Ltd. Dormant Dormant subsidiary of Songa Offshore Pte. Ltd. Songa Saturn Ltd. Cyprus Dormant Pegasus Invest Pte. Ltd. Singapore Dormant subsidiary of Songa Saturn Ltd. Songa Eclipse Ltd. Cyprus Dormant Songa Eclipse Ltd. Bermuda branch Dormant Shenga Trading Company Ltd. Cyprus Dormant Deepwater Drilling Ltd. Cayman Islands Dormant Songa Pty. Ltd. Australia Dormant 9.7 QSMS HSE ( Quality, Safety Management System, Health, Safety and Environment ) policy In an industry where safety is critical, Songa Offshore believes that it is possible to develop competitive advantage through rigorous focus on Quality and Safety Management. Therefore, continuous training, evaluation, improvement and enforcement of the Quality & Safety Management System ( QSMS ) are key management responsibilities. Songa Offshore s integrated Quality & Safety Management System has a set of five policies as its foundation. The five policies detail the focus on people, environment, and assets. A brief abstract is shown below; Quality Policy Songa Offshore will set standards and continuously be raising the bar. HSE Policy Songa Offshore will always put people and the environment first. Ethics Policy Songa Offshore shall be recognised as an organisation with high ethical values. 68

74 Operational Policy Songa Offshore will be recognised as the driller of choice. Security Policy Songa Offshore will ensure the safety and security of company personnel, company assets, and installations by preventing unlawful acts. Quality The management system is constantly under development, this could be based on changes in the organisation, lessons learned from operations, industry best practices, client feedback or simply good 9.7.1ideas, from personnel, that make operations more efficient and/ or safer. Compliance with the Group s Corporate Quality & Safety Management System is mandatory for all personnel at all levels of the Group. To achieve this, the Group maintains an efficient quality assurance program in accordance with applicable international standards. It is designed to ensure that all quality and regulatory requirements are recognised and that a consistent and uniform control of these requirements is adequately maintained. The Group seeks to incorporate guidance from the International Marine Contractors Association (the IMCA ) and the International Association of Drilling Contractors (the IADC ). The Group is audited annually, against the ISM Code and has received the Document of Compliance (DOC) Certificate by American Bureau of Shipping (ABS), on behalf of the two flagstates Marshall Island and Norway, which essentially means the Group s Quality Safety Management System suffices international requirements of all facets of safety, health and the environment. The Group seeks to continually develop the Group s quality management and improvement systems, by identifying the expectations and needs of its customers and by processes including data collection and experience feedback from users of the systems, both onshore and offshore Health, safety and the environment (HSE) Through the QSMS, Songa Offshore applies a robust operational Risk Management process to all activities, the resulting outcome being efficient operations and a safe and healthy working environment for the crew. Supporting this, the main objective for corporate organisation is to standardise a common approach for all operations within the company. Whilst Songa Offshore acknowledges that there are various regional rules and regulations that must be complied with, these requirements must be handled by regional management, in conjunction to corporate processes and procedures. Songa Offshores common minimum processes and procedures for all activities worldwide are described through the QSMS. In addition, Songa Offshore has set the standard that all rigs will have valid HSE Cases, regardless of where a rig is operating and whether or not it is a requirement in the respective market, such as it is in Norway (where it is referred to as AOC), UK and Austalia. Songa Offshore has adapted the IADC 9.7.3guidelines for the preparation of an HSE Case. The Group is also a member of IMCA, which issues maritime standards and provide experience transfer throughout the marine industry. QHSE Planning The Group has established a QHSE annual plan which includes a set of corporate objectives together with the supporting rig specific objectives and key performance indicators (KPI) as set by Songa Offshore management. All Songa Offshore personnel are expected to work as a team in order to successfully achieve these objectives and KPIs. The KPIs consists of detailed performance criteria within the following areas; Quality & HSE, Operations, Client satisfaction, Rig Maintenance and Rig budget adherence. 69

75 Environmental system The Group has placed great emphasis so that the rigs meet all statutory requirements for emissions, pollution and environmental impact. The Group strives to comply with all classification society, flag state, national and international regulations, but more importantly the International Maritime Organization ( IMO ) requirements with regards to environmental issues. The IMO has adopted the MARPOL International Convention for the prevention of pollution. All of the Group s rigs are certified and holds the following certificates; IOPP (International Oil Pollution Prevention), IAPP (International Air Pollution Prevention) and ISPP (International Sewage Pollution Prevention). Waste management system The Group seeks to ensure that all waste and waste products generated as a result of the Group s operations are disposed of in a safe and efficient manner, without harm to employees, the environment or third parties, and in compliance with relevant environmental guidelines and legislation. The Group s management is ultimately responsible for the application of the Group s waste management system, with all employees sharing responsibility for its implementation. The Group seeks to achieve the objectives of the waste management system through waste elimination or minimisation, waste recovery or recycling and safe and efficient disposal methods and their application. The Group seeks to commit all necessary resources to ensure adequate and appropriate disposal of waste in accordance with the Group s waste management procedures. Consideration is given to (a) the nature and quantity of waste, (b) the environmental impact of relevant waste disposal methods at the particular location (c) the waste products that will be generated (and their subsequent disposal) when purchasing raw materials (including the containers and packaging containing the raw material) and (d) exposure of personnel to accumulations of waste and strategies for personnel protection. Personnel are provided adequate training in waste minimisation and handling. The Group also audit waste control and disposal methods on a periodic basis to ensure compliance with the Group s waste management procedures and relevant new technology. Type and quantity of energy and raw materials consumed Drilling with non-aqueous drilling fluids: High-speed shale shakers will be used to provide an average of less than 20% wet weight mud on cuttings over the sections of the well where nonaqueous drilling fluids are used. Upon completion of drilling with non-aqueous drilling fluids, the drilling fluid is returned to the supplier for reconditioning and re-use. Drill cuttings: Discharged to sea through a shunt pipe placed below the sea surface. The discharge depth is set and selected to achieve maximum dilution effects and to minimise impacts upon the surface waters. Deck Drainage: Spillage of diesel, cleaning solvents or mud chemicals will be cleaned up completely using absorbent pads and low toxicity biodegradable detergents. Deck drainage, wash down water and machinery space drainage will be processed through an oil-water separator as required and in accordance with rules and regulations. Sewage: The drilling units are equipped with sewage treatment units; all sewage is properly treated prior to disposal at sea. Galley wastes: Food waste will be macerated to less than 25 mm and discharged to the sea at a distance of more than 12 nautical miles (22 km) from shore. 70

76 Quantity of retuned waste oil and emission due to rig activity The table below sets forth information related to fuel consumption, waste oil, and emissions generated by the Group s rigs in The following should be noted: The information only reflects the periods in which the rigs were under the Group s operational responsibility, and hence does not reflect the periods in 2012 when Songa Delta and Songa Trym were operated by Odfjell Drilling. The fuel used on all rigs is marine gas oil fuel, with low sulphur content. Waste oil for Songa Dee includes slops Atmospheric Emissions Vessel Fuel Consumed Waste Oil SO 2 (T) NO X (T) CO (T) m 3 m 3 Dee , ,600 84,320 Delta 572-9,724 28,142 8,866 Trym 46-0,782 2,263 0,713 Eclipse , , ,524 Mercur , ,596 43,664 Venus , ,452 71, Action taken or planned to be taken to eliminate or reduce environmental damage Environmental procedures are integrated within the Group s QSMS. Incidents are covered in the specific procedure for each area in which the Group operates. Additionally all Songa Offshore offshore units have a classification society approved Ship Oil Pollution Emergency Plan, or SOPEP. The purpose of these plans is to provide guidance to the Master and Officers on board the offshore unit with respect to the steps to be taken when pollution incidents have occurred or is likely to occur. Effective planning ensures that the necessary actions are taken in a structured, logical, and timely manner. These plans and procedures are written in accordance with the requirements of Regulations 26 of Annex I of the International Convention for the Prevention of Pollution from ships 1973, as modified by the Protocol of 1978 and 1997 relating thereto. The SOPEP contains all information and operational instructions required by the Guidelines set forth by the flag state. These plans have been approved by the Administration (i.e. the flag state where the respective offshore unit is registered) and no alteration or revision shall be made to any part of the plan without prior approval of the Administration. The plan is designed to link into the Corporate Crisis Management Plan for dealing with oil pollution emergencies. The Offshore Installation Manager will be backed up on-scene by managementappointed personnel as the circumstances and the position of the rig at the time of the incident require. Regular exercises will ensure that the plan functions as expected and that the contacts and communications specified are accurate. Such exercises may be held in conjunction with other shipboard exercises and appropriately logged. 71

77 9.8 Property, plant and equipment The Group leases its offices and other premises from several parties. The lease agreements are on commercial terms and satisfactory to the Group s needs. For other properties owned by the Group please see the assets described in detail in Section 9.3 Business overview. 9.9 Research and development and patents The Company does not carry out any research or development activities. Other than trademarks, the Company does not have any intellectual property or patents. The Company does not hold any material research or development patents. For dependence on contracts and licenses reference is made to Section 9.11 Dependence on contracts and licenses Environmental issues All phases of the oil business, including the drilling business in which the Group operates, present environmental risks and hazards and are subject to environmental regulation pursuant to a variety of international conventions and state and municipal laws and regulations. Environmental legislation provides for, among other things, restrictions and prohibitions on spills, releases or emissions of various substances produced in association with oil and gas operations. The legislation also requires that wells and facility sites be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. See also Section Environmental system above for the Company s environmental system. The Group is in compliance with its obligations under existing environmental regulations, and is not obligated to carry out environmental protection measures that would be significant to the business or financial situation. The Group is not aware of significant changes in environmental regulations that are expected to have significant impact to its business or financial situation Dependence on contracts and licences The Group has operating contracts for all of its drilling units with customers. The Group provides offshore drilling services to a customer base that includes major integrated oil and natural gas companies, state-owned national oil and natural gas companies and independent oil and natural gas companies. For the period from 1 January to 30 November 2013, four customers (Statoil, Mubadala Petroleum, Zarubezhneft and ENI Vietnam) accounted for 100% of the consolidated operating revenues of the Group. The Group s business and profitability is dependent on entering into new operating contracts as existing contracts come to an end. These contracts are entered into in a competitive market based on bidding procedures against other drilling units with capacities and availabilities matching the requirements of the respective customers. An overview of the current contracts, and the expiration of these contracts, is provided in Sections and above. Reference is also made to Section 8 Market overview for a discussion of the competitive situation for the Group s drilling units. The Group has received the required licenses for all of the drilling rigs for drilling operations, and it is not expected that the Group will lose any of these licences. The Group s business and profitability is dependent on obtaining licences for the operation of its CAT-D rigs, including the Norwegian Acknowledgement of Compliance (Nw.: Samsvarsuttalelse, SUT), upon their delivery and before entering into service. 72

78 The Group relies on third parties to perform certain services to be provided to its customers, including maintenance operations and catering services. In the opinion of the Company, and except as set forth above, the Group s business or profitability is not dependent on any new licences, industrial, commercial or financial contracts or new manufacturing processes to conduct its business Material contracts The Group has not for the past two years entered into any material contract outside its ordinary course of business Significant events after the end of the last reporting period Since 30 September 2013, the end of the period for which the Group has issued financial reports, and except as described in this Prospectus, with particular reference to Section 5 Background with respect to the Refinancing, there have not been significant changes in the Group s financial or competitive position Trend information and other factors that may affect the operations of Songa Offshore Except as described in this Prospectus, with particular reference to Section 8 Market overview and this Section 9, Songa Offshore has not experienced changes in trends regarded as significant to the Group after 30 September 2013, the date of the Group s last financial report, and is not aware of trends, commitments, events or uncertainties that are reasonably expected to have a material effect on its business for at least the current financial year New products and/or services Except as described in this Prospectus in respect of the CAT-D rigs under construction, as further described in Section 9.3.6, Songa Offshore has not introduced, and does not plan to introduce, significant new products or services. The Board of Directors does not expect any major changes in the principal activities of the Group in the foreseeable future Basis for statements regarding competitive position By the nature of its business, Songa Offshore is dependent on entering into new operating contracts as existing contracts come to an end. These contracts are entered into in a competitive market based on bidding procedures against other drilling units with capacities and availabilities matching the requirements of the respective customers. An overview of the current contracts, and the expiration of these contracts, is provided in Sections and above. Reference is also made to Section 8 Market overview for a discussion of the competitive situation for the Group s drilling units. The statements made by Songa Offshore regarding its competitive position are provided on a going concern basis and are not based on any assumptions of changes in the Group s relative competitive position, other than as described in this Prospectus Significant external factors With the exception of factors customary to the drilling business, as described elsewhere in this Prospectus, Songa Offshore is not aware of any governmental, economic, fiscal, monetary or 73

79 political policies or factors that have materially affected, directly or indirectly, its operations, or of proposed changes to such policies or factors that could materially affect its operations. 74

80 10 BOARD OF DIRECTORS, MANAGEMENT AND EMPLOYEES 10.1 Board of Directors Overview of the Board of Directors The Board of Directors is responsible for the overall management of the Company and may exercise all of the powers of the Company not reserved to the Company s shareholders by its Articles of Association or Cyprus law. The Articles of Association provide that the Company s Board of Directors shall not be subject to a maximum number of members, but the minimum number of members is two. Despite this, pursuant to the corporate governance policy the Company endeavours to have between 3 and 5 Board members. See Section Provisions with respect to the Board of Directors. The Company s current Board of Directors is composed of five members, all of which have been elected by the shareholders. The names, positions and term of the members of the current Board of Directors are set out in the table below. Name Position Served since Business address Frederik W. Mohn... Chairperson 2013 Statsminister Michelsens vei 38, 5230 Paradis, Norway Jon E. Bjørstad... Board member 2014 Kringsjåveien 74, 2618 Lillehammer, Norway Arnaud Bobillier... Board member 2013 Chemin du Pralet, 19C, 1297 Founex (Vaud), Switzerland Christina Ioannidou... Board member Diagorou Street, ERA House, floors 7-12, 1097 Nicosia, P.O.Box Nicosia, Cyprus Michael Mannering... Board member 2013 c/o Songa Offshore SE, 4 Profiti Elia Street, Kanika International Business Center, 6th Floor, Germasogeia, Limassol, 4046, Cyprus Under the Code of Practice (as defined and further described in Section 10.5 Corporate governance ) it is recommended, to ensure independence from special interests, that the majority of the members of the board should be independent of a company s executive personnel and material business contacts, and that at least two of the members of the board should be independent of the main shareholders. None of the directors of the Company are, or are affiliated with, executive personnel or material business contracts of the Company. Two of the directors, Mr. Mohn and Mr. Bjørstad, are affiliated with Perestroika AS, the Company s largest shareholder. Mr. Mohn is the sole owner of Perestroika AS. Mr. Bjørstad is engaged by Perestroika AS pursuant to a consultancy agreement. Brief biographies of the members of the Board of Directors Set out below are brief biographies of the members of the Board of Directors of the Company, including their relevant management expertise and experience, an indication of any significant principal activities performed by them outside the Company and names of companies and partnerships of which a member of the Board of Directors is or has been a member of the administrative, management or supervisory bodies or partner the previous five years (not including directorships and management positions in subsidiaries of the Company). Frederik W. Mohn (born 1977), Chairperson Mr. Mohn is the sole owner of Perestroika AS, which is the Company s largest shareholder. He holds extensive industrial experience from his world-wide family business, Frank Mohn AS, where he also 75

81 has held the position of Managing Director. He is a Norwegian citizen and resides in Bergen, Norway. Overview of directorships, partnerships and management positions Current: None except with Songa Offshore Past five years: Frank Mohn AS managing director Jon E. Bjørstad (born 1953), Board member Mr. Bjørstad is an experienced business leader and an expert in financial turnarounds. He is a senior partner and co-founder of the Norwegian based investment and corporate advisory firm Credo Partner AS. Mr. Bjørstad holds a Master of Business and Economics from the Norwegian School of Management (BI) and an MBA from the University of Wisconsin. Mr. Bjørnstad resides in Lillehammer, Norway. Mr. Bjørstad is engaged by Perestroika AS, the Company s largest shareholder, under a consultancy agreement. Overview of directorships, partnerships and management positions Current: Varier Furniture AS Chairman Movement Holding AS Chairman Bjørstad Holding AS Chairman/CEO Bjørstad AS Chairman/CEO Mocca Holding AS Chairman/CEO Fagstad Holding Chairman/CEO Interim Management AS Chairman/CEO Fagstadlia 2 board member Haukås Utvikling AS Chairman Credo Equity Advisors AS Chairman Credo Kapital Invest AS Chairman Past five years: Fora Form AS Chairman Litra AS Chairman Litra Eiendom AS Chairman Litra Invest AS Chairman Fagstadlia 1 AS board member Arnaud Bobillier (born 1955), Board member Mr. Bobillier has held a number of senior line management positions within the industry in countries around the world, including the United States, Saudi Arabia, Indonesia, Brazil, South Africa and China. Between 1980 and year 2000, he held various management positions within Schlumberger and was the Operations Manager for Sedco-Forex Schlumberger during the preparations for the upcoming merger with Transocean. As Vice President of Transocean's European and African business units between , he was very much involved in the company's Norwegian operations. More recently, he served as the Executive Vice President of Transocean where he was responsible for the execution of integration of Aker Drilling into Transocean. Between he served as a Special Advisor to the CEO of Transocean. He has also been a Member of the Board of Directors at Texas Institute of Science. Mr. Bobillier holds an Engineering Degree in Fluid Mechanics and Thermodynamics from the Ecole Superieure des Techniques de l'ingenieur de Nancy, France, with a Major in thermodynamics. Mr. Bobillier is a French citizen and resides in Switzerland. 76

82 Overview of directorships, partnerships and management positions Current: Texas Institute of Science - Director Past five years: No other Christina Ioannidou (born 1978), Board member Mrs. Ioannidou is a lawyer at the Cypriot law firm Ioannides Demetriou LLC. Mrs. Ioannidou is an accomplished corporate lawyer and her areas of practice include corporate and commercial law, banking, finance, structuring loan and security documentation and M&A. Mrs. Ioannidou holds a first class BSc (Hons) from Imperial College, London in Mathematics, an AM from Harvard University in Statistics, and a first class BA (Hons) from the University of Oxford in Jurisprudence. Mrs. Ioannidou is a Cypriot citizen and resides in Nicosia. Overview of directorships, partnerships and management positions Current: Ioannidos Demetriou LLC executive director Nobel Trust Limited executive director Cyprus resident companies (unrelated to Songa Offshore) non-executive director Past five years: No other Michael Mannering (born 1952), Board member Mr. Mannering has over 39 years experience in the energy industry. From 2008, Mr. Mannering has been President of Rig Management at Schlumberger and is currently responsible for rigs contracted by IPM and for the Schlumberger equity participation in Schlumberger owned rigs and Schlumberger rig joint ventures. He is Chairman of Saxon Energy Services, a Canadian based international drilling contractor with 87 land rigs, and sits on the board of Schlumberger Oilfield UK. Mr. Mannering joined Schlumberger's drilling contracting organisation, Sedco Forex, in 1985 where he went on to take various managerial responsibilities including the overall responsibility for the land and offshore fleet in the Middle East and S.E. Asia. In 1999 he became Managing Director for Schlumberger Oilfield Services UK with responsibility for all of Schlumberger's North Sea Operations. Mr. Mannering is a mechanical engineer with first class Honors from Southampton University UK. Overview of directorships, partnerships and management positions Current: Schlumberger oilfield UK Plc : Oilfield Service - Director and named director responsible for Safety Navetas Energy Management Limited - Non-Executive Chairman i2o Water Limited - Director President IPM Rig Management including board member Saxon and since 2011 Chairman Saxon Past five years: PetroAlliance Services Limited - Director Remuneration to the Board of Directors, and benefits upon termination The remuneration paid to the Board of Directors for 2012 was a total of USD 276,000 and the current estimate of remunaration payable to the Board of Directors for 2013 is USD 531,000. The remuneration of the members of the Board is determined on an annual basis. The directors will be reimbursed for, inter alia, travelling and other expenses incurred by them in attending meetings of the Board. A director who has been given a special assignment beside the normal duties of a member of the Board may be paid such extra remuneration as the Board may determine. Directors of the Company have appointment letters which provide for payment of directorship fees for the full year of any termination, unless they are employed by the Company or any subsidiary. 77

83 Except for this, none of the members of the Board of Directors have entered into service contracts with the Company or any of its subsidiaries providing for benefits upon termination of the board. The Group has not paid or accrued pensions, pension benefits, or other similar benefits including benefits in kind to members of the Board in respect of 2013 or Shares and options held by members of the Board of Directors As of the date of this Prospectus, the members of the Board of Directors have the following holdings of shares and amount (in USD) of convertible bonds in the Company, including shares and convertible bonds held by close associates: Name Position Number of Shares Convertible bonds Frederik W. Mohn... Chairperson 446,748,987 75,200,000 Jon E. Bjørstad... Board member 0 0 Arnaud Bobillier... Board member 410,000 0 Christina Ioannidou... Board member 0 0 Michael Mannering... Board member 0 0 The number of shares in respect of Mr. Frederik W. Mohn is an approximation, based on the preliminary result of the mandatory offer made by his wholly-owned company Perestroika AS, the Company s largest shareholder, which expired on 21 January 2014, as further set out in Section Applicable takeover bid regulations. As of the date of this Prospectus, none of the members of the Board of Directors holds any options for shares in the Company Sub-committees of the Board of Directors Remuneration committee The Company has established a remuneration committee. The remuneration committee, amongst other, prepares guidelines and policies for the remuneration of executive personnel and generally advises the Board of Directors on matters relating to the compensation paid to executive personnel. Meetings of the remuneration committee are held not less than once a year. Following the resignation of the former board member Mr. Steven James McTiernan from the Company s board of directors on 24 January 2014, there is a vacancy in the remuneraton committee which is expected to be filled in the near future. The current members of the remuneration committee consist of the following persons: Name Position Served since Michael Mannering... Board member 2013 Arnaud Bobillier... Board member 2013 Audit committee The Company has established an audit committee. The audit committee is tasked with, but not limited to, the following; (i) preparing the follow-up of the financial reporting process for the Board, (ii) monitoring the systems for internal control and risk management, including the internal audit of the Company, (iii) having continuous contact with the appointed auditor of the Company regarding the auditing of the annual accounts, and (iv) reviewing and monitoring the independence of the auditor, including in particular to which extent other services than audit services which have been rendered by the auditor or the audit firm represents an undermining of the independence of the auditor. The audit committee shall meet in connection with the preparation of quarterly reports and 78

84 annual statutory accounts, and may have additional meetings whenever deemed necessary by the committee. Following the resignation of the former board members Mr. Steven James McTiernan and Mrs. Nancy Erotocritou from the Company s board of directors on 24 January 2014, there are two vacancies in the audit committee which are expected to be filled in the near future. The current members of the audit committee consist of the following persons: Name Position Served since Michael Mannering... Board member 2013 Nomination committee The Company has established a nomination committee. The role of the nomination committee is to propose candidates for election to the Board of Directors of the Company and make recommendations to the General Meeting on the composition of the Board and level of remuneration. The current members of the nomination committee consist of the following persons. One of the members of the nomination committee, its chairman Mr. Torkildsen, is affiliated with Perestroika AS, the Company s largest shareholder, in his capacity of being chairman thereof. Name Position Served since Tom A. Torkildsen... Chairman 2012 Geir Sandvik... Member 2013 Jon Chr. Syvertsen... Member Management Overview The present Management of the Company is comprised of three executives. The following table sets out the name and position for each of the executive members of the Management as at the date of this Prospectus, followed by additional bibliographical information. Name Position Served since Business address Bjørnar Iversen... Chief Executive Officer 2013 Zavos Kolonakiou Centre, Block B, Flat 101, 25 Kolonakiou Street, 4103 Limassol, Cyprus Jan Rune Steinsland... Chief Financial Officer 2013 Haakon VIIs Gate 1, 8th Floor, 0161 Oslo, Norway Mark Bessell... Chief Operating Officer 2013 Zavos Kolonakiou Centre, Block B, Flat , 25 Kolonakiou Street, 4103 Limassol, Cyprus Brief biographies of the members of Management Set out below are brief biographies of the members of the Management, including their relevant management expertise and experience, an indication of any significant principal activities performed by them outside the Company and names of companies and partnerships of which a member of the Management is or has been a member of the administrative, management or supervisory bodies or partner the previous five years (not including directorships and management positions in subsidiaries of the Company). Bjørnar Iversen (born 1968), Chief Executive Officer Mr. Iversen joined Songa Offshore in February 2013 as COO and was appointed CEO in May Before joining Songa Offshore, Mr. Iversen was a member of the executive leadership team at 79

85 Odfjell Drilling AS. During his 17 year's tenure at Odfjell Drilling, he has been executive vice president for Corporate Business Development, Odfjell Drilling Technology and Odfjell Well Services. His latest position was President and CEO of Odfjell Galvao Ltda in Brazil. Mr. Iversen holds a Master of Science in Business from the Norwegian School of Business and Economics (NHH), and various management courses from Harvard Business School and NHH. Mr. Iversen is a Norwegian citizen and resides in Cyprus. Overview of directorships, partnerships and management positions Current: None except with Songa Offshore Past five years: Odfjell Galvao Ltda (Brazil) CEO and President Odfjell Drilling Executive Vice President Business Development Odfjell Drilling Technology Executive Vice President Odfjell Well Services Executive Vice President 2006 PSW Group AS Chairman / board member Odfjell Well Management AS board member Ross Offshore AS board member Øgland Systems board member Fjord Engineering AS Chairman / board member Bergen Chamber of Commerce leader of Oil & Gas resource group Jan Rune Steinsland (born 1960), Chief Financial Officer Mr. Steinsland jointed Songa Offshore in May He previously held the position of CFO at Ocean Rig from 2006 to 2013, a period of great expansion and development, including an IPO and listing on NASDAQ. Prior to that, he was CFO at Oslo Børs listed Acta Holding ASA, a position he held for six years from 2000 to From 1988 to 2000, he held several management positions at ExxonMobil, including Financial Analyst, Financial Reporting Manager, Vice President Accounting and Audit Advisor. Mr. Steinsland holds a Master of Business Administration from University of St. Gallen and is Certified European Financial Analyst (AFA) from The Norwegian Society of Financial Analysts/Norwegian School of Economics and Business Administration. Mr. Steinsland is a Norwegian citizen and resides in Norway. Overview of directorships, partnerships and management positions Current: Private family companies director Past five years: Ocean Rig ASA / Ocean Rig AS CFO and director in various subsidiary companies Det norske Oljeselskap ASA - Director Mark Bessell (born 1964), Chief Operating Officer Before joining the company in October 2013, Mr Bessell previously held the position of Senior Vice President with Ocean Rig. Mr Bessell commenced in the industry with Sedco, he then remained with Transocean for over 20 years where he held a number of senior positions within operations, projects, technical and HR having gained extensive industry and business experience. Mr Bessell holds a BSc in Petroleum Engineering, he is a British Citizen and resides in Cyprus. 80

86 Overview of directorships, partnerships and management positions Current: None except with Songa Offshore Past five years: Ocean Rig Senior Vice President Transocean various senior positions Total remuneration Remuneration and benefits None of the members of the current executive management were employed in The aggregate remuneration paid to the former executive team (CEO, CFO, and COO) for 2012 was USD 4,463,000. The following amounts have been paid or set aside for such salaries and other benefits for the executive management of the Group: For 2013 (estimate): Amounts in USD 000 Salary Bonus Pension Benefits Bjørnar Iversen CEO from 13 May 2013 Jan Rune Steinsland CFO from 4 Nov 2013 Mark Bessell COO from 14 Oct 2013 Geir M. Karlsen CEO until 4 Nov 2013 Trond Christensen COO (resigned 20 Feb 2013) in kind Paid out for options Other Total ,206 Aggregate 2,855 For 2012: Amounts in USD 000 Salary Bonus Pension Benefits Paid out Other Total in kind for options Asbjørn Vavik CEO ,126 2,487 (resigned) Geir M. Karlsen CFO Trond Christensen COO ,237 Aggregate 4,463 Share based compensation The Company has implemented a cash-settled share-based compensation plan for senior management and key personnel. The options are in the form of synthetic options, or so called stock appreciation rights or SARs, meaning that the employee will not be given the right to subscribe for shares as such, but will be entitled to receive, in cash, the difference between the exercise price and the strike price multiplied with the number of synthetic options exercised. Each synthetic share option converts into the value of one ordinary share of Songa Offshore SE on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights. 81

87 The plan is valued at fair value for each reporting period end. The options that are fully vested are recognised with at full fair falue in the balance sheet, but for options not fully vested, only the portion which has been vested (using linear model) is recognised in the balance sheet at fair value. Any changes in the fair value of the liability are recognised as personnel expenses within general and administrative expenses in profit or loss. Agreements providing benefits upon termination of employment None of the members of the Management have entered into service contracts with the Company or any of its subsidiaries providing for benefits upon termination of employment. The former CFO and COO of the Group had change of control clauses in their employment contracts. Under the contracts, change of control occurred if one person or company, alone or together, as a result of any form of transactions owned more than 25 % of the shares of Songa Offshore SE. These former employees had the right to receive the equivalent of two years annual salary in severance pay given that the 25% threshold condition was fulfilled and the employee within 6 months after the date this threshold criterion was met terminated his employment with the Group. On 20 November 2012, Frederik W. Mohn including affiliated persons and companies, exceeded 25% ownership. In connection with the resignation of Mr. Asbjørn Vavik as CEO in 2012, Songa Offshore agreed to pay a lump sum in the amount of USD 1.1 million (NOK 6.4 million) as compensation of loss of office and career to Mr. Vavik. The amount is shown under Other in the table above. There is no general severance program for any employees apart from the normal terms of notice Shares and options held by members of the Management As of the date of this Prospectus, the members of the Management have the following shareholdings and options in the Company, including shares held by close associates. No members of the Management or their close associates own convertible bonds of the Company. Name Position Number of Shares Number of options Bjørnar Iversen... Chief Executive Officer 0 1,000,000 Jan Rune Steinsland... Chief Financial Officer 0 500,000 Mark Bessell... Chief Operating Officer 0 0 The option series are vested and exercisable as follows: Name / Option series Number of options Grant date Vesting date Expiry date Exercise price (NOK) Bjørnar Iversen ,000 03/06/ /06/ /06/ Bjørnar Iversen ,000 03/06/ /06/ /06/ Bjørnar Iversen ,000 03/06/ /06/ /06/ Jan Rune Steinsland ,666 21/05/ /05/ /05/ Jan Rune Steinsland ,667 21/05/ /05/ /05/ Jan Rune Steinsland ,667 21/05/ /05/ /05/ Upon their resignation, the past members of the executive management retained the following options, with the remainder of their options being cancelled: Options Strike, NOK Grant Vesting Expiry Geir M. Karlsen, former CFO 100, ,

88 66, Trond Christensen, former COO 100, , Loans and guarantees The Company does not have a policy for granting loans and guarantees and has not granted any loans or guarantees to any of its Board members, members of the executive Management or other related parties of these groups Conflicts of interests and other disclosures The Company believes that it has taken reasonable steps to avoid, and to mitigate effects of, potential conflicts of interests arising from the Board members and Management s private interests and other duties. The Company is not aware of conflicts of interests between any duties to the Company of the members of the Board or the senior management and their private interests and/or other duties. During the last five years preceding the date of this Prospectus, no member of the Board of Directors or the executive management has: had any convictions in relation to fraudulent offences; been officially publicly incriminated and/or sanctioned by any statutory or regulatory authorities (including designated professional bodies) or been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of a company or from acting in the management or conduct the affairs of a company; or been associated with any bankruptcy, receivership or liquidation. There are no family relationship between any member of the Board of Directors and the member of the executive management. No member of the Board of Directors or executive management is subject to restrictions on their disposal of the Company s securities within any period of time Corporate governance The Company is a European public company limited by shares organised under the laws of the Republic of Cyprus. The Company s Shares (except for the New Shares, which will be listed pursuant to this Prospectus) are listed on Oslo Børs. The Company and the Board of Directors has adopted and implemented corporate governance principles that are based on the Norwegian Code of Practice of Corporate Governance, as last published on 23 October 2012 (the Code of Practice ). The Company has disclosed its corporate governance principles in its annual report and on its website The Code of Practice is a comply or explain guideline and the Board of Directors will state and explain any deviation from the recommended guidelines in the annual report. The Company is, in all material respects, in compliance with the Code of Practice. Except for the potential deviations of the Code of Practice discussed below, the Company s policies comply with the Code of Practice: 83

89 Potential deviation from Clause 8 of the Code of Practice: Members of the Management may take up positions on the Board of the Company. For young companies like Songa Offshore it is considered as strength to have the experience of executive management on the Board. At present, however, no member of the Management holds any position on the Board of the Company. Potential deviation from Clause 9 of the Code of Practice: In certain circumstances the Board has found it favourable not to restrict the membership of Board committees to members of the Board who are independent of the Company s Management. At present, however, no member of the Board who is related to Management is a member of any Board committee Employees The table below shows the development in the average number of man-years in the Group as of 31 December 2010, 2011, 2012 and There has not been a material change in the number of employees from 31 December 2013 to the date of this Prospectus December 2013 Number of employees by year end Below is an overview of the geographical location of the employees in the Group as of 31 December 2013: Location Onshore Offshore No. of employees Norway Singapore Cyprus Vietnam Malaysia Korea Total

90 11 SELECTED FINANCIAL INFORMATION 11.1 General The selected condensed financial data set forth in this section may not contain all of the information that is important to a potential purchaser of Shares in the Company, and the data should be read in conjunction with the relevant consolidated financial statements and the related notes thereto, incorporated by reference into this Prospectus (ref. Section 17.3 Incorporation by reference ), and other financial information included elsewhere in this Prospectus. The amounts from the financial statements are presented in USD, rounded to the nearest 000, unless otherwise stated. As a result of rounding adjustments, the figures in one or more rows or columns included in the financial statement information may not add up to the total of that row or column Selected condensed financial information This section set forth selected condensed consolidated financial information for Songa Offshore for the years ended, 31 December 2012, 2011 and 2010, which has been derived from the audited consolidated financial statements as of, and for the year ended 31 December 2012, 2011 and 2010, and its unaudited condensed consolidated financial statements for the nine months ended 30 September 2013 and The audited consolidated financial statements as of, and for the year ended, 31 December 2012, 2011 and 2010, including an overview of the accounting policies, explanatory notes and auditor s statements, are incorporated by reference into this Prospectus. The consolidated financial statements may also be inspected at the Company s website or be obtained, free of charge, at the visiting address 25 Kolonakiou Street, Zavos Kolonakiou Centre, Block B, Flat 101, 4103 Limassol, Cyprus. Note, in particular, that the nine months interim financial information for 2012 and the annual 2010 audited financial statements have been restated. A description of the relevant changes giving rise the restatements is set out in Section Accounting policies, and Section 17.3 Incorporation by reference. 85

91 Key financial information Amounts in USD Q3 (unaudited) 2013 Jan-Sept (unaudited) 2012 Q3 (restated) (unaudited) 2012 Jan-Sept (restated) (unaudited) 2012 (audited) 2011 (audited) 2010 (restated) (audited) Revenue 130, , , , , , ,908 Total expenses 80, ,119 93, , , , ,203 EBITDA 50, ,838 56, , , , ,705 EBIT 16,297 50,130 (92,830) (54,774) (256,036) 93, ,056 Tax charge (1,517) (3,248) (2,470) (5,009) (10,675) 41,820 (1,672) Profit (loss) after tax Cash and cash equivalents 6,000 19,880 (108,391) (86,517) (305,461) 124, ,830 92,786 92, , ,350 37,558 80, ,015 Current assets 221, , , , , , ,960 Current liabilities 326, , , , , , ,138 Working capital (105,196) (105,196) 177, ,040 34,886 (19,405) 94,822 Total indebtedness 1,012,116 1,012,116 1,409,629 1,409,629 1,396,272 1,096, ,745 Total equity 959, ,328 1,169,067 1,169, ,963 1,153,688 1,042,401 Total assets 2,219,924 2,219,924 3,004,073 3,004,073 2,739,331 2,442,518 1,546, Accounting policies The Company s historical financial statements have been prepared in accordance with IFRS as adopted by EU. Please refer to note 3 of the annual report for 2012 as incorporated by reference into this Prospectus for a full summary of the Company s accounting policies. Overview of the restatement of 2010 accounts: In fourth quarter of 2011, the Company has revised and updated the process connected to foreign currency transactions in the Group. As part of this, currency adjustments made in the past was reviewed. Based on this review it is the Company s assessment that an unrealised gain on currency of USD 16.8 million in 2010 need to be amended, due to incorrect application of currency adjustments. This element had a negative effect on the profit for the year 2010 of USD 16.8 million, with a corresponding adjustment on equity in 31 December The 2010 financial statements have been restated to reflect this change. 86

92 Overview of the restatement of 2012 accounts: The Company implemented the amended standard IAS 19 Employee benefits from 1 January 2013, with full retrospective application. Comparable figures for the 9 months interim financial information for 2012 have been restated. The annual 2012 financial statements have not been amended in this respect. They will be amended with the issuance of the 2013 annual financial statements. The most significant change in the amended IAS 19 is the removal of the corridor approach for actuarial gains and losses. Actuarial gains and losses are now recognised in the balance sheet immediately, with a charge or credit to other comprehensive income (OCI) in the periods in which they occur. These are not reclassified in later periods to profit or loss. Net actuarial losses on defined benefit liability (asset) plans in the fourth quarter 2012 and full year 2012 were USD 0.8 million. The Company s pension obligations are in Norway. The comparable figures for the nine months in 2012 in the consolidated balance sheet have been restated. However the annual financial statements for 2012, 2011 and 2010 have not been restated in relation to the amendments due to IAS 19. The following line items have been impacted in the consolidated balance sheet: Other equity adjusted with USD 1.2 million in negative effect as an adjustment to the 2012 ingoing balance. Other long term liabilities increased with a total of USD 2 million due to an adjustment in other equity ingoing balance in 2012 of USD 1.2 million, and 2012 OCI effects of USD 0.8 million. Condensed consolidated statement of comprehensive income The table below summarises the consolidated statement of comprehensive income for the Group for the quarters ended 30 September 2013 and 2012, for the nine month period ended 30 September 2013 and 2012 and the years ended 31 December 2012, 2011 and

93 Amounts in USD Q3 (unaudited) 2013 Jan-Sept (unaudited) 2012 Q3 (restated) 2012 Jan-Sept (restated) 2012 (audited) 2011 (audited) 2010 (restated) (audited) (unaudited) (unaudited) Revenues 130, , , , , , ,908 Operating Expenses (65,484) (206,962) (83,432) (239,454 (330,807) (283,911) (327,846) Reimbursable expense (2,436) (9,026) (1,593) (9,111) (7,448) (5,195) (6,001) General and (12,340) (40,916) (13,734) (40,459) (55,503) (44,610) (47,404) administrative expenses Other gain and loss (145) 1,785 5, , ,048 Depreciation and (34,253) (102,708) (32,868) (94,541) (124,280) (95,277) (101,649) amortisation Impairment - - (116,770) (116,770) (330,048) - - Finance income Finance cost (8,901) (27,315) (13,331) (27,295) (39,624) (11,752) (36,184) Profit (loss) before tax Income tax (expense) / credit Profit (loss) for the period 7,517 23,128 (105,921) (81,508) (294,786) 82, ,502 (1,517) (3,248) (2,470) (5,009) (10,675) 41,820 (1,672) 6,000 19,880 (108,391) (86,517) (305,461) 124, ,830 Cashflow hedge (3,367) (7,545) 618 (5,774) (6,934) (13,191) - Remeasurement of net - - (772) (772) defined pension liability Total comprehensive income 2,633 12,335 (108,545) (93,063) (312,395) 111, , Condensed consolidated statement of financial position The table below summarises the consolidated statement of financial position for the Group as at quarters ended 30 September 2013 and 2012, for the nine month periods ended 30 September 2013 and 2012, and the years ended 31 December 2012, 2011 and

94 Amounts in USD 000 Jan-Sept 2013 (unaudited) 2012 Jan- Sept (restated) (unaudited) 2012 (audited) 2011 (audited) 2010 (restated) (audited) ASSETS Non-current assets Rigs, machinery and equipment 1,334,858 1,417,064 1,372,305 1,857,788 1,180,684 Newbuilds 561, , , ,498 - Deferred tax assets 102, , , ,916 59,142 Derivative financial instrument - - 9, Investment in associates ,000 Total non-current assets 1,998,796 2,011,697 1,991,552 2,195,202 1,289,826 Current assets Assets held for sale - 590, ,000 Assets at fair value through profit and loss ,328 4,368 Trade and other receivables 65,587 91,125 50,583 60,910 99,835 Prepayments 13,429 8,404 8,029 6,730 4,130 Earned revenue 34,788 22,332 25,960 4,970 1,385 Other assets 14,538 86,166 35,650 90,980 15,227 Cash and cash equivalents 92, ,350 37,558 80, ,015 Total current assets 221, , , , ,960 TOTAL ASSETS 2,219,924 3,004,073 2,739,331 2,442,518 1,546,785 89

95 Amounts in USD Jan- Sept (unaudited) 2012 Jan- Sept (restated) (unaudited) 2012 (audited) 2011 (audited) 2010 (restated) (audited) EQUITY AND LIABILITIES Capital and reserves Issued capital 31,191 31,191 31,191 26,075 26,075 Share premium 474, , , , ,564 Reserves - 15, ,585 Other equity 454, , , , ,762 Total equity 959,328 1,167, ,994 1,152,491 1,042,401 Non-current liabilities Bank loan 486, , , , ,088 Bond loans 344, , , ,264 47,508 Derivative financial instruments 27,750 5,634 5,102 18,593 - Deferred revenue 71,471-71, Other long term liabilities 4,423 3,754 8,067 4,038 6,650 Total non-current liabilities 934,272 1,020,866 1,077,474 1,022, ,246 Current liabilities Bank loans related to assets held for - 310, , sale Bank loans 164,027 72,234 94,453 49,411 73,600 Trade and other payables 48, ,415 94,494 43,332 19,570 Tax payable 12,640 12,098 14,726 12,515 21,321 Derivative financial instruments ,066 9,287 Net deferred revenues 33,694 80,166 34,385 4,599 5,602 Other liabilities 67,687 66, , ,798 32,758 Total current liabilities 326, , , , ,138 Total liabilities 1,260,596 1,836,203 1,790,338 1,290, ,384 TOTAL EQUITY AND LIABILITIES 2,219,924 3,004,073 2,739,331 2,442,518 1,546, Condensed consolidated statement of changes in equity The table below summarises the consolidated statement of changes in equity for the Group for the quarters ended 30 September 2013 and 2012, for the nine month periods ended 30 September 2013 and 2012, and the years ended 31 December 2012, 2011 and

96 Amounts in USD 000 Share capital Share premium Equity-settled employee benefits reserve Hedging reserve Other equity Total equity Balance as at 1 January , ,118 15, , ,527 Total comprehensive income for the period , ,830 Issue of share capital 4, , ,574 Cost of share issuance - (4,531) (4,531) Balance as at 31 December 2010 Restated (audited) 26, ,564 15, ,177 1,042,401 Balance as at 1 January , ,564 15, ,177 1,042,401 Profit of the year , ,478 Other comprehensive income (13,191) - (13,191) Balance as at 31 December 2011 (audited) 26, ,564 15,585 (13,191) 753,655 1,153,688 Balance as at 1 January , ,564 15,585 (13,191) 753,655 1,153,688 Loss for the years (305,461) (305,461) Other comprehensive income (6,934) - (6,934) Issue of share capital 5, , ,670 Balance as at 31 December 2012 (audited) 31, ,118 15,585 (20,125) 448, ,963 Balance as at 1 January , ,564 15,585 (13,191) 753,655 1,153,688 Loss for the year (86,517) (86,517) Other comprehensive income (5,774) - (5,774) Effects of changes in accounting policies (1,970) (1,970) Issue of share capital 5, , ,670 Balance as at 30 September 2012 (unaudited) 31, ,118 15,585 (18,965) 665,168 1,167,097 Balance as at 1 January , ,118 15,585 (20,125) 448, ,963 Profit of the period ,880 19,880 Effects of changes in accounting policies (1,970) (1,970) Other comprehensive income (7,545) - (7,545) Balance as at 30 September 2013 (unaudited) 31, ,118 15,585 (27,670) 466, ,328 91

97 Condensed consolidated statement of cash flows The table below summarises the consolidated cash flow statement for the Group for the quarters ended 30 September 2013 and 2012, for the nine month periods ended 30 September 2013 and 2012, and the years ended 31 December 2012, 2011 and Amounts in USD 000 Cash flows from operating activities: 2013 Q3 (unaudited) 2013 Jan- Sept (unaudited) 2012 Q3 (unaudited) 2012 Jan- Sept (unaudited) 2012 (audited) 2011 (audited) 2010 (restated) (audited) Profit (loss) before tax 7,518 23,128 (105,921) (81,508) (294,786) 82, ,502 Adjustment for: Depreciation 34, ,708 32,868 94, ,280 95, ,649 Cost of option plans -35 (180) (718) (1,345) (2,173) (4,209) 4,125 Impairment , , , Finance costs 8,901 27,315 13,331 27,295 39,624 11,752 36,184 Other gain and loss 145 (1,785) (5,056) (269) (7,290) (358) (58 048) Movements in working capital: Change in receivables (-25,204) (8,120) 41,678 (44,437) 38,582 (45,627) 52,549 Change in payables 24,049 5, , ,083 51,162 23,762 (6,118) Change in other liabilities (11,304) (63,350) (2,637) 21, ,051 35,519 (5,298) Cash generated from operations 38,323 85, , , , , ,545 Taxes paid (1,903) (4,193) (2,321) (4,059) (8,046) (1,004) (25,332) Interest paid (6,775) (40,636) (9,393) (41,824) (73,482) (23,097) (31,446) Financing fees paid (1,103) (6,381) (249) (6,810) (7,034) (21,375) (9,885) Cash effect from other gains and losses Net cash generated from operating activities 5,000 4,500 2,184 (636) (636) (5,927) (7,416) 33,542 38, , , , , ,466 Cash flows from investing activities: Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Investment in other companies, net of cash acquired Net cash (used in) / generated from investing activities (15,630) (200,401) (372,663) (589,981) (807,990) (830,438) (81,042) - 590, , (91,130) (50,000) (15,630) 389,599 (372,663) (589,981) (807,990) (921,568) 151,300 Cash flows from financing activities: Proceeds from issue of share capital net of share issance cost Proceeds from issue of bonds and new bank loan raised Proceeds from share issue to non controlling interest - - (96) 107, , , , , , , , ,474 - Repayment of bonds and bank loans (28,550) (369,375) (12,353) (111,154) (123,507) (194,706) (932,757) Net cash (used in) / generated from financing activities (28,550) (369,375) 98, , , ,966 (328,593) Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at period beginning Cash and cash equivalents at end of the period / year (10,638) 59,117 54, ,952 (47,626) (54,231) 63,173 99,913 30, ,830 80,398 77, ,015 68,842 89,275 89, , ,350 30,158 77, ,015 92

98 11.3 Segment information The Group operated six rigs during 2012 of which five were operated in the midwater segment, and the last one in the ultra deepwater segment. Operating results are regularly reviewed by the Group in order to make decisions about resources to be allocated to the rigs and to assess the performance. The rigs are reported together as the drilling services provided are the same, the drilling operations are the same and the customers approached are the same. Operating revenue is received from customers in the below countries: USD million 3Q Norway Malaysia Angola Russia Vietnam Australia China Equatorial Guinea Total operating revenue In 2012, revenue from four of the Group s customers individually represents more than 10% of the total Group Operating revenue. The revenue from these customers represents 44%, 18%, 16% and 15%, in total 93% of Group operating revenue. In 2011, revenue from three of the Group s customers individually represented 35%, 27% and 20% of the total Group operating revenue, 82% in total Statutory auditors The Consolidated Financial Statements as at and for the years ended 31 December 2012, 2011 and 2010 have been audited by PricewaterhouseCoopers Limited, independent auditors, as stated in their report incorporated by reference to this Prospectus. PricewaterhouseCoopers Limited has its registered offices at City House, 6 Kariaskakis Street, CY-3032 Limassol, Cyprus. PricewaterhouseCoopers Limited is a member of the Institute of Certified Public Accountants of Cyprus Statement of audited historical financial information The historical financial information for 2010, 2011 and 2012 have been audited. Unqualified opinions were issued by PricewaterhouseCoopers Limited on the consolidated financial statements as at and for the years ended 31 December 2012, 2011 and

99 12 OPERATIONAL AND FINANCIAL REVIEW This operating and financial review should be read together with Section 11 Selected financial information and the financial statements incorporated into this Prospectus by reference (see Section 17.3 Incorporation by reference ) Comments to the financial statements The following presents a discussion and analysis of Songa Offshore s financial position and results of operation for the quarters ended 30 September 2013 and 2012 and the years ended 31 December 2012, 2011 and The following discussion and analysis should be read in connection with, and is qualified in its entirety by reference to, the full year financial statements and the interim financial statements incorporated into this Prospectus by reference. Comments are unaudited and not reviewed. Overview of current financial situation Since the announcement and publication of Songa Offshore s third quarter 2013 financial statements on 11 November 2013, Songa Offshore has announced and completed the Refinancing, a comprehensive refinancing whereby it raised USD 400 million, made up of a combination of USD 250 million in new equity through the Private Placement, and USD 150 million in new bond debt through the Convertible Bond Issue. In addtition, Songa Offshore obtained amendment agreement with respect to its two existing unsecured bond loans and its syndicated bank loan. Songa Offshore also obtained amendments to the long-term contracts for its CAT-D rigs under construction, including an average rate increase of 5% over the eight year firm contract period. The Refinancing is further described in Section 5 Background. The background for the Refinancing was Songa Offshore s large funding requirements for the completion of its CAT-D rigs, combined with the significant losses made in 2012 and 2013 in connection with the upgrades and SPSs of two rigs and the loss made upon the sale of its rig Songa Eclipse. Songa Offshore did not expect that its funding through own cash flow, in combination with normal financing on the CAT-D rigs, would be sufficient to provide full financing for taking delivery of the CAT-D rigs. During 2013, Songa Offshore experienced a deteriorating cash position, and required certain temporary waivers to meet its bond covenants. In context of this financial situation, the Refinancing was intended as an integrated plan which, when completed, is intended to make Songa Offshore able to meet its industrial and financial obligations. Operating results As at and for the quarters ended 30 September 2013 and 2012 Total revenue for the third quarter 2013 was USD million compared to USD million in the third quarter Operational revenue has decreased by USD 31.4 million from third quarter 2012 to third quarter The reduction of USD 19.5 million in total revenue is primarily attributable to USD 30.8 million of Songa Eclipse revenue in the third quarter 2012, whereas the rig was not part of the Songa Offshore fleet in the third quarter 2013 due to the sale of the rig on 3 January This is partly offset by the increase in operating revenue for the Songa Delta of USD 9.7 million as a result of the Songa Delta yard stay in Q Furthermore, the negative impact on revenue is also reflecting that Songa Mercur during the third quarter 2013 was undergoing mobilisation, operational preparations and acceptance testing for the new contract with enivietnam. Other revenue increased by USD 9.6 million from third quarter 2012 to third quarter 2013, mainly related to the amortisation of revenue from client during the Songa Delta and Songa Trym yard stay that is recognised over the remaining contract period. Total revenue for January to September 2013 was USD million compared to USD million for 94

100 the same period in Operational revenue decreased by USD 61.5 for January to September 2012 to 2013, mainly by cause of the Company having one less rig operating in 2013 compared to Rig operating expense in the third quarter 2013 was USD 65.5 million compared to USD 83.4 million in the corresponding prior year quarter. The decrease of USD 17.9 million is mainly explained by the operating expenses relating to the Songa Eclipse rig of USD 26.8 million in the third quarter This is partly offset by USD 7.3 million higher operating costs for the North Sea fleet, reflecting Songa Trym and Songa Delta yard-stays in the third quarter Rig operating expenses for January to September 2013 was USD million compared to USD million for the same period in 2012, mainly owing to Songa Eclipse not being a part of the Company s fleet in General and Administrative (G&A) expenses of USD 12.3 million in the third quarter 2013, compared to USD 13.7 million in the corresponding prior year quarter. The decreased G&A expense in the third quarter 2013 is mainly explained by the Angola office not being in operation in third quarter 2013 due to the sale of the Songa Eclipse. G&A expenses of USD 40.9 million for January to September 2013, compared to USD 40.5 million in the corresponding prior year period. The G&A expense was positively impacted for the nine first months of 2013 by a reversal of USD 0.6 million in relation to equity based compensation and the Angola office not being in operation. Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) in the quarter of USD 50.6 million is USD 6.2 million lower than in the same period in 2012, reflecting USD 19.5 million lower revenue, partly offset by USD 13.3 million lower expenses. EBITDA for January to September 2013 was USD million, USD 3.7 million lower than during the same period in The lower EBITDA for the first nine monts of 2013 compared to the same period in 2012 is a consequence of lower revenue, counteracted by lower operating expenses. Depreciation and amortisation of USD 34.3 million in the quarter was USD 1.4 million higher than in the corresponding period prior year, primarily reflecting the life extension projects on Songa Delta and Songa Trym, partly offset by the absence of USD 8.1 million Songa Eclipse depreciation. Depreciation and amortisation of USD million for January to September 2013 was USD 8.2 million higher than the corresponding period prior year on the same grounds as the higher depreciation and amortisation in the third quarter of Earnings before Interest and Tax (EBIT) for the quarter was USD 16.3 million compared to a loss of USD 92.8 million the same period in The increase of USD million is largely attributable to the impairment of the Songa Eclipse rig of USD million in the third quarter of EBIT for January to September 2013 was USD 50.1 million compared to a loss of USD 54.8 million the same period in The lower EBIT for the first nine monts of 2013 compared to the same period in 2012 is a result of lower revenue, balanced by lower operating expenses. Net finance costs were USD 8.8 million in the third quarter 2013, compared to USD 13.1 million in third quarter 2012, explained by an increased capitalisation of interest related to the Cat D rigs as the project progresses. The third quarter 2013 finance costs are net of USD 10.5 million in capitalised interest on the Cat D newbuilds. Net financing costs for January to September 2013 were USD 27.0 million compared to USD 26.7 million in the same period in The tax charge in the third quarter 2013 was USD 1.5 million, being primarily withholding tax on revenue from Songa Venus operations in Malaysia. The tax charge for January to September 2013 was USD 3.2 million, mostly withholding tax on revenue from Songa Venus operations in Malaysia. 95

101 Net profit for the period was USD 6.0 million, compared to a loss of USD million in the same period in 2012, reflecting the above fluctuations. Net profit for January to September 2013 was USD 19.9 million, compared to a loss of USD 86.5 million in the same period in 2012, illustrating the above mentioned variations. Balance sheet The Group s total assets at 30 September 2013 were USD 2,219.9 million (30 September 2012: USD 3,004.1 million) of which USD 1,895.9 million (2012: USD 1,908.8 million) relates to the carrying value of the Group s rigs. Total equity decreased from USD 1,167.9 million at 30 September 2012 to USD million at 30 September The decrease in equity of USD million is mainly due to the reduction in the net asset value of the rigs, due to the sale of Songa Eclipse on 3 January 2013 and a decrease in cash due to the increased expenditure resulting to from the yard stays of Songa Trym and Songa Delta. As of 30 September 2013 the equity ratio of the Group (defined as total equity divided by total assets) is 43.2%, an increase from 38.9% at the same time in Total cash at 30 September 2013 was USD 92.8 million (2012: USD million). The main reason for the decrease is the extensive expenditure on the Special Periodical Surveys (SPS) on Songa Delta and Songa Trym in Q3 and Q and Q Operating results As at and for the year ended 31 December 2012 and 2011 The revenue of the Group for the year was USD million (2011: USD million), an increase of 12.0%. The main reason for this is increased revenue from the international rigs, mainly Songa Eclipse, which commenced operation on 30 March Also Songa Venus had higher operating revenue for 2012 compared to This increase is partly offset by reduced revenue for the Norwegian rigs due to the yard stays in The operating expenses of the Group increased by 16.5% compared to 2011, from USD million in 2011 to USD million in The increase in operating expenses was to a large extent due to Songa Eclipse being in operation from 30 March This was partly offset by a decrease in operating expenses during yard stays. Other gains and losses were up from a gain of USD 0.4 million in 2011 to a gain of USD 7.3 million in The gain in 2012 was derived from currency gain on interest and currency swap derivatives, partly offset by currency adjustments against the USD. The depreciation expense was USD million in 2012, compared to an expense of USD 95.3 million in The increase was mainly due to Songa Eclipse. The depreciation on this rig did not start until the rig was available for its intended use, on 30 March Profit before tax for the year was a loss of USD million as compared to a gain of USD 82.7 million in Result for the year, which was derived after recognizing an income tax expense of USD 10.7 million (2011: USD 41.8 million income tax credit), was a loss of USD million (2011: profit of USD million). Basic earnings per share (EPS) for the year ended 31 December 2012 was a loss of USD 1.59 (2011: gain of USD 0.74) and diluted EPS was a loss of USD 1.59 (2011: gain of USD 0.74). Balance sheet The Group s total assets at 31 December 2012 were USD 2,739.3 million (31 December 2011: USD 2,442.5 million) of which USD 1,878.9 million (2012: USD 2,092.3 million) relates to the carrying 96

102 value of the Group s rigs. Total equity decreased from USD 1,152.5 million 31 December 2011 to USD million at 31 December The decrease in equity of USD million was due to the loss for the year of USD million, partly offset by the share issuance on 19 April As of 31 December 2012 the equity ratio of the Group (defined as total equity divided by total assets) was 34.6%, a decrease from 47.2% at the same time in Total cash at 31 December 2012 was USD 37.6 million (2012: USD 80.4 million). The main reason for the decrease is the extensive expenditure on the SPS for Songa Trym and Songa Delta. As of and for the years ended 31 December 2011 and 2010 Operating results The revenue of the Group for 2011 was USD million as compared to USD million for 2010, a decrease of 19.7%. The main reason for the decrease was the fact that less of the Group s rigs had been operating for parts of the year. Songa Mercur did not operate during the first months of the year due to the structural failure of the telescopic joint, causing an uncontrolled descent of the blow-out preventer and marine riser a short distance to sea bed. The blow-out preventer and relevant equipment underwent inspections and reinstatement. Songa Venus did not operate during the third quarter of 2011, mainly because of late arriving equipment while the rig was undergoing maintenance and operational preparedness for a contract. As a result of technical problems during the fourth quarter of 2011, Songa Venus had to undergo repairs and was not operating for most of the period. The operating expenses of the Group were reduced by 13.4% compared to last year, from USD million in 2010 to USD million in The reduction in operating expenses was to a large extent due to less cost incurred while the rigs were not operating. Other gain and loss was down from a gain of USD 58.0 million in 2010 to a gain of USD 0.4 million in The gain in 2010 included a gain of USD 68.6 million from the sale of Songa Saturn in October The depreciation expense was USD 95.3 million in 2011, compared to an expense of USD million in The decrease was mainly due to the sale of the drillship Songa Saturn in October For the greater part of 2010 the Group had depreciation expenses for one more item than in The Group s rig, Songa Eclipse, was not depreciated in The depreciation for Songa Eclipse started when the rig was available for its intended use in March In 2011 the Group had a net finance cost of USD 10.8 million (2010: USD 35.6 million). The decrease was partly due to the refinancing done October In addition, interest related to the new rigs were capitalised to the rigs. This includes interest related to the Songa Eclipse, and the first instalments on the two Category D-rigs to be constructed at the DSME shipyard. Profit before tax for 2011 was USD 82.7 million as compared to USD million in Profit for 2011, which was derived after recognizing a deferred tax asset of USD 41.8 million (2010: tax charge of USD 1.7 million), was USD million (2010: USD million). Basic earnings per share (EPS) for the year ended 31 December 2011 was USD 0.74 (2010: USD 1.15) and diluted EPS was USD 0.74 (2010: USD 1.15). The change in other gain and loss was due to the correction of the hedge accounting related to the NOK924/USD165 million cross currency swap. This amounted to a reduced expense of USD 2.6 million. 97

103 A portion of finance expenses were capitalised on the newbuilds (CAT-D and Songa Eclipse ), and this amounted to USD 18.0 million in reduced finance expenses. Tax expense increased by USD 0.8 million due to an updated estimate of corporate taxes payable related to Balance Sheet The Group s total assets at the end of the year were USD 2,442.5 million (2010: USD 1,546.8 million) of which USD 2,092.3 million (2010: USD 1,180.7 million) related to the carrying value of the Group s rigs. Total equity increased from USD 1,042.4 million in 2010 to USD 1,152.5 million at the end of The increase in equity was due to the total net comprehensive income for the year of USD million. As of 31 December 2011 the equity ratio of the Group (defined as total equity divided by total assets) was 47.2%, a decrease from 67.4% in Total cash at the end of the year was USD 80.4 million (2010: USD million) Investments The main capital expenditures are connected with newbuilds, acquisition and refurbishment of the Company s asset base. Historical capital expenditures The following table sets forth information about the Group s capital expenditures for the periods indicated, split on the respective rigs. The amounts include capitalised interests. Investments in rigs USD '000 Jan - Sep 2013 Jan - Sep Songa Venus 1,134 4,062 5,790 3,457 17,337 Songa Mercur 696 2,353 2,676 3,479 13,786 Songa Delta 4, , ,701 75,622 8,363 Songa Dee 1,687 37,526 51,344 7,728 15,761 Songa Eclipse (sold) - 20,073 20, ,348 - Songa Saturn (sold) (184,249) Songa Trym 53, , ,634 8,921 1,488 Songa Equinox 17,214 14,675 19, ,146 - Songa Endurance 15,944 13,190 18, ,266 - Songa Encourage 10, , , Songa Enabler 10, , , Other (466) Total 116, , , ,663 (127,980) Ongoing and future committed capital expenditures Songa Offshore has significant investments in progress, particularly related to the four CAT-D rigs. Overview of capital expenditures related to the CAT-D rigs The four CAT-D rigs ( Songa Equinox, Songa Endurance, Songa Encourage, and Songa Enabler ) are being constructed at the DSME yard in South Korea. The first two CAT-D rigs, Songa Equinox and Songa Encourage, are built to a fixed price of USD 565 million per unit and are to be delivered in fourth quarter The last two CAT-D rigs, Songa Enabler and Songa Encourage, are built to a fixed price of USD 570 million per unit, inclusive of optional Statoil upgrades that include Barents Sea winterisation and other enhancements. 98

104 The remaining yard payments in respect of the CAT-D rigs for the years 2014 and 2015, when all of the rigs are expected to be delivered, are USD 904 million in 2014 (USD 452 million for each of Songa Equinox and Songa Endurance ) and USD 914 million in 2015 (USD 457 million for each of Songa Endurance and Songa Enabler ): The capital expenditure above reflects remaining yard payments which are due for payment upon delivery of the rigs. The amounts do not reflect anticipated ramp-up costs which are estimated at approximately USD 100 million per rig (excluding capitalised interest), or USD 400 million in total. The aggregate amount of remaining ramp-up cost as per the end of Q was approximately USD 363 million. Part of this amount, which includes site crews, commissioning, mobilisation, crewing, and other expenses, will be paid by the charterer by means of a lump sum rate payment of USD 40 million per rig upon delivery from yard. Overview of capital expenditures related to other rigs The expenditures estimated for the other rigs mainly relate to Special Periodical Surveys, or SPSs, and intermediate surveys. These surveys required to maintain classification certificates, which are renewed every five years. SPSs normally involve yard stays and are often combined with upgrades. The duration and cost of SPSs and intermediate surveys depend on many factors including the rigs s standard, regular maintenance, extent and planning of the survey, area of operation, and local requirements. No charter hire is normally received during surveys. Songa Dee will undergo an SPS in 2014 which is estimated to have an expense of USD 90 million, of which approximately USD 5 million was incurred in The SPS expenses for Songa Dee are expected to be financed from existing cash and cash flows. Songa Venus and Songa Mercur are scheduled for SPS in No detailed budget has yet been prepared for these SPSs. It is the plan and intention to sell both of these rigs prior to the SPSs, but in the event that no such sale takes place, it expected that the expenses related to such SPSs will be financed from existing cash and cash flows. Songa Delta is scheduled for SPS in No budget has yet been prepared for this SPS. In addition to SPS capital expenditures, there will also be maintenance capital expenditures for the rigs. Based on historical experience, the normal level of such capital expenditure is approximately USD 6-8 million per year per rig for rigs operating in Norway and USD 4-6 million per year per rig for the international rigs. It is expected that the CAT-D rigs will have lower levels of maintenance capital expenditure during their first years of operation. Overview of other planned capital expenditures In addition to the capital expenditures related to rigs, Songa Offshore expects to have capital expenditures of approximately USD 10 million annually to other assets, including various equipment. Sources of funds needed to fulfil capital expenditure commitments In addition to the capital available to the Company after the completion of the Private Placement and the Bond Issue, the Company expects to need approximately USD 2.2 billion in additional capital to take delivery of the four CAT-D rigs and to meet its other financing and operating requirements. It is expected that these funding requirements will be met by a combination of debt financing related to the CAT-D rigs and the planned sale of the two rigs Songa Venus and Songa Mercur. 99

105 Songa Offshore expects, based on advanced negotiations with lenders in respect of CAT-D-1 and CAT-D-2, that it will be able to debt finance approximately USD 507 million for each of these rigs, and that similar or higher debt funding will be available for CAT-D-3 and CAT-D-4, also taking the increased day rates for the CAT-D rigs into account. A further description of the planned financing for the CAT-D rigs is set out in Section Arrangements for the debt financing of the CAT-D rigs. Other capital expenditures are expected to be covered by available liquidity resources and cash flows generated from operations Working capital In the view of the Company, and as set forth in Section above, Songa Offshore does not as of the date of this Prospectus have sufficient working capital for its present requirements, being understood as its requirements over the next minimum 12 months from the date of this Prospectus. During the next 12 months Songa Offshore will require additional capital of approximately USD 1.2 billion, including cash buffers and anticipated minimum cash requirements under loan arrangements. The required capital is primarily to take delivery of the first two CAT-D rigs in the fourth quarter of 2014, including the commissioning and mobilisation of these rigs, for the repayment of debt, and for investments related to its other rigs. Following the next 12 months, Songa Offshore will also require further capital of approximately USD 1.0 billion to take delivery of the last two CAT-D rigs in the second quarter of Songa Offshore will require financing arrangements to be in place for each CAT-D rig in order to take delivery and commence mobilisation of the rig. Hence, a financing shortfall would occur if no financing arrangement is in place upon the delivery of the first CAT-D rig in the fourth quarter of It is expected, with a high degree of confidence, that approximately USD 1.0 billion will be financed by lenders in respect of the first two CAT-D rigs that are due for delivery in the fourth quarter of 2014, for which Songa Offshore is in an advanced stage of financing documentation. The remaining anticipated amount of required financing for the next 12 months, following the CAT-D financing, is expected to be between USD 100 million and USD 200 million. It is expected that the intended sale of Songa Venus and Songa Mercur will cover this balance. Songa Offshore is in negotiations with potential buyers of Songa Venus and Songa Mercur, but no agreement has been concluded. Songa Offshore is not yet in a position to give indication of the outcome of these discussions or the timing of a potential sale. For the period exceeding the next 12 months, it is further expected that a corresponding USD 1.0 billion, or higher amount, can be financed by lenders in respect of the last two CAT-D rigs that are due for delivery in the second quarter of 2015, for which no arrangements have yet been made but for which Songa Offshore experiences good interest from several potential lenders. The strong interest from lenders to finance the last two CAT-D rigs is also due to the fact that the day rates for the CAT-D rigs have been increased since the financing for the two first CAT-D rigs was agreed in principle through term sheets. A further description of the planned financing for the CAT-D rigs is set out in Section Arrangements for the debt financing of the CAT-D rigs. The failure to complete the anticipated debt financing in respect of the CAT-D rigs, or the failure to sell Songa Venus and Songa Mercur, would leave a financing shortfall which could have severe implication on Songa Offshore and which could result in the need for significant amounts of 100

106 additional equity, which may not be available at that time. The Company has not as of today made specific alternative plans to cover such potential shortfall, although under those circumstances alternatives may exist to sell one or more of the CAT-D rigs to relieve the Group of its funding requirements, to sell one or more of the existing North Sea rigs, to enter into sale/leaseback arrangements, or to make other financing arrangements. Should none of these financing arrangements be available at that time, such circumstance would have a significant negative effect on the Company s financing situation and its ability to continue operations Significant changes in the Group s financial or trading position since 30 September 2013 Since 30 September 2013, the end of the period for which the Group has issued financial reports, there has been changes in the Group s financial or trading position as a result of the Refinancing, described in greater detail in Section 5 Background. With this exception, there have been no significant change in the financial or trading position of the Group which has occurred since 30 September 2013, being the end of the last financial period for which interim financial information has been provided Capitalisation and indebtedness The tables below should be read in conjunction with the information included elsewhere in this Prospectus, including Section 11 Selected financial information and the financial statements and related notes, incorporated into this Prospectus by reference Capitalisation The following table sets forth information about the Group s unaudited consolidated capitalisation as of 30 September 2013 and adjusted to reflect if the below-mentioned material changes had been in place as at that time for comparative purposes, as further set out in Section Material changes in cash flow after 30 September

107 As of 30 September 2013 Adjustments Adjusted per the date of this Prospectus Amounts in USD 000 (unaudited) (unaudited) (unaudited) Total current debt Guaranteed 60,834-35,439 25,395 Secured 106,177-82,662 23,515 Unguaranteed/unsecured 14,647-20,054-5,407 Total 181, ,155 43,503 Total non-current debt (excl. current portion of longterm debt) Guaranteed 131,312 14, ,191 Secured 354,579-97, ,450 Unguaranteed/unsecured 372, , ,770 Total 858,208 69, ,410 Shareholders equity Share capital 31,191 92, ,447 Legal reserve 474, , ,326 Other reserves 454, ,019 Total 959, ,464 1,194,792 In terms of the indebtedness described as guaranteed above, the guarantees have been provided by GIEK (Garantiinstituttet for Eksportkreditt) and commercial banks in respect of tranches of the main bank loan facility with Eksportfinans as lender, as described in Section In terms of the indebtedness described as secured above, the assets provided as security are made up of five rigs Songa Mercur, Songa Venus, Songa Trym, Songa Delta and Songa Dee in respect of the main bank loan facility, as described in Section , the construction contracts for CAT-D-1 and CAT-D-2 in respect of pre-delivery financing which has now been fully repaid, as described in Section , and the construction contracts for CAT-D-3 and CAT-D-4 in respect of the pre-delivery facility described in Section The following adjustments have been made in the table above: Current guaranteed debt: The adjustment of USD 35.4 million relates to the repayment of GIEK and Eksportfinans guaranteed bank debt in October and November 2013 of USD 14.9 million, to the repayment of secured bank loan of USD 5.6 million in January 2014, and to a further USD 14.9 million adjusted with respect to the current portion as per the revised repayment schedule as a result of the Refinancing. Current secured debt: The adjustment of USD 82.6 million relates to the repayment of USD 13.7 million of secured bank debt in October and November 2013, to the repayment of secured bank loan of USD 4.9 million in January 2014, and the repayment of USD 50.4 million of the Swedbank bank loan as a result of the Refinancing. Moreover, USD 13.6 million have been adjusted with respect to the current portion as per the revised repayment schedule as a result the Refinancing. 102

108 Current unguaranteed / unsecured debt: The adjustment of USD 20 million relates to interest payments made with respect to the NOK bonds issued in 2011 and 2012 in November and December Non-current guaranteed debt: The adjustment of USD 14.9 million relates to the adjusted non current portion with respect to the revised repayment schedule as a result of the Refinancing. Non-current secured debt: The adjustment of USD 97.1 million relates to the repayment of the Statoil loan of USD million and to the USD 13.7 million adjusted as a result of the revised non current portion with respect to the revised repayment schedule as a result of the Refinancing. Non-current unguaranteed / unsecured debt: The adjustment of USD million relates to the proceeds of the convertible bond issued of USD million and to the negative market value adjustment of the cross currency swaps held of USD 8 million. Issued capital: The adjustment of USD 92.3 million relates to the USD 610 million new shares issued translated from the EUR nominal value at 0.11 per share to USD on 18 December Share premium: The adjustment of USD million relates to the share premium (net of estimated fees and expenses) in relation to the 610 million new shares issued and offered at NOK 2.50 per share translated to USD on 18 December Indebtedness The following table sets forth information about the Group s unaudited net indebtedness as of 30 September 2013 and adjusted to reflect if the below-mentioned material changes had been in place as at that time for comparative purposes, as further set out in Section Material changes in cash flow after 30 September

109 As of 30 September 2013 Adjustments Adjusted per the date of this Prospectus Amounts in USD 000 (unaudited) (unaudited) (unaudited) Net indebtedness (A) Cash 89, , ,074 (B) Cash equivalents 3,511 3,511 (C) Trading securities (D) Liquidity (A) + (B) + (C) 92, , ,585 (E) Current financial receivables (F) Current bank debt 167, ,101 48,910 (G) Current portion of long-term debt 14,647-20,054-5,407 (H) Other current financial debt - (I) Current financial debt (F) + (G) + (H) 181, ,155 43,503 (J) Net current financial indebtedness (I) - (E) - (D) 88, , ,082 (K) Non-current bank loans 485,891-82, ,640 (L) Bonds issued 344,567 8, ,867 (M) Other non-current loans 27, , ,903 (N) Non-current financial indebtedness (K) + (L) + (M) 858,208 69, ,410 (O) Net financial indebtedness (J) + (N) 947, , ,328 The following adjustments have been made in the table above: (A) Cash: The adjustment of USD million reflects the proceeds from the Private Placement and the Convertible Bond Issue, net of estimated fees and expenses. (F) Current bank debt: The adjustment of USD million is made up of (i) repayment of USD 28.5 million of bank debt made in October and December; (ii) repayment of USD 10.6 million of bank debt in January 2014; (iii) repayment of USD 50.4 million of bank debt with Swedbank made in January 2014 following the Refinancing; and (iv) reclassification of USD 28.5 million to non-current debt as a result of the Refinancing. (G) Current portion of long-term debt: The adjustment of USD 20.1 million reflects the 6 monthly interest payments made on the two NOK bonds. Payments were made in December and November (K) Non-current bank loans: The adjustment of USD 82.3 million reflects (i) repayment of USD million of debt with Statoil made in January 2014; and (ii) reclassification of USD 28.5 million to non-current debt as a result of the Refinancing. (L) Bonds issued: The adjustment of USD 8.3 million represents mark-to-market adjustment for the SWAP agreements. (M) Other non-current loans: The adjustment of USD million reflects the issue of the Convertible Bond, net of estimated fees and expenses. The following items are regarded as contingent liabilities: 104

110 The Group s exposure to a possible exit tax in Norway is considered a contingent liability. The Company s redomiciliation from Norway to Cyprus took effect on 11 May The redomiciliation was done in accordance to the EU s SE directive and the Company is consequently not considered liquidated nor are the assets considered realised for neither tax nor accounting purposes. The Company is of the opinion that its redomiciliation to Cyprus in 2009 will not result in immediate taxation. In the event that the Company has to pay immediate exit tax, the Company estimates that the tax can be offset against available losses. No provision has been made in its financial statement for any such potential tax liability. For further information see Section Exit tax in connection with redomiciliation. The Group s exposure to a possible tax case related to withholding tax in Australia is considered a contingent liability which as per 1 November 2013 was estimated to be AUD 58.4 million. The Group strongly disputes the determination made by the Commissioner in Australia. The Group has received legal advice and the Group believes it will ultimately prevail in this matter. No provision has been made. For further information see Section Australian withholding tax. The Group s exposure to a possible tax case related to transfer pricing and depreciation in Australia is considered a contingent liability. The original claim by Australian tax authorities was AUD 8.4 million. The matter is subject to negotiations with Australian tax authorities and the matter is expected to be resolved at a lower amount. No provisions have been made. For further information see Section Australian tax issue on transfer pricing and depreciation. The Group has a contingent liability in respect of the CAT-D rigs under construction, as set forth in the description of the contracts relating to the rigs in Section Further detail on the CAT-D project. Under the amended charter agreement, Statoil and its licence partners agreed to a 5% average rate increase during the fixed contract period in a declining rate profile from 9.0% the first full year to 0.0% in year 8, partly offset by a repayment to Statoil of USD 12,500,000 per rig upon Statoil s declaration of each of the two initial three-year option periods. The Group has contingent liabilities in respect of bank and other guarantees, including guarantees provided in connection with drilling contracts, as well as other matters arising in the ordinary course of business. Other than as stated above, the Company is not aware of any material liability, direct or indirect, actual or contingent Capital resources The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions. By managing capital efficiently, the Company will be able to continue as a going concern while maximising the return to shareholders. It is believed that this can best be achieved by investing in the existing asset portfolio and through acquisition of new opportunities as they arise, rather than to provide shareholder return through dividends. Key ratios The table below sets forth some consolidated key ratios for the Company as of 30 September 2013 and 2012, and for the years 2012, 2011 and

111 Key ratio 2013 Jan-Sept 2012 Jan-Sept (unaudited) (restated) (unaudited) (audited) (audited) (restated) (audited) Working capital ratio 67.8% 121.7% 104.9% 92.7% 158.5% Interest coverage ratio Solidity 43.2% 38.9% 34.6% 47.2% 67.4% * Working capital ratio is defined as current assets/current liabilities, interest coverage ratio is defined as EBIT/interest expense and solidity is defined as total equity/total assets Funding and treasury policies Long term financing of the existing rig fleet and the newbuilds is primarily done in the bank and bond markets, including available export credit agency financing. Such financing is complimented by equity financing in order to maintain an effective capital structure. The Group is exposed to fluctuations in interest rates. A major part of the Group s interest costs on its bank loans are subject to floating interest rate (LIBOR) plus a margin. The risk is managed by maintaining an appropriate mix between fixed and floating rate borrowings and by the use of interest rate swap contracts. The Company s keeps its long term loans denominated in USD. The two Bond loans are, however, denominated in NOK, but swapped to USD in order to eliminate the NOK foreign exchange exposure. The Company s cash position is primarily held as short term USD deposits with reputable banks in order to minimise credit risk and in close relation to banks where the Company has established its cash management and payment systems. The Group is also exposed to foreign currency risks in relation to its operations. The Group s expenses are primarily in USD and NOK. As such, the Group s earnings are exposed to fluctuations in the foreign currency market for NOK in relation to USD. The Company will attempt to minimise these risks by implementing hedging arrangements as appropriate, and uses the foreign currency spot and forward market to buy foreign currencies. The Group is mainly exposed to the currency of Norway (NOK). In addition, to a lesser extent, the Group is exposed to the currencies of Malaysia (MYR), Singapore (SGD), South Korea (KRW), the United Kingdom (GBP) and the European currency (EUR). Songa Offshore has a centralised treasury function with one designated person who is responsible to monitor and optimise the cash flow position and cash and cash equivalents. The intragroup and external use of cash is monitored by the centralised treasury function. The treasury function will perform cash flow forecasting for subsidiary and Group financial management, it will manage debt, derivatives and investments and will ensure that contractual terms and covenants do not constrain the business. Lastly the treasury function performs financial risk management by implementing interest rate risk management and foreign currency risk management in order to minimise impact of external risk on the statement of comprehensive income and balance sheet Cash flows The following presents a discussion and analysis of Songa Offshore s cash flow for the quarters ended 30 September 2013 and 2012 and the years ended 31 December 2012, 2011 and 2010, 106

112 material changes in cash flow after 30 September The following discussion and analysis should be read in connection with, and is qualified in its entirety by reference to, the full year financial statements and the interim financial statements incorporated into this Prospectus by reference. The cash flow is divided into three types of activities generating cash in the Group. Cash flow from operating activities is derived from profit before tax for the period, adjusted for P&L items not carrying cash effects (depreciation cost of option plans etc.). Movements in working capital, payments relating to taxes, interest and fees, and cash effects from other gain and loss are taken into account in order to arrive at net cash generated from operations. The principal activity of the Group is to provide offshore oil and gas drilling services, and is hence the main contributor with regards to activities generating cash flow. Net cash used in investing activities is derived from purchase of property, plant and equipment and investment in other companies. Cash flow from financing activities consists of proceeds from issued of bonds and new bank loans rasied, proceeds from share issue to non controlling interest and repayment of bonds and bank loans. Net cash flow for the period is then a total of net cash generated from operations, net cash used in investment activities and net cash generated from financing activities. As of and for the quarters ended 30 September 2013 and Net cash generated by operating activities for the third quarter in 2013 was USD 38.9 million (2012: USD million). The main reason for the decrease is the sale of Songa Eclipse at 3 January Moreover, the decrease is due to the fact that Songa Delta and Songa Trym were undergoing special periodic surveys for a part of Q and for the whole of Q Net cash used in financiang activities for the third quarter in 2013 was USD million (2012: net cash generated from financing activities USD million). This is a result of the proceeds generated form the share issue in 2012 of USD million and the proceeds from the issue of the NOK 750 million bond in June 2012, proceeds from new loan raised from Statoil of USD million, and new financing raised with Swedbank of USD 50 million. Net cash generated from investing activities in the third quarter in 2013 was USD million (2012: net cash used in investing activities USD million). This is a result of reduced expenditure on property, plant and equipment and the proceeds from the sale of Songa Eclipse of USD 590 million. Total cash and cash equivalents at end of period was USD 92.8 million (2012: USD 37.6 million). The cash and cash equivalents were held in USD, NOK, SGD, GBP, KRW and MYR. The Company as at 30 September 2013 did not have any unutilised financing facilities. As of and for the year ended 31 December 2012 and 2011 Net cash generated by operating activities for the year was USD million (2011: USD million). Net cash used in investing activities was USD million (2011: USD million). The Group paid the first instalment of the last two Category D-rigs during Net cash generated in financing activities in 2012 was USD million (2011: USD million). This was mainly a result of USD million in proceeds from issue of bonds and new 107

113 bank loan raised, and USD million in proceeds from share issue. This was partly offset by USD million in repayment of debt. Net decrease in cash and cash equivalents was USD 47.6 million (2011: decrease of USD 54.2 million). Total cash and cash equivalents at year-end was USD 30.2 million (2011: USD 77.8 million), and USD 0.0 million (2011: USD 0.0 million) in unutilised financing facilities. As of and for the year ended 31 December 2011 and 2010 Net cash generated by operating activities for 2011 was USD million (2010: USD million). The main reason for the decrease was the fact that less of the Group s rigs had been operating due to various reasons for parts of the year. Please see Section As at and for the quarters ended 30 September 2013 and 2012 for further information. Net cash used in investing activities for 2011 was USD million (2010: net proceeds of USD million). During 2011 the Group purchased the remaining shares in the company owning the rig Songa Eclipse, and took delivery of the rig from the Jurong Shipyard. The Group also paid the first instalment of the first two CAT-D rigs. Net cash generated in financing activities in 2011 was USD million (2010: net cash used USD million). This was mainly a result of USD million in proceeds from issue of bonds and new bank loan raised, and USD 13.5 million in proceeds from share issue to non controlling interest in the Songa Eclipse owning entities. This was partly offset by USD million in repayment of debt. Net decrease in cash and cash equivalents for 2011 was USD 51.6 million (2010: increase of USD 63.2 million). Total cash and cash equivalents at year-end 2011 was USD 80.4 million (2010: USD million), and USD 0.0 million (2010: USD million) in unutilised financing facilities Material changes in cash flow after 30 September 2013 The adjustments made in the tables in Section Capitalisation and Indebtedness include adjustments to illustrate the effect on the respective tables if certain subsequent material changes had been in place at that time. The following elements, which are part of the Refinancing and are outside of the Group s ordinary operations and ordinary service of debt, have been reflected as adjustments to the tables: The Private Placement giving gross proceeds of NOK 1,525 million; The Convertible Bond Issue giving gross proceeds of USD 150 million; The repayment of USD 111m of debt to Statoil; The repayment of USD 50m of debt to Swedbank Borrowings Overview of debt facilities and debt maturities The table below sets forth an overview of the Group s borrowings as per Q3 2013, including repayment schedule and anticipated interest payments for each period. Facility Main bank facility Predelivery Bond 2016 Bond 2015 Predelivery Convertible bond 2019 loan, CAT- D 1&2 facility, CAT-D 3&4 Currency USD USD NOK NOK USD USD 108

114 Described in section Q2013 balance , Q 2013: Debt matured Interest payment Outstanding , As at the date of this Prospectus: Debt matured Outstanding , Remainder of 2014: Debt maturing Interest payment Outstanding , : Debt maturing Interest payment Outstanding 245 1, : Debt maturing: Interest payment: Outstanding: 0 1, After 2016: Debt maturing 1, Interest payment: The pre-delivery facility in respect of CAT-D-1 and CAT-D-2 was fully repaid with USD 50 million in January The pre-delivery facility in respect of CAT-D-3 and CAT-D-3 was repaid with USD 111 million in January The Company expects to repay the respective debt facilities upon their maturity by means of available cash on hand and by refinancing in the bank or bond market, depending on the financial situation and available alternatives at the time of such maturity Status on covenants As per the date of this Prospectus, the Company is in compliance with all its debt covenants. Prior to the Refinancing, the Company had obtained temporary waivers from certain covenants related to its bond loans and was in compliance with its covenants as amended. These temporary waivers, which were related to debt coverage ratios, were agreed on 16 May 2013 and were in place until 31 December The main covenants in respect of each debt facility are described in context of the respective facilities below. For description of cross default agreements see Section Cross default. Main bank loan facility The main bank loan facility is a syndicated bank loan made up of five different tranches, and secured by the five rigs Songa Mercur, Songa Venus, Songa Trym, Songa Delta and Songa Dee. Per Q the remaining outgoing balance of the main bank facility was USD 388 million. In October and November 2013 the Company paid a quarterly amortisation of USD 28.5 million in total, leaving the remaining outgoing balance at USD 359 million. As a result of the Refinancing the bank facility has been amended, reducing the quarterly amortisations with 50% to USD 14 million. 109

115 The maturity of the facility was extended with one year until Q With the revised amortisation schedule the balloon at maturity in Q will be USD 202 million. The five tranches making up the main bank loan have different profiles, and interest will hence vary from quarter to quarter between approximately USD LIBOR plus 2.86% and USD LIBOR plus 2.95%, including the guarantee commission. Covenants The senior secured credit facility contains various covenants, among these: liquidity (free cash, cash equivalents and unused long-term credit lines) must be at least USD 50 million; working capital must be zero or positive (Working Capital means, on a consolidated basis and at any given time, the sum of the Borrower s current assets less its current liabilities (current liabilities to exclude short term portion of long term debt) in accordance with GAAP); the leverage ratio (measured as net indebtedness less any subordinated debt to EBITDA on a trailing four quarter basis cannot exceed 5:1; the interest cover ratio (the ratio of EBITDA to interest expense) to be minimum 2.00:1.00 from and including the first quarter of 2015; the equity ratio (measured as value adjusted equity and to include any amount of subordinated debt to value adjusted total assets) must not fall below 25%; the value adjusted equity (book value, adjusted for market value, to include subordinated debt, and excluding the value of intangibles) must not be less than USD 650 million. Events of default The senior secured credit facility also contains certain events of default, including, among other things: non-payment of the Company of any interest, principal or other amount due under the senior secured credit facility; breach of any of the provisions of the senior secured credit facility by the Company unless the breach is remedied within 10 days; non-payment by the Debtor Group (as defined in the senior secured credit facility) of certain borrowings due and payable or due and payable before their stated maturity due to a material default by a Debtor Group member, in each case in excess of a certain amount; bankruptcy, compositing proceedings, liquidation or winding-up of a Debtor Group member; and loss of a vessel, including the vessel being destroyed, captured, abandoned, confiscated or forfeited. If an event of default occurs, the Agent may notify the Company that the entire amount outstanding is due and payable. 110

116 USD 50 million pre-delivery financing, Cat D On 21 February 2012 the Group received a firm offer from Swedbank on a secured bank facility in the amount of USD 50 million. The facility was used to part-finance the first instalments on the first two CAT-D rigs currently on order from DSME. The facility was repaid in full in January 2014 with proceeds from the Refinancing. NOK 1,400 million bond On 17 November 2011 the Company issued a 5 year unsecured bond loan of NOK 1,400 million. The bond loan was amended as part of the recent Refinancing. The new coupon effective from the settlement date of the Private Placement is 8.4% fixed. The bonds have a redemption price of 103.5% on maturity. The maturity of the bonds was extended to May There is a guarantee under this bond agreement, whereby the rig owning- and operating subsidiaries (guarantors) of Songa Offshore SE has guaranteed the following; An on-demand guarantee from each of the Guarantors securing the Company s obligation according to the Bond Agreement, plus interest and expenses. Such Guarantee(s) shall be a senior obligation of such Guarantors however fully subordinated to the Senior Bank Facilities, meaning that the Guarantee(s) may not be called upon (and no claim being made there under) before any and all liability and obligations under the Senior Bank Facilities have been irrevocably repaid in full. Covenants Effective upon completion of the Private Placement the Covenants for the NOK 1,400 million bond has been amended. The New covenants are as follows: Dividend restrictions: The Company shall not, during the term of the Bond Issue, declare or make any dividend payment or distribution, whether in cash or in kind, repurchase of shares or make other similar transactions (included, but not limited to total return swaps related to shares in the Issuer), or other distributions or transactions implying a transfer of value to its shareholders exceeding 50% of Company s consolidated net profit after taxes based on the audited annual accounts for the previous financial year. Any un-utilised portion of the permitted dividend pursuant to the above may not be carried forward to any subsequent financial year. Book Equity Ratio: The Book Equity Ratio of the Group shall be (i) waived until Q (ii) From and including Q and until Q2 2016, 25%. (iii) From and including Q and until Q3 2017, 27%. (iv) From and including Q3 2017, 30%. Liquidity: The Company shall ensure that the Group maintains minimum Liquidity of USD 50 million. Current Ratio: The Company shall ensure that the Group maintains a Current Ratio of minimum 1:1. Leverage Ratio: The Company shall ensure that the Group maintains a Leverage Ratio equal to or lower than: (i) From and including Q until and including Q4 2017, 4.75:1. (ii) From and including Q1 2018, 4.5:1. Interest Coverage Ratio: The Company shall ensure that the Group maintains an Interest Coverage Ratio equal to or higher than: (i) From and including Q to and including Q4 2016, 2:1. (ii) From and including Q1 2017, 2.25:1. 111

117 Events of default The bond is subject to certain events of default, including, among other things: Non-payment of the Company of any interest, principal or other amount due, which is not remedied within five days. Breach of any of the obligation of the agreement by the Company unless the breach is remedied within 10 days. Cross default; any member of the Debtor Group, the aggregate amount of Financial Indebtedness or commitment of Financial Indebtedness falling within certian parpagrahs (i) to exceeds a total of USD 5 million, or the equivalent thereof in other currencies upon the occurrence of certain insolvency, bankruptcy or enforcement events or corporate actions in respect of any member of the Group. NOK 750 million bond On June 2012, the Company issued a 3 year unsecured bond loan of NOK 750 million. The bond loan was amended as part of the recent Refinancing. The new coupon effective from the settlement date of the Private Placement is 7.5% fixed. The maturity of the bonds was extended to December Covenants for this bond are the same as for the 1,400 NOK bond, described in Section NOK 1,400 million bond. The Covenants where amended as part of the Refinancing Covenants Dividend restrictions: The Company shall not, during the term of the Bond Issue, declare or make any dividend payment or distribution, whether in cash or in kind, repurchase of shares or make other similar transactions (included, but not limited to total return swaps related to shares in the Issuer), or other distributions or transactions implying a transfer of value to its shareholders exceeding 50% of Company s consolidated net profit after taxes based on the audited annual accounts for the previous financial year. Any un-utilised portion of the permitted dividend pursuant to the above may not be carried forward to any subsequent financial year. Book Equity Ratio: The Book Equity Ratio of the Group shall be (i) waived until Q (ii) From and including Q and until Q2 2016, 25%. (iii) From and including Q and until Q3 2017, 27%. (iv) From and including Q3 2017, 30%. Liquidity: The Company shall ensure that the Group maintains minimum Liquidity of USD 50 million. Current Ratio: The Company shall ensure that the Group maintains a Current Ratio of minimum 1:1. Leverage Ratio: The Company shall ensure that the Group maintains a Leverage Ratio equal to or lower than: (i) From and including Q until and including Q4 2017, 4.75:1. (ii) From and including Q1 2018, 4.5:1. Interest Coverage Ratio: The Company shall ensure that the Group maintains an Interest Coverage Ratio equal to or higher than: (i) From and including Q to and including Q4 2016, 2:1. (ii) From and including Q1 2017, 2.25:1. 112

118 Events of default The bond is subject to certain events of default, including, among other things: Non-payment of the Company of any interest, principal or other amount due, which is not remedied within five days. Breach of any of the obligation of the agreement by the Company unless the breach is remedied within 10 days. Cross default; any member of the Debtor Group, the aggregate amount of Financial Indebtedness or commitment of Financial Indebtedness falling within certian parpagrahs (i) to exceeds a total of USD 5 million, or the equivalent thereof in other currencies upon the occurrence of certain insolvency, bankruptcy or enforcement events or corporate actions in respect of any member of the Group. Pre-delivery facility, CAT-D-3 and CAT-D-4 (Statoil) As per 3Q 2013 the Company had USD 222 million outstanding under a pre-delivery facility related to the two newbuilds CAT-D-3 and CAT-D-4. As part of the Refinancing the Company pre-paid 50% of the facility in January The remaing balance falls due with USD 55 million upon delivery of CAT-D-1 and USD 55 million upon delivery of CAT-D-2. The pre-delivery facility for CAT-D-3 and CAT-D-4 is secured in the rigs. Covenants The senior secured pre-delivery facility has the same Cross Default clause as the other loans the Company have (see Section Cross default ). Events of default The senior secured credit facility also contains certain events of default, including, among other things: Overdue Payment. An Obligor fails to pay any amount payable by it pursuant to the provisions of this Agreement when due other then where such non-payment is caused by administrative or technical errors affecting the transfer of funds and payment is made within three (3) Business Days after its due date. Default under other provisions. An Obligor defaults under any of the covenants or the other provisions of this Agreement (other than as referred to in Clause 11.2 (Overdue Payment)) or there is a default under any Security Document, always provided that the relevant Obligor in the event such default (in the sole opinion of the Lender) is capable of being remedied shall be granted 10 Business Days to remedy such default from the date the Borrower receives notice thereof. Building Contracts. Any other loan, guarantee or other indebtedness in a total aggregate amount in excess of USD 5,000,000 of the Borrower is declared, or is capable of being declared due prematurely by reason of default, or the Borrower fails to make payment in respect thereof on the due date for such payment, or security for any such other loan, guarantee or indebtedness becomes enforceable. Liens. A maritime or other lien, arrest, distress or similar charge is levied upon, or against a Building Contract or a Unit or any substantial part of the assets of an Obligor which may, 113

119 in the opinion of the Lender, have a material adverse effect on the ability of another Obligor to meet its obligations under this Agreement or the Security Documents (or any of them), unless same is discharged within 45 days. Loss of Property. A substantial part of any of the business or assets of an Obligor is destroyed, abandoned, seized, appropriated or forfeited for any reason, unless such business or assets are adequately covered by insurance and a claim thereunder is accepted by the relevant insurers on terms acceptable to the Lender. Impossibility or Illigality. It becomes impossible or unlawful for the Borrower or any other Obligor to fulfil any of the terms of a Building Contract, this Agreement or any Security Document or for the Lender to exercise any right or power vested in it under this Agreement or the Security Documents, or the security created by any of the Security Documents appears to be or becomes wholly or partially invalid, ineffective, imperfect or non-existent. USD 150 million Convertible Bond On December 2013, the Company issued a 6 year unsecured convertible bond with a USD 150 million principal amount as part of the Refinancing. The Convertible Bond has a coupon rate of 4.00% with semi-annual payments and a 25% convertion premium (equal to USD in convertion price). There are no instalments on the loan. The convertible bond is ranked as a subordinated unsecured obligation of the Company. During the term of the bond the Company shall comply with the Trustee s customary genral covenants and reporting obligastions. The conversion share price is has a 25% convertion premium to the share price in the Private Placement and equals USD The conversion share price is subject to standard adjustment mechanisms for convertible bonds. The nominal value of the convertible bond was at initial recognition split into a liability component and an equity component. The fair value of the liability component, classified as non current interest bearing debt, was calculated using a market interest rate for an equivalent, non convertible subordinated bond. The residual amount represents the equity component and classified as a separate equity component. Covenants The Convertibe Bond has the same Cross Default clause as the other loans the Company have (see Section Cross default ). Interest exposure The NOK 1,400 million bond described in Section NOK 1,400 million bond, has a fixed coupon rate of 8.4%. The convertible bond loan described in Section USD 150 million Convertible Bond has coupon rate of 4.00%. Interest on the bank facility described in Section Main bank loan facility is 3 month USD LIBOR + a margin of 3 month USD LIBOR 3.25% on the total loan facility and in respect of the total Eksportfinans loan a margin of 2.5% p.a. The Statoil facility described in Section has a floating rate of 3 month LIBOR %. The bond loan described in Section NOK 750 million bond has a fixed rate of 7.5% The interest exposure above is per 10 January

120 Cross default All of the financing agreements listed in Section Overview of debt facilities contain cross default provisions. As per end of Q3 2013, total non-current liabilities affected by cross default provisions were USD 1,012.1 million A cross default will typically occur under a financing agreement if i.a. (i) there is a default under any other loan, guarantees or financial indebtedness (including obligations under credit derivative lines) of any Debtor Group member and such default leads to such loan, guarantee or financial indebtedness being declared due prematurely, (ii) a Debtor Group member fails to make payment in respect of any other loan, guarantee or financial indebtedness on the relevant due date or any creditor becomes entitled to declare any financial indebtedness due and payable prior to its stated maturity as a result of an event of default, (iii) any security for any other loan, guarantee or financial indebtedness becomes enforceable and/or (iv) any commitment for financial indebtedness is cancelled or suspended as a result of the occurrence of an event of default. However, it will only be a cross default under the relevant financing agreements if the aggregate amount of such loans, guarantees or financial indebtedness (or commitment for financial indebtedness) due to any of (i) to (iv) (as the case may be) is in excess of USD 5,000,000. The definition of Debtor Group/Debtor Group member is set out in the relevant financing agreements but typically includes the Company, the rig owning subsidiaries and other subsidiaries of the Company such as management and chartering companies. Arrangements for the debt financing of the CAT-D rigs Songa Offshore has not yet finalised the debt financing arrangements in respect of any of the CAT- D rigs under construction, but is at an advanced stage of documentation in respect of debt financing for CAT-D-1 and CAT-D-2. During the third quarter 2013, Songa Offshore signed term sheets for USD 1,014 million of loan financing for the first two CAT-D rigs ( Songa Equinox and Songa Endurance ). The facilities include a pre delivery part of USD 103 million. The financing structure is based on support from the Norwegian and Korean Export Credit Agencies. Songa Offshore is currently working on the loan documentation with the lenders, and the closing is expected to take place in early February The last two CAT-D rigs ( Songa Encourage and Songa Enabler ) are expected to be delivered in the 1st half of Songa Offshore has already been approached by several parties that wish to participate in the financing of these rigs, and indicative term sheets have been received. The strong interest from lenders to finance the last two CAT-D rigs is also due to the fact that the day rates for the CAT-D rigs have been increased since the financing for the two first CAT-D rigs was agreed in principle through term sheets. The financing for these two rigs is expected to be in place within the end of Q Restrictions on use of capital As the date of this Prospectus, the Group have no restrictions on the use of capital, other than those described as covenants in Sections Main bank loan facility, NOK 1,400 million bond and NOK 750 million bond. There are no restrictions on transfer of funds from the subsidiaries to the parent company Non-current assets Tangible non-current assets include rigs, machinery and equipment. 115

121 Rigs, machinery and equipment are recognised at cost less accumulated depreciation and impairment losses. Subsequent costs are capitalised when it is probable that they will give rise to future economic benefits. Other costs are recognised in the profit or loss as incurred. Depreciation is charged in the profit or loss on a straight-line basis over the estimated useful life of each component of property, plant and equipment. The estimated useful lives, residual values and decommissioning costs are reviewed at each financial year end. No decommissioning costs have been recorded to date, and the presence of any obligations is reviewed at each financial year end. There is no decommissioning liability on the drilling rigs as there is no legal or constructive obligation to dismantle or restore the assets. In practice, assets of this nature are rebuilt, when no longer useful; laid up in dry dock or scrapped. For a standard vessel, specialised demobilising yards pay for a vessel to be scrapped per light displacement tonne (ldt) of the vessel. Any changes to the above are accounted for prospectively as a change in accounting estimates. The estimated useful lives of the rigs, machinery and equipment are as follows: - Rigs, primary portion: 25 years - Rigs, other components: 2.5 to 25 years - SPS: 5 years - IS: 2.5 years - Fixtures: 3 to 10 years Where components of an item of property, plant and equipment have different useful lives, each component s depreciation is calculated separately. The useful lives of the assets are reviewed by management at each year end. Costs for Special Periodic Surveys (SPS) and Intermediate Surveys (IS) on offshore units required by regulatory bodies are capitalised and amortised over the anticipated period between surveys, generally five years for SPSs and two and half years for intermediate surveys. Other maintenance and repair costs are expensed as incurred. The most common method to estimate residual values for ships is to use the scrap price which is publicly noted by brokers in USD per light displacement tonne (ldt) of a complete vessel with all normal machinery and equipment on board. Drilling rigs are more complicated to scrap than ships and have less metal and scrapable/recoverable material due to their construction, design and nature. The price that could be recovered from scrapping of drilling rigs is estimated to approximate the cost of extracting this scrap metal. Therefore, no residual value is recorded given the assumption that if the assets were disposed at the end of their useful life given their expected age and condition no material amount would be recovered. In connection with the Group s purchase of a rig, the Group may agree with the sellers that the parties agree to share the risk of the uncertainties through a contingent payment as the value of the asset is uncertain. In such instances the seller has no future performance obligations. The contingent payment is recognised by the Group as a financial liability established by contract in accordance with IAS 32/39. The re-measurement of the financial liability for the contingent price is included in the cost of the rig, when the re-measurement of the contingent amount is considered to relate to the condition of the asset that existed at the purchase date. The contingency is specific to the asset, and the 116

122 amount payable does not include effects of changes relating to the subsequent performance of asset. The carrying value of rigs under construction (Newbuilds) includes payments for yard instalments, equipment, project supervision and project management, directly attributable borrowing costs, and any other directly attributable costs to bring the asset to a working condition for its intended use. Depreciation is commenced once the rig has been completed, commissioned and is ready for its intended use. The carrying amounts of the Group s rigs, machinery and equipment, and newbuilds are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated. When considering impairment indicators, the Group considers both internal (e.g. adverse changes in performance) and external sources (e.g. adverse changes in the business environment). These are analysed by reviewing day rates and broker valuations. The recoverable amount of an asset is the higher of its fair value less costs to sell and value in use. The value in use is calculated as the present value of the expected future cash flows for the individual units. The fair value is determined using the average of two broker valuations. An impairment loss is recognised if the carrying amount of an asset exceeds the recoverable amount. The table below illustrates the closing net book values of the Company s tangible non-current assets for the nine month periods ended 30 September 2013 and 2012, and the years ended 31 December 2012, 2011 and Amounts in USD 000 Rigs Newbuilds Fixtures and Total equipment ,330, ,022 4,452 1,895, ,414, ,717 2,428 1,908, ,370, ,588 2,278 1,878, ,856, ,498 1,174 2,092, ,179,583-1,146 1,180,684 Rigs include the rigs Songa Venus, Songa Mercur, Songa Dee, Songa Trym and Songa Delta. Newbuilds includes the four CAT-D rigs, Songa Equinox, Songa Endurance, Songa Encourage and Songa Enabler under construction at the Daewoo Shipbuilding & Marine Engineering Co., Ltd (DSME) shipyard in South Korea. The rigs Songa Equinox and Songa Endurance are expected to be delivered during the fourth quarter of 2014, while the rigs Songa Encourage and Songa Enabler have scheduled deliveries during the second quarter of Please see Section Operating statistics and operating expenses for information regarding operational and earnings efficiency. 117

123 13 SHARES, SHARE CAPITAL AND SHAREHOLDERS MATTERS The following is a summary of certain information relating to the Shares and certain shareholder matters, including summaries of certain provisions of the Articles of Association of the Company and applicable Cyprus law in effect as of the date of this Prospectus. The summary does not purport to be complete and is qualified in its entirety by the Articles of Association and Cyprus law Description of the Shares and share capital Share capital As of the date of this Prospectus, the Company s authorised share capital is EUR 154,093, divided into 1,400,854,762 shares of nominal value EUR 0.11 each and the issued share capital is EUR 89,420, divided into 812,912,544 ordinary shares of nominal value EUR 0.11 each. All the Shares are authorised, issued and fully paid up. The Shares carry voting rights and the right to receipt of dividends when such are declared. The holders of the Shares also have a right to share in any surplus assets available for distribution in a winding up of the Company. The Shares (but not the New Shares) are registered in the VPS with ISIN CY and listed on Oslo Børs under the ticker code SONG. The New Shares have since their issuance and until the publication of this Prospectus been registered with a separate ISIN CY , but will be transferred onto the ordinary ISIN of the Company s ordinary shares upon Listing of the New Shares, which will take place immediately following the publication of this Prospectus. The Company holds no Shares in treasury as of the date of this Prospectus. The Company s register of shareholders is maintained by the Company and kept in physical form at its registered office at 4 Profiti Elia Street, Kanika International Business Center, 6th Floor, Germasogeia, Limassol, 4046, Cyprus. Cyprus law requires that the Company s primary register is kept in Cyprus. To achieve compatibility of the requirements under Cyprus company law as to the registration and transfer of shares with Norwegian requirements, the Shares are in uncertificated form. Since the Company s primary shareholders register is kept in Cyprus, the VPS is treated as an overseas supplemental register which is deemed to form part of the main register of shareholders. The VPS registrar for the Shares is Nordea Bank Norge ASA, Verdipapirservice, P.O. Box 1166, N Oslo, Norway. Convertible securities and other securities giving right to the Company s shares The Company has outstanding the Convertible Bonds which can be converted, up to 23 December 2019, a total of 293,933,218 new ordinary shares of the Company. The detailed conditions and procedures of conversion are set out in Section The Convertible Bonds. Except for the Convertible Bonds and the management option programme set out in Section Shares and options held by members of the Management, the Company does not have securities that give right to subscribe, purchase or convert into new shares of the Company. Acquisition rights or obligations over unissued capital Except for the Convertible Bonds and the management option programme set out in Section Shares and options held by members of the Management, there are no acquisition rights, obligations over unissued capital, or undertaking to increase the capital of the Company. 118

124 Capital under option No capital of any company in the Group is under option or is agreed, conditionally or unconditionally, to be put under option Stock exchange listing The Shares are listed on Oslo Børs under the ticker code SONG. The New Shares become listed on Oslo Børs under the same ticker as the existing Shares with effect from the publication of this Prospectus, and the Offer Shares become listed under the same ticker upon their issuance and payment. The Shares are not listed (and no application has been filed for listing) on any other stock exchange or regulated market than Oslo Børs Historical development in share capital and number of Shares The table below sets forth the historical development of the Company s share capital and the number of issued and outstanding Shares for the period between 1 January 2010 and the date of this Prospectus. Date Type of change Change in share capital (EUR) Par value (EUR) Total share capital after change (EUR) Number of shares after change Price per share (NOK) 23 Feb 2010 Private placement 2,255, ,308, ,347,544 NOK March 2010 Private placement 1,140, ,448, ,712,544 NOK April 2012 Private placement 3,872, ,320, ,912,544 NOK Dec 2013 Private placement (*) 14,551,620, ,872, ,200,000 NOK Dec 2013 Private placement 52,548, ,420, ,912,544 NOK 2.50 The private placement marked with an asterisk, taking place on 17 December 2013, reflected a partial settlement of the New Shares subscribed for by Perestroika AS in the Private Placement. The Company's share capital as of 1 January 2013 was EUR 22,320, divided into 202,912,544 Shares each with a par value of EUR The Company's share capital as of 31 December 2013 was EUR 89,420, divided into 812,912,544 shares each with a par value of EUR Major shareholders As of 22 January 2014, the Company had a total of 4,441 registered shareholders in the VPS. The 20 largest shareholders registered in the VPS on 22 January 2014 were: No. Shareholder No. of shares % Type Country 1 Perestroika AS 431,471, % Norway 2 Skandinaviska Enskilda Banken AB 54,497, % Norway 3 Fondsfinans Spar 28,500, % Norway 4 Fidelity Funds-Nordic Fund/SICAV 20,068, % Lux. 5 Spontel AS 11,486, % Norway 6 Westco AS 10,090, % Norway 7 Deutsche Bank AG 9,585, % NOM UK 8 Morgan Stanley & Co LLC 7,607, % NOM USA 9 JP Morgan Clearing Corp. 7,460, % NOM USA 10 York Credit Opportunities Investment 6,977, % USA 11 York Credit Opportunities Fund 6,648, % USA 12 Goldman Sachs International Equity 6,473, % NOM UK 13 Christiania Securities 6,200, % Norway 14 Hans Eiendom AS 5,858, % Norway 119

125 15 T Berset Holding AS 5,350, % Norway 16 Skandinaviska Enskilda Banken AB 5,192, % NOM Sweden 17 Tigerstaden AS 5,078, % Norway 18 Skandinaviska Enskilda Banken AB 4,867, % NOM Sweden 19 York European Opportunities Invest 4,653, % USA 20 MP Pensjon PK 3,157, % Norway TOP ,223, % Others ,689, % TOTAL ,912, % Shareholders holding 5% or more of the Company s shares have an interest in the Company s share capital which is notifiable according to the Norwegian Securities Trading Act (for a description of the notification threshold etc., see Section 14.6 Disclosure obligations ). The Company is not aware of any other persons or entities than those listed in the table below who, directly or indirectly, have an interest of 5% or more of the Shares as of the date of the Prospectus. There are no differences in voting rights. The following persons or entities have notified of an interest of 5% or more of the Shares in the Company: Perestroika AS, a company controlled by Mr. Frederik W. Mohn, which holds (together with related parties) a total of 54.95% of the shares of Songa Offshore, as latest notified on 22 January 2014; and Kistefos AS, including related companies, which gave notice of holding above 5% on 5 August Other than Perestroika AS and related parties, who collectively hold more than 50% of the Company s shares, the Company is not aware of any persons or entities who, directly or indirectly, jointly or severally, exercise or could exercise control over the Company. The Company has not taken specific steps to prevent the abuse of such control. The Company is not aware of any arrangements that may result in, prevent, or restrict a change in control of the Company. The Company is not aware of any shareholders agreement among its shareholders Outstanding authorisations Authorisation to the Board to issue shares Under the Company Law, the share capital of a company consists of an authorised capital and an issued capital. The authorised capital is the maximum amount of share capital that the Company is authorised by its constitutional documents to issue to its shareholders. Part of the authorised capital can remain unissued. The part of the authorised capital which has been issued to the shareholders, is referred to as the issued share capital of the Company. On 18 December 2013, at an extraordinary general meeting of the Company, the shareholders resolved to increase the Company s authorised share capital from EUR 36,872,000 to EUR 154,093, by creation of 1,065,645,762 new shares with a nominal value of EUR 0.11, so that following the increase, the authorised share capital of the Company is EUR 154,093, divided into 1,400,854,762 shares of nominal value of EUR 0.11 each. Pursuant to Regulation 5 of the Company s Articles of Association, the Board may, for a period up to and ending 18 December 2018, being the fifth anniversary date after the resolution thereof on 18 December 2018, exercise all the powers of the Company to allot and issue shares out of the 120

126 authorised but unissued share capital. The General Meeting may with the sanction of a special resolution revoke, vary or renew the authority to the Board. Any offer or agreement made by the Board which would require shares to be allotted or issued after the expiry of the authority, would require the sanction of the General Meeting, taken by ordinary resolution. For shares issued with special rights attached please refer to Section 13.6 Shareholders rights. Pursuant to the resolution of the extraordinary general meeting of the Company on 18 December 2013, the pre-emption rights of the authorised but unissued share capital were dis-applied. Authorisation to the Board to acquire Shares The Company may, to the extent permitted by, and subject to the Company Law, acquire and hold or beneficially own Shares (including redeemable preference Shares) representing in aggregate not more than 10% in nominal value of the entire issued share capital of the Company. As at the date of this Prospectus, the Company does not own any Shares and the Board has not been granted authority to acquire own shares by the General Meeting Shareholders rights All issued Shares in the Company are vested with equal shareholder rights in all respects and no issued Shares have different voting rights. There is only one class of Shares issued and all Shares are freely transferable. The Company s Articles of Association do not contain any provisions imposing any limitations on the ownership or the tradability of the Shares. Pursuant to Regulation 4 of the Articles of Association of the Company, unissued Shares may, without prejudice to any Special Rights conferred on the holders of Shares, be issued as Shares with such preferred, deferred or other special rights or such restrictions, whether in regard to dividends, voting, return of capital or otherwise as the General Meeting may by ordinary resolution determine and, subject to the provisions of Section 57 of the Company Law, unissued shares may be issued as preference Shares, redeemable on such terms and in such manner as the General Meeting may by special resolution (resolution adopted by a majority in favour of at least 75% of the votes cast) determine. Shares ranking pari passu in all respects with existing issued shares may be issued as the Board determines in accordance with Regulation 5 of the Articles, subject to pre-emption rights. Please refer to Section Authorisation to the Board to issue shares for more information. The New Shares have the same rights (as to voting, dividends and other rights) and rank pari passu in all respects with the existing Shares. In addition, please refer to the dividend policy set out in Section 13.9 Dividend policy and payment of dividends 13.7 Additional rights of shareholders The Cyprus Companies Law (Amendment) (No. 2) of 2010, Law No. 60(I) of 2010, was passed to address certain issues concerning members of Cypriot companies listed on regulated markets, particularly in relation to voting in general meetings. Key amendments introduced by the law include: irrespective of any provisions contained in the articles of association of a Cypriot company listed on a regulated market, members who hold not less than 5% of the paid-up share capital and who have voting rights in General Meetings can call an extraordinary General Meeting; 121

127 notice of General Meetings must be served by Cypriot companies listed on regulated markets without charge to every member and must include, among other things, the place, time and the agenda of the General Meeting and the procedures for adding a new subject to the agenda, appointing proxies and voting. Furthermore, Cypriot companies listed on regulated markets shall also provide their members through their websites with a notice of the meeting, the agenda and the documents that must be used for appointing proxies and for voting (if applicable) by mail or by electronic means; members holding not less than 5% of the issued share capital (representing at least 5% of the total voting rights of those who have the right to vote in the meeting) of a Cypriot company listed on a regulated market can propose a subject to be added to the agenda through electronic means or by post. Proposed agenda items must be received by the company at least 42 days prior to the date of the General Meeting and the company must provide the amended agenda prior to the General Meeting using a method similar to that used to provide the original agenda; a person must be registered as a member in the relevant register of members (including the register kept abroad) on the record date in order to be able to attend and vote in a General Meeting of a Cypriot company listed on a regulated market. Any amendment to the relevant register after the record date will not be taken into account when determining the rights of any person to attend and vote in the meeting. The right of a member to attend a General Meeting and vote in respect of his or her shares is not subject to a condition that the shares be deposited with, or transferred to another person or registered in the name of another person, prior to the General Meeting. Furthermore, a member is free to sell or otherwise transfer his or her shares in a Cypriot company listed on a regulated market at any time between the record date and the General Meeting, provided that such right to sell would not otherwise be subject to any restrictions; Cypriot companies listed on regulated markets may make voting by electronic means available to their members and without the need for the member or their proxies to be present and may also provide real time communication; members of Cypriot companies listed on regulated markets may appoint more than one proxy if their shares are held in different security accounts; members entitled to more than one vote (either in person or through a proxy) in a meeting of members of a Cypriot company listed on a regulated market are not obliged to use all of votes or to cast all of votes in the same manner; and when members of Cypriot companies listed on regulated markets apply for a full report of the voting results of a General Geeting, the company shall announce, for every resolution proposed: (a) (b) (c) (d) the number of shares on which votes were validly placed; the proportion of issued share capital at the end of the day before the meeting which is represented by such votes; the total number of valid votes; and the number of votes which were cast in favour and against every proposed resolution and, if counted, the number of abstentions. 122

128 If no members apply for such a full report, it will be sufficient for Cypriot companies listed on regulated markets to announce the results on their websites within 14 days of the meeting and only to the extent necessary in order to ensure that the required majority was reached for every resolution Limitations on the right to own and transfer Shares The Shares are freely transferable. Neither the Company s Articles of Association nor the Company Law contain any provisions imposing limitations on the ownership of the Shares and there are no limitations under Cypriot law on the rights of non-residents or foreign owners to hold or vote for the Shares. The transfer of ownership of the Shares registered with the VPS is generally unrestricted from preemption rights and first rights of refusal and other similar rights ordinarily applicable to private companies Dividend policy and payment of dividends Dividend policy All Shares in the Company have equal rights to dividends. The Company s current ability to pay dividends is restricted by its significant capital requirements for investment, as well as by contractual arrangements including restrictions under its different loan agreements, as described in Section 12.8 Borrowings. Over time, when and as the Company has adequate financial resources, dividends will be considered by the Board of Directors Dividend payments per share The Group has not paid any dividends for any of the years 2012, 2011, or General Meetings The shareholders collective membership rights and powers are exercisable in General Meetings of the Company. In accordance with the Company Law (Section 125), every annual General Meeting shall take place not more than 15 months from the previous annual General Meeting. The Board proposes that the annual General Meeting is held on or prior to 30 June each year. The following business will be transacted at the annual general meeting: declaring dividends; presentation of the reports: (i) on the financial statements; (ii) of the Directors; and (iii) of the Auditors; and in the place of those retiring the appointment of, and fixing of the remuneration of, the Auditors. In addition to the annual General Meeting, extraordinary General Meetings of shareholders may be held if deemed necessary by the Board of Directors. An extraordinary General Meeting must also be 123

129 convened by the Board at a written request of the Company s shareholders representing a total of at least 5% of the issued and paid up share capital carrying a right to vote and in default may be convened by such shareholders themselves, cf. Regulation 45 of the Articles of Association of the Company. In accordance with the Company Law, a written notice shall be sent to all shareholders at least 21 days prior to an annual General Meeting and any other General Meeting at which a special resolution (see Section 13.13) is proposed to be passed. All other extraordinary General Meetings shall be called by at least 14 days notice, if the shareholders are able to cast votes electronically and if the calling of such a meeting by at least 14 days notice has been approved by the shareholders in a General Meeting prior to the proposed extraordinary General Meeting. At the annual General Meeting held on 6 June 2012 the shareholders resolved to reduce the notice period for convening of an extraordinary General Meeting, other than one at which a special resolution is proposed, to 14 days. The shareholders may participate at a General Meeting in person or by proxy. A proxy need not be a member of the Company and may attend and vote on a show of hands and on a vote taken by poll. The instrument appointing a proxy shall be in writing in usual form or in any form approved by the Company and is ordinarily enclosed in the notice calling the General Meeting. The instrument appointing the proxy and any authority under which it is executed is deposited at the registered office of the Company or otherwise delivered to the Company in the manner set out in the notice calling the General Meeting. No business shall be transacted at any General Meeting unless a quorum is present. At least three shareholders present in person or by proxy and together representing at least 5% of all the issued shares, shall be a quorum (Regulation 53 of the Articles of Association) Alteration of capital The Company may by ordinary resolution in a General Meeting: increase its authorised share capital by such sum, to be divided into shares of such amount, as the resolution shall prescribe; consolidate and divide all or part of its share capital into shares of larger nominal value than that of existing shares; convert all or any fully paid up shares into stock, and reconvert that stock into fully paid up shares of any denomination; subdivide the existing shares, or any of them, into shares of smaller nominal value than is fixed by the Memorandum subject, nevertheless, to the provisions of Section 60(1)(d) of the Cyprus Companies Law; and cancel any shares which, at the date of the passing of the resolution, have not been allotted or agreed to be allotted to any person. The Company may also, by special resolution in a General Meeting, reduce its issued share capital, any capital redemption reserve fund or any share premium account in any manner and with, and subject to, any consent required, by the Company Law. 124

130 13.12 Purchase of own shares and redemption The Company may, subject to and in accordance with the provisions of Sections 57 and 57A to 57F (both including) of the Company Law, purchase a number of its shares as permitted, and may transfer such shares within the time limits imposed by the Company Law or cancel them Voting rights At the date of this Prospectus, all the issued shares rank pari passu and each issued share in the Company confers at the General Meeting on its holder a right to one vote on a show of hands and on poll, a right to one vote for each share of which he is a holder (Regulation 66 of the Articles of Association). As a general rule (and except where otherwise required by the law or the articles of association), all matters raised at the General Meeting require decision by simple majority (more than 50% of the votes cast). Under the Company Law and the Articles of Association, a special resolution adopted by a majority in favour of at least 75% of the votes cast is required, inter alia, in respect of the following matters: Variation of the rights attached to the Shares (Regulation 13 of the Articles of Association) Amendments to the Articles of Association of the Company; Change of name of the Company; Reduction of the issued share capital which also requires court sanction (Regulation 14 of the Articles of Association); Reduction of the share premium account which also requires court sanction (Regulation 14 of the Articles of Association); Reduction of the capital redemption reserve (Regulation 14 of the Articles of Association); Merger and de-merger; and Change of the objects which also require court sanction. In order to be entitled to vote at a General Meeting, a shareholder must, as a general rule, be registered as owner of the Shares in the Company s shareholder register kept by the VPS. The rights attached to the Company s Shares may be varied with the sanction of an extraordinary resolution at a General Meeting which requires a majority in favour of at least 75% of the votes cast. Section 70 of the Company Law provides that the holders of not less than 15% of the issued shares of the class being varied, being persons who did not consent to or vote in favour of the resolution for the variation may apply to the Courts of Cyprus to have the variation cancelled and where such an application is made the variation shall not have effect unless and until it is confirmed by the Court. The Articles of Association at Regulation 13 specifically refer to the rights of the shareholders pursuant to Section 70 of the Company Law Pre-emption rights Where the share capital is proposed to be increased by consideration in cash, the existing shareholders have a right of pre-emption to subscribe for new shares to be issued in proportion to the aggregate number of such shares of the shareholder. Rights of pre-emption are also applicable to the issuance of securities which are convertible to shares. Such rights may be restricted or dis- 125

131 applied in accordance to the provisions of the Company Law. Specifically, a disapplication of preemption rights requires a resolution of the general meeting which is passed by a specified majority, being a majority in favour of over one half of all the votes cast if the attendance represents not less than half the issued share capital and a majority in favour of not less than two-thirds of the votes cast in all other cases. In connection with such a waiver, the directors have an obligation to present to the relevant general meeting a written report explaining the reasons for the proposal. There are no pre-emption rights with respect to shares issued for non-cash consideration or shares issued on the conversion of convertible instruments or the exercise of options. Pursuant to the resolution of the extraordinary general meeting of the Company on 18 December 2013 to increase the authorised share capital, the pre-emption rights of the authorised but unissued share capital were dis-applied Regulation of dividends Pursuant to Regulation 112 of the Articles of Association and provided that the Company has sufficient distributable profits, the Company may, at a General Meeting of its shareholders, declare by ordinary resolution (simple majority) dividends to be paid out of profits and to be distributed to the shareholders pro rata to their holdings in the Company but no dividend will exceed the amount recommended by the Board. The Board may declare interim dividends as appear to the Board to be justified by the profits of the Company (Regulation 113 of the Articles of Association). No distribution to shareholders may be made when on the closing date of the last financial year the net assets, as already set out in the Company s annual accounts are, or following such a distribution would become, lower than the amount of the subscribed capital plus those reserves which may not be distributed under the Company Law or the Company s Articles of Association. Where the uncalled part of the issued capital is not included in the assets shown in the balance sheet, this amount shall not be calculated as part of the subscribed capital. In addition to the above dividends may be declared only if the following conditions are satisfied: In relation to interim dividends, interim accounts are prepared which show that the funds available are sufficient for the distribution of interim dividends; and Generally in relation to dividends, the amount to be distributed cannot exceed the total profits made since the end of the last financial year, increased by the amounts of the profits that have been brought forward from the last financial year and the retentions from the reserves that are available for this purpose, but reduced by the amount of losses of previous financial years as well as by the amounts that need to be credited to the reserves in accordance with the provisions of the law or the Articles of Association of the Company. The shareholders who have received dividend, in contravention to any of the above provisions of the Company Law, may be liable to return it to the Company provided the Company proves that the said shareholders: had knowledge of the irregularity of the payments made in their favour; or could not, in view of the circumstances have been unaware of it. The Board will consider the amount of dividend (if any) to recommend for approval by the Company s shareholders, based upon the earnings of the Company and the financial situation of the Company at the relevant point in time. 126

132 Dividend will be declared in EUR. Shareholders who maintain a Norwegian address with the VPS or have supplied VPS with details of their NOK account, shall receive their dividend payment in NOK to such account. Any dividend which has remained unclaimed for five years from the date when it became due for payment shall, if the Board so resolves, be forfeited and cease to remain owing by the Company. The Company s loan agreements contain various requirements to be met for dividends to be paid, see the different loan agreements described in Section 12.8 Borrowings Liability of directors The duties of Directors of Cyprus companies are not comprehensively codified and are set out, amongst others, in the Company Law, common law principles (the Common Law ), duties provided for in a company s Articles of Association ( the Articles ) and respective EU directives transposed into law in Cyprus. There are four main common law fiduciary duties that the directors owe to the Company and must take into account when they are acting for the Company, these are to: Act in good faith for the benefit of the company and for proper purpose; Avoid conflicts of interests; Exercise independent judgment; and Act with due care and skill. Their principal task is to safeguard the interests of the Company. Members of the Board of Directors may each be held liable for any damage they cause the Company through gross negligence or wilful misconduct. Subject to the Company Law, each of the current or former officers of the Company may be indemnified out of the Company assets against any losses or liabilities which he or she may sustain or incur in or about the execution of his or her duties. This includes liability incurred by him or her in defending any proceedings, whether civil or criminal, in which judgment is given in his or her favour or in which he or she is acquitted, or in connection with any application under Section 383 of the Cyprus Companies Law in which relief is granted to him or her by the court from liability for negligence, default, breach of duty or breach of trust in respect of the affairs of the Company Distribution of assets on liquidation According to the Company Law, the Company may be wound-up voluntarily or involuntarily. In the case of voluntary winding up and where the Company is solvent a special resolution would be required to be passed in a General Meeting of the Company. The Shares rank pari passu in the event of a return of capital by the Company upon a winding-up or otherwise. If the Company is wound up, the liquidator may, amongst other, with the sanction of an extraordinary resolution of the shareholders and any other sanction required by the Company Law: divide among the shareholders in specie or in kind the whole or any part of the property of the Company; for that purpose set a value as the liquidator considers fair on any property to be so divided; 127

133 decide how the division is to be carried out as between the shareholders or different classes of shareholders; and vest the whole or any part of the property of the Company in trustees upon such trusts, for the benefit of the contributories as the liquidator shall think fit, but so that no shareholder shall be compelled to accept any shares or other securities whereon there is any liability Summary of the Company s constitutional documents The following is a summary of certain provisions of the Company s Memorandum of Association and Articles of Association, some of which have not been addressed in the preceding Sections. The Company s Articles of Association and Memorandum of Association are included in Appendix 1 and Appendix 2 to this Prospectus, respectively. Objective The business of the Company is, pursuant to Section 3 of the Company s Memorandum of Association, inter alia: 1) to carry on the businesses and activities of : a) owners, proprietors, producers, refiners, storers, suppliers, purchasers, managers, builders, developers, offshore drilling contractors, sellers, lessors, distributors of any land, buildings, premises, mines, oil wells, rigs, refineries, ships, vessels, docks, petroleum and petroleum products, mining rights and mineral rights, ores, minerals, oils and precious stones, of any kind without limitation; b) owners either by subscription, exchange, underwriting or otherwise, purchasers, managers and sellers of, any share capital, loan capital and other securities in, or issued or guaranteed by, any Corporation, and any securities issued or guaranteed by, any State, Person or governmental or other authority including without limitation shares, stocks, debentures, debenture stock, bonds, warrants, options and any transferable instruments, obligations and securities; c) providers of financial, managerial, supervisory, and administrative advices, service and assistance for, or in relation to, any Corporation in which the Company is interested or any other person; d) manufacturers, merchants (wholesale and retail), industrialists, purchasers, sellers, retailers, suppliers, exporters, importers, distributors, commercial agents, carriers, forwarders, of goods, produce, merchandise, articles or commodities of every kind and description and provisions of all kinds, 2) to carry on the business, and to undertake and to exercise the duties of the office, of trustees, custodian trustees, executors, administrators, liquidators, attorneys, nominees, directors, executive directors or company secretaries; and 3) to carry on any other lawful business or activity which may seem capable of being combined with or of complementing all or any of the above businesses and activities or which the Company deems necessary or convenient to carry on and which may directly or indirectly benefit the Company. Provisions with respect to the Board of Directors The administration of the Company pertains to the Board, which shall oversee the proper organisation of the business. The Board shall supervise the administration of the Company. The 128

134 members of the Board are elected by the General Meeting. A new member of the Board may be recommended by the nomination committee, the Board or by any shareholder entitled to vote at the General Meeting. A proposal made by a shareholder for the appointment of a new member to the Board must be given not less than seven or more than 28 days before the date of the holding of the General Meeting. This must be accompanied by the notice executed by the nominated person indicating his willingness to be so appointed to the position of director. It is possible for the Board to appoint a person willing to act as a director whether to fill a vacancy or as an additional director but such person may only hold office until the next annual General Meeting where he shall retire and be eligible for reappointment in accordance with a recommendation of the nomination committee. The General Meeting also resolves the annual remuneration of the Board members and the level of such remuneration is proposed to the General Meeting by the nomination committee Cyprus law disclosure obligations Under Cyprus law, any shareholder, natural person or entity that acquires or disposes of Shares with voting rights attached, or the right to acquire or exercise voting rights, or financial instruments (in accordance with Directive 2007/14/EC), resulting in direct or indirect ownership or beneficial ownership, the holding of which meets or exceeds or falls below the thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50% or 75% of the total voting rights of the Company, has an obligation to notify the Company, the regulated market on which the Shares are admitted to listing (i.e Oslo Børs), and the Cyprus Securities and Exchange Commission ( CySEC ) immediately. Notifications should be sent to CySEC by (info@cysec.gov.cy) or fax ( ) and hard copies should follow to Cyprus Securities and Exchange Commission, Issuing Department, PO. Box 24996, 1306 Nicosia, Cyprus Applicable takeover bid regulations Cyprus has implemented the Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids ("Takeover Bids Directive ) by Law No.41(I) of 2007, as amended ("Takeover Bids Law"), which provides mandatory takeover bid rules where a person, as a result of his own acquisition or the acquisition by persons acting in concert with him, holds securities of a company which, added to his existing holdings and the holdings of persons acting in concert with him, directly or indirectly give him a percentage of 30 per cent. or more of existing voting rights in that company at the date of the acquisition. The rule triggers an obligation on such a person to make a bid at the earliest opportunity to all the other holders. The bid must be addressed to all the remaining shareholders and must be at a fair price. The obligation to make a mandatory bid is valid when, following the acquisition, the offeror holds at least 30 per cent. of the voting rights of a company. The following cases constitute a nonexhaustive list of situations where the obligation to make a bid applies: (i) (ii) where the offeror holds no securities or holds securities representing less than 30 per cent. of the voting rights of a company and with an acquisition of securities he/she reaches or supersedes 30 per cent. of the voting rights of a company; or where the offeror already holds a percentage equal to or greater than 30 per cent. and below 50 per cent. of the voting rights of a company and increases his/her percentage of holding. The competence to regulate issues relating to takeover bids is separated between the competent authorities in Norway (Oslo Børs) and in Cyprus (the Cyprus Securities and Exchange Commission). Article 4(2) lit. e) of the Take-Over Directive entails that matters relating to the consideration 129

135 offered in the case of a bid, in particular the price, and matters relating to the bid procedure, in particular the information on the offeror s decision to make a bid, the contents of the offer document and the disclosure of the bid, shall be dealt with in accordance with the rules of Chapter 6 of the Norwegian Securities Trading Act. Under Norwegian law, a mandatory offer and the mandatory offer document will be subject to approval by Oslo Børs before submission of the offer to the target s shareholders. The offer price must be at least as high as the highest price paid or agreed by the offeror in the six month period prior to the mandatory bid was triggered, but equal to the market price if the market price was higher when the offer was triggered. In the event that the offeror thereafter, but prior to the expiration of the bid period acquires, or agrees to acquire, additional shares at a higher price, the offeror is obliged to restate its bid at that higher price. A mandatory offer must be in cash or contain a cash alternative at least equivalent to any other consideration offered. A shareholder who fails to make the required offer must within four weeks dispose of sufficient shares so that the obligation ceases to apply. Oslo Børs may impose a daily fine upon a shareholder who fails to make the required offer. Matters relating to the information to be provided to the employees of the target company and in matters relating to company law, in particular the percentage of voting rights which triggers the obligation to launch a mandatory bid, as well as the conditions under which the board of directors of the target company may undertake any action which might result in the frustration of the bid, the applicable rules and the competent authority shall be those of Cyprus. Pursuant to Section 34(1) of the Takeover Bids Law, the Board of Directors of the Company may not take any action, other than seeking alternative bids, which may result in the frustration of the bid without prior authorisation of the General Meeting. On 20 December 2013, Perestroika AS launched a mandatory offer for the shares of the Company. The offer was launched under the regulations of the Norwegian Securities Trading Act section 6, as Perestroika AS had triggered the requirements for a mandatory offer on 17 December Under the mandatory offer, Perestroika AS offered to purchase all of the outstanding shares of the Company against a cash settlement of NOK 2.50 per shares. The offer expired on 21 January Based on the preliminary result, the approximate number of shares tendered in this mandatory offer was 559,793, representing less than 0.1% of the outstanding shares of Songa Offshore SE. Other than the above mentioned mandatory offer by Perestroika AS, the Company has not received any takeover bids or bids to acquire controlling interests in the Company during the last twelve months Applicable squeeze out and sell out regulations A person who becomes a majority shareholder holding 90% or more of the issued Shares carrying voting rights and not less than 90% of the voting rights of the Company or who has irrevocably agreed to acquire the same, is, for a period of 90 days, entitled to acquire the Shares of the remaining holders, and the remaining holders are also entitled to cause such majority shareholder to buy their Shares. Such compulsory acquisition would imply that the majority shareholder becomes the owner of the then acquired shares with immediate effect. The price to be paid by the majority shareholder for the compulsory acquisition shall, in the absence of an agreement between the minority shareholder and the majority shareholder within 10 days from the notice of compulsory acquisition, be determined on the basis of the provisions for determining the purchase price per share under the mandatory offer regulations pursuant to the Norwegian Securities Trading Act, see Section Applicable takeover bid regulations. 130

136 Similarly, Section 37(1) of the Takeover Bids Law allows for the holder of the remaining shares (i.e. the remaining 1-10%) of the offeree company to require the offeror (holding not less than 90% of the capital carrying voting rights and not less than 90% of the voting rights or who has irrevocably agreed to acquire the same) to buy his/her shares from him/her at a fair price, provided that this right is exercised within three months of the end of the time allowed for acceptance of the bid. 131

137 14 SECURITIES TRADING IN NORWAY 14.1 Trading of equities and bonds Trading of equities on Oslo Børs is carried out in the electronic trading system Millennium Exchange. This trading system is in use by all markets operated by the London Stock Exchange, as well as by the Borsa Italiana and the Johannesburg Stock Exchange. Official trading of equities on Oslo Børs takes place between 09:00 hours and 16:30 hours each trading day, with a pre-trade session between 08:15 hours and 09:00 hours, a closing auction from 16:20 hours to 16:25 hours and a post-trade period from 16:25 hours to 17:30 hours. Official trading of bonds takes place between 09:00 hours and 16:00 hours each trading day, with a pretrade session between 08:15 and 09:00. All hours above are expressed in CET Settlement The settlement period for trading on Oslo Børs is three trading days (T+3). Oslo Clearing ASA, a wholly owned subsidiary of Oslo Børs VPS Holding ASA, has a licence from the NFSA to act as a central clearing service, and has since 18 June 2010 offered clearing and counterparty services for equity trading on Oslo Børs Information, control and surveillance Under Norwegian law, Oslo Børs is required to conduct a number of surveillance and control functions. The Surveillance and Corporate Control unit of Oslo Børs monitors all market activity on a continuous basis. Market surveillance systems are largely automated, promptly warning department personnel of abnormal market developments. The NFSA controls the issuance of securities in both the equity and bond markets in Norway and evaluates whether the issuance documentation contains the required information and whether it would otherwise be unlawful to carry out the issuance. Under Norwegian law, a company which is listed, or has applied for listing, on a Norwegian regulated market, must promptly release any inside information (i.e. precise information about financial instruments, the issuer thereof or other matters which are likely to have a significant effect on the price of the relevant financial instruments or related financial instruments, and which are not publicly available or commonly known in the market). A company may, however, delay the release of such information in order not to prejudice its legitimate interests, provided that it is able to ensure the confidentiality of the information and that the delayed release would not be likely to mislead the public. Oslo Børs may levy fines on companies violating these requirements. Investment services in Norway may only be provided by Norwegian brokerage houses holding a licence under the Norwegian Securities Trading Act, branches of brokerage houses from an EEA member state or brokerage houses from outside the EEA that have been licenced to operate in Norway. Brokerage houses in an EEA member state may also provide cross-border investment services in Norway. It is possible for brokerage houses to undertake market-making activities in shares listed in Norway if they have a licence to this effect under the Norwegian Securities Trading Act, or in the case of brokerage houses in an EEA member state, a licence to carry out market-making activities in their home jurisdiction. Such market-making activities will be governed by the regulations of the Norwegian Securities Trading Act relating to brokers trading for their own account. However, such market-making activities do not as such require notification to the NFSA or Oslo Børs except for the 132

138 general obligation on brokerage houses that are members of Oslo Børs to report all trades in stock exchange listed securities Shareholder register, the VPS and transfer of Shares The VPS is the Norwegian paperless centralised securities register. It is a computerised bookkeeping system in which the ownership of, and all transactions relating to, shares listed on a Norwegian regulated market must be recorded. The Company s register of shareholders is maintained by the Company and kept in physical form at its registered office. Since the Company s primary shareholders register is kept in Cyprus, the VPS is treated as an overseas supplemental register which is deemed to form part of the main register of shareholders. The VPS and Oslo Børs are both wholly-owned by Oslo Børs VPS Holding ASA. All transactions relating to securities registered in the VPS are made through computerised book entries. No physical share certificates are, or may be, issued. The VPS confirms each entry by sending a transcript to the registered shareholder irrespective of any beneficial ownership. To give effect to such entries, the individual shareholder must establish a share account with a Norwegian account agent. Norwegian banks, Norges Bank (i.e. Norway s central bank), authorised securities brokers in Norway and Norwegian branches of credit institutions established within the EEA are allowed to act as account agents. The entry of a transaction in the VPS is prima facie evidence in determining the legal rights of parties as against the issuing company or any third party claiming an interest in the given security. A transferee or assignee of shares may not exercise the rights of a shareholder with respect to such shares unless such transferee or assignee has registered such shareholding or has reported and shown evidence of such share acquisition, and the acquisition is not prevented by law, the relevant company s articles of association or otherwise. The VPS is liable for any loss suffered as a result of faulty registration or an amendment to, or deletion of, rights in respect of registered securities unless the error is caused by matters outside the VPS control which the VPS could not reasonably be expected to avoid or overcome the consequences of. Damages payable by the VPS may, however, be reduced in the event of contributory negligence by the aggrieved party. The VPS must provide information to the NFSA on an on-going basis, as well as any information that the NFSA requests. Further, Norwegian tax authorities may require certain information from the VPS regarding any individual s holdings of securities, including information about dividends and interest payments Foreign investment in Norwegian shares Foreign investors may trade shares listed on Oslo Børs through any broker that is a member of Oslo Børs, whether Norwegian or foreign Disclosure obligations Disclosure obligation will apply pursuant to Cyprus law, as further set out in Section Cyprus law disclosure obligations herein Insider trading According to Norwegian law, subscription for, purchase, sale or exchange of financial instruments that are listed, or subject to the application for listing, on a Norwegian regulated market, or incitement to such dispositions, must not be undertaken by anyone who has inside information, see 133

139 Section 14.3 Information, control and surveillance. The same applies to the entry into, purchase, sale or exchange of options or futures/forward contracts or equivalent rights whose value is connected to such financial instruments or incitement to such dispositions. The Company has adopted an insider trading policy which sets out the details on the procedures implemented by the Company including procedure for prior clearance of certain trades with the insider trading officer Takeover bids In respect of the Company s shares, on account of the Company being domiciled in Cyprus, the competence to regulate issues relating to takeover bids is separated between the competent authorities in Norway and Cyprus, as further set out and described in Section Applicable takeover bid regulations Squeeze out and sell out Squeeze-out and sell-out regulations in respect of the Company s shares are provided by Cyprus law, as further set out and described in Section Applicable squeeze out and sell out regulations. 134

140 15 RESTRICTIONS ON SALE AND TRANSFER Certain of the sub-sections below make use of terms of abbreviations that are specific to the subsection, and are therefore not defined or explained in Section 18 Definitions and glossary of terms General The grant of Subscription Rights and issue of Offer Shares upon exercise of Subscription Rights and the offer of unsubscribed Offer Shares to persons resident in, or who are citizens of countries other than Norway, may be affected by the laws of the relevant jurisdiction. Investors should consult their professional advisers as to whether they require any governmental or other consent or need to observe any other formalities to enable them to exercise Subscription Rights or subscribe for Offer Shares. The Company does not intend to take any action to permit a public offering of the Offer Shares in any jurisdiction other than Norway. Receipt of this Prospectus will not constitute an offer in those jurisdictions in which it would be illegal to make an offer and, in those circumstances, this Prospectus is for information only and should not be copied or redistributed. Except as otherwise disclosed in this Prospectus, if an investor receives a copy of this Prospectus in any territory other than Norway, the investor may not treat this Prospectus as constituting an invitation or offer to it, nor should the investor in any event deal in the Offer Shares, unless, in the relevant jurisdiction, such an invitation or offer could lawfully be made to that investor, or the Subscription Rights and Offer Shares could lawfully be dealt in without contravention of any unfulfilled registration or other legal requirements. Accordingly, if an investor receives a copy of this Prospectus, the investor should not distribute or send the same, or transfer the Subscription Rights and/or Offer Shares to any person or in or into any jurisdiction where to do so would or might contravene local securities laws or regulations. If the investor forwards this Prospectus into any such territories (whether under a contractual or legal obligation or otherwise), the investor should direct the recipient s attention to the contents of this Section 15. Except as otherwise noted in this Prospectus and subject to certain exceptions: (i) the Subscription Rights and Offer Shares being granted or offered, respectively, in the Subsequent Offering may not be offered, sold, resold, transferred or delivered, directly or indirectly, in or into, Member States of the EEA that have not implemented the Prospectus Directive, Australia, Canada, Hong Kong, Japan, the United States or any other jurisdiction in which it would not be permissible to offer the Subscription Rights and/or the Offer Shares (the Ineligible Jurisdictions ); (ii) this Prospectus may not be sent to any person in any Ineligible Jurisdiction; and (iii) the crediting of Subscription Rights to an account of a person in an Ineligible Jurisdiction or a citizen of an Ineligible Jurisdiction (referred to as Ineligible Persons ) does not constitute an offer to such persons of the Subscription Rights or the Offer Shares. Ineligible Persons may not exercise Subscription Rights. If an investor takes up, delivers or otherwise transfers Subscription Rights, exercises Subscription Rights to obtain Offer Shares, subscribes for Offer Shares or trades or otherwise deals in the Subscription Rights and Offer Shares, that investor will be deemed to have made or, in some cases, be required to make, the following representations and warranties to the Company and any person acting on the Company s or its behalf: (i) (ii) the investor is not located in an Ineligible Jurisdiction; the investor is not an Ineligible Person; 135

141 (iii) (iv) (v) (vi) the investor is not acting, and has not acted, for the account or benefit of an Ineligible Person; unless the investor is a qualified institutional buyer as defined in Rule 144A under the U.S. Securities Act, the investor is located outside the United States and any person for whose account or benefit it is acting on a non-discretionary basis is located outside the United States and, upon acquiring Offer Shares, the investor and any such person will be located outside the United States; the investor understands that the Subscription Rights and Offer Shares have not been and will not be registered under the U.S. Securities Act and may not be offered, sold, pledged, resold, granted, delivered, allocated, taken up or otherwise transferred within the United States except pursuant to an exemption from, or in a transaction not subject to, registration under the U.S. Securities Act; and the investor may lawfully be offered, take up, subscribe for and receive Subscription Rights and Offer Shares in the jurisdiction in which it resides or is currently located. The Company and any persons acting on behalf of the Company, including the Managers, will rely upon the investor s representations and warranties. Any provision of false information or subsequent breach of these representations and warranties may subject the investor to liability. If a person is acting on behalf of a holder of Subscription Rights (including, without limitation, as a nominee, custodian or trustee), that person will be required to provide the foregoing representations and warranties to the Company with respect to the exercise of Subscription Rights on behalf of the holder. If such person cannot or is unable to provide the foregoing representations and warranties, the Company will not be bound to authorise the allocation of any of the Subscription Rights and Offer Shares to that person or the person on whose behalf the other is acting. Subject to the specific restrictions described below, if an investor (including, without limitation, its nominees and trustees) is outside Norway and wishes to exercise or otherwise deal in or subscribe for Subscription Rights and/or Offer Shares, the investor must satisfy itself as to full observance of the applicable laws of any relevant territory including obtaining any requisite governmental or other consents, observing any other requisite formalities and paying any issue, transfer or other taxes due in such territories. The information set out in this Section 15 is intended as a general guide only. If the investor is in any doubt as to whether it is eligible to subscribe for the Offer Shares, that investor should consult its professional adviser without delay. Subscription Rights will initially be credited to financial intermediaries for the accounts of shareholders who hold Shares registered through a financial intermediary on the Record Date. Subject to certain exceptions, financial intermediaries, which include brokers, custodians and nominees, may not exercise any Subscription Rights on behalf of any person in the Ineligible Jurisdictions or any Ineligible Persons and may be required in connection with any exercise of Subscription Rights to provide certifications to that effect. Subject to certain exceptions, financial intermediaries are not permitted to send this Prospectus or any other information about the Subsequent Offering in or into any Ineligible Jurisdiction or to any Ineligible Persons. Subject to certain exceptions, exercise instructions or certifications sent from or postmarked in any Ineligible Jurisdiction will be deemed to be invalid and Offer Shares will not be delivered to an addressee in any Ineligible Jurisdiction. The Company reserves the right to reject any exercise (or revocation of such exercise) in the name of any person who provides an address in an Ineligible Jurisdiction for acceptance, revocation of exercise or delivery of such Subscription Rights and Offer Shares, who is unable to represent or warrant that such person is not in an Ineligible Jurisdiction and is not an Ineligible Person, who is acting on a non-discretionary basis for 136

142 such persons, or who appears to the Company or its agents to have executed its exercise instructions or certifications in, or dispatched them from, an Ineligible Jurisdiction. Furthermore, the Company reserves the right, with sole and absolute discretion, to treat as invalid any exercise or purported exercise of Subscription Rights which appears to have been executed, effected or dispatched in a manner that may involve a breach or violation of the laws or regulations of any jurisdiction. Notwithstanding any other provision of this Prospectus, the Company reserves the right to permit a holder to exercise its Subscription Rights if the Company, at its absolute discretion, is satisfied that the transaction in question is exempt from or not subject to the laws or regulations giving rise to the restrictions in question. Applicable exemptions in certain jurisdictions are described further below. In any such case, the Company does not accept any liability for any actions that a holder takes or for any consequences that it may suffer as a result of the Company accepting the holder s exercise of Subscription Rights. No action has been or will be taken by the Managers to permit the possession of this Prospectus (or any other offering or publicity materials or application or subscription form(s) relating to the Subsequent Offering) in any jurisdiction where such distribution may lead to a breach of any law or regulatory requirement. Neither the Company nor the Managers, nor any of their respective representatives, is making any representation to any offeree, subscriber or recipient of Subscription Rights and/or Offer Shares regarding the legality of an investment in the Subscription Rights and/or the Offer Shares by such offeree, subscriber or purchaser under the laws applicable to such offeree, subscriber or recipient. Each investor should consult its own advisers before subscribing for Offer Shares or purchasing Subscription Rights and/or Offer Shares. Investors are required to make their independent assessment of the legal, tax, business, financial and other consequences of a subscription for Offer Shares. A further description of certain restrictions in relation to the Subscription Rights and the Offer Shares in certain jurisdictions is set out below Notices in respect of specific jurisdictions United States The Subscription Rights and the Offer Shares have not been and will not be registered under the U.S. Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered, sold, taken up, exercised, resold, transferred or delivered, directly or indirectly, within the United States except pursuant to an applicable exemption from the registration requirements of the U.S. Securities Act and in compliance with the securities laws of any state or other jurisdiction of the United States. There will be no public offer of the Subscription Rights and Offer Shares in the United States. A notification of exercise of Subscription Rights and subscription of Offer Shares in contravention of the above may be deemed to be invalid. The Subscription Rights and Offer Shares are being offered and sold outside the United States in reliance on Regulation S under the U.S. Securities Act. Any offering of the Subscription Rights and Offer Shares by the Company to be made in the United States will be made only to a limited number of qualified institutional buyers (as defined in Rule 144A under the U.S. Securities Act) pursuant to an exemption from registration under the U.S. Securities Act who have executed and returned an U.S. investor letter to the Company prior to exercising their Subscription Rights. 137

143 Prospective recipients are hereby notified that sellers of the Offer Shares may be relying on an exemption from the provisions of Section 5 of the U.S. Securities Act provided by Rule 144A. Accordingly, subject to certain limited exceptions, this document will not be sent to any shareholder with a registered address in the United States. In addition, the Company and the Joint Bookrunners reserve the right to reject any instruction sent by or on behalf of any account holder with a registered address in the United States in respect of the Subscription Rights and/or the Offer Shares. Any recipient of this document in the United States is hereby notified that this document has been furnished to it on a confidential basis and is not to be reproduced, retransmitted or otherwise redistributed, in whole or in part, under any circumstances. Furthermore, recipients are authorised to use it solely for the purpose of considering an investment in the Subscription Rights and/or Offer Shares in the Subsequent Offering and may not disclose any of the contents of this document or use any information herein for any other purpose. This document is personal to each offeree and does not constitute an offer to any other person or to the public generally to subscribe for Offer Shares or otherwise acquire Subscription Rights and/or Offer Shares. Any recipient of this document agrees to the foregoing by accepting delivery of this document. Until 40 days after the commencement of the Subsequent Offering, any offer or sale of the Offer Shares within the United States by any dealer (whether or not participating in the Subsequent Offering) may violate the registration requirements of the U.S. Securities Act. The Subscription Rights and the Offer Shares have not been approved or disapproved by the United States Securities and Exchange Commission, any state securities commission in the United States or any other United States regulatory authority nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the Subscription Rights and Offer Shares or the accuracy or adequacy of this document. Any representation to the contrary is a criminal offense in the United States. Each person to which Subscription Rights and/or Offer Shares are distributed, offered or sold in the United States, by accepting delivery of this Prospectus or by its subscription for Offer Shares, will be deemed to have represented and agreed, on its behalf and on behalf of any investor accounts for which it is subscribing for Offer Shares or purchasing Subscription Rights, as the case may be, that: (i) (ii) it is a qualified institutional buyer as defined in Rule 144A under the U.S. Securities Act, and that it has executed and returned an investor letter to the Company prior to exercising their Subscription Rights; and the Subscription Rights and Offer Shares have not been offered to it by the Company by means of any form of general solicitation or general advertising (within the meaning of Regulation D under the U.S. Securities Act). Each person to which Subscription Rights and/or Offer Shares are distributed, offered or sold outside the United States will be deemed, by its subscription for Offer Shares or purchase of Offer Shares, to have represented and agreed, on its behalf and on behalf of any investor accounts for which it is subscribing for Offer Shares or purchasing Subscription Rights and/or Offer Shares, as the case may be, that: (i) it is acquiring the Subscription Rights and/or the Offer Shares from the Company or the Joint Bookrunners in an "offshore transaction" as defined in Regulation S under the U.S. Securities Act; and 138

144 (ii) the Subscription Rights and/or the Offer Shares have not been offered to it by the Company or the Underwriters by means of any directed selling efforts as defined in Regulation S under the U.S. Securities Act. NOTICE TO NEW HAMPSHIRE RESIDENTS: NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES (THE RSA ) WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE RECEPIENT, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. EEA Selling Restrictions In relation to each Member State of the EEA other than Norway, which has implemented the Prospectus Directive (each a Relevant Member State ), with effect from and including the relevant implementation date, an offer to the public of any Offer Shares which are the subject of the Subsequent Offering contemplated by this Prospectus may not be made in that Relevant Member State, other than the Subsequent Offering in Norway as described in this Prospectus, once the Prospectus has been approved by the competent authority in Norway and published in accordance with the Prospectus Directive as implemented in Norway, except that an offer to the public in that Relevant Member State of any Offer Shares may be made at any time with effect from and including the relevant implementation date under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State: (i) (ii) (iii) to legal entities which are qualified investors as defined in the Prospectus Directive; to fewer than 100, or, if the Relevant Member State has implemented the relevant provisions of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the Joint Bookrunners for any such offer; or in any other circumstances falling within Article 3(2) of the Prospectus Directive; provided that no such offer of Offer Shares shall require the Company or any Managers to publish a Prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive. For the purposes of this provision, the expression an offer to the public in relation to any Offer Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any Offer Shares to be offered so as to enable an investor to decide to subscribe for any Offer Shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in each Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU. The EEA selling restriction is in addition to any other selling restrictions set out in this Prospectus. 139

145 Notice to Australian investors This Prospectus is not a disclosure document under Chapter 6D of the Corporations Act 2001 (Cth) (the Australian Corporations Act ), has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly: (i) (ii) the offer of the Subscription Rights and Offer Shares in Australia may only be made to persons who are sophisticated investors (within the meaning of section 708(8) of the Australian Corporations Act) or to professional investors (within the meaning of section 708(11) of the Australian Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708(8) of the Australian Corporations Act, so that it is lawful to offer, or invite applications for, the Subscription Rights and Offer Shares without disclosure to persons under Chapter 6D of the Australian Corporations Act; and this Prospectus may only be made available in Australia to persons as set forth in clause (a) above. If you acquire Subscription Rights or Offer Shares, then you (i) represent and warrant that you are a person to whom an offer of securities can be made without a disclosure document in accordance with subsections 708(8) or (11) of the Australian Corporations Act and (ii) agree not to sell or offer for sale any Offer Shares in Australia within 12 months after their issue to the offeree or invitee under this Prospectus, except in circumstances where disclosure to investors under Chapter 6D would not be required under the Australian Corporations Act. No person receiving a copy of this Prospectus and/or receiving a credit of Subscription Rights to an account in VPS with a bank or financial institution in Australia may treat the same as constituting an invitation or offer to such person nor should such person in any event deal in Subscription Rights in VPS unless such an invitation or offer could lawfully be made to such person without contravention of any registration or other legal requirements. In such circumstances, this document is to be treated as received for information only and should not be copied or redistributed Notice to Canadian investors The Offer Shares have not been and will not be qualified by a prospectus for sale to the public in Canada under applicable Canadian securities laws, and accordingly, any offer or sale of the Subscription Rights or Offer Shares in Canada must be made pursuant to an exemption from the applicable prospectus and registration requirements, and otherwise in compliance with applicable Canadian laws. Notice to Hong Kong investors The contents of this Prospectus have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the Subsequent Offering. If you are in any doubt regarding any of the contents of this Prospectus, you should obtain independent professional advice. This Prospectus does not constitute an offer or sale in Hong Kong of the Offer Shares and no person may offer or sell in Hong Kong, by means of this Prospectus other than to (a) professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571) ( SFO ) and any rules made under the SFO ( professional investors ) or (b) in other circumstances which do not result in the document being a prospectus as defined in the Companies Ordinance of Hong Kong (Cap. 32) ( CO ) or which do not constitute an offer or invitation to the public for the purposes of the CO or the SFO. No person shall issue or possess for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, 140

146 invitation or document relating to Subscription Rights or Offer Shares which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to those Subscription Rights or Offer Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to such professional investors. Existing shareholders agree not to offer or sell in Hong Kong any Offer Shares other than (a) to professional investors; or (b) in other circumstances which do not result in the document offering for sale the Offer Shares being a prospectus as defined in the CO or which do not constitute an offer to the public within the meaning of the CO or the SFO. Existing shareholders also agree not to issue or have in their possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Subscription Rights or the Offer Shares, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the Subscription Rights or the Offer Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors. Notice to Japanese investors The Subsequent Offering of Offer Shares offered hereby has not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law ). Accordingly, each Underwriter has represented, warranted and agreed that the Offer Shares to which it each subscribes will be subscribed by it as principal and that, in connection with the offering made hereby, it will not, directly or indirectly, offer or sell any Offer Shares in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organised under the laws of Japan) or to others for re-offering or resale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and other relevant laws and regulations of Japan Notice to Swiss investors This Prospectus is not being publicly distributed in Switzerland. Each copy of this document is addressed to a specifically named recipient and may not be passed on to third parties. The Subscription Rights or Offer Shares are not being offered to the public in or from Switzerland, and neither this document, nor any other offering material in relation to the Subscription Rights or Offer Shares may be distributed in connection with any such public offering. 141

147 16 TAXATION Set out below is a summary of certain Cyprus and Norwegian tax matters related to investments in the Company. The summary is based on Cyprus and Norwegian laws, rules and regulations applicable as of the date of this Prospectus, which may be subject to any changes in law occurring after such date. Such changes could possibly be made on a retroactive basis. The summary is of a general nature and does not purport to be a comprehensive description of all tax considerations that may be relevant for a decision to acquire, own or dispose of Shares. Shareholders who wish to clarify their own tax situation should consult with and rely upon their own tax advisors. Certain of the sub-sections below make use of terms of abbreviations that are specific to the subsection, and are therefore not defined or explained in Section 18 Definitions and glossary of terms Cyprus taxation Tax residency A company which is considered to be a resident for tax purposes in Cyprus is subject to corporate income tax in Cyprus (the Corporate Income Tax ) on its worldwide income, subject to certain exemptions. A company is considered to be a resident of Cyprus for tax purposes if its management and control is exercised from Cyprus. With respect to the individual shareholders, an individual is considered to be a tax resident of Cyprus if he or she is physically present in Cyprus for a period or periods exceeding in aggregate more than 183 days in any tax year Rates of taxation The rate of Corporate Income Tax in Cyprus is 12.5%. A special contribution for the Defence of Cyprus (the Defence Tax ) is levied on certain types of income. Defence Tax is applied, subject to any available exemptions, at the following tax rates: 3% on 75% of certain rental income; 30% on interest income not arising in the ordinary course of business or in close connection with the ordinary business activity; and 20% (17% as of 1 January 2014) on dividend income received from non-cyprus resident companies if certain conditions are not met. Defence Tax is levied on the gross amount of income without any deduction for expenses. Capital gains tax (the Capital Gains Tax ) is levied in Cyprus at a rate of 20% on profits from disposal of immovable property situated in Cyprus or shares of companies which own immovable property situated in Cyprus (unless the shares are listed on a recognised stock exchange). Determination of taxable income Determination of taxable income is generally based on accounts prepared in accordance with international accounting principles, subject to certain adjustments and provisions. Certain types of income are exempt from taxation in Cyprus. 142

148 The general principle of the Cyprus Income Tax law is that for an expense to be allowed as a deduction it must have been incurred wholly and exclusively for the production of taxable income. In accordance with Circular numbered 14/2008 issued by the Cyprus Tax Authorities, all direct expenses relating to the income from exempt activities should be deducted from such income (i.e. disallowed for corporation tax purposes) in arriving at the income to be treated as tax exempt. All general administration expenses should be allocated to the activities of the company proportionately using either the balance sheet method (for example, cost of investments/total assets * administration expenses) or the profit and loss method (income from exempt activities/total income * administration expense) or another method to be pre-agreed with the Cyprus Tax Authorities. It is noted that the disposal of fixed assets or investments which generate a gain or loss of a capital nature does not constitute an exempt activity for the purposes of apportionment of general expenses (overheads). The expenses, however, which directly or indirectly relate to such disposals, reduce the income arising from the disposal. Tax losses Tax losses can be carried forward and be set-off against the company s taxable income for the next five years from the end of the tax year in which they were incurred. However, if: within any three-year period there is any change in the ownership of the shares of a company and a substantial change in the nature of the business of a company; or at any time since the scale of the company s activities has diminished or has become negligible and before any substantial reactivation of the business, there is a change in the ownership of the company s shares; no loss which has been incurred before the change in ownership of the shares of the company shall be carried forward in the years subsequent to such change. There is a change in the ownership of the shares of the company if: a person acquires more than half of the ordinary share capital of the company, or; two or more persons jointly or severally acquire at least 5% of the ordinary share capital of the company so that all together acquire more than half of the ordinary share capital of the company. Tax losses may also be surrendered by a company resident in the Republic ( the surrendering company ) to another company resident in the Republic ( the claimant company ) provided that the surrendering company and the claimant company are both members of the same group for the whole of the year of assessment. As from 1 January 2012, any company acquired / incorporated by its parent during the tax year, will be deemed to be a member of the group for group relief purposes for that tax year. Two companies shall be deemed to be members of a group if one is at least seventy five per cent (75%) subsidiary of the other or both, each one separately, are at least seventy five per cent (75%) subsidiaries of a third company. Losses from a permanent establishment abroad (PE) can be set off with profits of the company in Cyprus. Subsequent profits of the foreign PE are taxable up to the amount of losses utilised. Any 143

149 PE losses not absorved by current year profits of the company may be surrendered to other group companies (under normal conditions for group relief) and/or carried forward. Administration The tax year in Cyprus is the calendar year. Corporate income tax is payable by 1 August following the tax income year. However, an estimate of tax due is due by 31 July of the tax year, and provisional tax is payable in two equal instalments on 31 July and 31 December. The final tax return has to be filed electronically through a system called TAXISnet by 31 March of the year after the next year. Taxation of income and gains of the Company The Company is resident in Cyprus for tax purposes Gains from the disposal of securities Any gain from disposal of securities by the Company shall be exempt from Corporate Income Tax irrespective of the nature of the gain (capital or trading), the number of shares held or the holding period and shall not be subject to Defence Tax. Such gains are also outside the scope of Capital Gains Tax provided that the company whose shares are disposed of does not own any immovable property situated in Cyprus, or even if it does own any immovable property situated in Cyprus its shares are listed on a recognised stock exchange. The definition of securities includes amongst others shares, bonds and debentures of companies or legal persons wherever incorporated and options thereon. Dividends to be received by the Company Dividend income received by a Cyprus tax resident company (whether received from Cypriot resident or non-resident companies) is exempt from Corporate Income Tax in Cyprus. Dividend income received from Cypriot resident companies is also exempt from Defence Tax. As from 01/01/2012, Defence Tax will be imposed on dividends which are indirectly paid by a company resident in the Republic, to another company, resident in the Republic, after four years from the end of the year in which the profits which were distributed as dividends were earned. However, following a Circular (2011/10) issued by the Commissionaire of Income Tax, it has been clarified that the four year rule does not apply to companies or groups ultimately held by non- Cyprus tax residents''. Dividend income received from non-cypriot resident companies is exempt from Defence Tax, unless the company paying the dividend engages, directly or indirectly, for more than 50% in activities which generate investment income and the foreign tax burden of the company paying the dividend is significantly lower than the tax burden of the company in Cyprus receiving the dividend (in practice significantly lower is interpreted as lower than 6.25%). Therefore, any dividends received by the Company from its non-cyprus tax resident subsidiary, should be exempt from Defence Tax provided the non-cyprus tax resident subsidiary is not engaged, directly or indirectly, in activities which generate investment income exceeding total income by more than 50% and the foreign tax burden on its income is not substantially lower than the tax burden of the Company. If the exemption for Defence Tax does not apply, dividends from non-cypriot resident companies are subject to 20% Defence Tax (17% as of 1 January 2014). In cases where the dividends are not exempt, tax credit for any taxes withheld abroad on the dividends is available against the 20% special contribution for defence. 144

150 Profits from permanent establishments abroad of the Company Profits from a permanent establishment abroad of the Company are exempt from Corporate Income Tax in Cyprus unless the permanent establishment abroad engages, directly or indirectly, for more than 50% in activities which generate investment income and the foreign tax burden of on the income of the permanent establishment abroad is significantly lower than the tax burden of the company in Cyprus (in practice significantly lower is interpreted as lower than 5%). Interest income Any interest accruing to the Company which is considered to arise in the ordinary course of its business, including interest which is closely connected with the ordinary course of its business qualifies as business income and shall be subject to Corporate Income Tax in Cyprus at a rate of 12.5%. Such interest income shall be exempt from Defence Tax. Deemed distribution rules As from the tax year 2003 onwards, companies are deemed to have distributed to their Cyprus tax resident shareholders 70% of their accounting profits after the deduction of corporation tax at the end of two years from the end of the year in which the profits were earned. On such a deemed distribution, 20% Defence Tax should be withheld and paid over to the Tax Authorities (17% as of 1 January 2014). The deemed distribution provisions do apply even to tax resident corporate shareholders but do not apply to non-cyprus tax resident shareholders. As from 1 January 2011 the term corporation tax has been extended and the corporation taxes, the Defence Tax, the capital gains tax and any taxes paid abroad that have not been credited against the corporation tax are now taken into consideration for the calculation of the company s accounting profits subject to deemed distribution. 'Through a Circular (2011/10 dated 13 September 2011), the Commissioner of Income Tax has clarified that the deemed distribution rules should apply only in cases where the ultimate (beneficial) shareholders of a Cyprus tax resident company are considered to be residents for tax purposes of Cyprus. Certain declarations should be filed with the tax authorities in case the direct registered shareholder(s) is a company considered to be resident for the tax purposes of Cyprus. Withholding taxes No withholding taxes shall apply in Cyprus with respect to payments of interest by a Cyprus tax resident Company to non-resident lenders (both corporations and individuals). There is also no withholding tax in Cyprus on interest paid to Cypriot tax resident corporate lenders, unless the resident lender receiving the interest is considered to have generated this interest not in the course of its ordinary activities or in connection with activities closely connected to the ordinary carrying on of its business. In such a case, the Company would have an obligation to withhold Defence Tax at a rate of 30% on payments made in favour of Cypriot tax resident corporate and individual holders. There will also be no withholding tax in Cyprus on any dividends paid by a Cyprus tax resident Company to any shareholder except Cyprus tax resident individuals; in the latter case the Company would have an obligation to withhold Defence Tax at the rate of 20% (17% from 1 January 2014). Interest expenses Interest expense is tax deductible if it is incurred wholly and exclusively for the production of taxable income. However, no deduction shall be allowed for interest applicable or deemed to be applicable to the cost of purchasing of any asset not used in the business. This provision applies for 145

151 a period of 7 years from the date of purchase of the relevant asset and following the elapse of this 7-year period the - interest expense can be deducted. Investment in shares is considered as a non-business asset and any interest expense that relates (or deemed to relate) to the acquisition or financing of such asset is considered not to be tax deductible. The restricted interest expense is usually determined by the following apportionment methodology: cost of the investment in shares multiplied by the average interest borrowing rate. A circular has been issued by the Cypriot tax authorities providing guidance on the method of calculation of the amount of interest to be restricted and on certain exemptions that apply. As from 1 January 2012, restriction of interest does not apply in cases where shares are acquired directly or indirectly in a wholly owned subsidiary provided that this subsidiary does not own any assets which are not used in the business. If this subsidiary owns assets that are not used in the business the restriction of interest will only correspond to the percentage of the assets not used in the business. Capital duty Capital duty in the form of registration fees is payable to the Department of Official Receiver and Registrar of Companies in Cyprus in respect of the registered authorised and issued share capital of a Cypriot company upon its incorporation and upon subsequent increases in share capital thereon. The capital duty rates for subsequent changes of the registered authorised and issued share capital are as follows: capital duties of 0.6% of the nominal value of additional registered authorised share capital; and allotment fees fixed at EUR 20 flat duty on every issue, whether the shares are issued at their nominal value or at a premium. No capital duty is payable on share premium. Stamp duty Stamp duty is levied in Cyprus on every instrument if: it relates to any property situated in Cyprus; or it relates to any matter or thing which is performed or done in Cyprus, irrespective of the place where it is executed. Stamp duty on a contractual agreement entered into on or after 1 March 2013 is levied at the following progressive rates: no stamp duty is payable on the first 5,000 of consideration stated in the contract; on consideration between 5,001 to 170,000 the rate is 0.15%; on consideration exceeding 170,000 the rate is 0.2%. The maximum amount of stamp duty payable is 20,000 per contact which applies to contracts with a consideration value of or more Redomiciliation to Cyprus in 2009 Exit tax According to the Norwegian Tax Act Section in 2009, a company that emigrates and ceases to be tax resident in Norway is subject to exit tax. The exit tax is calculated on any potential gain 146

152 related to the assets, rights and liabilities that the exiting company owned the day preceding the redomiciliation. The capital gain/loss would be calculated as if the assets, rights and liabilities were realised for tax purposes at this time. In contrast, capital gains on assets or shares of similar domestic transactions are not taxable until they are realised. The Company redomiciled from Norway to Cyprus in May In the tax return the Company maintained the view that no exit tax should apply. In 2010, the tax office notified the Company that it is considering assessing an exit tax. The Group has been advised that the Norwegian exit tax rules in 2009 are in conflict with the European Economic Area ("EEA") Agreement with respect to the principle of freedom of establishment. The Company therefore filed a complaint with the EFTA Surveillance Authority, who sent a "reason opinion" to the Norwegian Ministry of Finance on 2 March 2011 for failing to comply with its obligations under the EEA Agreement by imposing an immediate tax on companies, or the shareholders of companies, that transfer their seat to another EEA State. As a consequence, with effect from 2011, the tax liability on owner and company level for companies relocating to normal (not low tax) tax countries within the EEA was dismantled. Assets that are taken out of the Norwegian area of taxation will be governed by the Tax Act Section 9-14, whereby a payment of the assessed tax for physical assets can be deferred until the time when the gains are actually realised. The Company is of the opinion that its redomiciliation to Cyprus in 2009 will not result in immediate taxation. This view is supported by National Grid (C-371/10) and Arcade Drilling (E 15/11). In the event that the Company has to pay immediate exit tax, the Company estimates that the tax can be offset against available losses. No provision has been made in its financial statement for any such potential tax liability Norwegian taxation of shareholders and bondholders in the Company; overview The summary below is aimed at describing certain main rules of Norwegian domestic tax law applicable to shareholders and bondholders in the Company. The summary generally does not describe the effect of double taxation conventions (except from some effects of the double taxation convention between Norway and Cyprus). Applicable double taxation conventions (if any) may restrict tax liabilities otherwise existing under applicable domestic tax laws. Shareholders / bondholders tax resident in jurisdictions other than Norway and shareholders / bondholders who cease to be resident in Norway for tax purposes (due to domestic tax law or tax treaty) should consult with and rely upon their own tax advisors with respect to the tax position in their country of residence and the tax consequences related to ceasing to be resident in Norway for tax purposes.the summary below is based on the assumptions that the Company is (a) considered to be genuinely established in Cyprus, (b) considered to conduct genuine economic business activities in Cyprus and (c) considered to be a tax resident of Cyprus both according to current Cypriot tax legislation and the double taxation convention between Norway and Cyprus. The Company is of the opinion that these requirements are fulfilled. Please note that for the purpose of the summary below, a reference to a Norwegian or Non- Norwegian shareholder, bondholder or taxpayer refers to the tax residency rather than the nationality of the shareholder, bondholder or taxpayer. 147

153 16.4 Norwegian shareholders and bondholders Unlimited tax liability Personal taxpayers and companies etc. considered as tax residents of Norway according to domestic Norwegian tax law are taxable to Norway on their worldwide income (unlimited tax liability) Tax liabilities existing under domestic Norwegian tax law may be restricted by applicable double taxation conventions (if any), such as that between Norway and Cyprus. Taxation of dividends Norwegian Personal Shareholders Dividends received from the Company by shareholders who are individuals resident in Norway for tax purposes ( Norwegian Personal Shareholders ) are taxable as ordinary income for such shareholders at a flat rate of 27% to the extent the dividend exceeds a tax-free "protective allowance" (Norwegian: "skjermingsfradrag"). The shareholder will only be entitled to a protective allowance if the dividends are distributed in accordance with applicable law (in particular applicable corporate law). The protective allowance is calculated on a share-by-share basis. The allowance for each share is equal to the share's protective base (Norwegian: "skjermingsgrunnlag") multiplied with a protective interest rate (Norwegian: "skjermingsrente"). A share's protective base equals the sum of its fiscal input value (Norwegian: "inngangsverdi") and unused protective allowance carried forward from previous years. The fiscal input value normally consists primarily of the shareholder's cost price for the share. The protective interest rate is intended to represent a risk-free interest rate and is based on the effective rate after tax of interest on treasury bills (Norwegian: statskasseveksler ) with three months maturity. The protective allowance is calculated for each calendar year, and is allocated solely to Norwegian Personal Shareholders holding shares at the expiration of the relevant calendar year. Norwegian Personal Shareholders who transfer shares will thus not be entitled to deduct any calculated allowance related to the year of transfer. Any part of the calculated allowance one year exceeding the dividend distributed on the share ( excess allowance ) may be carried forward and set off against future dividends received on, or gains upon realisation of the same share. As mentioned above, any excess allowance will also be included in the basis for calculating the allowance on the same share the following years. The tax treaty between Norway and Cyprus does not entitle Cyprus to impose a withholding tax on dividends distributed from the Company to Norwegian Personal Shareholders. Norwegian Corporate Shareholders Under the Norwegian participation exemption method (Norwegian: "fritaksmetoden"), dividends received from the Company by shareholders who are limited liability companies (and certain similar entities) resident in Norway for tax purposes ( Norwegian Corporate Shareholders ) are effectively taxed at rate of 0.81% (3% of dividend income from such shares is included in the calculation of ordinary income for Norwegian Corporate Shareholders and ordinary income is subject to tax at a flat rate of 27%). Under the Norwegian participation exemption method, such dividends will be fully exempt from tax if a shareholder owns more than 90% of the shares in the Company (with corresponding voting rights). However, it is not likely that one single shareholder will own more than 90% of the shares in the Company in the foreseeable future. The shareholder will only be entitled to the reduced tax rates granted by the participation exemption method if the dividends are distributed in accordance with applicable law (in particular applicable corporate law). 148

154 The tax treaty between Norway and Cyprus does not entitle Cyprus to impose a withholding tax on dividends distributed from the Company to Norwegian Corporate Shareholders. Taxation of capital gains from disposal of shares Norwegian Personal Shareholders Sale, redemption or other disposal of shares is considered as a taxable realisation for Norwegian tax purposes. Capital gains earned and capital losses incurred by a Norwegian Personal Shareholder through a realisation of the shares in the Company are taxable or tax deductible in Norway. Such capital gains or losses are normally included in or deducted from the shareholder s ordinary income in the year of realisation. Ordinary income is taxable at a rate of 27%. The gains are subject to tax and the losses are tax-deductible irrespective of the duration of the ownership and the number of shares disposed of. The taxable gains/deductible losses are calculated per share as the difference between the consideration received by the shareholder for the share and the Norwegian Personal Shareholder s fiscal input value of the share (including any costs incurred in relation to the acquisition or realisation of the share). From this capital gain, Norwegian Personal Shareholders are entitled to deduct a protective allowance, provided that such allowance has not already been used to reduce taxable dividend income. See Section Taxation of dividends above for a description of the calculation of the protective allowance. The allowance may only be deducted in order to reduce a taxable gain, and cannot increase or produce a deductible loss, i.e. any unused allowance exceeding the capital gain upon the realisation of a share will be annulled. If the Norwegian Personal Shareholder owns shares acquired at different points in time, the shares that were acquired first will be regarded as the first to be disposed of, on a first-in first-out basis. Norwegian Corporate Shareholders According to the Norwegian participation exemption method, Norwegian Corporate Shareholders are exempt from tax on capital gains derived from the realisation of shares in the Company. Losses upon the realisation and costs incurred in connection with the purchase and realisation of such shares are not deductible for tax purposes Taxation of Subscription Rights As a general rule, a Norwegian Personal Shareholder's and a Norwegian Corporate Shareholder s subscription for shares pursuant to subscription rights are not subject to taxation in Norway. Exceptions may apply in special circumstances, e.g. if a subscription right entitles a personal taxpayer being an employee of the Company (or an associated company) to subscribe shares at a price below market value Costs related to the subscription for shares will be added to the cost price of the shares. Taxation of interest Interest received by a bondholder/creditor resident in Norway for Norwegian tax purposes ( Norwegian Bondholder ) on bonds or other debt securities issued by the Company is subject to general income tax in Norway at a rate of 27% The tax treaty between Norway and Cyprus does not entitle Cyprus to impose a withholding tax on interest paid from the Company to a Norwegian Bondholder. Net wealth tax The value of shares in the Company and bonds/other debt instruments issued by the Company is included in the basis for the computation of net wealth tax imposed on Norwegian Personal 149

155 Shareholders. Currently, the marginal net wealth tax rate is 1.1% of the net wealth value assessed. The value for assessment purposes for shares listed on Oslo Børs is the listed value as of 1 January in the year of assessment. If the bonds issued by the Company are registered in a securities register their value for assessment purposes will be the listed value as of 1 January in the year of assessment; if such listed value is unknown, the value for assessment purposes will be the estimated market value as of 1 January in the year of assessment. Norwegian Corporate Shareholders are currently not subject to Norwegian net wealth tax Non-Norwegian shareholders and bondholders Limited tax liability to Norway Personal taxpayers and companies etc. not considered as tax residents of Norway according to domestic Norwegian tax law are not taxable to Norway on their worldwide income (no unlimited tax liability). However, said taxpayers may have a limited tax liability to Norway on certain categories of income considered to have a fiscally relevant nexus towards Norway (source taxation). Limited tax liabilities existing under domestic Norwegian tax law may be restricted by applicable double taxation conventions (if any). Taxation of dividends As a general rule, dividends from the Company received by a shareholder not resident in Norway for Norwegian tax purposes ( Non-Norwegian Shareholder ) are not subject to general income tax or any withholding tax in Norway. An exception applies if the shares in the Company form part of the assets of a business which the shareholder conducts or participates in, and which is performed in or managed from Norway Taxation of interest As a general rule, interest received by a bondholder/creditor not resident in Norway for Norwegian tax purposes ( Non-Norwegian Bondholder ) on bonds or other debt securities issued by the Company is not subject to general income tax or any withholding tax in Norway. An exception applies if the bonds/debt securities issued by the Company form part of the assets of a business which the bondholder/creditor conducts or participates in, and which is performed in or managed from Norway. Capital gains tax As a general rule, capital gains earned by non-norwegian Shareholders from the realisation of shares in the Company are not subject to general income tax or any withholding tax in Norway. An exception applies if the shares in the Company form part of the assets of a business which the shareholder conducts or participates in, and which is performed in or managed from Norway. As a general rule, capital gains earned by non-norwegian Bondholders, through the realisation of bonds or other debt securities issued by the Company, are not subject to general income tax or any withholding tax in Norway. Exceptions apply if the bonds or debt securities issued by the Company form part of the assets of a business which the bondholder/creditor conducts or participates in, and which is performed in or managed from Norway. Insofar as capital gains are not taxable in Norway corresponding capital losses will not be deductible in Norway. 150

156 Net wealth tax As a general rule, Non-Norwegian Shareholders and Bondholders are not subject to Norwegian net wealth tax. A Non-Norwegian Shareholder who is an individual will however be liable to Norwegian net wealth tax on the value of the shares in the Company if the shares in the Company form part of the assets of a business which the shareholder conducts or participates in, and which is performed in or managed from Norway. Likewise, a Non-Norwegian Bondholder who is an individual will be liable to Norwegian net wealth tax on the value of the bonds or debt securities issued by the Company if the bonds or debt securities issued by the Company form part of the assets of a business which the bondholder/creditor conducts or participates in, and which is performed in or managed from Norway. Non-Norwegian Corporate Shareholders are currently not subject to Norwegian net wealth tax Duties on transfer of Shares No stamp duty or similar duties are currently imposed by Norway on the transfer or issuance of shares, or on the transfer or issuance of bonds or other debt securities. 151

157 17 ADDITIONAL INFORMATION 17.1 Related party transactions The Company has undertaken certain transactions with related parties in the period from 2009 and up until the date of this Prospectus. Set out below is a summary of each transaction entered into between the Company and a related party: Songa Offshore leases office space in Oslo from Arne Blystad AS, a company controlled by Arne Blystad, who was a member of the Board of Directors until his resignation on 26 November Arne Blystad, who controls Spencer Energy AS, held 15.96% shareholding in the Company as per 31 December 2012 (2011: 15.96%). The rent for 2012 was USD 0.27 million (2011: USD 0.21 million; 2010: USD 0.1 million). The Group had no liability towards Arne Blystad AS at year-end 2012 and 30 September 2013, the date of the Company s last financial report. A heavy lift vessel was hired from Offshore Heavy Transport AS, a company controlled by Arne Blystad AS, due to availability and timing schedule in order to move the Songa Mercur from Cuba to Vietnam. Arne Blystad AS is related by Arne Blystad, a former member of the Board of Directors until his resignation on 26 November The hire amount paid was USD 5.5 million. The Group had no liability towards Offshore Heavy Transport AS at year end 2012 and 30 September 2013, the date of the Company s last financial report. The Group has received consultancy services against the payment of a fee of USD 0.5 million to Songa Shipping Limited, a company controlled from Spencer Energy AS. The latter is controlled by Arne Blystad, a former member of the Board of Directors until his resignation on 26 November The Group had no liability towards Arne Blystad AS at year-end 2012 and as of 30 September 2013, the date of the Company s lastest financial report. The Group has received legal services from the law firm Harneys Aristodemou Loizides Yiolitis LLC. Nancy Ch. Erotocritou, a former member of the Board of Directors until her resignation on 24 January 2014, is a partner of this firm. Total fees paid for services rendered for 2012 were USD 0.2 million (2011: USD 0.1 million; 2010: USD 0.1 million). The Group had a liability of USD 163 thousand at 30 September 2013 (2012: USD 45 thousand; 2011: nil). All related party transactions were made on terms equivalent to those that prevail in arm s length transactions Disputes Exit tax in connection with redomiciliation Reference is made to the dispute regarding exit tax in connection with the Company s redomiciliation to Cyprus in 2009 (see Section 16.2 Redomiciliation to Cyprus in 2009 Exit tax ). The Company is of the opinion that its redomiciliation to Cyprus in 2009 will not result in immediate taxation. In the event that the Company has to pay immediate exit tax, the Company estimates that the tax can be offset against available losses. No provision has been made in its financial statement for any such potential tax liability. 152

158 Australian withholding tax The Austrialian tax commissioner (the Commissioner ) has served a notice of withholding tax payable for AUD 31.1 million for the 2009 income year and imposed a shortfall penalty for AUD 7.8 million. The withholding tax payable and shortfall penalty are subject to general interest charge. As at 1 Nov 2013 the total contingent liability is AUD 58.4 million. Songa Offshore strongly disputes the determination made by the Commissioner. Songa has received legal advice and the Group believes it will ultimately prevail in this matter. As such, Songa Offshore has not made any provisions in its financial statement at 31 December On October 26, 2013 the Commissioner advised that it has dismissed Songa Offshore s objection toward the Part IVA determination. Songa Offshore lodged an appeal against the Commissioners decision with the Federal Court of Australia on December 23, A scheduling conference will be held on February 14, 2014 where Songa Offshore will present its case to the presiding justice and a date will be set for a court hearing, estimated to be at the end of Q Songa Offshore, through its legal representatives, has entered negotiations with the Commissioner in relation to arrangements to secure the liability during the objection period and any Federal Court. Australian tax issue on transfer pricing and depreciation The Australian Tax Office (the ATO ) disputes certain transfer pricing and depreciation matters. In September 2013, the ATO issued amended assessments based on its review, resulting in a tax claim of AUD 8.4 million. Songa Offshore has formally commenced negotiations with the ATO to consider settlement of both matters. On October 11th, 2013, Songa Offshore forwarded a letter to the ATO offering AUD 151,000 (net of Songa Offshore s claim for AUD 1.7m of overpaid corporate income tax) in full settlement. Songa Offshore has also reserved its rights, in case of failure to reach a settlement with the ATO. Negotiations have been held during January, Up to the date of this prospectus, the ATO has accepted the additional information presented by Songa Offshore and has significantly reduced the amount of the amended assessment. However, Songa Offshore is of the opinion that for the final assessment, the ATO has yet to consider certain concessions on interest rates requested by Songa Offshore, Songa Offshore s correction of depreciation position and the amount of erroneously paid withholding tax made by Songa Offshore, all of which will potentially reduce the claimed tax amount. Songa Offshore will continue to negotiate with the ATO and expects to have the matter resolved in the near future. Other disputes, proceedings, etc. Except as set out above, there are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened) in the 12 months prior to the date of this Prospectus, which may have, or have had in the recent past, significant effects on the Company s and/or the Group s financial position or profitability Incorporation by reference The information incorporated by reference in this Prospectus should be read in connection with the cross-reference list below. Except as provided in this Section, no information is incorporated by reference is this Prospectus. Where parts of a document is referenced, and not the document as a whole, the remainder of such document is either deemed irrelevant to an investor in the context of the requirements of this Prospectus, or the corresponding information is covered elsewhere in this Prospectus. 153

159 The Company incorporates by reference the Company s audited consolidated financial statements for the years ended 31 December 2012, 2011 and 2010 and the Company s unaudited financial statements for the nine months ended 30 September 2013 and The Company maintains an Internet website at Any reference in this Prospectus to this Internet site are inactive textual references to these URLs, or uniform resource locators, and are for informational reference only. Except as specifically referenced herein, information contained in or otherwise accessible through Company s Internet website should not be considered part of this Prospectus. Section in Prospectus Disclosure requirements of the Prospectus Reference document and link Page (P) in reference document Section 11 and 12 Audited historical financial information (Annex I, Section 20.1) Financial statements 2012 the Group: Director s report 2012 the Group: P P 25 Financial statements 2011 the Group: 3/ pdf P Director s report 2011 the Group: 3/ pdf Financial statements 2010 the Group: P 23 asdfasdfas 2/ pdf P Director s report 2010 the Group: 2/ pdf P 21 Section 11 Audit report (Annex I, Section ) Auditor s report 2012 the Group: Auditor s report 2011 the Group: 3/ pdf P P Auditor s report 2010 the Group: 2/ pdf P Section 11 Accounting policies (Annex I, Section 20.1) Accounting principles the Group (annual report 2012): Accounting principles the Group (annual report 2011): 3/ pdf P P fasdfas Accounting principles the Group (annual report 2010): 2/ pdf P Section 11 and 12 Unaudited summarised financial information (Annex Financial statement Third Quarter 2013 the Group: Financial statement Third Quarter 2012 the Group: P

160 Section in Prospectus Disclosure requirements of the Prospectus Reference document and link Page (P) in reference document I, Section ) P Documents on display Copies of the following documents will be available for inspection at Songa Offshore s registered office during normal business hours on Monday to Friday each week (except for public holidays) for a period 12 months from the date of this Prospectus: the Memorandum of Incorporation of the Company; the Articles of Association of the Company; all reports, letters, and other documents, historical financial information, valuations and statements prepared by any expert at the Company s request any part of which is included or referred to in the Prospectus; and the historical financial information of the Company and its subsidiaries for each of the three financial years preceding the publication of this Prospectus. Copies of this Prospectus may also be obtained from the Managers during the same 12 months period Confirmation regarding sources This Prospectus also contains information sourced from third parties. The information in this Prospectus that has been sourced from third parties has been accurately reproduced and as far as the Company is aware and able to ascertain from information published by that third party, no facts have been omitted which would render the reproduced information inaccurate or misleading. The source of third party information is identified where used. This Prospectus contains market data, industry forecasts and other information published by third parties, including information related to the sizes of markets in which the Company operates. The information has been extracted from a number of sources. The Company has estimated certain market share statistics using both its internal data and industry data from other sources. Although the Company regards these sources as reliable, the information contained in them has not been independently verified and the Company makes no representation as to the accuracy or completeness of such information or any assumption relied upon therein Statements regarding expert opinions This Prospectus does not refer to any expert opinions. 155

161 18 DEFINITIONS AND GLOSSARY OF TERMS When used in this Prospectus, the following terms shall have the meanings set out below, unless the context otherwise requires. Words importing the plural shall be construed to include the singular and vice versa. Company related terms Articles of Association, or the Articles:... The articles of association of the Company. Board or Board of Directors:... The board of directors of the Company. Company, or Songa Offshore SE:... Songa Offshore SE, a European public company limited by shares registered General Meeting:... The general meeting of the Company. under the laws of the Republic of Cyprus, with business registration number SE 9. Group, or Songa Offshore:... Songa Offshore SE together with its consolidated subsidiaries. Management:... The management of the Company. Memorandum of Association:... The memorandum of association of Songa Offshore SE. Songa Offshore:... The Company together with its consolidated subsidiaries. Terms related to this prospectus, and to the securities and transactions giving rise thereto Convertible Bond Issue:... Convertible Bonds:... The issue of USD 150 million of convertible bonds of the Company, as announced on 25 November The convertible bonds of the Company, as issued in the Convertible Bond Issue. Eligible Shareholders:... Persons being eligible to preferential right to subscription and allocation in the Subsequent Offering, as described and defined herein. Listing:... The listing of the New Shares on Oslo Børs. Managers:... Fearnley Securities AS and Swedbank Norway, part of Swedbank AB (publ). New Shares:... Offer Shares:... Private Placement:... The 610,000,000 ordinary shares issued in the Private Placement by the Company. The 61,000,000 ordinary shares of the Company being offered under the Subsequent Offering. The Private Placement of New Shares directed towards existing shareholders and new investors, as announced on 25 November Prospectus:... This prospectus dated 4 February Record Date: November Refinancing:... The comprehensive refinancing of Songa Offshore, as announced on 25 November 2013, under which the Private Placement and the Convertible Bond Issue were made. Share(s):... Shares means the ordinary shares in the capital of Songa Offshore SE, each having a nominal value of EUR 0.11 and Share means any one of them. Subscription Price:... Subscription Rights:... NOK 2.50, the subscription price applied for the New Shares and the Offer Shares. The rights documenting the preferential right of the Eligible Shareholders to subscription and allocation of Offer Shares in the Subsequent Offering. Subsequent Offering:... The offering of the 61,000,000 Offer Shares by means of this Prospectus. Industry related terms BOP:... Blow-Out Preventor. DSME:... Daewoo Shipbuilding & Marine Engineering Co., Ltd. HSE, or QHSE, or QSMS HSE:... Health, Safety and Environment, or Quality, Health, Safety and Environment, or Quality, Safety Management System, Health, Safety and Environment. IADC:... International Association of Drilling Contractors, an industry organisation. IMCA:... International Marine Contractors Association, an industry organisation. IMO:... International Maritime Organization, a UN agency. MODU:... Mobile Offshore Drilling Unit, a generic term for several classes of selfcontained floatable or floating drilling machines such as jackups, 156

162 semisubmersibles and submersibles. OPEC:... Organization of Petroleum Exporting Countries. SPS:... Special Periodic Surveys on offshore units required by regulatory bodies. Legal and other terms Capital Gains Tax:... CET:... Central European Time. Capital gains tax in Cyprus, as further described in Section 16.1 Cyprus taxation. Code of Practice:... Norwegian Code of Practice of Corporate Governance, as last published on 23 October Company Law:... Chapter 113 of the statutes of the Republic of Cyprus (as amended from time to time). Corporate Governance Code:... The Norwegian Code of Practice for Corporate Governance published on 21 October 2010 by the Norwegian Corporate Governance Board, as amended. Corporate Income Tax:... Corporate income tax in Cyprus, as further described in Section 16.1 Cyprus taxation. CySEC:... The Cyprus Securities and Exchange Commission. Defence Tax:... EEA:... The European Economic Area. ESA:... EFTA Surveillance Authority. EU:... The European Union. Special Contribution for the Defence of Cyprus, as further described in Section 16.1 Cyprus taxation. EUR:... The lawful common currency of the EU member state who have adopted the Euro as their sole national currency (the Euro area). Foreign Personal Shareholders:... Shareholders who are individuals not resident in Norway for tax purposes. IAS:... International Accounting Standard. IFRS:... International Financial Reporting Standards, as adopted by the EU. ISIN:... International Securities Identification Number. LIBOR:... London Interbank Offered Rate. NFSA:... The Financial Supervisory Authority of Norway. Non-Norwegian Shareholder:... A shareholder not resident in Norway for tax purposes. Norwegian Corporate Shareholders:... Shareholders who are limited liability companies (and certain similar entities) resident in Norway for tax purposes. Norwegian kroner or NOK:... Norwegian kroner, the lawful currency of Norway. Norwegian Personal Shareholders:... Shareholders who are individuals resident in Norway for tax purposes. Norwegian Public Limited Companies Act:... The Norwegian Public Limited Companies Act of 13 June 1997 No. 45 (Norwegian: allmennaksjeloven ). Norwegian Register of Business Enterprises:... Norwegian Securities Trading Act:... The Norwegian Register of Business Enterprises at Brønnøysund, Norway ( Foretaksregisteret ). Norwegian Securities Trading Act of 29 June 2007 no. 75. (Norwegian: verdipapirhandelloven ). Oslo Børs:... The stock exchange operated by Oslo Børs ASA. Prospectus Directive:... Directive 2003/71/EC of the European Parliament and of the Council of 4 November Q1, Q2, Q3, Q4:... The three months period ending 31 March, 30 June, 30 September, and 31 December, respectively. Rule 144A:... Rule 144A under the U.S. Securities Act. Takeover Bids Directive:... Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids Takeover Bids Law:... Cyprus Law 41(I)/2007 (as amended from time to time). UK:... United Kingdom. U.S. Securities Act:... U.S. Securities Act of 1933, as amended. U.S. dollars, USD or $:... U.S. dollars, the lawful currency of the United States of America. VPS:... The Norwegian Central Securities Depository. 157

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167 APPENDIX 2: BOND AGREEMENT IN RESPECT OF THE CONVERTIBLE BONDS 162

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