Arrow Prospectus - PGS

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ARROW SEISMIC ASA – INITIAL PUBLIC OFFERING 2.2.8 Competition The markets Arrow serves are highly competitive. Arrow may face competition from certain companies within the seismic industry as well as other shipowners. Furthermore, overcapacity in the seismic market would have a negative effect on the operating results of Arrow. 2.2.9 Uncertainty of future contract awards, risks of contract cancellation and other contractual risks There is a risk that Arrow will be unable to attain employment for all of its vessels and/or that contracts will be at levels materially below Arrow’s expectations. There exists a possibility that contracts can be cancelled by Arrow’s counterparties due to sustained operational misperformance or that Arrow’s counterparties can experience financial difficulties and bankruptcy. Arrow is party to contracts under which certain conditions have to be met in order for the contracts to become effective between the parties thereto. Thus, the eventuality of nonfulfilment of such conditions represents a risk factor for the Company. 2.2.10 Exchange rate risk A change in the USD/NOK and EUR/USD exchange rates will influence Arrow. Arrow has most of its income in USD, while the newbuild contracts are denominated in EUR. To reduce currency exposure, Arrow will seek to have the majority if its debt denominated in USD. In addition, Arrow will regularly evaluate hedging of anticipated future net cash flows in EUR, NOK and other relevant currencies. This is achieved primarily by entering into forward contracts. 2.2.11 Credit risk Several of the Company’s contracts are long-term, and there can be no guarantees that the financial position of the Company’s major partners will not materially change during the contracted period. Given the limited number of major partners of the Company and the significant portion they represent of the Company’s income, the inability of one or more of them to make full payment on any of the Company’s contracted units may have a significant adverse impact on the financial position of the Company. 2.2.12 Purchase agreements and purchase options Arrow has entered into a contract with WesternGeco for the first state-of-the-art high capacity seismic new building (Newbuild 532) to be delivered in Q1 2008. The contract comprises a charter for a fixed period of three years and a purchase agreement under which ownership of the vessel will be transferred to WesternGeco upon expiry of the charter period. Furthermore, Arrow and WesternGeco are in the process of finalising a similar contract for the second new building (Newbuild 533) to be delivered in Q4 2008. This contract is intended to comprise a charter for a fixed period of six years and a purchase agreement under which ownership of the vessel will be transferred to WesternGeco upon expiry of the charter period. Arrow has also entered into a non-binding letter of intent for Newbuild 534 with CGGVeritas, for a bareboat charter party for a fixed 12 year period, after which Arrow and CGGVeritas may exercise options to sell and purchase the vessel. The use of purchase agreements and purchase options may result in decreased revenue and cash flows for the Company from having fewer vessels operating in its fleet. ASI II and ASI III hold the vessels Newbuild 532 and Newbuild 533, which are currently under construction and due to be completed in 2008. There are specific leasing and sale arrangements which relate to these companies and vessels with a third party. It is understood that the two companies will bring these vessels into use once they are complete and will thus be subject to UK tonnage tax. Income from the operation of qualifying vessels will be subject to UK tonnage tax rules as outlined in section 9.7 (“UK Tax status), where it is not subject to these tonnage tax rules it will be subject to standard UK corporation tax regulations. As Newbuild 532 and Newbuild 533 are under a binding commitment to be sold to WesternGeco at the end of the charter party, there may be a risk that these vessels may be considered outside the Tonnage Tax ring-fence, which could lead to ordinary UK corporation tax on profits from the sale. With respect to Newbuild 534 the ASI V has entered into a non-binding Letter of Intent with CGGVeritas for a firm 12 year bare boat charter. A bare boat charter may lead to so called NOKUS taxation of Arrow Seismic ASA, i.e. that income in ASI V will be subject to 28% tax in Norway paid by Arrow Seismic ASA. 2.2.13 Management and supervision Arrow’s future business prospects are to a large degree dependent on its ability to meet changing customer needs, to anticipate and respond to technological changes and to develop effective and competitive relationships with its customers and suppliers. Arrow’s commercial, financial and general management, as well as building 17
ARROW SEISMIC ASA – INITIAL PUBLIC OFFERING supervision, is handled by GC Rieber Shipping on management contracts. Hence, Arrow is dependent on GC Rieber Shipping’s performance as management company for the Arrow fleet. 2.2.14 Financial resources The Company’s cash flow from operations may not be sufficient to fund ongoing activities and implement its business plans. From time to time the Company may enter into transactions to acquire assets or shares of other companies, or to contract new-buildings. These transactions along with the Company’s ongoing operations may be financed partially or wholly with debt, which may increase the Company’s debt levels. Depending on future investment plans, the Company may require additional financing, which may not be available or, if available, may not be available on favourable terms. Failure to obtain such financing on a timely basis could cause the Company to forfeit or forego various opportunities. Failure to obtain financing on attractive terms may result in increased financing costs and could adversely affect the Company’s earnings and financial position. As of 31 March 2007, the Company’s balance sheet showed an equity of USD 90.3 million. For further information, see sections 8 and 9 and elsewhere in this Prospectus. 2.2.15 Access to key personnel/resources The Company’s success depends, to a significant extent, upon management and key employees. Attracting key personnel will assist in the expansion of the Company’s business. The Maritime and seismic industries face competition for skilled personnel. There is no assurance that the Company will successfully attract personnel through management agreements or through employment agreements (if the Company decides to employ its own personnel) required to continue to expand its business and to successfully execute its business strategy. 2.2.16 Tax The parent company, Arrow Seismic ASA, is subject to taxation in Norway in accordance with standard corporate tax rules in Norway. Corporate tax rate in Norway is currently 28%. As the parent company is a holding company with limited activity, the tax exposure for Arrow Seismic ASA will be limited. Dividends to be received from UK subsidiaries will be exempt from taxation in Norway. Withholding tax in the UK on dividends distributed to the parent company in Norway is not payable under UK domestic legislation. Interest on loans from the parent company to the UK subsidiaries will be taxable in Norway. Withholding tax in the UK on interest payable to the parent company in Norway and Norwegian financial lenders will arise, but will be exempt after application and approval from Her Majesty Revenue and Customs (HMRC) under the Norway-UK double tax treaty. The UK subsidiaries of Arrow Seismic ASA are subject to taxation in the United Kingdom in accordance with standard UK corporate tax rules. The decision to enter into UK Tonnage Tax has been made for all UK subsidiaries of Arrow Seismic ASA. This will need to be within the relevant twelve month limited period for registration. A further description of the UK Tonnage Tax rules is described in section 9.7 (“UK Tax status”). The UK Tonnage Tax regime is based on self assessment. In order to enter the Tonnage Tax regime, the Group must elect to do so within the prescribed period. The Group has taken advantage of the pre-clearance procedure prior to election and a pre-clearance letter was sent to the Tonnage Tax Unit of HMRC in June 2006 followed by a (non binding) acceptance from HMRC in August 2006. Due to new facts a final request for pre-clearance has been submitted and a reply has now been received from HMRC confirming eligibility of the Group. The election to enter Tonnage Tax will apply for all UK subsidiaries of Arrow Seismic ASA (including existing and future vessels). The final election must be made before 6 July 2007 due to the fact that the UK subsidiaries of Arrow Seismic ASA first began operating vessels in the UK on 7 July 2006. If all conditions are met, the election will apply from this date. The UK tonnage tax regime is currently being reviewed by HMRC. It is possible that certain vessels will be excluded from the regime in the future depending on the outcome of the review. It is not possible to conclude whether seismic vessels will be amongst those types of vessels specifically excluded at this time. See further details regarding taxation within the UK Tonnage Tax regime in section 9.7. Profits of companies not operating qualifying ships, as well as of business activities undertaken by those companies which do operate qualifying ships but which are not categorised as qualifying under the rules of UK tonnage tax, will be subject to the standard UK corporation tax regime and taxed at standard rates. Corporate tax rate in the UK is currently 30%, but likely to be 28% from 1 April 2008 if the current draft UK Finance Bill 2007 is enacted by Parliament. 18
Page 1 and 2: Prospectus Arrow Seismic ASA Offeri
Page 3 and 4: The contents of this Prospectus are
Page 5 and 6: 7.2 OVERVIEW OF THE GLOBAL SEISMIC
Page 7 and 8: 1. SUMMARY The following summary sh
Page 9 and 10: • Geopolitical risks - Changes in
Page 11 and 12: Summary of comparison of three mont
Page 13 and 14: Subscription Period: From and inclu
Page 15 and 16: 1.11.5 Statements from experts refe
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Solheimsgt 13, PB 1114 Sentrum, N-5
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Arrow Prospectus - PGS

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