Term sheet written in connection with application of listing on Oslo ABM Date: 22 May 2013 Final ISIN: NO 001 0673866 FRN Island Offshore Shipholdning L.P. Senior Unsecured Open Callable Bond Issue 2013/2016 Terms: Documentation: The Loan Agreement 1) is described more closely in Standard Terms Before investing in the bond, the investor is encouraged to become familiar with relevant documents such as this term sheet, the Loan Agreement and the Issuer s financial accounts and articles of association and if relevant, listing document. The documents are available from the Issuer and in Relevant Places. In the case of any discrepancies between the Loan Agreement and this term sheet, the Loan Agreement will apply. Relevant Places: www.islandoffshore.com Issuer/Borrower: Island Offshore Shipholding L.P. Borrowing Limit Tap Issue: NOK 700,000,000 First Tranche / Loan Amount : 2) NOK 500,000,000 Disbursement Date: 3) 5 April 2013 Maturity Date: 4) 5 April 2016 NIBOR: 5) 3 months NIBOR Margin: + 5.25 % p.a. Coupon Rate: 6) NIBOR + Margin Day Count Fraction Coupon: Act/360 7) 9) Date of interest adjustment: Interest Payment Date Business Day Convention: 8) Modified Following Interest Payment Date: 9) 5 January, 5 April, 5 July and 5 October each year Interest accrual date (from and including): Disbursement date Final coupon date (to): Maturity Date # days first term: 91 days Status of the Loan 10) The Bonds shall be senior debt of the Issuer. The bonds are unsecured. Issue Price: 11) 100.00 (par) Denomination: NOK 1,000,000 Bondholder s put option: 12) Redemption Date(s): Within 30 calendar days after the Issuer has given notification to the Trustee of a Change of Control Event Price: 100.00 % of par plus accrued interest Upon occurrence of a Change of Control Event, each bondholder shall have the right to require that the Issuer redeems its bonds. The put option must be exercised as specified above. The notification FRN Bullet Bond Page 1 of 8
shall be given as soon as possible after a Change of Control Event has taken place. The put option may be exercised by each bondholder by giving written notice of the request to its account manager. The account manager shall notify the paying agent of the redemption request. The settlement date of the put option shall be the third business day after the end of the 30 calendar days exercise period of the put option. On the settlement date of the put option, the Issuer shall pay to each of the bondholders holding bonds to be redeemed, the principal amount of each such bond and any unpaid interest accrued up to (but not including) the settlement date. Issuer s call option: 13) Change of Control Event means if and when any person or a group of persons acting in concert, other than Borgstein Skipsinvest AS or Island Investment LLC, directly or indirectly, acquires decisive influence over the Issuer and or 50 % of the limited partnership interests. Redemption Date(s): From and including the Interest Payment Date in April 2015 to, but not included, the Maturity Date Price: 103.50 % of par plus accrued interests on redeemed amount The Issuer may redeem the Loan in whole or in part with settlement date as specified above. Exercise of the call option shall be notified by the Issuer in writing to the Trustee and the bondholders at least thirty business days prior to the settlement date of the call option. Partial redemption must be carried out pro rata (in accordance with the procedures of the securities depository). On the settlement date of the call option, the Issuer shall pay to each of the bondholders holding bonds to be redeemed, in respect of each such bond, the principal amount of such bond (including any premium as stated above) and any unpaid interest accrued up to the settlement date. Bonds redeemed by the Issuer in accordance with the call option shall be discharged against the outstanding bonds. ---------------------------------------------------------------------------------------------------------------------- Issuer s org. 990 035 903 number: Number / Codes: Sector Code : 9100 Geographic code: 9613 Industry (trade) Code: 50204 Usage of funds: The net proceeds from the Bonds shall be used for the general financing of the Issuer. Approvals / Permissions: The Bond Issue has been issued in accordance with the Issuer s Board approval dated 6 March 2013. Oslo Børs will inspect relevant documents prior to listing. Trustee / Bondholders' Representative: Arranger(s): Paying Agent: Securities Depository: Market making: Special (distinct) conditions: Norsk Tillitsmann ASA, Postboks 1470 Vika, 0116 Oslo, Norway. Arctic Securities ASA, P.O. Box 1833 Vika, N-0123 Oslo, Norway Carnegie AS, P.O. Box 684 Sentrum, N-0106 Oslo, Norway DNB Bank ASA, DNB Markets, Dronning Eufemias gate 30, N-0191 Oslo, Norway DNB Bank ASA, Registrars Department The Norwegian Central Securities Depository (VPS). Principal and interest accrued will be credited the Bondholders through VPS. No market-maker agreement has been made for this Issue. Special issues applicable to the Issuer During the term of the Bonds, the Issuer shall (unless the Trustee or the Bondholders meeting (as the case may be) in writing has agreed to otherwise) comply with inter alia the following general covenants: FRN Bullet Bond Page 2 of 8
General covenants: Pari passu ranking The Issuer shall ensure that its obligations under the Loan Agreement and any other Finance Document shall at all times rank at least pari passu as set out in Loan Agreement clause 8.1. Mergers The Issuer shall not, and shall ensure that no other Group Company shall, carry out any merger or other business combination or corporate reorganization involving a consolidation of the assets and obligations of the Issuer or any of the Subsidiaries with any other companies or entities if such transaction would have a Material Adverse Effect. De-mergers: The Issuer shall not, and shall ensure that no other Group Company shall, carry out any de-merger or other corporate reorganization involving a split of the Issuer or any of the Subsidiaries into two or more separate companies or entities, if such transaction would have a Material Adverse Effect. Continuation of business: The Issuer shall not cease to carry on its business, and shall procure that no substantial change is made to the general nature of the business of the Group from that carried on at the date of the Loan Agreement, and/or as set out in the Loan Agreement. Disposal of business: The Issuer shall not, and shall procure that no other Group Company shall, sell or otherwise dispose of all or a substantial part of the Group s assets or operations, unless: (i) the transaction is carried out at fair market value, on terms and conditions customary for such transactions; and (ii) such transaction would not have a Material Adverse Effect. Arm s length transactions: The Issuer shall not engage in, or permit any Subsidiary to engage in, directly or indirectly, any transaction with any party not being a Group Company (without limitation, the purchase, sale or exchange of assets or the rendering of any service), except in the ordinary course of business and pursuant to the reasonable requirement of the Issuer s or such Group Member s business and upon fair and reasonable terms that are no less favourable to the Issuer or such Group Company, as the case may be, than those which might be obtained in an arm s length transaction at the time. Corporate status: The Issuer shall not change its type of organization or jurisdiction of incorporation. Compliance with laws: The Issuer shall, and shall ensure that all other Group Companies shall, carry on its business in accordance with acknowledged, careful and sound practices in all material aspects and comply in all material respects with all laws and regulations it or they may be subject to from time to time. Financial assistance: The Issuer shall ensure that no Group Company grants any loan, guarantee or other financial assistance (including, but not limited to granting of security) to or on behalf of any third party not being a member of the Group, other than in the ordinary course of business. Special covenants: Ownership of Material Subsidiaries The Issuer shall not sell, transfer, assign or otherwise dilute or dispose of any shares or any other ownership interest in any Material Subsidiary to any person not being a member of the Group, unless the transaction is carried out at fair market value, on terms and conditions customary for such transaction and further provided that such transaction does not have a Material Adverse Effect. Dividends and other distributions Except for the repayment of the Existing Shareholder Loans, the Issuer shall not declare or make any dividend payments or other distributions or loans to its shareholders, whether in cash or in kind, including without limitation, repurchase of shares, any total return swaps or instruments with similar effect, or reductions FRN Bullet Bond Page 3 of 8
in its share capital or equity. Subsidiaries distributions The Issuer shall not permit any Subsidiary to create or permit to exist any contractual obligation (or encumbrance) restricting the right of any Subsidiary to (i) pay dividends or make other distributions to its shareholders, (ii) service any financial indebtedness to the Issuer, (iii) make any loans to the Issuer, if the creation of such contractual obligation is reasonably likely to prevent the Issuer from complying with its payment obligations under the Loan Agreement, except as set forth in or to the extent required to comply with customary cash waterfall provisions, financial covenants or other similar restrictions in financing agreements, or in any shareholders or joint venture agreements governing any Subsidiary which is not directly or indirectly wholly owned by the Issuer. Subordination of Shareholder Loans The Issuer shall ensure that any Shareholder Loan shall in all respect be fully subordinated to the Bonds, and that, except for the repayment of the Existing Shareholder Loans, no repayment of principal and payment of cash interest shall be made (for the avoidance of doubt, any accrued interests shall be accumulated and added to the principal of such Shareholder Loan). Financial covenants: Value Adjusted Equity Ratio The Issuer shall ensure that the Value Adjusted Equity Ratio of the Group on a consolidated basis shall not fall below 30%. Liquidity The Issuer shall ensure that it maintains Cash and Cash Equivalents in an amount of no less than NOK 50 million on an unconsolidated basis. Debt Service Coverage Ratio The Issuer shall maintain a ratio of EBITDA to Debt Service of minimum 1.10 for each Relevant Period on an unconsolidated basis. Gearing Ratio The Issuer shall ensure that the Group on a consolidated basis maintains a maximum Gearing Ratio of: (i) for the Relevant Periods ending 30 June 2013, 30 September 2013, 31 December 2013, 31 March 2014, 30 June 2014 and 30 September 2014: 7.0; (ii) for the Relevant Period ending 31 December 2014, 31 March 2015, 30 June 2015 and 30 September 2015: 6.5; and (iii) for the Relevant Period ending 31 December 2015 (and each Relevant Period thereafter): 6.0. The Issuer undertakes to comply with (a) to (d) above at all times, such compliance to be measured for each Relevant Period and certified according to Clause 13.2.2. If the Issuer fails (or would otherwise fail) to comply with any of the financial covenants for any Relevant Period, and within 25 Business Days of delivery of the compliance certificate for that Relevant Period, the Issuer receives net cash proceeds from any person (other than a Group Member) in consideration of the issue of new limited partnership interests (a Cure Amount ), then such financial covenant shall be recalculated giving effect to the following pro forma adjustments, as relevant: (a) for the purpose of measuring the Book Equity, the Book Equity shall be increased by the Cure Amount; (b) for the purpose of measuring the Gearing Ratio, the Net Interest Bearing Debt shall be reduced by the Cure Amount; (c) for the purpose of measuring the Liquidity, the Cash and Cash Equivalent shall be increased by the Cure Amount to the extent the Issuer has free and unrestricted access to the Cure Amount and the Cure Amount is not subject to any encumbrance; and (d) for the purpose of measuring the Debt Service Coverage Ratio, Debt Service shall be recalculated for the Relevant Period and the following three Relevant Periods, as if the Cure Amount had been applied in prepayment of the Bonds at the beginning of the Relevant Period (such period the First Relevant Period ) and interest accruing on the Bonds during the First Relevant Period had been decreased by an amount equal to the interest which would have accrued on the amount FRN Bullet Bond Page 4 of 8
deemed to have been prepaid over the First Relevant Period (such reduction to have effect also for the three next Relevant Periods, as if the Cure Amount was applied in prepayment of the Bonds at the beginning of the First Relevant Period). For the avoidance of doubt, any part of a Cure Amount shall only be taken into account once when determining compliance with any particular financial covenant and cannot be double counted. If, after giving effect to the foregoing recalculations, the Issuer is in compliance with all the financial covenants, the Issuer shall be deemed to have satisfied the requirements of the financial covenants as of the relevant original date of determination as though there had been no failure to comply with such requirement, and the breach of the applicable financial covenants which had occurred shall be deemed to have been cured. Definitions: Book Equity means the Issuer s consolidated book equity, calculated in accordance with the GAAP. Cash and Cash Equivalent means the amounts (expressed in NOK or NOK equivalent) on such date of the then current market value of: (a) cash in hand or amounts standing to the credit of any current and/or on deposit accounts with an acceptable bank; and (b) time deposits with acceptable banks and certificates of deposit issued, and bills of exchange accepted, by an acceptable bank, in each case to which the Issuer (or, when calculating on a consolidated basis any other Group Company, as the case may be) is beneficially entitled at that time and to which the Issuer (or any such Group Company) has free and unrestricted access and which is not subject to any encumbrance. Any amount standing to the credit of any earnings accounts of the Issuer (or any other Group Company, as the case may be) shall be regarded as Cash and Cash Equivalents as long as no event of default has occurred under any of the Issuer s or any other Group Companies credit facilities (including the Bond Issue). An acceptable bank for this purpose is: (i) a commercial bank, savings bank and trust company which has a minimum A credit rating from S&P or Moody s or a comparable rating from a nationally recognised credit ranking agency for its long-term debt obligations; or (ii) a bank or financial institution which is authorised to carry on banking business in Norway. Debt Service means, in respect of any Relevant Period, the aggregate of accrued interest and instalments payable on all Interest Bearing Debt. EBITDA means, in respect of any Relevant Period, earnings before interest, taxes, depreciation and amortization, on a consolidated basis for the Group or on an unconsolidated basis for the Issuer, as the case may be. Excess Value means the positive or negative difference between the Market Value of the Vessels and the book value of the Vessels. Gearing Ratio means the ratio of Net Interest Bearing Debt to EBITDA. Interest Bearing Debt means all interest bearing debt of the Issuer on an unconsolidated basis or the Group on a consolidated basis, as the case may be, always in accordance with GAAP. Market Value of the Vessels means the consolidated fair market value of the Vessels set as the average value of the Vessels (for vessels under construction, estimated market value of a delivered vessel adjusted for remaining capex) from two reputable and independent appraisers appointed by the Issuer. Such appraisers to be the same appraisers as for any bank loan facilities, to the extent possible. Such valuations shall be made on the basis of a sale for prompt delivery for cash at arm s length terms as between a willing buyer and a willing seller, on an as is where is basis, free of any existing charter or other contract of employment. Market Value of the Vessels shall be determined twice a year, on account of the Issuer. Net Interest Bearing Debt means Interest Bearing Debt (excluding any Shareholder Loan) less Cash and Cash Equivalents, each of the Issuer on an FRN Bullet Bond Page 5 of 8
unconsolidated basis or the Group on a consolidated basis, as the case may be. Relevant Period means each period of twelve months ending on a Quarter Date. Value Adjusted Equity means the Book Equity adjusted to take into account any Excess Value. Value Adjusted Equity Ratio means the ratio of Value Adjusted Equity to Value Adjusted Total Assets Value Adjusted Total Assets means the book value, on a consolidated basis, of the Group s total assets in accordance with GAAP adjusted to take into account any Excess Value. Vessels means all and any vessel owned by a Group Company including any vessels under construction. Purchase and transfer of Bonds: Bondholders may be subject to purchase or transfer restrictions with regard to the Bonds, as applicable from time to time under local laws to which a Bondholder may be subject (due e.g. to its nationality, its residency, its registered address, its place(s) for doing business). Each Bondholder must ensure compliance with applicable local laws and regulations at its own cost and expense. Notwithstanding the above, a Bondholder which has purchased the Bonds in breach of applicable mandatory restrictions may nevertheless utilize its rights (including, but not limited to, voting rights) under the Loan Agreement. Supplementary information about the status of the loan: 10) The Bonds shall constitute senior debt of the Issuer. The Bonds shall rank at least pari passu with all other obligations of the Issuer (save for such claims which are preferred by bankruptcy, insolvency, liquidation or other similar laws of general application) and shall rank ahead of subordinated debt. The Bonds are unsecured. Standard Terms: Loan Agreement: 1) If any discrepancy should occur between this Loan Description and the Loan Agreement, then the Loan Agreement will apply. The Loan Agreement will be entered into between the Issuer and the Trustee prior to Disbursement Date. The Loan Agreement regulates the Bondholder s rights and obligations in relations with the Issue. The Trustee enters into this agreement on behalf of the Bondholders and is granted authority to act on behalf of the Bondholders to the extent provided for in the Loan Agreement. When bonds are subscribed/purchased, the Bondholder has accepted the Loan Agreement and is bound by the terms of the Loan Agreement. If subscription is made prior to finalisation of the Loan Agreement, the subscriber is deemed to have granted authority to the Trustee to finalise the Loan Agreement. For tap issues, the Loan Agreement will apply for later issues made within the Borrowing Limit. The parties rights and obligations are also valid for subsequent issued bonds within the Borrowing Limit. Open / Close: 3)4) Disbursement Date: 3) Expansions Tap Issues: 2) Issue price Tap Issues: 11) Interest Determination Date: 7) Tap Issues will be opened on Disbursement Date and closed no later than five banking days before Maturity Date. Payment of the First Tranche / Loan Amount takes place on the Disbursement Date. In case of late payment, the applicable default interest rate according to lov 17. desember 1976 nr 100 om renter ved forsinket betaling m.m. will accrue. For Tap Issues the Issuer can increase the loan above the First Tranche/Loan Amount, before the initial Disbursement Date. For taps not falling on Interest Payment Dates, Accrued Interest will be calculated using standard market practice in the secondary bond market. The Issuer may apply for an increase of the Borrowing Limit. Any taps under the Tap Issue will be made at market prices, and will fall under the regulations set out in emisjonsforskriften av 20. desember 1996. 2 Business Days prior to Date of Interest Payment Date FRN Bullet Bond Page 6 of 8
Interest Determination: 6)7) The regulation of the Interest Rate is effective from each Interest Payment Date. The new interest rate is determined on Interest Determination Date based on NIBOR with additional margin. Should NIBOR not be available, the interest rate is set based on NIBOR Reference Banks plus Margin. The new interest rate and the next interest term/period will be notified the Bondholders in writing through the Securities Depository. The Trustee and Oslo ABM shall also be notified immediately. If any discrepancy should occur between the Issuer and the Trustee regarding change of page, or if the interest rate is set in accordance with NIBOR-reference banks, the Issuer or the Bondholders who represents minimum 1/10 of Outstanding Loan may appeal against the Interest Determination. Such an appeal must be presented in writing to the Trustee no later than 20 Business days after the bondholders being informed of the interest rate. The appeal will be dealt with by a committee comprising three members, of which one representative is nominated by the Issuer, one representative is nominated by the Trustee and a chairman agreed by the representatives of the two parties. If the parties cannot agree upon a chairman, this person will be nominated by Lord Chief Justice of the City of Oslo Magistrates Court. The decision made by the committee is final. NIBOR definition: 5) The notification of the complaint together with the final determination of the interest rate shall be forwarded to the Bondholders through the Securities Depository. If a complaint is made, the current notification shall also be forwarded to Oslo ABM. The interest rate, rounded to the nearest hundredth percentage points, for an equivalent time period as mentioned under NIBOR that is quoted on the Reuters page NIBR at 12 p.m. in Oslo on the Interest Determination Date. Should the content of the Reuters page NIBR be changed such that the quoted interest rate is not representing, according to the Trustee and the Issuer, the same interest rate as at the time of disbursement or if the page in question is removed from the Reuters system, another page on Reuters shall be used. A page from another electronic news agency that gives the same interest rate as Reuters page NIBR did at disbursement date can also be used if the Trustee and the Issuer agree upon this. NIBOR reference banks: Yield: Interest Period: 9)7) Accrued interest: Standard Business Day Convention: 8) Condition Bondholder s put option: 12) Condition Issuer s call option: 13) The interest rate fixed on basis of the interest on deposits in the inter-bank market in Oslo quoted by the 4 largest authorised exchange banks in the Norwegian market at approximately 12 p.m. in Oslo on the Interest Determination Date for a period as mentioned in NIBOR that starts on the Interest Determination Date and is valid for a comparable amount. The Trustee shall ask the head office of each bank to quote such an interest rate. If two or more quotes are given, the interest rate shall be fixed to the arithmetic mean of the quotes. If less than two quotes are given, the interest rate shall be set to the arithmetic mean of the interest rates quoted by banks selected by the Trustee approximately 12 p.m. in Oslo on the Interest Determination Date for loans in NOK to leading banks in Europe for a time period as mentioned in NIBOR which starts on the date of which the interest rate is set valid for a comparable amount. An interest rate determined by calculation of the arithmetic mean is rounded to the nearest hundredth percentage points. Dependent on the market price. Yield for the first Interest Period will be notified 2 Banking Days prior to Disbursement Date. The interest is paid in arrears on the Interest Payment Date. The first interest period matures on the first Interest Payment Date after the Disbursement Date. The next period runs from this date until the next Interest Payment Date. The last period of interest ends on Maturity Date. Accrued Interest for trades in the secondary bond market are calculated on the basis of current recommendations of Norsk Finansanalytikeres Forening. Modified Following: If the Interest Payment Date is not a banking day, the Interest Payment Date shall be postponed to the next banking day. However, if this day falls in the following calendar month, the Interest Payment Date is moved to the first banking day preceding the original date. On Redemption Date the Bondholders have a right to redeem the bonds at the Corresponding Price. Claim of redemption must be received by the account operator investor in writing no later than 15 banking days prior to the Redemption Date in question, as mentioned under The Bondholders Put Option. On Redemption Date, the Issuer has a right to redeem the bonds, completely or partly by drawing lots at the Corresponding Price. If the Issuer makes use of this right to redemption, the Issuer shall notify the Trustee, Bondholders and Oslo ABM regarding this matter no later than 30 banking days prior to the Redemption Date in question. The notification shall also be FRN Bullet Bond Page 7 of 8
forwarded to the Bondholders through the Securities Depository as soon as possible. Registration: Issuer s acquisition of bonds: Amortisation: 4) Redemption: Sale: The loan must prior to disbursement be registered in the Securities Depository. The bonds are being registered on each Bondholders account in the Securities Depository. The issuer has the right to acquire and own the bonds. Such bonds may at the Issuer s discretion be retained by the Issuer, sold or used for partial redemption. The bonds will run without instalments and be repaid in full on Maturity Date at par, provided the Issuer has not called the bonds. Matured interest and matured principal will be credited each Bondholder directly from the Securities Registry. Claims for interest and principal shall be limited in time pursuant the Norwegian Act relating to the Limitation Period Claims of May 18 1979 no 18, p.t. 3 years for interest rates and 10 years for principal. Tranche 1/ Loan Amount has been sold by the Arranger(s). Later taps can be made by authorized securities brokers. Legislation: Fees and expenses: Disputes arising from or in connection with the Loan Agreement, which are not resolved amicably, shall be resolved in accordance with Norwegian law and the Norwegian courts. Legal suits shall be served at the Trustee s competent legal venue. The Issuer shall pay any stamp duty and other public fees in connection with the loan. Any public fees or taxes on sales of Bonds in the secondary market shall be paid by the Bondholders, unless otherwise decided by law or regulation. The Issuer is responsible for withholding any withholding tax imposed by Norwegian law. Oslo, 22 May 2013 FRN Bullet Bond Page 8 of 8