Company Quick10K Filing
Frontline
20-F 2019-12-31 Filed 2020-03-20
20-F 2018-12-31 Filed 2019-03-28
20-F 2017-12-31 Filed 2018-03-19
20-F 2016-12-31 Filed 2017-03-16
20-F 2015-12-31 Filed 2016-03-21
20-F 2014-12-31 Filed 2015-03-16
20-F 2013-12-31 Filed 2014-03-21
20-F 2012-12-31 Filed 2013-03-21
20-F 2011-12-31 Filed 2012-04-27
20-F 2010-12-31 Filed 2011-04-04
20-F 2009-12-31 Filed 2010-03-29

FRO 20F Annual Report

Item 17 O Item 18 O
Part I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16. Reserved
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
Note 1. The Company Does Not Have Options To Purchase The Vessel But It Has First Refusal If The Vessel's Owner Offers The Vessel for Sale.
Note 2. The Capital Lease for The British Progress Was Terminated on January 15, 2010.
Note 3. on March 12, 2010, The Lessor Gave Notice That It Will Terminate The Capital Lease for The British Purpose on July 15, 2010.
Note 4. The Lessor Has The Right To Terminate The Lease for The British Pride At The End of The Fixed Period Being July 30, 2011.
EX-8.1 d1084721_ex8-1.htm
EX-12.1 d1084721_ex12-1.htm
EX-12.2 d1084721_ex12-2.htm
EX-13.1 d1084721_ex13-1.htm
EX-13.2 d1084721_ex13-2.htm

Frontline Earnings 2009-12-31

Balance SheetIncome StatementCash Flow

20-F 1 d1084721_20-f.htm d1084721_20-f.htm

UNITED STATES
  SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
 
FORM 20-F
 
(Mark One)
 
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
 
 
OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
OR

x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
 
 
OF THE SECURITIES EXCHANGE ACT OF 1934
 
     
 
For the fiscal year ended   December 31, 2009  

OR

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
 
 
OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
OR

o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
Date of event requiring this shell company report  _______________________________
For the transition period from _________________ to _________________


Commission file number
001-16601

 
Frontline Ltd.
(Exact name of Registrant as specified in its charter)
 
 
(Translation of Registrant's name into English)
 
Bermuda
(Jurisdiction of incorporation or organization)
 
Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda
(Address of principal executive offices)

Georgina Sousa, Telephone: (1) 441 295 6935, Facsimile: (1) 441 295 3494,
 Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 
 
1


 
Securities registered or to be registered pursuant to Section 12(b) of the Act

Title of each class
 
Name of each exchange on which registered
 
 
 
Ordinary Shares, $2.50 Par Value
 
New York Stock Exchange
 
 
 
 
 
 
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

Ordinary Shares, $2.50 Par Value
(Title of Class)
 
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

77,858,502 Ordinary Shares, $2.50 Par Value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes x                                            No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes o                                            No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x                                            No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o                                            No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x
Accelerated filer  o
Non-accelerated filer  o
 
 
 
 
 
 
2


 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP x
International Financial Reporting Standards as issued by the
International Accounting Standards Board o
Other o

If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

        Item 17 o                                           Item 18 o
 
 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o                                            No x


 
3

 


INDEX TO REPORT ON FORM 20-F
 
 
 
 
PAGE

 
PART I
 
 
Item 1.
Identity of Directors, Senior Management and Advisers
6
Item 2.
Offer Statistics and Expected Timetable
6
Item 3.
Key Information
6
Item 4.
Information on the Company
25
Item 4A.
Unresolved Staff Comments
44
Item 5.
Operating and Financial Review and Prospects
44
Item 6.
Directors, Senior Management and Employees
69
Item 7.
Major Shareholders and Related Party Transactions
72
Item 8.
Financial Information
74
Item 9.
The Offer and Listing
75
Item 10.
Additional Information
76
Item 11.
Quantitative and Qualitative Disclosures about Market Risk
87
Item 12.
Description of Securities other than Equity Securities
87
 
 
 
PART II
 
 
Item 13.
Defaults, Dividend Arrearages and Delinquencies
88
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
88
Item 15.
Controls and Procedures
88
Item 16.
Reserved
89
Item 16A.
Audit Committee Financial Expert
89
Item 16B.
Code of Ethics
89
Item 16C.
Principal Accountant Fees and Services
89
Item 16D.
Exemptions from the Listing Standards for Audit Committees
90
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
90
Item 16F.
Change in Registrant's Certifying Accountant
90
Item 16G.
Corporate Governance
90
 
 
 
PART III
 
 
Item 17.
Financial Statements
92
Item 18.
Financial Statements
92
Item 19.
Exhibits
93


 
4

 


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
Matters discussed in this report may constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts.
 
Frontline Ltd., or the Company, desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with this safe harbor legislation. This report and any other written or oral statements made by us or on our behalf may include forward-looking statements, which reflect our current views with respect to future events and financial performance. When used in this report, the words "believe," "anticipate," "intend," "estimate," "forecast," "project," "plan," "potential," "will," "may," "should," "expect" and similar expressions identify forward-looking statements.
 
The forward-looking statements in this report are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management's examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections.
 
In addition to these important factors and matters discussed elsewhere herein and in the documents incorporated by reference herein, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the strength of world economies, fluctuations in currencies and interest rates, general market conditions, including fluctuations in charterhire rates and vessel values, changes in demand in the tanker market, changes in world wide oil production and consumption and storage, changes in the Company's operating expenses, including bunker prices, drydocking and insurance costs, changes in governmental rules and regulations or actions taken by regulatory authorities, potential liability from pending or future litigation, general domestic and international political conditions, potential disruption of shipping routes due to accidents, political events or acts by terrorists, and other important factors described from time to time in the reports filed by the Company with the Securities and Exchange Commission or Commission.
 

 
5

 

PART I
 
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.
KEY INFORMATION

 
Throughout this report, the "Company," "we," "us" and "our" all refer to Frontline Ltd. and its subsidiaries. We use the term deadweight ton, or dwt, in describing the size of vessels. Dwt, expressed in metric tons, each of which is equivalent to 1,000 kilograms, refers to the maximum weight of cargo and supplies that a vessel can carry. The Company operates tankers of two sizes: very large crude carriers, or VLCCs, which are between 200,000 and 320,000 deadweight tons, or dwt, and Suezmaxes, which are vessels between 120,000 and 170,000 dwt. We also operate oil/bulk/ore or OBO carriers, which are currently classified to carry dry cargo. Unless otherwise indicated, all references to "USD,""US$" and "$" in this report are U.S. dollars.
 
A. SELECTED FINANCIAL DATA
 
The selected statement of operations data of the Company with respect to the fiscal years ended December 31, 2009, 2008 and 2007 and the selected balance sheet data of the Company with respect to the fiscal years ended December 31, 2009 and 2008, respectively, have been derived from the Company's consolidated financial statements included herein and should be read in conjunction with such statements and the notes thereto. The selected statement of operations data with respect to the fiscal years ended December 31, 2006 and 2005 and the selected balance sheet data with respect to the fiscal years ended December 31, 2007, 2006 and 2005 have been derived from consolidated financial statements of the Company not included herein. The following table should also be read in conjunction with Item 5. "Operating and Financial Review and Prospects" and the Company's consolidated financial statements and notes thereto included herein. The Company's accounts are maintained in U.S. dollars.
 
 
 
Fiscal year ended December 31,
 
 
 
2009
 
 
2008
 
 
2007
 
 
2006
 
 
2005
 
(in thousands of $, except ordinary shares, per share data and ratios)
 
Statement of Operations Data (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total operating revenues
 
 
1,133,286
 
 
 
2,104,018
 
 
 
1,299,927
 
 
 
1,558,369
 
 
 
1,495,975
 
Total operating expenses
 
 
896,237
 
 
 
1,395,831
 
 
 
898,904
 
 
 
850,623
 
 
 
713,919
 
Net operating income
 
 
240,110
 
 
 
850,480
 
 
 
519,191
 
 
 
803,401
 
 
 
858,137
 
Net income from continuing operations before income taxes and noncontrolling  interest
 
 
105,833
 
 
 
701,264
 
 
 
503,991
 
 
 
661,330
 
 
 
761,078
 
Net income from continuing operations
 
 
105,472
 
 
 
700,954
 
 
 
587,138
 
 
 
661,168
 
 
 
762,202
 
Discontinued operations (2)
 
 
-
 
 
 
-
 
 
 
5,442
 
 
 
13,514
 
 
 
14,096
 
Net income attributable to Frontline Ltd.
 
 
102,701
 
 
 
698,770
 
 
 
570,418
 
 
 
516,000
 
 
 
606,839
 
Earnings from continuing operations per ordinary share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- basic
 
$
1.32
 
 
$
9.15
 
 
$
7.55
 
 
$
6.72
 
 
$
7.92
 
- diluted
 
$
1.32
 
 
$
9.14
 
 
$
7.55
 
 
$
6.72
 
 
$
7.92
 
Net income per ordinary share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- basic
 
$
1.32
 
 
$
9.15
 
 
$
7.62
 
 
$
6.90
 
 
$
8.11
 
- diluted
 
$
1.32
 
 
$
9.14
 
 
$
7.62
 
 
$
6.90
 
 
$
8.11
 
Cash dividends declared per share
 
$
0.90
 
 
$
8.25
 
 
$
8.30
 
 
$
7.00
 
 
$
10.10
 
 
 
6


 
 
Fiscal year ended December 31,
 
 
 
2009
 
 
2008
 
 
2007
 
 
2006
 
 
2005
 
(in thousands of $, except ordinary shares and ratios)
 
Balance Sheet Data (at end of year) (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
82,575
 
 
 
190,819
 
 
 
168,432
 
 
 
197,181
 
 
 
92,782
 
Newbuildings
 
 
413,968
 
 
 
454,227
 
 
 
160,298
 
 
 
166,851
 
 
 
15,927
 
Vessels and equipment, net
 
 
678,694
 
 
 
438,161
 
 
 
208,516
 
 
 
2,446,278
 
 
 
2,584,847
 
Vessels and equipment under capital lease, net
 
 
1,740,666
 
 
 
2,100,717
 
 
 
2,324,789
 
 
 
626,374
 
 
 
672,608
 
Investments in unconsolidated subsidiaries and associated companies
 
 
3,923
 
 
 
4,467
 
 
 
5,633
 
 
 
17,825
 
 
 
15,783
 
Total assets
 
 
3,715,218
 
 
 
4,027,728
 
 
 
3,762,091
 
 
 
4,589,937
 
 
 
4,454,817
 
Short-term debt and current portion of long-term debt
 
 
123,884
 
 
 
293,471
 
 
 
96,811
 
 
 
281,409
 
 
 
228,135
 
Current portion of obligations under capital lease
 
 
285,753
 
 
 
243,293
 
 
 
179,604
 
 
 
28,857
 
 
 
25,142
 
Long-term debt
 
 
760,698
 
 
 
614,676
 
 
 
376,723
 
 
 
2,181,885
 
 
 
2,101,061
 
Obligations under capital leases
 
 
1,579,708
 
 
 
1,969,919
 
 
 
2,318,794
 
 
 
723,073
 
 
 
706,279
 
Share capital
 
 
194,646
 
 
 
194,646
 
 
 
187,063
 
 
 
187,063
 
 
 
187,063
 
Total stockholders' equity
 
 
741,340
 
 
 
702,217
 
 
 
445,969
 
 
 
668,560
 
 
 
715,166
 
Ordinary shares outstanding
 
 
77,858,502
 
 
 
77,858,502
 
 
 
74,825,169
 
 
 
74,825,169
 
 
 
74,825,169
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average ordinary shares outstanding
 
 
77,858,502
 
 
 
76,352,673
 
 
 
74,825,169
 
 
 
74,825,169
 
 
 
74,825,169
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Financial Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity to assets ratio (percentage) (3)
 
 
20.0
%
 
 
17.4
%
 
 
11.8
%
 
 
14.6
%
 
 
16.1
%
Debt to equity ratio (4)
 
 
3.7
 
 
 
4.4
 
 
 
6.7
 
 
 
4.8
 
 
 
4.3
 
Price earnings ratio (5)
 
 
20.7
 
 
 
3.2
 
 
 
6.3
 
 
 
4.6
 
 
 
4.7
 
Time charter equivalent revenue (6)
 
 
896,843
 
 
 
1,493,912
 
 
 
938,960
 
 
 
1,154,029
 
 
 
1,155,135
 

Notes:
 
1.
The Company distributed the majority of its remaining shareholding in Ship Finance International Limited ("Ship Finance") in March 2007 and no longer consolidates Ship Finance as of March 31, 2007. A summary of the major changes to the financial statements is as follows;
 
 
a.
Vessels leased from Ship Finance, which were previously reported as wholly owned are reported as vessels held under capital lease.
 
b.
Capital lease obligations with Ship Finance, which were previously eliminated on consolidation are reported as liabilities with the related interest recorded in the income statement.
 
 
7


 
 
c.
Debt incurred by Ship Finance, which was previously reported as debt of the Company is no longer reported.
 
d.
Derivative instruments held by Ship Finance are no longer reported.
 
e.
Noncontrolling interest expense relating to Ship Finance is no longer reported.
 
f.
Profit share expense relating to amounts due to Ship Finance is shown in the income statement.
 
g.
Results from Ship Finance's container ships, jack-up rigs and Panamax vessels are no longer reported in the Company's consolidated results.

 
2.
The Company disposed of the container vessel and rig operations of Ship Finance in the first quarter of 2007 as a result of the spin off of Ship Finance. These operations have been recorded as discontinued operations in 2007 and 2006. The results from container vessels have also been recorded in discontinued operations in 2005. These operations have been recorded as discontinued operations for all applicable years presented, which are 2007, 2006 and 2005. During the year ended December 31, 2005 the Company disposed of a portion of its dry-bulk operations, which have been recorded as discontinued operations in the year ended December 31, 2005.

 
3.
Equity to assets ratio is calculated as total stockholders' equity divided by total assets.

 
4.
Debt to equity ratio is calculated as total interest bearing current and long-term liabilities, including obligations under capital leases, divided by stockholders' equity.

 
5.
Price earnings ratio is calculated by dividing the closing year end share price by basic earnings per share.

 
6.
A reconciliation of time charter equivalent revenues to total operating revenues as reflected in the consolidated statements of operations is as follows:


 
 
2009
 
 
2008
 
 
2007
 
 
2006
 
 
2005
 
(in thousands of $)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total operating revenues
 
 
1,133,286
 
 
 
2,104,018
 
 
 
1,299,927
 
 
 
1,558,369
 
 
 
1,495,975
 
Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other income
 
 
(17,068
)
 
 
(17,918
)
 
 
(8,516
)
 
 
(5,294
)
 
 
(3,877
)
Voyage expense
 
 
(219,375
)
 
 
(592,188
)
 
 
(352,451
)
 
 
(399,046
)
 
 
(336,963
)
Time charter equivalent revenue
 
 
896,843
 
 
 
1,493,912
 
 
 
938,960
 
 
 
1,154,029
 
 
 
1,155,135
 

Our vessels are operated under time charters, bareboat charters, voyage charters, pool arrangements and contracts of affreightment, or COAs. Under a time charter, the charterer pays substantially all of the vessel voyage costs which are primarily fuel and port charges. Under a bareboat charter the charterer pays substantially all of the vessel voyage and operating costs. Under a voyage charter, the vessel owner pays such costs. Under contracts of affreightment, the owner carries an agreed upon quantity of cargo over a specified route and time period. In order to compare vessels trading under different types of charters, it is standard industry practice to measure the revenue performance of a vessel in terms of time charter equivalent revenue, or TCE. Total TCE is the sum of time charter, voyage charter and bareboat charter revenues, less voyage expenses. Total TCE, which is not covered by U.S. generally accepted accounting principles, or GAAP, provides more meaningful information to us than total operating revenues, the most directly comparable GAAP measure. Average daily TCEs are also widely used by investors and analysts in the shipping industry for comparing financial performance between companies and to industry averages. Other companies may calculate TCE using a different method.
 
 
8

 
B. CAPITALIZATION AND INDEBTEDNESS
 
Not applicable.
 
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
 
Not applicable.
 
D. RISK FACTORS
 
We are engaged in the seaborne transportation of crude oil, oil products and dry bulk cargoes. The following summarizes some of the risks that may materially affect our business, financial condition or results of operations. As our OBOs are currently fitted to carry dry bulk cargoes, we include risk factors related to dry bulk vessels.
 
Risks Related to Our Industry
 
Tankers
 
The cyclical nature of the tanker industry may lead to volatile changes in charter rates and vessel values which may adversely affect our earnings
 
Historically, the tanker industry has been highly cyclical, with volatility in profitability and asset values resulting from changes in the supply of, and demand for, tanker capacity. When the tanker market is depressed our earnings and available cash flow may decrease. Our ability to re-charter our vessels on the expiration or termination of their current spot and time and bareboat charters and the charter rates payable under any renewal or replacement charters will depend upon, among other things, economic conditions in the tanker market. Fluctuations in charter rates and vessel values result from changes in the supply and demand for tanker capacity and changes in the supply and demand for oil and oil products.
 
The factors affecting the supply and demand for oil tankers are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable. The factors that influence demand for tanker capacity include:
 
 
·
demand for oil and oil products;

 
·
global and regional economic and political conditions;

 
·
changes in oil production and refining capacity;

 
·
environmental and other regulatory developments;

 
·
the distance oil and oil products are to be moved by sea; and

 
·
changes in seaborne and other transportation patterns.

The factors that influence the supply of tanker capacity include:

 
·
the number of newbuilding deliveries;

 
·
the scrapping rate of older vessels;

 
·
port or canal congestion;

 
·
vessel casualties;

 
·
price of steel;

 
·
potential conversion of vessels to alternative use;
 
 
·
the number of vessels that are out of service; and

 
·
changes in environmental and other regulations that may effectively cause reductions in the carrying capacity of vessels or early obsolescence of tonnage.

9

Historically, the tanker markets have been volatile as a result of the many conditions and factors that can affect the price, supply and demand for tanker capacity. The current global economic crisis may reduce demand for transportation of oil over longer distances and supply of tankers to carry that oil, which may materially affect our revenues, profitability and cash flows.
 
The international tanker industry has experienced volatile charter rates and vessel values and there can be no assurance that these charter rates and vessel values will return to their previous high levels
 
Charter rates in the tanker industry are volatile. We anticipate that future demand for our vessels, and in turn our future charter rates, will be dependent upon economic growth in the world's economy as well as seasonal and regional changes in demand and changes in the capacity of the world's fleet. We believe that these charter rates are the result of economic growth in the world economy that exceeds growth in global vessel capacity. There can be no assurance that economic growth will not stagnate or decline leading to a further decrease in vessel values and charter rates. A further decline in vessel values and charter rates could have an adverse effect on our business, financial condition, results of operation and ability to pay dividends.
 
Any decrease in shipments of crude oil may adversely affect our financial performance
 
The demand for our oil tankers derives primarily from demand for Arabian Gulf, West African, North Sea and Carribean crude oil, which, in turn, primarily depends on the economies of the world's industrial countries and competition from alternative energy sources. A wide range of economic, social and other factors can significantly affect the strength of the world's industrial economies and their demand for crude oil from the mentioned geographical areas. One such factor is the price of worldwide crude oil. The world's oil markets have experienced high levels of volatility in the last 25 years. In July 2008, oil prices rose to a high of approximately $143 per barrel before decreasing to approximately $38 per barrel by the end of December 2008 and rising to approximately $75 per barrel in mid-February 2010.
 
Any decrease in shipments of crude oil from the above mentioned geographical areas would have a material adverse effect on our financial performance. Among the factors which could lead to such a decrease are:
 
 
·
increased crude oil production from other areas;

 
·
increased refining capacity in the Arabian Gulf or West Africa;

 
·
increased use of existing and future crude oil pipelines in the Arabian Gulf or West Africa;

 
·
a decision by Arabian Gulf or West African oil-producing nations to increase their crude oil prices or to further decrease or limit their crude oil production;

 
·
armed conflict in the Arabian Gulf and West Africa and political or other factors; and

 
·
the development and the relative costs of nuclear power, natural gas, coal and other alternative sources of energy.

An over-supply of tanker capacity may lead to reductions in charter rates, vessel values and profitability
 
Currently, shipyards are booked to produce a large number of new tankers. If the capacity of new vessels delivered exceeds the capacity of tankers being scrapped and converted to non-trading tankers, tanker capacity will increase. If the supply of tanker capacity increases and the demand for tanker capacity does not increase correspondingly, charter rates could materially decline. A reduction in charter rates and the value of our vessels may have a material adverse effect on our results of operations, our ability to pay dividends and our compliance with loan covenants.
 
10

Dry Bulk
 
Charter hire rates for dry bulk vessels may decrease in the future, which may adversely affect our earnings
 
The dry bulk shipping industry is cyclical with attendant volatility in charterhire rates and profitability. The degree of charterhire rate volatility among different types of dry bulk vessels has varied widely, and charterhire rates for dry bulk vessels have declined significantly from historically high levels. Fluctuations in charter rates result from changes in the supply and demand for vessel capacity and changes in the supply and demand for the major commodities carried by water internationally. Because the factors affecting the supply and demand for vessels are outside of our control and are unpredictable, the nature, timing, direction and degree of changes in industry conditions are also unpredictable.
 
Factors that influence demand for vessel capacity include:
 
 
·
supply and demand for energy resources, commodities, semi-finished and finished consumer and industrial products;
 
 
·
changes in the exploration or production of energy resources, commodities, semi-finished and finished consumer and industrial products;
 
 
·
the location of regional and global exploration, production and manufacturing facilities;
 
 
·
the location of consuming regions for energy resources, commodities, semi-finished and finished consumer and industrial products;
 
 
·
the globalization of production and manufacturing;
 
 
·
global and regional economic and political conditions, including armed conflicts and terrorist activities; embargoes and strikes;
 
 
·
developments in international trade;
 
 
·
changes in seaborne and other transportation patterns, including the distance cargo is transported by sea;
 
 
·
environmental and other regulatory developments;
 
 
·
currency exchange rates; and
 
 
·
weather.
 
Factors that influence the supply of vessel capacity include:
 
 
·
number of newbuilding deliveries;
 
 
·
scrapping of older vessels;
 
 
·
vessel casualties; and
 
 
·
number of vessels that are out of service.
 
Demand for our dry bulk vessels is dependent upon economic growth in the world's economies, seasonal and regional changes in demand, changes in the capacity of the global dry bulk fleet and the sources and supply of dry bulk cargo transported by sea. Given the large number of new dry bulk carriers currently on order with shipyards, the capacity of the global dry bulk carrier fleet seems likely to increase and economic growth may not resume in areas that have experienced a recession or continue in other areas. Adverse economic, political, social or other developments could have a material adverse effect on our business and operating results.
 
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A continued downturn in the dry bulk carrier charter market may have an adverse effect on our earnings and our ability to comply with our loan covenants
 
The Baltic Exchange Capesize Index, or CS4TC, a daily equally weighted average of the four main Capesize routes declined from a high of approximately $222,800 per day in May 2008 to a low of approximately $2,400 per day in November 2008, which represents a decline of 99%. From November 2008 it rose to approximately $30,860 per day in February 2010, which emphasizes the volatility of this market. The general decline in the dry bulk carrier charter market has resulted in lower charter rates for vessels exposed to the spot market and time charters linked to the CS4TC.  Our ability to obtain renewal charters upon the expiration of our current charters or charters for new vessels that we may acquire in the future will be directly impacted by prevailing charter rates.
 
Dry bulk carrier values have also declined both as a result of a slowdown in the availability of global credit and the significant deterioration in charter rates. Charter rates and vessel values have been affected in part by the lack of availability of credit to finance both vessel purchases and purchases of commodities carried by sea, resulting in a decline in cargo shipments, and the excess supply of iron ore in China, which resulted in falling iron ore prices and increased stockpiles in Chinese ports.   There can be no assurance as to how long charter rates and vessel values will remain at their currently low levels or whether the recent improvement will continue. Charter rates may remain at low levels for some time which will adversely affect our revenue and profitability and could affect compliance with the covenants in our loan agreements.
 
In addition, because the market value of our vessels may fluctuate significantly, we may incur losses when we sell vessels, which may adversely affect our earnings.  If we sell vessels at a time when vessel prices have fallen and before we have recorded an impairment adjustment to our financial statements, the sale may be at less than the vessel's carrying amount in our financial statements, resulting in a loss and a reduction in earnings.
 
An over-supply of dry bulk carrier capacity may prolong or further depress the current low charter rates and, in turn, adversely affect our profitability
 
The market supply of dry bulk carriers has been increasing, and the number of dry bulk carriers on order is near historic highs. Dry bulk newbuildings were delivered in significant numbers starting at the beginning of 2006 and continue to be delivered in significant numbers. At the end of February 2010, Capesize newbuilding orders had been placed for an aggregate of more than 75% of the current global Capesize fleet, with deliveries expected during the next 36 months.  According to market sources, approximately 60% is contracted at established yards, while the other 40% is contracted at yards that are less established and whose viability may be uncertain. Due to lack of financing many analysts expect significant cancellations and/ or slippage of newbuilding orders. While vessel supply will continue to be affected by the delivery of new vessels and the removal of vessels from the global fleet, either through scrapping or accidental losses, an over-supply of dry bulk carrier capacity, particularly in conjunction with the currently low level of demand, could exacerbate the recent decrease in charter rates or prolong the period during which low charter rates prevail. If the current low charter rate environment persists, or a further reduction occurs, during a period when the current charters for our dry bulk carriers expire or are terminated, we may only be able to recharter those vessels at reduced rates or we may not be able to charter our vessels at all.
 
Shipping Generally
 
Risks involved with operating ocean-going vessels could affect our business and reputation, which could have a material adverse effect on our results of operations and financial condition
 
The operation of an ocean-going vessel carries inherent risks.  These risks include the possibility of:
 
· a marine disaster;
 
· piracy;
 
 
 
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· terrorism;
 
· environmental accidents;
 
· cargo and property losses or damage; and
 
· business interruptions caused by mechanical failure, human error, war, terrorism, piracy, political action in various countries, labor strikes, or adverse weather conditions.
 
Any of these circumstances or events could increase our costs or lower our revenues. The involvement of our vessels in an oil spill or other environmental disaster may harm our reputation as a safe and reliable tanker operator.
 
World events could affect our results of operations and financial condition
 
Terrorist attacks in New York on September 11, 2001, in London on July 7, 2005 and in Mumbai on November 26, 2008 and the continuing response of the United States and others to these attacks, as well as the threat of future terrorist attacks in the United States or elsewhere, continues to cause uncertainty in the world's financial markets and may affect our business, operating results and financial condition. The continuing presence of United States and other armed forces in Iraq and Afghanistan may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic instability in the global financial markets. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all. In the past, political conflicts have also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea and the Gulf of Aden off the coast of Somalia. Any of these occurrences could have a material adverse impact on our operating results, revenues and costs.
 
Terrorist attacks on vessels, such as the October 2002 attack on the M.V. Limburg, a very large crude carrier not related to us, may in the future also negatively affect our operations and financial condition and directly impact our vessels or our customers. Future terrorist attacks could result in increased volatility and turmoil of the financial markets in the United States and globally. Any of these occurrences could have a material adverse impact on our revenues and costs.
 
Acts of piracy on ocean-going vessels have recently increased in frequency, which could adversely affect our business
 
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea and in the Gulf of Aden off the coast of Somalia. Throughout 2008 and 2009, the frequency of piracy incidents against commercial shipping vessels increased significantly, particularly in the Gulf of Aden off the coast of Somalia. For example, in November 2008, the M/V Sirius Star, a tanker vessel not affiliated with us, was captured by pirates in the Indian Ocean while carrying crude oil estimated to be worth $100 million. If these pirate attacks result in regions in which our vessels are deployed being characterized as "war risk" zones by insurers, as the Gulf of Aden temporarily was in May 2008, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including due to employing onboard security guards, could increase in such circumstances. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, any of these events may result in loss of revenues, increased costs and decreased cash flows to our customers, which could impair their ability to make payments to us under our charters.
 
Safety, environmental and other governmental requirements expose us to liability, and compliance with current and future regulations could require significant additional expenditures, which could have a material adverse affect on our business and financial results
 
 
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Our operations are affected by extensive and changing international, national, state and local laws, regulations, treaties, conventions and standards in force in international waters, the jurisdictions in which our tankers and other vessels operate and the country or countries in which such vessels are registered, including those governing the management and disposal of hazardous substances and wastes, the cleanup of oil spills and other contamination, air emissions, and water discharges and ballast water management. These regulations include the United States Oil Pollution Act of 1990, or OPA, the United States Clean Air Act and United States Clean Water Act, the United States Marine Transportation Security Act of 2002, the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended, or CLC, the International Convention for the Prevention of Pollution from Ships, of 1975, the International Convention for the Safety of Life at Sea of 1974, or SOLAS, the International Convention on Load Lines of 1966 or LL Convention, and implementing regulations adopted by the International Maritime Organization, or the IMO (the United Nations agency for maritime safety and the prevention of pollution by vessels), the European Union, or the EU, and other international, national and local regulatory bodies.
 
In addition, vessel classification societies also impose significant safety and other requirements on our vessels. In complying with current and future environmental requirements, vessel owners and operators such as ourselves may also incur significant additional costs in meeting new maintenance and inspection requirements, in developing contingency arrangements for potential spills and in obtaining insurance coverage. Government regulation of vessels, particularly in the areas of safety and environmental requirements, can be expected to become stricter in the future and require us to incur significant capital expenditures on our vessels to keep them in compliance, or even to scrap or sell certain vessels altogether. For example, various jurisdictions, including the United States, are considering or have enacted legislation imposing more stringent requirements on air emissions and ballast water discharges from vessels.
 
Many of these requirements are designed to reduce the risk of oil spills and other pollution, and our compliance with these requirements can be costly. These requirements can also affect the resale value or useful lives of our vessels, require a reduction in cargo-capacity, ship modifications or operational changes or restrictions, lead to decreased availability of insurance coverage for environmental matters or result in the denial of access to certain jurisdictional waters or ports, or detention in, certain ports.
 
Under local, national and foreign laws, as well as international treaties and conventions, we could incur material liabilities, including cleanup obligations, natural resource damages and third-party claims for personal injury or property damages, in the event that there is a release of petroleum or other hazardous substances from our vessels or otherwise in connection with our current or historic operations. We could also incur substantial penalties, fines and other civil or criminal sanctions, including in certain instances seizure or detention of our vessels, as a result of violations of or liabilities under environmental laws, regulations and other requirements. For example, OPA affects all vessel owners shipping oil to, from or within the United States. OPA allows for potentially unlimited liability without regard to fault for owners, operators and bareboat charterers of vessels for oil pollution in United States waters. Similarly, the CLC, which has been adopted by most countries outside of the United States, imposes liability for oil pollution in international waters. OPA expressly permits individual states to impose their own liability regimes with regard to hazardous materials and oil pollution incidents occurring within their boundaries. Coastal states in the United States have enacted pollution prevention liability and response laws, many providing for unlimited liability.
 
OPA also provides for the scheduled phase-out of all non-double-hull tankers that carry oil in bulk in United States waters. The IMO and the EU, have adopted separate phase-out schedules applicable to single-hull tankers operating in international and EU waters, respectively. These regulations could reduce the demand for single-hull tankers, force the remaining single-hull vessels into less desirable trading routes, increase the number of vessels trading in routes open to single-hull vessels and could increase demands for further restrictions in the remaining jurisdictions that permit the operation of these vessels. As a result, single-hull vessels are likely to be chartered less frequently and at lower rates.
 
 
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In recent years, the IMO and EU have both accelerated their existing non-double-hull phase-out schedules in response to highly publicized oil spills and other shipping incidents involving companies unrelated to us. Future accidents may be expected in the industry, and such accidents or other events may be expected to result in the adoption of even stricter laws and regulations, which could limit our operations or our ability to do business and which could have a material adverse effect on our business and financial results.
 
Maritime claimants could arrest one or more of our vessels, which could interrupt our cash flow
 
Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In many jurisdictions a claimant may seek to obtain security for its claim by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our cash flow and require us to pay large sums of money to have the arrest or attachment lifted. In addition, in some jurisdictions, such as South Africa, under the "sister ship" theory of liability, a claimant may arrest both the vessel which is subject to the claimant's maritime lien and any "associated" vessel, which is any vessel owned or controlled by the same owner. Claimants could attempt to assert "sister ship" liability against one vessel in our fleet for claims relating to another of our vessels.
 
Governments could requisition our vessels during a period of war or emergency resulting in a loss of earnings
 
A government could requisition for title or seize one of more of our vessels. Requisition for title occurs when a government takes control of a vessel and becomes her owner. Also, a government could requisition one or more of our vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes her charterer at dictated charter rates. This amount could be materially less than the charterhire that would have been payable otherwise. In addition, we would bear all risk of loss or damage to a vessel under requisition for hire. Government requisition of one or more of our vessels would negatively impact our revenues and therefore impact our ability to service our debt.
 
Our vessels may call on ports located in countries that are subject to restrictions imposed by the United States government, which could adversely affect investor perceptions
 
From time to time, vessels in our fleet may call on ports located in countries subject to sanctions and embargoes imposed by the United States government and countries identified by the United States government as state sponsors of terrorism. Although these sanctions and embargoes do not prevent our vessels from making calls to ports in these countries, potential investors could view such port calls negatively, which could adversely affect our reputation and the market for our shares. Investor perception of the value of our shares may be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.
 
Disruptions in world financial markets and the resulting governmental action in the United States and in other parts of the world could have a material adverse impact on our results of operations, financial condition and cash flows, and could cause the market price of our ordinary shares to decline
 
Over the recent period, global financial markets have experienced extraordinary disruption and volatility following adverse changes in the global credit markets. The credit markets in the United States have experienced significant contraction, deleveraging and reduced liquidity, and governments around the world have taken highly significant measures in response to such events, and may implement other significant responses in the future.
 
 
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Securities and futures markets and the credit markets are subject to comprehensive statutes, regulations and other requirements. The Commission, other regulators, self-regulatory organizations and exchanges have enacted temporary emergency regulations and may take other extraordinary actions in the event of market emergencies and may effect permanent changes in law or interpretations of existing laws. Recently, a number of financial institutions have experienced serious financial difficulties and, in some cases, have entered into bankruptcy proceedings or are in regulatory enforcement actions. These difficulties have resulted, in part, from declining markets for assets held by such institutions, particularly the reduction in the value of their mortgage and asset-backed securities portfolios. These difficulties have been compounded by a general decline in the willingness by banks and other financial institutions to extend credit. In addition, these difficulties may adversely affect the financial institutions that provide our credit facilities and may impair their ability to continue to perform under their financing obligations to us, which could have an impact on our ability to fund current and future obligations, including our ability to take delivery of our newbuildings.
 
We face risks attendant to changes in economic environments, changes in interest rates and instability in securities markets around the world, among other factors. Major market disruptions and the current adverse changes in market conditions and regulatory climate in the United States and worldwide may adversely affect our business or impair our ability to borrow amounts under our credit facilities or any future financial arrangements. We cannot predict how long the current market conditions will last. However, these recent and developing economic and governmental factors may have a material adverse effect on our results of operations, financial condition or cash flows and could cause the price of our ordinary shares to decline significantly or impair our ability to make distributions to our shareholders.
 
Risks Related to Our Business
 
A drop in spot charter rates may provide an incentive for some charterers to default on their charters
 
When we enter into a time charter, charter rates under that charter are fixed for the term of the charter.  If the spot charter rates or short-term time charter rates in the tanker or dry bulk shipping industry, as applicable, become significantly lower than the time charter equivalent rates that some of our charterers are obligated to pay us under our existing charters, the charterers may have incentive to default under that charter or attempt to renegotiate the charter. If our charterers fail to pay their obligations, we would have to attempt to re-charter our vessels at lower charter rates, which would affect our ability to comply with our loan covenants and operate our vessels profitably.  If we are not able to comply with our loan covenants and our lenders choose to accelerate our indebtedness and foreclose their liens, we could be required to sell vessels in our fleet and our ability to continue to conduct our business would be impaired.
 
The operation of dry bulk carriers and tankers each involve certain unique operational risks
 
The operation of dry bulk carriers has certain unique operational risks. With a dry bulk carrier, the cargo itself and its interaction with the ship can be a risk factor. By their nature, dry bulk cargoes are often heavy, dense, easily shifted, and react badly to water exposure.  In addition, dry bulk carriers are often subjected to battering treatment during unloading operations with grabs, jackhammers (to pry encrusted cargoes out of the hold), and small bulldozers. This treatment may cause damage to the dry bulk carrier. Dry bulk carriers damaged due to treatment during unloading procedures may be more susceptible to a breach to the sea. Hull breaches in dry bulk carriers may lead to the flooding of their holds. If a dry bulk carrier suffers flooding in its forward holds, the bulk cargo may become so dense and waterlogged that its pressure may buckle the dry bulk carrier's bulkheads leading to the loss of the dry bulk carrier.
 
The operation of tankers has unique operational risks associated with the transportation of oil.  An oil spill may cause significant environmental damage, and a catastrophic spill could exceed the insurance coverage available. Compared to other types of vessels, tankers are exposed to a higher risk of damage and loss by fire, whether ignited by a terrorist attack, collision, or other cause, due to the high flammability and high volume of the oil transported in tankers.
 
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If we are unable to adequately maintain or safeguard our vessels we may be unable to prevent these events. Any of these circumstances or events could negatively impact our business, financial condition, results of operations.  In addition, the loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator.
 
Purchasing and operating previously owned, or secondhand, vessels may result in increased drydocking costs and vessels off-hire, which could adversely affect our earnings
 
Even following a physical inspection of secondhand vessels prior to purchase, we do not have the same knowledge about their condition and cost of any required (or anticipated) repairs that we would have had if these vessels had been built for and operated exclusively by us.  Accordingly, we may not discover defects or other problems with such vessels prior to purchase. Defects or problems discovered after purchase may be expensive to repair, and if not detected, may result in accidents or other incidents for which we may become liable to third parties.  We may not receive the benefit of warranties on secondhand vessels. Increased drydocking costs or vessels off-hire may adversely affect our earnings.
 
The volatility in both dry bulk and tanker charter rates, and vessel values, may affect our ability to comply with various covenants in our loan agreements.
 
Our loan agreements for our borrowings, which are secured by liens on our vessels, contain various financial covenants. Among those covenants are requirements that relate to our financial position, operating performance and liquidity. For example, there are financial covenants that require us to maintain (i) a minimum value adjusted equity that is based, in part, upon the market value of the vessels securing the loans, (ii) minimum levels of free cash, and (iii) a positive working capital.  The market value of dry bulk and tanker vessels is sensitive, among other things, to changes in the dry bulk and tanker charter markets, respectively, with vessel values deteriorating in times when dry bulk and tanker charter rates, as applicable, are falling and improving when charter rates are anticipated to rise.  Such conditions may result in our not being in compliance with these loan covenants.  In such a situation, unless our lenders were willing to provide waivers of covenant compliance or modifications to our covenants, or would be willing to refinance our indebtedness, we may have to sell vessels in our fleet and/or seek to raise additional capital in the equity markets in order to comply with our loan covenants.  Furthermore, if the value of our vessels deteriorates significantly, we may have to record an impairment adjustment in our financial statements, which would adversely affect our financial results and further hinder our ability to raise capital.
 
If we are not in compliance with our covenants and are not able to obtain covenant waivers or modifications, our lenders could require us to post additional collateral, enhance our equity and liquidity, increase our interest payments or pay down our indebtedness to a level where we are in compliance with our loan covenants, sell vessels in our fleet, or they could accelerate our indebtedness, which would impair our ability to continue to conduct our business.  In such an event, our auditors may give either an unqualified opinion with an explanatory paragraph relating to the disclosure in the notes to our financial statements as to the substantial doubt of our ability to continue as a going concern, or a qualified, adverse or disclaimer of opinion, which could lead to additional defaults under our loan agreements. If our indebtedness is accelerated, we might not be able to refinance our debt or obtain additional financing and could lose our vessels if our lenders foreclose their liens.  In addition, if we find it necessary to sell our vessels at a time when vessel prices are low, we will recognize losses and a reduction in our earnings, which could affect our ability to raise additional capital necessary for us to comply with our loan agreements.
 
 
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Our ability to obtain additional debt financing may be dependent on the performance of our then existing charters and the creditworthiness of our charterers
 
The actual or perceived credit quality of our charterers, and any defaults by them, may materially affect our ability to obtain the additional capital resources required to purchase additional vessels or may significantly increase our costs of obtaining such capital. Our inability to obtain additional financing at anticipated costs or at all may materially affect our results of operation and our ability to implement our business strategy.
 
Our revenues experience seasonal variations that may affect our income
 
We operate our tankers in markets that have historically exhibited seasonal variations in demand and, therefore, charter rates. Historically, oil trade and therefore charter rates increased in the winter months and eased in the summer months as demand for oil in the Northern Hemisphere rose in colder weather and fell in warmer weather. In addition, unpredictable weather patterns in the winter months tend to disrupt vessel scheduling. The tanker industry in general is less dependent on the seasonal transport of heating oil than a decade ago as new uses for oil and oil products have developed, spreading consumption more evenly over the year. Most apparent is a higher seasonal demand during the summer months due to energy requirements for air conditioning and motor vehicles. The oil price volatility resulting from these factors has historically led to increased oil trading activities and demand for vessels. The change in demand for vessels may affect the charter rates that we receive.
 
Because the market value of our vessels may fluctuate significantly, we may incur losses when we sell vessels which may adversely affect our earnings
 
The fair market value of vessels may increase and decrease depending on but not limited to the following factors:
 
 
·
general economic and market conditions affecting the shipping  industry;

 
·
competition from other shipping companies;

 
·
types and sizes of vessels;

 
·
other modes of transportation;

 
·
cost of newbuildings;

 
·
shipyard capacity;

 
·
governmental or other regulations;

 
·
age of vessels;

 
·
prevailing level of charter rates; and

 
·
technological advances.

If we sell a vessel at a time when ship prices have fallen, the sale may be at less than the vessel's carrying amount on our financial statements, with the result that we could incur a loss and a reduction in earnings. In addition, if we determine at any time that a vessel's future limited useful life and earnings require us to impair its value on our financial statements, that could result in a charge against our earnings and a reduction of our shareholders' equity. It is possible that the market value of our vessels will decline in the future and this will also have an adverse effect on some of the financial covenants in our loan agreements.
 
We may be unable to successfully compete with other vessel operators for charters, which could adversely affect our results of operations and financial position
 
The operation of tankers and dry bulk vessels and transportation of crude and petroleum products and dry bulk cargoes is extremely competitive. Through our operating subsidiaries we compete with other vessel owners (including major oil companies as well as independent companies), and, to a lesser extent, owners of other size vessels. The tanker and dry bulk markets are highly fragmented. It is possible that we could not obtain suitable employment for our vessels, which could adversely affect our results of operations and financial position.
 
 
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Our time and bareboat charters may limit our ability to benefit from any improvement in charter rates, and at the same time, our revenues may be adversely affected if we do not successfully employ our vessels on the expiration of our charters
 
Currently, some of our vessels are contractually committed to time and bareboat charters. Although our time and bareboat charters generally provide reliable revenues, they also limit the portion of our fleet available for spot market voyages during an upswing in the tanker industry cycle, when spot market voyages might be more profitable. By the same token, we cannot assure you that we will be able to successfully employ our vessels in the future or renew our existing charters at rates sufficient to allow us to operate our business profitably or meet our obligations.  A decline in charter or spot rates or a failure to successfully charter our vessels could have a material adverse effect on our business, financial condition, results of operation and ability to pay dividends.
 
Delays or defaults by the shipyards in the construction of our newbuildings could increase our expenses and diminish our net income and cash flows
 
We currently have newbuilding contracts for the construction of a total of six VLCC and two Suezmax vessels with three shipyards in China: Shanghai Waigaoqiao Shipbuilding Company Ltd, or Waigaoqiao, Jiangsu Rongsheng Heavy Industries Group Co. Ltd., or Rongsheng, and Zhoushan Jinhaiwan Shipyard Co. Ltd, or Jinhaiwan. These projects are subject to the risk of delay or defaults by the shipyards caused by, among other things, unforeseen quality or engineering problems, work stoppages, weather interference, unanticipated cost increases, delays in receipt of necessary equipment, and inability to obtain the requisite permits or approvals. In accordance with industry practice, in the event the shipyards are unable or unwilling to deliver the vessels, we may not have substantial remedies. Failure to construct or deliver the ships by the shipyards or any significant delays could increase our expenses and diminish our net income and cash flows.
 
We cannot assure you that we will be able to refinance indebtedness incurred under our current credit facilities
 
We cannot assure you that we will be able to refinance our indebtedness on terms that are acceptable to us or at all. If we are not able to refinance our indebtedness, we will have to dedicate a greater portion of our cash flow from operations to pay the principal and interest of this indebtedness. We cannot assure you that we will be able to generate cash flow in amounts that are sufficient for these purposes. If we are not able to satisfy these obligations, we may have to undertake alternative financing plans or sell our assets. In addition, debt service payments under our credit facilities may limit funds otherwise available for working capital, capital expenditures, payment of dividends and other purposes. If we are unable to meet our debt obligations, or if we otherwise default under our credit facilities, our lenders could declare the debt, together with accrued interest and fees, to be immediately due and payable and foreclose on our fleet, which could result in the acceleration of other indebtedness that we may have at such time and the commencement of similar foreclosure proceedings by other lenders.
 
As we expand our fleet, we may not be able to recruit suitable employees and crew for our vessels which may limit our growth and cause our financial performance to suffer
 
As we expand our fleet, we will need to recruit suitable crew, shoreside, administrative and management personnel.  We may not be able to continue to hire suitable employees as we expand our fleet of vessels.  If we are unable to recruit suitable employees and crews, we may not be able to provide our services to customers, our growth may be limited and our financial performance may suffer.
 
 
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We are subject to certain risks with respect to our counterparties on contracts, and failure of such counterparties to meet their obligations could cause us to suffer losses or otherwise adversely affect our business
 
We have entered into various contracts, including charterparties with our customers, newbuilding contracts with shipyards and our credit facilities. These agreements subject us to counterparty risks. The ability of each of our counterparties to perform its obligations under a contract with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the maritime and offshore industries, the overall financial condition of the counterparty, charter rates received for specific types of vessels, and various expenses. Should a counterparty fail to honor its obligations under agreements with us, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
 
Declines in charter rates and other market deterioration could cause us to incur impairment charges
 
The carrying values of our vessels are reviewed whenever events or changes in circumstances indicate that the carrying amount of the vessel may no longer be recoverable. We assess recoverability of the carrying value by estimating the future net cash flows expected to result from the vessel, including eventual disposal. If the future net undiscounted cash flows and the estimated fair market value of the vessel are less than the carrying value an impairment loss is recorded equal to the difference between the vessel's carrying value and fair value. Any impairment charges incurred as a result of declines in charter rates and other market deterioration could negatively affect our business, financial condition, operating results or the trading price of our Ordinary Shares.
 
Fuel or bunker prices, may adversely affect our profits
 
For vessels on voyage charters, fuel oil, or bunkers, is a significant, if not the largest, expense. Changes in the price of fuel may adversely affect our profitability to the extent we have vessels on voyage charters. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Further, fuel may become much more expensive in the future, which may reduce the profitability and competitiveness of our business versus other forms of transportation, such as truck or rail.
 
Operational risks and damage to our vessels could adversely impact our performance
 
If our vessels suffer damage due to inherent operational risks, we may experience unexpected drydocking costs and delays or total loss of our vessels, which may adversely affect our revenues and business and financial condition.
 
Our vessels and their cargoes will be at risk of being damaged or lost because of events such as marine disasters, bad weather, business interruptions caused by mechanical failures, grounding, fire, explosions and collisions, human error, war, terrorism, piracy and other circumstances or events. These hazards may result in death or injury to persons, loss of revenues or property, environmental damage, higher insurance rates, damage to our customer relationships, delay or rerouting.
 
In addition, the operation of tankers has unique operational risks associated with the transportation of oil. An oil spill may cause significant environmental damage, and the costs associated with a catastrophic spill could exceed the insurance coverage available to us.  Compared to other types of vessels, tankers are exposed to a higher risk of damage and loss by fire, whether ignited by a terrorist attack, collision, or other cause, due to the high flammability and high volume of the oil transported in tankers.
 
 
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If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and may be substantial. We may have to pay drydocking costs that our insurance does not cover in full. The loss of earnings while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, may adversely affect our business and financial condition. In addition, space at drydocking facilities is sometimes limited and not all drydocking facilities are conveniently located. We may be unable to find space at a suitable drydocking facility or our vessels may be forced to travel to a drydocking facility that is not conveniently located to our vessels' positions. The loss of earnings while these vessels are forced to wait for space or to travel to more distant drydocking facilities may adversely affect our business and financial condition. Further, the total loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator.  If we are unable to adequately maintain or safeguard our vessels, we may be unable to prevent any such damage, costs or loss which could negatively impact our business, financial condition, results of operations and ability to pay dividends.
 
Increased inspection procedures and tighter import and export controls could increase costs and disrupt our business
 
International shipping is subject to various security and customs inspection and related procedures in countries of origin and destination. Inspection procedures can result in the seizure of contents of our vessels, delays in the loading, offloading or delivery and the levying of customs duties, fines or other penalties against us.
 
Changes to inspection procedures could impose additional financial and legal obligations on us. Furthermore, changes to inspection procedures could also impose additional costs and obligations on our customers and may, in certain cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may have an adverse effect on our business, financial condition and results of operations.
 
Risks Related to Our Company
 
Incurrence of expenses or liabilities may reduce or eliminate distributions
 
Our policy is to make distributions to shareholders based on earnings and cash flow, and our dividends have fluctuated based on such factors.  The amount and timing of dividends will depend on our earnings, market prospects, capital expenditure program, investment opportunities and other factors.  However, we could incur other expenses or contingent liabilities that would reduce or eliminate the cash available for distribution by us as dividends.  In addition, the timing and amount of dividends, if any, is at the discretion of our Board of Directors. We cannot assure you that we will pay dividends.
 
Our financing obligations could affect our ability to incur additional indebtedness or engage in certain transactions
 
Our existing and future financing agreements impose operational and financing restrictions on us which may significantly limit or prohibit, among other things, our ability to incur additional indebtedness, create liens, sell capital shares of subsidiaries, make certain investments, engage in mergers and acquisitions, purchase and sell vessels, enter into time or consecutive voyage charters or pay dividends without the consent of our lenders. In addition, our lenders may accelerate the maturity of indebtedness under our financing agreements and foreclose on the collateral securing the indebtedness upon the occurrence of certain events of default, including our failure to comply with any of the covenants contained in our financing agreements, not rectified within the permitted time. For instance, declining vessel values could lead to a breach of covenants under our financing agreements. If we are unable to pledge additional collateral or obtain waivers from our lenders, our lenders could accelerate our debt and foreclose on our vessels. In addition, if the lenders accelerate the debt outstanding under one facility in default, it could result in a default on our other facilities.
 
 
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We may not be able to finance our future capital commitments
 
We cannot guarantee that we will be able to obtain additional financing at all or on terms acceptable to us.  If adequate funds are not available, we may have to reduce expenditures for investments in new and existing projects, which could hinder our growth and prevent us from realizing potential revenues from prior investments which will have a negative impact on our cash flows and results of operations.
 
If the volatility in LIBOR resumes, it could affect our profitability, earnings and cash flow
 
The London Interbank Offered Rate, or LIBOR, has shown high volatility in 2008 and 2009, with the spread between LIBOR and the prime lending rate widening significantly at times. These conditions are the result of the recent disruptions in the international credit markets. Because the interest rates borne by our outstanding indebtedness fluctuate with changes in LIBOR, if this volatility were to continue, it would affect the amount of interest payable on our debt, which in turn, could have an adverse effect on our profitability, earnings and cash flow.
 
If we do not set aside funds and are unable to borrow or raise funds for vessel replacement at the end of a vessel's useful life our revenue will decline, which would adversely affect our business, results of operations, financial condition and ability to pay dividends
 
If we do not set aside funds and are unable to borrow or raise funds for vessel replacement, we will be unable to replace the vessels in our fleet upon the expiration of their remaining useful lives. Our cash flows and income are dependent on the revenues earned by the chartering of our vessels. If we are unable to replace the vessels in our fleet upon the expiration of their useful lives, our business, results of operations, financial condition and ability to pay dividends would be adversely affected. Any funds set aside for vessel replacement will not be available for dividends.
 
We may be unable to attract and retain key management personnel in the tanker industry, which may negatively impact the effectiveness of our management and our results of operation
 
Our success depends to a significant extent upon the abilities and efforts of our senior executives, and particularly John Fredriksen, our Chairman and Chief Executive Officer, for the management of our activities and strategic guidance. While we believe that we have an experienced management team, the loss or unavailability of one or more of our senior executives, and particularly Mr. Fredriksen, for any extended period of time could have an adverse effect on our business and results of operations.
 
Our new ship management company and crewing company may not be successful in hiring employees and may expose us to additional liabilities, which could adversely affect our results of operations and financial position

Ship management and crewing are undertakings in competitive environments. It is possible that we could not recruit suitable employees for these companies. Although the companies are intended to complement external entities to which we currently outsource technical management of our vessels, a failure on the new companies' part to successfully staff their operations could adversely affect our results of operations. These companies also expose us to additional liabilities. Claims against the companies could result in expensive litigation. This could also have an adverse effect on our financial position.

 
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We may not have adequate insurance to compensate us if our vessels are damaged or lost
 
We procure insurance for our fleet against those risks that we believe the shipping industry commonly insures against. These insurances include hull and machinery insurance, protection and indemnity insurance, which include environmental damage and pollution insurance coverage, and war risk insurance. We can give no assurance that we are adequately insured against all risks. We may not be able to obtain adequate insurance coverage at reasonable rates for our fleet in the future. Additionally, our insurers may not pay particular claims. Our insurance policies contain deductibles for which we will be responsible, limitations and exclusions which, although we believe are standard in the shipping industry, may nevertheless increase our costs or lower our revenue.
 
Our operations outside the United States expose us to global risks that may interfere with the operation of our vessels
 
We are an international company and primarily conduct our operations outside of the United States. Changing economic, regulatory, political and governmental conditions in the countries where we are engaged in business or where our vessels are registered affect us. Hostilities or other political instability in regions where our vessels trade could affect our trade patterns and adversely affect our operations and performance. The terrorist attacks against targets in the United States on September 11, 2001 and the military response by the United States has increased the likelihood of acts of terrorism worldwide. Acts of terrorism, regional hostilities or other political instability, as shown by the attack on the Limburg in Yemen in October 2002, attacks on oil pipelines during and subsequent to the Iraq war in 2003 and attacks on expatriate workers in the Middle East could adversely affect the oil trade and reduce our revenue or increase our expenses.
 
Because we are a foreign corporation, you may not have the same rights that a shareholder in a United States corporation may have
 
We are a Bermuda company. Our memorandum of association and bye-laws and the Bermuda Companies Act 1981, as amended, govern our affairs. Investors may have more difficulty in protecting their interests in the face of actions by management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction. Under Bermuda law a director generally owes a fiduciary duty only to the company; not to the company's shareholders. Our shareholders may not have a direct course of action against our directors. In addition, Bermuda law does not provide a mechanism for our shareholders to bring a class action lawsuit under Bermuda law. Further, our bye-laws provide for the indemnification of our directors or officers against any liability arising out of any act or omission except for an act or omission constituting fraud, dishonesty or illegality.
 
United States tax authorities could treat the Company as a "passive foreign investment company," which could have adverse United States federal income tax consequences to United States shareholders
 
A foreign corporation will be treated as a "passive foreign investment company," or PFIC, for United States federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of "passive income" or (2) at least 50% of the average value of the corporation's assets produce or are held for the production of those types of "passive income."  For purposes of these tests, "passive income" includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business.  For purposes of these tests, income derived from the performance of services does not constitute "passive income."  United States shareholders of a PFIC are subject to a disadvantageous United States federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
 
 
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Based on our current and proposed method of operation, we do not believe that we are, have been or will be a PFIC with respect to any taxable year. In this regard, we intend to treat the gross income we derive or are deemed to derive from our time chartering activities as services income, rather than rental income.  Accordingly, we believe that our income from our time chartering activities does not constitute "passive income," and the assets that we own and operate in connection with the production of that income do not constitute assets that produce, or are held for the production of, "passive income."
 
Although there is no direct legal authority under the PFIC rules addressing our method of operation there is substantial legal authority supporting our position consisting of case law and United States Internal Revenue Service, or the IRS, pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes.  However, it should be noted that there is also authority which characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly, no assurance can be given that the IRS or a court of law will accept our position, and there is a risk that the IRS or a court of law could determine that we are a PFIC.  Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if there were to be changes in the nature and extent of our operations.
 
If the IRS were to find that we are or have been a PFIC for any taxable year, our United States shareholders will face adverse United States federal income tax consequences.  Under the PFIC rules, unless those shareholders make an election available under the United States Internal Revenue Code of 1986, as amended, or the Code (which election could itself have adverse consequences for such shareholders, as discussed below under "Taxation"), such shareholders would be liable to pay United States federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of our Ordinary Shares, as if the excess distribution or gain had been recognized ratably over the shareholder's holding period of our Ordinary Shares.  See "Taxation" for a more comprehensive discussion of the United States federal income tax consequences to United States shareholders if we are treated as a PFIC.
 
We may have to pay tax on United States source income, which would reduce our earnings
 
Under the Code, 50% of the gross shipping income of a vessel owning or chartering corporation, such as ourselves and our subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States, may be subject to a 4% United States federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the applicable Treasury Regulations promulgated thereunder.
 
We expect that we and each of our subsidiaries will qualify for this statutory tax exemption and we will take this position for United States federal income tax return reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption and thereby become subject to United States federal income tax on our United States source shipping income.  For example, we would no longer qualify for exemption under Section 883 of the Code for a particular taxable year if shareholders with a five percent or greater interest in the our Ordinary Shares owned, in the aggregate, 50% or more of our outstanding Ordinary Shares for more than half the days during the taxable year.  Due to the factual nature of the issues involved, there can be no assurances on our tax-exempt status or that of any of our subsidiaries.
 
If we or our subsidiaries are not entitled to exemption under Section 883 of the Code for any taxable year, we, or our subsidiaries, could be subject for those years to an effective 42% United States federal income tax on gross shipping income derived during such year that is attributable to the transport of cargoes to or from the United States. The imposition of this tax would have a negative effect on our business and would result in decreased earnings available for distribution to our shareholders.
 
 
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Our Liberian subsidiaries may not be exempt from Liberian taxation, which would materially reduce our Liberian subsidiaries', and consequently our, net income and cash flow by the amount of the applicable tax
 
The Republic of Liberia enacted an income tax law generally effective as of January 1, 2001, or the New Act, which repealed, in its entirety, the prior income tax law in effect since 1977, pursuant to which our Liberian subsidiaries, as non-resident domestic corporations, were wholly exempt from Liberian tax.
 
In 2004, the Liberian Ministry of Finance issued regulations, or the New Regulations, pursuant to which a non-resident domestic corporation engaged in international shipping, such as our Liberian subsidiaries, will not be subject to tax under the New Act retroactive to January 1, 2001. In addition, the Liberian Ministry of Justice issued an opinion that the New Regulations were a valid exercise of the regulatory authority of the Ministry of Finance. Therefore, assuming that the New Regulations are valid, our Liberian subsidiaries will be wholly exempt from tax as under prior law.
 
If our Liberian subsidiaries were subject to Liberian income tax under the New Act, our Liberian subsidiaries would be subject to tax at a rate of 35% on their worldwide income. As a result, their, and subsequently our, net income and cash flow would be materially reduced by the amount of the applicable tax. In addition, we, as a shareholder of the Liberian subsidiaries, would be subject to Liberian withholding tax on dividends paid by the Liberian subsidiaries at rates ranging from 15% to 20%.
 
Because our offices and most of our assets are outside the United States, you may not be able to bring suit against us, or enforce a judgment obtained against us in the United States
 
Our executive offices, administrative activities and assets are located outside the United States. As a result, it may be more difficult for investors to effect service of process within the United States upon us, or to enforce both in the United States and outside the United States judgments against us in any action, including actions predicated upon the civil liability provisions of the federal securities laws of the United States.
 
Investor confidence and the market price of our ordinary shares may be adversely impacted if we are unable to comply with Section 404 of the Sarbanes-Oxley Act of 2002
 
We are subject to Section 404 of the Sarbanes-Oxley Act of 2002, which requires us to include in our Annual Report on Form 20-F our management's report on, and assessment of the effectiveness of, our internal controls over financial reporting. In addition, our independent registered public accounting firm is required to attest to and report on management's assessment of the effectiveness of our internal controls over financial reporting. If we fail to maintain the adequacy of our internal controls over financial reporting, we will not be in compliance with all of the requirements imposed by Section 404. Any failure to comply with Section 404 could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements, which ultimately could harm our business and could negatively impact the market price of our common stock.
 
ITEM 4.
INFORMATION ON THE COMPANY

A.  HISTORY AND DEVELOPMENT OF THE COMPANY
 
The Company

We are Frontline Ltd., a Bermuda based shipping company and we were incorporated in Bermuda on June 12, 1992 (Company No. EC-17460). Our registered and principal executive offices are located at Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda, and our telephone number is +(1) 441 295 6935.
 
 
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We are engaged primarily in the ownership and operation of oil tankers and oil/bulk/ore, or OBO carriers, which are currently configured to carry dry cargo. We operate oil tankers of two sizes: VLCCs, which are between 200,000 and 320,000 dwt, and Suezmaxes, which are vessels between 120,000 and 170,000 dwt. We operate through subsidiaries and partnerships located in the Bahamas, Bermuda, the Cayman Islands, the Isle of Man, Liberia, Norway, the United Kingdom and Singapore. We are also involved in the charter, purchase and sale of vessels. Since 1996, we have emerged as a leading tanker company within the VLCC and Suezmax size sectors of the market.
 
We have our origin in Frontline AB, which was founded in 1985, and which was listed on the Stockholm Stock Exchange from 1989 to 1997. In May 1997, Frontline AB was redomiciled from Sweden to Bermuda and its shares were listed on the Oslo Stock Exchange. The change of domicile was executed through a share for share exchange offer from the then newly formed Bermuda company, Frontline Ltd, or Old Frontline. In September 1997, Old Frontline initiated an amalgamation with London & Overseas Freighters Limited, or LOF, also a Bermuda company. This process was completed in May 1998. As a result of this transaction, Frontline became listed on the London Stock Exchange and on the NASDAQ National Market (in the form of American Depositary Shares, or ADSs, represented by American Depositary Receipts, or ADRs) in addition to its listing on the Oslo Stock Exchange.
 
The ADR program was terminated on October 5, 2001 and the ADSs were delisted from the NASDAQ National Market on August 3, 2001. The Company's Ordinary Shares began trading on the New York Stock Exchange on August 6, 2001.
 
Vessel Acquisitions, Disposals and Other Significant Transactions
 
We entered into the following acquisitions and disposals in 2007, 2008 and 2009:
 
Newbuilding and Option Contracts

As of December 31, 2006, we had eight contracts for the construction of four VLCC newbuildings at Waigaoqiao and four Suezmax newbuildings at Rongsheng. We also had options for the construction of four Suezmax vessels at Rongsheng. In March and April 2007, we exercised our options with Rongsheng for four Suezmax newbuildings. As of December 31, 2007, we had contracts for the construction of four VLCC newbuildings and eight Suezmax newbuildings.
 
In April 2008, we entered into a contract with Jinhaiwan for the delivery of four VLCC newbuildings. In April 2008, we also secured fixed price options, which were exercised in May 2008, for two similar VLCC newbuildings. As of December 31, 2008, we had contracts for the construction of ten VLCC newbuildings and eight Suezmax newbuildings.
 
Two of the VLCCs, Front Kathrine and Front Queen, were delivered to us on January 8, 2009 and May 18, 2009, respectively. In the second quarter of 2009, we reached agreements with two shipyards to cancel two VLCC and four Suezmax newbuilding contracts and agreed that the instalments already paid on the cancelled newbuildings be applied to and set off against future payments in the remaining newbuildings. In the third quarter of 2009, we reached agreement with a shipyard whereby the financial exposure of $252 million on two VLCC newbuildings can be limited to the $54 million already paid. At December 31, 2009, we had newbuilding contracts for four Suezmaxes and six VLCCs. Two of the Suezmax newbuildings, Northia and Naticina, were delivered to us on January 5, 2010 and March 9, 2010, respectively.
 
As of December 31, 2009, installments of $364 million have been paid on the newbuildings. The remaining installments to be paid as of December 31, 2009 for the newbuildings amounted to $428 million, with expected payments of approximately $338 million and $90 million in 2010 and 2011, respectively. Outstanding installments of $428 million were reduced to $344 million following the delivery of Northia and Naticina in January and March 2010, respectively and payments made in 2010 up to March 29. These numbers exclude the payments on the two VLCCs that have a financial exposure that can be limited to the $54 million already paid-in installments.

 
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Acquisitions and Disposals

Consistent with our strategy to reduce our exposure to chartering single hull vessels, we have entered into a number of transactions to reduce the number of single hull vessels in our fleet;

 
·
In January 2007, Ship Finance sold its single hull Suezmax tanker Front Transporter to an unrelated third party for a gross sales price of $38.0 million. We received a compensation payment of $14.8 million from Ship Finance, which was eliminated on consolidation, on termination of the charter. The vessel was delivered to her new owner in March 2007.

 
·
In March 2007, the single hull VLCC Front Vanadis was sold and delivered to an unrelated third party in May 2007. Upon delivery, our long-term charterparty contract with Ship Finance was terminated early, and Frontline received a compensation payment in the amount of $13.2 million.

 
·
In August 2007, we sold the single hull Suezmax tanker Front Horizon to a subsidiary of Farahead Holdings Limited, a company subject to significant influence or indirect control of our Chairman, John Fredriksen for net proceeds of $28.0 million resulting in a net gain of $6.2 million.
 
 
·
In December 2007, we agreed with Ship Finance to terminate the long term charter parties between the companies for the double sided, single bottom Suezmax vessels Front Birch and Front Maple. Ship Finance simultaneously sold the vessels. Delivery of the Front Birch and Front Maple took place in December 2007 and January 2008, respectively. We received compensation payments of approximately $32.8 million for the early termination of the current charter parties, which was recognized at the time of delivery to the new owners.

 
·
Additionally, in March 2008, we agreed with Ship Finance to terminate the long term charter party between the companies for the single hull VLCC Front Sabang. Ship Finance simultaneously sold the vessel. We received a compensation payment of approximately $25 million for the early termination of the current charterparty, which was recognized in the second quarter of 2008 at the time of delivery to the new owners.

 
·
In June 2008, we acquired en bloc five secondhand double hull Suezmax tankers built between 1992 and 1996 from Top Ships Inc. for an aggregate purchase price of $240 million. We took delivery of these vessels between June 2008 and September 2008 and took over existing time charters on three of the vessels. We allocated $247.3 million and a negative value of $7.3 million to the vessels and time charters, respectively.
 
 
·
In July 2009, we agreed with Ship Finance to terminate the long term charterparty for the single hull VLCC Front Duchess and received a compensation payment of approximately $2.4 million in October 2009.

 
·
In March 2010, we agreed with Ship Finance to terminate the long term charter party for the single hull VLCC Golden River. The termination of the charter is expected to take place in April 2010 and Ship Finance will make a compensation payment to us of approximately $2.9 million for the early termination of the charter party.
 
 
·
In March 2010, we agreed to sell the single hull Suezmax Front Voyager with expected delivery to the buyer in April 2010.

 
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Charters and Redeliveries

In September 2008, we chartered out the Suezmax OBO carriers Front Guider and Front Viewer for a period of five years with commencement of charter early December 2008 and mid April 2009, respectively.
 
In November 2008, we chartered out the VLCC Front Energy for a three year period with delivery mid November 2008 and the VLCC Front Champion for a period of one year with commencement of charter end November 2008.
 
In early December 2008, we redelivered Cosglory Lake after a total length of the charterparty of approximately 3.5 years.
 
In December 2008, we entered into an agreement with Teekay Corporation to commercially combine their Suezmax tankers within the Gemini Pool, the world's largest Suezmax tanker pool. Our vessels entered the pool between January 8 and February 12, 2009.
 
In December 2008, we chartered out the Suezmax tanker Front Brabant for a three year timecharter with commencement in January 2009.
 
In January 2009, we entered into an agreement with Shell to charter out the two double hull Suezmax tankers Genmar Phoenix and Genmar Harriet G. on time charter for the remainder of their existing charters in.
 
In April 2009, we entered into an agreement with the charterer of Front Lady and Front Highness to amend the time charter agreements to bareboat agreements and extend the contracts for one additional year from the single hull phase out date in 2010 to around April 2011 and August 2011, respectively.  The charterers also assumed the drydocking for Front Lady. The vessels will be operated as floating storage units (FSU) and have ceased to trade as regular tankers. The vessels have been renamed "Ticen Ocean" and "Ticen Sun".
 
In early November and December 2009, we redelivered four of the five Suezmax tankers chartered in from Eiger. We redelivered the final vessel in February 2010.
 
In November 2009, we did not exercise the purchase options for Front Chief, Front Commander and Front Crown. We have agreed to charter in the three vessels on one year time charters at $29,000 per day.
 
In November 2009, we entered into an agreement to time charter out the OBO carrier Front Striver for a period of at least five months at a time charter rate of $40,000 per day gross.
 
Spin-Off of Ship Finance
 
In October 2003, we formed Ship Finance as our wholly-owned subsidiary for the purpose of acquiring certain of our shipping assets. In December 2003, Ship Finance issued $580.0 million of 8.5% Senior Notes due 2013, which we refer to as the Notes. In the first quarter of 2004, Ship Finance used the proceeds of the Notes, together with a refinancing of existing debt, to fund the acquisition from us of a fleet of 46 crude oil tankers and an option to purchase one additional tanker from a third party.  We have chartered each of the vessels back from Ship Finance for most of their remaining lives through our wholly owned subsidiary Frontline Shipping Limited which we refer to as Frontline Shipping. We also entered into fixed rate management and administrative services agreements with Ship Finance to provide for the operation and maintenance of the Company's vessels and administrative support services. The charters and the management agreements were each given economic effect as of January 1, 2004.
 
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In May 2004, we announced the distribution of 25% of Ship Finance's Ordinary Shares to our Ordinary Shareholders in a partial spin off.  In June 2004, each Frontline shareholder received one share of Ship Finance for every four Frontline shares held. In June 2004, the Ship Finance common shares commenced trading on the New York Stock Exchange under the ticker symbol "SFL". Two further dividends of shares of Ship Finance were distributed in 2004. In September 2004, every Frontline shareholder received one share of Ship Finance for every 10 shares of ours that they held and in December 2004, every Frontline shareholder received two shares of Ship Finance for every 15 shares of ours that they held. At December 31, 2004, our remaining shareholding in Ship Finance was approximately 50.8%.
 
In January 2005 and February 2005 our board of directors, or Board, approved further spin offs of the shares of Ship Finance. In February 2005, each shareholder of Frontline received one share of Ship Finance for every four shares of ours held and in March 2005 each shareholder of Frontline received one share of Ship Finance for every ten shares of ours held. Following these transactions our shareholding in Ship Finance was approximately 16.2% at December 31, 2005.
 
In February 2006, our Board approved a further spin off of the shares of Ship Finance. In March 2006, each shareholder of Frontline received one share of Ship Finance for every twenty shares of ours held. Following these transactions our shareholding in Ship Finance was approximately 11.1% at December 31, 2006 and Ship Finance remained consolidated under the provisions of FASB Interpretation 46(R) "Consolidation of Variable Interest Entities".
 
In February 2007, our Board approved a further spin off of our remaining interest in the shares of Ship Finance and this occurred in March 2007. As a result of this spin off, we currently hold 73,383 shares in Ship Finance, which represents 0.01% of Ship Finance's total outstanding shares and as of March 31, 2007, we no longer consolidate Ship Finance and its subsidiaries in our financial statements.
 
Establishment and Spin-Off of Sealift Ltd
 
In January 2007, we established a separate entity named Sealift Ltd, or Sealift, to develop our heavy lift business. Sealift completed a private placement in the amount of $180.0 million and its shares were listed on the Norwegian over-the-counter (OTC) market in January 2007. We invested $60.0 million in the company and following the initial private placement in January we became a 33.3% shareholder. Sealift acquired four single-hull Suezmax vessels from us, which we were obligated to convert to heavy lift vessels for $100.0 million each. Sealift also acquired two Suezmax vessels from us for $38.0 million each and option contracts with a shipyard to convert these two additional Suezmax vessels into heavy lift vessels.  The total consideration for all six vessels acquired by Sealift is $476.0 million, of which $396.0 million was received in cash and $80.0 million in an interest free seller's credit.  $40.0 million of the interest free seller's credit was payable on the delivery of each of the final two converted vessels.  Five of the vessels sold to Sealift were first acquired by Frontline from Ship Finance. We delivered the converted heavy lift vessels to Sealift in May and December 2007 and May and July 2008. The $80.0 million interest free seller's credit was paid in July 2008 and we recorded a gain of $91.0 million in 2008 relating to the delivery of the converted heavylift vessels. We incurred net damages of $1.2 million with respect to the late delivery of the fourth and final converted heavylift vessel.
 
In May 2007, Sealift completed a reorganization with the Dockwise group of companies. As part of the transaction, Sealift completed a private placement of 39.8 million shares of which we purchased five million shares. Sealift also issued 94.1 million shares to the former Dockwise Ltd, or Dockwise, shareholders. Sealift was renamed Dockwise Ltd in July 2007. In October 2007, we sold our entire shareholding of 34,976,500 shares in Dockwise.
 
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Establishment and Spin-Off of Sea Production Ltd
 
In February 2007, the Company's wholly owned subsidiary, Frontline Floating Production Ltd, or FFP, sold its assets to Sea Production.  The assets of FFP included a 70% investment in Puffin Ltd, the entity who ultimately owns the vessel Front Puffin.  Sea Production was incorporated in January 2007 as a wholly owned subsidiary of the Company. Also in February 2007, Sea Production raised $180.0 million in equity in a private placement. The shares have been listed on the Norwegian OTC market.  We held 28.33% of the shares in Sea Production following the private placement. In June 2007, we sold our entire holding in Sea Production in line with our strategy to remain a pure crude oil transportation company and our previously announced strategy to either sell or spin off the Sea Production shares.
 
Establishment and spin-off of Independent Tankers Corporation Limited
 
In January 2008, we established Independent Tankers Corporation Limited, or ITCL, a Bermuda company and our wholly owned subsidiary for the purpose of holding, by way of contribution, our interests in Independent Tankers Corporation, or ITC. ITC owns or leases six VLCC and four Suezmax tankers, which are financed through bonds in the U.S. market and financial lease arrangements. On February 20, 2008, our Board declared the distribution of a special dividend of 17.53% of the capital stock of ITCL to our shareholders. On February 28, 2008, we distributed to our shareholders one share of ITCL for every five shares of Frontline.  Certain of our U.S. shareholders were excluded from the distribution and received a cash payment in lieu of shares equal to $0.34 per Frontline share. ITCL listed its shares on the Oslo OTC Market on March 7, 2008.
 
B.  BUSINESS OVERVIEW
 
As of December 31, 2009, our tanker fleet consisted of 76 vessels.  The fleet consists of 41 VLCCs which are either owned or chartered in, 27 Suezmax tankers which are either owned or chartered in and eight Suezmax OBOs which are chartered in. We also had six VLCC newbuildings and four Suezmax newbuildings on order and five VLCCs under our commercial management.  Two of the Suezmax newbuildings, Northia and Naticina, were delivered to us on January 5, 2010 and March 9, 2010, respectively.
 
As of December 31, 2009, the fleet that we operate has a total tonnage of approximately 19.2 million dwt, including the 1.5 million dwt under commercial management. Our tanker vessels have an average age of approximately 12 years compared with an estimated industry average of approximately 9 years. We believe that our vessels comply with the most stringent of generally applicable environmental regulations for tankers.
 
We own various vessel owning and operating subsidiaries. Our operations take place substantially outside of the United States. Our subsidiaries, therefore, own and operate vessels which may be affected by changes in foreign governments and other economic and political conditions. We are engaged primarily in transporting crude oil and, in addition, raw materials like coal and iron ore and our vessels operate in the spot and time charter markets.  Our VLCCs are specifically designed for the transportation of crude oil and, due to their size, are primarily used to transport crude oil from the Middle East Gulf to the Far East, Northern Europe, the Caribbean and the Louisiana Offshore Oil Port, or LOOP. Our Suezmax tankers are similarly designed for worldwide trading, but the trade for these vessels is mainly in the Atlantic Basin and Middle East to South East Asia.
 
In December 2008, Teekay Corporation, or Teekay, and the Company announced an agreement to commercially combine their Suezmax vessels within the Gemini Pool, a global Suezmax tanker pool. Effective from January 1, 2009, we placed our Suezmax vessels within the Gemini Pool bringing the total number of vessels in the pool to 36. Gemini Tankers LLC, a wholly-owned subsidiary of Teekay, has established an office in Oslo, Norway to, among other things, manage the larger fleet and establish a chartering presence in Europe to supplement its existing operations in Stamford, Connecticut. We expect to improve the utilization on our fleet and to reduce the cost basis by entering a large pool. In addition to the Company and Teekay, König & Cie and Hyundai Merchant Marine also participate in the Gemini Pool.
 
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Historically, the tanker industry has been highly cyclical, with attendant volatility in profitability and asset values resulting from changes in the supply of and demand for tanker capacity. Our OBO carriers are specifically designed to carry oil or dry cargo and may be used to transport either oil or dry cargo on any voyage. Currently, our eight Suezmax OBOs are configured to carry dry bulk cargo and are fixed on medium to long-term charters.
 
The supply of tanker and OBO capacity is influenced by the number of new vessels built, the number of older vessels scrapped, converted, laid up and lost, the efficiency of the world tanker or OBO fleet and government and industry regulation of maritime transportation practices. The demand for tanker and OBO capacity is influenced by global and regional economic conditions, increases and decreases in industrial production and demand for crude oil and petroleum products, the proportion of world oil output supplied by Middle Eastern and other producers, political changes and armed conflicts (including wars in the Middle East) and changes in seaborne and other transportation patterns. The demand for OBO capacity is, in addition, influenced by increases and decreases in the production and demand for raw materials such as iron ore and coal. In particular, demand for our tankers and our services in transporting crude oil and petroleum products and dry cargoes has been dependent upon world and regional markets. Any decrease in shipments of crude oil or raw materials in world markets could have a material adverse effect on our earnings. Historically, these markets have been volatile as a result of, among other things, general economic conditions, prices, environmental concerns, weather and competition from alternative energy sources. Because many factors influencing the supply of and demand for tankers and OBO carriers are unpredictable, the nature, timing and degree of changes in industry conditions are also unpredictable.
 
We are committed to providing quality transportation services to all of our customers and to developing and maintaining long-term relationships with the major charterers of tankers. Increasing global environmental concerns have created a demand in the petroleum products/crude oil seaborne transportation industry for vessels that are able to conform to the stringent environmental standards currently being imposed throughout the world.
 
The tanker industry is highly cyclical, experiencing volatility in profitability, vessel values and freight rates. Freight rates are strongly influenced by the supply of tanker vessels and the demand for oil transportation. Refer to Item 5 "Operating and Financial Review and Prospects" for a discussion of the tanker market in 2009 and 2010.
 
Similar to structures commonly used by other shipping companies, our vessels are all owned by, or chartered to, separate subsidiaries or associated companies. Frontline Management AS, and Frontline Management (Bermuda) Limited which we refer to as Frontline Management, both wholly-owned subsidiaries, support us in the implementation of our decisions. Frontline Management is responsible for the commercial management of our shipowning subsidiaries, including chartering and insurance. Each of our vessels is registered under the Bahamas, French, Liberian, Panamanian, Cypriot, Singaporean, Norwegian, Isle of Man, Marshall Islands, Hong Kong or Maltese flag.
 
Frontline has a strategy of extensive outsourcing. Ship management, crewing and accounting services are provided by a number of independent and competing suppliers. Our vessels are managed by independent ship management companies. Pursuant to management agreements, each of the independent ship management companies provides operations, ship maintenance, crewing, technical support, shipyard supervision and related services to Frontline. A central part of our strategy is to benchmark operational performance and cost level amongst our ship managers. Independent ship managers provide crewing for our vessels. Currently, our vessels are crewed with Russian, Ukrainian, Croatian, Romanian, Indian and Filipino officers and crews, or combinations of these nationalities. Accounting services for each of our shipowning subsidiaries are also provided by the ship managers.
 
31

Frontline decided in August 2009 to establish a ship management company in Singapore. The new company, Sea Team Management Pte. Ltd., will be a complement to the external ship management companies currently offering services to Frontline and is not a change in the Company's outsourcing strategy. However, we would like to strengthen our position towards our service providers to enhance and secure delivery of high quality service at low cost in the future. Sea Team Management Pte Ltd. was certified and received its ISM Document of Compliance by Det Norske Veritas on February 3, 2010 and is as such an approved ship management company. In addition a crewing company was formally opened in Chennai, India, on January 17, 2010.

Strategy
 
Our strategy is to maintain and expand our position as a world leading operator and charterer of modern, high quality oil tankers. Our principal focus is the transportation of crude oil and its related refined dirty petroleum cargoes for major oil companies and major oil trading companies. We seek to optimize our income and adjust our exposure through actively pursuing charter opportunities be it via time charters, bareboat charters, sale and leasebacks, straight sales and purchases of vessels, newbuilding contracts and acquisitions.
 
We presently operate VLCC and Suezmax vessels in the tanker market and OBO vessels in the dry cargo market. Our strategy is to have at least 30% fixed charter income coverage for our fleet, predominantly through time charters and trade the balance of the fleet on the spot market. We focus on minimizing time spent on ballast by "cross trading" our vessels, typically with voyages loading in the Persian Gulf discharging in Northern Europe, followed by a trans-Atlantic voyage to the U.S. Gulf of Mexico and finally a voyage from either the Caribbean or West Africa to the Far East/Indian Ocean. We believe that operating a certain number of vessels in the spot market, enables us to capitalize on a potential stronger spot market as well as to serve our main customers on a regular non term basis. We believe that the size of our fleet is important in negotiating terms with our major clients and charterers. We also believe that our large, high-quality VLCC and Suezmax fleet enhances our ability to obtain competitive terms from suppliers and ship repairers and builders and to produce cost savings in chartering and operations.
 
Our business strategy is primarily based upon the following principles:
 
 
·
emphasizing operational safety and quality maintenance for all of our vessels;

 
·
complying with all current and proposed environmental regulations;

 
·
outsourcing technical operations and crewing;

 
·
continuing to achieve competitive operational costs;

 
·
operating a modern and homogeneous fleet of tankers;

 
·
achieving high utilization of our vessels;

 
·
achieving competitive financing arrangements;

 
·
achieving a satisfactory mix of term charters, contracts of affreightment and spot voyages; and

 
·
developing and maintaining relationships with major oil companies and industrial charterers.

We have newbuilding contracts for six VLCCs and two Suezmaxes as of March 29, 2010.
 
32

We continue to evaluate opportunities in the time charter market. On the basis of the strength of the drybulk market when the vessels became available, all of our eight OBO carriers have been fixed on medium to long term charters at an average daily rate of approximately $43,000 and $49,300 in 2009 and 2010, respectively. As of December 31, 2009 approximately 44% of our remaining operating days for our total fleet for 2010 were on fixed time charter and bareboat charter.
 
Although there has been a trend towards consolidation over the past 15 years, the tanker market remains highly fragmented. We estimate, based on available industry data that we currently own or operate approximately 8% of the world VLCC fleet and 7% of the world Suezmax tanker fleet.  We intend to use our strong operational cash flow together with our available financing to continue the consolidation of the tanker market.  We always look opportunistically for attractive investments and acquisitions and will finance such investments through a combination of debt and equity. Our role in the consolidation of the tanker market may include the acquisition of new vessels and second-hand vessels and we may also engage in business acquisitions and strategic transactions such as marketing joint ventures. In the ordinary course of our business, we engage in the evaluation of potential candidates for acquisitions and strategic transactions.
 
Our goal is to generate competitive returns for our shareholders with quarterly dividend payments. Our dividend payments are based on present earnings, market prospects, current capital expenditure programs as well as investment opportunities.
 
Seasonality
 
Historically, oil trade and therefore charter rates increased in the winter months and eased in the summer months as demand for oil in the Northern Hemisphere rose in colder weather and fell in warmer weather. The tanker industry in general is less dependent on the seasonal transport of heating oil than a decade ago as new uses for oil and oil products have developed, spreading consumption more evenly over the year. Most apparent is a higher seasonal demand during the summer months due to energy requirements for air conditioning and motor vehicles.
 
Customers
 
During the year ended December 31, 2009, we reported total revenue from one customer of $250.1 million, which represented approximately 22% of consolidated operating revenues (2008: one customer, which represented approximately 20% and 2007: one customer, which represented approximately 19%). No other customers represent more than 10% of consolidated operating revenues for the periods presented.
 
Competition
 
The market for international seaborne crude oil transportation services is highly fragmented and competitive. Seaborne crude oil transportation services generally are provided by two main types of operators: major oil company captive fleets (both private and state-owned) and independent ship-owner fleets. In addition, several owners and operators pool their vessels together on an ongoing basis, and such pools are available to customers to the same extent as independently owned and operated fleets. Many major oil companies and other oil trading companies, the primary charterers of the vessels owned or controlled by us, also operate their own vessels and use such vessels not only to transport their own crude oil but also to transport crude oil for third party charterers in direct competition with independent owners and operators in the tanker charter market. Competition for charters is intense and is based upon price, location, size, age, condition and acceptability of the vessel and its manager. Competition is also affected by the availability of other size vessels to compete in the trades in which the Company engages. Charters are to a large extent brokered through international independent brokerage houses that specialize in finding the optimal ship for any particular cargo based on the aforementioned criteria. Brokers may be appointed by the cargo shipper or the ship owner.
 
33

Environmental and Other Regulations
 
Government regulations and laws significantly affect the ownership and operation of our vessels. We are subject to international conventions, national, state and local laws and regulations in force in the countries in which our vessels may operate or are registered and compliance with such laws, regulations and other requirements may entail significant expense.
 
Our vessels are subject to both scheduled and unscheduled inspections by a variety of government, quasi-governmental and private organizations including local port authorities, national authorities, harbor masters or equivalent, classification societies, flag state administrations (countries of registry) and charterers. Our failure to maintain permits, licenses, certificates or other approvals required by some of these entities could require us to incur substantial costs or temporarily suspend operation of one or more of our vessels.
 
We believe that the heightened levels of environmental and quality concerns among insurance underwriters, regulators and charterers have led to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns have created a demand for vessels that conform to stricter environmental standards.  We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations; however, because such laws and regulations are frequently changed and may impose increasingly stricter requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our vessels. In addition, additional legislation or regulation applicable to the operation of our vessels that may be implemented in the future could negatively affect our profitability.
 
International Maritime Organization
 
The International Maritime Organization, the United Nations agency for maritime safety and the prevention of pollution by ships or the IMO, has adopted several international conventions that regulate the international shipping industry, including the International Convention on Civil Liability for Oil Pollution Damage, the International Convention on Civil Liability for Bunker Oil Pollution Damage, and the International Convention for the Prevention of Pollution from Ships, or the MARPOL Convention. The MARPOL Convention establishes environmental standards relating to oil leakage or spilling, garbage management, sewage, air emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged forms.
 
The operation of our vessels is also affected by the requirements contained in the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, or ISM Code, promulgated by the IMO under the International Convention for the Safety of Life at Sea, or SOLAS. The ISM Code requires the party with operational control of a vessel to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We intend to rely upon the safety management system that our appointed ship managers have developed.
 
In December 2003, the Marine Environmental Protection Committee of the IMO, or MEPC, adopted an amendment to the MARPOL Convention, which became effective in April 2005. The amendment revised an existing regulation 13G accelerating the phase-out of single hull oil tankers and adopted a new regulation 13H on the prevention of oil pollution from oil tankers when carrying heavy grade oil. Under the revised regulation, single hull oil tankers were required to be phased out no later than April 5, 2005 or the anniversary of the date of delivery of the ship on the date or in the year specified in the following table:
 
34

Category of Oil Tankers
 
Date or Year for Phase Out
Category 1 oil tankers of 20,000 dwt and above carrying crude oil, fuel oil, heavy diesel oil or lubricating oil as cargo, and of 30,000 dwt and above carrying other oils, which do not comply with the requirements for protectively located segregated ballast tanks
 
 
April 5, 2005 for ships delivered on April 5, 1982 or earlier; or
2005 for ships delivered after April 5, 1982
Category 2 - oil tankers of 20,000 dwt and above carrying crude oil, fuel oil, heavy diesel oil or lubricating oil as cargo, and of 30,000 dwt and above carrying other oils, which do comply with the protectively located segregated ballast tank requirements
and
Category 3 - oil tankers of 5,000 dwt and above but less than the tonnage specified for Category 1 and 2 tankers.
 
 
April 5, 2005 for ships delivered on April 5, 1977 or earlier
2005 for ships delivered after April 5, 1977 but before
January 1, 1978
2006 for ships delivered in 1978 and 1979
2007 for ships delivered in 1980 and 1981
2008 for ships delivered in 1982
2009 for ships delivered in 1983
2010 for ships delivered in 1984 or later

Under the revised regulations, a flag state may permit continued operation of certain Category 2 or 3 tankers beyond their phase-out date in accordance with the above schedule. Under regulation 13G, the flag state may allow for some newer single hull oil tankers registered in its country that conform to certain technical specifications to continue operating until the earlier of the anniversary of the date of delivery of the vessel in 2015 or the 25th anniversary of their delivery. Under regulations 13G and 13H, as described below, certain Category 2 and 3 tankers fitted only with double bottoms or double sides may be allowed by the flag state to continue operations until their 25th anniversary of delivery. Any port state, however, may deny entry of those single hull oil tankers that are allowed to operate under any of the flag state exemptions.
 
The following table summarizes the impact of such regulations on the Company's single hull (SH) and double sided (DS) tankers:
 
Vessel Name
 
Vessel type
 
Vessel
Category
 
Year
Built
 
IMO phase out
 
Flag state
Exemption
 
                       
Front Voyager(1)
 
Suezmax
 
SH
 
1992
 
2010
 
2015
 
Edinburgh(2)
 
VLCC
 
DS
 
1993
 
2018
 
n/a
 
Front Ace(2)
 
VLCC
 
SH
 
1993
 
2010
 
2015
 
Front Duke(2)
 
VLCC
 
SH
 
1992
 
2010
 
2015
 
Ticen Sun(2)
 
VLCC
 
SH
 
1991
 
2010
 
2015
 
Ticen Ocean(2)
 
VLCC
 
SH
 
1991
 
2010
 
2015
 
Golden River (2)(3)
 
VLCC
 
SH
 
1991
 
2010
 
2015
 


(1)  
A Memorandum of Agreement, dated March 15, 2010,  has been signed regarding the sale of this vessel.  Delivery to the buyers is expected in the first half of April 2010.
 
(2)  
Vessel chartered in from Ship Finance and not consolidated after March 31, 2007.
 
(3)  
Agreement reached in March 2010 regarding termination of the lease. Termination expected to be April 2010.
 
35

In December 2003, the MEPC adopted a new regulation 13H on the prevention of oil pollution from oil tankers when carrying heavy grade oil, or HGO, which includes most of the grades of marine fuel. The new regulation bans the carriage of HGO in single hull oil tankers of 5,000 dwt and above after April 5, 2005, and in single hull oil tankers of 600 dwt and above but less than 5,000 dwt, no later than the anniversary of their delivery in 2008.
 
Under regulation 13H, HGO means any of the following:
 
 
·
crude oils having a density at 15єC higher than 900 kg/m3;

 
·
fuel oils having either a density at 15єC higher than 900 kg/m3 or a kinematic viscosity at 50ºC higher than 180 mm2/s; or

 
·
bitumen, tar and their emulsions.

Under the regulation 13H, the flag state may allow continued operation of oil tankers of 5,000 dwt and above, carrying crude oil with a density at 15єC higher than 900 kg/m3 but lower than 945 kg/m3, that conform to certain technical specifications and, in the opinion of the such flag state, the ship is fit to continue such operation, having regard to the size, age, operational area and structural conditions of the ship and provided that the continued operation shall not go beyond the date on which the ship reaches 25 years after the date of its delivery. The flag state may also allow continued operation of a single hull oil tanker of 600 dwt and above but less than 5,000 dwt, carrying HGO as cargo, if, in the opinion of the such flag state, the ship is fit to continue such operation, having regard to the size, age, operational area and structural conditions of the ship, provided that the operation shall not go beyond the date on which the ship reaches 25 years after the date of its delivery.
 
The flag state may also exempt an oil tanker of 600 dwt and above carrying HGO as cargo if the ship is either engaged in voyages exclusively within an area under its jurisdiction, or is engaged in voyages exclusively within an area under the jurisdiction of another party, provided the party within whose jurisdiction the ship will be operating agrees. The same applies to vessels operating as floating storage units of HGO.
 
Any port state, however, can deny entry of single hull tankers carrying HGO which have been allowed to continue operation under the exemptions mentioned above, into the ports or offshore terminals under its jurisdiction, or deny ship-to-ship transfer of HGO in areas under its jurisdiction except when this is necessary for the purpose of securing the safety of a ship or saving life at sea.
 
Noncompliance with the ISM Code or with other IMO regulations may subject a shipowner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports including United States and European Union Ports.
 
United States

The U.S. Oil Pollution Act of 1990 and the Comprehensive Environmental Response, Compensation and Liability Act
 
The U.S. Oil Pollution Act of 1990, or OPA, is an extensive regulatory and liability regime for environmental protection and cleanup of oil spills. OPA affects all owners and operators whose vessels trade with the United States or its territories or possessions, or whose vessels operate in the waters of the United States, which include the U.S. territorial sea and the 200 nautical mile exclusive economic zone around the United States. The Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, imposes liability for cleanup and natural resource damage from the release of hazardous substances (other than oil) whether on land or at sea. Both OPA and CERCLA impact our operations.
 
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Under OPA, vessel owners, operators and bareboat charterers are responsible parties who are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from oil spills from their vessels.OPA limits the liability of responsible parties with respect to tankers over 3,000 gross tons to the greater of $3,000 per gross tons or $22.0 million per single hull tanker, and $1,900 per gross ton or $16.0 million per double hull tanker, respectively, and permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries. Some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters, however, in some cases, states which have enacted this type of legislation have not yet issued implementing regulations defining tanker owners' responsibilities under these laws. CERCLA, which applies to owners and operators of vessels, contains a similar liability regime and provides for cleanup, removal and natural resource damages. Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $0.5 million for any other vessel.
 
These limits of liability do not apply, however, where the incident is caused by violation of applicable U.S. federal safety, construction or operating regulations, or by the responsible party's gross negligence or willful misconduct. These limits also do not apply if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with the substance removal activities. OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law. We believe that we are in substantial compliance with OPA, CERCLA and all applicable state regulations in the ports where our vessels call.
 
OPA also requires owners and operators of vessels to establish and maintain with the U.S. Coast Guard evidence of financial responsibility sufficient to meet the limit of their potential strict liability under the act. Under the regulations, evidence of financial responsibility may be demonstrated by insurance, surety bond, self-insurance or guaranty. Under OPA regulations, an owner or operator of more than one tanker is required to demonstrate evidence of financial responsibility for the entire fleet in an amount equal only to the financial responsibility requirement of the tanker having the greatest maximum strict liability under OPA and CERCLA. We have provided such evidence and received certificates of financial responsibility from the U.S. Coast Guard for each of our vessels required to have one.
 
Other U.S. Environmental Initiatives
 
The U.S. Clean Water Act, or CWA, prohibits the discharge of oil, hazardous substances and ballast water in U.S. navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA. Furthermore, most U.S. states that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law.
 
The U.S. Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and 1990, or the CAA, requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. Our vessels that operate in such port areas with restricted cargoes are equipped with vapor recovery systems that satisfy these requirements. The CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in primarily major metropolitan and/or industrial areas. Several SIPs regulate emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment. As indicated above, our vessels operating in covered port areas are already equipped with vapor recovery systems that satisfy these existing requirements.

 
37

European Union
 
The European Union has adopted legislation that would: (1) ban manifestly sub-standard vessels (defined as those over 15 years old that have been detained by port authorities at least twice in a six month period) from European waters and create an obligation of port states to inspect vessels posing a high risk to maritime safety or the marine environment; and (2) provide the European Union with greater authority and control over classification societies, including the ability to seek to suspend or revoke the authority of negligent societies. In addition, European Union regulations enacted in 2003 now prohibit all single hull tankers from entering into its ports or offshore terminals
 
Greenhouse Gas Regulation
 
The IMO is evaluating various mandatory measures to reduce greenhouse gas emissions from international shipping, which may include market-based instruments or a carbon tax. Any passage of climate control legislation or other regulatory initiatives by the IMO, EU, the U.S. or other countries where we operate that restrict emissions of greenhouse gases could require us to make significant financial expenditures that we cannot predict with certainty at this time.
 
Vessel Security Regulations
 
Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security including the U.S. Maritime Transportation Security Act of 2002, or MTSA, amendments to SOLAS and a requirement that any vessel trading internationally obtain an International Ship Security Certificate from a recognized security organization approved by the vessel's flag state. We believe that our fleet is currently in compliance with applicable security requirements.
 
Inspection by Classification Societies
 
Every oceangoing vessel must be "classed" by a classification society. The classification society certifies that the vessel is "in-class," signifying that the vessel has been built and maintained in accordance with the rules of the classification society and complies with applicable rules and regulations of the vessel's country of registry and the international conventions of which that country is a member. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned.
 
Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as "in-class" by a classification society which is a member of the International Association of Classification Societies. All our vessels are certified as being "in-class" by a recognized classification society.
 
 
38

 
Risk of Loss and Insurance
 
The operation of any ocean-going vessel carries an inherent risk of catastrophic marine disasters and property losses caused by adverse weather conditions, mechanical failures, human error, war, terrorism and other circumstances or events. In addition, the transportation of crude oil is subject to the risk of spills, and business interruptions due to political circumstances in foreign countries, hostilities, labor strikes and boycotts. OPA has made liability insurance more expensive for ship owners and operators imposing potentially unlimited liability upon owners, operators and bareboat charterers for oil pollution incidents in the territorial waters of the United States. We believe that our current insurance coverage is adequate to protect us against the principal accident-related risks that we face in the conduct of our business.
 
Our protection and indemnity insurance, or P&I insurance, covers third-party liabilities and other related expenses from, among other things, injury or death of crew, passengers and other third parties, claims arising from collisions, damage to cargo and other third-party property and pollution arising from oil or other substances. Our current P&I insurance coverage for pollution is the maximum commercially available amount of $1.0 billion per tanker per incident and is provided by mutual protection and indemnity associations. Each of the vessels currently in our fleet is entered in a protection and indemnity association which is a member of the International Group of Protection and Indemnity Mutual Assurance Associations. The 13 protection and indemnity associations that comprise the International Group insure approximately 90% of the world's commercial tonnage and have entered into a pooling agreement to reinsure each association's liabilities. Each protection and indemnity association has capped its exposure to this pooling agreement at $4.3 billion. As a member of protection and indemnity associations, which are, in turn, members of the International Group, we are subject to calls payable to the associations based on its claim records as well as the claim records of all other members of the individual associations and members of the pool of protection and indemnity associations comprising the International Group.
 
Our hull and machinery insurance covers actual or constructive total loss from covered risks of collision, fire, heavy weather, grounding and engine failure or damages from same. Our war risk insurance covers risks of confiscation, seizure, capture, vandalism, sabotage and other war-related risks. Our loss-of-hire insurance covers loss of revenue at $23,000 per day for Suezmaxes and $30,000 per day for VLCCs for not less than 90 days resulting from an accident covered by the terms of our hull and machinery insurance for each of our vessels, with a fourteen day deductible for OBO vessels, a fourteen day deductible for the Golden Victory and a 60 day deductible for all other Suexmaxes and VLCCs.
 
C.  ORGANIZATIONAL STRUCTURE
 
See Exhibit 8.1 for a list of our significant subsidiaries.
 
D.  PROPERTY, PLANTS AND EQUIPMENT
 
 
39

 
The Company's Vessels
 
The following table sets forth the fleet that we operated as of December 31, 2009 (including contracted newbuildings not yet delivered):
 
Vessel
Built
Approximate Dwt.
Construction
Flag
Type of Employment
 
 
 
 
 
 
Tonnage Owned Directly
 
 
 
 
 
 
 
 
 
 
 
VLCCs
 
 
 
 
 
Antares Voyager
1998
310,000
Double-hull
BA
Bareboat charter
Phoenix Voyager
1999
308,500
Double-hull
BA
Bareboat charter
British Pioneer
1999
307,000
Double-hull
IoM
Bareboat charter
Front Shanghai
2006
298,500
Double-hull
HK
Spot market
Front Kathrine
2009
297,974
Double-hull
MI
Spot market
Front Queen
2009
297,000
Double-hull
MI
Time charter
Hull 2419 (Newbuilding)
2010
297,000
Double-hull
n/a
n/a
Hull 2420 (Newbuilding)
2010
297,000
Double-hull
n/a
n/a
Hull J0025 (Newbuilding)
2011
320,000
Double-hull
n/a
n/a
Hull J0026 (Newbuilding)
2011
320,000
Double-hull
n/a
n/a
Hull J0027 (Newbuilding)
2012
320,000
Double-hull
n/a
n/a
Hull J0028 (Newbuilding)
2012
320,000
Double-hull
n/a
n/a
 
 
 
 
 
 
 
 
Suezmax Tankers
 
 
 
 
 
Front Voyager (1)
1992
155,000
Single-hull
BA
Spot market
Front Fighter
1994
147,048
Double-hull
MI
Spot market
Front Hunter
1996
146,286
Double-hull
MI
Spot market
Front Alfa
1993
150,038
Double-hull
MI
Time charter
Front Beta
1992
135,915
Double-hull
MI
Time charter
Front Delta
1993
136,055
Double-hull
MI
Time charter
Cygnus Voyager
1993
157,000
Double-hull
BA
Bareboat charter
Altair Voyager
1993
136,000
Double-hull
BA
Bareboat charter
Sirius Voyager
1994
156,000
Double-hull
BA
Bareboat charter
Hull 1017 (Newbuilding) (2)
2009
156,000
Double-hull
n/a
n/a
Hull 1018 (Newbuilding)
2009
156,000
Double-hull
n/a
n/a
Hull 1019 (Newbuilding) (3)
2009
156,000
Double-hull
n/a
n/a
Hull 1026 (Newbuilding)
2010
156,000
Double-hull
n/a
n/a
 
 

 
40

Tonnage Chartered in from Ship Finance
 
 
 
 
 
 
 
 
VLCCs
 
 
 
 
 
Ticen Sun
1991
284,000
Single-hull
SG
Bareboat charter
Ticen Ocean
1991
284,000
Single-hull
SG
Bareboat charter
Golden River (4)
1991
284,000
Single-hull
SG
Time charter
Front Duke
1992
284,000
Single-hull
SG
Time charter
Edinburgh
1993
302,000
Double-side
LIB
Spot market
Front Ace
1993
276,000
Single-hull
LIB
Time charter
Front Vanguard
1998
300,000
Double-hull
MI
Spot market
Front Century
1998
311,000
Double-hull
MI
Time charter
Front Champion
1998
311,000
Double-hull
BA
Time charter
Front Vista (5)
1998
300,000
Double-hull
MI
Spot market
Front Comanche
1999
300,000
Double-hull
FRA
Time charter
Golden Victory
1999
300,000
Double-hull
MI
Time charter
Front Circassia
1999
306,000
Double-hull
MI
Spot market
Front Opalia
1999
302,000
Double-hull
MI
Spot market
Ocana
1999
300,000
Double-hull
IoM
Bareboat charter
Front Scilla
2000
303,000
Double-hull
MI
Spot market
Oliva
2001
299,000
Double-hull
IoM
Bareboat charter
Front Serenade
2002
299,000
Double-hull
LIB
Time charter
Otina
2002
298,000
Double-hull
IoM
Bareboat charter
Ondina
2002
299,000
Double-hull
IoM
Bareboat charter
Front Falcon
2002
309,000
Double-hull
BA
Spot market
Front Page
2002
299,000
Double-hull
LIB
Time charter
Front Energy
2004
305,000
Double-hull
CYP
Time charter
Front Force
2004
305,000
Double-hull
CYP
Spot market
 
 
 
 
 
 
 
Suezmax OBO Carriers
 
 
 
 
 
Front Breaker
1991
169,000
Double-hull
MI
Time charter
Front Climber
1991
169,000
Double-hull
SG
Time charter
Front Driver
1991
169,000
Double-hull
MI
Time charter
Front Guider
1991
169,000
Double-hull
SG
Time charter
Front Leader
1991
169,000
Double-hull
SG
Time charter
Front Rider
1992
169,000
Double-hull
SG
Time charter
Front Striver
1992
169,000
Double-hull
SG
Time charter
Front Viewer
1992
169,000
Double-hull
SG
Time charter
 
 
 
 
 
 
 
 
Suezmax Tankers
 
 
 
 
 
Front Pride
1993
150,000
Double-hull
NIS
Spot market
Front Glory
1995
150,000
Double-hull
NIS
Spot market
Front Splendour
1995
150,000
Double-hull
NIS
Spot market
Front Ardenne
1997
150,000
Double-hull
NIS
Spot market
Front Brabant
1998
150,000
Double-hull
NIS
Time charter
Mindanao
1998
150,000
Double-hull
SG
Spot market
 
 
41


 
Tonnage Chartered in from Third Parties
 
 
VLCCs
 
 
 
 
 
Front Chief
1999
311,000
Double-hull
BA
Spot market
Front Commander
1999
311,000
Double-hull
BA
Spot market
Front Crown
1999
311,000
Double-hull
BA
Spot market
British Pride
2000
307,000
Double-hull
IoM
Bareboat charter
British Progress (6)
2000
307,000
Double-hull
IoM
Bareboat charter
British Purpose
2000
307,000
Double-hull
IoM
Bareboat charter
Front Tina
2000
299,000
Double-hull
LIB
Spot market
Front Commodore
2000
299,000
Double-hull
LIB
Time charter
Front Eagle
2002
309,000
Double-hull
BA
Spot market
Hampstead
1996
298,000
Double-hull
IoM
Time charter
Kensington
1995
298,000
Double-hull
IoM
Time charter
 
Suezmax Tankers
 
 
 
 
 
Front Warrior
1998
153,000
Double-hull
BA
Spot market
Front Melody
2001
150,000
Double-hull
LIB
Spot market
Front Symphony
2001
150,000
Double-hull
LIB
Time charter
Nordic Apollo (7)
2003
149,997
Double-hull
MI
Spot market
Nordic Discovery (7)
1998
149,999
Double-hull
NIS
Spot market
Nordic Fighter (7)
1998
149,999
Double-hull
NIS
Spot market
Nordic Hawk (7)
1997
151,475
Double-hull
BA
Spot market
Nordic Hunter (7)
1997
151,400
Double-hull
BA
Spot market
Nordic Saturn (7)
1998
157,332
Double-hull
MI
Spot market
Nordic Sprite (7)
1999
147,188
Double-hull
NIS
Spot market
Nordic Mistral (7)
2002
164,236
Double-hull
MI 
Spot market
Genmar Harriet G
2006
149,999
Double-hull
MI
Spot market
 
 
 
 
 
 
 
VLCCs
 
 
 
 
 
Mayfair
1995
298,405
Double-hull
MI
Time charter
Camden
1995
298,306
Double-hull
MI
Time charter
Songa Chelsea
1995
298,432
Double-hull
MI
Spot market
Songa Julie
2000
299,089
Double-hull
MI
Spot market
Universal Queen
2005
309,373
Double-hull
PAN
Spot market
 
 
42


 
(1)  
A Memorandum of Agreement, dated March 15, 2010, has been signed regarding the sale of this vessel. Delivery to the buyers is expected in the first half of April 2010.
 
(2)  
Newbuilding (named Northia) was delivered in January 2010.
 
(3)  
Newbuilding (named Naticina) was delivered in March 2010.
 
(4)  
Agreement reached in March 2010 regarding termination of the lease. Termination expected to be April 2010.