UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of June, 2014
Commission File Number 001-35866

KNOT Offshore Partners LP
(Translation of registrant’s name into English)

2 Queen’s Cross,
Aberdeen, Aberdeenshire
United Kingdom
AB15 4YB
United Kingdom
(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F   x             Form 40-F   ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b)(1).
Yes   ¨             No    x
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b)(7).
Yes   ¨             No    x

 

THIS REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE FOLLOWING REGISTRATION STATEMENT OF THE REGISTRANT:
REGISTRATION STATEMENT ON FORM F-3 (NO. 333-195976) ORIGINALLY FILED WITH THE SEC ON MAY 15, 2014
EXHIBITS.

Exhibit
Number	  	Exhibit Description	
		
  1.1	  	Underwriting Agreement, dated June 24, 2014, among KNOT Offshore Partners LP, KNOT Offshore Partners GP LLC, KNOT Offshore Partners UK LLC, KNOT Shuttle Tankers AS and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc. and Barclays Capital Inc., as representatives of the underwriters named therein	
		
  5.1	  	Opinion of Watson, Farley & Williams LLP as to the validity of the securities	
		
  8.1	  	Opinion of Vinson & Elkins L.L.P. as to certain U.S. Federal tax matters	
		
  8.2	  	Opinion of Watson, Farley & Williams LLP as to certain Marshall Islands tax matters	
		
  8.3	  	Opinion of Advokatfirmaet Thommessen AS as to certain Norway tax matters	
		
10.1	  	Term and Revolving Facilities Agreement, dated June 10, 2014, among KNOT Shuttle Tankers 18 AS, Knot Shuttle Tankers 17 AS, Knutsen Shuttle Tankers 13 AS, as borrowers, and the other parties thereto	
		
10.2	  	Share Purchase Agreement, dated June 23, 2014, between Knutsen NYK Offshore Tankers AS and KNOT Shuttle Tankers AS	
		
10.3	  	Share Purchase Agreement, dated June 23, 2014, between Knutsen NYK Offshore Tankers AS and KNOT Shuttle Tankers AS	
		
99.1	  	Press release of the Partnership, dated June 24, 2014	
 
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	 	KNOT OFFSHORE PARTNERS LP	
			
Date: June 27, 2014	 		 		
			
	 	By:	 	/s/ ARILD VIK	
	 		 	Name:	 	Arild Vik	
	 		 	Title:	 	Chief Executive Officer and Chief Financial Officer	
 
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Exhibit 1.1
Execution Version
KNOT O FFSHORE P ARTNERS LP
4,600,000 Common Units
Representing Limited Partner Interests
UNDERWRITING AGREEMENT
New York, New York
June 24, 2014
Merrill Lynch, Pierce, Fenner & Smith
    Incorporated
Citigroup Global Markets Inc.
Barclays Capital Inc.
as Representatives of the several Underwriters
c/o Merrill Lynch, Pierce, Fenner & Smith
     Incorporated
One Bryant Park, 20 th Floor
New York, New York 10036
Ladies and Gentlemen:
KNOT Offshore Partners LP, a limited partnership organized under the laws of The Republic of The Marshall Islands (the “ Partnership ”), proposes to sell to the several underwriters named in Schedule I hereto (the “ Underwriters ”), for whom you (the “ Representatives ”) are acting as representatives, 4,600,000 common units (the “ Firm Units ”), each representing a limited partner interest in the Partnership (the “ Common Units ”). The Partnership also proposes to grant to the Underwriters an option to purchase up to 690,000 additional Common Units (the “ Option Units ”) on the terms and for the purposes set forth in Section 2. The Firm Units and the Option Units are hereinafter collectively called the “ Units .” Any reference herein to the Registration Statement, the Base Prospectus, any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 6 of Form F-3, which were filed under the Exchange Act on or before the Effective Date of the Registration Statement or the issue date of the Base Prospectus, the Preliminary Prospectus or the Prospectus, as the case may be; and any reference herein to the terms “amend,” “amendment” or “supplement” with respect to the Registration Statement, the Base Prospectus, the Preliminary Prospectus or the Prospectus shall be deemed to refer to and include the filing of any document under the Exchange Act after the Effective Date of the Registration Statement or the issue date of the Base Prospectus, any Preliminary Prospectus or the Prospectus, as the case may be, deemed to be incorporated therein by reference. Certain terms used herein and not otherwise defined are defined in Section 20 hereof.

KNOT Offshore Partners GP LLC, a limited liability company organized under the laws of the Republic of The Marshall Islands (the “ General Partner ”), serves as the sole general partner of the Partnership. KNOT Offshore Partners UK LLC, a limited liability company organized under the laws of the Republic of The Marshall Islands (“ KNOT UK ”), is a wholly owned direct subsidiary of the Partnership. KNOT UK owns, directly, a 100% ownership interest in KNOT Shuttle Tankers AS, a company organized under the laws of Norway (“ KNOT Shuttle Tankers ”).
KNOT Shuttle Tankers owns:
(1) 100% of KNOT Shuttle Tankers 12 AS, a company organized under the laws of Norway (“ KNOT Shuttle Tankers 12 ”), which owns the 90% limited partner interests in Knutsen Shuttle Tankers XII KS, a limited partnership organized under the laws of Norway (“ Knutsen Shuttle Tankers XII ”);
(2) 100% of Knutsen Shuttle Tankers XII AS, a company organized under the laws of Norway (“ Knutsen Shuttle Tankers XII GP ”), the sole general partner of Knutsen Shuttle Tankers XII and the owner of the 10% general partner interest in Knutsen Shuttle Tankers XII;
(3) 100% (indirect ownership through KNOT Shuttle Tankers 12 and Knutsen Shuttle Tankers XII GP) of Knutsen Shuttle Tankers XII, which owns 100% of each of the Recife Knutsen and the Fortaleza Knutsen ;
(4) 100% of KNOT Shuttle Tankers 17 AS, a company organized under the laws of Norway (“ KNOT Shuttle Tankers 17 ”), which owns 100% of the Bodil Knutsen ;
(5) 100% of KNOT Shuttle Tankers 18 AS, a company organized under the laws of Norway (“ KNOT Shuttle Tankers 18 ”), which owns 100% of the Windsor Knutsen ; and
(6) 100% of Knutsen Shuttle Tankers 13 AS, a company organized under the laws of Norway (“ Knutsen Shuttle Tankers 13 ”), which owns 100% of the Carmen Knutsen .
 
The Recife Knutsen , the Fortaleza Knutsen , the Carmen Knutsen , the Bodil Knutsen and the Windsor Knutsen are hereinafter collectively referred to as the “ Vessels .” In addition, KNOT Shuttle Tankers 12, Knutsen Shuttle Tankers XII GP, Knutsen Shuttle Tankers XII, KNOT Shuttle Tankers 17, KNOT Shuttle Tankers 18 and Knutsen Shuttle Tankers 13 are hereinafter collectively referred to as the “ Operating Subsidiaries .”
The Partnership, the General Partner, KNOT UK and KNOT Shuttle Tankers are hereinafter collectively referred to as the “ Partnership Parties ,” and together with the Operating Subsidiaries, the “ Partnership Entities .”
 
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This is to confirm the agreement among the Partnership Parties and the Underwriters concerning the purchase of the Units from the Partnership by the Underwriters.
1. Representations and Warranties . Each of the Partnership Parties, jointly and severally, represents and warrants to, and agrees with, each Underwriter as set forth below in this Section 1.
a) Registration. The Partnership meets the requirements for use of Form F-3 under the Act and has prepared and filed with the Commission a registration statement (File Number 333-195976) on Form F-3, including a related Base Prospectus, for registration under the Act of the offering and sale of the Units. Such Registration Statement, including any amendments thereto filed prior to the Execution Time, has become effective. The Partnership may have filed with the Commission, as part of an amendment to the Registration Statement or pursuant to Rule 424(b), one or more preliminary prospectus supplements relating to the Units, each of which has previously been furnished to the Representatives. The Partnership will file with the Commission a final prospectus supplement relating to the Units in accordance with Rule 424(b). As filed, such final prospectus supplement shall contain all information required by the Act and the rules thereunder, and, except to the extent the Representatives shall agree in writing to a modification, shall be in all substantive respects in the form furnished to the Representatives prior to the Execution Time or, to the extent not completed at the Execution Time, shall contain only such specific additional information and other changes (beyond that contained in the Base Prospectus and any Preliminary Prospectus) as the Partnership has advised the Representatives, prior to the Execution Time, will be included or made therein. The Registration Statement, at the Execution Time, meets the requirements set forth in Rule 415(a)(1)(x). The initial Effective Date of the Registration Statement was not earlier than the date three years before the Execution Time.
b) No Material Misstatements or Omissions. On each Effective Date, the Registration Statement did, and when the Prospectus is first filed in accordance with Rule 424(b) and on the Closing Date (as defined herein) and on any date on which Option Units are purchased, if such date is not the Closing Date (a “ settlement date ”), the Prospectus will, comply in all material respects with the applicable requirements of the Act and the rules and regulations thereunder; on the Effective Date and at the Execution Time, the Registration Statement did not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; and on the date of any filing pursuant to Rule 424(b) and on the Closing Date and any settlement date, the Prospectus (together with any supplement thereto) will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; each of the statements made by the Partnership in the Registration Statement and in any Preliminary Prospectus provided to the Underwriters for use in connection with the public offering of the Units, and to be made in the Prospectus and any further amendments or supplements to the Registration Statement or Prospectus within the coverage of Rule 175(b), including
 
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(but not limited to) any statements with respect to projected results of operations, estimated available cash and future cash distributions of the Partnership, and any statements made in support thereof or related thereto under the heading “Summary—Our Pending Vessel Acquisitions,” was made or will be made with a reasonable basis and in good faith; provided, however, that the Partnership Parties make no representations or warranties as to the information contained in or omitted from the Registration Statement, the Preliminary Prospectus or the Prospectus (or any supplement thereto) in reliance upon and in conformity with information furnished in writing to the Partnership by or on behalf of any Underwriter through the Representatives specifically for inclusion in the Registration Statement, the Preliminary Prospectus or the Prospectus (or any supplement thereto), it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 8(b) hereof.
c) No Material Misstatements or Omissions in the Disclosure Package. (i) The Disclosure Package and (ii) each bona fide electronic road show when taken together as a whole with the Disclosure Package , do not, as of the Execution Time, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from the Disclosure Package based upon and in conformity with written information furnished to the Partnership by any Underwriter through the Representatives specifically for use therein (or any supplement thereto), it being understood and agreed that the only such information furnished by or on behalf of any Underwriter consists of the information described as such in Section 8(b) hereof.
d) No Ineligible Issuer. (i) At the earliest time after the filing of the Registration Statement that the Partnership or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2)) of the Units and (ii) as of the Execution Time (with such date being used as the determination date for purposes of this clause (ii)), the Partnership was not and is not an Ineligible Issuer (as defined in Rule 405), without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Partnership be considered an Ineligible Issuer.
e) Emerging Growth Company Status. As of the date of this Agreement, the Partnership qualifies as an “emerging growth company” as defined in Section 2(a) of the Act (an “ Emerging Growth Company ”).
f) Testing-the-Waters Communication. The Partnership (i) has not alone engaged in any Testing-the-Waters Communication and (ii) has not authorized anyone to engage in Testing-the-Waters Communications.
g) Issuer Free Writing Prospectus. Each Issuer Free Writing Prospectus does not include any information that conflicts with the information contained in the Registration Statement, any Preliminary Prospectus or the Prospectus. The foregoing sentence does not apply to statements in or omissions from any Issuer Free Writing Prospectus based upon and in conformity with written information furnished to the Partnership by any Underwriter through the Representatives specifically for use
 
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therein, it being understood and agreed that the only such information furnished by or on behalf of any Underwriter consists of the information described as such in Section 8(b) hereof.
h) Formation and Qualification of the Partnership Entities . Each of the Partnership Entities has been duly formed or incorporated and is validly existing as a limited partnership, limited liability company, corporation or other entity, as applicable, in good standing under the laws of its respective jurisdiction of formation or incorporation with all limited liability company, limited partnership, corporate or other entity power and authority, as applicable, to enter into and perform its obligations under the Purchase Agreements (as defined herein) to which it is a party, to own or lease and to operate its properties currently owned or leased and to conduct its business as currently conducted or as to be conducted on the Closing Date and any settlement date, in each case as described in the Disclosure Package and the Prospectus. Each of the Partnership Entities is, and at the Closing Date and any settlement date will be, duly qualified to do business as a foreign limited partnership, limited liability company corporation or other entity, as applicable, and is in good standing under the laws of each jurisdiction that requires, and at the Closing Date and any settlement date will require, such qualification or registration except where the failure to be so qualified or registered would not, individually or in the aggregate, reasonably be expected to (i) have a material adverse effect on the condition (financial or otherwise), prospects, earnings, securityholders’ equity, results of operations, business or properties of the Partnership Entities taken as a whole (a “ Material Adverse Effect ”) or (ii) subject the limited partners of the Partnership to any material liability or disability.
i) Ownership of the General Partner . Knutsen NYK Offshore Tankers AS, a company organized under the laws of Norway (“ KNOT ”), directly owns 100% of the limited liability company interest in the General Partner; such limited liability company interest has been duly authorized and validly issued in accordance with the limited liability company agreement of the General Partner (as the same may be amended and restated at or prior to the Closing Date, the “ General Partner LLC Agreement ”) and is fully paid (to the extent required by the General Partner LLC Agreement) and non-assessable (except as such non-assessability may be affected by Sections 20, 31, 40 and 49 of The Republic of The Marshall Islands Limited Liability Company Act of 1996 (the “ Marshall Islands LLC Act ”); and except as may otherwise be provided in the General Partner LLC Agreement, KNOT owns such limited liability company interest free and clear of all liens, encumbrances, security interests, charges, equities or other claims (“ Liens ”).
j) Ownership of Subordinated Units and the Incentive Distribution Rights . KNOT owns (i) 8,567,500 Subordinated Units and (ii) 100% of the Incentive Distribution Rights (as defined in the Partnership Agreement) (the “ Incentive Distribution Rights ”). All of the Subordinated Units and the Incentive Distribution Rights, and the limited partner interests represented thereby, have been duly authorized and delivered by the Partnership against payment therefor, and validly issued in accordance with the limited partnership agreement of the Partnership (as the same may be
 
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amended and restated at or prior to the Closing Date, the “ Partnership Agreement ”) and are fully paid (to the extent required under the Partnership Agreement) and non-assessable (except as such non-assessability may be affected by Section 30, 41, 51 and 60 of The Republic of The Marshall Islands Limited Partnership Act (the “ Marshall Islands LP Act ”); and KNOT owns the Subordinated Units and the Incentive Distribution Rights free and clear of all Liens (other than Liens pursuant to that certain Pledge and Security Agreement between KNOT and DNB Bank ASA, dated April 15, 2013).
k) Ownership of the General Partner Interest . The General Partner is the sole general partner of the Partnership, with a 2% general partner interest in the Partnership (the “ General Partner Interest ”), which is represented by 349,694 general partner units (the “ General Partner Units ”). The General Partner Units have been duly authorized and validly issued in accordance with the Partnership Agreement and are fully paid (to the extent required under the Partnership Agreement); and the General Partner owns the General Partner Units free and clear of all Liens (except for restrictions on transferability contained in the Partnership Agreement).
l) Ownership of KNOT UK . The Partnership directly owns 100% of the limited liability company interest in KNOT UK; such limited liability company interest has been duly authorized and validly issued in accordance with the limited liability company agreement of KNOT UK (as the same may be amended and restated at or prior to the Closing Date, the “ KNOT UK LLC Agreement ”) and is fully paid (to the extent required under the KNOT UK LLC Agreement) and non-assessable (except as such non-assessability may be affected by Sections 20, 31, 40 and 49 of the Marshall Islands LLC Act); and except as may be otherwise provided in the KNOT UK LLC Agreement, the Partnership owns such limited liability company interest free and clear of all Liens.
m) Ownership of KNOT Shuttle Tankers. KNOT UK directly owns 100% of the ownership interest in KNOT Shuttle Tankers; such ownership interest has been duly authorized and validly issued in accordance with the organizational documents of KNOT Shuttle Tankers (as the same may be amended and restated at or prior to the Closing Date, the “ KNOT Shuttle Tankers Agreement ”) and is fully paid (to the extent required by the KNOT Shuttle Tankers Agreement) and non-assessable (except as such non-assessability may be affected by the laws of Norway); and KNOT UK owns such ownership interest free and clear of all Liens.
n) Ownership of the Operating Subsidiaries . KNOT Shuttle Tankers owns, directly or indirectly, 100% of the equity interests in each of the Operating Subsidiaries; such equity interests have been duly authorized and validly issued in accordance with the memorandum and articles of association or limited partnership agreement, as applicable and as amended from time to time, of each Operating Subsidiary (as the same may be amended or restated at or prior to the Closing Date, the “ Operating Subsidiaries’ Organizational Documents ”) and are fully paid (to the extent required under the Operating Subsidiaries’ Organizational Documents) and non-assessable (except as such non-assessability may be affected by the applicable statutes of the jurisdiction of formation of the applicable Operating Subsidiary and the Operating Subsidiaries
 
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Organizational Documents); and KNOT Shuttle Tankers owns such equity interests free and clear of all Liens (other than Liens pursuant to the credit facilities related to the Vessels).
o) No Other Subsidiaries . Except as described in Sections 1(i), 1(j), 1(k), 1(l), 1(m) and 1(n), none of the Partnership Entities own or, on the Closing Date or any settlement date, will own, directly or indirectly, any equity or long-term debt securities of any corporation, partnership, limited liability company, joint venture, association or other entity.
p) Power and Authority to Act as General Partner of the Partnership . The General Partner has, and on the Closing Date and any settlement date, will have, full limited liability company power and authority to act as the general partner of the Partnership as described in the Disclosure Package and the Prospectus.
q) Capitalization . At the Closing Date, assuming no exercise of the option provided in Section 2(b), the issued and outstanding limited partner interests of the Partnership will consist of 13,167,500 Common Units, 8,567,500 Subordinated Units and the Incentive Distribution Rights.
r) Valid Issuance of the Units . At the Closing Date and any settlement date thereafter, the Firm Units and the Option Units, as the case may be, and the limited partner interests represented thereby will be duly authorized by the Partnership Agreement and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms hereof, will be validly issued, fully paid (to the extent required under the Partnership Agreement) and non-assessable (except as such non-assessability may be affected by Section 30, 41, 51 and 60 of the Marshall Islands LP Act).
s) No Preemptive Rights, Registration Rights or Options . Except as described in the Disclosure Package and the Prospectus or contained in the relevant organizational documents of the Partnership Entities, there are no (i) preemptive rights or other rights to subscribe for or to purchase, nor any restriction upon the voting or transfer of, any equity interests in the Partnership Entities or (ii) outstanding options or warrants to purchase any securities of the Partnership Entities. Neither the filing of the Registration Statement nor the offering or sale of the Units as contemplated by this Agreement gives rise to any rights for or relating to the registration of any Common Units or other securities of the Partnership.
t) Authority and Authorization . Each of the Partnership Parties has all requisite power and authority to execute and deliver this Agreement and perform its obligations hereunder. The Partnership has all requisite limited partnership power and authority to issue, sell and deliver the Units to the Underwriters in accordance with and upon the terms and conditions set forth in this Agreement and upon the terms set forth in the Disclosure Package and the Prospectus.
 
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u) Authorization, Execution and Delivery of this Agreement . This Agreement has been duly authorized, executed and delivered by each of the Partnership Parties.
v) Authorization, Execution, Delivery and Enforceability of the Other Agreements . As of the date hereof:
1) the General Partner LLC Agreement has been duly authorized, executed and delivered by KNOT and is a valid and legally binding agreement of KNOT, enforceable against KNOT in accordance with its terms;
2) the Partnership Agreement has been duly authorized, executed and delivered by the General Partner and KNOT and is a valid and legally binding agreement of the General Partner and KNOT, enforceable against each of them in accordance with its terms;
3) the KNOT UK LLC Agreement has been duly authorized, executed and delivered by the Partnership and is a valid and legally binding agreement of the Partnership, enforceable against the Partnership in accordance with its terms;
4) KNOT Shuttle Tankers Agreement has have been duly authorized, executed and delivered by KNOT UK and is a valid and legally binding agreement of KNOT UK, enforceable against KNOT UK in accordance with its terms;
5) each of the Operating Subsidiaries’ Organizational Documents has been duly authorized, executed and delivered by the appropriate Partnership Entity and each such agreement is a valid and legally binding agreement, enforceable against each party thereto in accordance with the terms of such agreement;
6) the share purchase agreement, dated June 23, 2014, by and between KNOT and KNOT Shuttle Tankers (the “ KST 14 Purchase Agreement ”), to acquire all of KNOT’s interest in Knutsen Shuttle Tankers 14 AS, a company organized under the laws of Norway (“ Knutsen Shuttle Tankers 14 ”), that owns and operates the shuttle tanker, Hilda Knutsen , has been duly authorized, executed and delivered by KNOT Shuttle Tankers, and such agreement is a valid and legally binding agreement of KNOT Shuttle Tankers, enforceable against it in accordance with its terms; and
7) the share purchase agreement, dated June 23, 2014, by and between KNOT and KNOT Shuttle Tankers (the “ KST 15 Purchase Agreement ” and, together with the KST 14 Purchase Agreement, the “ Purchase Agreements ”), to acquire all of KNOT’s interest in Knutsen Shuttle Tankers 15 AS, a company organized under the laws of Norway (“ Knutsen Shuttle Tankers 15 ”), that owns and operates the shuttle tanker, Torill Knutsen , has been duly authorized, executed and delivered by KNOT Shuttle Tankers, and such agreement is a valid and legally binding agreement of KNOT Shuttle Tankers, enforceable against it in accordance with its terms;
 
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provided , however, that with respect to each agreement described in this Section 1(v), the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws relating to or affecting creditors’ rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); and provided further that the indemnity, contribution and exoneration provisions with respect to violations of federal securities laws contained in any of such agreements may be limited by applicable laws and public policy.
The agreements described in clauses (1) through (5) of this Section 1(v) are herein collectively referred to as the “ Organizational Documents .”
w) No Conflicts . None of (i) the offering, issuance and sale by the Partnership of the Units to be issued and sold to the Underwriters pursuant to the terms of this Agreement, (ii) the execution, delivery and performance of this Agreement and the Purchase Agreements by the Partnership Entities party hereto or thereto, or (iii) the consummation of the transactions contemplated hereby or thereby (A) conflicts or will conflict with or constitutes or will constitute a violation of any agreement of limited partnership, limited liability company agreement, bylaws, certificate of formation, certificate of incorporation or other organizational documents of any of the Partnership Entities, (B) conflicts or will conflict with or constitutes or will constitute a breach or violation of, or a default (or an event that, with notice or lapse of time or both, would constitute such a default) under any indenture, contract, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which any of the Partnership Entities is a party or by which any of them or any of their respective properties may be bound, (C) violates or will violate any statute, law or regulation or any order, judgment, decree or injunction of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over any of the Partnership Entities or any of their properties or assets in a proceeding to which any of them or their property is a party or (D) resulted, results or will result in the creation or imposition of any Lien upon any property or assets of any of the Partnership Entities, which conflicts, breaches, violations, defaults or Liens, in the case of clauses (B), (C) or (D), would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or would materially impair the ability of the Partnership Entities to perform their obligation under this Agreement or the Purchase Agreements.
x) No Consents . No permit, consent, approval, authorization, order, registration, filing or qualification of or with any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over any of the Partnership Entities or any of their properties or assets is required in connection with (i) the offering or sale by the Partnership of the Units, (ii) the execution, delivery and performance of this Agreement and the Purchase Agreements or the fulfillment of the terms hereof or thereof by the Partnership Entities party hereto or thereto or (iii) the consummation of any other transactions contemplated by this Agreement or the Purchase Agreements,
 
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except (A) for such permits, consents, approvals, filings and similar authorizations required under the Act, the Exchange Act and state securities or “Blue Sky” laws of any jurisdiction, (B) such consents that have been, or prior to the Closing Date will be, obtained, (C) such permits, consents, approvals, filings and similar authorizations as may be required in connection with the transactions contemplated by the Purchase Agreements (D) for such consents that, if not obtained, would not individually or in the aggregate, have a Material Adverse Effect and (E) as disclosed in the Disclosure Package and the Prospectus.
y) No Defaults . None of the Partnership Entities is (i) in violation of its agreement of limited partnership, limited liability company agreement, certificate of incorporation or bylaws or other organizational documents, (ii) in violation of any statute, law, rule or regulation or any order, judgment, decree or injunction of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over any of the Partnership Entities or any of their properties or assets or (iii) in breach, default (or an event that, with notice or lapse of time or both, would constitute such a default) or violation in the performance of any obligation, agreement or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound, which in the case of clauses (ii) and (iii) would, if continued, reasonably be expected to have a Material Adverse Effect or materially impair the ability of any of the Partnership Entities to perform their obligations under this Agreement or the Purchase Agreements.
z) Conformity of Units to Description . The Units, when issued and delivered in accordance with the terms of this Agreement and the Partnership Agreement against payment therefor as provided herein and therein, will conform in all material respects to the description thereof contained in the Disclosure Package and the Prospectus.
aa) No Labor Dispute . Except as set forth in the Disclosure Package and the Prospectus, no labor problem or dispute with the employees of any Partnership Entity exists, or, to the knowledge of the Partnership Parties, is threatened or imminent, and none of the Partnership Parties is aware of any existing or imminent labor disturbance by the employees of any of the Partnership Entities’ principal suppliers, contractors or customers, which, in any case, would reasonably be expected to have a Material Adverse Effect.
bb) No Material Adverse Change . Since the date of the latest audited financial statements included in the Disclosure Package and the Prospectus, (i) no Partnership Entity has sustained any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, investigation, order or decree, (ii) there has not been any material change in the capitalization or material increase in the long-term debt of the Partnership Entities or any material adverse change or any development involving or which could reasonably be expected to involve, individually or in the aggregate, a prospective material adverse change in or affecting the general affairs,
 
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management, condition (financial or otherwise), stockholders’ equity, partners’ equity, members’ equity, results of operations, business, properties, assets or prospects of the Partnership Entities, taken as a whole, and (iii) none of the Partnership Entities has incurred any liability or obligation, direct, indirect or contingent, or entered into any transactions, whether or not in the ordinary course of business, that, individually or in the aggregate, is material to the Partnership Entities, taken as a whole, or otherwise than as set forth or contemplated in the Disclosure Package and the Prospectus.
cc) Financial Statements. The historical financial statements included in the Preliminary Prospectus, the Prospectus and the Registration Statement present fairly in all material respects the financial condition, results of operations and cash flows of the entities purported to be shown thereby and on the basis stated therein, as of the dates and for the periods indicated; such financial statements comply as to form with the applicable accounting requirements of Regulation S-X under the Act and have been prepared in conformity with generally accepted accounting principles in the United States applied on a consistent basis throughout the periods involved (except as otherwise noted therein). The summary historical financial and operating information set forth in the Preliminary Prospectus, the Prospectus and the Registration Statement under the caption “Summary—Summary Financial and Operating Data” is accurately presented in all material respects and prepared on a basis consistent with the audited and unaudited historical financial statements, as applicable, from which it has been derived. The pro forma financial statements included in the Preliminary Prospectus, the Prospectus and the Registration Statement complies as to form with the applicable accounting requirements of Regulation S-X under the Act and includes assumptions that provide a reasonable basis for presenting the significant effects directly attributable to the transactions and events described therein, the related pro forma adjustments give appropriate effect to those assumptions, and the pro forma adjustments reflect the proper application of those adjustments to the historical financial statement amounts in the pro forma financial statements included in the Preliminary Prospectus, the Prospectus and the Registration Statement. All disclosures contained in the Registration Statement, the Disclosure Package or the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission) comply with Regulation G of the Exchange Act and Item 10 of Regulation S-K of the Act, to the extent applicable. The interactive data in eXtensible Business Reporting Language (“ XBRL ”) included or incorporated by reference in the Registration Statement, the Disclosure Package and the Prospectus fairly present the information called for in all material respects and have been prepared in accordance with the Commission’s rules and guidelines applicable thereto.
dd) Independent Registered Public Accounting Firm. Ernst & Young AS, who has audited certain financial statements included in the Registration Statement, the Disclosure Package and the Prospectus of the Partnership and its combined predecessors and delivered its reports with respect thereto, is an independent registered public accounting firm with respect to such entities within the meaning of the Act and the applicable published rules and regulations thereunder and the rules and regulations of the Public Company Accounting Oversight Board (“ PCAOB ”).
 
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ee) Absence of Litigation. There is no (i) action, suit or proceeding before or by any court, arbitrator or governmental agency, body or official, domestic or foreign, now pending or, to the knowledge of any of the Partnership Parties, threatened, to which any of the Partnership Entities is or may be a party or to which the property of any of the Partnership Entities is or may be subject or that would be required to be disclosed in the Registration Statement, which is not adequately disclosed in the Disclosure Package and Prospectus as required, (ii) statute, rule, regulation or order that has been enacted, adopted or issued by any governmental agency with respect to any Partnership Entity or (iii) injunction, restraining order or order of any nature issued by a federal or state court or foreign court of competent jurisdiction, to which any of the Partnership Entities is or may be subject, that, in the case of clauses (i), (ii) and (iii) above, could, individually or in the aggregate, reasonably be expected to (A) have a Material Adverse Effect, (B) prevent or result in the suspension of the offering and sale of the Units or (C) in any manner draw into question the validity of this Agreement.
ff) Title to Properties. As of the Closing Date and any settlement date, the Partnership Entities will have good title to all personal property described in the Disclosure Package or the Prospectus to be owned by the Partnership Entities, and each of Knutsen Shuttle Tanker XII, Knutsen Shuttle Tankers 13, KNOT Shuttle Tankers 17, KNOT Shuttle Tankers 18 hold, directly or indirectly, the interest in the applicable Vessel set forth opposite its name on Exhibit B , in each case free and clear of all Liens except (i) as described, and subject to the limitations contained, in the Disclosure Package, (ii) that arise from the indebtedness of the Partnership Entities or (iii) as do not materially affect the value of such property, taken as a whole, and do not materially interfere with the use of such properties, taken as a whole, as they have been used in the past and are proposed to be used in the future, as described in the Disclosure Package and the Prospectus (the Liens described in clauses (i) through (iii) above being “ Permitted Liens ”); provided that with respect to any interest in real property and buildings held under lease by Partnership Entities, such real property and buildings are held under valid and subsisting and enforceable leases (except as may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws relating to or affecting creditors’ rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law)).
gg) Vessel Registration. Each Vessel is duly registered under the laws of the jurisdiction set forth on Exhibit B in the name of the applicable entity identified on Exhibit B, free and clear of all liens except Permitted Liens.
hh) Tax Returns. Each of the Partnership Entities has filed all foreign, federal, state and local tax returns that are required to be filed or has requested extensions thereof (except in any case in which the failure so to file would not reasonably be expected to have a Material Adverse Effect) and has paid all taxes required to be paid by it and any other assessment, fine or penalty levied against it, to the extent that any of the foregoing is due and payable, except for any such assessment, fine or penalty that is currently being contested in good faith or as would not reasonably be expected to have a Material Adverse Effect.
 
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ii) Insurance. The Partnership Entities carry or are entitled to the benefits of insurance, with financially sound and reputable insurers, in such amounts and covering such risks as are generally maintained by companies of established repute engaged in the same or similar business, and all such insurance is in full force and effect. The Partnership Entities have no reason to believe that they will not be able to (i) renew their existing insurance coverage as and when such policies expire or (ii) obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct their business as now conducted and at a cost that would not reasonably be expected to have a Material Adverse Effect.
jj) Distribution Restrictions. No subsidiary of the Partnership is currently prohibited, directly or indirectly, from paying any distributions to the Partnership, from making any other distribution on such subsidiary’s equity interests, from repaying to the Partnership any loans or advances to such subsidiary from the Partnership or from transferring any of such subsidiary’s property or assets to the Partnership or any other subsidiary of the Partnership, except as described in or contemplated by the Disclosure Package and the Prospectus (exclusive of any amendment or supplement thereto).
kk) Licenses and Permits. Except as described in or contemplated by the Disclosure Package and the Prospectus, and except for those that are the responsibility of the counterparties to obtain pursuant to the terms of the agreements set forth in Exhibit A relating to the Vessels as such agreements are currently in effect (the “ Charter Agreements ”), the Partnership Entities possess, and upon the consummation of the transactions contemplated by the Purchase Agreements each of Knutsen Shuttle Tankers 14 and Knutsen Shuttle Tankers 15 will possess, such permits, licenses, approvals, consents and other authorizations (collectively, “ Governmental Licenses ”) issued by the appropriate federal, state, local or foreign regulatory agencies or bodies necessary to own or lease and operate their properties in the manner described in the Disclosure Package and the Prospectus, except where the failure so to possess would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect; except as described in the Disclosure Package and the Prospectus, the Partnership Entities are, and upon the consummation of the transactions contemplated by the Purchase Agreements each of Knutsen Shuttle Tankers 14 and Knutsen Shuttle Tankers 15 will be, in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and effect, except where the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect; and the Partnership Entities have not received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses that, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect. To the knowledge of the Partnership Parties, the charter parties to the Charter Agreements possess, or reasonably expect to possess in the ordinary course of business as necessary, the Governmental Licenses that are the responsibility of the charter parties to obtain pursuant to the terms of the Charter Agreements.
 
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ll) Environmental Laws. Each Partnership Entity (i) is in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to pollution or the protection of the environment or imposing liability or standards of conduct concerning the use, handling, storage or management of any Hazardous Materials (as defined herein) (“ Environmental Laws ”), (ii) has received all permits required of it under applicable Environmental Laws to conduct its respective businesses as presently conducted (“ Environmental Permits ”) except for any such Environmental Permits that are the responsibility of the charter parties under the Charter Agreements and that the Partnership Parties reasonably expect such charter parties to obtain, (iii) is in compliance with all terms and conditions of any such permits and (iv) does not have any liability in connection with any known or threatened release into the environment of any Hazardous Material, except in the case of each of clauses (i), (ii), (iii) and (iv) as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The term “ Hazardous Material ” means (A) any “hazardous substance” as defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, (B) any “hazardous waste” as defined in the Resource Conservation and Recovery Act, as amended, (C) any petroleum or petroleum product, (D) any polychlorinated biphenyl and (E) any hazardous, toxic chemical, material, waste or substance regulated under or within the meaning of any applicable Environmental Law. In the ordinary course of business, the Partnership Entities periodically review the effect of Environmental Laws on their business, operations and properties, in the course of which they identify and evaluate costs and liabilities that they believe are reasonably likely to be incurred pursuant to such Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws, or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties). On the basis of such review, the Partnership Entities have reasonably concluded that such associated costs and liabilities relating to the Vessels would not, individually or in the aggregate, have a Material Adverse Effect. To the knowledge of the Partnership Parties, the parties to the Charter Agreements possess, or reasonably expect to possess in the ordinary course as necessary, the Environmental Permits that are the responsibility of the charter parties to obtain pursuant to the terms of the Charter Agreements.
mm) Intellectual Property. Except as would not result in a Material Adverse Effect, (i) the Partnership Entities own or possess, or can acquire on reasonable terms, adequate patents, patent rights, licenses, inventions, copyrights, know how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names or other intellectual property (collectively, “ Intellectual Property ”) necessary to carry on their business in the manner described in the Disclosure Package and the Prospectus, and (ii) the Partnership Entities have not received any notice and are not otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances that would render any Intellectual Property invalid or inadequate to protect the interests in the Partnership Entities.
 
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nn) Certain Relationships and Related Transactions. No relationship, direct or indirect, exists between or among any Partnership Entity, on the one hand, and the directors, officers, stockholders, affiliates, customers or suppliers of any Partnership Entity, on the other hand, that is required to be described in the Disclosure Package or the Prospectus but is not so described.
oo) Description of Legal Proceedings and Contracts; Filing of Exhibits. There are no legal or governmental proceedings pending or, to the knowledge of the Partnership Parties, threatened or contemplated, against any of the Partnership Entities, or to which any of the Partnership Entities is a party, or to which any of their respective properties or assets is subject, that are required to be described in the Registration Statement, the Disclosure Package or the Prospectus but are not so described, and there are no agreements, contracts, indentures, leases or other instruments that are required to be described in the Registration Statement, the Disclosure Package or the Prospectus or to be filed as an exhibit to the Registration Statement that are not described or filed as required by the Act. The statements included in the Registration Statement, the Disclosure Package and the Prospectus insofar as such statements summarize legal matters, agreements, documents or proceedings discussed therein, are accurate summaries of such legal matters, agreements, documents or proceedings in all material respects.
pp) Sarbanes-Oxley Act of 2002. On the Closing Date and any settlement date, the Partnership will be in compliance in all material respects with all applicable provisions of the Sarbanes-Oxley Act of 2002, the rules and regulations promulgated in connection therewith and the rules and regulations of the New York Stock Exchange that are effective and applicable to the Partnership.
qq) Investment Company. None of the Partnership Entities is, and after giving effect to the offering and sale of the Units and the application of the proceeds therefrom as described in the Disclosure Package and the Prospectus, none of the Partnership Entities will be, an “investment company” or a company “controlled by” an “investment company,” each as defined in the Investment Company Act of 1940, as amended (the “ Investment Company Act ”).
rr) Passive Foreign Investment Company. The Partnership will not be a Passive Foreign Investment Company (“ PFIC ”) within the meaning of Section 1297 of the United States Internal Revenue Code of 1986, as amended (the “ Code ”), for the taxable year ending December 31, 2014, and based on the Partnership’s current and expected assets, income and operations as described in the Disclosure Package and the Prospectus, the Partnership does not believe that it is likely to become a PFIC for any future tax year.
ss) Tax Status . The Partnership has properly elected to be classified as an association taxable as a corporation for United States federal income tax purposes as
 
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of the date hereof. Except as otherwise provided in this paragraph, each of the Partnership Entities has properly elected to be classified as disregarded as an entity separate from its owner for United States federal income tax purposes.
tt) Books and Records. Each Partnership Entity maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with U.S. generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals, and appropriate action is taken with respect to any differences; and (v) the interactive data in XBRL included or incorporated by reference in the Registration Statement, the Disclosure Package and the Prospectus fairly presents the information called for in all material respects and is prepared in accordance with the Commission’s rules and guidelines applicable thereto.
uu) Market Stabilization. None of the Partnership Entities has taken, directly or indirectly, any action designed to or that would constitute or that might reasonably be expected to cause or result in, stabilization or manipulation of the price of any security of the Partnership to facilitate the sale or resale of the Units.
vv) Foreign Corrupt Practices Act. No Partnership Entity nor any director, officer, nor to the knowledge of the Partnership Parties, any agent, employee or affiliate of any Partnership Entity, is aware of or has taken any action, directly or indirectly, that would result in a violation by such Persons of applicable anti-corruption laws, including the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (collectively, the “ FCPA ”), in furtherance of an offer, payment, promise to pay or authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving of anything of value to any “foreign official” (as such term is defined in the FCPA) or any foreign political party or official thereof or any candidate for foreign political office, in order to obtain or retain business or otherwise secure an improper business advantage. The Partnership Entities and, to the knowledge of the Partnership Parties, their affiliates have conducted their businesses in compliance with the FCPA and other applicable anti-corruption laws and have instituted and maintain policies and procedures that are reasonably designed to ensure, and that are reasonably expected to continue to ensure, continued compliance therewith.
ww) Anti-Money Laundering Laws. The operations of the Partnership Entities are and have been conducted at all times in compliance with, in each case to the extent applicable, financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the anti-money laundering statutes of all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules or regulations, issued, administered or enforced by any governmental agency (collectively, the “ Anti-Money Laundering Laws ”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving any of the Partnership Entities with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Partnership Parties, threatened.
 
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xx) Office of Foreign Assets Control. None of the Partnership Entities, nor, to the knowledge of the Partnership Parties, any director, officer, agent, employee or affiliate of a Partnership Entity is currently the subject of or engaged in any activity in violation of any sanctions administered or enforced by the Office of Foreign Assets Control of the U.S. Treasury Department, the United Nations Security Council, the European Union, Her Majesty’s Treasury or any other relevant sanctions authority (“ Sanctions ”); and the Partnership will not directly or indirectly use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing any activities of or with any person or entity, or in any country or territory that, at the time of such financing, is the subject of an Sanction or in any other manner that would result in a violation of Sanctions by any person or entity participating in the offering, either as an underwriter, advisor, investor or otherwise.
yy) Statistical Data. Any statistical and market-related data included in the Registration Statement, the Disclosure Package or the Prospectus are based on or derived from sources that the Partnership believes to be reliable and accurate.
zz) No Distribution of Other Offering Materials. None of the Partnership Entities has distributed or, prior to the Closing Date and completion of the distribution of the Units, will not distribute any offering material in connection with the offering and sale of the Units other than any Preliminary Prospectus, the Prospectus, any Issuer Free Writing Prospectus to which the Representatives have consented in accordance with this Agreement or any other materials, if any, permitted by the Act, including Rule 134 thereunder.
aaa) Listing on the New York Stock Exchange. The Units have been approved to be listed on the New York Stock Exchange, subject to official notice of issuance.
bbb) Disclosure Controls. (i) The Partnership has established and maintains “disclosure controls and procedures” (as such term is defined in Rule 13a-15(e) under the Exchange Act); (ii) such disclosure controls and procedures are designed to ensure that the information required to be disclosed by the Partnership in the reports it files or will file or submit under the Exchange Act, as applicable, is accumulated and communicated to management of the Partnership to allow timely decisions regarding required disclosure to be made and (iii) such disclosure controls and procedures are effective in all material respects to perform the functions for which they were established to the extent required by Rule 13a-15 of the Exchange Act.
ccc) Stamp Taxes . No stamp or other issuance or transfer taxes are payable by or on behalf of the Underwriters in connection with (A) the delivery of the Firm Units in the manner contemplated herein or (B) the sale and delivery by the Underwriters of the Units as contemplated herein.
ddd) Brokers . There are no contracts, arrangements or understandings between any Partnership Entity and any person that would give rise to a valid claim against any Partnership Entity or any Underwriter for a brokerage commission, finder’s fee or other like payment in connection with the offering of the Units.
 
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Any certificate signed by any officer of any Partnership Entity and delivered to the Representatives or counsel for the Underwriters in connection with the offering of the Units shall be deemed a representation and warranty by such Partnership Entity, as to matters covered thereby, to each Underwriter.
2. Purchase and Sale . (a) Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Partnership agrees to sell to each Underwriter, and each Underwriter agrees, severally and not jointly, to purchase from the Partnership, at a purchase price of $27.4776 per Unit, the number of Firm Units set forth opposite such Underwriter’s name in Schedule I hereto.
b) Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Partnership hereby grants an option to the several Underwriters to purchase, severally and not jointly, the Option Units at the same purchase price per Unit as the Underwriters shall pay for the Firm Units, less an amount per unit equal to any dividends or distributions declared by the Partnership and payable on the Firm Units but not payable on the Option Units. Said option may be exercised in whole or in part at any time on or before the 30th day after the date of the Prospectus upon written, electronic or telegraphic notice by the Representatives to the Partnership setting forth the number of Option Units as to which the several Underwriters are exercising the option and the settlement date. The number of Option Units to be purchased by each Underwriter shall be the same percentage of the total number of Option Units to be purchased by the several Underwriters as such Underwriter is purchasing of Firm Units, subject to such adjustments as the Representatives in their absolute discretion shall make to eliminate any fractional Units.
3. Delivery and Payment . Delivery of and payment for the Firm Units and the Option Units (if the option provided for in Section 2(b) hereof shall have been exercised on or before the third Business Day immediately preceding the Closing Date) shall be made at the offices of Vinson & Elkins L.L.P., 2200 Pennsylvania Ave. NW, Suite 500W, Washington, DC 20037, at 10:00 AM, New York City time, on June 27, 2014, or at such time on such later date not more than three Business Days after the foregoing date as the Representatives shall designate, which date and time may be postponed by agreement among the Representatives and the Partnership or as provided in Section 9 hereof (such date and time of delivery and payment for the Units being called herein the “ Closing Date ”). Delivery of the Units shall be made to the Representatives for the respective accounts of the several Underwriters against payment by the several Underwriters through the Representatives of the respective aggregate purchase price of the Units being sold by the Partnership to or upon the order of the Partnership by wire transfer payable in same-day funds to the accounts specified by the Partnership. Delivery of the Units shall be made through the facilities of The Depository Trust Company unless the Representatives shall otherwise instruct.
 
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If the option provided for in Section 2(b) hereof is exercised after the third Business Day immediately preceding the Closing Date, the Partnership will deliver the Option Units (at the expense of the Partnership) to the Representatives, at One Bryant Park, 20th Floor, New York, New York, on the date specified by the Representatives (which shall be within three Business Days after exercise of said option) for the respective accounts of the several Underwriters, against payment by the several Underwriters through the Representatives of the purchase price thereof to or upon the order of the Partnership by wire transfer payable in same-day funds to the accounts specified by the Partnership. If settlement for the Option Units occurs after the Closing Date, the Partnership will deliver to the Representatives on the settlement date for the Option Units, and the obligation of the Underwriters to purchase the Option Units shall be conditioned upon receipt of, supplemental opinions, certificates and letters confirming as of such date the opinions, certificates and letters delivered on the Closing Date pursuant to Section 6 hereof.
4. Offering by Underwriters . It is understood that the several Underwriters propose to offer the Units for sale to the public as set forth in the Prospectus.
5. Agreements . Each of the Partnership Parties, jointly and severally, agrees with the several Underwriters that:
a) Preparation of Prospectus and Registration Statement. Prior to the termination of the offering of the Units, the Partnership will not file any amendment to the Registration Statement or supplement (including any Preliminary Prospectus or the Prospectus) to the Base Prospectus or any Rule 462(b) Registration Statement unless the Partnership has furnished the Representatives a copy for their review prior to filing and will not file any such proposed amendment or supplement to which the Representatives reasonably object. The Partnership will cause the Prospectus, properly completed, and any supplement thereto to be filed in a form approved by the Representatives with the Commission pursuant to the applicable paragraph of Rule 424(b) within the time period prescribed and will provide evidence satisfactory to the Representatives of such timely filing. The Partnership will promptly advise the Representatives (i) when the Prospectus, and any supplement thereto, shall have been filed (if required) with the Commission pursuant to Rule 424(b) or when any Rule 462(b) Registration Statement shall have been filed with the Commission, (ii) when, prior to termination of the offering of the Units, any amendment to the Registration Statement shall have been filed or become effective, (iii) of any request by the Commission or its staff for any amendment of the Registration Statement, or any Rule 462(b) Registration Statement, or for any supplement to the Prospectus or for any additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any notice objecting to its use or the institution or threatening of any proceeding for that purpose and (v) of the receipt by the Partnership of any notification with respect to the suspension of the qualification of the Units for sale in any jurisdiction or the institution or threatening of any proceeding for such purpose. The Partnership will use its reasonable best efforts to prevent the issuance of any such stop order or the occurrence of any such suspension or
 
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objection to the use of the Registration Statement and, upon such issuance, occurrence or notice of objection, to obtain as soon as possible the withdrawal of such stop order or relief from such occurrence or objection, including, if necessary, by filing an amendment to the Registration Statement or a new registration statement and using its reasonable best efforts to have such amendment or new registration statement declared effective as soon as practicable.
b) Amendment or Supplement of Disclosure Package and Issuer Free Writing Prospectus. If, at any time prior to the filing of the Prospectus pursuant to Rule 424(b), any event occurs as a result of which the Disclosure Package as of the Execution Time or any Issuer Free Writing Prospectus as of its date would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made or the circumstances prevailing at such time not misleading, or any Issuer Free Writing Prospectus would conflict with the information in the Registration Statement, the Preliminary Prospectus or the Prospectus, the Partnership will (i) promptly notify the Representatives so that any use of the Disclosure Package or the Issuer Free Writing Prospectus, as the case may be, may cease until the Disclosure Package or such Issuer Free Writing Prospectus is amended or supplemented; (ii) amend or supplement the Disclosure Package or the Issuer Free Writing Prospectus, as the case may be, to correct such statement, omission or conflict; and (iii) supply any amendment or supplement to the Representatives in such quantities as they may reasonably request.
c) Amendment of Registration Statement or Supplement of Prospectus. If, at any time when a prospectus relating to the Units is required to be delivered under the Act (including in circumstances where such requirement may be satisfied pursuant to Rule 172), any event occurs as a result of which the Prospectus as then supplemented would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made at such time not misleading, or if it shall be necessary to amend the Registration Statement, file a new registration statement or supplement the Prospectus to comply with the Act or the Exchange Act or the respective rules thereunder, including in connection with the use or delivery of the Prospectus, the Partnership promptly will (i) notify the Representatives of any such event; (ii) prepare and file with the Commission, subject to the second sentence of paragraph (a)(i) of this Section 5, an amendment, supplement or new registration statement that will correct such statement or omission or effect such compliance; (iii) use its best efforts to have any amendment to the Registration Statement or new registration statement declared effective as soon as practicable in order to avoid any disruption in the use of the Prospectus, and (iv) supply any supplemented Prospectus to the Representatives in such quantities as they may reasonably request.
d) Reports to Unitholders. As soon as practicable, the Partnership will make generally available to its unitholders and to the Representatives an earnings statement or statements of the Partnership and its subsidiaries that will satisfy the provisions of Section 11(a) of the Act and Rule 158.
 
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e) Signed Copies of the Registration Statement and Copies of the Prospectus. The Partnership will furnish to the Representatives and counsel for the Underwriters, without charge, photocopies of signed copies of the Registration Statement (including exhibits thereto) and to each other Underwriter a copy of the Registration Statement (without exhibits thereto) and, so long as delivery of a prospectus by an Underwriter or dealer may be required by the Act (including in circumstances where such requirement may be satisfied pursuant to Rule 172), as many copies of each Preliminary Prospectus, the Prospectus and each Issuer Free Writing Prospectus and any supplement thereto as the Representatives may reasonably request.
f) Qualification of Units. The Partnership will arrange, if necessary, for the qualification of the Units for sale under the laws of such jurisdictions as the Representatives may reasonably designate and will maintain such qualifications in effect so long as reasonably required for the distribution of the Units; provided , however, that in no event shall the Partnership be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action that would subject it to service of process in suits, other than those arising out of the offering or sale of the Units, in any jurisdiction where it is not now so subject.
g) Lock-Up Period. The Partnership Parties will not, without the prior written consent of the Representatives, offer, sell, contract to sell, pledge or otherwise dispose of or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by any of the Partnership Parties or any person in privity with the Partnership Parties or any of their affiliates, directly or indirectly, including the filing (or participation in the filing) of a registration statement with the Commission in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position (within the meaning of Section 16 of the Exchange Act) in any Common Units or any securities convertible into, or exercisable, or exchangeable for, Common Units; or publicly announce an intention to effect any such transaction, for a period of 60 days after the date of this Agreement (the “ Lock-Up Period ”), provided , however, that the Partnership (A) may issue and sell Common Units pursuant to, and file a registration statement on Form S-8 relating to, any employee benefit plan of the Partnership in effect at the Execution Time and (B) the Partnership may issue Common Units upon the conversion of securities or the exercise of warrants outstanding at the Execution Time.
h) Price Manipulation. The Partnership Parties will not take, directly or indirectly, any action designed to or that would constitute or that might reasonably be expected to cause or result in, under the Exchange Act or otherwise, stabilization or manipulation of the price of any security of the Partnership to facilitate the sale or resale of the Units.
i) Expenses . The Partnership agrees to pay the costs and expenses relating to the following matters: (i) the preparation, printing or reproduction and filing with the Commission of the Registration Statement (including financial statements and exhibits thereto), each Preliminary Prospectus, the Prospectus and each Issuer Free
 
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Writing Prospectus, and each amendment or supplement to any of them; (ii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the Registration Statement, each Preliminary Prospectus, the Prospectus and each Issuer Free Writing Prospectus, and all amendments or supplements to any of them, as may, in each case, be reasonably requested for use in connection with the offering and sale of the Units; (iii) the preparation, printing, authentication, issuance and delivery of certificates for the Units, including any stamp or transfer taxes in connection with the execution of this Agreement or the original issuance and sale of the Units; (iv) the printing (or reproduction) and delivery of this Agreement, any blue sky memorandum and all other agreements or documents printed (or reproduced) and delivered in connection with the offering of the Units; (v) the registration of the Units under the Exchange Act and the listing of the Units on the New York Stock Exchange; (vi) any registration or qualification of the Units for offer and sale under the securities or blue sky laws of the several states (including filing fees); (vii) any filings required to be made with the Financial Industry Regulatory Authority, Inc. (“ FINRA ”); (viii) the expenses (other than transportation expenses) incurred by or on behalf of Partnership representatives in connection with presentations to prospective purchasers of the Units; (ix) the fees and expenses of the Partnership’s accountants and the fees and expenses of counsel (including local and special counsel) for the Partnership and KNOT; and (x) all other costs and expenses incident to the performance by the Partnership Parties of their obligations hereunder.
j) Free Writing Prospectus. The Partnership agrees that, unless it has obtained or shall have obtained the prior written consent of the Representatives, and each Underwriter, severally and not jointly, agrees with the Partnership that, unless it has obtained or shall have obtained, as the case may be, the prior written consent of the Partnership and the Representatives, it has not made and will not make any offer relating to the Units that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a “free writing prospectus” (as defined in Rule 405) required to be filed by the Partnership with the Commission or retained by the Partnership under Rule 433; provided , however, that the prior written consent of the parties hereto shall be deemed to have been given in respect of each Free Writing Prospectus included in Schedule II hereto and any bona fide electronic road show within the meaning of Rule 433. Any such free writing prospectus consented to by the Representatives or the Partnership is hereinafter referred to as a “ Permitted Free Writing Prospectus .” The Partnership agrees that (i) it has treated and will treat, as the case may be, each Permitted Free Writing Prospectus as an Issuer Free Writing Prospectus and (ii) it has complied and will comply, as the case may be, with the requirements of Rules 164 and 433 applicable to any Permitted Free Writing Prospectus, including in respect of timely filing with the Commission, legending and record keeping.
k) Rule 463 . The Partnership will file with the Commission such information in Form 20-F as may be required by Rule 463 under the Act.
l) Investment Company . As of the Closing Date, no Partnership Entity will be deemed an “investment company” as defined in the Investment Company
 
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Act. For a period of five years after the later of the Closing Date and any settlement date, the Partnership will use its reasonable best efforts to ensure that no Partnership Entity, or any subsidiary thereof, shall become an “investment company” as defined in the Investment Company Act. Unless there has occurred a material change in the nature of the operations of the Partnership, for a period of five years after the later of the Closing Date and any settlement date, the Partnership will use commercially reasonable efforts to ensure that the Partnership shall not become a PFIC.
m) Sanctions Laws and Regulations . The Partnership will not take, and will cause each subsidiary not to take, directly or indirectly, any action that would reasonably be expected to result in a violation by any U.S. person participating in the offering contemplated by this Agreement of the Sanction Laws and Regulations with respect to the sale of the Units hereunder.
n) Emerging Growth Company Status . The Partnership will promptly notify the Representatives if the Partnership ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of the Units within the meaning of the Act and (ii) completion of the Lock-Up Period referred to in Section 5(g) hereof.
o) Written Testing-the-Waters Communication. If at any time following the distribution of any Written Testing-the-Waters Communication, any event occurs as a result of which such Written Testing-the-Waters Communication would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made at such time not misleading, the Partnership will (i) promptly notify the Representatives so that use of the Written Testing-the-Waters Communication may cease until it is amended or supplemented; (ii) amend or supplement the Written Testing-the-Waters Communication to correct such statement or omission; and (iii) supply any amendment or supplement to the Representatives in such quantities as may be reasonably requested.
6. Conditions to the Obligations of the Underwriters . The obligations of the Underwriters to purchase the Firm Units and the Option Units, as the case may be, shall be subject to the accuracy of the representations and warranties on the part of the Partnership Parties contained herein as of the Execution Time, the Closing Date and any settlement date pursuant to Section 3 hereof, to the accuracy of the statements of the Partnership Parties made in any certificates pursuant to the provisions hereof, to the performance by the Partnership Parties of their respective obligations hereunder and to the following additional conditions:
a) The Prospectus, and any supplement thereto, has been filed in the manner and within the time period required by Rule 424(b); any material required to be filed by the Partnership pursuant to Rule 433(d) under the Act shall have been filed with the Commission within the applicable time periods prescribed for such filings by Rule 433; and no stop order suspending the effectiveness of the Registration Statement or any notice objecting to its use shall have been issued and no proceedings for that purpose shall have been instituted or threatened.
 
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b) The Partnership shall have requested and caused special Republic of The Marshall Islands counsel for the Partnership Parties, to have furnished to the Representatives their written opinion, dated the Closing Date and any settlement date, as applicable, and addressed to the Representatives, in form and substance satisfactory to the Representatives.
c) The Partnership shall have requested and caused Vinson & Elkins L.L.P., U.S. counsel to the Partnership Parties, to have furnished to the Representatives their written opinion, dated the Closing Date and any settlement date, as applicable, and addressed to the Representatives, in form and substance reasonably satisfactory to the Representatives.
d) The Partnership shall have requested and caused special Norwegian counsel to the Partnership Parties, to have furnished to the Representatives their written opinion, dated the Closing Date and any settlement date, as applicable, and addressed to the Representatives, in form and substance satisfactory to the Representatives.
e) The Partnership shall have requested and caused special counsel of the Republic of Malta to the Partnership Parties, to have furnished to the Representatives their written opinion, dated the Closing Date and any settlement date, as applicable, and addressed to the Representatives, in form and substance satisfactory to the Representatives.
f) The Representatives shall have received from Latham & Watkins LLP, counsel for the Underwriters, such opinion or opinions, dated the Closing Date and any settlement date, as applicable, and addressed to the Representatives, with respect to the issuance and sale of the Units, the Registration Statement, the Disclosure Package, the Prospectus (together with any supplement thereto) and other related matters as the Representatives may reasonably require, and the Partnership shall have furnished to such counsel such documents as they reasonably request for the purpose of enabling them to pass upon such matters.
g) The Partnership shall have furnished to the Representatives a certificate of the Partnership, signed on behalf of the Partnership, by the Chief Executive Officer and the Chief Financial Officer of the Partnership, dated the Closing Date and any settlement date, as applicable, to the effect that the signer of such certificate has carefully examined the Registration Statement, the Disclosure Package, the Prospectus, any Issuer Free Writing Prospectus and any amendment or supplement thereto, as well as each bona fide electronic road show used in connection with the offering of the Units, and this Agreement and that:
(i) the representations and warranties of the Partnership Parties in this Agreement are true and correct on and as of the Closing Date and
 
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any settlement date, as applicable, with the same effect as if made on the Closing Date and any settlement date, as applicable, and each of the Partnership Parties has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied at or prior to the Closing Date and any settlement date, as applicable;
(ii) no stop order suspending the effectiveness of the Registration Statement or any notice objecting to its use has been issued and no proceedings for that purpose have been instituted or, to the Partnership’s knowledge, threatened; and
(iii) since the date of the most recent financial statements included in the Disclosure Package and the Prospectus (exclusive of any supplement thereto), there has been no Material Adverse Effect, except as set forth in or contemplated in the Disclosure Package and the Prospectus (exclusive of any supplement thereto).
h) The Partnership Parties shall have requested and caused Ernst & Young AS to have furnished to the Representatives at the Execution Time and at the Closing Date and any settlement date, as applicable, letters, dated respectively as of the Execution Time and as of the Closing Date and any settlement date, as applicable, in form and substance satisfactory to the Representatives, (i) confirming that they are an independent registered public accounting firm within the meaning of the Act and the Exchange Act and the applicable rules and regulations thereunder, adopted by the Commission and the PCAOB, and (ii) stating their conclusions and findings with respect to the financial information and other matters ordinarily covered by accountants’ “comfort letters” to underwriters in connection with registered public offerings in the United States.
i) Subsequent to the Execution Time or, if earlier, the dates as of which information is given in the Registration Statement (exclusive of any amendment thereof) and the Prospectus (exclusive of any amendment or supplement thereto), there shall not have been (i) any change or decrease specified in the letter or letters referred to in paragraph (h) of this Section 6 or (ii) any change, or any development involving a prospective change, in or affecting the condition (financial or otherwise), earnings, business or properties of the Partnership Entities, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Disclosure Package and the Prospectus (exclusive of any amendment or supplement thereto) the effect of which, in any case referred to in clause (i) or (ii) above, is, in the sole judgment of the Representatives, so material and adverse as to make it impractical or inadvisable to proceed with the offering or delivery of the Units as contemplated by the Registration Statement (exclusive of any amendment thereof), the Disclosure Package and the Prospectus (exclusive of any amendment or supplement thereto).
j) Subsequent to the Execution Time, there shall not have been any decrease in the rating of any of the Partnership Entities’ debt securities, if any, by any
 
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“nationally recognized statistical rating organization” (as defined in Section 3(a)(62) under the Exchange Act) or any notice given of any intended or potential decrease in any such rating or of a possible change in any such rating that does not indicate the direction of the possible change.
k) The Units shall have been listed and admitted and authorized for trading on the New York Stock Exchange, subject to official notice of issuance, and reasonably satisfactory evidence of such actions shall have been provided to the Representatives.
l) At the Execution Time, the Partnership Parties shall have furnished to the Representatives a letter substantially in the form of Exhibit C hereto from each of the persons listed on Schedule III hereto.
m) Prior to the Closing Date and any settlement date, as applicable, the Partnership Parties shall have furnished to the Representatives such further information, certificates and documents as the Representatives may reasonably request.
If any of the conditions specified in this Section 6 shall not have been fulfilled when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be reasonably satisfactory in form and substance to the Representatives and counsel for the Underwriters, this Agreement and all obligations of the Underwriters hereunder may be canceled at, or at any time prior to, the Closing Date by the Representatives. Notice of such cancellation shall be given to the Partnership in writing or by telephone or facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall be delivered at the office of Vinson & Elkins L.L.P., counsel for the Partnership, at 2200 Pennsylvania Ave. NW, Suite 500W, Washington, DC 20037, on the Closing Date.
7. Reimbursement of Underwriters’ Expenses . If the sale of the Units provided for herein is not consummated because any condition to the obligations of the Underwriters set forth in Section 6 hereof is not satisfied, because of any termination pursuant to Section 10(i) hereof or because of any refusal, inability or failure on the part of the Partnership Parties to perform any agreement herein or comply with any provision hereof other than by reason of a default by any of the Underwriters, the Partnership Parties will reimburse the Underwriters severally through Merrill Lynch, Pierce, Fenner & Smith Incorporated on demand for all out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by them in connection with the proposed purchase and sale of the Units.
8. Indemnification and Contribution . (a) Each of the Partnership Parties jointly and severally agrees to (i) indemnify and hold harmless each Underwriter, the directors, officers, employees and agents of each Underwriter, affiliates of the Underwriters who have participated in the distribution of the Units and each person who controls any Underwriter within the meaning of either the Act or the Exchange Act
 
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against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (A) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement for the registration of the Units as originally filed or in any amendment thereof, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (B) any untrue statement or alleged untrue statement of a material fact contained in the Base Prospectus, any Preliminary Prospectus, any Issuer Free Writing Prospectus, or in any Prospectus, or in any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (ii) reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided , however, that the Partnership Parties will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Partnership Parties by or on behalf of any Underwriter through the Representatives specifically for inclusion therein, which information consists solely of the information set forth in the last sentence of Section 8(b). This indemnity agreement will be in addition to any liability that the Partnership Parties may otherwise have.
b) Each Underwriter severally and not jointly agrees to indemnify and hold harmless each of the Partnership Parties, each of their respective directors, each of the officers who signs the Registration Statement, and each person who controls any Partnership Party within the meaning of either the Act or the Exchange Act, to the same extent as the foregoing indemnity from the Partnership Parties to each Underwriter, but only with reference to written information relating to such Underwriter furnished to the Partnership Parties by or on behalf of such Underwriter through the Representatives specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement will be in addition to any liability which any Underwriter may otherwise have. Each Partnership Party acknowledges that the statements set forth (i) in the last paragraph of the cover page regarding delivery of the Units and, under the heading “Underwriting”, (ii) the list of Underwriters and their respective participation in the sale of the Units, (iii) the sentences related to concessions and reallowances and (iv) the paragraphs related to stabilization, syndicate covering transactions and short sales in any Preliminary Prospectus and the Prospectus constitute the only information furnished in writing by or on behalf of the several Underwriters for inclusion in any Preliminary Prospectus, the Prospectus and any Issuer Free Writing Prospectus.
c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify
 
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the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel of the indemnifying party’s choice at the indemnifying party’s expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided, however, that such counsel shall be reasonably satisfactory to the indemnified party. Notwithstanding the indemnifying party’s election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ one separate counsel (in addition to local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party, (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnifying party will not, without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding and does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party.
d) In the event that the indemnity provided in paragraph (a), (b) or (c) of this Section 8 is unavailable to or insufficient to hold harmless an indemnified party for any reason, the Partnership Parties jointly and severally agree and the Underwriters severally but not jointly agree to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively “ Losses ”) to which the Partnership Parties and one or more of the Underwriters may be subject in such proportion as is appropriate to reflect the relative benefits received by the Partnership Parties on the one hand and by the Underwriters on the other from the offering of the Units; provided , however, that in no case shall any Underwriter (except as may be provided in any agreement among
 
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underwriters relating to the offering of the Units) be responsible for any amount in excess of the underwriting discount or commission applicable to the Units purchased by such Underwriter hereunder. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Partnership Parties, jointly and severally, and the Underwriters severally but not jointly shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Partnership Parties on the one hand and of the Underwriters on the other in connection with the statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Partnership Parties shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses) received by the Partnership, and benefits received by the Underwriters shall be deemed to be equal to the total underwriting discounts and commissions, in each case as set forth on the cover page of the Prospectus. Relative fault shall be determined by reference to, among other things, whether any untrue or any alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information provided by the Partnership Parties on the one hand or the Underwriters on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Partnership Parties and the Underwriters agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation that does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each person who controls an Underwriter within the meaning of either the Act or the Exchange Act and each director, officer, employee and agent of an Underwriter shall have the same rights to contribution as such Underwriter, and each person who controls the Partnership Parties within the meaning of either the Act or the Exchange Act, each officer of any of the Partnership Parties who shall have signed the Registration Statement and each director of the Partnership Parties shall have the same rights to contribution as the Partnership Parties, subject in each case to the applicable terms and conditions of this paragraph (e).
9. Default by an Underwriter . If any one or more Underwriters shall fail to purchase and pay for any of the Units agreed to be purchased by such Underwriter or Underwriters hereunder and such failure to purchase shall constitute a default in the performance of its or their obligations under this Agreement, the remaining Underwriters shall be obligated severally but not jointly to take up and pay for (in the respective proportions which the number of Units set forth opposite their names in Schedule I hereto bears to the aggregate number of Units set forth opposite the names of all of the remaining Underwriters) the Units that the defaulting Underwriter or Underwriters agreed but failed to purchase; provided , however, that in the event that the aggregate number of Units that the defaulting Underwriter or Underwriters agreed but failed to purchase shall exceed 10% of the aggregate number of Units set forth in Schedule I hereto, the remaining Underwriters shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Units, and if such nondefaulting Underwriters do not purchase all the Units, this Agreement will terminate without liability to any
 
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nondefaulting Underwriter or the Partnership Parties. In the event of a default by any Underwriter as set forth in this Section 9, the Closing Date shall be postponed for such period, not exceeding five Business Days, as the Representatives shall determine in order that the required changes in the Registration Statement and the Prospectus or in any other documents or arrangements may be effected. Nothing contained in this Agreement shall relieve any defaulting Underwriter of its liability, if any, to the Partnership Parties and any nondefaulting Underwriter for damages occasioned by its default hereunder.
10. Termination . This Agreement shall be subject to termination in the absolute discretion of the Representatives, by notice given to the Partnership prior to delivery of and payment for the Units, if at any time prior to such delivery and payment (i) trading in the Partnership’s Units shall have been suspended by the Commission or the New York Stock Exchange, (ii) trading in securities generally on the New York Stock Exchange or the NASDAQ National Market shall have been suspended or limited or minimum prices shall have been established on such exchange, (iii) a banking moratorium shall have been declared by either U.S. Federal or New York State authorities or (iv) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war, or other calamity or crisis the effect of which on financial markets is such as to make it, in the sole judgment of the Representatives, impractical or inadvisable to proceed with the offering or delivery of the Units as contemplated by the Preliminary Prospectus and the Prospectus (exclusive of any amendment or supplement thereto).
11. Representations and Indemnities to Survive . The respective agreements, representations, warranties, indemnities and other statements of the Partnership Parties or their respective officers and of the Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Partnership Parties or any of the officers, directors, employees, agents or controlling persons referred to in Section 8 hereof, and will survive delivery of and payment for the Units. The provisions of Sections 7 and 8 hereof shall survive the termination or cancellation of this Agreement.
12. Notices . All communications hereunder will be in writing and effective only on receipt, and, if sent to the Representatives, will be mailed, delivered or telefaxed to Attention: General Counsel; Merrill Lynch, Pierce, Fenner & Smith Incorporated, at One Bryant Park, New York, New York 10036, Attention: Syndicate Department (fax no.:(646) 855-3073), with a copy to ECM Legal (fax no.: (212) 230-8730); Citigroup Global Markets Inc. General Counsel (fax no.: (212) 816-7912) and confirmed to the General Counsel, Citigroup Global Markets Inc., at 388 Greenwich Street, New York, New York, 10013, Attention: General Counsel; Barclays Capital Inc., 745 Seventh Avenue, New York, New York 10019, Attention: Syndicate Registration, fax no.: (646) 834-8133, with a copy, in the case of any notice pursuant to Section 8(c), to the Director of Litigation, Office of the General Counsel, Barclays Capital Inc., 745 Seventh Avenue, New York, New York 10019; or, if sent to the Partnership, will be mailed, delivered or telefaxed to KNOT Offshore Partners LP (fax no.: +44 (0) 1224 624891) and confirmed to the Chief Executive Officer and Chief Financial Officer at
 
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KNOT Offshore Partners LP, 2 Queen’s Cross, Aberdeen, Aberdeenshire AB15 4YB, United Kingdom, Attention: Arild Vik, with a copy to KNOT (fax no.: +47 52704040), Smedasundet 40, 5529 Haugesund, Norway, Attention: Trygve Seglem.
13. Successors . This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers, directors, employees, agents and controlling persons referred to in Section 8 hereof, and no other person will have any right or obligation hereunder.
14. No Fiduciary Duty . Each of the Partnership Parties hereby acknowledges that (a) the purchase and sale of the Units pursuant to this Agreement is an arm’s-length commercial transaction between the Partnership, on the one hand, and the Underwriters and any affiliate through which it may be acting, on the other, (b) the Underwriters are acting as principal and not as an agent or fiduciary of the Partnership Parties and (c) the engagement of the Underwriters in connection with the offering and the process leading up to the offering is as independent contractors and not in any other capacity. Furthermore, each of the Partnership Parties agrees that it is solely responsible for making its own judgments in connection with the offering (irrespective of whether any of the Underwriters has advised or is currently advising the Partnership Parties on related or other matters). Each of the Partnership Parties agrees that it will not claim that any of the Underwriters have rendered advisory services of any nature or respect, or owe an agency, fiduciary or similar duty to the Partnership Parties, in connection with the transactions contemplated by this Agreement or the process leading thereto.
15. Integration . This Agreement supersedes all prior agreements and understandings (whether written or oral) between the Partnership Parties and the Underwriters, or any of them, with respect to the subject matter hereof.
16. Applicable Law . This Agreement will be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York.
17. Judicial Proceedings . (a) Each of the Partnership Parties and the Representatives irrevocably agree that any legal suit, action or proceeding against the Partnership Parties arising out of or based upon this Agreement, the transactions contemplated hereby or alleged violations of the securities laws of the United States or any state in the United States will be instituted in any New York court. The Partnership Parties irrevocably (i) waive, to the fullest extent it may effectively do so, any objection which it may now or hereafter have to the laying of venue of any such proceeding in any New York court and (ii) submit to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Each of the Partnership Parties has appointed Watson, Farley & Williams (New York) LLP, New York, New York, as its authorized agent (the “ Authorized Agent ”), upon whom process may be served in any such action arising out of or based on this Agreement, the transactions contemplated hereby or any alleged violation of the securities laws of the United States or any state in the United States which may be instituted in any New York court, expressly consent to the jurisdiction of any such court in respect of any such action, and waive any other requirements of or
 
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objections to personal jurisdiction with respect thereto. Such appointment shall be irrevocable. The Partnership Parties represent and warrant that the Authorized Agent has agreed to act as such agent for service of process and agrees to take any and all action, including the filing of any and all documents and instruments, that may be necessary to continue such appointment in full force and effect as aforesaid. Service of process upon the Authorized Agent and written notice of such service to the Partnership Parties shall be deemed, in every respect, effective service of process upon the Partnership Parties.
(b) If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder into any currency other than United States dollars, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Underwriters could purchase United States dollars with such other currency in the City of New York on the Business Day proceeding that on which final judgment is given. The obligations of the Partnership Parties in respect of any sum due from it to the Underwriters shall, notwithstanding any judgment in a currency other than United States dollars, not be discharged until the first Business Day, following receipt by the Underwriters of any sum adjudged to be so due in such other currency, on which (and only to the extent that) the Underwriters may in accordance with normal banking procedures purchase United States dollars with such other currency; if the United States dollars so purchased are less than the sum originally due to the Underwriters hereunder, the Partnership Parties agree, as a separate obligation and notwithstanding any such judgment, that the party responsible for such judgment shall indemnify the Underwriters against such loss. If the United States dollars so purchased are greater than the sum originally due to the Underwriters hereunder, the Underwriters agree to pay to the Partnership Parties an amount equal to the excess of the dollars so purchased over the sum originally due to the Underwriters hereunder.
18. Counterparts. This Agreement may be signed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same agreement.
19. Headings . The section headings used in this Agreement are for convenience only and shall not affect the construction hereof.
20. Definitions . The terms that follow, when used in this Agreement, shall have the meanings indicated.
“ Act ” shall mean the United States Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder.
“ Base Prospectus ” shall mean the base prospectus referred to in Section 1(a) hereof contained in the Registration Statement at the Execution Time.
“ Business Day ” shall mean any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions or trust companies are authorized or obligated by law to close in New York City.
 
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“ Commission ” shall mean the Securities and Exchange Commission.
“ Disclosure Package ” shall mean (i) the Base Prospectus, (ii) Preliminary Prospectus, dated June 23, 2014, (iii) the Issuer Free Writing Prospectuses, if any, identified in Schedule II hereto and (iv) the information set forth on Schedule IV .
“ Effective Date ” shall mean each date and time that the Registration Statement, any post-effective amendment or amendments thereto and any Rule 462(b) Registration Statement became or becomes effective.
“ Exchange Act ” shall mean the United States Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder.
“ Execution Time ” means 8:45 a.m. (Eastern Time) on June 24, 2014.
“ Free Writing Prospectus ” shall mean a free writing prospectus, as defined in Rule 405.
“ Issuer Free Writing Prospectus ” shall mean an issuer free writing prospectus, as defined in Rule 433.
“ Preliminary Prospectus ” shall mean any preliminary prospectus supplement to the Base Prospectus referred to in Section 1(a) hereof that is used prior to the filing of the Prospectus.
“ Prospectus ” shall mean the prospectus relating to the Units that is first filed pursuant to Rule 424(b) after the Execution Time, together with the Base Prospectus.
“ Registration Statement ” shall mean the registration statement referred to in Section 1(a) hereof, including exhibits and financial statements and any prospectus relating to the Units that is filed with the Commission pursuant to Rule 424(b) and deemed part of such registration statement pursuant to Rule 430B, as amended at the Execution Time and, in the event any post-effective amendment thereto or any Rule 462(b) Registration Statement becomes effective prior to the Closing Date, shall also mean such registration statement as so amended or such Rule 462(b) Registration Statement, as the case may be.
“ Rule 158 ”, “ Rule 172 ”, “ Rule 175 ”, “ Rule 405 ”, “ Rule 424 ”, “ Rule 430B ”, “ Rule 433 ”, and “ Rule 462 ” refer to such rules under the Act.
“ Rule 462(b) Registration Statement ” shall mean a registration statement and any amendments thereto filed pursuant to Rule 462(b) relating to the offering covered by the registration statement referred to in Section 1(a) hereof.
“ Testing-the-Waters Communication ” shall mean any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Act.
 
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“ Written Testing-the-Waters Communication ” shall mean any Testing-the-Waters Communication that is a written communication with the meaning of Rule 405 under the Act.
 
34

If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement among the Partnership Parties and the several Underwriters.

Very truly yours,	
	
KNOT OFFSHORE PARTNERS LP	
		
By:	 	/ S / A RILD V IK	
Name:	 	Arild Vik	
Title:	 	Chief Executive Officer and Chief Financial Officer	
	
KNOT OFFSHORE PARTNERS GP LLC	
		
By:	 	/ S / B JØRN B AKKEVIG	
Name:	 	Bjørn Bakkevig	
Title:	 	Chairman of the Board	
	
KNOT OFFSHORE PARTNERS UK LLC	
		
By:	 	/ S / A RILD V IK	
Name:	 	Arild Vik	
Title:	 	Chief Executive Officer and Chief Financial Officer	
	
KNOT SHUTTLE TANKERS AS	
		
By:	 	/ S / T RYGVE S EGLEM	
Name:	 	Trygve Seglem	
Title:	 	Chairman of the Board	
Signature Page to Underwriting Agreement

			
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.	
	
M ERRILL L YNCH , P IERCE , F ENNER & S MITH	
         I NCORPORATED	
		
By:	 	/ S / P EI -T SE W U	
Name:	 	Pei-Tse Wu	
Title:	 	Managing Director	
	
C ITIGROUP G LOBAL M ARKETS I NC .	
		
By:	 	/ S / J ENNY Z OU	
Name:	 	Jenny Zou	
Title:	 	VP	
	
B ARCLAYS C APITAL I NC .	
		
By:	 	/ S / V ICTORIA H ALE	
Name:	 	Victoria Hale	
Title:	 	Vice President	
	
For themselves and the other several Underwriters named in Schedule I to the foregoing Agreement.	
Signature Page to Underwriting Agreement

SCHEDULE I

Underwriters	  	Number of Firm Units
to be Purchased	 	
		
Merrill Lynch, Pierce, Fenner & Smith
                      Incorporated	  	 	920,000	  	
Citigroup Global Markets Inc.	  	 	644,000	  	
Barclays Capital Inc.	  	 	644,000	  	
Raymond James & Associates, Inc.	  	 	552,000	  	
RBC Capital Markets, LLC	  	 	552,000	  	
UBS Securities LLC	  	 	552,000	  	
Wells Fargo Securities, LLC	  	 	552,000	  	
ABN AMRO Securities (USA) LLC	  	 	92,000	  	
DNB Markets Inc.	  	 	92,000	  	
	  	 	 	 	
Total	  	 	4,600,000	  	

SCHEDULE II
Schedule of Free Writing Prospectuses included in the Disclosure Package
None.

SCHEDULE III
Parties to Deliver Lock-Up Agreements
1. Trygve Seglem
2. Arild Vik
3. John Costain
4. Yutaka Higurashi
5. Yoshiyuki Konuma
6. Hans Petter Aas
6. Edward A. Waryas, Jr.
7. Andrew Beveridge
8. Knutsen NYK Offshore Tankers AS

SCHEDULE IV
 
1.	Number of Firm Units: 4,600,000	
 
2.	Number of Option Units: 690,000	
 
3.	Public Offering Price: $28.43 per Unit	

EXHIBIT A
CHARTER AGREEMENTS
“ Charter Agreements ” include the following agreements:
 
 	a.	Fortaleza Knutsen Standard Bareboat Charter Party, dated November 14, 2007, between Knutsen Shuttle Tankers XII KS and Fronape International Company/Petrobras Transporte S.A.-Transpetro, novated by the Novation Agreement, dated June 27, 2012, between Knutsen Shuttle Tankers XII KS, Knutsen OAS Shipping AS, Fronape International Company, Petrobras Transporte S.A.-Transpetro and Fronape International Company B.V.;	
 
 	b.	Recife Knutsen Standard Bareboat Charter Party, dated November 14, 2007, between Knutsen Shuttle Tankers XII KS and Fronape International Company/Petrobras Transporte S.A.-Transpetro, novated by the Novation Agreement, dated June 29, 2012, between Knutsen Shuttle Tankers XII KS, Knutsen OAS Shipping AS, Fronape International Company, Petrobras Transporte S.A.-Transpetro and Fronape International Company B.V.;	
 
 	c.	Windsor Knutsen Time Charter Party, dated April 6, 2010, between Knutsen OAS Shipping AS and Brazil Shipping I Limited, formerly known as BG Oil Services Limited, novated by the Novation Agreement, dated May 3, 2010, between Knutsen OAS Shipping AS, Knutsen Bøyelaster XI KS and Brazil Shipping I Limited, formerly known as BG Oil Services Limited and further novated by the Novation Agreement, dated February 20, 2013, between Knutsen Bøyelaster XI KS, KNOT Shuttle Tankers 18 AS and Brazil Shipping I Limited;	
 
 	d.	Bodil Knutsen Time Charter Party, dated October 7, 2010, between Knutsen Bøyelaster VI KS and Statoil ASA, amended by Addendum No. 1, dated March 29, 2011, between Knutsen Bøyelaster VI KS and Statoil ASA and novated by the Novation Agreement, dated February 18, 2013, between Knutsen Bøyelaster VI KS, KNOT Shuttle Tankers 17 AS and Statoil ASA; and	
 
 	e.	Carmen Knutsen Time Charter Party, dated November 30, 2010, between Knutsen Shuttle Tankers 13 AS and Repsol YPF Trading y Transporte, S.A., as amended by Addendum No. 1, dated November May 11, 2012, between Knutsen Shuttle Tankers 13 AS and Repsol YPF Trading y Transporte, S.A., as assigned by Repsol YPF Trading y Transporte, S.A. to Repsol Sinopec Brasil, B.V. pursuant to the Letter of Assignment, dated August 29, 2012, and as further amended by Addendum No. 2, dated October 31, 2012, between Knutsen Shuttle Tankers 13 AS and Repsol Sinopec Brasil, B.V.	

EXHIBIT B
VESSELS

Vessel	  	Ownership	  	Flag Jurisdiction	
Fortaleza Knutsen	  	Knutsen Shuttle Tankers XII KS	  	The Bahamas	
Recife Knutsen	  	Knutsen Shuttle Tankers XII KS	  	The Bahamas	
Bodil Knutsen	  	KNOT Shuttle Tankers 17 AS	  	Isle of Man	
Windsor Knutsen	  	KNOT Shuttle Tankers 18 AS	  	Norway	
Carmen Knutsen	  	Knutsen Shuttle Tankers 13 AS	  	Malta	

EXHIBIT C
[Form of Lock-Up Agreement]
June 24, 2014
Merrill Lynch, Pierce, Fenner & Smith
    Incorporated
Citigroup Global Markets Inc.
Barclays Capital Inc.
as Representatives of the several Underwriters
c/o Merrill Lynch, Pierce, Fenner & Smith
          Incorporated
One Bryant Park, 20 th Floor
New York, New York 10036
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed Underwriting Agreement (the “ Underwriting Agreement ”), between KNOT Offshore Partners GP LLC, KNOT Offshore Partners LP (the “ Partnership ”), KNOT Offshore Partners UK LLC and KNOT Shuttle Tankers AS, and each of you as representatives of a group of Underwriters named therein, relating to an underwritten public offering of common units representing limited partner interests in the Partnership (the “ Common Units ”).
In order to induce you and the other Underwriters to enter into the Underwriting Agreement, the undersigned will not, without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated, offer, sell, contract to sell, pledge or otherwise dispose of, (or enter into any transaction that is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the undersigned or any affiliate of the undersigned or any person in privity with the undersigned or any affiliate of the undersigned), directly or indirectly, including the filing (or participation in the filing) of a registration statement with the Securities and Exchange Commission in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder with respect to, any Common Units or any securities convertible into, or exercisable or exchangeable for Common Units, or publicly announce an intention to effect any such transaction, for a period of 60 days after the date of the Underwriting Agreement, other than shares of Common Units disposed of as bona fide gifts approved by Merrill Lynch, Pierce, Fenner & Smith Incorporated where each recipient of a gift of shares of Common Units agrees in writing to be bound by the same restrictions in place for the undersigned pursuant to this letter for the duration that such restrictions remain in effect at the time of transfer.

Notwithstanding the foregoing, the restrictions herein shall not apply to transactions relating to the Common Units acquired in open market transactions after completion of the public offering, provided that with respect to any proposed subsequent sales of Common Units acquired in such open market transactions, it shall be a condition to such proposed subsequent sales that no filing by any party or its affiliates under the Exchange Act shall be required or shall be voluntarily made in connection with such sales.
If for any reason the Underwriting Agreement shall be terminated prior to the Closing Date (as defined in the Underwriting Agreement), the agreement set forth above shall likewise be terminated.

Yours very truly,	
	
[Signature of officer, director or major unitholder]	
	
[Name and address of officer, director or major unitholder]	

Exhibit 5.1

	 	Watson, Farley & Williams LLP	
	 	1133 Avenue of the Americas	
June 27, 2014	 	New York, New York 10036	
	 	Tel +1 212 922 2200	
	 	Fax +1 212 922 1512	
KNOT Offshore Partners LP
2 Queen’s Cross, Aberdeen
Aberdeenshire AB15 4YB
United Kingdom
Registration Statement on Form F-3
Dear Sirs:
We have acted as special counsel as to matters of the law of the Republic of The Marshall Islands (“ Marshall Islands Law ”) for KNOT Offshore Partners LP, a Marshall Islands limited partnership (the “ Partnership ”), and various of its subsidiaries and affiliates, in connection with the issuance and sale by the Partnership of up to 5,290,000 common units (the “ Units ”) pursuant to the Partnership’s Registration Statement on Form F-3 (No. 333-195976) (the “ Registration Statement ”), the preliminary prospectus supplement dated June 23, 2014 (the “ Preliminary Prospectus ”) to the base prospectus dated May 28, 2014 and the prospectus supplement dated June 25, 2014 (the “ Prospectus ”) to the base prospectus dated May 28, 2014.
In rendering this opinion, we have examined originals or copies (certified or otherwise identified to our satisfaction) of the following documents:
 
(i)	the Registration Statement;	
 
(ii)	the Preliminary Prospectus;	
 
(iii)	the Prospectus;	
 
(iv)	the Underwriting Agreement, dated June 24, 2014 (the “ Underwriting Agreement ”), among the Partnership, KNOT Offshore Partners GP LLC, a Marshall Islands limited liability company (the “ General Partner ”), KNOT Offshore Partners UK LLC, a Marshall Islands limited liability company (“ KNOT UK ”), KNOT Shuttle Tankers AS, a company organized under the laws of Norway (together with the Partnership, the General Partner and KNOT UK, the “ Marshall Islands Entities ”) and the underwriters named therein; and	
 
(v)	such other papers, documents, agreements, certificates of public officials and certificates of representatives of the Marshall Islands Entities and their affiliates as we have deemed relevant and necessary as the basis for the opinion hereafter expressed.	
Watson, Farley & Williams LLP is a Delaware limited liability partnership. Any reference to a ‘partner’ means a member of Watson, Farley & Williams LLP, or a member or partner in an affiliated undertaking, or an employee or consultant with equivalent standing and qualification.
Watson, Farley & Williams LLP or an affiliated undertaking has an office in each of the cities listed.
London — New York — Paris — Hamburg — Munich — Frankfurt — Rome — Milan — Madrid — Athens — Singapore — Bangkok — Hong Kong

			
KNOT Offshore Partners LP	 	Page 2	
June 27, 2014	 		
 
In such examination, we have assumed (a) the legal capacity of each natural person, (b) the genuineness of all signatures and the authenticity of all documents submitted to us as originals, (c) the conformity to original documents of all documents submitted to us as conformed or photostatic copies, (d) that the documents reviewed by us in connection with the rendering of the opinion set forth herein are true, correct and complete and (e) the truthfulness of each statement as to all factual matters contained in any document or certificate encompassed within the due diligence review undertaken by us.
In rendering this opinion, we have also assumed:
 
(i)	that the Underwriting Agreement has been duly and validly authorized by the parties thereto (other than the Marshall Islands Entities), and executed and delivered by such parties thereto; and	
 
(ii)	the validity and enforceability of the Underwriting Agreement against the parties thereto.	
As to matters of fact material to this opinion that have not been independently established, we have relied upon the representations and certificates of officers or representatives of the Marshall Islands Entities and their affiliates and of public officials, in each case as we have deemed relevant and appropriate, and upon the representations and warranties of each of the Marshall Islands Entities in the Underwriting Agreement. We have not independently verified the facts so relied on.
This opinion letter is limited to Marshall Islands Law and is as of the date hereof. We expressly disclaim any responsibility to advise of any development or circumstance of any kind, including any change of law or fact that may occur after the date of this opinion letter that might affect the opinion expressed herein.
Based on the foregoing, and having regard to legal considerations which we deem relevant, and subject to the qualifications, limitations and assumptions set forth herein, we are of the opinion that when the Units are issued and delivered against payment therefor in accordance with the terms of the Underwriting Agreement, the Registration Statement and the Prospectus, the Units will be validly issued, fully paid and nonassessable.
We consent to the discussion of this opinion in the Registration Statement and Prospectus, the filing of this opinion as an exhibit to a Report on Form 6-K of the Partnership and to the references to our firm in the Registration Statement, the Preliminary Prospectus and the Prospectus. In giving this consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended (the “ Securities Act ”), or the rules and regulations promulgated thereunder, nor do we admit that we are experts with respect to any part of the Registration Statement within the meaning of the term “expert” as used in the Securities Act.

Very truly yours,	
	
Watson, Farley & Williams LLP	
	
/s/ Watson, Farley & Williams LLP	

Exhibit 8.1

June 27, 2014
KNOT Offshore Partners LP
2 Queen’s Cross
Aberdeen, Aberdeenshire AB15 4YB
United Kingdom
 
Re:	KNOT Offshore Partners LP Registration Statement on Form F-3	
Ladies and Gentlemen:
We have acted as counsel for KNOT Offshore Partners LP, a Marshall Islands limited partnership (the “ Partnership ”), with respect to certain legal matters in connection with the offer and sale of up to 5,290,000 common units representing limited partnership interests in the Partnership. We have also participated in the preparation of a Prospectus Supplement dated June 24, 2014 (the “ Prospectus Supplement ”) and the Prospectus dated May 28, 2014 (the “ Prospectus ”), forming part of the Registration Statement on Form F-3, No. 333-195976 (the “ Registration Statement ”).
This opinion is based on various facts and assumptions, and is conditioned upon certain representations made by the Partnership as to factual matters through a representation letter certified by an officer of the Partnership (the “ Officer’s Certificate ”). In addition, this opinion is based on the factual representations of the Partnership concerning its business, properties and governing documents as set forth in the Registration Statement.
In our capacity as counsel to the Partnership, we have made such legal and factual examinations and inquiries, including an examination of originals or copies certified or otherwise identified to our satisfaction of such documents, corporate records and other instruments, as we have deemed necessary or appropriate for purposes of this opinion. In our examination, we have assumed the authenticity of all documents submitted to us as originals, the genuineness of all signatures thereon, the legal capacity of natural persons executing such documents and the conformity to authentic original documents of all documents submitted to us as copies. For the purpose of our opinion, we have not made an independent investigation or audit of the facts set forth in the above-referenced documents or in the Officer’s Certificate. In addition, in rendering this opinion we have assumed the truth and accuracy of all representations and statements made to us which are qualified as to knowledge or belief, without regard to such qualification.

Vinson & Elkins LLP Attorneys at Law	 	666 Fifth Avenue, 26th Floor	
Abu Dhabi Austin Beijing Dallas Dubai Hong Kong Houston London	 	New York, NY 10103-0040	
Moscow New York Palo Alto Riyadh San Francisco Tokyo Washington	 	Tel +1.212.237.0000 Fax +1.212.237.0100 www.velaw.com	

			
	 	Page 2	
 
We are opining herein as to the effect on the subject transaction only of the federal income tax laws of the United States, and we express no opinion with respect to the applicability thereto, or the effect thereon, of other federal laws, foreign laws, the laws of any state or any other jurisdiction or as to any matters of municipal law or the laws of any other local agencies within any state. We hereby confirm that all statements of legal conclusions contained in the discussion in the Prospectus under the caption “Material U.S. Federal Income Tax Considerations,” as updated by the discussion in the Prospectus Supplement under the caption “Material U.S. Federal Income Tax Considerations,” constitute the opinion of Vinson & Elkins L.L.P. with respect to the matters set forth therein as of the date of the Prospectus Supplement, subject to the assumptions, qualifications, and limitations set forth therein. No opinion is expressed as to any matter not discussed therein.
This opinion is rendered to you as of the date hereof, and we undertake no obligation to update this opinion subsequent to the date hereof. This opinion is based on various statutory provisions, regulations promulgated thereunder and interpretations thereof by the Internal Revenue Service and the courts having jurisdiction over such matters, all of which are subject to change either prospectively or retroactively. Also, any variation or difference in the facts from those set forth in the representations described above, including in the Registration Statement and the Officer’s Certificate, may affect the conclusions stated herein.
This opinion may not be relied upon by you for any other purpose or furnished to, assigned to, quoted to or relied upon by any other person, firm or other entity, for any purpose, without our prior written consent. However, this opinion may be relied upon by you and by persons entitled to rely on it pursuant to applicable provisions of federal securities law, including persons purchasing common units pursuant to the Registration Statement.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name under the captions “Material U.S. Federal Income Tax Considerations” and “Legal Matters” in the Prospectus and the Prospectus Supplement. We further consent to the incorporation by reference of this letter and consent into any registration statement filed pursuant to Rule 462(b) under the Securities Act with respect to the common units. By giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act, as amended, and the rules and regulations thereunder.

			
	 	Page 3	

Very truly yours,	
	
/s/ VINSON & ELKINS L.L.P.	
	
Vinson & Elkins L.L.P.	

Exhibit 8.2

	 	Watson, Farley & Williams LLP	
	 	1133 Avenue of the Americas	
	 	New York, New York 10036	
	 	Tel +1 212 922 2200	
June 27, 2014	 	Fax +1 212 922 1512	
KNOT Offshore Partners LP
2 Queen’s Cross, Aberdeen
Aberdeenshire AB15 4YB
United Kingdom
Registration Statement on Form F-3
Dear Sirs:
We have acted as special counsel as to matters of the law of the Republic of The Marshall Islands (“ Marshall Islands Law ”) for KNOT Offshore Partners LP, a Marshall Islands limited partnership (the “ Partnership ”), and various of its subsidiaries and affiliates, in connection with the issuance and sale by the Partnership of common units pursuant to the Partnership’s Registration Statement on Form F-3 (No. 333-195976) (the “ Registration Statement ”), the preliminary prospectus supplement dated June 23, 2014 (the “ Preliminary Prospectus ”) to the base prospectus dated May 28, 2014 and the prospectus supplement dated June 24, 2014 (the “ Prospectus ”) to the base prospectus dated May 28, 2014.
In rendering this opinion, we have examined originals or copies (certified or otherwise identified to our satisfaction) of the following documents:
 
(i)	the Registration Statement;	
 
(ii)	the Preliminary Prospectus;	
 
(iii)	the Prospectus; and	
 
(iv)	such other papers, documents, agreements, certificates of public officials and certificates of representatives of the Partnership, KNOT Offshore Partners GP LLC and other affiliates of the Partnership as we have deemed relevant and necessary as the basis for the opinions hereafter expressed.	
In such examination, we have assumed (a) the legal capacity of each natural person, (b) the genuineness of all signatures and the authenticity of all documents submitted to us as originals, (c) the conformity to original documents of all documents submitted to us as conformed or photostatic copies, (d) that the documents reviewed by us in connection with the rendering of the opinion set forth herein are true, correct and complete and (e) the truthfulness of each statement as to all factual matters contained in any document or certificate encompassed within the due diligence review undertaken by us. As to any questions of fact material to our opinion, we have, when relevant facts were not independently established, relied upon the aforesaid certificates.
Watson, Farley & Williams LLP is a Delaware limited liability partnership. Any reference to a ‘partner’ means a member of Watson, Farley & Williams LLP, or a member or partner in an affiliated undertaking, or an employee or consultant with equivalent standing and qualification.
Watson, Farley & Williams LLP or an affiliated undertaking has an office in each of the cities listed.
London — New York — Paris — Hamburg — Munich — Frankfurt — Rome — Milan — Madrid — Athens — Singapore — Bangkok — Hong Kong

			
KNOT Offshore Partners LP	 	Page 2	
June 27, 2014	 		
 
This opinion letter is limited to Marshall Islands Law and is as of the date hereof. We expressly disclaim any responsibility to advise of any development or circumstance of any kind, including any change of law or fact that may occur after the date of this opinion letter that might affect the opinion expressed herein.
Based on the facts as set forth in the Preliminary Prospectus and Prospectus and having regard to legal considerations which we deem relevant, and subject to the qualifications, limitations and assumptions set forth herein, we hereby confirm that we have reviewed the discussion set forth in the Prospectus under the caption “Non-United States Tax Considerations—Marshall Islands Tax Consequences” and in the Partnership’s Form 20-F for the year ended December 31, 2013 under the caption “Item 10. Additional Information—Taxation—Marshall Islands Tax Consequences” and we confirm that the statements in such discussion, to the extent they constitute summaries of law or legal conclusions, unless otherwise noted, are the opinion of Watson, Farley & Williams LLP with respect to Marshall Islands tax consequences as of the date of the Prospectus (except for the representations and statements of fact of the Partnership included under such captions, as to which we express no opinion).
We consent to the discussion of this opinion in the Registration Statement and Prospectus, the filing of this opinion as an exhibit to a Report on Form 6-K of the Partnership and to the references to our firm in the Registration Statement, the Preliminary Prospectus and the Prospectus. In giving this consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended (the “ Securities Act ”), or the rules and regulations promulgated thereunder, nor do we admit that we are experts with respect to any part of the Registration Statement within the meaning of the term “expert” as used in the Securities Act.

Very truly yours,	
	
Watson, Farley & Williams LLP	
	
/s/ Watson, Farley & Williams LLP	

Exhibit 8.3    

	
KNOT Offshore Partners LP	
2 Queen’s Cross	
Aberdeen, Aberdeenshire AB15 4YB	
United Kingdom	

	  		  		  	 	Oslo, 27 June 2014	  	
	  		  		  				
RE: KNOT OFFSHORE PARTNERS LP REGISTRATION STATEMENT ON FORM F-3
Ladies and Gentlemen:
The undersigned Advokatfirmaet Thommessen AS (“ Thommesssen ”) is writing as Norwegian tax counsel to KNOT Offshore Partners LP (the “ Partnership ”), a Marshall Islands limited partnership, in connection with the offer and sale of up to 5,290,000 common units representing limited partnership interests in the Partnership. You have provided us with a prospectus supplement dated June 24, 2014 (the “ Prospectus Supplement ”) and the prospectus dated May 28, 2014 (the “ Prospectus ”), forming part of the registration statement on Form F-3, dated May 15, 2014 (the “ Registration Statement ”).
This opinion is based on various facts and assumptions, and is conditioned upon certain representations made by the Partnership as to factual matters through a certificate of an officer of the Partnership (the “ Officer’s Certificate ”). In addition, this opinion is based upon the factual representations of the Partnership concerning its business, properties and governing documents as set forth in the Registration Statement.
For the purpose of our opinion, we have not made an independent investigation or audit of the facts set forth in the Registration Statement or in the Officer’s Certificate, nor in the Prospectus Supplement. In addition, in rendering this opinion we have assumed the truth and accuracy of all representations and statements made to us that are qualified as to knowledge or belief, without regard to such qualification. Consequently, we do not accept any responsibility whatsoever to any party in the event there are factual inaccuracies in these representations and statements that affect our opinion.
We are opining herein as to the effect on the subject transaction only of the income tax laws of the Kingdom of Norway, and we express no opinion with respect to the applicability thereto, or the effect thereon, of other Norwegian laws, foreign laws, the laws of any state or

 

ADVOKATFIRMAET	 	OSLO	 	BERGEN	 	LONDON	 		
THOMMESSEN AS	 	Haakon Vlls gate 10	 	Vestre Strømkaien 7	 	42 New Broad Street	 		
	 	Postboks 1484 Vika	 	Postboks 43 Nygårdstangen	 	GB-London EC2M 1JD	 		
Foretaksregisteret	 	NO-0116 Oslo	 	NO-5838 Bergen	 	T +44 207 920 3090	 		
NO 957 423 248 MVA	 	T +47 23 11 11 11	 	T +47 55 30 61 00	 	F +44 207 920 3099	 		
thommessen.no	 	F +47 23 11 10 10	 	F +47 55 30 61 01	 		 		

any other jurisdiction. We hereby confirm that all statements of law and legal conclusions with respect thereto contained in the discussion in the Prospectus and the Prospectus Supplement under the caption “Non-United States Tax Considerations—Norwegian Tax Consequences” constitute the opinion of Thommessen with respect to the matters set forth therein as of the effective date of the Prospectus and the Prospectus Supplement, subject to the assumptions, qualifications and limitations set forth therein. No opinion is expressed as to any matter not discussed therein.
This opinion is rendered to you as of the date hereof, and we undertake no obligation to update this opinion subsequent to the date hereof. This opinion is based on various statutory provisions, regulations promulgated thereunder and interpretations thereof by the Norwegian Tax Administration and the courts having jurisdiction over such matters, all of which are subject to change either prospectively or retroactively. Also, any variation or difference in the facts from those set forth in the representations in the Registration Statement and the Officer’s Certificate, may affect the conclusions stated herein.
You should be aware that the practices followed by the Norwegian Tax Administration are not well defined in all areas. Thommessen is therefore not able to guarantee that the Norwegian Tax Administration will concur with this opinion.
This opinion is furnished to you, and is for your use in connection with the transactions set forth in the Registration Statement. This opinion may not be relied upon by you for any other purpose or furnished to, assigned to, quoted to or relied upon by any other person, firm or other entity, for any purpose, without our prior written consent. However, this opinion may be relied upon by you and by persons entitled to rely on it pursuant to applicable provisions of U.S. federal securities law, including persons purchasing common units pursuant to the Registration Statement.
We hereby consent to the filing of this opinion as an exhibit to a Report on Form 6-K of the Partnership and to the use of our name under the captions “Non-United States Tax Considerations—Norwegian Tax Consequences” in the Prospectus Supplement. We further consent to the incorporation by reference of this letter and consent into any registration statement filed pursuant to Rule 462(b) under the Securities Act with respect to the common units. By giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act and the rules and regulations thereunder.

Yours sincerely	
	
/s/ Advokatfirmaet Thommessen AS	

 

	 		 		

Exhibit 10.1
10 June 2014
TERM AND REVOLVING FACILITIES AGREEMENT
between
KNOT SHUTTLE TANKERS 18 AS, KNOT SHUTTLE TANKERS 17 AS and KNUTSEN SHUTTLE TANKERS 13 AS
as borrowers
THE BORROWERS, KNOT SHUTTLE TANKERS AS and KNOT OFFSHORE PARTNERS L.P
as guarantors
THE FINANCIAL INSTITUTIONS
listed in Schedule 1
as original lenders
ABN AMRO BANK N.V., BNP PARIBAS, DNB BANK ASA and NORDEA BANK FINLAND PLC
as original hedging banks
ABN AMRO BANK N.V., OSLO BRANCH, BNP PARIBAS, DNB BANK ASA and NORDEA BANK NORGE ASA
as mandated lead arrangers and bookrunners
NORDEA BANK NORGE ASA
as agent

USD 240,000,000

 

INDEX

1	 	INTERPRETATION	  	 	4	  	
			
2	 	THE FACILITIES	  	 	27	  	
			
3	 	PURPOSE AND APPLICATION	  	 	29	  	
			
4	 	CONDITIONS OF UTILISATION	  	 	30	  	
			
5	 	UTILISATION	  	 	30	  	
			
6	 	REPAYMENT	  	 	32	  	
			
7	 	PREPAYMENT AND CANCELLATION	  	 	33	  	
			
8	 	INTEREST	  	 	37	  	
			
9	 	INTEREST PERIODS	  	 	38	  	
			
10	 	CHANGES TO THE CALCULATION OF INTEREST	  	 	38	  	
			
11	 	FEES	  	 	39	  	
			
12	 	TAX GROSS UP AND INDEMNITIES	  	 	40	  	
			
13	 	INCREASED COSTS	  	 	44	  	
			
14	 	OTHER INDEMNITIES	  	 	45	  	
			
15	 	MITIGATION BY THE LENDERS	  	 	47	  	
			
16	 	COSTS AND EXPENSES	  	 	47	  	
			
17	 	SECURITY	  	 	48	  	
			
18	 	GUARANTEE AND INDEMNITY	  	 	49	  	
			
19	 	REPRESENTATIONS AND WARRANTIES	  	 	53	  	
			
20	 	INFORMATION UNDERTAKINGS	  	 	58	  	
			
21	 	FINANCIAL COVENANTS	  	 	62	  	
			
22	 	GENERAL UNDERTAKINGS	  	 	65	  	
			
23	 	VESSEL UNDERTAKINGS	  	 	70	  	
			
24	 	EVENTS OF DEFAULT	  	 	74	  	
			
25	 	CHANGES TO THE LENDERS	  	 	78	  	
			
26	 	CHANGES TO THE OBLIGORS	  	 	82	  	
			
27	 	THE ROLE OF THE AGENT AND THE ARRANGERS	  	 	82	  	
			
28	 	CONDUCT OF BUSINESS BY THE FINANCE PARTIES	  	 	88	  	
			
29	 	SHARING AMONG THE FINANCE PARTIES	  	 	88	  	
			
30	 	PAYMENT MECHANICS	  	 	90	  	
			
31	 	SET-OFF	  	 	93	  	
			
32	 	NOTICES	  	 	93	  	
			
33	 	CALCULATIONS AND CERTIFICATES	  	 	95	  	
			
34	 	PARTIAL INVALIDITY	  	 	95	  	
 
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35	 	REMEDIES AND WAIVERS	  	 	96	  	
			
36	 	AMENDMENTS AND WAIVERS	  	 	96	  	
			
37	 	CONFIDENTIALITY	  	 	99	  	
			
38	 	COUNTERPARTS	  	 	101	  	
			
39	 	GOVERNING LAW	  	 	101	  	
			
40	 	ENFORCEMENT	  	 	102	  	

Schedules	 	 	  	Page	 	
			
1.	 	Lenders and Commitments	  	 	103	  	
			
2.	 	Conditions precedent documents	  	 	104	  	
			
3.	 	Form of Utilisation Request	  	 	109	  	
			
4.	 	Form of Selection Notice	  	 	110	  	
			
5.	 	Form of Transfer Certificate	  	 	111	  	
			
6.	 	Form of Increase Confirmation	  	 	113	  	
			
7.	 	Form of Compliance Certificate	  	 	115	  	
			
8.	 	List of Existing Hedging Agreements	  	 	118	  	
 
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THIS AGREEMENT (the “ Agreement ”) is dated 10 June 2014 and made between:
 
(1)	KNOT SHUTTLE TANKERS 18 AS , business enterprise no. NO 998 943 035, Smedasundet 40, NO-5529 Haugesund, Norway (the “ Vessel A Owner ”), KNOT SHUTTLE TANKERS 17 AS , business enterprise no. NO 998 942 969, Smedasundet 40, NO-5529 Haugesund, Norway (the “ Vessel B Owner ”) and KNUTSEN SHUTTLE TANKERS 13 AS , business enterprise no. NO 996 661 016, Smedasundet 40, NO-5529 Haugesund, Norway (the “ Vessel C Owner ”), as borrowers (the “ Borrowers ”);	
 
(2)	THE BORROWERS , KNOT SHUTTLE TANKERS AS , business enterprise no. NO 998 942 829, Smedasundet 40, NO-5529 Haugesund, Norway and KNOT OFFSHORE PARTNERS L.P. , KNOT Offshore Partners LP, a limited partnership organised under the laws of the Marshall Islands and having its registered office at Ajeltake Road, Ajeltake Island, Majuro, the Marshall Islands and its principal executive office at 2 Queen’s Cross, Aberdeen, Aberdeenshire AB15 4YB, United Kingdom (the “ Parent Guarantor ”), as guarantors (the “ Guarantors ”);	
 
(3)	THE FINANCIAL INSTITUTIONS listed in Schedule 1 as original lenders (the “ Original Lenders ”);	
 
(4)	ABN AMRO BANK N.V. , Gustav Mahlerlaan 10, 1082 PP Amsterdam, The Netherlands, BNP PARIBAS , 16, Boulevard des Italiens, 75009 Paris, France, DNB BANK ASA , Dronning Eufemias gate 30, NO-0191 Oslo, Norway and NORDEA BANK FINLAND PLC , Aleksis Kiven katu 9, FIN-00020 Nordea, Helsinki, Finland, as original hedging banks (the “ Original Hedging Banks ”);	
 
(5)	ABN AMRO BANK N.V., OSLO BRANCH , Gustav Mahlerlaan 10, 1082 PP Amsterdam, The Netherlands, acting through its Oslo Branch, Olav V’s gt. 5, NO-0161 Oslo, Norway, BNP PARIBAS , 16, Boulevard des Italiens, 75009 Paris, France, DNB BANK ASA , Dronning Eufemias gate 30, NO-0191 Oslo, Norway and NORDEA BANK NORGE ASA , Middelthuns gate 17, NO-0368 Oslo, Norway, as mandated lead arrangers and bookrunners (the “ Arrangers ”);	
 
(6)	NORDEA BANK NORGE ASA , Middelthuns gate 17, NO-0368 Oslo, Norway, as facility and security agent and trustee (the “ Agent ”).	
IT IS AGREED as follows:
 
1	INTERPRETATION	
 
1.1	Definitions	
In this Agreement:
“ Acceptable Bank ”
means a Lender or a bank or financial institution which has a rating for its long-term unsecured and non credit-enhanced debt obligations of A- or higher by Standard & Poor’s Rating Services or Fitch Ratings Ltd or A3 or higher by Moody’s Investor Services Limited or a comparable rating from an internationally recognised credit rating agency.
 
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“ Account Pledge ”
means a first priority pledge of an Earnings Account, to be entered into between each Borrower and the Agent, in such form and substance as the Agent may require.
“ Affiliate ”
means, in relation to any person, a Subsidiary of that person or a Holding Company of that person or any other Subsidiary of that Holding Company.
“ Approved Accounting Principles ”
means NGAAP in relation to the Borrowers and KNOT Shuttle Tankers AS and USGAAP in relation to the Parent Guarantor.
“ Approved Brokers ”
means Fearnleys A/S, RS Platou ASA, Lorentzen & Stemoco AS and any other ship broker approved by the Lenders.
“ Approved Ship Registers ”
means the official ship registers of Bahamas, Cayman Islands, Denmark, Hong Kong, Isle of Man, Liberia, Malta, Marshall Islands, Norway, Singapore, United Kingdom and any other jurisdictions approved by the Lenders.
“ Assignment Agreement ”
means a first priority assignment for each Vessel in respect of (i) all insurances to be taken out in respect of the Vessel and/or (ii) any contract of employment (including, inter alia, step-in rights) entered into in respect of the Vessel for a period exceeding 18 months (including any options, extensions and/or renewals), to be entered into between each Borrower and the Agent, in such form and substance as the Agent may require.
“ Authorisation ”
means an authorisation, consent, approval, resolution, licence, exemption, filing, notarisation or registration.
“ Availability Period ”
means:
 
 	(i)	in relation to the Term Loan Facility, the period from and including the date of this Agreement to and including 30 June 2014; and	
 
 	(ii)	in relation to the Revolving Facility, the period from and including the date of this Agreement to an including the date falling one month prior to the Termination Date.	
 
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“ Available Commitment ”
means, in relation to a Facility, a Lender’s Commitment under that Facility minus:
 
 	(i)	the amount of its participation in any outstanding Loans under that Facility; and	
 
 	(ii)	in relation to any proposed Utilisation, the amount of its participation in any Loans that are due to be made under that Facility on or before the proposed Utilisation Date.	
“ Available Facility ”
means, in relation to a Facility, the aggregate for the time being of each Lender’s Available Commitment in respect of that Facility.
“ Break Costs ”
means the amount (if any) by which:
 
 	(i)	the interest which a Lender should have received for the period from the date of receipt of all or any part of its participation in a Loan or Unpaid Sum to the last day of the current Interest Period in respect of that Loan or Unpaid Sum, had the principal amount or Unpaid Sum received been paid on the last day of that Interest Period;	
exceeds:
 
 	(ii)	the amount which that Lender would be able to obtain by placing an amount equal to the principal amount or Unpaid Sum received by it on deposit with a leading bank in the London interbank market for a period starting on the Business Day following receipt or recovery and ending on the last day of the current Interest Period.	
“ Business Day ”
means a day (other than a Saturday or Sunday) on which banks are open for general business in Oslo, London, Amsterdam, Paris and New York.
“ Change of Control ”
has the meaning given to that term in Clause 7.2 ( Mandatory prepayment – Change of Control ).
“ Code ”
means the US Internal Revenue Code of 1986.
“ Commitment ”
means a Tranche A Commitment, a Tranche B Commitment, a Tranche C Commitment or a Revolving Facility Commitment.
“ Compliance Certificate ”
means a certificate substantially in the form set out in Schedule 7 ( Form of Compliance Certificate ).
 
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“ Confidential Information ”
means all information relating to a Borrower, any Obligor, the Group, the Finance Documents or a Facility of which a Finance Party becomes aware in its capacity as, or for the purpose of becoming, a Finance Party or which is received by a Finance Party in relation to, or for the purpose of becoming a Finance Party under, the Finance Documents or the Facilities from either:
 
 	(i)	any member of the Group or any of its advisers; or	
 
 	(ii)	another Finance Party, if the information was obtained by that Finance Party directly or indirectly from any member of the Group or any of its advisers,	
in whatever form, and includes information given orally and any document, electronic file or any other way of representing or recording information which contains or is derived or copied from such information but excludes information that:
 
 	(iii)	is or becomes public information other than as a direct or indirect result of any breach by that Finance Party of Clause 37 ( Confidentiality ); or	
 
 	(iv)	is identified in writing at the time of delivery as non-confidential by any member of the Group or any of its advisers; or	
 
 	(v)	is known by that Finance Party before the date the information is disclosed to it in accordance with paragraphs (i) or (ii) above or is lawfully obtained by that Finance Party after that date, from a source which is, as far as that Finance Party is aware, unconnected with the Group and which, in either case, as far as that Finance Party is aware, has not been obtained in breach of, and is not otherwise subject to, any obligation of confidentiality.	
“ Confidentiality Undertaking ”
means a confidentiality undertaking substantially in a recommended form of the LMA or in any other form agreed between the Borrowers and the Agent.
“ Default ”
means an Event of Default or any event or circumstance specified in Clause 24 ( Events of Default ) which would (with the expiry of a grace period, the giving of notice, the making of any determination under the Finance Documents or any combination of any of the foregoing) be an Event of Default.
“ Defaulting Lender ”
means any Lender:
 
 	(i)	which has failed to make its participation in a Loan available or has notified the Agent that it will not make its participation in a Loan available by the Utilisation Date of that Loan in accordance with Clause 5.4 ( Lender’s participation );	
 
 	(ii)	which has otherwise rescinded or repudiated a Finance Document; or	
 
 	(iii)	with respect to which an Insolvency Event has occurred and is continuing,	
 
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unless, in the case of paragraph (i) above;
 
 	(iv)	its failure to pay is caused by:	
 
 	(A)	administrative or technical error; or	
 
 	(B)	a Disruption Event; and	
payment is made within three (3) Business Days of its due date; or
 
 	(v)	the Lender is disputing in good faith whether it is contractually obliged to make the payment in question.	
“ Disruption Event ”
means either or both of:
 
 	(i)	a material disruption to those payment or communications systems or to those financial markets which are, in each case, required to operate in order for payments to be made in connection with a Facility (or otherwise in order for the transactions contemplated by the Finance Documents to be carried out) which disruption is not caused by, and is beyond the control of, any of the Parties; or	
 
 	(ii)	the occurrence of any other event which results in a disruption (of a technical or systems-related nature) to the treasury or payments operations of a Party preventing that, or any other Party:	
 
 	(A)	from performing its payment obligations under the Finance Documents; or	
 
 	(B)	from communicating with other Parties in accordance with the terms of the Finance Documents,	
and which (in either such case) is not caused by, and is beyond the control of, the Party whose operations are disrupted.
“ Earnings ”
means:
 
 	(i)	all freight, hire and passage moneys payable to any of the Borrowers as a consequence of the operation of any of the Vessels;	
 
 	(ii)	any claim under any guarantee in respect of any charterparty, pool agreement or other contract of employment entered into by any of the Borrowers in respect of any of the Vessels or otherwise related to freight, hire or passage moneys payable to any of the Borrowers as a consequence of the operation of any of the Vessels;	
 
 	(iii)	compensation payable to any of the Borrowers in the event of any requisition of any of the Vessels;	
 
 	(iv)	remuneration for salvage, towage and other services performed by any of the Vessels and payable to any of the Borrowers;	
 
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 	(v)	demurrage and retention money receivable by any of the Borrowers in relation to any of the Vessels;	
 
 	(vi)	all moneys which are at any time payable under the insurances in respect of loss of Earnings;	
 
 	(vii)	if and whenever any Vessel is employed on terms whereby any moneys falling within (i) to (vi) above are pooled or shared with any other person, that proportion of the net receipts of the relevant pooling or sharing arrangement which is attributable to the relevant Vessel; and	
 
 	(viii)	other money whatsoever due or to become due to any of the Borrowers from third parties in relation to any of the Vessels.	
“ Earnings Account ”
means an account in the name of a Borrower with the Agent designated “Earnings Account” and to which any part of the Earnings of that Borrower shall be paid.
“ Environmental Approval ”
means any permit, licence, consent, approval and other authorisations and the filing of any notification, report or assessment required under any Environmental Law.
“ Environmental Claim ”
means:
 
 	(i)	any claim by any governmental, judicial or regulatory authority which arises out of an Environmental Incident or an alleged Environmental Incident or which relates to any Environmental Law; or	
 
 	(ii)	any claim by any other person which relates to an Environmental Incident or to an alleged Environmental Incident,	
and “claim” means a claim for damages, compensation, fines, penalties or any other payment of any kind, whether or not similar to the foregoing; an order or direction to take, or not to take, certain action or to desist from or suspend certain action; and any form of enforcement or regulatory action, including the arrest or attachment of any asset.
“ Environmental Incident ”
means:
 
 	(i)	any release of Environmentally Sensitive Material from a Vessel; or	
 
 	(ii)	any incident in which Environmentally Sensitive Material is released from another Vessel or vessel and which involves a collision between a Vessel and such other Vessel or vessel or some other incident of navigation or operation in connection with which a Vessel is actually or potentially liable to be arrested, attached, detained or injuncted and/or where a Vessel and/or an Obligor and/or any operator or manager of a Vessel is at fault or allegedly at fault or otherwise liable to any legal or administrative action; or	
 
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 	(iii)	any other incident in which Environmentally Sensitive Material is released otherwise than from a Vessel and in connection with which a Vessel is actually or potentially liable to be arrested, attached, detained or injuncted and/or where a Vessel and/or an Obligor and/or any operator or manager of a Vessel is at fault or allegedly at fault or otherwise liable to any legal or administrative action.	
“ Environmental Law ”
means any law relating to pollution or protection of the environment, to the carriage of Environmentally Sensitive Material or to actual or threatened releases of Environmentally Sensitive Material.
“ Environmentally Sensitive Material ”
means oil, oil products and any other substance (including any chemical, gas or other hazardous or noxious substance) which is (or is capable of being or becoming) polluting, toxic or hazardous.
“ Event of Default ”
means an event specified as such in Clause 24 ( Events of Default ).
“ Existing Facilities ”
means:
 
 	(i)	the USD 85,000,000 term loan facility agreement dated 25 April 2007 entered into between, amongst others, by the Vessel A Owner as borrower and with HSH Nordbank AG as lender and agent (as later amended and restated);	
 
 	(ii)	the USD 120,000,000 loan and guarantee facility agreement dated 11 February 2011 entered into between, amongst others, the Vessel B Owner as borrower, Eksportfinans ASA, DNB Bank ASA and Nordea Bank Norge ASA as lenders and Nordea Bank Norge ASA as agent (as later amended and restated); and	
 
 	(iii)	the USD 93,000,000 secured term loan facility agreement dated 11 July 2011 entered into between, amongst others, the Vessel C Owner as borrower, with DNB Bank ASA, Nordea Bank Norge ASA, ABN AMRO Bank N.V. Oslo Branch and Crédit Agricole Corporate and Investment Bank as lenders and mandated lead arrangers and DNB Bank ASA as agent (as later amended and restated).	
“ Existing Hedging Agreements ”
means the hedging agreements listed in Schedule 8 ( List of Existing Hedging Agreements ).
“ Facility ”
means the Term Loan Facility or the Revolving Facility.
 
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“ Facility Office ”
means:
 
 	(i)	in respect of a Lender, the office or offices notified by that Lender to the Agent in writing on or before the date it becomes a Lender (or, following that date, by not less than five (5) Business Days’ written notice) as the office or offices through which it will perform its obligations under this Agreement; or	
 
 	(ii)	in respect of any other Finance Party, the office in the jurisdiction in which it is resident for tax purposes.	
“ Factoring Agreement ”
means a floating charge (Norw.: Avtale om factoringpant ) over the trade receivables of a Borrower in the amount of USD 290,000,000, to be executed by each Borrower in favour of the Agent, in such form and substance as the Agent may require.
“ FATCA ”
means:
 
 	(i)	sections 1471 to 1474 of the Code or any associated regulations or other official guidance;	
 
 	(ii)	any treaty, law, regulation or other official guidance enacted in any other jurisdiction, or relating to an intergovernmental agreement between the US and any other jurisdiction, which (in either case) facilitates the implementation of paragraph (a) above; or	
 
 	(iii)	any agreement pursuant to the implementation of paragraphs (a) or (b) above with the US Internal Revenue Service, the US government or any governmental or taxation authority in any other jurisdiction.	
“ FATCA Application Date ”
means:
 
 	(i)	in relation to a “withholdable payment” described in section 1473(1)(A)(i) of the Code (which relates to payments of interest and certain other payments from sources within the US), 1 July 2014;	
 
 	(ii)	in relation to a “withholdable payment” described in section 1473(1)(A)(ii) of the Code (which relates to “gross proceeds” from the disposition of property of a type that can produce interest from sources within the US), 1 January 2017; or	
 
 	(iii)	in relation to a “passthru payment” described in section 1471(d)(7) of the Code not falling within paragraphs (a) or (b) above, 1 January 2017,	
or, in each case, such other date from which such payment may become subject to a deduction or withholding required by FATCA as a result of any change in FATCA after the date of this Agreement.
“ FATCA Deduction ”
means a deduction or withholding from a payment under a Finance Document required by FATCA.
 
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“ FATCA Exempt Party ”
means a Party that is entitled to receive payments free from any FATCA Deduction.
“ FATCA FFI ”
means a foreign financial institution as defined in section 1471(d)(4) of the Code which, if any Finance Party is not a FATCA Exempt Party, could be required to make a FATCA Deduction.
“ Fee Letter ”
means the letters dated 2 April 2014 between the Agent and the Borrowers setting out certain of the fees referred to in Clause 11 ( Fees ).
“ Finance Document ”
means this Agreement, any Hedging Agreement, any Security Document, the Intercreditor Agreement, any Fee Letter and any other document designated as such by the Agent and the Borrowers.
“ Finance Lease ”
means any lease or hire purchase contract which would, in accordance with the Approved Accounting Principles, be treated as a finance or capital lease.
“ Finance Parties ”
means the Agent, the Arrangers, the Hedging Banks and the Lenders.
“ Financial Indebtedness ”
means any indebtedness for or in respect of:
 
 	(i)	moneys borrowed and debit balances at banks or other financial institutions;	
 
 	(ii)	any acceptance under any acceptance credit or bill discounting facility (or dematerialised equivalent);	
 
 	(iii)	any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;	
 
 	(iv)	the amount of any liability in respect of Finance Leases;	
 
 	(v)	receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis);	
 
 	(vi)	any Treasury Transaction (and, when calculating the value of that Treasury Transaction, only the marked to market value (or, if any actual amount is due as a result of the termination or close-out of that Treasury Transaction, that amount) shall be taken into account);	
 
 	(vii)	any counter-indemnity obligation in respect of a guarantee, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial	
 
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 	institution in respect of an underlying liability of an entity which is not a member of the Group which liability would fall within one of the other paragraphs of this definition;	
 
 	(viii)	any amount raised by the issue of shares which are redeemable (other than at the option of the issuer) before the Termination Date or are otherwise classified as borrowings under the Approved Accounting Principles);	
 
 	(ix)	any amount of any liability under an advance or deferred purchase agreement if (A) one of the primary reasons behind entering into the agreement is to raise finance or to finance the acquisition or construction of the asset or service in question or (B) the agreement is in respect of the supply of assets or services and payment is due more than ninety (90) days after the date of supply;	
 
 	(x)	any amount raised under any other transaction (including any forward sale or purchase, sale and sale back or sale and leaseback agreement) having the commercial effect of a borrowing or otherwise classified as borrowings under the Accounting Principles; and	
 
 	(xi)	the amount of any liability in respect of any guarantee for any of the items referred to in paragraphs (i) to (x) above.	
“ First Share Pledge Agreement ”
means the first priority pledge of all of the shares in each Borrower, to be entered into between KNOT Shuttle Tankers AS and the Agent, in such form and substance as the Agent may require.
“ General Partner ”
means KNOT Offshore Partners GP LLC, a limited partnership organised under the laws of the Marshall Islands and having its registered office at Ajeltake Road, Ajeltake Island, Majuro, the Marshall Islands and its principal executive office at 2 Queen’s Cross, Aberdeen, Aberdeenshire, AB15 4YB, United Kingdom, being the general partner in KNOT Offshore Partners LP.
“ Group ”
means the Parent Guarantor and its Subsidiaries from time to time.
“ Hedging Agreement ”
means any agreement entered into or to be entered into between a Borrower and a Hedging Bank for the hedging of the interest rate or currency exposure of that Borrower or any part thereof, including the Existing Hedging Agreements, in each case (other than in respect of the Existing Hedging Agreements) notified in writing by the relevant Hedging Bank to the Agent as being a “Hedging Agreement” for the purpose of this Agreement pursuant to paragraph (c) of Clause 17 ( Security ).
“ Hedging Agreement Assignment Agreement ”
means a first priority assignment agreement in respect of the moneys payable to a Borrower under any Hedging Agreement to which it is a party, to be entered into between each relevant Borrower and the Agent, in such form and substance as the Agent may require.
 
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“ Hedging Bank ”
means:
 
 	(i)	any Original Hedging Bank; and	
 
 	(ii)	any Lender or Affiliate of a Lender which has become a Party as a Hedging Bank in accordance with Clause 25.7 ( Accession of Hedging Banks ).	
“ Holding Company ”
means, in relation to any company or corporation, any other company or corporation in respect of which it is a Subsidiary.
“ IFRS ”
means international accounting standards within the meaning of the IAS Regulation 1606/2002 to the extent applicable to the relevant financial statements.
“ Impaired Agent ”
means the Agent at any time when:
 
 	(i)	it has failed to make (or has notified a Party that it will not make) a payment required to be made by it under the Finance Documents by the due date for payment;	
 
 	(ii)	the Agent otherwise rescinds or repudiates a Finance Document;	
 
 	(iii)	(if the Agent is also a Lender) it is a Defaulting Lender under paragraph (i) or (ii) of the definition of “Defaulting Lender”; or	
 
 	(iv)	an Insolvency Event has occurred and is continuing with respect to the Agent;	
unless, in the case of paragraph (i) above:
 
 	(v)	its failure to pay is caused by:	
 
 	(A)	administrative or technical error; or	
 
 	(B)	a Disruption Event; and	
payment is made within five (5) Business Days of its due date; or
 
 	(vi)	the Agent is disputing in good faith whether it is contractually obliged to make the payment in question.	
“ Increase Confirmation ”
means a confirmation substantially in the form set out in Schedule 6 ( Form of Increase Confirmation ).
 
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“ Increase Lender ”
has the meaning given to that term in Clause 2.2 ( Increase ).
“ Insolvency Event ”
in relation to a Finance Party means that the Finance Party:
 
 	(i)	is dissolved (other than pursuant to a consolidation, amalgamation or merger);	
 
 	(ii)	becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due;	
 
 	(iii)	makes a general assignment, arrangement or composition with or for the benefit of its creditors;	
 
 	(iv)	institutes or has instituted against it, by a regulator, supervisor or any similar official with primary insolvency, rehabilitative or regulatory jurisdiction over it in the jurisdiction of its incorporation or organisation or the jurisdiction of its head or home office, a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation by it or such regulator, supervisor or similar official;	
 
 	(v)	has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition is instituted or presented by a person or entity not described in paragraph (iv) above and:	
 
 	(A)	results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation; or	
 
 	(B)	is not dismissed, discharged, stayed or restrained in each case within thirty (30) days of the institution or presentation thereof;	
 
 	(vi)	has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger);	
 
 	(vii)	seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets;	
 
 	(viii)	has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within thirty (30) days thereafter;	
 
 	(ix)	causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in paragraphs (i) to (viii) above; or	
 
 	(x)	takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts.	
 
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“ Intercreditor Agreement ”
means an intercreditor agreement to be entered into between the Agent, DNB Bank ASA as agent under the KST XII Facility Agreement, KNOT Shuttle Tankers 12 AS and KNOT Shuttle Tankers AS in relation to the ranking and priority of the First Share Pledge Agreement and the Second Share Pledge Agreement.
“ Interest Period ”
means, in relation to a Loan, each period determined in accordance with Clause 9 ( Interest Periods ) and, in relation to an Unpaid Sum, each period determined in accordance with Clause 8.3 ( Default interest ).
“ Interpolated Screen Rate ”
means, in relation to LIBOR for any Loan, the rate which results from interpolating on a linear basis between:
 
 	(i)	the applicable Screen Rate for the longest period (for which that Screen Rate is available) which is less than the Interest Period of that Loan; and	
 
 	(ii)	the applicable Screen Rate for the shortest period (for which that Screen Rate is available) which exceeds the Interest Period of that Loan,	
each as of 12:00 noon on the Quotation Day for the currency of that Loan.
“ ISM Code ”
means the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevent.
“ ISPS Code ”
means the International Ship and Port Facility Security (ISPS) Code as adopted by the International Maritime Organization’s (IMO) Diplomatic Conference of December 2002.
“ KST XII Facility Agreement ”
means the USD 140,000,000 term loan facility agreement entered into or to be entered into between Knutsen Shuttle Tankers XII KS as borrower, the Parent Guarantor and KNOT Shuttle Tankers AS as guarantors, the financial institutions listed in schedule 1 thereto as original lenders, the Original Hedging Banks as original hedging banks, the Arrangers as mandated lead arrangers and bookrunners and DNB Bank ASA as agent.
“ Legal Reservations ”
means:
 
 	(i)	the principle that equitable remedies may be granted or refused at the discretion of a court and the limitation of enforcement by laws relating to insolvency, reorganisation and other laws generally affecting the rights of creditors;	
 
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 	(ii)	the time barring of claims under applicable statutes of limitation, the possibility that an undertaking to assume liability for or indemnify a person against non-payment of stamp duty may be void and defences of set-off or counterclaim;	
 
 	(iii)	similar principles, rights and defences under the laws of any relevant jurisdiction; and	
 
 	(iv)	any other matters which are specifically set out as qualifications or reservations as to matters of law of general application in any legal opinion delivered in relation to the Finance Documents.	
“ Lender ”
means:
 
 	(i)	any Original Lender; and	
 
 	(ii)	any bank or financial institution which has become a Party in accordance with Clause 25 ( Changes to the Lenders ),	
which in each case has not ceased to be a Party in accordance with the terms of this Agreement.
“ LIBOR ”
means in relation to any Loan:
 
 	(i)	the applicable Screen Rate;	
 
 	(ii)	(if no Screen Rate is available for the Interest Period of that Loan) the Interpolated Screen Rate for that Loan; or	
 
 	(iii)	(if no Screen Rate is available for the Interest Period of that Loan and it is not possible to calculate an Interpolated Screen Rate for that Loan) the arithmetic mean (rounded upward to four decimal places) of the rates per annum, as supplied to the Agent at its request, quoted by each Reference Bank to leading banks in the London interbank market,	
as of 12:00 noon on the applicable Quotation Day for the offering of deposits in USD for a period comparable to the Interest Period of the relevant Loan, and if that rate is less than zero, LIBOR shall be deemed to be zero.
“ LMA ”
means the Loan Market Association.
“ Loan ”
means a Term Loan or a Revolving Facility Loan.
 
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“ Loan Period ”
means the period commencing on the date of this Agreement and ending on the day on which all amounts outstanding under the Finance Documents, or any of them, have been repaid in full and no Commitment is longer in force.
“ Majority Lenders ”
means:
 
 	(i)	if there are no Loans then outstanding, a Lender or Lenders whose Commitments aggregate more than 66  2 ⁄ 3  per cent. of the Total Commitments (or, if the Total Commitments have been reduced to zero, aggregated more than 66  2 ⁄ 3  per cent. of the Total Commitments immediately prior to the reduction); or	
 
 	(ii)	at any other time, a Lender or Lenders whose participations in the Loans then outstanding aggregate more than 66  2 ⁄ 3  per cent. of all the Loans then outstanding.	
“ Margin ”
means 2.125 (two point one hundred and twenty five) per cent. per annum.
“ Market Value ”
means the fair market value of each Vessel denominated in USD and determined by calculating the arithmetic mean of the independent valuations of each Vessel obtained by the Borrowers from two (2) of the Approved Brokers. Such valuations to be made on the basis of a sale for prompt delivery, for cash at arm’s length on normal commercial terms as between a willing buyer and seller, on an “as is where is” basis free of any existing charter or other contract of employment and/or pool arrangements.
“ Material Adverse Effect ”
means in the reasonable opinion of the Majority Lenders a material adverse effect on:
 
 	(i)	the business, operations, property or condition (financial or otherwise) of the Group taken as a whole; or	
 
 	(ii)	the ability of any Obligor to perform its obligations under the Finance Documents; or	
 
 	(iii)	the validity or enforceability of, or the effectiveness or ranking of any Security granted or purporting to be granted pursuant to any of, the Finance Documents or the rights or remedies of any Finance Party under any of the Finance Documents.	
“ Mortgage ”
means a first priority mortgage in respect of each Vessel (and a deed of covenants collateral thereto if required by the Agent or by the law of the relevant jurisdiction) executed or to be executed and recorded by the relevant Borrower against each Vessel in the relevant ship register in favour of the Agent, in such form and substance as the Agent may require.
 
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“ NGAAP ”
means generally accepted accounting principles in Norway.
“ Obligor ”
means a Borrower or a Guarantor.
“ Original Financial Statements ”
means the audited consolidated financial statements of the Parent Guarantor for the financial year ended 31 December 2013.
“ Party ”
means a party to this Agreement.
“ Quotation Day ”
means in relation to any period for which an interest rate is to be determined, two (2) Business Days before the first day of that period.
“ Reference Banks ”
means such banks as may be appointed by the Agent in consultation with the Borrowers and approved by the Majority Lenders.
“ Repayment Instalment ”
means each repayment instalment payable as set out in Clause 6.1 ( Repayment of Term Loans ).
“ Repeating Representations ”
means each of the representations set out in Clause 19 ( Representations and warranties ) other than those set out in Clause 19.7 ( Deduction of tax ), Clause 19.8 ( No filing or stamp taxes ), paragraph (a) and (b) of Clause 19.10 ( No misleading information ) and paragraph (a) of Clause 19.11 ( Financial statements ).
“ Representative ”
means any delegate, agent, manager, administrator, nominee, attorney, trustee or custodian.
“ Restricted Party ”
means a person:
 
 	(i)	that is listed on any Sanctions List (whether designated by name or by reason of being included in a class of person);	
 
 	(ii)	that is domiciled, registered as located or having its main place of business in, or is incorporated under the laws of, a country which is subject to Sanctions Laws;	
 
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 	(iii)	that is directly or indirectly owned or controlled by a person referred to in (i) and/or (ii) above; or	
 
 	(iv)	with which any Lender is prohibited from dealing or otherwise engaging in transactions with by any Sanctions Laws.	
“ Revolving Facility ”
means the revolving credit facility made available under this Agreement as described in paragraph (b) of Clause 2.1 ( The Facilities ).
“ Revolving Facility Commitment ”
means:
 
 	(i)	in relation to an Original Lender, the amount in USD set opposite its name under the heading “Revolving Facility Commitment” in Schedule 1 ( Lenders and Commitments ) and the amount of any other Revolving Facility Commitment transferred to it under this Agreement or assumed by it in accordance with Clause 2.2 ( Increase ); and	
 
 	(ii)	in relation to any other Lender, the amount of any other Revolving Facility Commitment transferred to it under this Agreement or assumed by it in accordance with Clause 2.2 ( Increase ),	
to the extent not cancelled, reduced or transferred by it under this Agreement.
“ Revolving Facility Loan ”
means a loan made or to be made under the Revolving Facility or the principal amount outstanding for the time being of that loan.
“ Rollover Loan ”
 
 	(i)	means one or more Revolving Facility Loans made or to be made on the same day that a maturing Revolving Facility Loan is due to be repaid;	
 
 	(ii)	the aggregate amount of which is equal to or less than the amount of the maturing Revolving Facility Loan; and	
 
 	(iii)	made or to be made to the same Borrower for the purpose of refinancing that maturing Revolving Facility Loan.	
“ Sanctions Authority ”
means the Norwegian State, the United Nations, the European Union, the member states of the European Union, the United States of America and any authority acting on behalf of any of them in connection with Sanctions Laws, including, without limitation, the Office of Foreign Assets Control of the US Department of Treasury (“ OFAC” ), the United States Department of State and Her Majesty’s Treasury (“ HMT ”).
 
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“ Sanctions Laws ”
means the economic or financial sanctions laws and/or regulations, trade embargoes, prohibitions, restrictive measures, decisions, executive orders or notices from regulators implemented, adapted, imposed administered, enacted and/or enforced by any Sanctions Authority.
“ Sanctions List ”
means any list of persons or entities published in connections with Sanctions Laws by or on behalf of any Sanctions Authority, including, without limitation, the “Specially Designated Nationals and Blocked Persons” list maintained by OFAC, the “Consolidated List of Financial Sanctions Targets”, maintained by HMT.
“ Screen Rate ”
means the London interbank offered rate administered by ICE Benchmark Administration Limited (or any other person which takes over the administration of that rate) for the relevant currency and period displayed on pages LIBOR01 or LIBOR02 of the Reuters screen (or any replacement Reuters page which displays that rate), or on the appropriate page of such other information service which publishes that rate from time to time in place of Reuters. If such page or service ceases to be available, the Agent may specify another page or service displaying the relevant rate after consultation with the Borrowers.
“ Second Limited Partnership Pledge Agreement ”
means the second priority pledge of all of the limited partnership shares in Knutsen Shuttle Tankers XII KS, to be entered into between KNOT Shuttle Tankers 12 AS and the Agent, and the second priority pledge of all the shares in Knutsen Shuttle Tankers XII AS, to be entered into between KNOT Shuttle Tankers AS and the Agent, each in such form and substance as the Agent may require.
“ Second Share Pledge Agreement ”
means the second priority pledge of all of the shares in each Borrower, to be entered into between KNOT Shuttle Tankers AS and DNB Bank ASA as agent under the KST XII Facility Agreement.
“ Security Documents ”
means each of the documents referred to in Clause 17 ( Security ) and all such other documents which may be executed by any of the Obligors at any time in favour of the Agent or any of the Finance Parties directly as security for the obligations of any Obligor under the Finance Documents or any of them.
“ Security ”
means a mortgage, charge, pledge, lien or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect.
“ Selection Notice ”
means a notice substantially in the form set out in Schedule 4 ( Form of Selection Notice ) given in accordance with Clause 9 ( Interest Periods ).
 
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“ Sponsor ”
means Knutsen NYK Offshore Tankers AS, business enterprise no. NO 995 221 703, Smedasundet 40, NO-5529 Haugesund, Norway.
“ Subordinated Loan ”
means any loan made by a member of the Group to a Borrower which is subordinated to the rights of the Finance Parties under the Finance Documents on terms acceptable to the Lenders.
“ Subsidiary ”
means an entity of which a person has direct or indirect control or owns directly or indirectly more than fifty (50) per cent. of the voting capital or similar right of ownership, and “ control ” for this purpose means the power to direct the management and the policies of the entity whether through the ownership of voting capital, by contract or otherwise.
“ Tax ”
means any tax, levy, impost, duty or other charge or withholding of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same).
“ Term Loan ”
means a loan made or to be made under the Term Loan Facility or the principal amount outstanding for the time being of that loan.
“ Term Loan Facility ”
means the term loan facility made available under this Agreement as described in paragraph (a) of Clause 2.1 ( The Facilities ).
“ Termination Date ”
means the date falling five (5) years after the date of this Agreement.
“ Total Commitments ”
means the aggregate of the Total Term Loan Facility Commitments and the Total Revolving Facility Commitments, being USD 240,000,000 at the date of this Agreement.
“ Total Loss ”
means:
 
 	(i)	an actual, constructive, compromised, agreed, arranged or other total loss of a Vessel;	
 
 	(ii)	any expropriation, confiscation, requisition or acquisition of a Vessel, whether for full consideration, a consideration less than her proper value, a nominal consideration or without any consideration, which is effected by any government or	
 
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 	official authority or by any person or persons claiming to be or to represent a government or official authority, excluding a requisition for hire for a fixed period against payment of market hire, not exceeding one year without any right to extension, or any piracy or hijacking of a Vessel, unless the relevant Vessel is released and restored to the relevant Borrower from such piracy, hijacking, expropriation, confiscation, requisition or acquisition within two (2) months after the occurrence thereof; and	
 
 	(iii)	any condemnation of a Vessel by any tribunal or by any person or persons claiming to be a tribunal.	
“ Total Loss Date ”
means:
 
 	(i)	in the case of an actual loss of a Vessel, the date on which it occurred or, if that is unknown, the date when the relevant Vessel was last heard of;	
 
 	(ii)	in the case of a constructive, compromised, agreed or arranged total loss of a Vessel, the earlier of (A) the date on which a notice of the abandonment is given to the insurers, and (B) the date of any compromise, arrangement or agreement made by or on behalf of the relevant Borrower with the relevant Vessel’s insurers in which the insurers agree to treat the Vessel as a total loss; and	
 
 	(iii)	in the case of any other type of total loss, on the date (or the most likely date) on which it appears to the Agent that the event constituting the total loss occurred.	
“ Total Revolving Facility Commitments ”
means the aggregate of the Revolving Facility Commitments, being USD 20,000,000 at the date of this Agreement.
“ Total Term Loan Facility Commitments ”
means the aggregate of the Tranche A Commitments, the Tranche B Commitments and the Tranche C Commitments, being USD 220,000,000 at the date of this Agreement.
“ Total Tranche A Commitments ”
means the aggregate of the Tranche A Commitments, being USD 71,159,030 at the date of this Agreement.
“ Total Tranche B Commitments ”
means the aggregate of the Tranche B Commitments, being USD 77,681,940 at the date of this Agreement.
“ Total Tranche C Commitments ”
means the aggregate of the Tranche C Commitments, being USD 71,159,030 at the date of this Agreement.
 
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“ Tranche ”
means Tranche A, Tranche B or Tranche C.
“ Tranche A ”
means a part of the Term Loan Facility made available to the Vessel A Owner.
“ Tranche A Commitment ”
means:
 
 	(i)	in relation to an Original Lender, the amount in USD set opposite its name under the heading “Tranche A Commitment” in Schedule 1 ( Lenders and Commitments ) and the amount of any other Tranche A Commitment transferred to it under this Agreement or assumed by it in accordance with Clause 2.2 ( Increase ); and	
 
 	(ii)	in relation to any other Lender, the amount of any other Tranche A Commitment transferred to it under this Agreement or assumed by it in accordance with Clause 2.2 ( Increase ),	
to the extent not cancelled, reduced or transferred by it under this Agreement.
“ Tranche B ”
means a part of the Term Loan Facility made available to the Vessel B Owner.
“ Tranche B Commitment ”
means:
 
 	(i)	in relation to an Original Lender, the amount in USD set opposite its name under the heading “Tranche B Commitment” in Schedule 1 ( Lenders and Commitments ) and the amount of any other Tranche B Commitment transferred to it under this Agreement or assumed by it in accordance with Clause 2.2 ( Increase ); and	
 
 	(ii)	in relation to any other Lender, the amount of any other Tranche B Commitment transferred to it under this Agreement or assumed by it in accordance with Clause 2.2 ( Increase ),	
to the extent not cancelled, reduced or transferred by it under this Agreement.
“ Tranche C ”
means a part of the Term Loan Facility made available to the Vessel C Owner.
“ Tranche C Commitment ”
means:
 
 	(i)	in relation to an Original Lender, the amount in USD set opposite its name under the heading “Tranche C Commitment” in Schedule 1 ( Lenders and Commitments ) and the amount of any other Tranche C Commitment transferred to it under this Agreement or assumed by it in accordance with Clause 2.2 ( Increase ); and	
 
 	(ii)	in relation to any other Lender, the amount of any other Tranche C Commitment transferred to it under this Agreement or assumed by it in accordance with Clause 2.2 ( Increase ),	
 
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to the extent not cancelled, reduced or transferred by it under this Agreement.
“ Transaction Security ”
means the security created or expressed to be created in favour of the Agent pursuant to the Security Documents.
“ Transfer Certificate ”
means a certificate substantially in the form set out in Schedule 5 ( Form of Transfer Certificate ) or any other form agreed between the Agent and the Borrowers.
“ Transfer Date ”
means, in relation to an assignment or a transfer, the later of:
 
 	(i)	the proposed Transfer Date specified in the relevant Transfer Certificate; and	
 
 	(ii)	the date on which the Agent executes the relevant Transfer Certificate.	
“ Treasury Transaction ”
means any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price.
“ Unpaid Sum ”
means any sum due and payable but unpaid by an Obligor under any of the Finance Documents.
“ US Tax Obligor ”
means:
 
 	(i)	a Borrower if it is resident for tax purposes in the United States of America; or	
 
 	(ii)	an Obligor some or all of whose payments under the Finance Documents are from sources within the United States for US federal income tax purposes.	
“ USD ”
means the lawful currency for the time being of the United States of America.
“ USGAAP ”
means generally accepted accounting principles in the United States of America.
 
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“ Utilisation ”
means a utilisation of a Facility.
“ Utilisation Date ”
means the date of a Utilisation, being the date on which the relevant Loan is to be made.
“ Utilisation Request ”
means a notice substantially in the form set out in Schedule 3 ( Form of Utilisation Request ).
“ VAT ”
means value added tax as provided for in the Norwegian Value Added Tax Act of 19 June 2009 No. 58 and any other tax of a similar nature.
“ Vessel ”
means Vessel A, Vessel B or Vessel C.
“ Vessel A ”
means the 159,000 dwt suezmax tanker “Windsor Knutsen” built in 2007 and registered in the name of the Vessel A Owner in the Norwegian international ship registry.
“ Vessel B ”
means the 160,000 dwt suezmax tanker “Bodil Knutsen” built in 2011 and registered in the name of the Vessel B Owner in the Isle of Man ship registry.
“ Vessel C ”
means the 157,000 dwt suezmax tanker “Carmen Knutsen” built in 2013 and registered in the name of the Vessel C Owner in the Maltese ship registry.
 
1.2	Construction	
 
(a)	Unless a contrary indication appears, any reference in this Agreement to:	
 
 	(i)	the “ Agent ”, any “ Arranger ”, any “ Borrower ”, any “ Finance Party ”, any “ Guarantor ”, any “ Hedging Bank ”, any “ Lender ”, any “ Obligor ” or any “ Party ” shall be construed so as to include its successors in title, permitted assigns and permitted transferees;	
 
 	(ii)	“ assets ” includes present and future properties, revenues and rights of every description;	
 
 	(iii)	a “ Finance Document ” or any other agreement or instrument is a reference to that Finance Document or other agreement or instrument as amended, novated, supplemented, extended or restated;	
 
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 	(iv)	“ guarantee ” means (other than in Clause 18 ( Guarantee and indemnity )) any guarantee, letter of credit, bond, indemnity or similar assurance against loss, or any obligation, direct or indirect, actual or contingent, to purchase or assume any indebtedness of any person or to make an investment in or loan to any person or to purchase assets of any person where, in each case, such obligation is assumed in order to maintain or assist the ability of such person to meet its indebtedness;	
 
 	(v)	“ indebtedness ” includes any obligation (whether incurred as principal or as surety) for the payment or repayment of money, whether present or future, actual or contingent;	
 
 	(vi)	a “ person ” includes any individual, firm, company, corporation, government, state or agency of a state or any association, trust, joint venture, consortium, partnership or other entity (whether or not having separate legal personality);	
 
 	(vii)	a “ regulation ” includes any regulation, rule, official directive, request or guideline (whether or not having the force of law) of any governmental, intergovernmental or supranational body, agency, department or of any regulatory, self-regulatory or other authority or organisation;	
 
 	(viii)	a provision of law is a reference to that provision as amended or re-enacted; and	
 
 	(ix)	a time of day is a reference to Oslo time.	
 
(b)	Clause and Schedule headings are for ease of reference only.	
 
(c)	Unless a contrary indication appears, a term used in any other Finance Document or in any notice given under or in connection with any Finance Document has the same meaning in that Finance Document or notice as in this Agreement.	
 
(d)	A Default (other than an Event of Default) is “ continuing ” if it has not been remedied or waived and an Event of Default is “ continuing ” if it has not been waived.	
 
2	THE FACILITIES	
 
2.1	The Facilities	
 
(a)	Subject to the terms of this Agreement, the Lenders make available to the Borrowers a term loan facility in an aggregate amount equal to the Total Term Loan Facility Commitments.	
 
(b)	Subject to the terms of this Agreement, the Lenders make available to the Borrowers a revolving credit facility in an aggregate amount equal to the Total Revolving Facility Commitments.	
 
2.2	Increase	
 
(a)	The Borrowers may by giving prior notice to the Agent by no later than the date falling five (5) Business Days after the effective date of a cancellation of:	
 
 	(i)	the Available Commitments of a Defaulting Lender in accordance with Clause 7.7 ( Right of cancellation in relation to a Defaulting Lender ); or	
 
 	(ii)	the Commitments of a Lender in accordance with Clause 7.1 ( Illegality ),	
 
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request that the Total Commitments be increased (and the Total Commitments shall be so increased) in an aggregate amount of up to the amount of the Available Commitments or Commitments so cancelled as follows:
 
 	(iii)	the increased Commitments will be assumed by one or more Lenders or other banks or financial institutions (each an “ Increase Lender ”) selected by the Borrowers (and which is acceptable to the Agent (acting reasonably)) and each of which confirms its willingness to assume and does assume all the obligations of a Lender corresponding to that part of the increased Commitments which it is to assume, as if it had been an Original Lender;	
 
 	(iv)	each of the Obligors and any Increase Lender shall assume obligations towards one another and/or acquire rights against one another as the Obligors and the Increase Lender would have assumed and/or acquired had the Increase Lender been an Original Lender;	
 
 	(v)	each Increase Lender shall become a Party as a “Lender” and any Increase Lender and each of the other Finance Parties shall assume obligations towards one another and acquire rights against one another as that Increase Lender and those Finance Parties would have assumed and/or acquired had the Increase Lender been an Original Lender;	
 
 	(vi)	the Commitments of the other Lenders shall continue in full force and effect; and	
 
 	(vi)	any increase in the Total Commitments shall take effect on the date specified by the Borrowers in the notice referred to above or any later date on which the conditions set out in paragraph (b) below are satisfied.	
 
(b)	An increase in the Total Commitments will only be effective on:	
 
 	(i)	the execution by the Agent of an Increase Confirmation from the relevant Increase Lender; and	
 
 	(ii)	in relation to an Increase Lender which is not a Lender immediately prior to the relevant increase, the performance by the Agent of all necessary “know your customer” or other similar checks under all applicable laws and regulations in relation to the assumption of the increased Commitments by that Increase Lender, the completion of which the Agent shall promptly notify to the Borrowers and the Increase Lender.	
 
(c)	Each Increase Lender, by executing the Increase Confirmation, confirms (for the avoidance of doubt) that the Agent has authority to execute on its behalf any amendment or waiver that has been approved by or on behalf of the requisite Lender or Lenders in accordance with this Agreement on or prior to the date on which the increase becomes effective.	
 
(d)	Unless the Agent otherwise agrees or the increased Commitment is assumed by an existing Lender, the Borrowers shall, on the date upon which the increase takes effect, promptly on demand pay the Agent the amount of all costs and expenses (including legal fees) reasonably incurred by it in connection with any increase in Commitments under this Clause 2.2.	
 
(e)	The Borrowers may pay to the Increase Lender a fee in the amount and at the times agreed between the Borrowers and the Increase Lender.	
 
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(f)	Clause 25.4 ( Limitation of responsibility of Existing Lenders ) shall apply mutatis mutandis in this Clause 2.2 in relation to an Increase Lender as if references in that Clause to:	
 
 	(i)	an “ Existing Lender ” were references to all the Lenders immediately prior to the relevant increase;	
 
 	(ii)	the “ New Lender ” were references to that “ Increase Lender ”; and	
 
 	(iii)	a “ re-transfer ” and “ re-assignment ” were references to respectively a “ transfer ” and “ assignment ”.	
 
2.3	Finance Parties’ rights and obligations	
 
(a)	The obligations of each Finance Party under the Finance Documents are several. Failure by a Finance Party to perform its obligations under the Finance Documents does not affect the obligations of any other Party under the Finance Documents. No Finance Party is responsible for the obligations of any other Finance Party under the Finance Documents.	
 
(b)	The rights of each Finance Party under or in connection with the Finance Documents are separate and independent rights and any debt arising under the Finance Documents to a Finance Party from an Obligor shall be a separate and independent debt.	
 
(c)	A Finance Party may, except as otherwise stated in the Finance Documents, separately enforce its rights under the Finance Documents.	
 
3	PURPOSE AND APPLICATION	
 
3.1	Purpose	
 
(a)	Each Borrower shall apply all amounts borrowed by it under the Term Loan Facility towards:	
 
 	(i)	the refinancing of the Existing Facilities; and	
 
 	(ii)	the financing of its general corporate purposes.	
 
(b)	Each Borrower shall apply all amounts borrowed by it under the Revolving Facility towards the financing of its general corporate purposes.	
 
3.2	Monitoring	
No Finance Party is bound to monitor or verify the application of any amount borrowed pursuant to this Agreement.
 
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4	CONDITIONS OF UTILISATION	
 
4.1	Initial conditions precedent	
 
(a)	The obligation of each Lender to participate in the first Loan under the Term Loan Facility is subject to the condition precedent that the Agent has notified the Borrowers and the Lenders that it has received all of the documents set out in Part 1 of Schedule 2 ( Conditions precedent documents ), in a form and substance satisfactory to the Agent.	
 
(b)	The obligation of each Lender to participate in any further Loans under the Term Loan Facility is subject to the condition precedent that the Agent has notified the Borrowers and the Lenders that it has received all of the documents set out in Part 2 of Schedule 2 ( Conditions precedent documents ), in a form and substance satisfactory to the Agent.	
 
4.2	Further conditions precedent	
The Lenders will only be obliged to comply with Clause 5.4 ( Lenders’ participation ) if on the date of the Utilisation Request and on the proposed Utilisation Date:
 
 	(i)	in the case of a Rollover Loan, no Event of Default is continuing or would result from the proposed Loan, and in the case of any other Utilisation, no Default is continuing or would result from the proposed Utilisation; and	
 
 	(ii)	the Repeating Representations to be made by each Obligor are true in all material respects.	
 
4.3	Maximum number of Loans	
No Borrower may (unless otherwise agreed by the Majority Lenders) deliver a Utilisation Request if as a result of the proposed Utilisation:
 
 	(i)	more than one Loan under a Tranche would be outstanding, or	
 
 	(ii)	eleven (11) or more Revolving Facility Loans would be outstanding.	
 
5	UTILISATION	
 
5.1	Delivery of a Utilisation Request	
A Borrower may utilise a Facility by delivery to the Agent of a duly completed Utilisation Request not later than 11:00 a.m. three (3) Business Days (or such shorter period as may be agreed by the Lenders) prior to the requested Utilisation Date of such Utilisation.
 
5.2	Completion of a Utilisation Request	
 
(a)	Each Utilisation Request is irrevocable and will not be regarded as having been duly completed unless:	
 
 	(i)	it identifies the Tranche and the Facility to be utilised;	
 
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 	(ii)	the proposed Utilisation Date is a Business Day within the Availability Period applicable to that Facility;	
 
 	(iii)	the currency and amount of the Utilisation comply with Clause 5.3 ( Currency and amount ); and	
 
 	(iv)	the proposed Interest Period complies with Clause 9 ( Interest Periods ).	
 
(b)	Only one Loan may be requested in each Utilisation Request.	
 
5.3	Currency and amount	
 
(a)	The currency specified in a Utilisation Request must be USD.	
 
(b)	The amount of the proposed Loan must be:	
 
 	(i)	an amount not exceeding the Total Tranche A Commitments for Tranche A;	
 
 	(ii)	an amount not exceeding the Total Tranche B Commitments for Tranche B;	
 
 	(iii)	an amount not exceeding the Total Tranche C Commitments for Tranche C; or	
 
 	(iv)	an amount equal to USD 1,000,000 and in integral multiples thereof or, if less, the Available Facility for the Revolving Facility.	
 
5.4	Lenders’ participation	
 
(a)	If the conditions set out in this Agreement have been met, each Lender shall make its participation in each Loan available by the Utilisation Date through its Facility Office.	
 
(b)	The amount of each Lender’s participation in each Loan will be equal to the proportion borne by its Available Commitment to the Available Facility immediately prior to making the Loan.	
 
5.5	Limitations in Utilisations	
The Revolving Facility shall not be utilised unless the Term Loan Facility has been fully utilised.
 
5.6	Cancellation of Commitment	
 
(a)	The Tranche A Commitments which, at that time, are not drawn shall be immediately cancelled at the end of the Availability Period for the Term Loan Facility.	
 
(b)	The Tranche B Commitments which, at that time, are not drawn shall be immediately cancelled at the end of the Availability Period for the Term Loan Facility.	
 
(c)	The Tranche C Commitments which, at that time, are not drawn shall be immediately cancelled at the end of the Availability Period for the Term Loan Facility.	
 
(d)	The Revolving Facility Commitments which, at that time, are not drawn shall be immediately cancelled at the end of the Availability Period for the Revolving Facility.	
 
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6	REPAYMENT	
 
6.1	Repayment of Term Loans	
 
(a)	The Vessel A Owner shall repay the Loan under Tranche A in twenty (20) consecutive equal quarterly instalments each in an amount of USD 1,580,649. The first instalment shall be payable on the date falling three (3) months after the Utilisation Date for Tranche A and the subsequent instalments shall be payable quarterly thereafter until the Termination Date. The balance of such Loan shall be repaid in full on the Termination Date.	
 
(b)	The Vessel B Owner shall repay the Loan under Tranche B in twenty (20) consecutive equal quarterly instalments each in an amount of USD 1,294,156. The first instalment shall be payable on the date falling three (3) months after the Utilisation Date for Tranche B and the subsequent instalments shall be payable quarterly thereafter until the Termination Date. The balance of such Loan shall be repaid in full on the Termination Date.	
 
(c)	The Vessel C Owner shall repay the Loan under Tranche C in twenty (20) consecutive equal quarterly instalments each in an amount of USD 1,053,766. The first instalment shall be payable on the date falling three (3) months after the Utilisation Date for Tranche C and the subsequent instalments shall be payable quarterly thereafter until the Termination Date. The balance of such Loan shall be repaid in full on the Termination Date.	
 
6.2	Repayment of Revolving Facility Loans	
 
(a)	Each Borrower which has drawn a Revolving Facility Loan shall repay that Loan on the last day of its Interest Period.	
 
(b)	Without prejudice to each Borrower’s obligation under paragraph (a) above, if:	
 
 	(i)	one or more Revolving Facility Loans are to be made available to a Borrower:	
 
 	(A)	on the same day that a maturing Loan under the same Facility is due to be repaid by that Borrower; and	
 
 	(B)	in whole or in part for the purpose of refinancing the maturing Revolving Facility Loan; and	
 
 	(ii)	the proportion borne by each Lender’s participation in the maturing Revolving Facility Loan to the amount of that maturing Revolving Facility Loan is the same as the proportion borne by that Lender’s participation in the new Revolving Facility Loan(s) to the aggregate amount of those new Revolving Facility Loan(s),	
the aggregate amount of the new Revolving Facility Loan(s) shall, unless the relevant Borrower notifies the Agent to the contrary in the relevant Utilisation Request, be treated as if applied in or towards repayment of the maturing Revolving Facility Loan so that:
 
 	(C)	if the amount of the maturing Revolving Facility Loan exceeds the aggregate amount of the new Revolving Facility Loan(s):	
 
 	(1)	the relevant Borrower will only be required to pay an amount in cash in the relevant currency equal to that excess; and	
 
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 	(2)	each Lender’s participation in the new Revolving Facility Loan(s) shall be treated as having been made available and applied by the relevant Borrower in or towards repayment of that Lender’s participation in the maturing Revolving Facility Loan and that Lender will not be required to make its participation in the new Revolving Facility Loan(s) available in cash; and	
 
 	(D)	if the amount of the maturing Revolving Facility Loan is equal to or less than the aggregate amount of the new Revolving Facility Loan(s):	
 
 	(1)	the relevant Borrower will not be required to make any payment in cash; and	
 
 	(2)	each Lender will be required to make its participation in the new Revolving Facility Loan(s) available in cash only to the extent that its participation in the new Revolving Facility Loan(s) exceeds that Lender’s participation in the maturing Revolving Facility Loan and the remainder of that Lender’s participation in the new Revolving Facility Loan(s) shall be treated as having been made available and applied by the relevant Borrower in or towards repayment of that Lender’s participation in the maturing Revolving Facility Loan.	
 
6.3	Termination Date	
On the Termination Date, each Borrower shall pay to the Finance Parties all amounts then outstanding and owing by it to the Finance Parties under the Finance Documents.
 
7	PREPAYMENT AND CANCELLATION	
 
7.1	Illegality	
If it becomes unlawful in any applicable jurisdiction for a Lender to perform any of its obligations as contemplated by this Agreement or to fund or maintain its participation in any Loan:
 
 	(i)	that Lender shall promptly notify the Agent upon becoming aware of that event;	
 
 	(ii)	upon the Agent notifying the Borrowers, the Commitment of that Lender will be immediately cancelled; and	
 
 	(iii)	each Borrower shall repay that Lender’s participation in all Loans made to it on the last day of the Interest Period for the relevant Loans occurring after the Agent has notified the Borrowers or, if earlier, the date specified by the Lender in the notice delivered to the Agent (being no earlier than the last day of any applicable grace period permitted by law).	
 
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7.2	Mandatory prepayment - Change of Control	
 
(a)	Upon the occurrence of a Change of Control all of the Commitments shall immediately be automatically cancelled in full and all amounts owing under the Finance Documents will become due and payable on the date falling sixty (60) days after the occurrence of the relevant Change of Control.	
 
(b)	For the purpose of this Clause 7.2:	
“ acting in concert ”
means a group of persons who, pursuant to an agreement or understanding (whether formal or informal), actively co-operate, through the acquisition directly or indirectly of units in the Parent Guarantor by any of them, either directly or indirectly, to obtain or consolidate control of the Parent Guarantor.
“ Change of Control ”
means:
 
 	(i)	that the Parent Guarantor does not own or is not able to vote for (directly or indirectly) all of the shares in a Borrower;	
 
 	(ii)	that the Parent Guarantor does not own or is not able to vote for (directly or indirectly) all of the shares in KNOT Shuttle Tankers AS;	
 
 	(iii)	that the Sponsor does not own or is not able to vote for (directly or indirectly) all of the shares in the General Partner;	
 
 	(iv)	that the Sponsor does not own at least 25 per cent. of all of the units in the Parent Guarantor (capital and voting rights to be subject to the limitations on voting rights relating to election of board members, amendments and certain other matters as set out in the limited partnership agreement entered into in relation to the Parent Guarantor); or	
 
 	(v)	that any person or group of persons acting in concert (other than the Sponsor and/or any of its wholly owned Subsidiaries) acquires, legally or beneficially, and either directly or indirectly, more than 33.33 per cent. of the capital or voting rights in the Parent Guarantor.	
 
7.3	Mandatory prepayment – sale or Total Loss etc.	
 
(a)	If a Vessel is sold, transferred or otherwise disposed of, or all of the shares in a Borrower are sold, transferred or otherwise disposed of, or a Vessel becomes a Total Loss, the Borrowers shall make prepayment of the Loans, and the Total Term Loan Facility Commitments shall be reduced, in an amount equal to the higher of (i) the principal amount outstanding in respect of the Term Loan applied for the financing of the relevant Vessel or borrowed by the relevant Borrower (as the case may be) and (ii) an amount equivalent to a fraction of the Total Term Loan Facility Commitments of which the numerator is the relevant Vessel’s updated (not older than ninety (90) days) Market Value and the denominator is the aggregate updated (not older than ninety (90) days) Market Value of all the Vessels. In addition the Total Revolving Facility Commitments shall be reduced by an amount equal to one third thereof, and the Borrowers shall make repayments of the Revolving Facility Loans in order to ensure that the aggregate principal amount of the outstanding Revolving Facility Loans does not exceed the reduced Total Revolving Facility Commitments.	
 
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(b)	Such prepayment and reduction shall be made:	
 
 	(i)	in the case of a sale, transfer or other disposal of a Vessel or all of the shares in a Borrower, on or before the date on which the sale, transfer or other disposal is completed by delivery of the Vessel or relevant shares to the buyer thereof; or	
 
 	(ii)	in the case of a Total Loss, on the earlier of (A) the date falling one hundred and eighty (180) days after the Total Loss Date, and (B) the date of receipt by the Agent of the proceeds of insurance or requisition for title relating to such Total Loss.	
 
7.4	Voluntary cancellation	
A Borrower may, by giving not less than three (3) Business Days’ prior written notice to the Agent (or such shorter period as the Agent may agree), cancel the whole or any part of the Available Facility (but, if in part, in an amount being a minimum of USD 5,000,000). Any cancellation under this Clause 7.4 shall reduce the Commitments of the Lenders rateably under that Facility.
 
7.5	Voluntary prepayment	
A Borrower to which a Loan has been made may by giving not less than three (3) Business Days’ prior written notice to the Agent (or such shorter period as the Agent may agree), prepay the whole or any part of that Loan (but, if in part, in an amount being a minimum of USD 5,000,000).
 
7.6	Right of replacement or repayment and cancellation in relation to a single Lender	
 
(a)	If:	
 
 	(i)	any sum payable to any Lender by an Obligor is required to be increased under paragraph (c) of Clause 12.2 ( Tax gross-up ); or	
 
 	(ii)	any Lender claims indemnification from a Borrower under Clause 12.3 ( Tax indemnity ) or Clause 13 ( Increased costs ),	
the Borrowers may with the prior written consent of the Majority Lenders, whilst the circumstance giving rise to the requirement for that increase or indemnification continues, give the Agent notice of cancellation of the Commitment of that Lender and its intention to procure the repayment of that Lender’s participation in the Loans or give the Agent notice of its intention to replace that Lender in accordance with paragraph (d) below.
 
(b)	On receipt of a notice referred to in paragraph (a) above in relation to a Lender, the Commitment of that Lender shall immediately be reduced to zero.	
 
(c)	On the last day of each Interest Period which ends after the Borrowers have given notice of cancellation under paragraph (a) above (or, if earlier, the date specified by the Borrowers in that notice), the Borrowers shall repay that Lender’s participation in that Loan.	
 
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7.7	Right of cancellation in relation to a Defaulting Lender	
 
(a)	If any Lender becomes a Defaulting Lender, the Borrowers may, at any time whilst the Lender continues to be a Defaulting Lender, give the Agent five (5) Business Days’ notice of cancellation of each Available Commitment of that Lender.	
 
(b)	On the notice referred to in paragraph (a) above becoming effective, each Available Commitment of the Defaulting Lender shall immediately be reduced to zero.	
 
(c)	The Agent shall as soon as practicable after receipt of a notice referred to in paragraph (a) above, notify all the Lenders.	
 
7.8	Restrictions	
 
(a)	Any notice of cancellation or prepayment given by any Party under this Clause 7 shall be irrevocable and, unless a contrary indication appears in this Agreement, shall specify the date or dates upon which the relevant cancellation or prepayment is to be made and the amount of that cancellation or prepayment.	
 
(b)	Any prepayment under this Agreement shall be made together with accrued interest on the amount prepaid and, subject to any Break Costs, without premium or penalty.	
 
(c)	No Borrower may reborrow any part of the Term Loan Facility which is prepaid.	
 
(d)	Unless a contrary indication appears in this Agreement, any part of the Revolving Facility which is prepaid or repaid may be reborrowed in accordance with the terms of this Agreement.	
 
(e)	Any prepayment of any part of the Term Loan Facility shall be applied against the remaining Repayment Instalments thereof (including the balloon payment payable on the Termination Date) in the inverse order of maturity.	
 
(f)	No Borrower shall repay or prepay all or any part of the Loans or cancel all or any part of the Commitments except at the times and in the manner expressly provided for in this Agreement.	
 
(g)	No amount of the Total Commitments cancelled under this Agreement may be subsequently reinstated.	
 
(h)	If the Agent receives a notice under this Clause 7, it shall promptly forward a copy of that notice to either the Borrowers or the affected Lender, as appropriate.	
 
(i)	If all or part of a Loan under a Facility is repaid or prepaid and is not available for redrawing, an amount of the Commitments (equal to the amount of the Loan which is repaid or prepaid) in respect of that Facility will be deemed to be cancelled on the date of repayment or prepayment. Any cancellation under this paragraph (i) shall reduce the Commitments of the Lenders rateably under that Facility.	
 
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8	INTEREST	
 
8.1	Calculation of interest	
The rate of interest on each Loan for each Interest Period is the percentage rate per annum which is the aggregate of the applicable:
 
 	(i)	Margin; and	
 
 	(ii)	LIBOR.	
 
8.2	Payment of interest	
The Borrower to which a Loan has been made shall pay accrued interest on that Loan on the last day of each Interest Period (and, if the Interest Period is longer than three (3) months, on the dates falling at three (3) monthly intervals after the first day of the Interest Period).
 
8.3	Default interest	
 
(a)	If an Obligor fails to pay any amount payable by it under a Finance Document on its due date, interest shall accrue on the Unpaid Sum from the due date up to the date of actual payment (both before and after judgment) at a rate which, subject to paragraph (b) below, is 2.00 percentage points higher than the rate which would have been payable if the Unpaid Sum had, during the period of non-payment, constituted a loan in the currency of the Unpaid Sum for successive Interest Periods, each of a duration selected by the Agent (acting reasonably). Any interest accruing under this Clause 8.3 shall be immediately payable by the Obligor on demand by the Agent.	
 
(b)	If an Unpaid Sum consists of all or part of a Loan which became due on a day which was not the last day of an Interest Period relating to it:	
 
 	(i)	the first Interest Period for that Unpaid Sum shall have a duration equal to the unexpired portion of the current Interest Period relating to that Loan; and	
 
 	(ii)	the rate of interest applying to that Unpaid Sum during that first Interest Period shall be 2.00 percentage points higher than the rate which would have applied if that Unpaid Sum had not become due.	
 
(c)	Default interest (if unpaid) arising on an Unpaid Sum will be compounded with the Unpaid Sum at the end of each Interest Period applicable to that Unpaid Sum but will remain immediately due and payable.	
 
(d)	Additionally the rate of interest payable on any amount to which Clause 8.1 ( Calculation of interest ) continues to apply shall increase by 2.00 percentage points on the date following any notice served by the Agent to the Borrowers following an Event of Default and whilst it is continuing.	
 
8.4	Notification of rates of interest	
The Agent shall promptly notify the Lenders and the relevant Borrower of the determination of a rate of interest under this Agreement.
 
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9	INTEREST PERIODS	
 
9.1	Selection of Interest Periods	
 
(a)	A Borrower may select an Interest Period for a Loan in the Utilisation Request for that Loan or (if the Loan is a Term Loan and has already been borrowed) in a Selection Notice.	
 
(b)	Each Selection Notice for a Term Loan is irrevocable and must be delivered to the Agent by the relevant Borrower not later than 11:00 a.m. three (3) Business Days prior to the last day of the then current Interest Period for such Loan.	
 
(c)	If a Borrower fails to deliver a Selection Notice to the Agent in accordance with paragraph (b) above, the relevant Interest Period will be three (3) months.	
 
(d)	Subject to this Clause 9, a Borrower may select an Interest Period of three (3) or six (6) months or any other period agreed between the relevant Borrower and the Agent (acting on the instructions of all the Lenders in relation to the relevant Loan).	
 
(e)	An Interest Period for a Loan shall not extend beyond the Termination Date.	
 
(f)	Each Interest Period for a Term Loan shall start on the Utilisation Date or (if already made) on the last day of its preceding Interest Period.	
 
(g)	A Revolving Facility Loan has one Interest Period only.	
 
9.2	Non-Business Days	
If an Interest Period would otherwise end on a day which is not a Business Day, that Interest Period will instead end on the next Business Day in that calendar month (if there is one) or the preceding Business Day (if there is not).
 
10	CHANGES TO THE CALCULATION OF INTEREST	
 
10.1	Absence of quotation	
Subject to Clause 10.2 ( Market disruption ), if LIBOR is to be determined by reference to the Reference Banks, but a Reference Bank does not supply a quotation by 12:00 noon on the Quotation Day, the applicable LIBOR shall be determined on the basis of the quotations of the remaining Reference Banks.
 
10.2	Market disruption	
 
(a)	If a Market Disruption Event occurs in relation to a Loan for any Interest Period, then the rate of interest on each Lender’s share of that Loan for the Interest Period shall be the rate per annum which is the sum of:	
 
 	(i)	the Margin; and	
 
 	(ii)	the rate notified to the Agent by that Lender as soon as practicable, and in any event by 12:00 noon on the date falling one (1) Business Day after the Quotation Day (or, if earlier, on the date falling one (1) Business Day prior to the date on	
 
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 	which interest is due to be paid in respect of that Interest Period), to be that which expresses as a percentage rate per annum the cost to that Lender of funding its participation in that Loan from whatever source it may reasonably select.	
 
(b)	In this Agreement “ Market Disruption Event ” means:	
 
 	(i)	at or about 13:00 on the Quotation Day for the relevant Interest Period the Screen Rate is not available and none or only one of the Reference Banks supplies a rate to the Agent to determine LIBOR for the relevant Interest Period; or	
 
 	(ii)	before close of business in London on the Quotation Day for the relevant Interest Period, the Agent receives notifications from a Lender or Lenders (whose participations in a Loan exceed 50 per cent. of that Loan) that the cost to it of obtaining matching deposits for the relevant Interest Period in the London interbank market would be in excess of LIBOR.	
 
10.3	Alternative basis of interest or funding	
 
(a)	If a Market Disruption Event occurs and the Agent or a Borrower so requires, the Agent and the Borrowers shall enter into negotiations (for a period of not more than thirty (30) days) with a view to agreeing a substitute basis for determining the rate of interest.	
 
(b)	Any alternative basis agreed pursuant to paragraph (a) above shall, with the prior consent of all the Lenders and the Borrowers, be binding on all Parties.	
 
10.4	Break Costs	
 
(a)	The Borrowers shall, within three (3) Business Days of demand by a Finance Party, pay to that Finance Party its Break Costs attributable to all or any part of a Loan or Unpaid Sum being paid by a Borrower on a day other than the last day of an Interest Period for that Loan or Unpaid Sum.	
 
(b)	Each Lender shall, as soon as reasonably practicable after a demand by the Agent, provide a certificate confirming the amount of its Break Costs for any Interest Period in which they accrue, and the Agent shall upon receipt thereof at the written request of the relevant Borrower provide the relevant Borrower with a copy of such certificate.	
 
11	FEES	
 
11.1	Commitment fee	
 
(a)	The Borrowers shall pay to the Agent (for the account of each Lender) a commitment fee in USD computed at the rate of:	
 
 	(i)	40 per cent. of the applicable Margin on that Lender’s Available Commitment under the Term Loan Facility for the period starting on the date of this Agreement and ending on the last date of the Availability Period applicable to the Term Loan Facility; and	
 
 	(ii)	40 per cent. of the applicable Margin on that Lender’s Available Commitment under the Revolving Facility for the period starting on the date of this Agreement and ending on the last date of the Availability Period applicable to the Revolving Facility.	
 
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(b)	The accrued commitment fee is payable on the last day of each successive period of three (3) months which ends during the relevant Availability Period, on the last day of the relevant Availability Period and, if cancelled in full, the commitment fee shall be calculated on the cancelled amount of the relevant Lender’s Available Commitment under the relevant Facility and be payable at the time the cancellation is effective.	
 
11.2	Agency and other fees	
The Borrowers shall pay to the Agent (for its own account) a non-refundable annual agency fee and other fees in the amount and at the times set out in a Fee Letter.
 
11.3	Arrangement fee	
The Borrowers shall pay to the Agent (for the account of the Arrangers) a non-refundable arrangement fee in the amount and at the times set out in a Fee Letter.
 
12	TAX GROSS UP AND INDEMNITIES	
 
12.1	Definitions	
 
(a)	In this Agreement:	
“ Protected Party ”
means a Finance Party which is or will be subject to any liability, or required to make any payment, for or on account of Tax in relation to a sum received or receivable (or any sum deemed for the purposes of Tax to be received or receivable) under a Finance Document.
“ Tax Credit ”
means a credit against, relief or remission for, or repayment of any Tax.
“ Tax Deduction ”
means a deduction or withholding for or on account of Tax from a payment under a Finance Document, other than a FATCA Deduction.
“ Tax Payment ”
means either the increase in a payment made by an Obligor to a Finance Party under Clause 12.2 ( Tax gross-up ) or a payment under Clause 12.3 ( Tax indemnity ).
 
(b)	Unless a contrary indication appears, in this Clause 12 a reference to “ determines ” or “ determined ” means a determination made in the absolute discretion of the person making the determination.	
 
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12.2	Tax gross-up	
 
(a)	Each Obligor shall make all payments to be made by it without any Tax Deduction, unless a Tax Deduction is required by law.	
 
(b)	An Obligor shall promptly upon becoming aware that an Obligor must make a Tax Deduction (or that there is any change in the rate or the basis of a Tax Deduction) notify the Agent accordingly. Similarly, a Lender shall notify the Agent on becoming so aware in respect of a payment payable to that Lender. If the Agent receives such notification from a Lender it shall notify the Borrowers and that Obligor.	
 
(c)	If a Tax Deduction is required by law to be made by an Obligor, the amount of the payment due from that Obligor shall be increased to an amount which (after making any Tax Deduction) leaves an amount equal to the payment which would have been due if no Tax Deduction had been required.	
 
(d)	If an Obligor is required to make a Tax Deduction, that Obligor shall make that Tax Deduction and any payment required in connection with that Tax Deduction within the time allowed and in the minimum amount required by law.	
 
(e)	Within thirty (30) days of making either a Tax Deduction or any payment required in connection with that Tax Deduction, the Obligor making that Tax Deduction shall deliver to the Agent for the Finance Party entitled to the payment evidence reasonably satisfactory to that Finance Party that the Tax Deduction has been made or (as applicable) any appropriate payment paid to the relevant taxing authority.	
 
(f)	A Lender and each Obligor which makes a payment to which that Lender is entitled shall co-operate in completing any procedural formalities necessary for that Obligor to obtain authorisation to make that payment without a Tax Deduction.	
 
12.3	Tax indemnity	
 
(a)	The Borrowers shall (within three (3) Business Days of demand by the Agent) pay to a Protected Party an amount equal to the loss, liability or cost which that Protected Party determines will be or has been (directly or indirectly) suffered for or on account of Tax by that Protected Party in respect of a Finance Document.	
 
(b)	Paragraph (a) above shall not apply:	
 
 	(i)	with respect to any Tax assessed on a Finance Party:	
 
 	(A)	under the law of the jurisdiction in which that Finance Party is incorporated or, if different, the jurisdiction (or jurisdictions) in which that Finance Party is treated as resident for tax purposes; or	
 
 	(B)	under the law of the jurisdiction in which that Finance Party’s Facility Office is located in respect of amounts received or receivable in that jurisdiction,	
if that Tax is imposed on or calculated by reference to the net income received or receivable (but not any sum deemed to be received or receivable) by that Finance Party; or
 
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 	(ii)	to the extent a loss, liability or cost:	
 
 	(A)	is compensated for by an increased payment under Clause 12.2 ( Tax gross-up ); or	
 
 	(B)	relates to a FATCA Deduction required to be made by a Party.	
 
(c)	A Protected Party making, or intending to make, a claim under paragraph (a) above must promptly notify the Agent of the event which will give, or has given, rise to the claim, following which the Agent shall notify the Borrowers.	
 
(d)	A Protected Party shall, on receiving a payment from an Obligor under this Clause 12.3, notify the Agent.	
 
12.4	Tax Credit	
If an Obligor makes a Tax Payment and the relevant Finance Party determines that:
 
 	(i)	a Tax Credit is attributable either to an increased payment of which that Tax Payment forms part, or to that Tax Payment; and	
 
 	(ii)	that Finance Party has obtained, utilised and retained that Tax Credit,	
the Finance Party shall pay an amount to the Obligor which that Finance Party determines will leave it (after that payment) in the same after-Tax position as it would have been in had the Tax Payment not been required to be made by the Obligor.
 
12.5	Stamp taxes	
The Borrowers shall pay and, within three (3) Business Days of demand, indemnify each Finance Party against any cost, loss or liability that Finance Party incurs in relation to all stamp duty, registration and other similar Taxes payable in respect of any Finance Document, except for any such Tax payable in connection with the entering into of a Transfer Certificate.
 
12.6	VAT	
 
(a)	All amounts set out or expressed in a Finance Document to be payable by any Party to a Finance Party which (in whole or in part) constitute the consideration for a supply or supplies for VAT purposes shall be deemed to be exclusive of any VAT which is chargeable on such supply or supplies, and accordingly, subject to paragraph (b) below, if VAT is or becomes chargeable on any supply made by any Finance Party to any Party under a Finance Document, that Party shall pay to the Finance Party (in addition to and at the same time as paying any other consideration for such supply) an amount equal to the amount of such VAT (and such Finance Party shall promptly provide an appropriate VAT invoice to such Party).	
 
(b)	If VAT is or becomes chargeable on any supply made by any Finance Party (the “ Supplier ”) to any other Finance Party (the “ Recipient ”) under a Finance Document, and any Party other than the Recipient (the “ Subject Party ”) is required by the terms of any Finance Document to pay an amount equal to the consideration for such supply to the Supplier (rather than being required to reimburse the Recipient in respect of that consideration), such Party shall also pay to the Supplier (in addition to and at the same time as paying such amount) an	
 
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 	amount equal to the amount of such VAT. The Recipient will promptly pay to the Subject Party an amount equal to any credit or repayment obtained by the Recipient from the relevant tax authority which the Recipient reasonably determines is in respect of such VAT.	
 
(c)	Where a Finance Document requires any Party to reimburse or indemnify a Finance Party for any cost or expense, that Party shall reimburse or indemnify (as the case may be) such Finance Party for the full amount of such cost or expense, including such part thereof as represents VAT, save to the extent that such Finance Party reasonably determines that it is entitled to credit or repayment in respect of such VAT from the relevant tax authority.	
 
12.7	FATCA information	
 
(a)	Subject to paragraph (c) below, each Party shall, within ten (10) Business Days of a reasonable request by another Party:	
 
 	(i)	confirm to that other Party whether it is:	
 
 	(A)	a FATCA Exempt Party; or	
 
 	(B)	not a FATCA Exempt Party; and	
 
 	(ii)	supply to that other Party such forms, documentation and other information relating to its status under FATCA (including its applicable “passthru payment percentage” or other information required under the US Treasury Regulations or other official guidance including intergovernmental agreements) as that other Party reasonably requests for the purposes of that other Party’s compliance with FATCA.	
 
(b)	If a Party confirms to another Party pursuant to paragraph (a)(i) above that it is a FATCA Exempt Party and it subsequently becomes aware that it is not, or has ceased to be a FATCA Exempt Party, that Party shall notify that other Party reasonably promptly.	
 
(c)	Paragraph (a) above shall not oblige any Finance Party to do anything which would or might in its reasonable opinion constitute a breach of:	
 
 	(i)	any law or regulation;	
 
 	(ii)	any fiduciary duty; or	
 
 	(iii)	any duty of confidentiality.	
 
(d)	If a Party fails to confirm its status or to supply forms, documentation or other information requested in accordance with paragraph (a) above (including, for the avoidance of doubt, where paragraph (c) above applies), then:	
 
 	(i)	if that Party failed to confirm whether it is (and/or remains) a FATCA Exempt Party then such Party shall be treated for the purposes of the Finance Documents as if it is not a FATCA Exempt Party; and	
 
 	(ii)	if that Party failed to confirm its applicable “passthru payment percentage” then such Party shall be treated for the purposes of the Finance Documents (and payments made thereunder) as if its applicable “passthru payment percentage” is 100 per cent.,	
 
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until (in each case) such time as the Party in question provides the requested confirmation, forms, documentation or other information.
 
12.8	FATCA Deduction	
 
(a)	Each Party may make any FATCA Deduction it is required to make by FATCA, and any payment required in connection with that FATCA Deduction, and no Party shall be required to increase any payment in respect of which it makes such a FATCA Deduction or otherwise compensate the recipient of the payment for that FATCA Deduction.	
 
(b)	Each Party shall promptly, upon becoming aware that it must make a FATCA Deduction (or that there is any change in the rate or the basis of such FATCA Deduction) notify the Party to whom it is making the payment and, in addition, shall notify the Company, the Agent and the other Finance Parties.	
 
13	INCREASED COSTS	
 
13.1	Increased costs	
 
(a)	Subject to Clause 13.3 ( Exceptions ) the Borrowers shall, within three (3) Business Days of a demand by the Agent, pay for the account of a Finance Party the amount of any Increased Costs incurred by that Finance Party or any of its Affiliates as a result of (i) the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation, (ii) compliance with any law or regulation made after the date of this Agreement or (iii) compliance with Basel III.	
 
(b)	In this Agreement:	
“ Basel III ”
means:
 
 	(i)	the agreements on capital requirements, a leverage ratio and liquidity standards contained in “Basel III: A global regulatory framework for more resilient banks and banking systems”, “Basel III: International framework for liquidity risk measurement, standards and monitoring” and “Guidance for national authorities operating the countercyclical capital buffer” published by the Basel Committee on Banking Supervision in December 2010, each as amended, supplemented and/or restated;	
 
 	(ii)	the rules for global systemically important banks contained in the “Globally systemically important banks: assessments, methodology and the additional loss absorbency requirements – Rules text” published by the Basel Committee on Banking Supervision in November 2011, as amended, supplemented and/or restated; and	
 
 	(iii)	any further guidance or standards published by the Basel Committee on Banking Supervision relating to Basel III.	
“ Increased Costs ”
means:
 
 	(i)	a reduction in the rate of return from a Facility or on a Finance Party’s (or its Affiliate’s) overall capital;	
 
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 	(ii)	an additional or increased cost; or	
 
 	(iii)	a reduction of any amount due and payable under any Finance Document,	
which is incurred or suffered by a Finance Party or any of its Affiliates to the extent that it is attributable to that Finance Party having entered into its Commitment or funding or performing its obligations under any Finance Document.
 
13.2	Increased cost claims	
 
(a)	A Finance Party intending to make a claim pursuant to Clause 13.1 ( Increased costs ) shall notify the Agent of the event giving rise to the claim, following which the Agent shall promptly notify the Borrowers.	
 
(b)	Each Finance Party shall, as soon as practicable after a demand by the Agent, provide a certificate confirming the amount of its Increased Costs, and the Agent shall upon receipt thereof at the written request of the relevant Borrower provide the relevant Borrower with a copy of such certificate.	
 
13.3	Exceptions	
 
(a)	Clause 13.1 ( Increased costs ) does not apply to the extent any Increased Cost is:	
 
 	(i)	attributable to a Tax Deduction required by law to be made by an Obligor;	
 
 	(ii)	attributable to a FATCA Deduction required to be made by a Party;	
 
 	(iii)	compensated for under any other provision of this Agreement, other than any provision for the payment of interest, instalments, reductions or fees hereunder (or would have been compensated for under any such provision but was not so compensated solely because any of the exclusions in any such provision applied); or	
 
 	(iv)	attributable to the wilful breach by the relevant Finance Party or its Affiliates of any law or regulation.	
 
(b)	In this Clause 13.3, a reference to a “ Tax Deduction ” has the same meaning given to the term in Clause 12.1 ( Definitions ).	
 
14	OTHER INDEMNITIES	
 
14.1	Currency indemnity	
 
(a)	If any sum due from an Obligor under the Finance Documents (a “ Sum ”), or any order, judgment or award given or made in relation to a Sum, has to be converted from the currency (the “ First Currency ”) in which that Sum is payable into another currency (the “ Second Currency ”) for the purpose of:	
 
 	(i)	making or filing a claim or proof against that Obligor; or	
 
 	(ii)	obtaining or enforcing an order, judgment or award in relation to any litigation or arbitration proceedings,	
 
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that Obligor shall as an independent obligation, within three (3) Business Days of demand, indemnify each Finance Party to whom that Sum is due against any cost, loss or liability arising out of or as a result of the conversion including any discrepancy between (A) the rate of exchange used to convert that Sum from the First Currency into the Second Currency and (B) the rate or rates of exchange available to that person at the time of its receipt of that Sum.
 
(b)	Each Obligor waives any right it may have in any jurisdiction to pay any amount under the Finance Documents in a currency or currency Vessel other than that in which it is expressed to be payable.	
 
14.2	Other indemnities	
The Borrowers shall, within three (3) Business Days of demand, indemnify each Finance Party against any cost, loss or liability incurred by that Finance Party as a result of:
 
 	(i)	the occurrence of any Event of Default;	
 
 	(ii)	any claim, action, civil penalty or fine against, any settlement, and any other kind of loss or liability, and all reasonable costs and expenses (including reasonable legal fees and disbursements) incurred by the Agent or any other Finance Party as a result of conduct of any Obligor or any of its partners, directors, officers, employees, agents or advisors, that violates any Sanctions Laws;	
 
 	(iii)	a failure by an Obligor to pay any amount due under a Finance Document on its due date, including without limitation, any cost, loss or liability arising as a result of Clause 29 ( Sharing among the Finance Parties );	
 
 	(iv)	funding, or making arrangements to fund, its participation in a Loan requested by a Borrower in a Utilisation Request but not made by reason of the operation of any one or more of the provisions of this Agreement (other than by reason of default or negligence by that Finance Party alone); or	
 
 	(v)	a Loan (or part of a Loan) not being prepaid in accordance with a notice of prepayment given by a Borrower.	
 
14.3	Indemnity to the Agent	
The Borrowers shall promptly indemnify the Agent against:
 
 	(i)	any cost, loss or liability incurred by the Agent (acting reasonably) as a result of:	
 
 	(A)	any failure by the Company to comply with its obligations under Clause 16 ( Costs and expenses );	
 
 	(B)	investigating any event which it reasonably believes is a Default;	
 
 	(C)	acting or relying on any notice, request or instruction which it reasonably believes to be genuine, correct and appropriately authorised;	
 
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 	(D)	any default by any Obligor in the performance of any of the obligations expressed to be assumed by it under the Finance Documents;	
 
 	(E)	the taking, holding, protection or enforcement of the Transaction Security;	
 
 	(F)	the exercise of any of its rights, powers, discretions, authorities and remedies vested in the Agent by the Finance Parties or by law; or	
 
 	(G)	instructing lawyers, accountants, tax advisers, surveyors or other professional advisers or experts permitted under this Agreement; and	
 
 	(ii)	any cost, loss or liability incurred by the Agent (otherwise than by reason of the Agent’s gross negligence or wilful misconduct) in acting as Agent under the Finance Documents.	
 
15	MITIGATION BY THE LENDERS	
 
15.1	Mitigation	
 
(a)	Each Finance Party shall, in consultation with the Borrowers, take all reasonable steps to mitigate (unless the Borrowers expressly request it in writing not to do so) any circumstances which arise and which would result in any amount becoming payable under or pursuant to, or cancelled pursuant to, any of Clause 7.1 ( Illegality ), Clause 12 ( Tax gross-up and indemnities ) or Clause 13 ( Increased costs ) including (but not limited to) transferring its rights and obligations under the Finance Documents to another Affiliate or Facility Office.	
 
(b)	Paragraph (a) above does not in any way limit the obligations of any Obligor under the Finance Documents.	
 
15.2	Limitation of liability	
 
(a)	The Borrowers shall indemnify each Finance Party for all costs and expenses reasonably incurred by that Finance Party as a result of steps taken by it under Clause 15.1 ( Mitigation ).	
 
(b)	A Finance Party is not obliged to take any steps under Clause 15.1 ( Mitigation ) if, in the opinion of that Finance Party (acting reasonably), to do so might be prejudicial to it.	
 
16	COSTS AND EXPENSES	
 
16.1	Transaction expenses	
The Borrowers shall promptly on demand pay the Agent the amount of all documented costs and expenses (including, but not limited to, internal and external legal and collateral fees and costs relating to operating a secure website for communicating with the Lenders) reasonably incurred by the Agent and/or the Arrangers in connection with the negotiation, preparation, printing, execution, syndication and perfection of:
 
 	(i)	this Agreement and any other documents referred to in this Agreement; and	
 
 	(ii)	any other Finance Documents executed after the date of this Agreement.	
 
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16.2	Amendment costs	
If (i) an Obligor requests an amendment, waiver or consent or (ii) an amendment is required pursuant to Clause 30.10 ( Change of currency ), the Borrowers shall, within three (3) Business Days of demand, reimburse the Agent for the amount of all costs and expenses (including, but not limited to, internal and external legal fees) reasonably incurred by the Agent in responding to, evaluating, negotiating or complying with that request or requirement.
 
16.3	Agent’s management time and additional remuneration	
Any amount payable to the Agent under Clause 14.3 ( Indemnity to the Agent ) and this Clause 16 shall include the cost of utilising the Agent’s management time or other resources and will be calculated on the basis of such reasonable daily or hourly rates as the Agent may notify to the Borrowers and the Lenders, and is in addition to any other fee paid or payable to the Agent.
 
16.4	Enforcement costs	
The Borrowers shall, within three (3) Business Days of demand, pay to each Finance Party the amount of all costs and expenses (including, but not limited to, external legal fees) incurred by that Finance Party in connection with the enforcement of, or the preservation of any rights under, any Finance Document.
 
17	SECURITY	
 
(a)	The obligations and liabilities of the Obligors under this Agreement and the other Finance Documents, including without limitation any derived liability whatsoever of the Obligors towards the Finance Parties in connection therewith, shall be secured by:	
 
 	(i)	the Mortgages;	
 
 	(ii)	the Assignment Agreements;	
 
 	(iii)	the Factoring Agreements;	
 
 	(iv)	the Account Pledges;	
 
 	(v)	the Hedging Agreement Assignment Agreements;	
 
 	(vi)	the First Share Pledge Agreement;	
 
 	(vii)	the Second Limited Partnership Pledge Agreement; and	
 
 	(viii)	the guarantee set out in Clause 18 ( Guarantee and indemnity ).	
 
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(b)	Each Hedging Bank hereby declares and agrees that:	
 
 	(i)	its rights under the Security Documents in relation to any Hedging Agreements shall always be subordinated to and rank in priority behind the rights of the other Finance Parties; and	
 
 	(ii)	it shall not take any action to enforce any of its rights under any Security Document unless and until all monies outstanding to the other Finance Parties have been fully and irrevocably paid and discharged in full and no Commitment is longer in force.	
 
(c)	Each Hedging Bank shall notify the Agent of any Hedging Agreement entered into with a Borrower without undue delay after the entering into thereof, and shall promptly upon request by the Agent provide the Agent with the details of any transactions entered into under any such Hedging Agreement, including the marked to market value thereof.	
 
(d)	The Agent shall notify the Lenders upon receipt of any written notice from a Hedging Bank of any agreement being designated a “Hedging Agreement” for the purpose of this Agreement.	
 
18	GUARANTEE AND INDEMNITY	
 
18.1	Guarantee obligations	
Each Guarantor irrevocably and unconditionally, jointly and severally:
 
 	(i)	guarantees to each Finance Party punctual performance by each other Obligor of all of that Obligor’s obligations under the Finance Documents;	
 
 	(ii)	undertakes with each Finance Party that whenever another Obligor does not pay any amount when due under or in connection with any Finance Document, it shall immediately on demand (Norw.: påkravsgaranti ) pay that amount as if it was the principal obligor; and	
 
 	(iii)	agrees with each Finance Party that if any obligation guaranteed by it is or becomes unenforceable, invalid or illegal, it will, as an independent and primary obligation, indemnify that Finance Party immediately on demand against any cost, loss or liability it incurs as a result of an Obligor not paying any amount which would, but for such unenforceability, invalidity or illegality, have been payable by it under any Finance Document on the date when it would have been due. The amount payable by a Guarantor under this indemnity will not exceed the amount it would have had to pay under this Clause 18 if the amount claimed had been recoverable on the basis of a guarantee.	
 
18.2	Demands	
Each Guarantor unconditionally and irrevocably undertakes immediately on written demand by the Agent from time to time to make payment in accordance with its obligations under Clause 18.1 ( Guarantee obligations ) where such demand is accompanied by a statement of the Agent that a payment has fallen due under the Finance Documents, that an Obligor has failed to make such payment when due and that notice of such non-payment has been issued. Each of such payments so demanded shall be made by the Guarantors to such account as the Agent may from time to time notify in writing.
 
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18.3	Maximum liability	
The liability of each Guarantor under this guarantee shall be limited to USD 290,000,000 plus any unpaid amount of interest, fees and expenses in respect of the obligations guaranteed hereby.
 
18.4	Number of claims	
There is no limit on the number of claims that may be made by the Agent on behalf of the Finance Parties under this guarantee.
 
18.5	Continuing guarantee	
This guarantee is a continuing guarantee and will extend to the ultimate balance of sums payable by any Obligor under the Finance Documents, regardless of any intermediate payment or discharge in whole or in part.
 
18.6	Reinstatement	
If any discharge, release or arrangement (whether in respect of the obligations of any Obligor or any security for those obligations or otherwise) is made by a Finance Party in whole or in part on the basis of any payment, security or other disposition which is avoided or must be restored in insolvency, liquidation, administration or otherwise, without limitation, then the liability of each Guarantor under this Clause 18 will continue or be reinstated as if the discharge, release or arrangement had not occurred.
 
18.7	Waiver of defences	
 
(a)	The obligations of each Guarantor under this Clause 18 will not be affected by an act, omission, matter or thing which, but for this Clause 18, would reduce, release or prejudice any of its obligations under this Clause 18 (without limitation and whether or not known to it or any Finance Party) including:	
 
 	(i)	any time, waiver or consent granted to, or composition with, any Obligor or other person;	
 
 	(ii)	the release of any other Obligor or any other person under the terms of any composition or arrangement with any creditor of any member of the Group;	
 
 	(iii)	the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect, take up or enforce, any rights against, or security over assets of, any Obligor or other person or any non-presentation or non-observance of any formality or other requirement in respect of any instrument or any failure to realise the full value of any security;	
 
 	(iv)	any incapacity or lack of power, authority or legal personality of or dissolution or change in the members or status of an Obligor or any other person;	
 
 	(v)	any amendment, novation, supplement, extension restatement (however fundamental and whether or not more onerous) or replacement of a Finance	
 
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 	Document or any other document or security including, without limitation, any change in the purpose of, any extension of or increase in any facility or the addition of any new facility under any Finance Document or other document or security;	
 
 	(vi)	any unenforceability, illegality or invalidity of any obligation of any person under any Finance Document or any other document or security; or	
 
 	(vii)	any insolvency or similar proceedings.	
 
(b)	Each Guarantor specifically waives all defenses based on the Finance Documents, any relationship or circumstance in connection therewith and any transactions made in connection therewith.	
 
18.8	Financial Agreements Act	
Each Guarantor specifically waives all rights under the provisions of the Norwegian Financial Agreements Act of 25 June 1999 No. 46 not being mandatory provisions, including the following provisions (the main contents of the relevant provisions being as indicated in the brackets):
 
 	(i)	§ 62 (1) (a)  (to be notified of any security the giving of which was a precondition for the making of any Loan, but which has not been validly granted or has lapsed);	
 
 	(ii)	§ 63 (1) - (2)  (to be notified of any event of default hereunder and to be kept informed thereof);	
 
 	(iii)	§ 63 (3)  (to be notified of any extension granted to an Obligor in payment of principal and/or interest);	
 
 	(iv)	§ 63 (4)  (to be notified of an Obligor’s bankruptcy proceedings or debt reorganisation proceedings and/or any application for the latter);	
 
 	(v)	§ 65 (3)  (that the consent of the Guarantor is required for the Guarantor to be bound by amendments to the Finance Documents that may be detrimental to its interest);	
 
 	(vi)	§ 66 (1) - (2)  (that the Guarantor shall be released from its liabilities hereunder if security which was given, or the giving of which was a precondition for the making of any Loan, is released by the Finance Parties without the consent of the Guarantor);	
 
 	(vii)	§ 66 (3)  (that the Guarantor shall be released from its liabilities hereunder if, without its consent, security the giving of which was a precondition for the making of any Loan, was not validly granted);	
 
 	(viii)	§ 67 (2)  (about reduction of the Guarantor’s liabilities hereunder);	
 
 	(ix)	§ 67 (4)  (that the Guarantor’s liabilities hereunder shall lapse after ten (10) years, as the Guarantor shall remain liable hereunder as long as any amount is outstanding in respect of the obligations guaranteed hereby);	
 
 	(x)	§ 70 (as the Guarantor shall have no right of subrogation into the rights of the Finance Parties under the Finance Documents until and unless the Finance Parties shall have received all amounts due or to become due to them in respect of the obligations guaranteed hereby);	
 
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 	(xi)	§ 71 (as the Finance Parties shall have no liability first to make demand upon or seek to enforce remedies against any other Obligor or any other security provided in respect of the Obligors’ liabilities under the Finance Documents before demanding payment under or seeking to enforce the security created hereunder);	
 
 	(xii)	§ 72 (as all interest and default interest due in respect of the obligations guaranteed hereby shall be secured hereunder);	
 
 	(xiii)	§ 73 ( 1 ) - ( 2 ) (as all costs and expenses related to a default in respect of the obligations guaranteed hereby shall be secured hereunder); and	
 
 	(xiv)	§ 74 ( 1 ) - ( 2 ) (as the Guarantor shall make no claim against any other Obligor for payment until and unless the Finance Parties first shall have received all amounts due or to become due to them in respect of the obligations guaranteed hereby).	
 
18.9	Guarantor intent	
Without prejudice to the generality of Clauses 18.7 ( Waiver of defences ) and 18.8 ( Financial Agreements Act ), each Guarantor expressly confirms that it intends that this guarantee shall extend from time to time to any (however fundamental) variation, increase, extension or addition of or to any of the Finance Documents and/or any facility or amount made available under any of the Finance Documents for the purposes of or in connection with any of the following: business acquisitions of any nature; increasing working capital; enabling investor distributions to be made; carrying out restructurings; refinancing existing facilities; refinancing any other indebtedness; making facilities available to new borrowers; any other variation or extension of the purposes for which any such facility or amount might be made available from time to time; and any fees, costs and/or expenses associated with any of the foregoing.
 
18.10	Immediate recourse	
Each Guarantor waives any right it may have of first requiring any Finance Party (or any trustee or agent on its behalf) to proceed against or enforce any other rights or security or claim payment from any person before claiming from that Guarantor under this Clause 18. This waiver applies irrespective of any law or any provision of a Finance Document to the contrary.
 
18.11	Appropriations	
Until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full, each Finance Party (or any trustee or agent on its behalf) may:
 
 	(i)	refrain from applying or enforcing any other moneys, security or rights held or received by that Finance Party (or any trustee or agent on its behalf) in respect of those amounts, or apply and enforce the same in such manner and order as it sees fit (whether against those amounts or otherwise) and no Guarantor shall be entitled to the benefit of the same; and	
 
 	(ii)	hold in an interest-bearing suspense account any moneys received from any Guarantor or on account of any Guarantor’s liability under this Clause 18.	
 
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18.12	Deferral of Guarantors’ rights	
 
(a)	Until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full and unless the Agent otherwise directs, no Guarantor will exercise any rights which it may have by reason of performance by it of its obligations under the Finance Documents or by reason of any amount being payable, or liability arising, under this Clause 18:	
 
 	(i)	to be indemnified by an Obligor;	
 
 	(ii)	to claim any contribution from any other guarantor of any Obligor’s obligations under the Finance Documents;	
 
 	(iii)	to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Finance Parties under the Finance Documents or of any other guarantee or security taken pursuant to, or in connection with, the Finance Documents by any Finance Party;	
 
 	(iv)	to bring legal or other proceedings for an order requiring any Obligor to make any payment, or perform any obligation, in respect of which any Guarantor has given a guarantee, undertaking or indemnity under this Clause 18;	
 
 	(v)	to exercise any right of set-off against any Obligor; and/or	
 
 	(vi)	to claim or prove as a creditor of any Obligor in competition with any Finance Party.	
 
(b)	If a Guarantor receives any benefit, payment or distribution in relation to such rights as referred to in paragraph (a) above, it shall hold that benefit, payment or distribution to the extent necessary to enable all amounts which may be or become payable to the Finance Parties by the Obligors under or in connection with the Finance Documents to be repaid in full on behalf of and for the account of the Finance Parties and shall promptly pay or transfer the same to the Agent or as the Agent may direct for application in accordance with Clause 30 ( Payment mechanics ).	
 
18.13	Additional security	
This guarantee is in addition to and is not in any way prejudiced by any other guarantee or security now or subsequently held by any Finance Party.
 
19	REPRESENTATIONS AND WARRANTIES	
Each Obligor makes the representations and warranties set out in this Clause 19 to each Finance Party on the date of this Agreement.
 
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19.1	Status	
 
(a)	It and each of its Subsidiaries is a limited liability corporation (or in the case of the Parent Guarantor, a limited partnership), duly incorporated (or in the case of the Parent, formed) and validly existing under the law of its jurisdiction of incorporation (or in the case of the Parent, formation).	
 
(b)	It and each of its Subsidiaries has the power to own its assets and carry on its business as it is being conducted.	
 
19.2	Binding obligations	
Subject to the Legal Reservations:
 
 	(i)	the obligations expressed to be assumed by it in each Finance Document to which it is a party are legal, valid, binding and enforceable obligations; and	
 
 	(ii)	(without limiting the generality of paragraph (i) above) each Security Document to which it is a party creates the security interests which that Security Document purports to create and those security interests are valid and effective.	
 
19.3	Non-conflict with other obligations	
The entry into and performance by it of, and the transactions contemplated by, the Finance Documents and the granting of the Transaction Security do not and will not conflict with:
 
 	(i)	any law or regulation applicable to it;	
 
 	(ii)	its or any of its Subsidiaries’ constitutional documents; or	
 
 	(iii)	any agreement or instrument binding upon it or any member of the Group or any of its or any member of the Group’s assets or constitute a default or termination event (however described) under any such agreement or instrument.	
 
19.4	Power and authority	
It has the power to enter into, perform and deliver, and has taken all necessary action to authorise its entry into, performance and delivery of, the Finance Documents to which it is a party and the transactions contemplated by those Finance Documents.
 
19.5	Validity and admissibility in evidence	
All Authorisations required or desirable:
 
 	(i)	to enable it lawfully to enter into, exercise its rights and comply with its obligations in the Finance Documents to which it is a party; and	
 
 	(ii)	to make the Finance Documents to which it is a party admissible in evidence in its jurisdiction of incorporation,	
have been obtained or effected and are in full force and effect.
 
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19.6	Governing law and enforcement	
 
(a)	The choice of governing law of the Finance Documents will be recognised and enforced in its jurisdiction of incorporation.	
 
(b)	Any judgment obtained in relation to a Finance Document in the jurisdiction of the governing law of that Finance Document will be recognised and enforced in its jurisdiction of incorporation.	
 
19.7	Deduction of Tax	
It is not required to make any deduction for or on account of Tax from any payment it may make under any Finance Document.
 
19.8	No filing or stamp taxes	
Under the law of its jurisdiction of incorporation it is not necessary that the Finance Documents be filed, recorded or enrolled with any court or other authority in that jurisdiction or that any stamp, registration or similar tax be paid on or in relation to the Finance Documents or the transactions contemplated by the Finance Documents other than:
 
 	(i)	registration of the Mortgages in the relevant Approved Ship Register; and	
 
 	(ii)	registration of the Factoring Agreements in the Norwegian Register of Moveable Property ( Løsøreregisteret ).	
 
19.9	No default	
 
(a)	No Event of Default is continuing or is reasonably likely to result from the making of any Utilisation or the entry into, the performance of, or any transaction contemplated by, any Finance Document.	
 
(b)	No other event or circumstance is outstanding which constitutes (or, with the expiry of a grace period, the giving of notice, the making of any determination or any combination of any of the foregoing, would constitute) a default or termination event (however described) under any other agreement or instrument which is binding on it or any of its Subsidiaries (if applicable) or to which its (or any of its Subsidiaries’ (if applicable)) assets are subject which has or is reasonably likely to have a Material Adverse Effect.	
 
19.10	No misleading information	
 
(a)	Any factual information provided by any member of the Group for the purposes of this Agreement was true and accurate in all material respects as at the date it was provided or as at the date (if any) at which it is stated.	
 
(b)	Any financial projections provided to the Finance Parties in connection with this Agreement have been prepared on the basis of recent historical information and on the basis of reasonable assumptions.	
 
(c)	Nothing has occurred or been omitted from the information given to the Finance Parties in connection with this Agreement and no information has been given or withheld that results in the information given to the Finance Parties in connection with this Agreement being untrue or misleading in any material respect.	
 
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19.11	Financial statements	
 
(a)	Its Original Financial Statements were prepared in accordance with the Approved Accounting Principles consistently applied, and fairly represent its consolidated financial condition and operations during the relevant financial year.	
 
(b)	There has been no material adverse change in its business or financial condition (or the business or consolidated financial condition of the Group, in the case of the Parent Guarantor) since the date of the financial statements most recently delivered to the Agent pursuant to Clause 20.1 ( Financial statements ).	
 
19.12	Pari passu ranking	
Its payment obligations under the Finance Documents rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law applying to companies generally.
 
19.13	No proceedings pending or threatened	
No litigation, arbitration or administrative proceedings or investigations of, or before, any court, arbitral body or agency which, if adversely determined, are reasonably likely to have a Material Adverse Effect have (to the best of its knowledge and belief (having made due and careful enquiry)) been started or threatened against it or any of its Subsidiaries.
 
19.14	Compliance with Environmental Laws and other laws	
 
(a)	It is in compliance in all respects with the provisions of all Environmental Laws applicable to it and to the best of its knowledge and belief (having made due and careful enquiry) no circumstances have occurred which would prevent such compliance in a manner or to an extent which has or is reasonably likely to have a Material Adverse Effect.	
 
(b)	No Environmental Claim has been commenced or (to the best of its knowledge and belief (having made due and careful enquiry)) is threatened against it or any of its Subsidiaries where that claim has or is reasonably likely, if determined against the relevant member of the Group, to have a Material Adverse Effect.	
 
(c)	It has not (and none of its Subsidiaries has) breached any law or regulation which breach has or is reasonably likely to have a Material Adverse Effect.	
 
19.15	Taxation	
It is not (and none of its Subsidiaries is) materially overdue in the filing of any Tax returns and is not overdue in the payment of any amount in respect of Tax, unless such payment has been contested in good faith and with due diligence and provided that it maintains adequate reserves in respect of thereof in accordance with the Approved Accounting Principles.
 
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19.16	Transaction Security	
It has all of the rights, title and interest in the assets subject to the Transaction Security to the extent and in the manner contemplated by the Security Documents.
 
19.17	No money laundering	
Each Borrower is acting for its own account and not as lender or trustee or in any other capacity whatsoever on behalf of any third party in relation to the Loans and in relation to the performance and the discharge of its obligations and liabilities under the Finance Documents and the transactions and other arrangements effected or contemplated by the Finance Documents, and the foregoing will not involve or lead to contravention of any law, official requirement or other regulatory measure or procedure implemented to combat money laundering (as defined in Directive 2005/60/EEC) of the Council of the European Communities).
 
19.18	Anti-corruption law	
Each member of the Group has conducted its businesses in compliance with applicable anti-corruption laws and has instituted and maintained policies and procedures designed to promote and achieve compliance with such laws.
 
19.19	Use of proceeds	
The proceeds of the Loan will from time to time be applied for the purposes set out in Clause 3.1 ( Purpose ).
 
19.20	Sanctions	
 
(a)	It and each of its Subsidiaries and joint ventures, and its or their respective directors, officers, employees, agents and/or representatives has been and is in compliance with Sanctions Laws.	
 
(b)	Neither it, nor any of its Subsidiaries, nor any of its or their joint ventures, nor any of its or their respective directors, officers, employees, agents or representatives:	
 
 	(i)	is a Restricted Party, or is involved in any transaction through which it is likely to become a Restricted Party; or	
 
 	(ii)	is subject to or involved in any inquiry, claim, action, suit, proceeding or investigation against it with respect to Sanctions Laws by any Sanctions Authority.	
 
19.21	Repetition	
The Repeating Representations are deemed to be made by each Obligor by reference to the facts and circumstances then existing on the date of each Utilisation Request, on each Utilisation Date and on the first day of each Interest Period.
 
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20	INFORMATION UNDERTAKINGS	
The undertakings in this Clause 20 remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents or any Commitment is in force.
 
20.1	Financial statements	
 
(a)	Each Borrower and the Parent Guarantor shall supply to the Agent in sufficient copies for all the Lenders:	
 
 	(i)	as soon as the same become available, but in any event within 150 days after the end of each of its financial years, its audited financial statements (consolidated if it has Subsidiaries) for that financial year; and	
 
 	(ii)	as soon as the same become available, but in any event within 60 days after the end of each quarter of each of its financial years, its unaudited financial statements (consolidated if it has Subsidiaries) for that financial quarter.	
 
(b)	The Parent Guarantor shall supply to the Agent as soon as reasonably practicable after the same are available (and in any event on or before 31 January each year), its consolidated budget and cash flow projections for that financial year and for the next five (5) financial years, and such updates of such budget and/or projections as the Agent may reasonably require.	
 
20.2	Provision and contents of Compliance Certificate	
 
(a)	The Parent Guarantor shall supply to the Agent, with each set of consolidated financial statements of the Parent Guarantor delivered pursuant to Clause 20.1 ( Financial statements ), a Compliance Certificate setting out (in reasonable detail) computations as to compliance with Clause 21 ( Financial covenants ).	
 
(b)	Each Compliance Certificate shall be signed by the chief financial officer of the Parent Guarantor.	
 
20.3	Requirements as to financial statements	
 
(a)	Each set of financial statements delivered pursuant to Clause 20.1 ( Financial statements ) shall be certified by the chief financial officer of the Parent Guarantor as fairly representing the financial condition of the relevant Obligor as at the date as at which those financial statements were drawn up.	
 
(b)	The Parent Guarantor shall procure that each set of financial statements delivered pursuant to Clause 20.1 ( Financial statements ) is prepared using the Approved Accounting Principles, accounting practices and financial reference periods consistent with those applied in the preparation of the Original Financial Statements unless, in relation to any set of financial statements, it notifies the Agent that there has been a change in the Approved Accounting Principles, the accounting practices or reference periods and the Parent Guarantor (or if required by any of the Lenders, its auditors) deliver to the Agent:	
 
 	(i)	a description of any change necessary for those financial statements to reflect the Approved Accounting Principles, accounting practices and reference periods upon which the Original Financial Statements were prepared; and	
 
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 	(ii)	sufficient information, in form and substance as may be reasonably required by the Agent, to enable the Lenders to determine whether Clause 21 ( Financial covenants ) has been complied with and make an accurate comparison between the financial position indicated in those financial statements and the Original Financial Statements.	
Any reference in this Agreement to those financial statements shall be construed as a reference to those financial statements as adjusted to reflect the basis upon which the Original Financial Statements were prepared.
 
20.4	Market valuations	
 
(a)	The Parent Guarantor shall no later than ten (10) Business Days after the end of each of its financial years and each of its financial half years, or at such other intervals as may be required by the Agent (acting on the instructions of the Majority Lenders) in the event that an Event of Default has occurred and is continuing, forward to the Agent in sufficient copies for all the Lenders updated valuation reports (not more than thirty (30) days old) from two (2) of the Approved Brokers setting out the Market Value of each of the Vessels, as well as a calculation signed by the chief financial officer of the Parent Guarantor evidencing compliance with Clause 23.12 ( Minimum value ).	
 
(b)	All such valuations referred to in paragraph (a) above shall be obtained at the cost of the Borrowers.	
 
20.5	Information: miscellaneous	
Each Obligor shall supply to the Agent (in sufficient copies for all the Lenders, if the Agent so requests):
 
 	(i)	at the same time as they are dispatched, copies of all documents dispatched by it to its shareholders generally (or any class of them) or to its creditors generally (or any class of them);	
 
 	(ii)	promptly upon becoming aware of them, the details of any inquiry, claim, action, suit, proceeding or investigation pursuant to Sanctions Laws by an Sanctions Authority against it, any of its direct or indirect owners, Subsidiaries or Affiliates, any of its or their joint ventures or any of its or their respective directors, officers, employees, agents or representatives, as well as information on what steps are being taken with regards to answer or oppose such inquiry, claim, action, suit, proceeding or investigation;	
 
 	(iii)	promptly upon becoming aware that it, any of its direct or indirect owners, Subsidiaries or Affiliates, any of its or their joint ventures or any of its or their respective directors, officers, employees, agents or representatives has become or is likely to become a Restricted Party;	
 
 	(iv)	promptly upon becoming aware of them, the details of any litigation, arbitration or administrative proceedings which are current, threatened or pending against any member of the Group, and which, if adversely determined, are reasonably likely have a Material Adverse Effect;	
 
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 	(v)	promptly, such information as the Agent may reasonably require about any asset subject to the Transaction Security and compliance of the Obligors with the terms of any Security Document; and	
 
 	(vi)	promptly on request, such further information regarding the financial condition, assets and operations of the Group and/or any member of the Group (including any requested amplification or explanation of any item in the financial statements, budgets or other material provided by any Obligor under this Agreement and an up to date copy of its shareholders’ register (or equivalent in any relevant jurisdiction)) as any Finance Party through the Agent may reasonably request.	
 
20.6	Notification of Default and Change of Control	
 
(a)	Each Obligor shall notify the Agent of any Default (and the steps, if any, being taken to remedy it) promptly upon becoming aware of its occurrence (unless that Obligor is aware that a notification has already been provided by another Obligor).	
 
(b)	Promptly upon a request by the Agent, the Parent Guarantor shall supply to the Agent a certificate signed by two (2) of its directors or senior officers on its behalf certifying that no Default is continuing (or if a Default is continuing, specifying the Default and the steps, if any, being taken to remedy it).	
 
(c)	Each Obligor shall notify the Agent of the occurrence of any Change of Control promptly upon becoming aware of its occurrence (unless that Obligor is aware that a notification has already been provided by another Obligor).	
 
20.7	Use of websites	
 
(a)	Each Obligor may satisfy its obligation under this Agreement to deliver any information in relation to the Lenders by posting this information onto an electronic website designated by the Obligors and the Agent (the “ Designated Website ”) if:	
 
 	(i)	both the Obligors and the Agent are aware of the address of and any relevant password specifications for the Designated Website; and	
 
 	(ii)	the information is in a format previously agreed between the Obligors and the Agent.	
 
(b)	The Agent shall supply each Lender with the address of and any relevant password specifications for the Designated Website following designation of that website by the Obligors and the Agent.	
 
(c)	an Obligor shall promptly upon becoming aware of its occurrence notify the Agent if:	
 
 	(i)	the Designated Website cannot be accessed due to technical failure;	
 
 	(ii)	the password specifications for the Designated Website change;	
 
 	(iii)	any new information which is required to be provided under this Agreement is posted onto the Designated Website;	
 
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 	(iv)	any existing information which has been provided under this Agreement and posted onto the Designated Website is amended; or	
 
 	(v)	it becomes aware that the Designated Website or any information posted onto the Designated Website is or has been infected by any electronic virus or similar software.	
If and Obligor notifies the Agent under paragraph (c)(i) or paragraph (c)(v) above, all information to be provided by the Obligors under this Agreement after the date of that notice shall be supplied in paper form unless and until the Agent and each Lender is satisfied that the circumstances giving rise to the notification are no longer continuing.
 
(d)	Any Lender may request, through the Agent, one paper copy of any information required to be provided under this Agreement which is posted onto the Designated Website. The Obligors shall comply with any such request within ten (10) Business Days.	
 
20.8	“Know your customer” checks	
 
(a)	If:	
 
 	(i)	the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of this Agreement;	
 
 	(ii)	any change in the status of an Obligor after the date of this Agreement; or	
 
 	(iii)	a proposed assignment or transfer by a Lender of any of its rights and obligations under this Agreement to a party that is not a Lender prior to such assignment or transfer,	
obliges the Agent or any Lender (or, in the case of paragraph (iii) above, any prospective new Lender) to comply with “know your customer” or similar identification procedures in circumstances where the necessary information is not already available to it, the Obligors shall promptly upon the request of the Agent or any Lender supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself or on behalf of any Lender) or any Lender (for itself or, in the case of the event described in paragraph (iii) above, on behalf of any prospective new Lender) in order for the Agent, such Lender or, in the case of the event described in paragraph (iii) above, any prospective new Lender to carry out and be satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.
 
(b)	Each Lender shall promptly upon the request of the Agent supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself) in order for the Agent to carry out and be satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.	
 
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21	FINANCIAL COVENANTS	
 
21.1	Financial definitions	
In this Agreement:
“ Borrowings ”
means, at any time, the aggregate outstanding principal, capital or nominal amount (and any fixed or minimum premium payable on prepayment or redemption) of any indebtedness of members of the Group for or in respect of:
 
 	(i)	moneys borrowed and debit balances at banks or other financial institutions;	
 
 	(ii)	any acceptances under any acceptance credit or bill discount facility (or dematerialised equivalent);	
 
 	(iii)	any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;	
 
 	(iv)	any Finance Lease;	
 
 	(v)	receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis and meet any requirements for de-recognition under the Approved Accounting Principles);	
 
 	(vi)	any counter-indemnity obligation in respect of a guarantee, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution in respect of an underlying liability of an entity which is not a member of the Group which liability would fall within one of the other paragraphs of this definition;	
 
 	(vii)	any amount raised by the issue of shares which are redeemable (other than at the option of the issuer) before the Termination Date or are otherwise classified as borrowings under the Approved Accounting Principles;	
 
 	(viii)	any amount of any liability under an advance or deferred purchase agreement if (A) one of the primary reasons behind the entry into the agreement is to raise finance or to finance the acquisition or construction of the asset or service in question, or (B) the agreement is in respect of the supply of assets or services and payment is due more than ninety (90) days after the date of supply;	
 
 	(ix)	any amount raised under any other transaction (including any forward sale or purchase agreement, sale and sale back or sale and leaseback agreement) having the commercial effect of a borrowing or otherwise classified as borrowings under the Approved Accounting Principles; and	
 
 	(x)	(without double counting) the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (i) to (ix) above.	
 
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“ Cash and Cash Equivalents ”
means, at any time, the aggregate amount of:
 
 	(i)	cash in hand or on deposit with any bank or financial institution;	
 
 	(ii)	2/3 of the Available Facility in respect of the Revolving Facility; and	
 
 	(iii)	cash equivalents (as reported in accordance with the Approved Accounting Principles),	
to which any member of the Group is alone (or together with another member of the Group) beneficially entitled at that time and which is not issued or guaranteed by a member of the Group or subject to any security (other than Security arising under the Security Documents).
“ Current Assets ”
means the aggregate value of the Group’s (on a consolidated basis) or a Borrower’s (as the case may be) assets, which are treated as current assets in accordance with the Approved Accounting Principles.
“ Current Liabilities ”
means the aggregate amount of the Group’s (on a consolidated basis) or a Borrower’s (as the case may be) liabilities, which are treated as current liabilities in accordance with the Approved Accounting Principles, but excluding instalments on long-term debt and Finance Leases which fall due during the next twelve months.
“ EBITDA ”
means, in respect of any Relevant Period, earnings before interest, taxation, depreciation and amortisation, not taking into account any exceptional or extraordinary items.
“ Finance Charges ”
means, for any Relevant Period, the aggregate amount of the accrued interest in respect of Borrowings paid or payable by any member of the Group (calculated on a consolidated basis) in cash in respect of that Relevant Period:
 
 	(i)	including the interest (but not the capital) element of payments in respect of Finance Leases;	
 
 	(ii)	including any commission, fees, discounts and other finance payments payable by (and deducting any such amounts payable to) any member of the Group under any interest rate hedging arrangement; and	
 
 	(iii)	excluding any capitalised interest in respect of any Subordinated Loan,	
and so that no amount shall be added (or deducted) more than once.
“ Relevant Period ”
means each period of twelve (12) months ending on or about the last day of the financial year of the relevant Obligor and each period of twelve (12) months ending on or about the last day of each financial quarter of the relevant Obligor.
 
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“ Total Assets ”
means the aggregate book value of those assets which, according to the Approved Accounting Principles, shall be included as assets in a balance sheet.
“ Total Equity ”
means book equity.
“ Working Capital ”
means, on any date, Current Assets less Current Liabilities.
 
21.2	Calculations	
 
(a)	Except as provided to the contrary in this Agreement, an accounting term used in this Clause 21 is to be construed in accordance with the principles applied in connection with the Original Financial Statements.	
 
(b)	No item must be credited or deducted more than once in any calculation under this Clause 21.	
 
21.3	Working Capital	
 
(a)	The Parent Guarantor shall procure that the Working Capital of the Parent Guarantor (on a consolidated basis) measured at the end of each of its financial quarters (starting with the financial quarter ending 30 June 2014) shall at all times be positive.	
 
(b)	Each Borrower shall procure that its Working Capital measured at the end of each of its financial quarters (starting with the financial quarter ending 30 June 2014) shall at all times be positive.	
 
21.4	Equity ratio	
The Parent Guarantor shall procure that the ratio of Total Equity to Total Assets of the Parent Guarantor (on a consolidated basis) measured at the end of each of its financial quarters (starting with the financial quarter ending 30 June 2014) shall not at any time be less than 0.30.
 
21.5	Interest cover ratio	
The Parent Guarantor shall procure that the ratio of EBITDA to Finance Charges for it (on a consolidated basis) in respect of any Relevant Period (starting with the Relevant Period ending 30 June 2014) shall be no less than 2.50:1.00.
 
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21.6	Liquidity	
The Parent Guarantor shall procure that it (on a consolidated basis) at all times maintains Cash and Cash Equivalents in an amount equal to or greater than USD 15,000,000:
 
 	(i)	plus an amount of USD 1,500,000 for each vessel owned by a member of the Group with no employment contract or an employment contract with less than twelve (12) months remaining tenor (excluding options), provided always that employment contracts entered into with the Sponsor or any of its Subsidiaries shall not count as employment contracts in relation to this paragraph (i); and	
 
 	(ii)	plus an amount of USD 1,000,000 for each vessel owned by the members of the Group in excess of eight (8) vessels.	
 
22	GENERAL UNDERTAKINGS	
The undertakings in this Clause 22 remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents or any Commitment is in force.
 
22.1	Use of proceeds	
No proceeds of the Loan shall be made available, directly or indirectly, to or for the benefit of a Restricted Party nor shall they otherwise be applied in a manner or for a purpose prohibited by Sanctions Laws.
 
22.2	Authorisations	
 
(a)	Each Obligor shall promptly:	
 
 	(i)	obtain, comply with and do all that is necessary to maintain in full force and effect; and	
 
 	(ii)	supply certified copies to the Agent of,	
any Authorisation required under any law or regulation of its jurisdiction of incorporation to enable it to perform its obligations under the Finance Documents and to ensure the legality, validity, enforceability or admissibility in evidence in its jurisdiction of incorporation of any Finance Document.
 
(b)	The Obligors shall obtain or cause to be obtained, at the time the same are required, maintain or cause to be maintained in full force and effect and promptly renew or cause to be renewed and comply in all material respects with the conditions and restrictions (if any) imposed in, or in connection with, every Authorisation required to be obtained and maintained in order to continue the performance and operation of each Vessel under any contract entered into in respect of it and any law and regulation to which it and/or any Obligor may be subject.	
 
22.3	Negative pledge	
In this Clause 22.3, “ Quasi-Security ” means an arrangement or transaction described in paragraph (b) below.
 
(a)	No Borrower shall create or permit to subsist any Security over any of its assets and the Parent Guarantor shall not create or permit to subsist any Security over any of the shares or other ownership interests in any of the Borrowers (other than the Security granted under the Second Share Pledge Agreement), KNOT Offshore Partners UK LLC or KNOT Shuttle Tankers AS.	
 
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(b)	No Borrower shall:	
 
 	(i)	sell, transfer or otherwise dispose of any of its assets on terms whereby they are or may be leased to or re-acquired by any other member of the Group;	
 
 	(ii)	sell, transfer or otherwise dispose of any of its receivables on recourse terms;	
 
 	(iii)	enter into any arrangement under which money or the benefit of a bank or other account may be applied, set-off or made subject to a combination of accounts; or	
 
 	(iv)	enter into any other preferential arrangement having a similar effect,	
in circumstances where the arrangement or transaction is entered into primarily as a method of raising Financial Indebtedness or of financing the acquisition of an asset.
 
(c)	Paragraphs (a) and (b) above do not apply to any Security or (as the case may be) Quasi-Security listed below:	
 
 	(i)	any Security or Quasi-Security constituted by the Security Documents or entered into under a Finance Document;	
 
 	(ii)	any Security or Quasi-Security disclosed in writing by a Borrower to the Agent prior to the date of this Agreement and approved in writing by the Agent (in its sole discretion) for the purposes of this Agreement;	
 
 	(iii)	any Security or Quasi-Security comprising a netting or set-off arrangement entered into by a Borrower in the ordinary course of its banking arrangements for the purpose of netting debit and credit balances;	
 
 	(iv)	any Security or Quasi-Security arising by operation of law or in the ordinary course of business securing obligations not more than 30 days overdue;	
 
 	(v)	any Security or Quasi-Security to which the Lenders have given their prior written consent.	
 
22.4	Financial Indebtedness restrictions	
 
(a)	No Borrower shall incur, create or permit to subsist any Financial Indebtedness.	
 
(b)	Paragraph (a) above does not apply to Financial Indebtedness:	
 
 	(i)	incurred under the Finance Documents;	
 
 	(ii)	incurred by way of a Subordinated Loan made at a time when no Default is continuing or would occur from the borrowing of such Subordinated Loan, and provided that the Parent Guarantor and the Borrowers will be in compliance with the financial covenants set out in Clause 21 ( Financial covenants ) following the borrowing of such Subordinated Loan; or	
 
 	(iii)	incurred with the prior written consent of the Lenders.	
 
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22.5	Change of business etc.	
 
(a)	The Parent Guarantor shall procure that no substantial change is made to the general nature of the business of the Group from that carried on at the date of this Agreement without the prior written consent of the Lenders.	
 
(b)	No Borrower shall engage in any business other than the ownership and operation of the Vessel owned by it.	
 
(c)	No Obligor shall change its type of company, legal name or jurisdiction of incorporation without the prior written consent of the Lenders.	
 
22.6	Loans or credit	
 
(a)	No Borrower shall be a creditor in respect of any Financial Indebtedness.	
 
(b)	Paragraph (a) above does not apply to:	
 
 	(i)	normal trade credit extended to its customers on normal commercial terms and in the ordinary course of its trading activities;	
 
 	(ii)	any loan or other credit made to another member of the Group at a time when no Default is continuing or would occur from the making of such loan or other credit, and provided that the Parent Guarantor and the Borrowers will be in compliance with the financial covenants set out in Clause 21 ( Financial covenants ) following the making of such loan or other credit; or	
 
 	(iii)	any creditor relationship entered into with the consent of the Lenders.	
 
22.7	No guarantees or indemnities	
 
(a)	No Borrower shall incur or allow to remain outstanding any guarantee or indemnity in respect of any obligation of any person.	
 
(b)	Paragraph (a) above does not apply to a guarantee or indemnity which is:	
 
 	(i)	granted pursuant to the Finance Documents;	
 
 	(ii)	from time to time required in the ordinary course of business and operation of the Vessels, or by any protection and indemnity or war risks association with which a Vessel is entered, guarantees required to procure the release of that Vessel from any arrest, detention, attachment or levy or guarantees required for the salvage of that Vessel;	
 
 	(iii)	granted in respect of any obligation of another member of the Group at a time when no Default is continuing or would occur from the granting of such guarantee or indemnity, and provided that the Parent Guarantor and the Borrowers will be in compliance with the financial covenants set out in Clause 21 ( Financial covenants ) following the granting of such guarantee or indemnity; or	
 
 	(iv)	granted with the prior written consent of the Lenders.	
 
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22.8	Merger	
No Obligor shall enter into any amalgamation, demerger, merger, consolidation or corporate reconstruction without the prior written consent of the Lenders.
 
22.9	Investments	
No Borrower shall, without the prior written consent of the Lenders, make any further investments, other than investments relating to the Vessel owned by it, provided that such investment is made at a time when no Default is continuing or would occur from the making of the relevant investment, and provided further that the Parent Guarantor and the Borrowers will be in compliance with the financial covenants set out in Clause 21 ( Financial covenants ) following the making of the relevant investment.
 
22.10	Arm’s length terms	
All agreements and transactions entered into by an Obligor with an Affiliate, a shareholder or an Affiliate of a shareholder shall be entered into and made on arm’s length terms.
 
22.11	Hedging	
The Hedging Banks shall have the first right of refusal on competitive terms in relation to any interest hedging or other derivatives products relating to the Vessels or any of them or the Facilities or any of them.
 
22.12	Pari passu ranking	
Each Obligor shall ensure that at all times any unsecured and unsubordinated claims of a Finance Party against it under the Finance Documents rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors except those creditors whose claims are mandatorily preferred by laws of general application to companies.
 
22.13	Dividend restrictions	
 
(a)	No Obligor shall make, pay or declare any dividend, reduction of share capital or other distribution to its shareholders or any of them.	
 
(b)	Paragraph (a) above shall not apply to dividend, reduction of share capital or other distributions where the following conditions are fulfilled:	
 
 	(i)	no Default has occurred and is continuing at the time the making, payment or declaration of the relevant dividend, reduction of share capital or other distribution is made, or would result from the making, payment or declaration of the relevant dividend, reduction of share capital or other distribution; and	
 
 	(ii)	the Parent Guarantor and the Borrowers will be in compliance with the financial covenants set out in Clause 21 ( Financial covenants ) following the making, payment or declaration of the relevant dividend, reduction of share capital or other distribution.	
 
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22.14	Change of financial year	
No Obligor will, without the prior written consent of the Majority Lenders, change its financial year.
 
22.15	Payment of Taxes	
Each Obligor shall (and the Borrower shall ensure that each member of the Group will) pay and discharge all Taxes imposed upon it or its assets within the time period allowed without incurring penalties unless and only to the extent that:
 
 	(i)	such payment is being contested in good faith;	
 
 	(ii)	adequate reserves are being maintained for those Taxes and the costs required to contest them which have been disclosed in its latest financial statements delivered to the Agent under Clause 20.1 ( Financial statements ); and	
 
 	(iii)	such payment can be lawfully withheld.	
 
22.16	Listing	
The Parent Guarantor shall maintain its listing at the New York Stock Exchange or such other stock exchange as may be approved by the Lenders.
 
22.17	Further security	
 
(a)	Each Borrower shall if it enters into any any contract of employment (including, inter alia, step-in rights) in respect of the Vessel owned by it for a period exceeding 18 months (including any options, extensions and/or renewals), within 30 days after the entering into of such contract enter into an Assignment Agreement with the Agent in respect of its rights under such contract, and do all such acts and execute all such documents in favour of the Agent and provide such documentation to the Agent as the Agent may reasonably require to perfect the security created or intended to be created thereunder and evidence that the Assignment Agreement has been validly executed by the relevant Borrower.	
 
(b)	Each Borrower shall if it enters into any Hedging Agreement, within 30 days after the entering into of such Hedging Agreement enter into a Hedging Agreement Assignment Agreement with the Agent in respect of its claims relating to any such Hedging Agreement, and do all such acts and execute all such documents in favour of the Agent and provide such documentation to the Agent as the Agent may reasonably require to perfect the security created or intended to be created thereunder and evidence that the Hedging Agreement Assignment Agreement has been validly executed by the relevant Borrower.	
 
22.18	Sanctions	
 
(a)	No Obligor shall be or become, and each Obligor shall ensure that none of its Subsidiaries or Affiliates or its or their respective directors, officers, employees, agents or representatives or any other persons acting on its or their behalf is or will become, a Restricted Party.	
 
(b)	The Borrowers and the Parent shall ensure that its assets, the assets, including assets subject to the Security Documents (including the Vessels), shall not be used directly or indirectly:	
 
 	(i)	by or for the direct or indirect benefit of any Restricted Party; or	
 
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 	(ii)	in any trade which is prohibited under applicable Sanctions or which could expose a Borrower or the Parent, any of their assets, any assets subject to the Security Documents, any Vessel, any Finance Party or any other person being party to or which benefits from any Finance Document, any manager of a Vessel or any charterer or insurer of a Vessel to enforcement proceedings or any other consequences whatsoever arising from Sanctions.	
 
(c)	The Borrowers and the Parent shall ensure that the Vessels shall not be trading to Iranian ports or carrying or storing/warehousing crude oil, petroleum products or petrochemical products or other products subject to Sanctions if they originate in Iran, or are being exported from Iran to any other country, as long as Iran is subject to Sanctions by a Sanctions Authority.	
 
22.19	Most favoured lender status	
If as a result of, or in connection with, or to obtain any consent or agreement of any finance party under any agreement in respect of Financial Indebtedness in an amount of USD 10,000,000 (or its equivalent) or more, a Borrower, the Parent Guarantor or Knutsen Shuttle Tankers XII KS has entered into or enters into documentation or other arrangements containing any financial covenants more favourable to the finance party or finance parties than, or in addition to, those contained in this Agreement, the Borrower undertakes to immediately notify the Agent of the existence and details of such documentation or other arrangements and, if so requested by the Agent, the Obligors undertake to as soon as reasonably practicable (and in no event later than thirty (30) days after the occurrence thereof) enter into an amendment of this Agreement in the form reasonably required by the Majority Lenders for the purpose of incorporating equivalent (or the functional equivalent of such) financial covenants in this Agreement.
 
23	VESSEL UNDERTAKINGS	
The undertakings in this Clause 23 remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents or any Commitment is in force.
 
23.1	Insurances	
 
(a)	The Borrowers shall procure that each Vessel is fully insured on an agreed value basis against such risks (including, but not limited to Hull and Machinery, Hull Interest, Freight Interest, Protection & Indemnity (including a maximum club cover for oil pollution liability for each Vessel, presently USD 1,000,000,000) and War Risk (including terrorism, piracy, hijacking and confiscation)), in such amounts, on such terms (always applying Norwegian law and including the terms of the Nordic Marine Insurance Plan of 2013 (as amended from time to time) or such other terms as the Agent (acting reasonably) may approve in relation to losses payable thereunder) and with such insurance brokers and insurers as the Agent (acting on the instructions of the Majority Lenders) may approve. The Borrowers will procure that the Agent is named as mortgagee and loss payee under the insurances, also if the insurances are effected by a charterer of a Vessel.	
 
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(b)	The insured value of each Vessel shall at all times be equal to or greater than its Market Value, and the aggregate insured value of all Vessels shall be equal to or greater than 120 per cent. of the amount of the Total Commitments.	
Furthermore, the Hull and Machinery insured value of each Vessel shall at all times cover at least 80 per cent. of the Market Value of the Vessel, and the aggregate Hull and Machinery insured value of the Vessels shall at all times cover at least an amount equal to the amount of the Total Commitments, while the remaining cover may be taken out by way of Hull and/or Freight Interest insurances.
 
(c)	In addition to the insurances specified above, the Agent shall take out (i) Mortgagee Interest Insurance and (ii) Mortgagee Interest Additional Perils Pollution Insurance, each such insurance to be taken out in an amount covering up to 120 per cent. of the Total Commitments, and the Borrowers shall reimburse to the Agent any and all sums paid as premium in respect of such insurance cover.	
 
(d)	If any of the insurances referred to in paragraph (a) above form part of a fleet cover, the Borrowers shall procure that the insurers shall undertake to the Agent that they shall neither set-off against any claims in respect of a Vessel any premiums due in respect of other vessels under such fleet cover or any premiums due for other insurances, nor cancel any insurances in relation of a Vessel for reason of non-payment of premiums for other vessels under such fleet cover or of premiums for such other insurances, and shall undertake to issue a separate policy in respect of each Vessel if and when so requested by the Agent.	
 
(e)	Not later than seven (7) days before the expiry date of the relevant insurances, the Borrowers shall deliver to the Agent a confirmation from the insurance broker(s) through whom the insurances relevant to the Vessels have been placed, evidencing that all insurances referred to in paragraph (a) above have been renewed and taken out in respect of the Vessels with insurance values as required by paragraph (b) above, that such insurances will be in full force and effect immediately upon the expiry of the expiring insurances and that the interests of the Finance Parties therein have been noted by the relevant insurers. The Borrowers shall procure that Letters of Undertaking, as required by the Agent, and copies of all insurance policies, cover notes and certificates of entry are delivered to the Agent.	
 
(f)	The Borrowers shall procure that each Vessel is always employed in conformity with the terms of the instruments of insurance (including any expressed or implied warranties) applicable to it and shall comply with such requirements as to extra premium or otherwise as the insurers may prescribe.	
 
(g)	The Agent shall prior to each Utilisation Date, for the account of the Borrowers, appoint an independent and well reputed insurance consultant to consider and determine whether each Vessel is fully and properly insured and employed in accordance with paragraphs (a) – (f) above. If at any time during the Loan Period, the contrary is so determined, the Borrowers shall, following a written request from the Agent (on behalf of the Finance Parties) immediately ensure that the relevant Vessel(s) is fully and properly insured and employed as set out in paragraphs (a) – (f) above and provide the Agent with evidence in a form and substance satisfactory to it thereof.	
 
23.2	Notification	
The Obligors shall immediately notify the Agent of:
 
 	(i)	any accident to a Vessel involving repairs the cost of which is likely to exceed USD 3,000,000;	
 
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 	(iii)	any occurrence as a result of which a Vessel has become or is, by the passing of time or otherwise, likely to become a Total Loss;	
 
 	(iv)	the occurrence of any Environmental Claim against an Obligor or a Vessel which is likely to be determined adversely to it, or any incident, event or circumstances which is likely to give rise to any such Environmental Claim and which, if so adversely determined or otherwise, is reasonably likely to have a Material Adverse Effect; and	
 
 	(v)	any capture, seizure, arrest, confiscation or detention of, or the exercise or purported exercise of any lien on, a Vessel, its insurances, its Earnings or any other assets of an Obligor.	
 
23.3	Total Loss of a Vessel	
In the event that a Vessel shall suffer a Total Loss, the Borrowers shall, within a period of ninety (90) days after the Total Loss Date, obtain and present to the Agent a written confirmation from the relevant insurers that the claim relating to the Total Loss has been accepted in full, or - if sooner - promptly upon receipt of insurance proceeds in respect of the Total Loss, apply such proceeds in prepayment of the Loans. Such prepayment shall in the event of Total Loss in any event be made within one hundred and eighty (180) days from the Total Loss Date, in accordance with Clause 7.3 ( Mandatory prepayment – sale or Total Loss etc. ).
 
23.4	Compliance with laws etc.	
Each Obligor shall (and shall ensure that each of its Subsidiaries and Affiliates, as well as any manager of any of the Vessels, shall):
 
 	(i)	comply with all laws or regulations:	
 
 	(A)	applicable to its business; or	
 
 	(B)	applicable to the Vessel, its ownership, employment, operation, management and registration,	
including the ISM Code, the ISPS Code, all Environmental Laws, all Sanctions Laws and the laws of the flag of each Vessel; and
 
 	(ii)	obtain, comply with and do all that is necessary to maintain in full force and effect any Environmental Approvals,	
and without limiting paragraph (a) above, not employ any Vessel nor allow its employment, operation or management in any manner, contrary to any law or regulation including but not limited to the ISM Code, the ISPS Code, all Environmental Laws and all Sanctions Laws.
 
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23.5	Class	
 
(a)	The Borrowers shall procure that each Vessel is classified and maintained in the highest class, free of any overdue recommendations, with DNV GL or any other classification society approved by the Majority Lenders, and at all times complies with the rules and regulations of the relevant classification society. The Borrowers shall not change the classification society for a Vessel without the prior written consent of the Lenders.	
 
(b)	The Borrowers shall procure that the classification society sends to the Agent, following receipt of a written request from the Agent, copies of all class records held by the classification society in relation to a Vessel.	
 
(c)	The Borrowers shall at all times ensure compliance with all international conventions and regulations, including the SOLAS conventions, the International Management Code for the Safe Operation of Ships and for Pollution Prevention and the International Ship and Port Security Code adopted by the International Maritime Organisation. In particular, the Borrowers shall ensure compliance with the ISM-Code and shall ensure that any charterer of a Vessel and any company performing management services on behalf of a Borrowers complies with said conventions and regulations.	
 
23.6	Repair and maintenance	
The Borrowers shall procure that each Vessel is kept in a good and safe condition and state of repair consistent with good ownership and operational standards, and that each Vessel is operated and maintained in accordance with the requirements of any employment contract entered into in respect of it.
 
23.7	Inspection	
 
(a)	Each Borrower shall permit, and shall procure that any manager or charterer permits, the Agent (acting through surveyors or other persons appointed by it for that purpose) to board each Vessel once a year and with prior notice to the Borrower owning the relevant Vessel, and provided that such inspection does not unreasonably interfere with the relevant Borrower’s or end user’s normal operations (unless a Default has occurred and is continuing, in which case such inspections may be conducted at any time and on any number of occasions), to inspect its condition or to satisfy itself about proposed or executed repairs, and shall afford all proper facilities for such inspections.	
 
(b)	Any such inspection made once a year, or in the event that a Default has occurred and is continuing, shall be made at the cost of the Borrower owning the relevant Vessel, and in any other event such costs shall be carried by the Lenders.	
 
23.8	Flag, name and registry	
The Borrowers shall procure that each Vessel is registered in a Approved Ship Register, or another ship registry acceptable to the Lenders, in the name of the relevant Borrower, keep each Vessel registered in such register and not do or suffer to be done anything, or omit to do anything the doing or omission of which could or might result in such registration being forfeited or imperilled. No Borrower shall change the flag, name or registry of a Vessel, or register a Vessel simultaneously in more than one registry, without the prior written consent of the Lenders.
 
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23.9	No sale or other disposal	
The Obligors shall procure that no Vessel or shares in a Borrower is sold or otherwise disposed of without the prior written consent of the Lenders.
 
23.10	Management	
The Borrowers shall procure that commercial and technical management of each Vessel at all times is performed by KNOT Management AS, another company controlled by the Parent Guarantor and/or any such other manager as may be approved by the Majority Lenders. No change of management shall take place without the prior written consent of the Majority Lenders.
 
23.11	Earnings Accounts	
 
(a)	Each Borrower shall open and maintain an Earnings Account with the Agent and procure that all Earnings, insurance proceeds, requisition compensation and other sums payable in respect of the Vessel owned by it shall be paid directly to such Earnings Account without deductions.	
 
(b)	The amounts credited to the Earnings Accounts shall be freely available to the relevant Borrower as long as no Default has occurred and is continuing.	
 
23.12	Minimum value	
 
(a)	The Borrowers shall ensure that the aggregate Market Value of the Vessels (plus any additional security previously provided by the Borrowers under paragraph (b) below) is at all times:	
 
 	(i)	during the period from and including the first Utilisation Date until the second anniversary thereof, at least equal to 110 per cent. of the aggregate of the principal amount of the Loans;	
 
 	(ii)	during the period from and including the second anniversary of the first Utilisation Date until fourth anniversary thereof, at least equal to 120 per cent. of the aggregate of the principal amount of the Loans; and	
 
 	(iii)	at any time thereafter at least equal to 125 per cent. of the aggregate of the principal amount of the Loans.	
 
(b)	The Borrowers shall, if the Market Value does not at any time comply with the requirements set out in paragraph (a) above, within thirty (30) days from receipt of a written demand from the Agent (acting on the instructions of the Majority Lenders) either make a prepayment of the Loans in accordance with Clause 7.5 ( Voluntary prepayment ), or provide the Finance Parties with such additional security, in form and substance satisfactory to the Lenders, required to restore the aforesaid ratio.	
 
24	EVENTS OF DEFAULT	
Each of the events or circumstances set out in Clause 24 is an Event of Default (save for Clause 24.16 ( Acceleration )).
 
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24.1	Non-payment	
An Obligor does not pay on the due date any amount payable pursuant to a Finance Document at the place and in the currency in which it is expressed to be payable unless:
 
 	(i)	its failure to pay is caused by:	
 
 	(A)	a one-off administrative or technical error; or	
 
 	(B)	a Disruption Event; and	
 
 	(ii)	payment is made within three (3) Business Days of its due date.	
 
24.2	Financial covenants	
Any requirement of Clause 21 ( Financial covenants ) is not satisfied, or an Obligor does not comply with the provisions of Clause 20 ( Information undertakings ).
 
24.3	Other obligations	
 
(a)	An Obligor does not comply with any provision of the Finance Documents (other than those referred to in Clause 24.1 ( Non-payment ) and Clause 24.2 ( Financial covenants )).	
 
(b)	No Event of Default under paragraph (a) above will occur if the failure to comply is capable of remedy and is remedied within fifteen (15) Business Days of the earlier of:	
 
 	(i)	the Agent giving notice to the Borrower; and	
 
 	(ii)	an Obligor becoming aware of the failure to comply.	
 
(c)	For the avoidance of doubt, a breach of Clause 23.1 ( Insurances ) is not (at the discretion of the Lenders) capable of remedy.	
 
24.4	Misrepresentation	
Any representation or statement made or deemed to be made by an Obligor in the Finance Documents or any other document delivered by or on behalf of any Obligor under or in connection with any Finance Document is or proves to have been incorrect or misleading in any material respect when made or deemed to be made.
 
24.5	Cross-default	
 
(a)	Any Financial Indebtedness of an Obligor is not paid when due nor within any originally applicable grace period.	
 
(b)	Any Financial Indebtedness of an Obligor is declared to be or otherwise becomes due and payable prior to its specified maturity as a result of an event of default (however described).	
 
(c)	Any commitment for any Financial Indebtedness of an Obligor is cancelled or suspended by a creditor of the relevant Obligor as a result of an event of default (however described).	
 
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(d)	Any creditor of an Obligor becomes entitled to declare any Financial Indebtedness of an Obligor due and payable prior to its specified maturity as a result of an event of default (however described).	
 
(e)	No Event of Default will occur under this Clause 24.5 if the aggregate amount of Financial Indebtedness or commitment for Financial Indebtedness falling within paragraphs (a) to (d) above is less than USD 8,000,000 (or its equivalent in any other currencies).	
 
24.6	Insolvency	
 
(a)	An Obligor is, or for the purpose of applicable law is deemed to be, unable or admits inability to pay its debts as they fall due or becomes insolvent.	
 
(b)	An Obligor suspends making payments on any of its debts or, by reason of actual or anticipated financial difficulties, commences negotiations with one or more of its creditors with a view to rescheduling any of its indebtedness.	
 
(c)	The value of the assets of an Obligor is less than its liabilities (taking into account contingent and prospective liabilities).	
 
(d)	A moratorium is declared in respect of any indebtedness of an Obligor.	
 
24.7	Insolvency proceedings	
 
(a)	Any corporate action, legal proceedings or other procedure or step is taken in relation to:	
 
 	(i)	the suspension of payments, a moratorium of any indebtedness, winding-up, dissolution, administration or reorganisation (by way of voluntary arrangement, scheme of arrangement or otherwise) of an Obligor;	
 
 	(ii)	a composition, compromise, assignment or arrangement with any creditor of an Obligor;	
 
 	(iii)	the appointment of a liquidator, receiver, administrative receiver, administrator, compulsory manager or other similar officer in respect of an Obligor any of its assets;	
 
 	(iv)	enforcement of any Security over any assets of an Obligor,	
or any analogous procedure or step is taken in any jurisdiction.
 
(b)	Paragraph (a) above shall not apply to any winding-up petition which is being contested in good faith and with due diligence and is discharged, stayed or dismissed within 14 days of commencement.	
 
24.8	Creditor’s process	
Any expropriation, attachment, sequestration, lien, arrest, distress or execution affects any asset or assets of an Obligor, and is not discharged within 14 days of commencement.
 
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24.9	Cessation of business or winding up	
An Obligor is wound up or ceases or threatens to cease to carry on all or a substantial part of its business or makes a substantial change in the nature of its business, without the prior written consent of the Lenders.
 
24.10	Loss of property	
A substantial part of an Obligor’s business or assets is destroyed, abandoned, seized, appropriated or forfeited for any reason provided, in the reasonable opinion of the Majority Lenders, that such occurrence has or is reasonably likely to have a Material Adverse Effect.
 
24.11	Failure to comply with final judgment	
An Obligor fails (within five (5) Business Days after becoming obliged to do so) to comply with or pay any sum in an amount exceeding USD 8,000,000 (or the equivalent in any other currencies) due from it under any final judgment or any final order (being one against which there is no right of appeal or if a right of appeal exists the time limit for making such appeal has expired and no appeal has been made or if an appeal has been made such appeal has been dismissed) made or given by any court of competent jurisdiction, provided, however, that such event shall not constitute an Event of Default if the relevant Obligor is entitled to insurance cover for the whole of such sum and the relevant insurers have confirmed liability and undertaken to make payment of the whole of such sum in writing to the person(s) entitled to payment and it is likely (in the reasonable opinion of the Majority Lenders) that the insurers will be able to make such payment within 30 days.
 
24.12	Unlawfulness and invalidity	
 
(a)	It is or becomes unlawful for an Obligor to perform any of its obligations under the Finance Documents or any Transaction Security created or expressed to be created or evidenced by the Security Documents ceases to be effective or any subordination created in respect of a Subordinated Loan is or becomes unlawful.	
 
(b)	Any obligation or obligations of any Obligor under any Finance Documents are not (subject to the Legal Reservations) or cease to be legal, valid, binding or enforceable and the cessation individually or cumulatively materially and adversely affects the interests of the Lenders under the Finance Documents.	
 
(c)	Any Finance Document ceases to be in full force and effect or any Transaction Security or any subordination of any Subordinated Loan ceases to be legal, valid, binding, enforceable or effective or is alleged by a party to it (other than a Finance Party) to be ineffective.	
 
24.13	Repudiation and rescission of agreements	
 
(a)	An Obligor (or any other relevant party) rescinds or purports to rescind or repudiates or purports to repudiate a Finance Document or any of the Transaction Security or evidences an intention to rescind or repudiate a Finance Document or any Transaction Security.	
 
(b)	Any party to an agreement or instrument entered into in relation to a Subordinated Loan rescinds or purports to rescind or repudiates or purports to repudiate any such agreement or instrument in whole or in part where to do so has or is, in the reasonable opinion of the Majority Lenders, likely to have a material adverse effect on the interests of the Lenders under the Finance Documents.	
 
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24.14	Litigation	
Any litigation, arbitration, administrative, governmental, regulatory or other investigations, proceedings or disputes are commenced or threatened in relation to the Transaction Documents or the transactions contemplated in the Transaction Documents or against any member of the Group or its assets which have or are reasonably likely to have a Material Adverse Effect.
 
24.15	Material adverse change	
Any event or circumstance occurs which the Majority Lenders reasonably believe has or would have a Material Adverse Effect.
 
24.16	Acceleration	
On and at any time after the occurrence of an Event of Default which is continuing the Agent may, and shall if so directed by the Majority Lenders, by notice to the Borrowers:-
 
 	(i)	cancel all or any part of the Commitments whereupon they shall immediately be cancelled;	
 
 	(ii)	declare that all or part of the Loans, together with accrued interest, and all other amounts accrued or outstanding under the Finance Documents be immediately due and payable, whereupon they shall become immediately due and payable;	
 
 	(iii)	declare that all or part of the Loans be payable on demand, whereupon they shall immediately become payable on demand by the Agent acting on the instructions of the Majority Lenders; and/or	
 
 	(iv)	exercise any or all of its rights, remedies, powers or discretions under the Finance Documents.	
 
25	CHANGES TO THE LENDERS	
 
25.1	Transfers by the Lenders	
Subject to this Clause 25, a Lender (the “ Existing Lender ”) may:
 
 	(i)	assign any of its rights; or	
 
 	(ii)	transfer any of its rights and obligations,	
under the Finance Documents to another bank or financial institution or to a trust, fund or other entity which is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets (the “ New Lender ”).
 
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25.2	Conditions of assignment or transfer	
 
(a)	The consent of the Agent and the Borrowers is required for an assignment or transfer by an Existing Lender, unless the assignment or transfer is to another Lender or an Affiliate of a Lender or an Event of Default has occurred and is continuing.	
 
(b)	The consent of the Agent and the Borrowers to an assignment or transfer must not be unreasonably withheld or delayed. Each Borrower will be deemed to have given its consent five (5) Business Days after the Existing Lender has requested it unless consent is expressly refused by the relevant Borrower within that time.	
 
(c)	Unless the Borrowers and the relevant Lender otherwise agree, each assignment or transfer by an Existing Lender shall be in an amount equal to no less than USD 20,000,000, or, if lower, the entire participation of the relevant Lender under each of the Facilities.	
 
(d)	An assignment or transfer will only be effective if the procedure set out in Clause 25.5 ( Procedure for transfer ) is complied with.	
 
(e)	If:	
 
 	(i)	a Lender assigns or transfers any of its rights or obligations under the Finance Documents or changes its Facility Office; and	
 
 	(ii)	as a result of circumstances existing at the date the assignment, transfer or change occurs, a Borrower would be obliged to make a payment to the New Lender or Lender acting through its new Facility Office under Clause 12 ( Tax gross-up and indemnities ) or Clause 13 ( Increased Costs ),	
then the New Lender or Lender acting through its new Facility Office is only entitled to receive payment under those Clauses to the same extent as the Existing Lender or Lender acting through its previous Facility Office would have been if the assignment, transfer or change had not occurred. This paragraph (e) shall not apply in respect of an assignment or transfer made in the ordinary course of the primary syndication of the Facilities.
 
(f)	Each New Lender, by executing the relevant Transfer Certificate, confirms, for the avoidance of doubt, that the Agent has authority to execute on its behalf any amendment or waiver that has been approved by or on behalf of the requisite Lender or Lenders in accordance with this Agreement on or prior to the date on which the transfer becomes effective in accordance with this Agreement and that it is bound by that decision to the same extent as the Existing Lender would have been had it remained a Lender.	
 
25.3	Transfer fee	
The New Lender shall, on the date upon which a transfer takes effect, pay to the Agent (for its own account) a fee of USD 3,500.
 
25.4	Limitation of responsibility of Existing Lenders	
 
(a)	Unless expressly agreed to the contrary, an Existing Lender makes no representation or warranty and assumes no responsibility to a New Lender for:	
 
 	(i)	the legality, validity, effectiveness, adequacy or enforceability of the Finance Documents or any other documents;	
 
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 	(ii)	the financial condition of any Obligor;	
 
 	(iii)	the performance and observance by any Obligor of its obligations under the Finance Documents or any other documents; or	
 
 	(iv)	the accuracy of any statements (whether written or oral) made in or in connection with any Finance Document or any other document,	
and any representations or warranties implied by law are excluded.
 
(b)	Each New Lender confirms to the Existing Lender and the other Finance Parties that it:	
 
 	(i)	has made (and shall continue to make) its own independent investigation and assessment of the financial condition and affairs of each Obligor and its related entities in connection with its participation in this Agreement and has not relied exclusively on any information provided to it by the Existing Lender in connection with any Finance Document; and	
 
 	(ii)	will continue to make its own independent appraisal of the creditworthiness of each Obligor and its related entities whilst any amount is or may be outstanding under the Finance Documents or any Commitment is in force.	
 
(c)	Nothing in any Finance Document obliges an Existing Lender to:	
 
 	(i)	accept a re-transfer from a New Lender of any of the rights and obligations transferred under this Clause 25;	
 
 	(ii)	support any losses directly or indirectly incurred by the New Lender by reason of the non-performance by any Obligor of its obligations under the Finance Documents or otherwise.	
 
25.5	Procedure for transfer	
 
(a)	Subject to the conditions set out in Clause 25.2 ( Conditions of assignment or transfer ) a transfer is effected in accordance with paragraph (c) below when the Agent executes an otherwise duly completed Transfer Certificate delivered to it by the Existing Lender and the New Lender. The Agent shall, subject to paragraph (b) below, as soon as reasonably practicable after receipt by it of a duly completed Transfer Certificate appearing on its face to comply with the terms of this Agreement and delivered in accordance with the terms of this Agreement, execute that Transfer Certificate.	
 
(b)	The Agent shall only be obliged to execute a Transfer Certificate delivered to it by the Existing Lender and the New Lender once it is satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations in relation to the transfer to such New Lender.	
 
(c)	On the Transfer Date:	
 
 	(i)	to the extent that in the Transfer Certificate the Existing Lender seeks to transfer its rights and obligations under the Finance Documents each of the Obligors and the Existing Lender shall be released from further obligations towards one another under the Finance Documents and their respective rights against one another under the Finance Documents shall be cancelled (being the “ Discharged Rights and Obligations ”);	
 
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 	(ii)	each of the Obligors and the New Lender shall assume obligations towards one another and/or acquire rights against one another which differ from the Discharged Rights and Obligations only insofar as that Obligor and the New Lender have assumed and/or acquired the same in place of that Obligor and the Existing Lender;	
 
 	(iii)	the Agent, the New Lender and other Lenders shall acquire the same rights and assume the same obligations between themselves as they would have acquired and assumed had the New Lender been an Original Lender with the rights and/or obligations acquired or assumed by it as a result of the transfer and to that extent the Agent and the Existing Lender shall each be released from further obligations to each other under the Finance Documents; and	
 
 	(iv)	the New Lender shall become a Party as a “Lender”.	
 
25.6	Copy of Transfer Certificate to the Borrowers	
The Agent shall, as soon as reasonably practicable after it has executed a Transfer Certificate, send to the Borrowers a copy of that Transfer Certificate.
 
25.7	Accession of Hedging Banks	
Any Lender or an Affiliate of a Lender which shall become a party to this Agreement as a Hedging Bank shall execute a document in the form required by the Agent whereby it shall accede to this Agreement as a Hedging Bank.
 
25.8	Security over Lenders’ rights	
In addition to the other rights provided to Lenders under this Clause 25, each Lender may without consulting with or obtaining consent from any Obligor, at any time charge, assign or otherwise create security in or over (whether by way of collateral or otherwise) all or any of its rights under any Finance Document to secure obligations of that Lender including, without limitation:
 
 	(i)	any charge, assignment or other Security to secure obligations to a federal reserve or central bank; and	
 
 	(ii)	in the case of any Lender which is a fund, any charge, assignment or other security granted to any holders (or trustee or representatives of holders) of obligations owed, or securities issued, by that Lender as security for those obligations or securities,	
except that no such charge, assignment or security shall:
 
 	(iii)	release a Lender from any of its obligations under the Finance Documents or substitute the beneficiary of the relevant charge, assignment or security for the Lender as a party to any of the Finance Documents; or	
 
 	(iv)	require any payments to be made by an Obligor other than or in excess of, or grant to any person any more extensive rights than, those required to be made or granted to the relevant Lender under the Finance Documents.	
 
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26	CHANGES TO THE OBLIGORS	
 
26.1	Assignments and transfer by Obligors	
No Obligor may assign, transfer or dispose of any of, or any interest in, its rights and/or obligations under any of the Finance Documents.
 
27	THE ROLE OF THE AGENT AND THE ARRANGERS	
 
27.1	Appointment of the Agent	
 
(a)	Each other Finance Party appoints the Agent to act as its agent under and in connection with the Finance Documents.	
 
(b)	Each other Finance Party authorises the Agent to exercise the rights, powers, authorities and discretions specifically given to the Agent under or in connection with the Finance Documents together with any other incidental rights, powers, authorities and discretions.	
 
27.2	Duties of the Agent	
 
(a)	Subject to paragraph (b) below, the Agent shall promptly forward to a Party the original or a copy of any document which is delivered to the Agent for that Party by any other Party.	
 
(b)	Without prejudice to Clause 25.6 ( Copy of Transfer Certificate to the Borrowers ), paragraph (a) above shall not apply to any Transfer Certificate.	
 
(c)	Except where a Finance Document specifically provides otherwise, the Agent is not obliged to review or check the adequacy, accuracy or completeness of any document it forwards to another Party.	
 
(d)	If the Agent (in its capacity as agent) receives notice from a Party referring to this Agreement, describing a Default and stating that the circumstance described is a Default, it shall promptly notify the other Finance Parties.	
 
(e)	If the Agent (in its capacity as agent) is aware of the non-payment of any principal, interest, commitment fee or other fee payable to a Finance Party (other than the Agent or the Arrangers) under this Agreement it shall promptly notify the other Finance Parties.	
 
(f)	The Agent’s duties under the Finance Documents are solely mechanical and administrative in nature.	
 
27.3	Role of the Arrangers	
Except as specifically provided in the Finance Documents, no Arranger has any obligations of any kind to any other Party under or in connection with any Finance Document.
 
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27.4	No fiduciary duties	
 
(a)	Nothing in this Agreement constitutes the Agent or an Arranger as a trustee or fiduciary of any other person.	
 
(b)	Neither the Agent nor any Arranger shall be bound to account to any Lender for any sum or the profit element of any sum received by it for its own account.	
 
27.5	Business with the Group	
The Agent and the Arrangers may accept deposits from, lend money to and generally engage in any kind of banking or other business with any member of the Group.
 
27.6	Rights and discretions of the Agent	
 
(a)	The Agent may rely on:	
 
 	(i)	any representation, notice or document believed by it to be genuine, correct and appropriately authorized; and	
 
 	(ii)	any statement made by a director, authorised signatory or employee of any person regarding any matters which may reasonably be assumed to be within his knowledge or within his power to verify.	
 
(b)	The Agent may assume (unless it has received notice to the contrary in its capacity as agent for the Lenders) that:	
 
 	(i)	no Default has occurred (unless it has actual knowledge of a Default arising under Clause 24.1 ( Non-payment ));	
 
 	(ii)	any right, power, authority or discretion vested in any Party or the Majority Lenders has not been exercised; and	
 
 	(iii)	any notice made by the Parent Guarantor or a Borrower is made on behalf of and with the consent and knowledge of all the Obligors.	
 
(c)	The Agent may engage, pay for and rely on the advice or services of any lawyers, accountants, surveyors or other experts.	
 
(d)	The Agent may act in relation to the Finance Documents through its personnel and agents.	
 
(e)	The Agent may disclose to any other Party any information it reasonably believes it has received as agent under this Agreement.	
 
(f)	Without prejudice to the generality of paragraph (e) above, the Agent may disclose the identity of a Defaulting Lender to the other Finance Parties and the Obligors and shall disclose the same upon the written request of the Borrowers or the Majority Lenders.	
 
(g)	Notwithstanding any other provision of any Finance Document to the contrary, neither the Agent nor any Arranger is obliged to do or omit to do anything if it would or might in its reasonable opinion constitute a breach of any law or regulation or a breach of a fiduciary duty or duty of confidentiality.	
 
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27.7	Majority Lenders’ instructions	
 
(a)	Unless a contrary indication appears in a Finance Document, the Agent shall (i) exercise any right, power, authority or discretion vested in it as Agent in accordance with any instructions given to it by the Majority Lenders (or, if so instructed by the Majority Lenders, refrain from exercising any right, power, authority or discretion vested in it as Agent) and (ii) not be liable for any act (or omission) if it acts (or refrains from taking any action) in accordance with an instruction of the Majority Lenders.	
 
(b)	Unless a contrary indication appears in a Finance Document, any instructions given by the Majority Lenders will be binding on all the Finance Parties.	
 
(c)	The Agent may refrain from acting in accordance with the instructions of the Majority Lenders (or, if appropriate, the Lenders) until it has received such security as it may require for any cost, loss or liability (together with any associated VAT) which it may incur in complying with the instructions.	
 
(d)	In the absence of instructions from the Majority Lenders, (or, if appropriate, the Lenders) the Agent may act (or refrain from taking action) as it considers to be in the best interest of the Lenders.	
 
(e)	The Agent is not authorised to act on behalf of a Lender (without first obtaining that Lender’s consent) in any legal or arbitration proceedings relating to any Finance Document.	
 
27.8	Responsibility for documentation	
Neither the Agent nor any Arranger:
 
 	(i)	is responsible for the adequacy, accuracy and/or completeness of any information (whether oral or written) supplied by the Agent, an Arranger, an Obligor or any other person given in or in connection with any Finance Document or the transactions contemplated in the Finance Documents;	
 
 	(ii)	is responsible for the legality, validity, effectiveness, adequacy or enforceability of any Finance Document or any other agreement, arrangement or document entered into, made or executed in anticipation of or in connection with any Finance Document; or	
 
 	(iii)	is responsible for any determination as to whether any information provided or to be provided to any Finance Party is non-public information the use of which may be regulated or prohibited by applicable law or regulation relating to insider dealing or otherwise.	
 
27.9	Exclusion of liability	
 
(a)	Without limiting paragraph (b) below, the Agent will not be liable for any action taken by it under or in connection with any Finance Document, unless directly caused by its gross negligence or wilful misconduct.	
 
(b)	No Party (other than the Agent) may take any proceedings against any officer, employee or agent of the Agent in respect of any claim it might have against the Agent or in respect of any act or omission of any kind by that officer, employee or agent in relation to any Finance Document and any officer, employee or agent of the Agent may rely on this Clause 27.9.	
 
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(c)	The Agent will not be liable for any delay (or any related consequences) in crediting an account with an amount required under the Finance Documents to be paid by the Agent if the Agent has taken all necessary steps as soon as reasonably practicable to comply with the regulations or operating procedures of any recognised clearing or settlement system used by the Agent for that purpose.	
 
(d)	Nothing in this Agreement shall oblige the Agent or an Arranger to carry out any “know your customer” or other checks in relation to any person on behalf of any Lender and each Lender confirms to the Agent and each Arranger that it is solely responsible for any such checks it is required to carry out and that it may not rely on any statement in relation to such checks made by the Agent or an Arranger.	
 
27.10	Lenders’ indemnity to the Agent	
Each Lender shall (in proportion to its share of the Total Commitments or, if the Total Commitments are then zero, to its share of the Total Commitments immediately prior to their reduction to zero) indemnify the Agent, within three (3) Business Days of demand, against any cost, loss or liability incurred by the Agent (otherwise than by reason of the Agent’s gross negligence or wilful misconduct) in acting as Agent under the Finance Documents (unless the Agent has been reimbursed by an Obligor pursuant to a Finance Document).
 
27.11	Resignation of the Agent	
 
(a)	The Agent may resign and appoint one of its Affiliates as successor by giving notice to the Lenders and the Borrowers.	
 
(b)	Alternatively the Agent may resign by giving thirty (30) days notice to the Lenders and the Borrowers, in which case the Majority Lenders (after consultation with the Borrowers) may appoint a successor Agent.	
 
(c)	If the Majority Lenders have not appointed a successor Agent in accordance with paragraph (b) above within twenty (20) days after notice of resignation was given, the retiring Agent (after consultation with the Borrowers) may appoint a successor Agent.	
 
(d)	If the Agent wishes to resign because (acting reasonably) it has concluded that it is no longer appropriate for it to remain as agent and the Agent is entitled to appoint a successor Agent under paragraph (c) above, the Agent may (if it concludes (acting reasonably) that it is necessary to do so in order to persuade the proposed successor Agent to become a party to this Agreement as Agent) agree with the proposed successor Agent amendments to this Clause 27 and any other term of this Agreement dealing with the rights or obligations of the Agent consistent with then current market practice for the appointment and protection of corporate trustees together with any reasonable amendments to the agency fee payable under this Agreement which are consistent with the successor Agent’s normal fee rates and those amendments will bind the Parties.	
 
(e)	The retiring Agent shall, at its own cost, make available to the successor Agent such documents and records and provide such assistance as the successor Agent may reasonably request for the purposes of performing its functions as Agent under the Finance Documents.	
 
(f)	The Agent’s resignation notice shall only take effect upon the appointment of a successor.	
 
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(g)	Upon the appointment of a successor, the retiring Agent shall be discharged from any further obligation in respect of the Finance Documents but shall remain entitled to the benefit of this Clause 27. Any successor and each of the other Parties shall have the same rights and obligations amongst themselves as they would have had if such successor had been an original Party.	
 
(h)	The Agent shall resign in accordance with paragraph (b) above (and, to the extent applicable, shall use reasonable endeavours to appoint a successor Agent pursuant to paragraph (c) above) if on or after the date which is three (3) months before the earliest FATCA Application Date relating to any payment to the Agent under the Finance Documents, either:	
 
 	(i)	the Agent fails to respond to a request under Clause 12.7 ( FATCA information ) and a Lender reasonably believes that the Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that FATCA Application Date;	
 
 	(ii)	the information supplied by the Agent pursuant to Clause 12.7 ( FATCA information ) indicates that the Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that FATCA Application Date; or	
 
 	(iii)	the Agent notifies the Borrowers and the Lenders that the Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that FATCA Application Date,	
and (in each case) a Lender reasonably believes that a Party will be required to make a FATCA Deduction that would not be required if the Agent were a FATCA Exempt Party, and that Lender, by notice to the Agent, requires it to resign.
 
27.12	Replacement of the Agent	
 
(a)	After consultation with the Borrowers, the Majority Lenders may, by giving thirty (30) days’ notice to the Agent (or, at any time the Agent is an Impaired Agent, by giving any shorter notice determined by the Majority Lenders) replace the Agent by appointing a successor Agent.	
 
(b)	The retiring Agent shall (at its own cost if it is an Impaired Agent and otherwise at the expense of the Lenders) make available to the successor Agent such documents and records and provide such assistance as the successor Agent may reasonably request for the purposes of performing its functions as Agent under the Finance Documents.	
 
(c)	The appointment of the successor Agent shall take effect on the date specified in the notice from the Majority Lenders to the retiring Agent. As from this date, the retiring Agent shall be discharged from any further obligation in respect of the Finance Documents but shall remain entitled to the benefit of this Clause 27 (and any agency fees for the account of the retiring Agent shall cease to accrue from (and shall be payable on) that date).	
 
(d)	Any successor Agent and each of the other Parties shall have the same rights and obligations amongst themselves as they would have had if such successor had been an original Party.	
 
27.13	Confidentiality	
 
(a)	In acting as agent for the Finance Parties, the Agent shall be regarded as acting through its agency division which shall be treated as a separate entity from any other of its divisions or departments.	
 
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(b)	If information is received by another division or department of the Agent, it may be treated as confidential to that division or department and the Agent shall not be deemed to have notice of it.	
 
(c)	Notwithstanding any other provision of any Finance Document to the contrary, neither the Agent nor any Arranger is obliged to disclose to any other person (i) any confidential information or (ii) any other information if the disclosure would or might in its reasonable opinion constitute a breach of any law or a breach of a fiduciary duty.	
 
27.14	Relationship with the Lenders	
 
(a)	The Agent may treat the person shown in its records as Lender at the opening of business (in the place of the Agent’s principal office as notified to the Finance Parties from time to time) as the Lender acting through its Facility Office.	
 
(b)	Any Lender may by notice to the Agent appoint a person to receive on its behalf all notices, communications, information and documents to be made or despatched to that Lender under the Finance Documents. Such notice shall contain the address, fax number and/or any other information required to enable the sending and receipt of information by that means (and, in each case, the department or officer, if any, for whose attention communication is to be made) and be treated as a notification of a substitute address, fax number, electronic mail address, department and officer by that Lender for the purposes of Clause 32.2 ( Addresses ) and the Agent shall be entitled to treat such person as the person entitled to receive all such notices, communications, information and documents as though that person were that Lender.	
 
27.15	Credit appraisal by the Lenders	
Without affecting the responsibility of any Obligor for information supplied by it or on its behalf in connection with any Finance Document, each Lender confirms to the Agent and each Arranger that it has been, and will continue to be, solely responsible for making its own independent appraisal and investigation of all risks arising under or in connection with any Finance Document including but not limited to:
 
 	(i)	the financial condition, status and nature of each member of the Group;	
 
 	(ii)	the legality, validity, effectiveness, adequacy or enforceability of any Finance Document and any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document;	
 
 	(iii)	whether that Lender has recourse, and the nature and extent of that recourse, against any Party or any of its respective assets under or in connection with any Finance Document, the transactions contemplated by the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document; and	
 
 	(iv)	the adequacy, accuracy and/or completeness of any information provided by the Agent, any Party or by any other person under or in connection with any Finance Document, the transactions contemplated by the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document.	
 
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27.16	Reference Banks	
If a Reference Bank (or, if a Reference Bank is not a Lender, the Lender of which it is an Affiliate) ceases to be a Lender, the Agent shall (in consultation with the Borrowers) appoint another Lender or an Affiliate of a Lender to replace that Reference Bank.
 
27.17	Deduction from amounts payable by the Agent	
If any Party owes an amount to the Agent under the Finance Documents the Agent may, after giving notice to that Party, deduct an amount not exceeding that amount from any payment to that Party which the Agent would otherwise be obliged to make under the Finance Documents and apply the amount deducted in or towards satisfaction of the amount owed. For the purposes of the Finance Documents that Party shall be regarded as having received any amount so deducted.
 
28	CONDUCT OF BUSINESS BY THE FINANCE PARTIES	
No provision of this Agreement will:
 
 	(i)	interfere with the right of any Finance Party to arrange its affairs (tax or otherwise) in whatever manner it thinks fit;	
 
 	(ii)	oblige any Finance Party to investigate or claim any credit, relief, remission or repayment available to it or the extent, order and manner of any claim; or	
 
 	(iii)	oblige any Finance Party to disclose any information relating to its affairs (tax or otherwise) or any computations in respect of Tax.	
 
29	SHARING AMONG THE FINANCE PARTIES	
 
29.1	Payments to the Finance Parties	
Subject to paragraph (b) below, if a Finance Party (a “ Recovering Finance Party ”) receives or recovers any amount from an Obligor other than in accordance with Clause 30 ( Payment mechanics ) (a “ Recovered Amount ”) and applies that amount to a payment due under the Finance Documents then:
 
 	(i)	the Recovering Finance Party shall, within three (3) Business Days, notify details of the receipt or recovery, to the Agent;	
 
 	(ii)	the Agent shall determine whether the receipt or recovery is in excess of the amount the Recovering Finance Party would have been paid had the receipt or recovery been received or made by the Agent and distributed in accordance with Clause 30 ( Payment mechanics ), without taking account of any Tax which would be imposed on the Agent in relation to the receipt, recovery or distribution; and	
 
 	(iii)	the Recovering Finance Party shall, within three (3) Business Days of demand by the Agent, pay to the Agent an amount (the “ Sharing Payment ”) equal to such receipt or recovery less any amount which the Agent determines may be retained by the Recovering Finance Party as its share of any payment to be made, in accordance with Clause 30.6 ( Partial payments ).	
 
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29.2	Redistribution of payments	
The Agent shall treat the Sharing Payment as if it had been paid by the relevant Obligor and distribute it between the Finance Parties (other than the Recovering Finance Party) (the “ Sharing Finance Parties ”) in accordance with Clause 30.6 ( Partial payments ) towards the obligations of that Obligor to the Sharing Finance Parties.
 
29.3	Recovering Finance Party’s rights	
On a distribution by the Agent under Clause 29.2 ( Redistribution of payments ) of a payment received by a Recovering Finance Party from an Obligor, as between the relevant Obligor and the Recovering Finance Party, an amount of the Recovered Amount equal to the Sharing Payment will be treated as not having been paid by that Obligor.
 
29.4	Reversal of redistribution	
If any part of the Sharing Payment received or recovered by a Recovering Finance Party becomes repayable and is repaid by that Recovering Finance Party, then:
 
 	(i)	each Sharing Finance Party shall, upon request of the Agent, pay to the Agent for the account of that Recovering Finance Party an amount equal to the appropriate part of its share of the Sharing Payment (together with an amount as is necessary to reimburse that Recovering Finance Party for its proportion of any interest on the Sharing Payment which that Recovering Finance Party is required to pay) (the “ Redistributed Amount ”); and	
 
 	(ii)	as between the relevant Obligor and each relevant Sharing Finance Party, an amount equal to the relevant Redistributed Amount will be treated as not having been paid by that Obligor.	
 
29.5	Exceptions	
 
(a)	This Clause 29 shall not apply to the extent that the Recovering Finance Party would not, after making any payment pursuant to this Clause, have a valid and enforceable claim against the relevant Obligor.	
 
(b)	A Recovering Finance Party is not obliged to share with any other Finance Party any amount which the Recovering Finance Party has received or recovered as a result of taking legal or arbitration proceedings, if:	
 
 	(i)	it notified the other Finance Party of the legal or arbitration proceedings; and	
 
 	(ii)	the other Finance Party had an opportunity to participate in those legal or arbitration proceedings but did not do so as soon as reasonably practicable having received notice and did not take separate legal or arbitration proceedings.	
 
29.6	Distribution of enforcement proceeds	
All moneys from time to time received or recovered by the Agent in connection with the realisation and enforcement of all or any part of the Transaction Security shall be held by the Agent on trust to apply them as soon as reasonably practicable and to the extent permitted by applicable law, in the following order of priority:
 
 	(i)	firstly , in or towards payment of costs and expenses incurred by the Agent and the other Finance Parties in connection with such realisation and enforcement;	
 
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 	(ii)	secondly , in or towards payment pro rata of any other sum due but unpaid under the Finance Documents other than any Hedging Agreements; and	
 
 	(iii)	thirdly , in or towards payment pro rata of any other sum due but unpaid under any Hedging Agreements.	
 
30	PAYMENT MECHANICS	
 
30.1	Payments to the Agent	
 
(a)	On each date on which an Obligor or a Lender is required to make a payment under a Finance Document, that Obligor or Lender shall make the same available to the Agent (unless a contrary indication appears in a Finance Document) for value on the due date at the time and in such funds specified by the Agent as being customary at the time for settlement of transactions in the relevant currency in the place of payment.	
 
(b)	Payment shall be made to such account in the principal financial centre of the country of that currency with such bank as the Agent specifies.	
 
30.2	Distributions by the Agent	
Each payment received by the Agent under the Finance Documents for another Party shall, subject to Clause 30.3 ( Distributions to an Obligor ) and Clause 30.4 ( Clawback ) be made available by the Agent as soon as practicable after receipt to the Party entitled to receive payment in accordance with this Agreement (in the case of a Lender, for the account of its Facility Office), to such account as that Party may notify to the Agent by not less than five (5) Business Days’ notice with a bank in the principal financial centre of the country of that currency.
 
30.3	Distributions to an Obligor	
The Agent may (with the consent of the relevant Obligor or in accordance with Clause 31 ( Set-Off )) apply any amount received by it for that Obligor in or towards payment (on the date and in the currency and funds of receipt) of any amount due from that Obligor under the Finance Documents or in or towards purchase of any amount of any currency to be so applied.
 
30.4	Clawback	
 
(a)	Where a sum is to be paid to the Agent under the Finance Documents for another Party, the Agent is not obliged to pay that sum to that other Party (or to enter into or perform any related exchange contract) until it has been able to establish to its satisfaction that it has actually received that sum.	
 
(b)	If the Agent pays an amount to another Party and it proves to be the case that the Agent had not actually received that amount, then the Party to whom that amount (or the proceeds of any related exchange contract) was paid by the Agent shall on demand refund the same to the Agent together with interest on that amount from the date of payment to the date of receipt by the Agent, calculated by the Agent to reflect its cost of funds.	
 
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30.5	Impaired Agent	
 
(a)	If, at any time, the Agent becomes an Impaired Agent, an Obligor or a Lender which is required to make a payment under the Finance Documents to the Agent in accordance with Clause 30.1 ( Payments to the Agent ) may instead either pay that amount direct to the required recipient or pay that amount to an interest-bearing account held with an Acceptable Bank and in relation to which no Insolvency Event has occurred and is continuing, in the name of the Obligor or the Lender making the payment and designated as a trust account for the benefit of the Party or Parties beneficially entitled to that payment under the Finance Documents. In each case such payments must be made on the due date for payment under the Finance Documents.	
 
(b)	All interest accrued on the amount standing to the credit of the trust account shall be for the benefit of the beneficiaries of that trust account pro rata to their respective entitlements.	
 
(c)	A Party which has made a payment in accordance with this Clause 30.5 shall be discharged of the relevant payment obligation under the Finance Documents and shall not take any credit risk with respect to the amounts standing to the credit of the trust account.	
 
(d)	Promptly upon the appointment of a successor Agent in accordance with Clause 27.12 ( Replacement of the Agent ), each Party which has made a payment to a trust account in accordance with this Clause 30.5 shall give all requisite instructions to the bank with whom the trust account is held to transfer the amount (together with any accrued interest) to the successor Agent for distribution in accordance with Clause 30.2 ( Distributions by the Agent ).	
 
30.6	Partial payments	
 
(a)	If the Agent receives a payment for application against amounts due in respect of any Finance Documents that is insufficient to discharge all the amounts then due and payable by an Obligor under those Finance Documents, the Agent shall apply that payment towards the obligations of that Obligor under those Finance Documents in the following order:	
 
 	(i)	first , in or towards payment pro rata of any unpaid fees, costs and expenses of the Agent under those Finance Documents;	
 
 	(ii)	secondly , in or towards payment pro rata of any accrued interest, fee or commission due but unpaid under those Finance Documents (other than any Hedging Agreements);	
 
 	(iii)	thirdly , in or towards payment pro rata of any principal due but unpaid under those Finance Documents (other than any Hedging Agreements);	
 
 	(iv)	fourthly , in or towards payment pro rata of any other sum due but unpaid under the Finance Documents (other than any Hedging Agreements); and	
 
 	(v)	fifthly , in or towards payment pro rata of any sum due but unpaid under the Hedging Agreements.	
 
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(b)	The Agent shall, if so directed by the Lenders, vary the order set out in paragraphs (a)(ii) to (iv) above.	
 
(c)	Paragraphs (a) and (b) above will override any appropriation made by an Obligor.	
 
30.7	No set-off by Obligors	
All payments to be made by an Obligor under the Finance Documents shall be calculated and be made without (and free and clear of any deduction for) set-off or counterclaim.
 
30.8	Business Days	
 
(a)	Any payment which is due to be made on a day that is not a Business Day shall be made on the next Business Day in the same calendar month (if there is one) or the preceding Business Day (if there is not).	
 
(b)	During any extension of the due date for payment of any principal or Unpaid Sum under this Agreement interest is payable on the principal or Unpaid Sum at the rate payable on the original due date.	
 
30.9	Currency of account	
 
(a)	Subject to paragraphs (b) to (e) below, USD is the currency of account and payment for any sum due from an Obligor under any Finance Document.	
 
(b)	A repayment of a Loan or Unpaid Sum or a part of a Loan or Unpaid Sum shall be made in the currency in which that Loan or Unpaid Sum is denominated on its due date.	
 
(c)	Each payment of interest shall be made in the currency in which the sum in respect of which the interest is payable was denominated when that interest accrued.	
 
(d)	Each payment in respect of costs, expenses or Taxes shall be made in the currency in which the costs, expenses or Taxes are incurred.	
 
(e)	Any amount expressed to be payable in a currency other than USD shall be paid in that other currency.	
 
30.10	Change of currency	
 
(a)	Unless otherwise prohibited by law, if more than one currency or currency unit are at the same time recognised by the central bank of any country as the lawful currency of that country, then:	
 
 	(i)	any reference in the Finance Documents to, and any obligations arising under the Finance Documents in, the currency of that country shall be translated into, or paid in, the currency or currency unit of that country designated by the Agent (after consultation with the Borrowers); and	
 
 	(ii)	any translation from one currency or currency unit to another shall be at the official rate of exchange recognised by the central bank for the conversion of that currency or currency unit into the other, rounded up or down by the Agent (acting reasonably).	
 
(b)	If a change in any currency of a country occurs, this Agreement will, to the extent the Agent (acting reasonably and after consultation with the Borrowers) specifies to be necessary, be amended to comply with any generally accepted conventions and market practice in the relevant interbank market and otherwise to reflect the change in currency.	
 
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31	SET-OFF	
A Finance Party may set off any matured obligation due from an Obligor under the Finance Documents (to the extent beneficially owned by that Finance Party) against any obligation owed by that Finance Party to that Obligor, regardless of the place of payment, booking branch or currency of either obligation. If the obligations are in different currencies, the Finance Party may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off.
 
32	NOTICES	
 
32.1	Communications in writing	
Any communication to be made under or in connection with the Finance Documents shall be made in writing and, unless otherwise stated, may be made by fax, e-mail or letter.
 
32.2	Addresses	
The postal address, e-mail address and fax number (and the department or officer, if any, for whose attention the communication is to be made) of the Agent and the Borrowers for any communication or document to be made or delivered under or in connection with the Finance Documents is:
 
 	(i)	of the Agent :	
Nordea Bank Norge ASA
Middelthuns gate 17
NO-0368 Oslo
Norway
Telefax: +47 22 48 66 68
Attn.: Nordea Agency
 
 	(iii)	of the Borrowers :	
c/o KNOT Shuttle Tankers AS
Smedasundet 40
NO-5529 Haugesund
Norway
Telefax: +47 52 70 40 40
 
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E-mail: omk@knotgroup.com
Attn.: Øystein M. Kalleklev
or any substitute postal address, e-mail address or fax number or department or officer as the Party may notify to the Agent (or the Agent may notify to the other Parties, if a change is made by the Agent) by the giving of not less than five (5) Business Days’ notice.
 
32.3	Delivery	
 
(a)	Any communication or document made or delivered by one person to another under or in connection with the Finance Documents will only be effective:	
 
 	(i)	if by way of fax or e-mail, when received in legible form; or	
 
 	(ii)	if by way of letter, when it has been left at the relevant address or five (5) Business Days after being deposited in the post postage prepaid in an envelope addressed to it at that address;	
and, if a particular department or officer is specified as part of its address details provided under Clause 32.2 ( Addresses ), if addressed to that department or officer.
 
(b)	Any communication or document to be made or delivered to the Agent will be effective only when actually received by the Agent and then only if it is expressly marked for the attention of the department or officer identified with the Agent’s signature below (or any substitute department or officer as the Agent shall specify for this purpose).	
 
(c)	All notices from or to an Obligor shall be sent through the Agent.	
 
32.4	Notification of postal address, e-mail address and fax number	
Promptly upon receipt of notification of a postal address, e-mail address or fax number or change of postal address, e-mail address or fax number pursuant to Clause 32.2 ( Addresses ) or changing its own postal address, e-mail address or fax number, the Agent shall notify the other Parties.
 
32.5	Electronic communication	
 
(a)	Any communication to be made between any two Parties under or in connection with the Finance Documents may be made by electronic mail or other electronic means, to the extent that those two Parties agree that, unless and until notified to the contrary, this is to be an accepted form of communication and if those two Parties:	
 
 	(i)	notify each other in writing of their electronic mail address and/or any other information required to enable the sending and receipt of information by that means; and	
 
 	(ii)	notify each other of any change to their address or any other such information supplied by them by not less than five (5) Business Days’ notice.	
 
(b)	Any electronic communication made between those two parties will be effective only when actually received in readable form and in the case of any electronic communication made by a Party to the Agent only if it is addressed in such a manner as the Agent shall specify for this purpose.	
 
(c)	Any electronic communication which becomes effective, in accordance with paragraph (b) above, after 4.00 p.m. in the place of receipt shall be deemed only to become effective on the following day.	
 
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32.6	English language	
 
(a)	Any notice given under or in connection with any Finance Document must be in English.	
 
(b)	All other documents provided under or in connection with any Finance Document must be:	
 
 	(i)	in English; or	
 
 	(ii)	if not in English, and if so required by the Agent, accompanied by a certified English translation and, in this case, the English translation will prevail unless the document is a constitutional, statutory or other official document.	
 
33	CALCULATIONS AND CERTIFICATES	
 
33.1	Accounts	
In any litigation or arbitration proceedings arising out of or in connection with a Finance Document, the entries made in the accounts maintained by a Finance Party are prima facie evidence of the matters to which they relate.
 
33.2	Certificates and determinations	
Any certification or determination by a Finance Party of a rate or amount under any Finance Document is, in the absence of manifest error, conclusive evidence of the matters to which it relates.
 
33.3	Day count convention	
Any interest, commission or fee accruing under a Finance Document will accrue from day to day and is calculated on the basis of the actual number of days elapsed and a year of 360 days or, in any case where the practice in the relevant interbank market differs, in accordance with that market practice.
 
34	PARTIAL INVALIDITY	
If, at any time, any provision of the Finance Documents is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other jurisdiction will in any way be affected or impaired.
 
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35	REMEDIES AND WAIVERS	
No failure to exercise, nor any delay in exercising, on the part of any Finance Party, any right or remedy under the Finance Documents shall operate as a waiver, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise or the exercise of any other right or remedy. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law.
 
36	AMENDMENTS AND WAIVERS	
 
36.1	Required consents	
 
(a)	Subject to Clause 36.2 ( Exceptions ) any term of the Finance Documents may be amended or waived only with the consent of the Majority Lenders and the Obligors and any such amendment or waiver will be binding on all Parties.	
 
(b)	The Agent may effect, on behalf of any Finance Party, any amendment or waiver permitted by this Clause 36.	
 
36.2	Exceptions	
 
(a)	An amendment or waiver that has the effect of changing or which relates to:	
 
 	(i)	the definition of “Majority Lenders” in Clause 1.1 ( Definitions );	
 
 	(ii)	an extension to the date of payment of any amount under the Finance Documents;	
 
 	(iii)	a reduction in the Margin or a reduction in the amount of any payment of principal, interest, fees or commission payable;	
 
 	(iv)	an increase in or an extension of any Commitment;	
 
 	(v)	a change to the Borrowers or the Guarantors;	
 
 	(vi)	any provision which expressly requires the consent of all the Lenders;	
 
 	(vii)	Clauses 2.3 ( Finance Parties’ rights and obligations ), 25 ( Changes to the Lenders ), or this Clause 36; or	
 
 	(viii)	the release of any guarantee and indemnity granted under Clause 18 ( Guarantee and indemnity ) or of any Transaction Security unless permitted under this Agreement or any other Finance Document or relating to a sale or disposal of an asset which is the subject of the Transaction Security where such sale or disposal is expressly permitted under this Agreement or any other Finance Document,	
may not be effected without the consent of all the Lenders.
 
(b)	An amendment or waiver which relates to the rights or obligations of the Agent or an Arranger (each in its capacity as such) may not be effected without the consent of the Agent or the relevant Arranger.	
 
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36.3	Replacement of Lender	
 
(a)	If any Lender becomes a Non-Consenting Lender (as defined in paragraph (d) below), then the Borrowers may, on five (5) Business Days’ prior written notice to the Agent and such Lender, replace such Lender by requiring such Lender to (and, to the extent permitted by law, such Lender shall) transfer pursuant to Clause 25 ( Changes to the Lenders ) all (and not part only) of its rights and obligations under this Agreement to a Lender or other bank or financial institution (a “ Replacement Lender ”) selected by the Borrowers, which confirms its willingness to assume and does assume all the obligations of the transferring Lender in accordance with Clause 25 ( Changes to the Lenders ) for a purchase price in cash payable at the time of transfer in an amount equal to the outstanding principal amount of such Lender’s participation in the outstanding Utilisations and all accrued interest, Break Costs and other amounts payable in relation thereto under the Finance Documents.	
 
(b)	The replacement of a Lender pursuant to this Clause 36.3 shall be subject to the following conditions:	
 
 	(i)	the Borrowers shall indemnify the Finance Parties in respect of all costs incurred by the Finance Parties in connection with the replacement of the Non-Consenting Lender;	
 
 	(ii)	the Borrowers shall have no right to replace the Agent;	
 
 	(iii)	neither the Agent nor the Lender shall have any obligation to the Borrowers to find a Replacement Lender;	
 
 	(iv)	in the event of a replacement of a Non-Consenting Lender such replacement must take place no later than thirty (30) days after the date on which that Lender is deemed a Non-Consenting Lender;	
 
 	(v)	in no event shall the Lender replaced under this Clause 36.3 be required to pay or surrender to such Replacement Lender any of the fees received by such Lender pursuant to the Finance Documents; and	
 
 	(vi)	the Lender shall only be obliged to transfer its rights and obligations pursuant to paragraph (a) above once it is satisfied that it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations in relation to that transfer.	
 
(c)	A Lender shall perform the checks described in paragraph (b)(vi) above as soon as reasonably practicable following delivery of a notice referred to in paragraph (a) above and shall notify the Agent and the Borrowers when it is satisfied that it has complied with those checks.	
 
(d)	In the event that:	
 
 	(i)	an Obligor or the Agent (at the request of an Obligor) has requested the Lenders to give a consent in relation to, or to agree to a waiver or amendment of, any provisions of the Finance Documents;	
 
 	(ii)	the consent, waiver or amendment in question requires the approval of all the Lenders; and	
 
 	(iii)	Lenders whose Commitments aggregate more than 66 2/3 per cent. of the Total Commitments (or, if the Total Commitments have been reduced to zero, aggregated more than 66 2/3 per cent. of the Total Commitments prior to that reduction) have consented or agreed to such waiver or amendment,	
 
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then any Lender who does not and continues not to consent or agree to such waiver or amendment shall be deemed a “ Non-Consenting Lender ”.
 
36.4	Disenfranchisement of Defaulting Lenders	
 
(a)	For so long as a Defaulting Lender has any Available Commitment, in ascertaining the Majority Lenders or whether any given percentage (including, for the avoidance of doubt, unanimity) of the Total Commitments has been obtained to approve any request for a consent, waiver, amendment or other vote under the Finance Documents, that Defaulting Lender’s Commitment will be reduced by the amount of its Available Commitment.	
 
(b)	For the purposes of this Clause 36.4, the Agent may assume that the following Lenders are Defaulting Lenders:	
 
 	(i)	any Lender which has notified the Agent that it has become a Defaulting Lender;	
 
 	(ii)	any Lender in relation to which it is aware that any of the events or circumstances referred to in paragraphs (i), (ii) or (iii) of the definition of “Defaulting Lender” has occurred,	
unless it has received notice to the contrary from the Lender concerned (together with any supporting evidence reasonably requested by the Agent) or the Agent is otherwise aware that the Lender has ceased to be a Defaulting Lender.
 
36.5	Replacement of a Defaulting Lender	
 
(a)	A Borrower may, at any time a Lender has become and continues to be a Defaulting Lender, by giving five (5) Business Days’ prior written notice to the Agent and such Lender, replace such Lender by requiring such Lender to (and such Lender shall) transfer pursuant to Clause 25 ( Changes to the Lenders ) all (and not part only) of its rights and obligations under this Agreement to a Lender or other bank or financial institution (a “ Replacement Lender ”) selected by that Borrower, and which (unless the Agent is an Impaired Agent) is acceptable to the Agent (acting reasonably) and which confirms its willingness to assume and does assume all the obligations or all the relevant obligations of the transferring Lender (including the assumption of the transferring Lender’s participations or unfunded participations (as the case may be) on the same basis as the transferring Lender) for a purchase price in cash payable at the time of transfer equal to the outstanding principal amount of such Lender’s participation in the outstanding Loans and all accrued interest and/or Break Costs and other amounts payable in relation thereto under the Finance Documents.	
 
(b)	Any transfer of rights and obligations of a Defaulting Lender pursuant to this Clause 36.5 shall be subject to the following conditions:	
 
 	(i)	no Borrower shall have any right to replace the Agent;	
 
 	(ii)	neither the Agent nor the Defaulting Lender shall have any obligation to any Borrower to find a Replacement Lender;	
 
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 	(iii)	the transfer must take place no later than ten (10) Business Days after the notice referred to in paragraph (a) above; and	
 
 	(iv)	in no event shall the Defaulting Lender be required to pay or surrender to the Replacement Lender any of the fees received by the Defaulting Lender pursuant to the Finance Documents.	
 
37	CONFIDENTIALITY	
 
37.1	Confidential Information	
Each Finance Party agrees to keep all Confidential Information confidential and not to disclose it to anyone, save to the extent permitted by Clause 37.2 ( Disclosure of Confidential Information ), and to ensure that all Confidential Information is protected with security measures and a degree of care that would apply to its own confidential information.
 
37.2	Disclosure of Confidential Information	
Any Finance Party may disclose:
 
 	(i)	to any of its Affiliates and any of its or their officers, directors, employees, professional advisers, auditors, partners and Representatives such Confidential Information as that Finance Party shall consider appropriate if any person to whom the Confidential Information is to be given pursuant to this sub-paragraph (i) is informed in writing of its confidential nature and that some or all of such Confidential Information may be price-sensitive information except that there shall be no such requirement to so inform if the recipient is subject to professional obligations to maintain the confidentiality of the information or is otherwise bound by requirements of confidentiality in relation to the Confidential Information;	
 
 	(ii)	to any person:	
 
 	(A)	to (or through) whom it assigns or transfers (or may potentially assign or transfer) all or any of its rights and/or obligations under one or more Finance Documents and to any of that person’s Affiliates, Representatives and professional advisers;	
 
 	(B)	with (or through) whom it enters into (or may potentially enter into), whether directly or indirectly, any sub-participation in relation to, or any other transaction under which payments are to be made or may be made by reference to, one or more Finance Documents and one or more Obligors and to any of that person’s Affiliates, Representatives and professional advisers;	
 
 	(C)	appointed by any Finance Party or by a person to whom sub-paragraph (ii)(A) or (B) above applies to receive communications, notices, information or documents delivered pursuant to the Finance Documents on its behalf (including, without limitation, any person appointed under paragraph (b) of Clause 27.14 ( Relationship with the Lenders ));	
 
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 	(D)	who invests in or otherwise finances (or may potentially invest in or otherwise finance), directly or indirectly, any transaction referred to in sub-paragraph (ii)(A) or (B) above;	
 
 	(E)	to whom information is required or requested to be disclosed by any court of competent jurisdiction or any governmental, banking, taxation or other regulatory authority or similar body, the rules of any relevant stock exchange or pursuant to any applicable law or regulation;	
 
 	(F)	to whom or for whose benefit that Finance Party charges, assigns or otherwise creates Security (or may do so) pursuant to Clause 25.8 ( Security over Lenders’ rights );	
 
 	(G)	to whom information is required to be disclosed in connection with, and for the purposes of, any litigation, arbitration, administrative or other investigations, proceedings or disputes;	
 
 	(H)	who is a Party; or	
 
 	(I)	with the consent of the Borrowers;	
in each case, such Confidential Information as that Finance Party shall consider appropriate if:
 
 	(J)	in relation to sub-paragraphs (ii)(A), (B) and (C) above, the person to whom the Confidential Information is to be given has entered into a Confidentiality Undertaking except that there shall be no requirement for a Confidentiality Undertaking if the recipient is a professional adviser and is subject to professional obligations to maintain the confidentiality of the Confidential Information;	
 
 	(K)	in relation to sub-paragraph (ii)(D) above, the person to whom the Confidential Information is to be given has entered into a Confidentiality Undertaking or is otherwise bound by requirements of confidentiality in relation to the Confidential Information they receive and is informed that some or all of such Confidential Information may be price-sensitive information;	
 
 	(L)	in relation to sub-paragraphs (ii)(E), (F) and (G) above, the person to whom the Confidential Information is to be given is informed of its confidential nature and that some or all of such Confidential Information may be price-sensitive information except that there shall be no requirement to so inform if, in the opinion of that Finance Party, it is not practicable so to do in the circumstances; and	
 
 	(iii)	to any person appointed by that Finance Party or by a person to whom sub-paragraph (ii)(A) or (B) above applies to provide administration or settlement services in respect of one or more of the Finance Documents including without limitation, in relation to the trading of participations in respect of the Finance Documents, such Confidential Information as may be required to be disclosed to enable such service provider to provide any of the services referred to in this paragraph (iii) if the service provider to whom the Confidential Information is to be given has entered into such form of confidentiality undertaking agreed between the Borrower and the relevant Finance Party.	
 
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37.3	Entire agreement	
This Clause 37 constitutes the entire agreement between the Parties in relation to the obligations of the Finance Parties under the Finance Documents regarding Confidential Information and supersedes any previous agreement, whether express or implied, regarding Confidential Information.
 
37.4	Inside information	
Each of the Finance Parties acknowledges that some or all of the Confidential Information is or may be price-sensitive information and that the use of such information may be regulated or prohibited by applicable legislation including securities law relating to insider dealing and market abuse and each of the Finance Parties undertakes not to use any Confidential Information for any unlawful purpose.
 
37.5	Notification of disclosure	
Each of the Finance Parties agrees (to the extent permitted by law and regulation) to inform the Borrowers:
 
 	(i)	of the circumstances of any disclosure of Confidential Information made pursuant to sub-paragraph (ii)(E) of Clause 37.2 ( Disclosure of Confidential Information ) except where such disclosure is made to any of the persons referred to in that paragraph during the ordinary course of its supervisory or regulatory function; and	
 
 	(ii)	upon becoming aware that Confidential Information has been disclosed in breach of this Clause 37.	
 
37.6	Continuing obligations	
The obligations in this Clause 37 are continuing and, in particular, shall survive and remain binding on each Finance Party for a period of twelve (12) months from the earlier of:
 
 	(i)	the date on which all amounts payable by the Obligors under or in connection with this Agreement have been paid in full and all Commitments have been cancelled or otherwise cease to be available; and	
 
 	(ii)	the date on which such Finance Party otherwise ceases to be a Finance Party.	
 
38	COUNTERPARTS	
Each Finance Document may be executed in any number of counterparts, and this has the same effect as if the signatures on the counterparts were on a single copy of the Finance Document.
 
39	GOVERNING LAW	
This Agreement is governed by Norwegian law.
 
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40	ENFORCEMENT	
 
40.1	Jurisdiction	
 
(a)	The courts of Norway, with the Oslo district court as the court of first instance, have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute relating to the existence, validity or termination of this Agreement (a “ Dispute ”).	
 
(b)	This Clause 40.1 is for the benefit of the Finance Parties only. As a result, no Finance Party shall be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction. To the extent allowed by law, the Finance Parties may take concurrent proceedings in any number of jurisdictions.	
 
40.2	Service of process	
Without prejudice to any other mode of service allowed under any relevant law, each Obligor (other than an Obligor incorporated in Norway):
 
 	(i)	irrevocably appoints KNOT Shuttle Tankers AS, Smedasundet 40, NO-5529 Haugesund, Norway, Norway as its agent for service of process in relation to any proceedings before the Norwegian courts in connection with any Finance Document; and	
 
 	(ii)	agrees that failure by the process agent to notify the relevant Obligor of the process will not invalidate the proceedings concerned.	
This Agreement has been entered into on the date stated at the beginning of this Agreement.
 
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SCHEDULE 1
LENDERS AND COMMITMENTS

Original Lenders:	  	Tranche A Commitment:	 	  	Tranche B Commitment:	 	
			
ABN AMRO Bank N.V.,
Oslo Branch
Olav V’s gt. 5
NO-0161 Oslo
Norway	  	USD	17,789,757.50	  	  	USD	19,420,485	  	
			
BNP Paribas
16, Boulevard des Italiens
75009 Paris
France	  	USD	17,789,757.50	  	  	USD	19,420,485	  	
			
DNB Bank ASA
Dronning Eufemias gate 30
NO-0191 Oslo
Norway	  	USD	17,789,757.50	  	  	USD	19,420,485	  	
			
Nordea Bank Norge ASA
Middelthuns gate 17
NO-0368 Oslo
Norway	  	USD	17,789,757.50	  	  	USD	19,420,485	  	
			
Total:	  	USD	71,159,030	  	  	USD	77,681,940	  	
			
Original Lenders:	  	Tranche C Commitment:	 	  	Revolving Facility
Commitment:	 	
			
ABN AMRO Bank N.V.,
Oslo Branch
Olav V’s gt. 5
NO-0161 Oslo
Norway	  	USD	17,789,757.50	  	  	USD	5,000,000	  	
			
BNP Paribas
16, Boulevard des Italiens
75009 Paris
France	  	USD	17,789,757.50	  	  	USD	5,000,000	  	
			
DNB Bank ASA
Dronning Eufemias gate 30
NO-0191 Oslo
Norway	  	USD	17,789,757.50	  	  	USD	5,000,000	  	
			
Nordea Bank Norge ASA
Middelthuns gate 17
NO-0368 Oslo
Norway	  	USD	17,789,757.50	  	  	USD	5,000,000	  	
			
Total:	  	USD	71,159,030	  	  	USD	20,000,000	  	
 
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SCHEDULE 2
CONDITIONS PRECEDENT DOCUMENTS
Part 1
(in respect of the first Utilisation of the Term Loan Facility)
 
1.	In respect of each Obligor, copies of:	
 
 	(i)	its articles of association, partnership agreement or similar documentation;	
 
 	(ii)	its certificate of registration or good standing;	
 
 	(iii)	a resolution of its board of directors authorising the execution of this Agreement and the other Finance Documents to which it is a party;	
 
 	(iv)	if not included in the resolutions referred to in paragraph (iii) above, a power of attorney to its representatives for the execution and registration of this Agreement and the other Finance Documents to which it is a party;	
 
 	(v)	if required under applicable law, a resolution of its shareholders or members approving the terms of, and the transactions contemplated by, the Finance Documents to which it is a party;	
 
 	(vi)	such other documents and evidence as the Agent (or any Lender through the Agent) shall from time to time require, based on law and regulations applicable from time to time and the Lenders’ own internal guidelines applicable from time to time to identify each Obligor and any other identification or similar document any Lender may reasonably require in order to satisfy any “know your customer” requirements applicable to such Lender;	
 
 	(vii)	a specimen of the signature of each person authorised by the resolutions referred to in paragraph (iii) above and each person authorised to sign Utilisation Requests and Selection Notices; and	
 
 	(viii)	a certificate of an authorised signatory of the relevant Obligor certifying that each copy document relating to it specified in this Part 1 of Schedule 2 is correct, complete and in full force and effect as at a date no earlier than the date of this Agreement.	
 
2.	Evidence that all fees due and payable under the Agreement on or before the first Utilisation Date have been paid or will be paid on or before the first Utilisation Date.	
 
3.	Confirmation of acceptance from the Borrowers to the Agent’s letter in respect of effective annual interest.	
 
4.	In respect of the Security Documents:	
 
 	(i)	the Mortgage over the relevant Vessel duly executed by the owner thereof;	
 
 	(ii)	the Assignment Agreement in relation to the relevant Vessel duly executed by the owner thereof;	
 
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 	(iii)	the notices of assignment and acknowledgements required to be executed under the Assignment Agreement, duly executed, provided that the Obligors shall use their best commercial efforts to obtain acknowledgements from third parties in respect of the assignment of Earnings and/or contracts of employment;	
 
 	(iv)	a Factoring Agreement duly executed by the relevant Borrower;	
 
 	(v)	the Account Pledge in respect of the Earnings Account held by the owner of the relevant Vessel duly executed by such owner;	
 
 	(vi)	the First Share Pledge Agreement duly executed by KNOT Shuttle Tankers AS;	
 
 	(vii)	the notices and acknowledgements required to be executed under the First Share Pledge Agreement, duly executed, and delivery of an updated register of shareholders of each Borrower evidencing that the pledge has been duly noted therein;	
 
 	(viii)	the Second Limited Partnership Pledge Agreement duly executed by KNOT Shuttle Tankers 12 AS and KNOT Shuttle Tankers AS;	
 
 	(ix)	the notices and acknowledgements required to be executed under the Second Limited Partnership Pledge Agreement, duly executed, and delivery to the Agent of the original limited partnership share certificates of Knutsen Shuttle Tankers XII KS and an updated register of shareholders of Knutsen Shuttle Tankers XII AS evidencing that the pledge of shares has been duly noted therein;	
 
 	(x)	a Hedging Agreement Assignment Agreement duly executed by the relevant Borrower (if relevant); and	
 
 	(xi)	the notices of assignment and acknowledgements and consents required to be executed under the Hedging Agreement Assignment Agreement, duly executed.	
 
5.	In respect of the relevant Vessel:	
 
 	(i)	certificates of valuation not older than 30 days from two (2) of the Approved Brokers;	
 
 	(ii)	evidence that the Vessel is classed with the highest class in accordance with Clause 23.5 ( Class ), free of all material overdue recommendations of the relevant classification society;	
 
 	(iii)	copies of the following documentation:	
 
 	(A)	the ISM Code Document of Compliance;	
 
 	(B)	the ISM Code Safety Management Certificate; and	
 
 	(C)	the ISPS Code Ship Security Certificate;	
 
 	(iv)	evidence by way of a transcript of registry issued by the relevant Approved Ship Register that the Vessel is registered in the name of the relevant Borrower, free from encumbrances other than the relevant Mortgage, and that the relevant Mortgage has been registered in favour of the Agent on first priority;	
 
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 	(v)	copies of insurance policies/cover notes documenting that insurance cover has been taken out in respect of the Vessel in accordance with Clause 23.1 ( Insurances ), and evidence that the Agent’s security interests in the insurance policies have been noted in accordance with relevant notices and acknowledgements as required under the relevant Assignment Agreement;	
 
 	(vi)	a report by the insurance consultant appointed by the Agent confirming, inter alia, that that insurance cover has been taken out in respect of the Vessel in accordance with Clause 23.1 ( Insurances );	
 
 	(vii)	a copy of any contract of employment entered into in respect of the Vessel; and	
 
 	(viii)	copies of all management agreements entered into in respect of the Vessel and a subordination undertaking in favour of the Finance Parties duly executed by each manager.	
 
6.	The Intercreditor Agreement duly executed by the parties thereto.	
 
7.	Evidence that the Earnings Account has been opened by the relevant Borrower with the Agent.	
 
8.	Copies of the Original Financial Statements.	
 
9.	A duly executed Compliance Certificate evidencing pro forma compliance with the financial covenants set out in Clause 21 ( Financial covenants ).	
 
10.	An updated group structure chart showing all members of the Group and identifying the percentage of ownership in each member of the Group.	
 
11.	Evidence that the relevant part of the Existing Facilities, and all commitments in respect thereof, have been, or at the latest simultaneously with the making of the first Utilisation will be, repaid and paid and cancelled in full, and that any Security (including, without limitation, any guarantee or indemnity undertaking) granted or undertaken by or in respect of any member of the Group under or in respect thereof, has been, or at the latest simultaneously with the making of the first Utilisation will be, unconditionally and irrevocably released and discharged in full by the holder(s) of any such Security.	
 
12.	If relevant, assurance that any withholding tax under the Finance Documents will be paid or application to tax authorities is or will be sent on the Utilisation Date.	
 
13.	Evidence that the process agent referred to in Clause 40.2 ( Service of process ) and any other process agent appointed pursuant to any of the Finance Documents, has accepted its appointment.	
 
14.	Favourable legal opinions in form and substance satisfactory to the Agent from lawyers appointed by the Agent on matters concerning all relevant jurisdictions.	
 
15.	A copy of any other Authorisation or other document, opinion or assurance which the Agent considers to be necessary or desirable (if it has notified the Borrowers accordingly) in connection with the entry into and performance of the transactions contemplated by any Finance Document or for the validity and enforceability of any Finance Document.	
 
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Part 2
(in respect of each further Utilisation of the Term Loan Facility)
 
1.	A certificate of an authorised signatory of the relevant Borrower certifying that each copy document relating to it specified in this Part 2 of Schedule 2 is correct, complete and in full force and effect as at a date no earlier than the date falling five (5) Business Days prior to the relevant Utilisation Date.	
 
2.	In respect of the Security Documents:	
 
 	(i)	the Mortgage over the relevant Vessel duly executed by the owner thereof;	
 
 	(ii)	the Assignment Agreement in relation to the relevant Vessel duly executed by the owner thereof;	
 
 	(iii)	the notices of assignment and acknowledgements required to be executed under the Assignment Agreement, duly executed, provided that the Obligors shall use their best commercial efforts to obtain acknowledgements from third parties in respect of the assignment of Earnings and/or contracts of employment;	
 
 	(iv)	a Factoring Agreement duly executed by the relevant Borrower;	
 
 	(v)	the Account Pledge in respect of the Earnings Account held by the owner of the relevant Vessel duly executed by such owner;	
 
 	(vi)	a Hedging Agreement Assignment Agreement duly executed by the relevant Borrower (if relevant); and	
 
 	(vii)	the notices of assignment and acknowledgements and consents required to be executed under the Hedging Agreement Assignment Agreement, duly executed.	
 
3.	In respect of the relevant Vessel:	
 
 	(i)	certificates of valuation not older than 30 days from two (2) of the Approved Brokers;	
 
 	(ii)	evidence that the Vessel is classed with the highest class in accordance with Clause 23.5 ( Class ), free of all material overdue recommendations of the relevant classification society;	
 
 	(iii)	copies of the following documentation:	
 
 	(A)	the ISM Code Document of Compliance;	
 
 	(B)	the ISM Code Safety Management Certificate; and	
 
 	(C)	the ISPS Code Ship Security Certificate;	
 
 	(iv)	evidence by way of a transcript of registry issued by the relevant Approved Ship Register that the Vessel is registered in the name of the relevant Borrower, free from encumbrances other than the relevant Mortgage, and that the relevant Mortgage has been registered in favour of the Agent on first priority;	
 
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 	(v)	copies of insurance policies/cover notes documenting that insurance cover has been taken out in respect of the Vessel in accordance with Clause 23.1 ( Insurances ), and evidence that the Agent’s security interests in the insurance policies have been noted in accordance with relevant notices and acknowledgements as required under the relevant Assignment Agreement;	
 
 	(vi)	a report by the insurance consultant appointed by the Agent confirming, inter alia, that that insurance cover has been taken out in respect of the Vessel in accordance with Clause 23.1 ( Insurances );	
 
 	(vii)	a copy of any contract of employment entered into in respect of the Vessel; and	
 
 	(viii)	copies of all management agreements entered into in respect of the Vessel and a subordination undertaking in favour of the Finance Parties duly executed by each manager.	
 
6.	Evidence that the Earnings Account has been opened by the relevant Borrower with the Agent.	
 
7.	Evidence that the relevant part of the Existing Facilities, and all commitments in respect thereof, have been, or at the latest simultaneously with the making of the first Utilisation will be, repaid and paid and cancelled in full, and that any Security (including, without limitation, any guarantee or indemnity undertaking) granted or undertaken by or in respect of any member of the Group under or in respect thereof, has been, or at the latest simultaneously with the making of the first Utilisation will be, unconditionally and irrevocably released and discharged in full by the holder(s) of any such Security.	
 
8.	Evidence that any process agent appointed pursuant to any of the Security Documents referred to in paragraph 3 hereof, has accepted its appointment.	
 
9.	Favourable legal opinions in form and substance satisfactory to the Agent from lawyers appointed by the Agent on matters concerning all relevant jurisdictions.	
 
10.	A copy of any other Authorisation or other document, opinion or assurance which the Agent considers to be necessary or desirable (if it has notified the Borrowers accordingly) in connection with the entry into and performance of the transactions contemplated by any Finance Document or for the validity and enforceability of any Finance Document.	
 
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SCHEDULE 3
FORM OF
UTILISATION REQUEST

To:	 	NORDEA BANK NORGE ASA as Agent	
		
	 	Telefax: +47 22 48 66 68	
		
	 	Attn: Nordea Agency	
		
Date:	 	[                    ]	
USD 240,000,000 TERM AND REVOLVING FACILITIES AGREEMENT DATED 10 JUNE 2014 (THE “AGREEMENT”)
 
1.	We refer to the Agreement. This is a Utilisation Request. Terms defined in the Agreement have the same meaning in this Utilisation Request unless given a different meaning in this Utilisation Request.	
 
2.	We wish to borrow a Loan on the following terms:	

Borrower:	  	[            ]	
		
Proposed Utilisation Date:	  	[            ] (or, if that is not a Business Day, the next Business Day)	
		
Tranche/Facility to be utilized:	  	[Tranche A1]/[Tranche A2]/[Tranche B1]/[Tranche B2]/[Revolving Facility]	
		
Amount:	  	USD [            ] or, if less, the Available Facility	
		
Interest Period:	  	[            ]	
 
3.	We confirm that on the date of this Utilisation Request:	
 
 	(i)	no Default is continuing or would result from the proposed Loan; and	
 
 	(ii)	the Repeating Representations are true in all material respects.	
 
4.	The proceeds of this Loan should be credited to [ account ].	
 
5.	This Utilisation Request is irrevocable.	

By:	 		
		
[    ]	 		
	
Authorised signatory	
 
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SCHEDULE 4
FORM OF
SELECTION NOTICE
(applicable to a Term Loan)

To:	 	NORDEA BANK NORGE ASA as Agent	
		
	 	Telefax: +47 22 48 66 68	
		
	 	Attn: Nordea Agency	
		
Date:	 	[                    ]	
USD 240,000,000 TERM AND REVOLVING FACILITIES AGREEMENT DATED 10 JUNE 2014 (THE “AGREEMENT”)
 
1.	We refer to the Agreement. This is a Selection Notice. Terms defined in the Agreement have the same meaning in this Selection Notice unless given a different meaning in this Selection Notice.	
 
2.	We refer to the Term Loan with an Interest Period ending on [                    ].	
 
3.	We request that the next Interest Period for the above Term Loan is [                    ]].	
 
4.	We confirm that on the date of this Selection Notice:	
 
 	(i)	no Event of Default is continuing; and	
 
 	(ii)	the Repeating Representations are true in all material respects.	
 
5.	This Selection Notice is irrevocable.	

By:	 		
		
[    ]	 		
	
Authorised signatory	
 
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SCHEDULE 5
FORM OF
TRANSFER CERTIFICATE

To:	 	NORDEA BANK NORGE ASA as Agent	
		
From:	 	[ The Existing Lender ] (the “ Existing Lender ”) and [ The New Lender ] (the “ New Lender ”)	
	
Dated: [                    ]	
USD 240,000,000 TERM AND REVOLVING FACILITIES AGREEMENT DATED 10 JUNE 2014 (THE “AGREEMENT”)
 
1.	We refer to the Agreement. This is a Transfer Certificate. Terms defined in the Agreement have the same meaning in this Transfer Certificate unless given a different meaning in this Transfer Certificate.	
 
2.	We refer to Clause 25.5 ( Procedure for transfer ):	
 
 	(i)	The Existing Lender and the New Lender agree to the Existing Lender transferring to the New Lender all or part of the Existing Lender’s Commitment, rights and obligations referred to in the Schedule in accordance with Clause 25.5 ( Procedure for transfer ) together with a proportional interest in the Security Documents.	
 
 	(ii)	The proposed Transfer Date is [                    ].	
 
 	(iii)	The Facility Office and address, fax number and attention details for notices of the New Lender for the purposes of Clause 32.2 ( Addresses ) are set out in the Schedule.	
 
3.	The New Lender expressly acknowledges the limitations on the Existing Lender’s obligations set out in paragraph (c) of Clause 25.4 ( Limitation of responsibility of Existing Lenders ).	
 
4.	This Transfer Certificate may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of this Transfer Certificate.	
 
5.	This Transfer Certificate is governed by Norwegian law.	
 
6.	This Transfer Certificate has been entered into on the date stated at the beginning of this Transfer Certificate.	
 
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THE SCHEDULE
Commitment/rights and obligations to be transferred
[ insert relevant details ]
[ Facility Office address, fax number and attention details for notices and account details for payments ]

[Existing Lender]	 		 	[New Lender]	
					
By:	 		 		 	By:	 		
Name:	 		 		 	Name:	 		
Title:	 		 		 	Title:	 		
This Transfer Certificate is accepted by the Agent and the Transfer Date is confirmed as [                    ].

Nordea Bank Norge ASA	
		
By:	 		
Name:	 		
Title:	 		
 
112/120

SCHEDULE 6
FORM OF
INCREASE CONFIRMATION

To:	 	NORDEA BANK NORGE ASA as Agent and KNOT OFFSHORE PARTNERS L.P. as Parent Guarantor, for and on behalf of each Borrower	
		
From:	 	[ The Increase Lender ] (the “ Increase Lender ”)	
	
Dated: [                    ]	
USD 240,000,000 TERM AND REVOLVING FACILITIES AGREEMENT DATED 10 JUNE 2014 (THE “FACILITIES AGREEMENT”)
 
1.	We refer to the Facilities Agreement. This agreement (the “ Agreement ”) shall take effect as an Increase Confirmation for the purpose of the Facilities Agreement. Terms defined in the Facilities Agreement have the same meaning in this Agreement unless given a different meaning in this Agreement.	
 
2.	We refer to Clause 2.2 ( Increase ) of the Facilities Agreement.	
 
3.	The Increase Lender agrees to assume and will assume all of the obligations corresponding to the Commitment specified in the Schedule (the “ Relevant Commitment ”) as if it was an Original Lender under the Facilities Agreement.	
 
4.	The proposed date on which the increase in relation to the Increase Lender and the Relevant Commitment is to take effect (the “ Increase Date ”) is [                    ].	
 
5.	On the Increase Date, the Increase Lender becomes party to the relevant Finance Documents as a Lender.	
 
6.	The Facility Office and address, fax number and attention details for notices to the Increase Lender for the purposes of Clause 32.2 ( Addresses ) are set out in the Schedule.	
 
7.	The Increase Lender expressly acknowledges the limitations on the Lenders’ obligations referred to in paragraph (f) of Clause 2.2 ( Increase ).	
 
8.	This Agreement may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of this Agreement.	
 
9.	This Agreement is governed by Norwegian law.	
 
10.	This Agreement has been entered into on the date stated at the beginning of this Agreement.	
 
113/120

THE SCHEDULE
Relevant Commitment/rights and obligations to be assumed by the Increase Lender
[ insert relevant details ]
[ Facility office address, fax number and attention details for notices and account details for payments ]

[Increase Lender]	
		
By:	 		
Name:	 		
Title:	 		
This Agreement is accepted as an Increase Confirmation for the purposes of the Facilities Agreement by the Agent and the Increase Date is confirmed as [                    ].

Nordea Bank Norge ASA	
		
By:	 		
Name:	 		
Title:	 		
 
114/120

SCHEDULE 7
FORM OF
COMPLIANCE CERTIFICATE

To:	 	NORDEA BANK NORGE ASA as Agent	
		
	 	Telefax: +47 22 48 66 68	
		
	 	Attn: Nordea Agency	
		
Date:	 	[                    ]	
USD 240,000,000 TERM AND REVOLVING FACILITIES AGREEMENT DATED 10 JUNE 2014 (THE “AGREEMENT”)
We refer to Clause 20.2 ( Provision and contents of Compliance Certificate ) of the Agreement. This is a Compliance Certificate. Terms used in this Compliance Certificate have the same meanings as in the Agreement.
The undersigned, being the [chief financial officer] of the Parent Guarantor, hereby confirms that the Obligors are in compliance with the financial covenants set out in Clause 21 ( Financial covenants ), that no Event of Default set out in Clause 24 ( Events of Default ) has occurred or is threatened and that the representations and warranties set out in Clause 19 ( Representations and warranties ) are true in all respects.
Enclosed are copies of the [audited consolidated annual financial statements of the Parent Guarantor and each Borrower for the financial year ending 31 December [            ] / unaudited consolidated quarterly financial statements of the Parent Guarantor and each Borrower for the financial quarter ending [            ]] and the relevant calculations demonstrating compliance with financial covenants.

KNOT OFFSHORE PARTNERS L.P.	
		
By:	 		
Name:	 		
 
115/120

FINANCIAL COVENANTS
[quarter] [year]
Working Capital – Parent Guarantor:

Current Assets (a)	  	USD	            	  	
		
Current Liabilities (b)	  	USD	            	  	
		
(a) less (b)	  				
	  	 	 	 	
Requirement: To be positive
Working Capital – Vessel A Owner:

Current Assets (c)	  	USD	            	  	
		
Current Liabilities (d)	  	USD	            	  	
		
(c) less (d)	  				
	  	 	 	 	
Requirement: To be positive
Working Capital – Vessel B Owner:

Current Assets (e)	  	USD	            	  	
		
Current Liabilities (f)	  	USD	            	  	
		
(e) less (f)	  				
	  	 	 	 	
Requirement: To be positive
Working Capital – Vessel C Owner:

Current Assets (g)	  	USD	            	  	
		
Current Liabilities (h)	  	USD	            	  	
		
(g) less (h)	  				
	  	 	 	 	
Requirement: To be positive
 
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Equity ratio:

Total Equity (i)	  	USD	            	  	
		
Total Assets (j)	  	USD	            	  	
		
Ratio (i)/(j)	  				
	  	 	 	 	
Requirement: Ratio not to be less than 0.30
Interest cover ratio:

EBITDA (k)	  	USD	            	  	
		
Finance Charges (l)	  	USD	            	  	
		
Ratio (k)/(l)	  				
	  	 	 	 	
Requirement: Ratio not to be less than 2.50:1.00
Liquidity:

Cash in hand or on deposit	  	USD	            	  	
		
2/3 of Available Facility	  	USD	            	  	
		
Cash equivalents	  	USD	            	  	
		
Total	  	USD	            	  	
		
Number of vessels owned by the members of the Group	  				
		
Number of vessels owned by the members of the Group
With an employment contract with less than twelve (12) months remaining tenor (excluding options)	  				
	  	 	 	 	
Requirement: USD [            ]
 
117/120

SCHEDULE 8
LIST OF
EXISTING HEDGING AGREEMENTS
 
1.	ISDA Master Agreement dated 25 June 2013 entered into between KNOT Shuttle Tankers 17 AS and Nordea Bank Finland Plc	
 
2.	ISDA Master Agreement dated 3 February 2014 entered into between Knutsen Shuttle Tankers 13 AS and Nordea Bank Finland Plc	
 
3.	ISDA Master Agreement dated 20 June 2013 entered into between KNOT Shuttle Tankers 17 AS and DNB Bank ASA	
 
4.	ISDA Master Agreement dated 3 February 2014 entered into between Knutsen Shuttle Tankers 13 AS and DNB Bank ASA	

SIGNATORIES

The Obligors:	
	
KNOT Shuttle Tankers 18 AS	
		
By:	 	/s/ B JØRN S ANDE U RTEGAARD	
Name:	 	Bjørn Sande Urtegaard	
Title:	 	Attorney-in-fact	
	
in its capacities as Borrower and Guarantor	
	
KNOT Shuttle Tankers 17 AS	
		
By:	 	/s/ B JØRN S ANDE U RTEGAARD	
Name:	 	Bjørn Sande Urtegaard	
Title:	 	Attorney-in-fact	
	
in its capacities as Borrower and Guarantor	
	
Knutsen Shuttle Tankers 13 AS	
		
By:	 	/s/ B JØRN S ANDE U RTEGAARD	
Name:	 	Bjørn Sande Urtegaard	
Title:	 	Attorney-in-fact	
	
in its capacities as Borrower and Guarantor	
	
KNOT Offshore Partners L.P.	
		
By:	 	/ S / A RILD V IK	
Name:	 	Arild Vik	
Title:	 	CEO/CFO	
	
in its capacity as Guarantor	
	
KNOT Shuttle Tankers AS	
		
By:	 	/s/ B JØRN S ANDE U RTEGAARD	
Name:	 	Bjørn Sande Urtegaard	
Title:	 	Attorney-in-fact	
	
in its capacities as Guarantor	
 
119/120

			
The Finance Parties:	
	
ABN AMRO Bank N.V.	
		
By:	 	/ S / J OHAN R ASMUSSEN	
Name:	 	Johan Rasmussen	
Title:	 	Attorney-in-fact	
	
in its capacity as Original Hedging Bank	
	
ABN AMRO Bank N.V., Oslo Branch	
		
By:	 	/ S / J OHAN R ASMUSSEN	
Name:	 	Johan Rasmussen	
Title:	 	Attorney-in-fact	
	
in its capacities as Arranger and Original Lender	
	
BNP Paribas	
		
By:	 	/ S / J OHAN R ASMUSSEN	
Name:	 	Johan Rasmussen	
Title:	 	Attorney-in-fact	
	
in its capacities as Arranger, Original Lender and Original Hedging Bank	
	
DNB Bank ASA	
		
By:	 	/ S / J OHAN R ASMUSSEN	
Name:	 	Johan Rasmussen	
Title:	 	Attorney-in-fact	
	
in its capacities as Arranger, Original Lender and Original Hedging Bank	
	
Nordea Bank Norge ASA	
		
By:	 	/ S / J OHAN R ASMUSSEN	
Name:	 	Johan Rasmussen	
Title:	 	Attorney-in-fact	
	
in its capacities as Agent, Arranger and Original Lender	
	
Nordea Bank Finland Plc	
		
By:	 	/ S / J OHAN R ASMUSSEN	
Name:	 	Johan Rasmussen	
Title:	 	Attorney-in-fact	
	
in its capacity as Original Hedging Bank	
 
120/120

Exhibit 10.2
SHARE PURCHASE AGREEMENT
Between
Knutsen NYK Offshore Tankers AS
(as Seller)
And
KNOT Shuttle Tankers AS
(as Buyer)

 
					
	  	for the sale and purchase of the shares in	  		
			
	  	Knutsen Shuttle Tankers 14 AS	  		

SHARE PURCHASE AGREEMENT
This agreement (this “ Agreement ”) is entered into the 23 rd day of June, 2014 between:
(1) Knutsen NYK Offshore Tankers AS , company registration no. 995 221 713
(the “ Seller ”), and
(2) KNOT Shuttle Tankers AS , company registration no. 998 942 829
(the “ Buyer ”).
The Seller and the Buyer are hereinafter individually referred to as a “ Party ” and jointly the “ Parties ”.
 
1	RECITALS	
WHEREAS:
 
a)	Knutsen Shuttle Tankers 14 AS, company registration no. 996 821 374, is a private limited liability company that has as its purpose to engage in shipowning activities, is duly incorporated under Norwegian law and has its registered place of business in Haugesund, Norway (the “ Company ”);	
 
b)	The Seller is the sole owner of the ownership interest in the Company, with a share capital of NOK 200,000;	
 
c)	The Company is the owner of the MT “Hilda Knutsen”, having IMO No. 9628300 (the “ Vessel ”); and	
 
d)	The Seller and the Buyer have agreed that the Buyer shall acquire 100% of the shares in the Company (the “ Shares ”) on the terms and conditions set forth in this Agreement.	
 
2	DEFINITIONS	
In this Agreement, the following definitions shall have the following meanings:

a)	    	Accounting Principles	  	means the applicable United States generally accepted accounting principles, applied on a consistent basis;	
			
b)	    	Accounts	  	means, in respect of the Company and Knutsen Shuttle Tankers 15 AS, its combined accounts, consisting of the income statement, balance sheet, statement of cash flow and the notes thereto, consolidated profit and loss account, consolidated balance sheet and statement of cash flow and the notes thereto, for the financial years and quarters attached as Schedule 2 ;	
 
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c)	    	Accounts Date	  	means 31 March 2014;	
			
d)	    	Agreement	  	shall have the meaning ascribed to such term in the preamble to this Agreement;	
			
e)	    	Business	  	means the current business of the Company, being to own the Vessel, and charter the same under the Charter;	
			
f)	    	Business Day	  	means a day on which banks are open for general banking business in Norway;	
			
g)	    	Buyer	  	shall have the meaning ascribed to such term in the preamble to this Agreement;	
			
h)	    	Buyer Indemnitees	  	shall have the meaning ascribed to such term in Clause 12.1;	
			
i)	    	Charter	  	means the Time Charter Party, dated April 26, 2011, between the Company and the Charterer in relation to the Vessel;	
			
j)	    	Charterer	  	means Eni Trading and Shipping S.P.A.	
			
k)	    	Closing	  	shall have the meaning ascribed to such term in Clause 5.1;	
			
l)	    	Closing Date	  	means the date when the Closing actually takes place according to Clause 5.1;	
			
m)	    	Companies Act	  	means the Norwegian Limited Liability Companies Act of 1997	
			
n)	    	Company	  	means Knutsen Shuttle Tankers 14 AS;	
			
o)	    	Encumbrance	  	means any mortgage, charge, pledge, lien, option or other security interest or restriction of any kind;	
			
p)	    	Governmental Authority	  	means any domestic or foreign government, including federal, provincial, state, municipal, county or regional government or governmental or regulatory authority, domestic or foreign, and includes any department, commission, bureau, board, administrative agency or regulatory body of any of the foregoing and any multinational or supranational organization.	
			
q)	    	Hilda Knutsen Facility	  	means the USD 117,000,000 pre- and post-delivery term loan facility agreement in respect of the Vessel dated July 11, 2011, made between (i) the Company as borrower, (ii) the Seller as parent guarantor, (iii) the banks and financial institutions listed in Schedule 1 thereto as lenders, (iv) DnB Bank ASA, Nordea Bank Norge ASA, and Credit Agricole Corporate and Investment Bank as mandated lead arrangers, (v) DnB Bank ASA and Nordea Bank Norge ASA as bookrunners and (vi) DnB Bank ASA as agent.	
 
3

					
r)	    	Indemnified Party	  	shall have the meaning ascribed to such term in Clause 12.3;	
			
s)	    	Indemnifying Party	  	shall have the meaning ascribed to such term in Clause 12.3;	
			
t)	    	Losses	  	means any loss, liability, claim, damage, expense (including costs of investigation and defence and reasonable attorneys’ fees) or diminution of value, whether or not involving a third-party claim;	
			
u)	    	Material Adverse Effect	  	means a material adverse effect on the condition (financial, commercial, technical, legal or otherwise) of the Business, assets, results of operations or prospects of the Company;	
			
v)	    	Material Agreement	  	shall have the meaning ascribed to such term in Clause 8.11;	
			
w)	    	Omnibus Agreement	  	means the Omnibus Agreement, dated as of April 15, 2013, by and among the Seller, the Partnership, KNOT Offshore Partners GP LLC, KNOT Shuttle Tankers 17 AS and KNOT Shuttle Tankers 18 AS;	
			
x)	    	Party	  	shall have the meaning ascribed to such term in the preamble to this Agreement;	
			
y)	    	Parties	  	shall have the meaning ascribed to such term in the preamble to this Agreement;	
			
z)	    	Partnership	  	means KNOT Offshore Partners LP, a Marshall Islands limited partnership;	
			
aa)	    	Purchase Price	  	shall have the meaning ascribed to such term in Clause 4;	
			
bb)	    	Purchase Price Adjustments	  	shall have the meaning ascribed to such term in Clause 5.4a);	
			
cc)	    	Seller	  	shall have the meaning ascribed to such term in the preamble to this Agreement;	
			
dd)	    	Seller Indemnitees	  	shall have the meaning ascribed to such term in Clause 12.2;	
			
ee)	    	Shares	  	shall have the meaning ascribed to such term in Clause 1;	
			
ff)	    	Signing Date	  	means the date of this Agreement;	
			
gg)	    	Swap Agreements	  	means the 2002 ISDA Master Agreement dated 3 February 2014, and entered into between the Company and DNB Bank ASA and the Schedule thereto and all Transactions and/or Confirmations (as each of the said expressions is defined in the Master Agreement) supplemental thereto;	
 
4

					
hh)	    	Taxes	  	means all taxes (including value-added tax and similar taxes), however denominated, including interest, penalties and other additions to tax that may become payable or imposed by any applicable statute, rule or regulation or any governmental agency, including all taxes, withholdings and other charges in respect of income, profits, gains, payroll, social security or other social benefit taxes, sales, use, excise, real or personal property, stamps, transfers and workers’ compensation, which the Company is required to pay, withhold or collect; and	
			
ii)	    	Third-Party Claim	  	shall have the meaning ascribed to such term in Clause 12.3; and	
			
jj)	    	Vessel	  	shall have the meaning ascribed to such term in Clause 1.	
 
3	SALE AND PURCHASE	
Subject to the terms and conditions set forth in this Agreement, the Seller agrees to sell, and the Buyer agrees to purchase, the Shares, together with all rights attached to them.
The Shares shall be transferred to the Buyer on the Closing Date, free and clear from any Encumbrances.
 
4	PURCHASE PRICE	
The Seller agrees to sell and transfer to the Buyer, and the Buyer agrees to purchase from the Seller for USD 166,000,000, less USD 109,687,500 of outstanding debt obligations under the Hilda Knutsen Facility, and as adjusted for the balance under the Swap Agreements being USD 59,439 according to a mark-to-market determination as of 17 June 2014 (the “ Purchase Price ”), plus the Purchase Price Adjustments, all in accordance with and subject to the terms and conditions set forth in this Agreement, the Shares.
The Purchase Price is to be settled by way of a cash settlement in the amount of USD 56,371,939 on the Closing Date.
 
5	CLOSING	
 
5.1	Time and place	
Subject to the satisfaction or waiver of the conditions set forth in Clause 6, the completion of the transactions contemplated by this Agreement (the “ Closing ”) shall take place at the offices of the Seller at such time and date as the Parties agree.
 
5.2	The Seller’s Closing obligations	
At the Closing, the Seller shall:
 
a)	deliver to the Buyer a copy of the minutes of the meeting of the board of directors of the Seller authorising the execution of, and the consummation of the transaction completed by, this Agreement; and	
 
b)	in exchange for the payment of the Purchase Price, transfer the Shares to the Buyer and deliver to the Buyer the share register of the Company with the Buyer duly registered as the owner of the Shares, as well as the related notices according to Sections 4-7 and 4-10 of the Companies Act.	
 
5

5.3	The Buyer’s Closing obligations	
At the Closing, the Buyer shall settle the Purchase Price in accordance with Clause 4.
 
5.4	Post-Closing Adjustment	
 
a)	Within 60 days following the Closing Date, the Buyer and the Seller shall agree on the amount of the post-Closing adjustments to the Purchase Price based on the Company’s working capital as of the 30 June 2014 (the “ Purchase Price Adjustments ”).	
 
b)	Within 15 days following the date on which the Purchase Price Adjustments have been agreed pursuant to item a) above, the Buyer shall pay to the Seller an amount, in cash, equal to the Purchase Price Adjustments. Any other elements than those covered by the Purchase Price Adjustments varying in the period between the Signing Date and the Closing Date shall be for Seller’s account.	
 
6	CLOSING CONDITIONS	
 
6.1	Conditions to the Buyer’s Closing obligations	
The obligations of the Buyer to purchase the Shares and to take the other actions required to be taken by it at the Closing are subject to the satisfaction of each of the following conditions (any of which may be waived in whole or in part by the Buyer) on or before the Closing Date:
 
a)	there is no material breach of any of the representations and warranties of the Seller set forth in Clause 8 and Clause 9;	
 
b)	in all respects material to the transactions contemplated hereby, the Seller shall have performed or complied with all of its obligations pursuant to this Agreement to be performed or complied with by the Seller at or prior to the Closing Date and shall have delivered each document or instrument to be delivered by it pursuant to this Agreement;	
 
c)	the Buyer shall have obtained the funds necessary to consummate the purchase of the Shares and to pay all related fees and expenses; and	
 
d)	the results of the searches, surveys, tests and inspection of the Vessel referred to in Clause 10.1(h) are reasonably satisfactory to Buyer.	
 
6.2	Conditions to the Seller’s Closing obligations	
The obligations of the Seller to sell the Shares and to take the other actions required to be taken by it at the Closing are subject to the satisfaction of each of the following conditions (any of which may be waived in whole or in part by the Seller) on or before the Closing Date:
 
a)	there is no material breach of any of the representations and warranties of the Buyer set forth in Clause 7;	
 
6

b)	each of the Partnership and the Buyer shall substitute and replace the Seller as guarantor under the Hilda Knutsen Facility and the Swap Agreements, and the Seller will be released as guarantor thereunder; and	
 
c)	in all respects material to the transactions contemplated hereby, the Buyer shall have performed or complied with all of its obligations pursuant to this Agreement to be performed or complied with by the Buyer at or prior to the Closing Date and shall have delivered each document or instrument to be delivered by it pursuant to this Agreement.	
 
6.3	Conditions of the Parties . The obligations of Seller to sell the Shares and the obligations of Buyer to purchase the Shares is subject to the satisfaction (or waiver by each of Seller and Buyer) on or prior to the Closing Date of the following conditions:	
 
a)	The Seller shall have received any and all written consents, permits, approvals or authorizations of any Governmental Authority or any other Person (including, but not limited to, with respect to the Charter, the Hilda Knutsen Facility and the Swap Agreements) and shall have made any and all notices or declarations to or filing with any Governmental Authority or any other Person, including those related to any environmental laws or regulations, required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereunder, including the transfer of the Shares; and	
 
b)	No legal or regulatory action or proceeding shall be pending or threatened by any Governmental Authority to enjoin, restrict or prohibit the purchase and sale of the Shares.	
 
7	REPRESENTATIONS AND WARRANTIES OF THE BUYER	
The Buyer represents and warrants to the Seller that as of the Signing Date and on the Closing Date, unless otherwise expressly stated:
 
7.1	Corporate existence and power	
The Buyer is duly incorporated, validly existing and in good standing under the laws of Norway.
The Buyer has not been declared insolvent; become the subject of a petition in bankruptcy; had a receiver appointed with respect to it or to the Business or part thereof; entered into any arrangement with, or made an assignment for the benefit of, its creditors; or ceased to function as a going concern.
 
7.2	Corporate authorisation and non-contravention	
This Agreement and each other document or instrument delivered or to be delivered in connection with this Agreement has been duly authorised by all necessary corporate action(s) of the Buyer and constitutes or will, when executed, constitute valid and binding obligations of the Buyer enforceable in accordance with its respective terms.
The execution by the Buyer of this Agreement and each other document or instrument delivered or to be delivered in connection with it, and the performance by the Buyer of its obligations under this Agreement and the consummation of the transactions provided for in this Agreement, do not and will not result in a breach of any provision of the articles of association of the Buyer or of any applicable law, order, judgment or decree of any court or any Governmental Authority or of any agreement to which the Buyer is bound.
 
7

The Buyer is not required to obtain any authorisations, consents, approvals or exemptions by any Governmental Authority in connection with the entering into or performance of its obligations under this Agreement.
 
8	REPRESENTATIONS AND WARRANTIES OF THE SELLER	
The Seller represents and warrants to the Buyer as of the Signing Date and on the Closing Date, unless otherwise expressly stated:
 
8.1	Corporate existence and power	
Each of the Company and the Seller is duly incorporated, validly existing and in good standing under the laws of Norway.
Each of the Company and the Seller has not been declared insolvent; become the subject of a petition in bankruptcy; had a receiver appointed with respect to it or to the Business or part thereof; entered into any arrangement with, or made an assignment for the benefit of, its creditors; or ceased to function as a going concern.
 
8.2	Corporate authorisation and non-contravention	
This Agreement and each other document or instrument delivered or to be delivered in connection with this Agreement has been duly authorised by all necessary corporate action(s) of each of the Company and the Seller, as appropriate, and constitutes or will, when executed, constitute valid and binding obligations of each of the Company and the Seller, as appropriate, enforceable in accordance with its respective terms.
The execution by each of the Company and the Seller, as appropriate, of this Agreement and each other document or instrument delivered or to be delivered in connection with it, and the performance by each of the Company and the Seller, as appropriate, of its obligations under this Agreement and the consummation of the transactions provided for in this Agreement, do not and will not result in a breach of any provision of the articles of association of each of the Company and the Seller, as appropriate, or of any applicable law, order, judgment or decree of any court or any Governmental Authority or of any agreement to which each of the Company and the Seller, as appropriate, is bound.
Each of the Company and the Seller, as appropriate, is not required to obtain any authorisations, consents, approvals or exemptions by any Governmental Authority in connection with the entering into or performance of its obligations under this Agreement.
 
8.3	Capitalisation and title	
The Seller has full ownership to the Shares. The Shares are fully authorised, validly issued, fully paid and are, at the time of transfer pursuant to this Agreement, free and clear from any Encumbrances.
There is no outstanding subscription, option or similar rights relating to the Shares.
 
8

8.4	Records	
The Company’s articles of association and shareholders’ register are true, accurate, up-to-date and complete.
 
8.5	Charter documents; validity of the Charter	
The Seller has supplied to the Buyer true and correct copies of the Charter and any related documents, as amended to the Closing Date. The Charter is a valid and binding agreement of the Company enforceable against the Company in accordance with its terms and, to the knowledge of the Seller, the Charter is a valid and binding agreement of all other parties thereto enforceable against such parties in accordance with its terms.
 
8.6	Accounts	
The Accounts have been prepared in accordance with the Accounting Principles and in accordance with the books and records of the Company. The Accounts give a true and accurate view of the financial position, solvency, assets, liabilities, liquidity, cash flow and the result of the operations of the Company as of the Accounts Date.
 
8.7	No undisclosed liabilities	
Neither the Company nor the Vessel has any Encumbrances, or other liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise, and whether due or to become due (including, without limitation, any liability for Taxes and interest, penalties and other charges payable with respect to any such liability or obligation), except for such Encumbrances or other liabilities or obligations appearing in the ship registry of the Vessel and those arising under the Hilda Knutsen Facility and the Swap Agreements.
 
8.8	Loans and other financial facilities	
All loans and other financial facilities available to the Company have been made available for review by the Buyer. As of the Signing Date, the principal outstanding amount under the Hilda Knutsen Facility is USD 109,687,500.
No event has occurred which gives, or after notice or lapse of time, or both, would give any third party the right to call for repayment from the Company prior to normal maturity of any loan or other financial facility. The Company shall not be indebted, directly or indirectly, to any person who is an officer, director, stockholder or employee of any of the Seller or any spouse, child or other relative or any affiliate of any such person, nor shall any such officer, director, stockholder, employee, relative or affiliate be indebted to the Company.
 
8.9	Assets	
At the Closing Date, the Company shall not be using assets in the Business that it neither owns nor has the right to use pursuant to written agreements with third parties. At the Closing Date, the assets of the Company will comprise all the assets necessary for carrying on the Business fully and effectively to the extent to which it is conducted at the Signing Date.
 
8.10	Absence of certain changes or events	
Since the Accounts Date, there has not occurred or arisen:
 
a)	any change of accounting methods, principles or practices, accounting, invoicing and supplier practice or procedures for the Company;	
 
9

b)	any acquisition or disposal of, or the entering into any agreement to acquire or dispose of, any asset, other than the sale of products in the ordinary course of business;	
 
c)	the termination of any Material Agreement;	
 
d)	any obligations, commitments or liabilities, contingent or otherwise, whether for Taxes or otherwise, except obligations, commitments and liabilities arising in the ordinary course of business;	
 
e)	any event or condition, whether covered by insurance or not, which has resulted in or may result in a Material Adverse Effect; or	
 
f)	the entering into of any agreements or commitments other than on customary terms.	
 
8.11	Agreements	
Each Material Agreement is in full force and effect. No other Material Agreements will be entered into by the Company prior the Closing Date without the prior consent of the Buyer (such consent not to be unreasonably withheld). The Company has fulfilled all material obligations required pursuant to the Material Agreements to have been performed by it prior to the Signing Date and has not waived any material rights thereunder.
There has not occurred any material default on the part of the Company under any of the Material Agreements, or to the knowledge of the Seller, on the part of any other party thereto, nor has any event occurred that with the giving of notice or the lapse of time, or both, would constitute any material default on the part of the Company under any of the Material Agreements nor, to the knowledge of the Seller, has any event occurred that with the giving of notice or the lapse of time, or both, would constitute any material default on the part of any other party to any of the Material Agreements.
The term “ Material Agreement ” means each agreement, contract or other undertaking by or of the Company (a) that is of material importance to the Business or (b) the value of which, in respect of total turnover during one year, is not less than USD 100,000, provided, however, that such term includes the Charter, the Hilda Knutsen Facility and the Swap Agreements.
 
8.12	Insurance	
The Company maintains insurance policies on fire, theft, loss, disruption, product and general liability and other forms of insurance with reputable insurers that would reasonably be judged to be sound and required for the Business.
The Company’s insurance policies do not contain any provisions regarding a change of control or ownership of the insured.
The Company is in compliance with all terms and conditions contained in the insurance policies, and nothing has been done or omitted to be done that would make any insurance policy or insurance void or voidable or that would result in a reduction of the coverage ( No: avkortning ).
 
10

8.13	Environmental matters	
The Company is not and has not been in breach of any applicable laws (whether civil, criminal or administrative), statutes, regulations, directives, codes, judgments, orders or any other measures imposed by any governmental, statutory or regulatory body with regard to the pollution or the protection of the environment or to the protection of human health or human safety, or any other living organisms supported by the environment.
There is no current governmental investigation or disciplinary proceeding relating to any alleged breach of any law or permit by the Company, and none is pending, nor threatened.
The Company has not, other than as permitted under applicable permits or applicable laws or regulations held from time to time, disposed of, discharged, released, placed, dumped or emitted any hazardous substances, such as pollutants, contaminants, hazardous or toxic materials, wastes or chemicals. Neither the Seller nor the Company has received any formal or informal notice or other communication from which it appears that the Company may be or has been in violation of any laws or permits. There are no actual or contingent obligations on the Company to pay money or carry out any work in order to keep or be granted an extension or renewal of any existing permit. There are no facts or circumstances that could result in such an obligation. The properties used by the Company are not made of or do not contain any form of asbestos or any other toxic substance that may cause damage to the health of the persons working or visiting the premises.
 
8.14	Compliance with laws	
The Company has at all times conducted the Business in accordance with and has complied with any applicable laws in Norway and in any other relevant countries relating to its operations and the Business.
All necessary licences, consents, permits and authorisations have been obtained by the Company to enable the Company to carry on the Business in the places and in the manner in which such Business is now conducted and all such licences, consents, permits and authorisations are valid and subsisting and have been complied with in all respects.
 
8.15	Litigation	
There are no claims, actions, lawsuits, administrative, governmental, arbitration or other legal proceedings (including but not limited to proceedings related to Taxes) pending or threatened against or involving the Company, the Business or properties or assets of the Company and which would result in a Material Adverse Effect if adversely determined.
 
8.16	Taxes	
The Company has properly filed with the appropriate Tax authorities all Tax returns and reports required to be filed for all Tax periods ending prior to the Closing Date. Such filings are true, correct and complete. All information required for a correct assessment of Taxes has been provided.
The Tax returns of the Company have been assessed and approved by the Tax authorities through the Tax years up to and including the years for which such assessment and approval is required, and the Company is not subject to any dispute with any such authority.
 
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All Taxes that have become due have been fully paid or fully provided for in the Accounts, and the Company shall not be liable for any additional Tax pertaining to the period before the Accounts Date. All Taxes for the period after the Accounts Date have been fully paid when due.
There are no Tax audits, Tax disputes or Tax litigation pending or threatened against or involving the Company. There is no basis for assessment of any deficiency in any Taxes against the Company that has not been provided for in the Accounts or that has not been paid.
The Company is not and has not been involved in any transaction that could be considered as Tax-evasive. All losses for Tax purposes incurred by of the Company are trading losses and are available to be carried forward and set off against income in succeeding periods without limitation and have been accepted by the relevant Tax authorities.
The Company is not and has not been subject to any Tax outside its respective country of fiscal residence.
 
8.17	Relationship with the Seller	
Except as disclosed to the Buyer, there are no written or oral agreements or arrangements between the Company and the Seller, and no liabilities or obligations (contingent or otherwise) owed by the Company to the Seller.
No services provided by the Seller to the Company are necessary in the ordinary course of business.
No payments of any kind, including, but not limited to management charges, have been made by the Company to the Seller, save for payments under agreements or arrangements made on an arm’s-length basis in accordance with applicable law and regulations.
 
8.18	Information	
All documents provided to the Buyer by or on behalf of the Seller or the Company are true and correct, and no document provided to the Buyer by or on behalf of the Seller or the Company contains any untrue statement of a relevant fact or omits to state a relevant fact necessary to make the statements contained in the document not misleading.
There are no facts or circumstances known to the Seller, relating to the affairs of the Company, that have not been disclosed to the Buyer, which, if disclosed, reasonably could have been expected to influence the decision of the Buyer to purchase the Shares on the terms of this Agreement.
The Seller confirms that the Seller, prior to the Signing Date, has made, and until the Closing Date, shall continue to make, all investigations necessary in order to ensure that the statements in Clause 7 are correct.
 
9	REPRESENTATIONS AND WARRANTIES OF THE SELLER REGARDING THE VESSEL	
The Seller represents and warrants to the Buyer as of the Signing Date and on the Closing Date, unless otherwise expressly stated:
 
9.1	Flag and title	
The Company is the registered owner of the Vessel and has good and marketable title to the Vessel, free and clear of any and all Encumbrances, other than those arising under the Hilda Knutsen
 
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Facility. The Vessel is properly registered in the name of the Seller under and pursuant to the flag and law of the United Kingdom, and all fees due and payable in connection with such registration have been paid.
 
9.2	Classification	
The Vessel is entered with Det Norske Veritas and has the highest classification rating. The Vessel is in class without any recommendations or notation as to class or other requirement of the relevant classification society, and if the Vessel is in a port, it is in such condition that it cannot be detached by any port state authority or the flag state authority for any deficiency.
 
9.3	Maintenance	
The Vessel has been maintained in a proper and efficient manner in accordance with internationally accepted standards for good ship maintenance, is in good operating order, condition and repair and is seaworthy, and all repairs made to the Vessel during the last two years and all known scheduled repairs due to be made and all known deficiencies have been disclosed to the Buyer.
 
9.4	Liens	
The Vessel is not (a) under arrest or otherwise detained, (b) other than in the ordinary course of business, in the possession of any person (other than her master and crew) or (c) subject to a possessory lien.
 
9.5	Safety	
The Vessel is supplied with valid and up-to-date safety, safety construction, safety equipment, radio, loadline, health, tonnage, trading and other certificates or documents as may for the time being be prescribed by the laws of the United Kingdom or of any other pertinent jurisdiction, or that would otherwise be deemed necessary by a shipowner acting in accordance with internationally accepted standards for good ship management and operations.
 
9.6	No blacklisting or boycotts	
No blacklisting or boycotting of any type has been applied or currently exists against or in respect of the Vessel.
 
9.7	No options	
There are not outstanding any options or other rights to purchase the Vessel other than the option held by the Buyer pursuant to the Omnibus Agreement.
 
9.8	Insurance	
The insurance policies relating to the Vessel are as set forth on Schedule 1 hereto, each of which is in full force and effect and, to the Seller’s knowledge, not subject to being voided or terminated for any reason.
 
10	COVENANTS PRIOR TO THE CLOSING	
 
10.1	Covenants of the Seller Prior to the Closing	
From the Signing Date to the Closing Date, the Seller shall cause the Company to conduct its business in the usual, regular and ordinary course in substantially the same manner as previously conducted. The Seller shall not permit the Company to enter into any contracts or other written or oral agreements prior to the Closing Date, other than such contracts and agreements as have been disclosed to the Buyer prior to the Signing Date, without the prior consent of the Buyer (such
 
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consent not to be unreasonably withheld). In addition, the Seller shall not permit the Company to take any action that would result in any of the conditions to the purchase and sale of the Shares set forth in Clause 6 not being satisfied. Furthermore, the Seller hereby agrees and covenants that it:
 
a)	shall use its best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary to consummate and make effective as promptly as possible the transactions contemplated by this Agreement and to co-operate with the Buyer and others in connection with the foregoing;	
 
b)	shall use its best efforts to obtain the authorisations, consents, orders and approvals of regulatory bodies and officials that may be or become necessary for the performance of its obligations pursuant to this Agreement and the completion of the transactions contemplated by it;	
 
c)	shall co-operate with the Buyer and promptly seek to obtain such authorisations, consents, orders and approvals as may be necessary for the performance of the Parties’ respective obligations pursuant to this Agreement;	
 
d)	shall not amend, alter or otherwise modify or permit any amendment, alteration or modification of any material provision of or terminate the Charter or any other contract prior to the Closing Date without the prior written consent of the Buyer, such consent not to be unreasonably withheld or delayed;	
 
e)	shall not exercise or permit any exercise of any rights or options contained in the Charter, without the prior written consent of the Buyer, not to be unreasonably withheld or delayed;	
 
f)	shall observe and perform in a timely manner, all of its covenants and obligations under the Charter, the Hilda Knutsen Facility and the Swap Agreements, if any, and in the case of a default by another party thereto, it shall forthwith advise the Buyer of such default and shall, if requested by the Buyer, enforce all of its rights under such Charter, the Hilda Knutsen Facility or the Swap Agreements, as applicable, in respect of such default;	
 
g)	shall not cause or, to the extent reasonably within its control, permit any Encumbrances to attach to the Vessel other than in connection with the Hilda Knutsen Facility and the Swap Agreements; and	
 
h)	shall permit representatives of the Buyer to make, prior to the Closing Date, at the Buyer’s risk and expense, such surveys, tests and inspections of the Vessel as the Buyer may deem desirable, so long as such surveys, tests or inspections do not damage the Vessel or interfere with the activities of the Seller, the Company or the Charterer thereon and so long as the Buyer shall have furnished the Seller with evidence that adequate liability insurance is in full force and effect.	
 
10.2	Covenants of the Buyer Prior to the Closing	
The Buyer hereby agrees and covenants that during the period of time after the Signing Date and prior to the Closing Date, the Buyer shall, in respect of the Shares to be transferred on the Closing Date, take, or cause to be taken, all necessary partnership action, steps and proceedings to approve or authorize validly and effectively the purchase and sale of the Shares and the execution and delivery of this Agreement and the other agreements and documents contemplated hereby.
 
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11	TERMINATION	
 
11.1	Termination	
This Agreement may be terminated, and the transactions contemplated by this Agreement may be abandoned, at any time prior to the Closing Date:
 
a)	by either Party if a breach of any provision of this Agreement has been committed by the other Party, such breach has not been waived and such breach is material to the transactions contemplated hereby, the Business or the assets, financial condition or prospect of the Company;	
 
b)	by either Party if satisfaction of any of the conditions in Clause 6.3 is or becomes impossible and Buyer and Seller have not waived such condition;	
 
c)	by the Buyer if satisfaction of any of the conditions in Clause 6.1 is or becomes impossible (other than through the failure of the Buyer to comply with its obligations under this Agreement) and the Buyer has not waived such condition;	
 
d)	by the Seller if satisfaction of any of the conditions in Clause 6.2 is or becomes impossible (other than through the failure of the Seller to comply with its obligations under this Agreement) and the Seller has not waived such condition;	
 
e)	by the Buyer due to a change having occurred that has resulted or may result in a Material Adverse Effect; or	
 
f)	by mutual written consent of the Seller and the Buyer.	
 
11.2	Rights on termination	
If this Agreement is terminated pursuant to Clause 11.1, all further obligations of the Parties pursuant to this Agreement shall terminate without further liability of a Party to the other, provided, however, that the obligations of the Parties contained in Clause 14 (Costs) and Clause 18 (Governing Law and arbitration) shall survive such termination, and further provided, that if this Agreement is terminated by a Party because of the breach of this Agreement by the other Party or because one or more of the conditions to the terminating Party’s obligations under this Agreement is not satisfied as a result of the other Party’s failure to comply with its obligations under this Agreement, the terminating Party’s right to pursue all legal remedies will survive such termination unimpaired.
 
12	INDEMNIFICATION	
 
12.1	Indemnity by the Seller	
Subject to Clause 13, following the Closing, the Seller shall be liable for, and shall indemnify, defend and hold harmless the Buyer and its respective officers, directors, employees, agents and representatives (the “ Buyer Indemnitees ”) from and against, any Losses, suffered or incurred by such Buyer Indemnitees:
 
a)	by reason of, arising out of or otherwise in respect of any inaccuracy in, breach of any representation or warranty, or a failure to perform or observe fully any covenant, agreement or obligation of, the Seller in or under this Agreement or in or under any document, instrument or agreement delivered pursuant to this Agreement by the Seller;	
 
15

b)	subject to Clause 14 (b), any fees, expenses or other payments incurred or owed by the Seller to any brokers, financial advisors or comparable other persons retained or employed by it in connection with the transaction contemplated by this Agreement; or	
 
c)	any Losses suffered or incurred by such Buyer Indemnitees in connection with any claim for the repayment of hire or Losses in relation to the Vessel for periods prior to the Closing.	
 
12.2	Indemnity by the Buyer	
Following the Closing, the Buyer shall be liable for, and shall indemnify, defend and hold harmless the Seller and its respective officers, directors, employees, agents and representatives (the “ Seller Indemnitees ”) from and against, any Losses, suffered or incurred by such Seller Indemnitees by reason of, arising out of or otherwise in respect of any inaccuracy in, breach of any representation or warranty, or a failure to perform or observe fully any covenant, agreement or obligation of, the Buyer in or under this Agreement or in or under any document, instrument or agreement delivered pursuant to this Agreement by the Buyer.
 
12.3	Indemnification procedures with respect to third-party claims	
If the Seller or the Buyer, as the case may be (an “ Indemnified Party ”), shall receive notice of any claim by a third party that is or may be subject to indemnification or compensation from the other Party pursuant to this Agreement (a “ Third-Party Claim ”), the Indemnified Party shall give the other Party (the “ Indemnifying Party ”) prompt written notice of such Third-Party Claim and the Indemnifying Party shall, at the Indemnifying Party’s option, have the right to participate in the defence thereof by counsel at the Indemnifying Party’s own cost and expense. If the Indemnifying Party acknowledges within 30 days from such written notice in writing its obligation to indemnify the Indemnified Party against all Losses that may result from such Third-Party Claim, the Indemnifying Party shall be entitled, at the Indemnifying Party’s option, to assume and control the defence of such Third-Party Claim at the Indemnifying Party’s cost and expense and through counsel of the Indemnifying Party’s choice. No such Third-Party Claim may be settled by the Indemnifying Party without the written consent of the Indemnified Party, unless the settlement involves only the payment of money by the Indemnifying Party. No Third-Party Claim that is being defended in good faith by the Indemnifying Party shall be settled by the Indemnified Party without the written consent of the Indemnifying Party. The Indemnifying Party shall have no obligation to indemnify the Indemnified Party for any losses resulting from the settlement of Third-Party Claims in violation of the provisions of this Clause 12.3.
 
13	OMNIBUS AGREEMENT INDEMNIFICATION	
Notwithstanding any other provision of this Agreement, the Seller shall be liable for, and shall indemnify, defend and hold harmless the Partnership and any person controlled by the Partnership, including the Buyer, from and against the matters set forth in Article XIII of the Omnibus Agreement, subject to the terms and conditions set forth therein.
The Seller’s indemnification obligations under this Clause 13 shall only be subject to limitations insofar as such limitations follow from Article XIII of the Omnibus Agreement.
 
14	COSTS	
 
a)	Subject to Clause 14 (b), each party shall pay its own costs and expenses in connection with the preparation for and completion of the transactions contemplated by this Agreement, including but not limited to all fees and expenses of its own representatives, agents, brokers, legal and financial advisers and authorities and no such costs or expenses shall be charged to or paid by, neither directly or indirectly, the Company.	
 
b)	The fees and expenses of AMA Securities Inc. in providing its fairness opinion pursuant to Clause 8.2(b) of the Omnibus Agreement, will be divided equally between the Buyer and the Seller.	
 
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15	NOTICES	
All notices, requests, demands, approvals, waivers and other communications required or permitted under this Agreement must be in writing in the English language and shall be deemed to have been received by a Party when:
 
a)	delivered by post, unless actually received earlier, on the third Business Day after posting, if posted within Norway, or the fifth Business Day, if posted to or from a place outside Norway;	
 
b)	delivered by hand, on the day of delivery; or	
 
c)	delivered by fax, on the day of dispatch if supported by a written confirmation from the sender’s fax machine that the message has been properly transmitted.	
All such notices and communications shall be addressed as set forth below or to such other addresses as may be given by written notice in accordance with this Clause 15.
If to the Seller:
Knutsen NYK Offshore Tankers AS
Attention: Chairman of the Board
Smedasundet 40, Postboks 2017, 5504 Haugesund, Norway
Fax no.: +47 52 70 40 40
If to the Buyer:
KNOT Shuttle Tankers AS
Attention: Chairman of the Board
Smedasundet 40, Postboks 2017, 5504 Haugesund, Norway
Fax no.: +47 52 70 40 40
 
16	ASSIGNMENT	
This Agreement shall be binding upon and inure to the benefit of the successors of the Parties, but shall not be assignable by any of the Parties without the prior written consent of the other Party. The benefit of this Agreement may, however, be assigned by either of the Parties to any group directly or indirectly controlling, controlled by or under common control of the assignor, provided that the assignor shall remain liable for its own debt and for all obligations under this Agreement.
 
17	MISCELLANEOUS	
 
17.1	Further Assurances	
From time to time after the Signing Date, and without any further consideration, the Parties agree to execute, acknowledge and deliver all such additional deeds, assignments, bills of sale, conveyances,
 
17

instruments, notices, releases, acquittances and other documents, and shall do all such other acts and things, all in accordance with applicable law, as may be necessary or appropriate (a) more fully to assure that the applicable Parties own all of the properties, rights, titles, interests, estates, remedies, powers and privileges granted by this Agreement, or which are intended to be so granted, (b) more fully and effectively to vest in the applicable Parties and their respective successors and assigns beneficial and record title to the interests contributed and assigned by this Agreement or intended so to be and (c) more fully and effectively to carry out the purposes and intent of this Agreement.
 
17.2	Integration	
This Agreement, the Schedules and Appendices hereto and the instruments referenced herein supersede all previous understandings or agreements among the Parties, whether oral or written, with respect to its subject matter hereof. This Agreement, the Schedules and Appendices hereto and the instruments referenced herein contain the entire understanding of the Parties with respect to the subject matter hereof and thereof. No understanding, representation, promise or agreement, whether oral or written, is intended to be or shall be included in or form part of this Agreement unless it is contained in a written amendment hereto executed by the Parties hereto after the Signing Date.
 
17.3	No Broker’s Fees	
No one is entitled to receive any finder’s fee, brokerage or other commission in connection with the purchase of the Shares or the consummation of the transactions contemplated by this Agreement.
 
18	GOVERNING LAW AND ARBITRATION	
This Agreement shall be governed by and construed in accordance with Norwegian law.
The Parties shall seek to solve through negotiations any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity hereof. If the Parties fail to solve such dispute, controversy or claim by a written agreement within 60 days after one of the Parties has requested such negotiations by notice to the other Party, such dispute, controversy or claim shall be finally settled by arbitration in Haugesund in the English language in accordance with the Norwegian Arbitration Act. The arbitration tribunal shall consist of three arbitrators, of which the Buyer shall appoint one arbitrator and the Seller shall appoint one arbitrator. The arbitrators so appointed shall appoint the third arbitrator, who shall be the chairman of the arbitration tribunal. In the event of failure by a Party to appoint its arbitrator within 30 days after the request for arbitration first is given, or the failure by the first two arbitrators to appoint the third arbitrator within 30 days after appointment of the last of the first two arbitrators to be appointed, such arbitrator or arbitrators shall be appointed by the district judge (No: “ Sorenskriver ”) of Haugesund District Court. Any Party may seek judgement upon any award in any court having jurisdiction, or an application may be made to such court for the judicial acceptance of the award and for an order of enforcement.
Notwithstanding the above, either Party may bring an action in any court of competent jurisdiction (a) for provisional relief pending the outcome of arbitration, including, without limitation, provisional injunctive relief or pre-judgement attachment of assets, or (b) to compel arbitration or enforce any arbitral award. For purposes of any proceeding authorised by this Clause 17, each Party hereby consents to the non-exclusive jurisdiction of Haugesund, Norway.
* * *
 
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This Agreement has been executed in two original copies, of which each Party has retained one copy.

Knutsen NYK Offshore Tankers AS	 		 	KNOT Shuttle Tankers AS	
					
By:	 	/s/ Ø YSTEIN M OKSHEIM K ALLEKLEV	 		 	By:	 	/s/ K ARL G ERHARD B RÅSTEIN D AHL	
					
Name:	 	Øystein Moksheim Kalleklev	 		 	Name:	 	Karl Gerhard Bråstein Dahl	
					
Title:	 	Chief Financial Officer	 		 	Title:	 	Senior Vice President, Board Member	
 
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INSURANCES
Schedule 1
Insurance Policies (all quoted values are USD)
 
Hull & Machinery

Hull	  	Insured Value:	  	$	145 000 000	  	  	Policy Renewal:	  	01.10.2013	
Hull Interest	  	Insured Value:	  	$	36 250 000	  	  	Policy Renewal:	  	01.10.2013	
Freight Interest	  	Insured Value:	  	$	36 250 000	  	  	Policy Renewal:	  	01.10.2013	

Loss of Hire (14-day deductible, 180-day maximum single claim, 180-day maximum sum of all claims paid)	

Daily Amount: $ 62 000	  	Insured Value:	  	$	    5 580 000	  	  	Policy Renewal:	  	01.10.2013	

P&I Insurance	

Gross Tonnage: 80 850	  		  		  	Policy Renewal:	  	20.02.2014	

War Risk	

	  	Insured Value:	  	$	217 500 000	  	  	Policy Renewal:	  	01.01.2014	
Hull & Machinery

 	5	% 	 	Security through Edge Insurance Brokers (Singapore) PTE. Ltd.	
 	5	% 	 	India International Insurances, Singapore	
 	2,75	% 	 	Security Through Edge Insurance Brokers (Singapore) Pte. Ltd.	
 	2,75	% 	 	Asia Capital Re. Singapore	
 	2,25	% 	 	Security through JLJ Maritime S.A	
 	2,25	% 	 	Vienna Insurance Group AG	
 	 	 	 		
 	10	% 	 	Total	
		
 	12,5	% 	 	Norwegian Hull Club-Gjensidige Assuranseforening, bergen	
 	12,5	% 	 	Gard AS, as agent only for Gard M&E Ltd.	
 	2	% 	 	Codan Forsikring NUF	
 	10	% 	 	Aon London Broking Center	
 	10	% 	 	Lloyds Syndicate 1209 XL	
 	5	% 	 	Aon London Broking Center	
 	5	% 	 	Arch Insurance Comp. (Europe) Ltd.	
 	2	% 	 	Alandia Insurance Co. Ltd	
 	6,5	% 	 	Tokio Marine & Nichido Fire Ins. Co. Ltd.	
 	2,5	% 	 	The Swedish Club	
 	5	% 	 	Aon Benfield Italia S.p.A.	
 	5	% 	 	S.I.A.T	
 	2,5	% 	 	UNIQA Österreich Versicherungen AG	
 	2	% 	 	Markel Internatinal Sweden	
 	9	% 	 	Aon London Broking Center	
 	9	% 	 	Swiss Re Internatinal SE, UK Branch	
 	3	% 	 	Ingosstrakh Insurance Company Ltd.	
 	 	 	 		
 	90	% 	 	Total	
		
 	100	% 	 	Total	
 
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Hull Interest/Freight Interest

 	2,5	% 	 	Alandia Insurance Co. Ltd	
 	10	% 	 	Aon London Broking Center	
 	10	% 	 	Lloyds Syndicate 1209 XL	
 	5	% 	 	Aon London Broking Center	
 	5	% 	 	Arch Insurance Comp. (Europe) Ltd.	
 	9	% 	 	Aon London Broking Center	
 	9	% 	 	Swiss Re International SE, UK Branch	
 	2	% 	 	Chaucer Underwriting A/S	
 	2	% 	 	Lloyds Syndicate 1084 Chaucer	
 	18	% 	 	Codan Forsikring NUF	
 	19	% 	 	Gard A, as agents only for Gard M&E Ltd.	
 	2,5	% 	 	International Insurance Company of Hannover Ltd.	
 	20	% 	 	Norwegian Hull Club	
 	3	% 	 	Skuld 1897	
 	2,5	% 	 	The Swedish Club	
 	6,5	% 	 	Tokio Marine & Nichido Fire Ins. Co. Ltd.	
 	 	 	 		
 	100	% 	 	Total	
Loss of Hire

 	10	% 	 	Codan Forsikring, Norw. Branch of Codan Fors. AS,DK	
 	10	% 	 	Försäkringsaktiebolaget Alandia, Mariehamn	
 	25	% 	 	Gard AS as Agent Only for Gard M.&e:, bergen	
 	10	% 	 	Lloyds Syndicate NO 1897 Skuld	
 	10	% 	 	Security Through Mar Risk Services Ltd.	
 	10	% 	 	Lloyds Syndicate No. 1209 XL	
 	25	% 	 	Norwegian Hull Club, Bergen (20134375)	
 	10	% 	 	Tokio Marine & Nichido Fire Ins. Co. Ltd. Tokyo	
 	 	 	 		
 	100	% 	 	Total	
OR

 	10	% 	 	Codan Forsikring, Norw. Branch of Codan Fors. AS,DK	
 	15	% 	 	Försäkringsaktiebolaget Alandia, Mariehamn	
 	22	% 	 	Gard AS AS Agent Only for Gard M.&e:, bergen	
 	10	% 	 	Lloyds Syndicate NO 1897 Skuld	
 	10	% 	 	Security Through Mar Risk Services Ltd.	
 	10	% 	 	Lloyds Syndicate No. 1209 XL	
 	3	% 	 	Mitsui Sumitomo Insurance Co. Ltd. Tokyo	
 	15	% 	 	Norwegian Hull Club, Bergen (20134368)	
 	15	% 	 	Tokio Marine & Nichido Fire	
 	 	 	 		
 	100	% 	 	Total	
War Risk

 	100	% 	 	The Norwegian Shipowners Mutual War Risk Insurance Association	
P&I

 	100	% 	 	Skuld	
FDD

 	100	% 	 	Nordisk	
 
21

Schedule 2
ACCOUNTS
[Separate attachment]
 
22

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Audited Combined Financial Statements as of and for the Years Ended December 31, 2013 and 2012
Index to Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Audited Combined Financial Statements as of and for the Years Ended December 31, 2013 and 2012

Report of Independent Auditors	  	 	2	  	
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Combined Statement of Operations for the Years Ended December 31, 2013 and 2012	  	 	3	  	
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Combined Balance Sheet as of December 31, 2013 and 2012	  	 	4	  	
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Combined Statement of Owner’s Equity for the Years Ended December 31, 2013 and 2012	  	 	5	  	
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Combined Statement of Cash Flows for the Years Ended December 31, 2013 and 2012	  	 	6	  	
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Notes to Combined Financial Statements as of and for the Years Ended December 31, 2013 and 2012	  	 	7	  	
 
1

Report of Independent Registered Public Accounting Firm
To the Board of Directors of KNOT Offshore Partners LP
We have audited the combined financial statements of Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS, which comprise the combined balance sheets as of December 31, 2013 and 2012, and the related combined statements of operations, combined statements of owner’s equity and combined statements of cash flows for the years then ended, and the related notes to the combined financial statements.
Management’s Responsibility for the Combined Financial Statements
Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements.
Opinion
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Knutsen Shuttle Tanker 14 AS and Knutsen Shuttle Tanker 15 AS as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ Ernst & Young AS
Bergen, Norway
June 23, 2014
 
2

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS
Combined Statements of Operations
For the Years Ended December 31, 2013 and 2012
(U.S. Dollars in thousands)

 	  	Year Ended
December 31,	 	
 	  	2013	 	 	2012	 	
Time charter revenues	  	$	12,451	  	 	$	—  	 	
Total revenues (Notes 2(d), 4, 5, and 13)	  	 	12,451	  	 	 	—  	 	
Operating expenses: (Note 13)	  				 				
Vessel operating expenses (Note 2(d))	  	 	3,759	  	 	 	1	  	
Depreciation and amortization (Note 9)	  	 	3,303	  	 	 	—  	 	
General and administrative expenses	  	 	100	  	 	 	72	  	
	  	 	 	 	 	 	 	 	
Total operating expenses	  	 	7,162	  	 	 	73	  	
	  	 	 	 	 	 	 	 	
Operating income	  	 	5,289	  	 	 	(73	)	
	  	 	 	 	 	 	 	 	
Finance income (expense): (Notes 2(e) and 13)	  				 				
Interest income	  	 	1	  	 	 	1	  	
Interest expense (Notes 6(a), 9(a) and 13)	  	 	(2,293	)	 	 	(2	)	
Other finance expense (Note 6(b))	  	 	(749	)	 	 	(18	)	
Net gain (loss) on foreign currency transactions	  	 	748	  	 	 	(293	)	
	  	 	 	 	 	 	 	 	
Total finance expense	  	 	(2,293	)	 	 	(312	)	
	  	 	 	 	 	 	 	 	
Income (loss) before income taxes	  	 	2,996	  	 	 	(385	)	
Income tax benefit (expense) (Note 12)	  	 	—  	 	 	 	—  	 	
	  	 	 	 	 	 	 	 	
Net income (loss)	  	$	2,996	  	 	$	(385	)	
	  	 	 	 	 	 	 	 	
A Statement of Other Comprehensive Income (Loss) has not been presented as there are no items recognized in other comprehensive income (loss).
The accompanying notes are an integral part of these financial statements
 
3

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS
Combined Balance Sheets
As of December 31, 2013 and 2012
(U.S. Dollars in thousands)

 	  	December 31,	 	
 	  	2013	 	 	2012	 	
Assets	  				 				
Current assets:	  				 				
Cash and cash equivalents (Notes 2(f) and 7)	  	$	11,841	  	 	$	228	  	
Trade accounts receivable, less allowance for doubtful accounts of $0 in 2013 and $0 in 2012	  	 	3,777	  	 	 	—  	  	
Receivables from owners and affiliates	  	 	775	  	 	 	—  	  	
Inventories (Note 2(h))	  	 	289	  	 	 	—  	  	
Other current assets (Notes 2(i) and 8(b))	  	 	1,641	  	 	 	1,325	  	
	  	 	 	 	 	 	 	 	
Total current assets	  	 	18,323	  	 	 	1,553	  	
	  	 	 	 	 	 	 	 	
Long-term assets:	  				 				
Vessels and equipment (Notes 2(j), 2(k), 2(l), and 9):	  				 				
Vessels	  	 	287,486	  	 	 	—  	  	
Vessels under construction	  	 	—  	  	 	 	126,663	  	
Less accumulated depreciation and amortization	  	 	(3,303	)	 	 	—  	  	
	  	 	 	 	 	 	 	 	
Net property, plant, and equipment	  	 	284,183	  	 	 	126,663	  	
	  	 	 	 	 	 	 	 	
Deferred debt issuance cost (Note 2(m))	  	 	4,114	  	 	 	4,301	  	
	  	 	 	 	 	 	 	 	
Total assets	  	$	306,620	  	 	$	132,517	  	
	  	 	 	 	 	 	 	 	
Liabilities and Owner’s Equity	  				 				
Current liabilities:	  				 				
Trade accounts payable	  	$	580	  	 	$	28	  	
Accrued expenses (Note 10)	  	 	1,830	  	 	 	584	  	
Current portion of long-term debt (Notes 7 and 11)	  	 	19,500	  	 	 	2,438	  	
Prepaid charter and deferred revenue (Note 2(o))	  	 	1,487	  	 	 	—  	  	
Payables to owners and affiliates	  	 	7,065	  	 	 	9,667	  	
Other current liabilities	  	 	—  	  	 	 	218	  	
	  	 	 	 	 	 	 	 	
Total current liabilities	  	 	30,462	  	 	 	12,935	  	
	  	 	 	 	 	 	 	 	
Long-term liabilities:	  				 				
Long-term debt (Notes 7 and 11)	  	 	212,063	  	 	 	73,269	  	
Other long-term liabilities	  	 	5,518	  	 	 	—  	  	
	  	 	 	 	 	 	 	 	
Total liabilities	  	 	248,043	  	 	 	86,204	  	
	  	 	 	 	 	 	 	 	
Commitments and contingencies (Notes 2(p) and 14)	  				 				
Equity:	  				 				
Share capital, par value $366.3, 200 shares issued at December 31, 2013 and 2012	  	 	73	  	 	 	73	  	
Share premium	  	 	43,077	  	 	 	43,077	  	
Other paid in equity	  	 	11,229	  	 	 	1,961	  	
Retained earnings	  	 	4,198	  	 	 	1,202	  	
Total equity	  	 	58,577	  	 	 	46,313	  	
	  	 	 	 	 	 	 	 	
Total liabilities and equity	  	$	306,620	  	 	$	132,517	  	
	  	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these financial statements.
 
4

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS
Combined Statements of Owner’s Equity
For the Years Ended December 31, 2013 and 2012
(U.S. Dollars in thousands)

 	  	Share Capital (1)	 	  	Share
Premium	 	  	Other
Paid-in
Equity	 	  	Retained
Earnings	 	 	Total Equity	 	
Equity as of January 1, 2012	  	$	73	  	  	$	43,077	  	  	$	—  	  	  	$	1,587	  	 	$	44,737	  	
Net loss for the year	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	(385	) 	 	 	(385	) 	
Group contribution	  	 	—  	  	  	 	—  	  	  	 	1,961	  	  	 	—  	  	 	 	1,961	  	
Total equity as of December 31, 2012	  	 	73	  	  	 	43,077	  	  	 	1,961	  	  	 	1,202	  	 	 	46,313	  	
Net income for the year	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	2,996	  	 	 	2,996	  	
Group contribution	  	 	—  	  	  	 	—  	  	  	 	9,268	  	  	 	—  	  	 	 	9,268	  	
Total equity as of December 31, 2013	  	$	73	  	  	$	43,077	  	  	$	11,229	  	  	$	4,198	  	 	$	58,577	  	

(1)	All shares have the same rights in the Companies.	
The accompanying notes are an integral part of these financial statements.
 
5

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS
Combined Statements of Cash Flows
For the Years Ended December 31, 2013 and 2012
(U.S. Dollars in thousands)

 	  	Year Ended December 31,	 	
 	  	2013	 	 	2012	 	
Cash flows provided by operating activities:	  				 				
Net income (loss)	  	$	2,996	  	 	$	(385	) 	
Adjustments to reconcile net income (loss) to cash provided by operating activities:	  				 				
Depreciation and amortization	  	 	3,303	  	 	 	—  	  	
Amortization of deferred debt issuance cost	  	 	331	  	 	 	—  	  	
Unrealized (gain) loss on foreign currency transactions	  	 	(345	) 	 	 	346	  	
Other items	  	 	7,005	  	 	 	—  	  	
Changes in operating assets and liabilities	  				 				
Decrease (increase) in trade accounts receivable	  	 	(3,777	) 	 	 	—  	  	
Decrease (increase) in receivables from owner and affiliates	  	 	(775	) 	 	 	—  	  	
Decrease (increase) in inventories	  	 	(289	) 	 	 	—  	  	
Decrease (increase) in other current assets	  	 	(118	) 	 	 	(397	) 	
Increase (decrease) in trade accounts payable	  	 	552	  	 	 	(54	) 	
Increase (decrease) in payable to owners and affiliates	  	 	7,065	  	 	 	—  	  	
Increase (decrease) in accrued expenses	  	 	1,246	  	 	 	365	  	
Increase (decrease) in other liabilities	  	 	(218	) 	 	 	218	  	
	  	 	 	 	 	 	 	 	
Net cash provided by operating activities	  	 	16,976	  	 	 	93	  	
	  	 	 	 	 	 	 	 	
Cash flows from investing activities:	  				 				
Disposals (additions) to vessel and equipment	  	 	(160,054	) 	 	 	(46,334	) 	
	  	 	 	 	 	 	 	 	
Net cash used in investing activities	  	 	(160,054	) 	 	 	(46,334	) 	
	  	 	 	 	 	 	 	 	
Cash flows from financing activities:	  				 				
Proceeds from issuance of long-term debt	  	 	158,294	  	 	 	39,035	  	
Repayment of long-term debt	  	 	(2,438	) 	 	 	—  	  	
Payments of debt issuance cost	  	 	(1,111	) 	 	 	(2,023	) 	
Changes in payables to owners and affiliates	  	 	(9,327	) 	 	 	7,343	  	
Contributions from/distribution to owner, net	  	 	9,268	  	 	 	1,961	  	
	  	 	 	 	 	 	 	 	
Net cash provided by (used in) financing activities	  	 	154,686	  	 	 	46,316	  	
	  	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash	  	 	5	  	 	 	(6	) 	
Net increase (decrease) in cash and cash equivalents	  	 	11,613	  	 	 	69	  	
Cash and cash equivalents at the beginning of the year	  	 	228	  	 	 	159	  	
	  	 	 	 	 	 	 	 	
Cash and cash equivalents at the end of the year	  	$	11,841	  	 	$	228	  	
	  	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these financial statements.
 
6

1) Description of Business
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS (hereafter referred as the “Companies”) own the 123,000 DWT Suez-max shuttle tanker, Hilda Knutsen , and the 123,000 DWT Suez-max shuttle tanker, Torill Knutsen , respectively, delivered from Hyundai Heavy Industries (HHI) Shipyard in South Korea on August 5, 2013 and November 4, 2013.
Knutsen Shuttle Tankers 14 AS was established on March 25, 2011 to take ownership of one building contract for one 123,000 DWT Suez-max shuttle tanker, Hilda Knutsen, delivered on August 5, 2013. Knutsen Shuttle Tankers 15 AS was established on June 1, 2011 to take ownership of one building contract for one 123,000 DWT Suez-max shuttle tanker, Torill Knutsen, delivered on November 4, 2013. Both the Hilda Knutsen and the Torill Knutsen (the “Vessels”) are on time-charter contracts to Eni Trading and Shipping S.p.A. (“Eni”), for operation primarily on the Goliat offshore oil field outside northern Norway on a five-year time-charter agreement with five one-year-options. In the case of the charter for the Torill Knutsen , Eni has the option, at any time before May 31, 2016, to extend the charter term to ten years in exchange for a reduction in the hire rate.
The Companies are owned by Knutsen NYK Offshore Tankers AS (“KNOT”), and are operating as an integrated part of KNOT. KNOT is owned 50% by TS Shipping Invest AS (“TSSI”) and 50% by Nippon Yusen Kaisha (“NYK”). Technical and commercial management of the vessels have been subcontracted to Knutsen OAS Shipping AS (“KOAS”) up to July 1, 2012 and thereafter by KNOT Management AS, a 100% owned subsidiary of KNOT. KOAS is controlled 99% by TSSI.
There are no employees in the Companies and daily operation is managed by KNOT Management AS.
2) Summary of Significant Accounting Policies
(a) Basis of Preparation
The combined financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
(b) Reporting Currency
The combined financial statements are prepared in the reporting currency of U.S. Dollars. The functional currency of the Companies is the U.S. Dollar, because both entities operate in the international shipping market all revenues are U.S. Dollars denominated and the majority of the expenditures are made in U.S. Dollars. Transactions involving other currencies during the year are converted into U.S. Dollars using the exchange rates in effect at the time of the transactions. As of the balance sheet dates, monetary assets and liabilities that are denominated in currencies other than the U.S. Dollar are translated to reflect the year-end exchange rates. Resulting gains and losses are reflected separately in the accompanying combined statements of operations.
(c) Use of Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives and impairment of Vessels, drydocking, and income taxes.
(d) Revenues and Operating Expenses
The Companies recognize revenues from time charters as operating leases on a straight-line basis over the term of the charter, net of any commissions. Under time charters, revenue is not recognized during days the Vessel is off-hire. Revenue is recognized from delivery of the Vessel to the charterer, until the end of the contract period. Under time charters, the Companies are responsible for providing the crewing and other services related to the Vessel’s operations, the cost of which is included in the daily hire rate, except when off-hire. Fees received from customers for customized equipment are deferred and recognized over the contract period. The Companies recognize revenues from spot contracts as voyage revenues using the percentage of completion method on a discharge-to-discharge basis.
Voyage expenses are all expenses unique to a particular voyage, including bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls and agency fees. Voyage expenses are paid by the customer under time charters.
Vessel operating expenses include crewing, repairs and maintenance, insurance, stores, lube oils and communication expenses. Vessel operating expenses are paid by the Companies for time charters and during off-hire and are recognized when incurred.
As further discussed in Note 13—Related Party Transactions, related parties have provided the management services for the Vessels and employ the crews that work on the Vessels. The Companies have no direct employees and, accordingly, are not liable for any pension or post-retirement benefits.
(e) Financial Income (Expense)
Interest expenses incurred on the Companies’ debt incurred during the construction of the Vessels exceeding one year are capitalized during the construction period.
 
7

(f) Cash and Cash Equivalents
The Companies consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
(g) Trade Accounts Receivable
Accounts receivable are recorded at the invoiced amount and do not bear interest. Under terms of the current time charters, the customers are committed to pay for the full month’s charter the first day of each month. See Note 2(o) —Summary of Significant Accounting Policies: Prepaid Charter and Deferred Revenue. The allowance for doubtful accounts is the Companies’ best estimate of the amount of probable credit losses in existing accounts receivable. The Companies establish provisions for doubtful accounts on a case-by-case basis when it is unlikely that required payments of specific amounts will occur. In establishing these provisions, the Companies consider the financial condition of the customer as well as specific circumstances related to the receivable. Receivable amounts determined to be unrecoverable are written-off. There were no provisions as allowance for doubtful accounts or amounts written-off against the allowance for doubtful accounts as of December 31, 2013 and 2012. The Companies do not have any off-balance-sheet credit exposure related to their customers.
(h) Inventories
Inventories, which are comprised principally of lubricating oils, are stated at the lower of cost or market. For vessels on time charters, there are no bunkers, as the charterer supplies the bunkers, which principally consist of fuel oil. Cost is determined using the first-in, first-out method for all inventories.
(i) Other Current Assets
Other current assets principally consist of prepaid expenses, the current portion of deferred cost and other receivables.
(j) Vessels and Equipment
Vessels and equipment are stated at the historical acquisition or construction cost, including capitalized interest, supervision and technical and delivery cost, net of accumulated depreciation and impairment loss, if any. Expenditures for subsequent conversions and major improvements are capitalized, provided that such costs increase the earnings capacity or improve the efficiency or safety of the vessels.
Generally, the Companies drydock each vessel every 60 months until the vessel is 15 years old and every 30 months thereafter, as required for the renewal of certifications issued by classification societies. For vessels operating on time charters, the Companies capitalize the costs directly associated with the classification and regulatory requirements for inspection of the vessels, major repairs and improvements incurred during drydocking. Drydock cost is amortized on a straight-line basis over the period until the next planned drydocking takes place. The Companies expense costs related to routine repairs and maintenance performed during drydocking or as otherwise incurred. For vessels that are newly built or acquired, an element of the cost of the vessel is initially allocated to a drydock component and amortized on a straight-line basis over the period until the next planned drydocking. When significant drydocking expenditures occur prior to the expiration of this period, the Companies expense the remaining unamortized balance of the original drydocking cost in the month of the subsequent drydocking. For vessels operating on bareboat charters, the charter party bears the cost of any drydocking.
Depreciation on vessels and equipment is calculated on a straight-line basis over the asset’s estimated useful life, less an estimated residual value, as follows:

 	  	Useful Life	 	
Hull	  	 	25 years	  	
Anchor-handling, loading and unloading equipment	  	 	25 years	  	
Main/auxiliary engine	  	 	25 years	  	
Thruster, dynamic positioning systems, cranes and other equipment	  	 	25 years	  	
Drydock costs	  	 	2.5–5 years	  	
A Vessel is depreciated to its estimated residual value, which is calculated based on the weight of the ship and estimated steel price. Any cost related to the disposal is deducted from the residual value.
(k) Capitalized Interest
Interest expense incurred on the Companies’ debt during the construction of the Vessels exceeding one year is capitalized during the construction period.
(l) Impairment of Long-Lived Assets
Vessels and equipment, vessels under construction and intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Companies first compare undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
 
8

(m) Debt Issuance Costs
Debt issuance costs, including fees, commissions and legal expenses, are deferred. Debt issuance costs of term loans are amortized over the term of the relevant loan. Amortization of debt issuance costs is included in interest expense.
(n) Income Taxes
The tax expense in the income statement includes both tax payable and changes in deferred tax. Deferred tax is calculated at 28% on the basis of temporary differences between accounting and tax values and tax loss carried forward at the year end. Tax increasing and tax reducing temporary differences which reverse or may be reversed in the same period are assessed and netted. The Companies are subject to the Norwegian Tonnage Tax regime (“the tonnage tax regime”). Under the tonnage tax regime, the tax is based on the tonnage of the vessel and the operating income is tax free. The net financial income and expense remains taxable as ordinary income tax for entities subject to the tonnage tax regime. Tonnage tax is classified as an operating expense. To be within the scheme the Companies should meet certain requirements, such as only ownership of ship/ shares in the shipping companies, and only own certain types of financial assets.
(o) Prepaid Charter and Deferred Revenue
Under terms of the time charters, the customer pays for the month’s charter the first day of each month and that is recorded as prepaid charter revenues. Deferred revenues for fees received from customers for customized equipment are classified as prepaid charter and deferred revenue for the current portion and as other long-term liabilities for the non-current portion.
(p) Commitments, Contingencies and Insurance Proceeds
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. See Note 14—Commitments and Contingencies.
Insurance claims for property damage for recoveries up to the amount of loss recognized are recorded when the claims submitted to insurance carriers are probable of recovery. Claims for property damage in excess of the loss recognized and for loss off-hire are considered gain contingencies, which are generally recognized when the proceeds are received.
(q) Fair Value Measurements
The Companies utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Companies determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
 
 	•	 	Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.	
 
 	•	 	Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.	
 
 	•	 	Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.	
(r) Recently Issued Accounting Standards
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, Fair Value measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). The new standards do not extend the use of fair value but, rather, provide guidance about how fair value should be applied where it already is required or permitted under International Financial Reporting Standards (“IFRS”) or U.S. GAAP. For U.S. GAAP, most of the changes are clarifications of existing guidance or wording changes to align with IFRS. A public entity is required to apply ASC 2011-04 prospectively for interim and annual periods beginning after December 5, 2011. The adoption of ASU 2011-04 did not have a material impact on the Companies’ combined financial statements.
In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on its financial position, and to allow investors to better compare financial statements prepared under U.S. GAAP with financial statements prepared under IFRS. The new standards are effective for annual periods beginning January 1, 2013, and interim periods within those annual periods. Retrospective application is required. The Companies adopted the provisions of ASU 2011-11 as of January 1, 2013. The adoption of ASU 2011-11 did not have a material impact on the Companies’ combined financial statements.
 
9

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). ASU 2013-02 requires reporting and disclosure about changes in accumulated other comprehensive income (“AOCI”) balances and reclassifications out of AOCI. For public companies, the ASU is effective prospectively for fiscal years and interim periods within those years beginning after December 15, 2012. The adoption of ASU 2013-02 did not have a material impact on the Companies’ combined financial statements.
There are no recent accounting pronouncements issued whose adoption would have a material impact on the Companies’ financial statements in the current year or are expected to have a material impact on future years.
3) Significant Risks and Uncertainties Including Business and Credit Concentrations
Each of the Vessels is currently employed under long-term fixed charters, which mitigates earnings risk. The Companies’ operational results are dependent on the worldwide market for shuttle tankers and timing of entrance into long-term charters. Market conditions for shipping activities are typically volatile, and, as a consequence, the hire rates may vary from year to year. The market is mainly dependent upon two factors: the supply of vessels and the overall growth in the world economy. The general supply of vessels is a combination of newbuilds, demolition activity of older vessels and legislation that limits the use of older vessels or new standards for vessels used in specific trades.
The Companies did not incur any loss relating to their customers during the years ended December 31, 2013, and 2012.
The following table presents revenues and percentage of combined revenues for customers that accounted for more than 10% of the combined revenues during the years ended December 31, 2013, and 2012.

 	  	Year Ended December 31,	 	
(U.S. Dollars in thousands)	  	2013	 	 	2012	 	
Eni Trading and Shipping S.p.A	  	$	12,451	  	  	 	100	%	 	$	—  	 	  	 	0	%	
The Companies have financial assets that expose them to credit risk arising from possible default by a counterparty. The Companies consider their counterparties to be creditworthy financial institutions and do not expect any significant loss to result from non-performance by such counterparties. The maximum loss due to credit risk that the Companies would incur if counterparties failed completely to perform would be the carrying value of cash and cash equivalents and trade accounts receivable. The Companies, in the normal course of business, do not demand collateral from their counterparties.
4) Operating Leases
The time charters of the vessels with third parties are accounted for as operating leases. The minimum contractual future revenues to be received from time charters as of December 31, 2013, were as follows:

(U.S. Dollars in thousands)	  	 	 	
2014	  	$	44,472	  	
2015	  	 	44,472	  	
2016	  	 	44,472	  	
2017	  	 	44,472	  	
2018	  	 	32,188	  	
2019 and thereafter	  	 	0	  	
	  	 	 	 	
Total	  	$	210,076	  	

 	•	 	Knutsen Shuttle Tanker 14 AS owns the vessel, Hilda Knutsen , a shuttle tanker built in 2013 that is currently operating under a time charter that expires in August 2018, with Eni, with five one-year-options to extend until August 2023.	
 
 	•	 	Knutsen Shuttle Tanker 15 AS owns the vessel, Torill Knutsen , a shuttle tanker built in 2013 that is currently operating under a time charter that expires in November 2018, with Eni, with five one-year-options to extend until November 2023. In the case of the charter for the Torill Knutsen , Eni has the option, at any time before May 31, 2016, extend the charter term to ten years in exchange for a reduction in the hire rate.	
5) Segment Information
The Companies have not presented segment information as they consider their operations to occur in one reportable segment, the shuttle tanker market. In time charters, the charterer, not the Companies, controls the choice of which trading areas the vessel will serve. Accordingly, the Companies’ management, including the chief operating decision makers, does not evaluate performance according to geographical region.
During 2013, the vessels operated under two charters. See Note 3—Significant Risks and Uncertainties Including Business and Credit Concentrations for revenues from customers accounting for over 10% of the combined revenue. In both time charters, the charterer controls the choice of which trading areas the Vessels will serve. Accordingly, the Companies’ management, including the chief decision makers, do not evaluate performance according to geographical region.
 
10

6) Finance Income (Expense)
(a) Interest Expense
A reconciliation of total interest cost to interest expense as reported in the statement of operations for the years ended December 31, 2013 and 2012 is as follows:

(U.S. Dollars in thousands)	  	2013	 	  	2012	 	
Interest cost capitalized	  	$	2,762	  	  	$	2,557	  	
Interest expense	  	 	2,293	  	  	 	2	  	
	  	 	 	 	  	 	 	 	
Total interest cost	  	$	5,055	  	  	$	2,559	  	
	  	 	 	 	  	 	 	 	
(b) Other Finance Expense
The following table presents the other finance expense for the years ended December 31, 2013 and 2012:

(U.S. Dollars in thousands)	  	2013	 	  	2012	 	
Bank fees, charges and external guarantee costs	  	$	76	  	  	$	18	  	
Related party guarantee commission	  	 	673	  	  	 	—  	 	
	  	 	 	 	  	 	 	 	
Total other finance expense	  	$	749	  	  	$	18	  	
	  	 	 	 	  	 	 	 	
7) Fair Value Measurements
(a) Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of the Companies’ financial instruments as of December 31, 2013 and 2012. Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 	  	December 31, 2013	 	  	December 31, 2012	 	
(U.S. Dollars in thousands)	  	Carrying
Amount	 	  	Fair Value	 	  	Carrying
Amount	 	  	Fair
Value	 	
Financial assets:	  				  				  				  				
Cash and cash equivalents	  	$	11,841	  	  	$	11,841	  	  	$	228	  	  	$	228	  	
Financial liabilities:	  				  				  				  				
Long-term debt, current and non-current	  	 	231,563	  	  	 	232,894	  	  	 	75,707	  	  	 	74,162	  	
The carrying amounts shown in the table above are included in the Companies’ balance sheets under the indicated captions. The carrying value of trade accounts receivable, trade accounts payable and receivables/payables to owners and affiliates approximate their fair value.
The fair values of the financial instruments shown in the above table as of December 31, 2013 and 2012 represent the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Companies’ own judgment about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Companies based on the best information available in the circumstances, including expected cash flows, appropriately risk-adjusted discount rates and available observable and unobservable inputs.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
 
 	•	 	Cash and cash equivalents : The fair value of the Companies’ cash balances approximates the carrying amounts due to the current nature of the amounts.	
 
 	•	 	Long-term debt : With respect to long-term debt measurements, the Companies use market interest rates and adjust that rate for all necessary risks, including its own credit risk. In determining an appropriate spread to reflect its credit standing, the Companies considered interest rates currently offered to KNOT for similar debt instruments of comparable maturities by KNOT’s and the Companies’ bankers as well as other banks that regularly compete to provide financing to the Companies.	
 
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(b) Fair Value Hierarchy
The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis (including items that are required to be measured at fair value or for which fair value is required to be disclosed) as of December 31, 2013 and 2012:

 	  	 	 	  	Fair Value Measurements at
Reporting Date Using	 	
(U.S. Dollars in thousands)	  	December 31,
2013	 	  	Quoted Price
in Active
Markets for
Identical
Assets
(Level 1)	 	  	Significant
Other
Observable
Inputs
(Level 2)	 	  	Significant
Unobservable
Inputs
(Level 3)	 	
Financial assets:	  				  				  				  				
Cash and cash equivalents	  	$	11,841	  	  	$	11,841	  	  	$	—  	 	  	$	—  	  	
Financial liabilities:	  				  				  				  				
Long-term debt, current and non-current	  	 	232,894	  	  	 	—  	 	  	 	232,894	  	  	 	—  	 	

 	  	 	 	  	Fair Value Measurements at
Reporting Date Using	 	
(U.S. Dollars in thousands)	  	December 31,
2012	 	  	Quoted Price
in Active
Markets for
Identical
Assets
(Level 1)	 	  	Significant
Other
Observable
Inputs
(Level 2)	 	  	Significant
Unobservable
Inputs
(Level 3)	 	
Financial assets:	  				  				  				  				
Cash and cash equivalents	  	$	228	  	  	$	228	  	  	$	—  	 	  	$	—  	  	
Financial liabilities:	  				  				  				  				
Long-term debt, current and non-current	  	 	74,162	  	  	 	—  	 	  	 	74,162	  	  	 	—  	 	
The Companies’ accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of Level 1, Level 2 or Level 3 as of December 31, 2013 and 2012.
8) Trade Accounts Receivables
(a) Trade Accounts Receivables
Trade accounts receivable are presented net of provisions for doubtful accounts. As of December 31, 2013 and 2012, there was no provision for doubtful accounts.
(b) Other Current Assets
Other current assets consist of the following:

 	  	Year Ended December 31,	 	
(U.S. Dollars in thousands)	  	2013	 	  	2012	 	
Refund of value added tax	  	$	88	  	  	$	206	  	
Prepaid expenses	  	 	43	  	  	 	—  	 	
Current portion of deferred debt issuance cost	  	 	1,120	  	  	 	923	  	
Other receivable	  	 	390	  	  	 	196	  	
	  	 	 	 	  	 	 	 	
Total other current assets	  	$	1,641	  	  	$	1,325	  	

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9) Vessels and Equipment

(U.S. Dollars in thousands)	  	Vessel &
equipment	 	  	Vessel under
construction	 	 	Accumulated
depreciation	 	 	Net vessels	 	
Balance December 31, 2011	  	$	—  	 	  	$	79,533	 	 	$	—  	 	 	$	79,533	 	
	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Additions	  	 	—  	 	  	 	47,130	  	 	 	—  	 	 	 	47,130	  	
Drydock costs	  	 	—  	 	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Transfer from vessels under construction	  	 	—  	 	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Disposal	  	 	—  	 	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Depreciation	  	 	—  	 	  	 	—  	 	 	 	—  	 	 	 	—  	 	
	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Balance December 31, 2012	  	$	—  	 	  	$	126,663	 	 	$	—  	 	 	$	126,663	 	
	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Additions	  	 	—  	 	  	 	155,823	  	 	 	—  	 	 	 	155,823	  	
Drydock costs	  	 	5,000	  	  	 	—  	 	 	 	—  	 	 	 	5,000	  	
Transfer from vessels under construction	  	 	282,486	  	  	 	(282,486	)	 	 	—  	 	 	 	—  	 	
Disposal	  	 	—  	 	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Depreciation	  	 	—  	 	  	 	—  	 	 	 	(3,303	)	 	 	(3,303	)	
	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Balance December 31, 2013	  	$	287,486	  	  	 	—  	 	 	$	(3,303	)	 	$	284,183	  	
	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
As of December 31, 2013 and 2012, Vessels with a book value of $ 287.5 million and $ 126.7 million, respectively, are pledged as security held as a guarantee for the Companies’ long-term debt. See Note 11—Long-Term Debt.
Drydocking activity for the years ended December 31, 2013 and 2012 is summarized as follows:

 	  	Year Ended
December 31,	 	
(U.S. Dollars in thousands)	  	2013	 	 	2012	 	
Balance at the beginning of the year	  	$	—  	 	 	$	—  	 	
Costs incurred for drydocking	  	 	5,000	  	 	 	—  	 	
Drydock amortization	  	 	(291	)	 	 	—  	 	
	  	 	 	 	 	 	 	 	
Balance at the end of the year	  	$	4,709	  	 	$	—  	 	
	  	 	 	 	 	 	 	 	
10) Accrued Expenses
The following table presents accrued expenses as of December 31, 2013 and 2012:

 	  	Year Ended December 31,	 	
(U.S. Dollars in thousands)	  	2013	 	  	2012	 	
Operating expenses	  	$	670	  	  	$	163	  	
Interest expenses	  	 	1,160	  	  	 	421	  	
	  	 	 	 	  	 	 	 	
Total accrued expenses	  	$	1,830	  	  	$	584	  	
	  	 	 	 	  	 	 	 	
11) Long-Term Debt
Long-term debt as of December 31, 2013 and 2012 consisted of following:

(U.S. Dollars in thousands)	  	Vessel	  	December 31,
2013	 	  	December 31,
2012	 	
$117 million Loan facility	  	Hilda Knutsen	  	$	114,563	  	  	$	44,359	  	
$117 million Loan facility	  	Torill Knutsen	  	 	117,000	  	  	 	31,348	  	
	  		  	 	 	 	  	 	 	 	
Total long-term debt	  		  	 	231,563	  	  	 	75,707	  	
Less current installments	  		  	 	19,500	  	  	 	2,438	 	
	  		  	 	 	 	  	 	 	 	
Long-term debt, excluding current	  		  	$	212,063	  	  	$	73,269	  	

13

Hilda Facility
The $117 million secured loan facility (the “Hilda Facility”) is repayable in quarterly installments over five years with a final balloon payment due at maturity in August 2018. The Hilda Facility bears interest at LIBOR plus a fixed margin of 2.5%.
The Hilda Knutsen , assignments of earnings, charterparty contracts and insurance proceeds are pledged as collateral for the Hilda Facility. KNOT is the sole guarantor.
The Hilda Facility contains the following financial covenants:
 
 	•	 	Market value of the Hilda Knutsen to be no less than 100% of the outstanding balance under the Hilda Facility for the first 4 years and 125% for the 5 th year;	
 
 	•	 	Positive working capital of the borrower and of KNOT and its subsidiaries on a consolidated basis (“KNOT Group”);	
 
 	•	 	Minimum liquidity of (i) $2 million for the borrower; (ii) $25 million for the guarantor, and (iii) 4% of interest bearing debt for the KNOT Group;	
 
 	•	 	Minimum book equity ratio for the KNOT Group of 22.5 % until December 31, 2014, and thereafter 25%; and	
 
 	•	 	EBITDA must exceed interest payable, any amounts payable for the interest rate swaps and debt installments for the KNOT Group calculated on a four quarter rolling basis.	
The Hilda Facility also identifies various events that may trigger mandatory reduction, prepayment and cancellation of the facility, including total loss or sale of a vessel and customary events of default.
The borrower and the guarantor were in compliance with all covenants as of December 31, 2013. However, as of December 31, 2012, a waiver was obtained for the Hilda Facility for KNOT Group’s compliance with the EBITDA covenant for all interim and annual periods from December 31, 2011 to January 31, 2014. In addition, the minimum book equity ratio for the KNOT Group was reduced from 22.5% to 19% for all interim and annual periods starting December 31, 2012 to January 31, 2014. Except for the EBITDA covenant covered by the waiver, the borrower, the guarantor and KNOT Group were in compliance with all covenants, as amended, as of December 31, 2012.
Torill Facility
The $117 million secured loan facility (the “Torill Facility”) is repayable in quarterly installments over five years with a final balloon payment due at maturity in November 2018. The Torill Facility bears interest at LIBOR plus a fixed margin of 2.75%.
The Torill Knutsen , assignments of earnings, charterparty contracts and insurance proceeds are pledged as collateral for the Hilda Facility. Knutsen NYK Offshore Tankers AS is the sole guarantor.
The Torill Facility contains the following financial covenants:
 
 	•	 	Market value of the Torill Knutsen to be no less than 100% of the outstanding balance under the Torill Facility for the first 4 years and 125% for the 5 th year;	
 
 	•	 	Positive working capital of the borrower and KNOT Group;	
 
 	•	 	Minimum liquidity of (i) $2 million for the borrower; (ii) $25 million for the guarantor, and (iii) 4% of interest bearing debt for the KNOT Group;	
 
 	•	 	Minimum book equity ratio for the KNOT Group of 22.5 % until December 31, 2014, and thereafter 25%; and	
 
 	•	 	EBITDA must exceed interest payable, any amounts payable for the interest rate swaps and debt installments for the KNOT Group calculated on a four quarter rolling basis.	
The Torill Facility also identifies various events that may trigger mandatory reduction, prepayment and cancellation of the facility, including total loss or sale of a vessel and customary events of default.
The borrower and the guarantor were in compliance with all covenants as of December 31, 2013. However, as of December 31, 2012, a waiver was obtained for the Torill Facility for KNOT Group’s compliance with the EBITDA covenant for all interim and annual periods from December 31, 2011 to January 31, 2014. In addition, the minimum book equity ratio for the KNOT Group was reduced from 22.5% to 19% for all interim and annual periods starting December 31, 2012 to January 31, 2014. Except for the EBITDA covenant covered by the waiver, the borrower, the guarantor and KNOT Group were in compliance with all covenants, as amended, as of December 31, 2012.
 
14

The total outstanding debt as of December 31, 2013 is repayable as follows:

(US $ in thousands)	  	 	 	
2014	  	$	19,500	  	
2015	  	 	19,500	  	
2016	  	 	19,500	  	
2017	  	 	19,500	  	
2018 and thereafter	  	 	153,563	  	
Total	  	$	231,563	  	
12) Income Taxes
Components of Current and Deferred Tax Expense (Benefit)
The Companies are subject to the Norwegian Tonnage Tax regime (“the tonnage tax regime”). Under the tonnage tax regime, the tax is based on the tonnage of the vessel and the operating income is tax free. The net financial income and expense remains taxable as ordinary income tax for entities subject to the tonnage tax regime. Tonnage tax is classified as an operating expense. Tonnage tax amounted to $13,000 in 2013 and $0.0 in 2012.

 	  	Year Ended
December 31,	 	
(US $ in thousands)	  	2013	 	 	2012	 	
Income (loss) before income taxes	  	$	2,996	  	 	$	(385	)	
Income tax expense (benefit)	  	 	—  	 	 	 	—  	 	
Effective tax rate	  	 	0	% 	 	 	0	% 	
A valuation allowance for deferred tax assets is recorded when it is more likely than not that some of or all of the benefit from the deferred tax asset will not be realized. The valuation allowances relate to the financial loss carry forwards and other deferred tax assets for tonnage tax that, in the judgment of the Companies, are more-likely-than not to be realized reflecting the Companies’ cumulative loss position for tonnage tax. In assessing the realizability of deferred tax assets, the Companies consider whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized taking into account all the positive and negative evidence available, and there is no deferred tax assets recognized as of December 31, 2013 and December 31, 2012.
The financial loss carry forwards for tonnage tax have no expiration dates.
The Companies’ Norwegian income tax returns are subject to examination by Norwegian tax authorities going back ten years from 2013. The Companies had no unrecognized tax benefits as of December 31, 2013 and 2012. During the years ended December 31, 2013 and 2012, the Companies did not incur any interest or penalties on its tax regime.
13) Related Party Transactions
(a) Related Parties
The Companies are owned 100% by KNOT. KNOT is owned 50% by TSSI and 50% by NYK. TSSI also controls 99% of KOAS, which subcontracts services to Knutsen OAS Management AS, which served as the vessel management companies for KNOT and its subsidiaries until June 30, 2012. As of July 1, 2012, KNOT Management AS, a 100% owned subsidiary of KNOT, assumed responsibility for the commercial and technical management of the Vessels.
The Companies have been charged by KNOT, KOAS and TSSI for commercial services related to the charters, technical and operational support related to the operation of the Vessels, certain administrative costs and finance fees, as well as fees for shipyard supervision for the Vessels under construction. The amounts of such costs and expenses included in the combined statements of operations for the years ended December 31, 2013, and 2012 are as follows:
 
15

									
 	  	Years Ended December 31,	 	
(U.S. Dollars in thousands)	  	2013	 	  	2012	 	
Statements of operations:	  				  				
Time charter revenues:	  				  				
Commercial commission fee from KNOT to Vessels (1)	  	$	154	  	  	$	—  	  	
Operating expenses:	  				  				
Technical and operational management fee from KOAS and KNOT to Vessels (2)	  	 	244	  	  	 	—  	 	
General and administrative expenses:	  				  				
Administration fee from KNOT (3)	  	 	60	  	  	 	61	  	
Accounting service fee from KNOT (4)	  	 	7	  	  	 	7	  	
Finance expense:	  				  				
Interest expense charged from KNOT (5)	  	 	86	  	  	 	—  	 	
Guarantee commission from KNOT to Vessels (6)	  	 	673	  	  	 	—  	 	
	  	 	 	 	  	 	 	 	
Total	  	$	1,224	  	  	$	68	  	

									
 	  	Years Ended December 31,	 	
(U.S. Dollars in thousands)	  	2013	 	  	2012	 	
Balance sheets:	  				  				
Vessels:	  				  				
New building supervision fee from KOAS to Vessels (7)	  	$	2,350	  	  	$	2,500	  	
Licensing of technology fees from TSSI to Vessels (8)	  	 	1,080	  	  	 	2,520	  	
Interest capitalized charged from KNOT to subsidiaries (9)	  	 	395	  	  	 	491	  	
	  	 	 	 	  	 	 	 	
Total	  	$	3,825	  	  	$	5,511	  	

(1)	Commercial commission fee from KNOT to Vessels : KNOT provides commercial services related to negotiating and maintaining the charters. KNOT invoices a fixed percentage of revenue as a commercial commission fee for these services.	
(2)	Technical and operational management fee from KOAS and KNOT to Vessels : KOAS and KNOT provides technical and operational management of the vessels on time charter including crewing, purchasing, maintenance and other operational, bookkeeping and administrative support.	
(3)	Administration fee from KNOT : Administration costs include the compensation and benefits of KNOT management and administrative staff as well as other general and administration expenses. Net administration costs are total administration cost plus a 5% margin, reduced for the total fees for services delivered by the administration staffs (the accounting service fees (see (4) below), the financing service fees (see (6) below) and the estimated shareholder costs for KNOT that have not been allocated. As such, the level of net administration costs as a basis for the allocation can vary from year to year based on the administration and financing services offered by KNOT to all the vessels in its fleet each year.	
(4)	Accounting service fee from KNOT : KNOT invoiced each subsidiary a fixed fee for the preparation of the statutory financial statements.	
(5)	Interest expense charged from, interest income charged to KNOT : KNOT invoiced interest expense (income) for any outstanding payables to (receivable from) owners and affiliates to the vessel-owning subsidiaries. Interest expense has been allocated based upon the allocated payables to owners and affiliates and the historical interest rates charged.	
(6)	Guarantee commission from KNOT to Vessels : KNOT was a guarantor for the Companies’ loan facilities (see Note 11—Long-term Debt and Note 13(b)—Related Party Transactions: Guarantees). KNOT invoiced an annual commission to each of the Vessels as a fixed percentage of the outstanding balance as compensation for the guarantee.	
(7)	New building supervision fee from KOAS to Vessels : KOAS charges a fixed fee for supervision of each vessel under construction that is invoiced on a straight-line basis over the period of construction. Such fees, along with direct and incremental supervision costs incurred, are capitalized as part of the Vessels under construction.	
(8)	Knutsen Ballast Water Treatment installation from TSSI to Vessel : TSSI has developed Knutsen ballast water treatment technology and the system was installed during the construction and all cost is capitalized as part of the Vessels under construction.	
(9)	Interest capitalized charged from KNOT to Vessels : KNOT invoiced interest expense for outstanding payables to owners and affiliates to the vessel owning subsidiaries as explained in (5) above. Such interest expense is capitalized for qualifying Vessels under construction.	
(b) Guarantees
As of December 31, 2013 and 2012, KNOT is guarantor for the Hilda Facility and Torill Facility.
 
16

(c) Transaction with Management
The Companies had no personnel during 2013 and 2012. There has been no direct remuneration to any members of the Board of Directors of KNOT. Trygve Seglem, the President and CEO of KNOT has received $474,000 and $427,000, respectively in salary from KNOT Management AS during 2013 and 2012. He also controls Seglem Holding AS, which has a 100% equity interest of TSSI, which controls KOAS. TSSI owns 50% in KNOT. Trygve Seglem owns 70% of the equity interests in Seglem Holding AS, and each of his daughters, Synnøve Seglem and Jorunn Seglem, each own 15% of the equity interests.
In 2013 and 2012, all remuneration and cost related to the members of the Board of Directors of KNOT was paid directly by the respective owners of KNOT.
NYK, which own 50% of KNOT, has management and administrative personnel on secondment to KNOT starting in March 2011. The cost for such services was $1.3 million in 2013 and $639,000 in 2012. NYK has no other related party transactions with KNOT apart from interest income on financing offered to KNOT.
See this Note 13 – Related Party Transactions Items 3 and 4 for discussion of the allocation principles for KNOT’s administrative costs, including management and administrative staff, included in the combined statements of operations for the two entities.
(d) Amounts Due from (to) Related Parties
Balances with related parties consisted of the following:

(U.S. Dollars in thousands)	  	At December 31,
2013	 	  	At December 31,
2012	 	
Balance Sheets:	  				  				
Trading balances due from KNOT and affiliates	  	$	775	  	  	$	—  	 	
	  	 	 	 	  	 	 	 	
Amount due from related parties	  	$	775	  	  	$	—  	 	
	  	 	 	 	  	 	 	 	
Trading balances due to KOAS	  	$	143	  	  	$	—  	 	
Trading balances due to KNOT and affiliates	  	 	6,922	  	  	 	9,667	  	
	  	 	 	 	  	 	 	 	
Amount due to related parties	  	$	7,065	  	  	$	9,667	  	
	  	 	 	 	  	 	 	 	
Amounts due from (to) related parties are unsecured and intended to be settled in the ordinary course of business. They primarily relate to vessel management and other fees due to KNOT and KOAS.
14) Commitments and Contingencies
Assets Pledged
As of December 31, 2013 and 2012, Vessels with a book value of $ 287.5 million and $ 126.7 million, respectively, were pledged as security held as guarantee for the Companies’ long-term debt obligations. See Note 11—Long-Term Debt.
Insurance
The Companies maintain insurance to insure against marine and war risks, which include damage to or total loss of the Vessels, subject to deductible amounts that average $0.150 million per Vessel, and loss of hire.
Under the loss of hire policies, the insurer will pay a compensation for the lost hire rate agreed in respect of each Vessel for each day, in excess of 14 deductible days, for the time that the Vessel is out of service as a result of damage, for a maximum of 180 days. In addition, the Companies maintain protection and indemnity insurance, which covers third-party legal liabilities arising in connection with the Vessels’ activities, including, among other things, the injury or death of third-party persons, loss or damage to cargo, claims arising from collisions with other vessels and other damage to other third-party property, including pollution arising from oil or other substances. This insurance is unlimited, except for pollution, which is limited to $1 billion per vessel per incident. The protection and indemnity insurance is maintained through a protection and indemnity association, and as a member of the association, the Companies may be required to pay amounts above budgeted premiums if the member claims exceed association reserves, subject to certain reinsured amounts. If the Companies experience multiple claims each with individual deductibles, losses due to risks that are not insured or claims for insured risks that are not paid, it could have a material adverse effect on the Companies’ results of operations and financial condition.
 
17

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Unaudited Combined Financial Statements as of
March 31, 2014 and for the Three Months Ended March 31, 2014 and 2013
Index to Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Unaudited Combined Financial Statements as of
March 31, 2014 and for the Three Months Ended March 31, 2014 and 2013

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Unaudited Combined Statement of Operations for the Three Months Ended March 31, 2014 and 2013	  	 	41	  	
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Unaudited Combined Balance Sheets as of March 31, 2014 and December 31, 2013	  	 	42	  	
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Unaudited Combined Statements of Owner’s Equity for the Three Months Ended March 31, 2014 and 2013	  	 	43	  	
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Unaudited Combined Statements of Cash Flows for the Three Months Ended March 31, 2014 and 2013	  	 	44	  	
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Notes to Unaudited Combined Financial Statements as of March 31, 2014 and for the Three Months Ended March 31, 2014 and 2013	  	 	45	  	
 
18

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS
Unaudited Combined Statement of Operations
For the Three Months Ended March 31, 2014 and 2013
(U.S. Dollars in thousands)

 	  	Three Months Ended
March 31,	 	
 	  	2014	 	 	2013	 	
Time charter revenues	  	$	11,372	  	 	$	—  	 	
Total revenues (Notes 2(d), 4, 5, and 14)	  	 	11,372	  	 	 	—  	 	
Operating expenses: (Note 14)	  				 				
Vessel operating expenses (Note 2(d))	  	 	2,675	  	 	 	—  	 	
Depreciation and amortization (Note 10)	  	 	2,835	  	 	 	—  	 	
General and administrative expenses	  	 	45	  	 	 	25	  	
	  	 	 	 	 	 	 	 	
Total operating expenses	  	 	5,555	  	 	 	25	  	
	  	 	 	 	 	 	 	 	
Operating income	  	 	5,817	  	 	 	(25	)	
	  	 	 	 	 	 	 	 	
Finance income (expense): (Notes 2(e) and 14)	  				 				
Interest income	  	 	15	  	 	 	—  	 	
Interest expense (Notes 6(a) and 14)	  	 	(1,979	) 	 	 	—  	 	
Other finance expense (Note 6(b))	  	 	(281	) 	 	 	(148	)	
Realized and unrealized gain (loss) on derivative instruments (Note 7)	  	 	632	  	 	 	—  	 	
Net gain (loss) on foreign currency transactions	  	 	(31	) 	 	 	486	  	
	  	 	 	 	 	 	 	 	
Total finance expense	  	 	(1,644	) 	 	 	338	  	
	  	 	 	 	 	 	 	 	
Income (loss) before income taxes	  	 	4,173	  	 	 	313	  	
Income tax benefit (expense) (Note 13)	  	 	—  	 	 	 	—  	 	
	  	 	 	 	 	 	 	 	
Net income (loss)	  	$	4,173	  	 	$	313	  	
	  	 	 	 	 	 	 	 	
A Statement of Other Comprehensive Income has not been presented as there are no items recognized in other comprehensive income.
The accompanying notes are an integral part of these financial statements.
 
19

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS
Unaudited Combined Balance Sheets
As of March 31, 2014 and December 31, 2013
(U.S. Dollars in thousands)

 	  	March 31,
2014	 	 	December 31,
2013	 	
Assets	  				 				
Current assets:	  				 				
Cash and cash equivalents (Notes 2(f) and 8)	  	$	6,860	  	 	$	11,841	  	
Trade accounts receivable, less allowance for doubtful accounts of $0 in March 31, 2014 and December 31, 2013	  	 	—  	  	 	 	3,777	  	
Receivables from owners and affiliates	  	 	3,331	  	 	 	775	  	
Inventories (Note 2(h))	  	 	260	  	 	 	289	  	
Other current assets (Notes 2(i) and 9(b))	  	 	2,409	  	 	 	1,641	  	
	  	 	 	 	 	 	 	 	
Total current assets	  	 	12,860	  	 	 	18,323	  	
	  	 	 	 	 	 	 	 	
Long-term assets:	  				 				
Vessels and equipment (Notes 2(j), 2(k), 2(l), and 10):	  				 				
Vessels	  	 	287,607	  	 	 	287,486	  	
Vessels under construction	  	 	—  	 	 	 	—  	 	
Less accumulated depreciation and amortization	  	 	(6,138	)	 	 	(3,303	)	
	  	 	 	 	 	 	 	 	
Net property, plant, and equipment	  	 	281,469	  	 	 	284,183	  	
	  	 	 	 	 	 	 	 	
Deferred debt issuance cost (Note 2(m))	  	 	3,885	  	 	 	4,114	  	
Derivative assets (Notes 7 and 8)	  	 	1,550	  	 	 	—  	 	
	  	 	 	 	 	 	 	 	
Total assets	  	$	299,764	  	 	$	306,620	  	
	  	 	 	 	 	 	 	 	
Liabilities and Owner’s Equity	  				 				
Current liabilities:	  				 				
Trade accounts payable	  	$	474	  	 	$	580	  	
Accrued expenses (Note 11)	  	 	1,735	  	 	 	1,830	  	
Current portion of long-term debt (Notes 8 and 12)	  	 	19,500	  	 	 	19,500	  	
Derivative liabilities (Notes 7 and 8)	  	 	918	  	 	 	—  	 	
Prepaid charter and deferred revenue (Note 2(p))	  	 	1,487	  	 	 	1,487	  	
Payables to owners and affiliates	  	 	568	  	 	 	7,065	  	
Other current liabilities	  	 	—  	 	 	 	—  	 	
	  	 	 	 	 	 	 	 	
Total current liabilities	  	 	24,682	  	 	 	30,462	  	
	  	 	 	 	 	 	 	 	
Long-term liabilities:	  				 				
Long-term debt (Notes 8 and 12)	  	 	207,188	  	 	 	212,063	  	
Other long-term liabilities	  	 	5,144	  	 	 	5,518	  	
	  	 	 	 	 	 	 	 	
Total liabilities	  	 	237,014	  	 	 	248,043	  	
	  	 	 	 	 	 	 	 	
Commitments and contingencies (Notes 2(q) and 15)	  				 				
Equity:	  				 				
Share capital, par value $366.3, 200 shares issued at March 31, 2014 and December 31, 2013	  	 	73	  	 	 	73	  	
Share premium	  	 	43,077	  	 	 	43,077	  	
Other paid in equity	  	 	11,229	  	 	 	11,229	  	
Retained earnings	  	 	8,371	  	 	 	4,198	  	
Total equity	  	 	62,750	  	 	 	58,577	  	
	  	 	 	 	 	 	 	 	
Total liabilities and equity	  	$	299,764	  	 	$	306,620	  	
	  	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these financial statements.
 
20

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS
Unaudited Combined Statement of Owner’s Equity
For the Three Months Ended March 31, 2014 and 2013
(U.S. Dollars in thousands)

 	  	Share Capital (1)	 	  	Share
Premium	 	  	Other
Paid-in
Equity	 	  	Retained
Earnings	 	  	Total Equity	 	
Total equity as of December 31, 2012	  	$	73	  	  	$	43,077	  	  	$	1,961	  	  	$	1,202	  	  	$	46,313	  	
Net income for the period	  	 	—  	 	  	 	—  	  	  	 	—  	  	  	 	313	  	  	 	313	  	
Group contribution	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	
Total equity as of March 31, 2013	  	$	73	  	  	$	43,077	  	  	$	1,961	  	  	$	1,515	  	  	$	46,626	  	

																					
 	  	Share Capital (1)	 	  	Share
Premium	 	  	Other
Paid-in
Equity	 	  	Retained
Earnings	 	  	Total Equity	 	
Total equity as of December 31, 2013	  	$	73	  	  	$	43,077	  	  	$	11,229	  	  	$	4,198	  	  	$	58,577	  	
Net income for the period	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	4,173	  	  	 	4,173	  	
Group contribution	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	
Total equity as of March 31, 2014	  	$	73	  	  	$	43,077	  	  	$	11,229	  	  	$	8,371	  	  	$	62,750	  	

(1)	All shares have the same rights in the Companies.	
The accompanying notes are an integral part of these financial statements.
 
21

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS
Unaudited Combined Statement of Cash Flows
For the Three Months Ended 31, 2014 and 2013
(U.S. Dollars in thousands)

 	  	Three Months Ended
March 31,	 	
 	  	2014	 	 	2013	 	
Cash flows provided by operating activities:	  				 				
Net income (loss)	  	$	4,173	  	 	$	313	  	
Adjustments to reconcile net income (loss) to cash provided by operating activities:	  				 				
Depreciation and amortization	  	 	2,835	  	 	 	—  	  	
Amortization of deferred debt issuance cost	  	 	284	  	 	 	—  	  	
Unrealized (gain) loss on derivative instruments	  	 	(632	) 	 				
Unrealized (gain) loss on foreign currency transactions	  	 	5	  	 	 	(491	) 	
Other items	  	 	(374	) 	 	 	—  	  	
Changes in operating assets and liabilities	  				 				
Decrease (increase) in trade accounts receivable	  	 	3,777	  	 	 	—  	  	
Decrease (increase) in receivables from owner and affiliates	  	 	(2,556	) 	 	 	—  	  	
Decrease (increase) in inventories	  	 	29	  	 	 	—  	  	
Decrease (increase) in other current assets	  	 	(749	) 	 	 	214	  	
Increase (decrease) in trade accounts payable	  	 	(106	) 	 	 	915	  	
Increase (decrease) in payable to owners and affiliates	  	 	(6,497	) 	 	 	—  	  	
Increase (decrease) in accrued expenses	  	 	(95	) 	 	 	1,864	  	
Increase (decrease) in other liabilities	  	 	—  	  	 	 	(26	) 	
	  	 	 	 	 	 	 	 	
Net cash provided by operating activities	  	 	94	  	 	 	2,789	  	
	  	 	 	 	 	 	 	 	
Cash flows from investing activities:	  				 				
Disposals (additions) to vessel and equipment	  	 	(121	) 	 	 	(18,157	) 	
	  	 	 	 	 	 	 	 	
Net cash used in investing activities	  	 	(121	) 	 	 	(18,157	) 	
	  	 	 	 	 	 	 	 	
Cash flows from financing activities:	  				 				
Proceeds from issuance of long-term debt	  	 	—  	  	 	 	13,012	  	
Repayment of long-term debt	  	 	(4,875	) 	 	 	—  	  	
Payments of debt issuance cost	  	 	(74	) 	 	 	(472	) 	
Changes in payables to owners and affiliates	  	 	—  	  	 	 	2,893	  	
	  	 	 	 	 	 	 	 	
Net cash provided by (used in) financing activities	  	 	(4,949	) 	 	 	15,433	  	
	  	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash	  	 	(5	) 	 	 	3	  	
Net increase (decrease) in cash and cash equivalents	  	 	(4,981	) 	 	 	68	  	
Cash and cash equivalents at the beginning of the year	  	 	11,841	  	 	 	228	  	
	  	 	 	 	 	 	 	 	
Cash and cash equivalents at the end of the year	  	$	6,860	  	 	$	296	  	
	  	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these financial statements.
 
22

1) Description of Business
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS (hereafter referred as the “Companies”) own the 123,000 DWT Suez-max shuttle tanker, Hilda Knutsen , and the 123,000 DWT Suez-max shuttle tanker, Torill Knutsen , respectively, delivered from Hyundai Heavy Industries (HHI) Shipyard in South Korea on August 5, 2013 and November 4, 2013.
Knutsen Shuttle Tankers 14 AS was established on March 25, 2011 to take ownership of one building contract for one 123,000 DWT Suez-max shuttle tanker, Hilda Knutsen, delivered on August 5, 2013. Knutsen Shuttle Tankers 15 AS was established on June 1, 2011 to take ownership of one building contract for one 123,000 DWT Suez-max shuttle tanker, Torill Knutsen, delivered on November 4, 2013. Both the Hilda Knutsen and the Torill Knutsen (the “Vessels”) are on time-charter contracts to Eni Trading and Shipping S.p.A. (“Eni”), for operation primarily on the Goliat offshore oil field outside northern Norway on a five-year time-charter agreement with five one-year-options. In the case of the charter for the Torill Knutsen , Eni has the option, at any time before May 31, 2016, to extend the charter term to ten years in exchange for a reduction in the hire rate.
The Companies are owned by Knutsen NYK Offshore Tankers AS (“KNOT”), and are operating as an integrated part of KNOT. KNOT is owned 50% by TS Shipping Invest AS (“TSSI”) and 50% by Nippon Yusen Kaisha (“NYK”). Technical and commercial management of the vessels have been subcontracted to Knutsen OAS Shipping AS (“KOAS”) up to July 1, 2012 and thereafter by KNOT Management AS, a 100% owned subsidiary of KNOT. KOAS is controlled 99% by TSSI.
There are no employees in the Companies and daily operation is managed by KNOT Management AS.
2) Summary of Significant Accounting Policies
(a) Basis of Preparation
The combined financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
(b) Reporting Currency
The combined financial statements are prepared in the reporting currency of U.S. Dollars. The functional currency of the Companies is the U.S. Dollar, because both entities operate in the international shipping market all revenues are U.S. Dollars denominated and the majority of the expenditures are made in U.S. Dollars. Transactions involving other currencies during the year are converted into U.S. Dollars using the exchange rates in effect at the time of the transactions. As of the balance sheet dates, monetary assets and liabilities that are denominated in currencies other than the U.S. Dollar are translated to reflect the year-end exchange rates. Resulting gains and losses are reflected separately in the accompanying combined statements of operations.
(c) Use of Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives and impairment of Vessels, drydocking, and income taxes.
(d) Revenues and Operating Expenses
The Companies recognize revenues from time charters as operating leases on a straight-line basis over the term of the charter, net of any commissions. Under time charters, revenue is not recognized during days the Vessel is off-hire. Revenue is recognized from delivery of the Vessel to the charterer, until the end of the contract period. Under time charters, the Companies are responsible for providing the crewing and other services related to the Vessel’s operations, the cost of which is included in the daily hire rate, except when off-hire. Fees received from customers for customized equipment are deferred and recognized over the contract period. The Companies recognize revenues from spot contracts as voyage revenues using the percentage of completion method on a discharge-to-discharge basis.
Voyage expenses are all expenses unique to a particular voyage, including bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls and agency fees. Voyage expenses are paid by the customer under time charters.
Vessel operating expenses include crewing, repairs and maintenance, insurance, stores, lube oils and communication expenses. Vessel operating expenses are paid by the Companies for time charters and during off-hire and are recognized when incurred. As further discussed in Note 14—Related Party Transactions, related parties have provided the management services for the Vessels and employ the crews that work on the Vessels. The Companies have no direct employees and, accordingly, are not liable for any pension or post-retirement benefits.
(e) Financial Income (Expense)
Interest expenses incurred on the Companies’ debt incurred during the construction of the Vessels exceeding one year are capitalized during the construction period.
 
23

(f) Cash and Cash Equivalents
The Companies consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
(g) Trade Accounts Receivable
Accounts receivable are recorded at the invoiced amount and do not bear interest. Under terms of the current time charters, the customers are committed to pay for the full month’s charter the first day of each month. See Note 2(p) —Summary of Significant Accounting Policies: Prepaid Charter and Deferred Revenue. The allowance for doubtful accounts is the Companies’ best estimate of the amount of probable credit losses in existing accounts receivable. The Companies establish provisions for doubtful accounts on a case-by-case basis when it is unlikely that required payments of specific amounts will occur. In establishing these provisions, the Companies consider the financial condition of the customer as well as specific circumstances related to the receivable. Receivable amounts determined to be unrecoverable are written-off. There were no provisions as allowance for doubtful accounts or amounts written-off against the allowance for doubtful accounts as of March 31, 2014. The Companies do not have any off-balance-sheet credit exposure related to their customers.
(h) Inventories
Inventories, which are comprised principally of lubricating oils, are stated at the lower of cost or market. For vessels on time charters, there are no bunkers, as the charterer supplies the bunkers, which principally consist of fuel oil. Cost is determined using the first-in, first-out method for all inventories.
(i) Other Current Assets
Other current assets principally consist of prepaid expenses, the current portion of deferred cost and other receivables.
(j) Vessels and Equipment
Vessels and equipment are stated at the historical acquisition or construction cost, including capitalized interest, supervision and technical and delivery cost, net of accumulated depreciation and impairment loss, if any. Expenditures for subsequent conversions and major improvements are capitalized, provided that such costs increase the earnings capacity or improve the efficiency or safety of the vessels.
Generally, the Companies drydock each vessel every 60 months until the vessel is 15 years old and every 30 months thereafter, as required for the renewal of certifications issued by classification societies. For vessels operating on time charters, the Companies capitalize the costs directly associated with the classification and regulatory requirements for inspection of the vessels, major repairs and improvements incurred during drydocking. Drydock cost is amortized on a straight-line basis over the period until the next planned drydocking takes place. The Companies expense costs related to routine repairs and maintenance performed during drydocking or as otherwise incurred. For vessels that are newly built or acquired, an element of the cost of the vessel is initially allocated to a drydock component and amortized on a straight-line basis over the period until the next planned drydocking. When significant drydocking expenditures occur prior to the expiration of this period, the Companies expense the remaining unamortized balance of the original drydocking cost in the month of the subsequent drydocking. For vessels operating on bareboat charters, the charter party bears the cost of any drydocking.
Depreciation on vessels and equipment is calculated on a straight-line basis over the asset’s estimated useful life, less an estimated residual value, as follows:

 	  	Useful Life	 	
Hull	  	 	25 years	  	
Anchor-handling, loading and unloading equipment	  	 	25 years	  	
Main/auxiliary engine	  	 	25 years	  	
Thruster, dynamic positioning systems, cranes and other equipment	  	 	25 years	  	
Drydock costs	  	 	2.5–5 years	  	
A vessel is depreciated to its estimated residual value, which is calculated based on the weight of the ship and estimated steel price. Any cost related to the disposal is deducted from the residual value.
(k) Capitalized Interest
Interest expense incurred on the Companies’ debt during the construction of the Vessels exceeding one year is capitalized during the construction period.
(l) Impairment of Long-Lived Assets
Vessels and equipment, vessels under construction and intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Companies first compare undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
 
24

(m) Debt Issuance Costs
Debt issuance costs, including fees, commissions and legal expenses, are deferred. Debt issuance costs of term loans are amortized over the term of the relevant loan. Amortization of debt issuance costs is included in interest expense.
(n) Derivative Instruments
All derivative instruments are initially recorded at fair value as either assets or liabilities in the accompanying combined balance sheets and subsequently measured to fair value. The Companies do not apply hedge accounting to their derivative instruments. Changes in the fair value of the derivative instruments are recognized in earnings. Gains and losses from the interest rate swap contracts of the Companies related to long-term mortgage debt are recorded in realized and unrealized gain (loss) on derivative instruments in the combined statements of operations. Cash flows related to interest rate swap contracts are presented as cash flows provided by operating activities in the combined statements of cash flows.
(o) Income Taxes
The tax expense in the income statement includes both tax payable and changes in deferred tax. Deferred tax is calculated at 28% on the basis of temporary differences between accounting and tax values and tax loss carried forward at the year end. Tax increasing and tax reducing temporary differences which reverse or may be reversed in the same period are assessed and netted. The Companies are subject to the Norwegian Tonnage Tax regime (“the tonnage tax regime”). Under the tonnage tax regime, the tax is based on the tonnage of the vessel and the operating income is tax free. The net financial income and expense remains taxable as ordinary income tax for entities subject to the tonnage tax regime. Tonnage tax is classified as an operating expense. To be within the scheme the Companies should meet certain requirements, such as only ownership of ship/ shares in the shipping companies, and only own certain types of financial assets.
(p) Prepaid Charter and Deferred Revenue
Under terms of the time charters, the customer pays for the month’s charter the first day of each month and that is recorded as prepaid charter revenues. Deferred revenues for fees received from customers for customized equipment are classified as prepaid charter and deferred revenue for the current portion and as other long-term liabilities for the non-current portion.
(q) Commitments, Contingencies and Insurance Proceeds
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. See Note 15—Commitments and Contingencies.
Insurance claims for property damage for recoveries up to the amount of loss recognized are recorded when the claims submitted to insurance carriers are probable of recovery. Claims for property damage in excess of the loss recognized and for loss off-hire are considered gain contingencies, which are generally recognized when the proceeds are received.
(r) Fair Value Measurements
The Companies utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Companies determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
 
 	•	 	Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.	
 
 	•	 	Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.	
 
 	•	 	Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.	
(s) Recently Issued Accounting Standards
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, Fair Value measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). The new standards do not extend the use of fair value but, rather, provide guidance about how fair value should be applied where it already is required or permitted under International Financial Reporting Standards (“IFRS”) or U.S. GAAP. For U.S. GAAP, most of the changes are clarifications of existing guidance or wording changes to align with IFRS. A public entity is required to apply ASC 2011-04 prospectively for interim and annual periods beginning after December 5, 2011. The adoption of ASU 2011-04 did not have a material impact on the Companies’ combined financial statements.
 
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In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on its financial position, and to allow investors to better compare financial statements prepared under U.S. GAAP with financial statements prepared under IFRS. The new standards are effective for annual periods beginning January 1, 2013, and interim periods within those annual periods. Retrospective application is required. The Companies adopted the provisions of ASU 2011-11 as of January 1, 2013. The adoption of ASU 2011-11 did not have a material impact on the Companies’ combined financial statements.
In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). ASU 2013-02 requires reporting and disclosure about changes in accumulated other comprehensive income (“AOCI”) balances and reclassifications out of AOCI. For public companies, the ASU is effective prospectively for fiscal years and interim periods within those years beginning after December 15, 2012. The adoption of ASU 2013-02 did not have a material impact on the Companies’ combined financial statements.
There are no recent accounting pronouncements issued whose adoption would have a material impact on the Companies’ financial statements in the current year or are expected to have a material impact on future years.
3) Significant Risks and Uncertainties Including Business and Credit Concentrations
Each of the Vessels is currently employed under long-term fixed charters, which mitigates earnings risk. The Companies’ operational results are dependent on the worldwide market for shuttle tankers and timing of entrance into long-term charters. Market conditions for shipping activities are typically volatile, and, as a consequence, the hire rates may vary from year to year. The market is mainly dependent upon two factors: the supply of vessels and the overall growth in the world economy. The general supply of vessels is a combination of newbuilds, demolition activity of older vessels and legislation that limits the use of older vessels or new standards for vessels used in specific trades.
The Companies did not incur any loss relating to their customers during the three months ended March 31, 2014. The following table presents revenues and percentage of combined revenues for customers that accounted for more than 10% of the combined revenues during the three months ended March 31, 2014 and 2013.

 	  	Three Months Ended March 31,	 	
(U.S. Dollars in thousands)	  	2014	 	 	2013	 	
Eni Trading and Shipping S.p.A	  	$	11,372	  	  	 	100	%	 	$	—  	  	  	 	0	%	
The Companies have financial assets that expose them to credit risk arising from possible default by a counterparty. The Companies consider their counterparties to be creditworthy financial institutions and do not expect any significant loss to result from non-performance by such counterparties. The maximum loss due to credit risk that the Companies would incur if counterparties failed completely to perform would be the carrying value of cash and cash equivalents and trade accounts receivable. The Companies, in the normal course of business, do not demand collateral from their counterparties.
4) Operating Leases
The time charters of the vessels with third parties are accounted for as operating leases. The minimum contractual future revenues to be received from time charters as of March 31, 2014, were as follows:

(U.S. Dollars in thousands)	  	 	 	
2014 as of March 31, 2014	  	$	33,506	  	
2015	  	 	44,472	  	
2016	  	 	44,472	  	
2017	  	 	44,472	  	
2018	  	 	32,188	  	
2019 and thereafter	  	 	0	  	
	  	 	 	 	
Total	  	$	199,110	  	

 	•	 	Knutsen Shuttle Tanker 14 AS owns the vessel, Hilda Knutsen , a shuttle tanker built in 2013 that is currently operating under a time charter that expires in August 2018, with Eni, with five one-year-options to extend until August 2023.	
 
 	•	 	Knutsen Shuttle Tanker 15 AS owns the vessel, Torill Knutsen , a shuttle tanker built in 2013 that is currently operating under a time charter that expires in November 2018, with Eni, with five one-year-options to extend until November 2023. In the case of the charter for the Torill Knutsen , Eni has the option, at any time before May 31, 2016, to extend the charter term to ten years in exchange for a reduction in the hire rate.	
 
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5) Segment Information
The Companies have not presented segment information as they consider their operations to occur in one reportable segment, the shuttle tanker market. In time charters, the charterer, not the Companies, controls the choice of which trading areas the vessel will serve. Accordingly, the Companies’ management, including the chief operating decision makers, does not evaluate performance according to geographical region.
For the three month ended period as of March 31, 2014, the vessels operated under two charters. See Note 3- Significant Risks and Uncertainties Including Business and Credit Concentrations for revenues from customers accounting for over 10% of the combined revenue. In both time charters, the charterer controls the choice of which trading areas the Vessels will serve. Accordingly, the Companies’ management, including the chief decision makers, do not evaluate performance according to geographical region.
6) Finance Income (Expense)
(a) Interest Expense
A reconciliation of total interest cost to interest expense as reported in the statement of operations for the three months ended March 31, 2014 and 2013 is as follows:

 	  	Three Months Ended
March 31,	 	
(U.S. Dollars in thousands)	  	2014	 	  	2013	 	
Interest cost capitalized	  	$	—  	 	  	$	871	  	
Interest expense	  	 	1,979	  	  	 	—  	 	
	  	 	 	 	  	 	 	 	
Total interest cost	  	$	1,979	  	  	$	871	  	
	  	 	 	 	  	 	 	 	
(b) Other Finance Expense
The following table presents the other finance expense for the three months ended March 31, 2014 and 2013:

 	  	Three Months Ended
March 31,	 	
(U.S. Dollars in thousands)	  	2014	 	 	2013	 	
Bank fees, charges and external guarantee costs	  	$	(6	)	 	$	20	  	
Related party guarantee commission	  	 	287	  	 	 	129	  	
	  	 	 	 	 	 	 	 	
Total other finance expense	  	$	281	  	 	$	148	  	
	  	 	 	 	 	 	 	 	
7) Derivative Instruments
Interest Rate Risk Management
In February 2014, the Companies entered into interest rate swap agreements effective from July, 2014 and until July 2018, for a total notional amount of $100 million to hedge against the interest rate risks of their variable rate borrowings. Under the terms of the interest rate swap agreements, the Companies will receive from the counterparty interest on the notional amount based on three-month LIBOR and will pay to the counterparty a fixed rate. For the interest rate swap agreements above, the Companies will pay to the counterparty a fixed rate of 1.455%.
The combined financial statements include the results of interest rate swap contracts to manage the Companies’ exposure related to changes in interest rates on its variable rate debt instruments. The Companies does not apply hedge accounting for derivative instruments. The Companies do not speculate using derivative instruments.
By using derivative financial instruments to economically hedge exposures to changes in interest rates, the Companies expose itself to credit risk and market risk. Derivative instruments that economically hedge exposures are used for risk management purposes, but these instruments are not designated as hedges for accounting purposes. Credit risk is the failure of the counterparty to perform under the terms of the derivative instrument. When the fair value of a derivative instrument is positive, the counterparty owes the Companies, which creates credit risk for the Companies. When the fair value of a derivative instrument is negative, the Companies owe the counterparty, and, therefore, the Companies are not exposed to the counterparty’s credit risk in those circumstances. The Companies minimizes counterparty credit risk in derivative instruments by entering into transactions with major banking and financial institutions. The derivative instruments entered into by the Companies do not contain credit risk-related contingent features.
 
27

Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates, currency exchange rates or commodity prices. The market risk associated with interest rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.
The Companies assesses interest rate risk by monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating economical hedging opportunities.
The variable interest rate mortgage debt obligations expose the Companies to variability in interest payments due to changes in interest rates. The Companies believes that it is prudent to limit the variability of a portion of its interest payments. To meet this objective, the Companies entered into London Interbank Offered Rate (“LIBOR”)-based interest rate swap contracts to manage fluctuations in cash flows resulting from changes in the benchmark interest rate of LIBOR. These swaps change the variable rate cash flow exposure on the mortgage debt obligations to fixed cash flows. Under the terms of the interest rate swap contracts, the Companies receive LIBOR-based variable interest rate payments and make fixed interest rate payments, thereby creating the equivalent of fixed rate debt for the notional amount of their debt hedged.
As of March 31, 2014, the total notional amount of the Companies outstanding interest rate swap contracts that were entered into in order to hedge outstanding or forecasted debt obligations were $100 million. As of March 31, 2014, the carrying amount of the interest rate swaps contracts were net assets of $0.7 million. See Note 8—Fair Value Measurements.
Changes in the fair value of interest rate swap contracts are reported in realized and unrealized gain (loss) on derivative instruments in the same period in which the related interest affects earnings.
The Companies did not have any interest rate swap agreements as of March 31, 2013.
The following table presents the realized and unrealized gains and losses that are recognized in earnings as net gain (loss) on derivative instruments for the three months ended March 31, 2014 and 2013.

 	  	Three Months Ended
March 31,	 	
(U.S. Dollars in thousands)	  	2014	 	  	2013	 	
Realized gain (loss)	  				  				
Interest rate swap contracts	  	$	—  	 	  	$	—  	 	
Unrealized gain (loss)	  				  				
Interest rate swap contracts	  	 	632	  	  	 	—  	 	
	  	 	 	 	  	 	 	 	
Total	  	$	632	  	  	$	—  	 	
	  	 	 	 	  	 	 	 	
8) Fair Value Measurements
(a) Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of the Companies’ financial instruments as of March 31, 2014 and 2013. Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 	  	March 31, 2014	 	  	December 31, 2013	 	
(U.S. Dollars in thousands)	  	Carrying
Amount	 	  	Fair Value	 	  	Carrying
Amount	 	  	Fair Value	 	
Financial assets:	  				  				  				  				
Cash and cash equivalents	  	$	6,860	  	  	$	6,860	  	  	$	11,841	  	  	$	11,841	  	
Restricted cash	  	 	—  	 	  	 	—  	 	  	 	—  	 	  	 	—  	 	
Non-current derivative assets:	  				  				  				  				
Interest rate swap contracts	  	 	1,550	  	  	 	1,550	  	  				  				
Financial liabilities:	  				  				  				  				
Long-term debt, current and non-current	  	 	226,688	  	  	 	227,926	  	  	 	231,563	  	  	 	232,894	  	
Current derivative liabilities:	  				  				  				  				
Interest rate swap contracts	  	 	918	  	  	 	918	  	  	 	—  	 	  	 	—  	 	
 
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The carrying amounts shown in the table above are included in the Companies’ balance sheets under the indicated captions. The carrying value of trade accounts receivable, trade accounts payable and receivables/payables to owners and affiliates approximate their fair value.
The fair values of the financial instruments shown in the above table as of March 31, 2014 and December 31, 2013 represent the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Companies’ own judgment about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Companies based on the best information available in the circumstances, including expected cash flows, appropriately risk-adjusted discount rates and available observable and unobservable inputs.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
 
•	 	Cash and cash equivalents : The fair value of the Companies’ cash balances approximates the carrying amounts due to the current nature of the amounts.	
 
•	 	Interest rate swap contracts: The fair value of interest-rate swaps is determined using an income approach using the following significant inputs: the term of the swap, the notional amount of the swap, discount rates interpolated based on relevant LIBOR swap curves and the rate on the fixed leg of the swap.	
 
•	 	Long-term debt : With respect to long-term debt measurements, the Companies use market interest rates and adjust that rate for all necessary risks, including its own credit risk. In determining an appropriate spread to reflect its credit standing, the Companies considered interest rates currently offered to KNOT for similar debt instruments of comparable maturities by KNOT’s and the Companies’ bankers as well as other banks that regularly compete to provide financing to the Companies.	
(b) Fair Value Hierarchy
The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis (including items that are required to be measured at fair value or for which fair value is required to be disclosed) as of March 31, 2014 and December 31, 2013:

 	  	 	 	  	Fair Value Measurements at
Reporting Date Using	 	
(U.S. Dollars in thousands)	  	March 31,
2014	 	  	Quoted Price
in Active
Markets for
Identical
Assets
(Level 1)	 	  	Significant
Other
Observable
Inputs
(Level 2)	 	  	Significant
Unobservable
Inputs
(Level 3)	 	
Financial assets:	  				  				  				  				
Cash and cash equivalents	  	$	6,860	  	  	$	6,860	  	  	$	—  	 	  	$	—  	 	
Non-current derivative assets:	  				  				  				  				
Interest rate swap contracts	  	 	1,550	  	  	 	—  	 	  	 	1,550	  	  	 	—  	 	
Financial liabilities:	  				  				  				  				
Current derivative liabilities:	  				  				  				  				
Interest rate swap contracts	  	 	918	  	  				  	 	918	  	  				
Long-term debt, current and non-current	  	 	227,926	  	  	 	—  	 	  	 	227,926	  	  	 	—  	 	
			
 	  	 	 	  	Fair Value Measurements at
Reporting Date Using	 	
(U.S. Dollars in thousands)	  	December 31,
2013	 	  	Quoted Price
in Active
Markets for
Identical
Assets
(Level 1)	 	  	Significant
Other
Observable
Inputs
(Level 2)	 	  	Significant
Unobservable
Inputs
(Level 3)	 	
Financial assets:	  				  				  				  				
Cash and cash equivalents	  	$	11,841	  	  	$	11,841	  	  	$	—  	 	  	$	—  	 	
Non-current derivative assets:	  				  				  				  				
Interest rate swap contracts	  	 	—  	 	  	 	—  	 	  	 	—  	 	  	 	—  	 	
Financial liabilities:	  				  				  				  				
Current derivative liabilities:	  				  				  				  				
Interest rate swap contracts	  	 	—  	 	  	 	—  	 	  	 	—  	 	  	 	—  	 	
Long-term debt, current and non-current	  	 	232,894	  	  	 	—  	 	  	 	232,894	  	  	 	—  	 	
 
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The Companies’ accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of Level 1, Level 2 or Level 3 as of March 31, 2014 and December 31, 2013.
9) Trade Accounts Receivables
(a) Trade Accounts Receivables
Trade accounts receivable are presented net of provisions for doubtful accounts. As of March 31, 2014 and December 2013, there was no provision for doubtful accounts.
(b) Other Current Assets
Other current assets consist of the following:

(U.S. Dollars in thousands)	  	At March 31,
2014	 	  	At December 31,
2013	 	
Refund of value added tax	  	$	27	  	  	$	88	  	
Prepaid expenses	  	 	157	  	  	 	43	  	
Current portion of deferred debt issuance cost	  	 	1,139	  	  	 	1,120	  	
Other receivable	  	 	1,086	  	  	 	390	  	
	  	 	 	 	  	 	 	 	
Total other current assets	  	$	2,409	  	  	$	1,641	  	
	  	 	 	 	  	 	 	 	
10) Vessels and Equipment

(U.S. Dollars in thousands)	  	Vessels &
equipment	 	  	Vessels under
construction	 	 	Accumulated
depreciation	 	 	Net vessels	 	
Balance December 31, 2012	  	$	—  	  	  	 	126,663	 	 	$	—  	  	 	$	126,663	 	
Additions	  	 	—  	  	  	 	155,823	  	 	 	—  	  	 	 	155,823	  	
Drydock costs	  	 	5,000	  	  	 	—  	  	 	 	—  	  	 	 	5,000	  	
Transfer from vessels under construction	  	 	282,486	  	  	 	(282,486	)	 	 	—  	  	 	 	—  	  	
Disposal	  	 	—  	  	  	 	—  	  	 	 	—  	  	 	 	—  	  	
Depreciation	  	 	—  	  	  	 	—  	  	 	 	(3,303	)	 	 	(3,303	)	
Balance December 31, 2013	  	$	287,486	  	  	$	—  	  	 	$	(3,303	)	 	$	284,183	  	
	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Additions	  	 	121	  	  	 	—  	  	 	 	—  	  	 	 	121	  	
Drydock costs	  	 	—  	  	  	 	—  	  	 	 	—  	  	 	 	—  	  	
Transfer from vessels under construction	  	 	—  	  	  	 	—  	  	 	 	—  	  	 	 	—  	  	
Disposal	  	 	—  	  	  	 	—  	  	 	 	—  	  	 	 	—  	  	
Depreciation	  	 	—  	  	  	 	—  	  	 	 	(2,835	)	 	 	(2,835	)	
	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Balance March 31, 2014	  	$	287,607	  	  	 	—  	  	 	$	(6,138	)	 	$	281,469	  	
	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
As of March 31, 2014, Vessels with a book value of $281.5 million are pledged as security held as a guarantee for the Companies’ long-term debt. See Note 12—Long-Term Debt.
Drydocking activity for the three months ended March 31, 2014 is summarized as follows:

(U.S. Dollars in thousands)	  	At March 31,
2014	 	 	At December 31,
2013	 	
Balance at the beginning of the year	  	$	4,709	  	 	$	—  	  	
Costs incurred for drydocking	  	 	—  	  	 	 	5,000	  	
Drydock amortization	  	 	(250	) 	 	 	(291	)	
	  	 	 	 	 	 	 	 	
Balance at the end of the year	  	$	4,459	  	 	$	4,709	  	

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11) Accrued Expenses
The following table presents accrued expenses as of March 31, 2014:

(U.S. Dollars in thousands)	  	At March 31,
2014	 	  	At December 31,
2013	 	
Operating expenses	  	$	585	 	  	$	670	  	
Interest expenses	  	 	1,150	  	  	 	1,160	  	
	  	 	 	 	  	 	 	 	
Total accrued expenses	  	$	1,735	  	  	$	1,830	  	
	  	 	 	 	  	 	 	 	
12) Long-Term Debt
Long-term debt as of March 31, 2014 and December 31, 2013 consisted of following:

(U.S. Dollars in thousands)	  	Vessel	 	  	March 31,
2014	 	  	December 31,
2013	 	
$117 million Loan facility	  	 	Hilda Knutsen	  	  	$	112,125	  	  	$	114,563	  	
$117 million Loan facility	  	 	Torill Knutsen	  	  	 	114,563	  	  	 	117,000	  	
	  				  	 	 	 	  	 	 	 	
Total long-term debt	  				  	 	226,688	  	  	 	231,563	  	
Less current installments	  				  	 	19,500	  	  	 	19,500	  	
	  				  	 	 	 	  	 	 	 	
Long-term debt, excluding current	  				  	$	207,188	  	  	$	212,063	  	
	  				  	 	 	 	  	 	 	 	
Hilda Facility
The $117 million secured loan facility (the “Hilda Facility”) is repayable in quarterly installments over five years with a final balloon payment due at maturity in August 2018. The Hilda Facility bears interest at LIBOR plus a fixed margin of 2.5%.
The Hilda Knutsen , assignments of earnings, charterparty contracts and insurance proceeds are pledged as collateral for the Hilda Facility. KNOT is the sole guarantor.
The Hilda Facility contains the following financial covenants:
 
 	•	 	Market value of the Hilda Knutsen to be no less than 100% of the outstanding balance under the Hilda Facility for the first 4 years and 125% for the 5 th year;	
 
 	•	 	Positive working capital of the borrower and of KNOT and its subsidiaries on a consolidated basis (“KNOT Group”);	
 
 	•	 	Minimum liquidity of (i) $2 million for the borrower; (ii) $25 million for the guarantor, and (iii) 4% of interest bearing debt for the KNOT Group;	
 
 	•	 	Minimum book equity ratio for the KNOT Group of 22.5 % until December 31, 2014, and thereafter 25%; and	
 
 	•	 	EBITDA must exceed interest payable, any amounts payable for the interest rate swaps and debt installments for the KNOT Group calculated on a four quarter rolling basis.	
The Hilda Facility also identifies various events that may trigger mandatory reduction, prepayment and cancellation of the facility, including total loss or sale of a vessel and customary events of default.
The borrower and the guarantor were in compliance with all covenants as of March 31, 2014, and December 31, 2013.
 
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Torill Facility
The $117 million secured loan facility (the “Torill Facility”) is repayable in quarterly installments over five years with a final balloon payment due at maturity in November 2018. The Torill Facility bears interest at LIBOR plus a fixed margin of 2.75%.
The Torill Knutsen , assignments of earnings, charterparty contracts and insurance proceeds are pledged as collateral for the Hilda Facility. Knutsen NYK Offshore Tankers AS is the sole guarantor.
The Torill Facility contains the following financial covenants:
 
 	•	 	Market value of the Torill Knutsen to be no less than 100% of the outstanding balance under the Torill Facility for the first 4 years and 125% for the 5 th year;	
 
 	•	 	Positive working capital of the borrower and KNOT Group;	
 
 	•	 	Minimum liquidity of (i) $2 million for the borrower; (ii) $25 million for the guarantor, and (iii) 4% of interest bearing debt for the KNOT Group;	
 
 	•	 	Minimum book equity ratio for the KNOT Group of 22.5 % until December 31, 2014, and thereafter 25%; and	
 
 	•	 	EBITDA must exceed interest payable, any amounts payable for the interest rate swaps and debt installments for the KNOT Group calculated on a four quarter rolling basis.	
The Torill Facility also identifies various events that may trigger mandatory reduction, prepayment and cancellation of the facility, including total loss or sale of a vessel and customary events of default.
The borrower and the guarantor were in compliance with all covenants as of March 31, 2014, and December 31, 2013.
The total outstanding debt as of March 31, 2014 is repayable as follows:

(US $ in thousands)	  	 	 	
2014	  	$	14,625	  	
2015	  	 	19,500	  	
2016	  	 	19,500	  	
2017	  	 	19,500	  	
2018 and thereafter	  	 	153,563	  	
Total	  	$	226,688	  	
13) Income Taxes
Components of Current and Deferred Tax Expense (Benefit)
The Companies are subject to the Norwegian Tonnage Tax regime (“the tonnage tax regime”). Under the tonnage tax regime, the tax is based on the tonnage of the vessel and the operating income is tax free. The net financial income and expense remains taxable as ordinary income tax for entities subject to the tonnage tax regime. Tonnage tax is classified as an operating expense. Tonnage tax amounted to $11,000 in the three months ended March 31, 2014, and $0 in the three months ended March 31, 2013.

 	  	Three Months Ended
March 31,	 	
(US $ in thousands)	  	2014	 	 	2013	 	
Income (loss) before income taxes	  	$	4,173	  	 	$	313	  	
Income tax expense (benefit)	  	 	—  	 	 	 	—  	 	
Effective tax rate	  	 	0	% 	 	 	0	% 	
A valuation allowance for deferred tax assets is recorded when it is more likely than not that some of or all of the benefit from the deferred tax asset will not be realized. The valuation allowances relate to the financial loss carry forwards and other deferred tax assets for tonnage tax that, in the judgment of the Companies, are more-likely-than not to be realized reflecting the Companies’ cumulative loss position for tonnage tax. In assessing the realizability of deferred tax assets, the Companies consider whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized taking into account all the positive and negative evidence available, and there is no deferred tax assets recognized as of March 31, 2014 and December 31, 2013.
 
32

14) Related Party Transactions
(a) Related Parties
The Companies have been charged by KNOT and KOAS for commercial services related to the charters, technical and operational support related to the operation of the Vessels, certain administrative costs and finance fees.
The amounts of such costs and expenses included in the combined statements of operations for the three month ended March 31, 2014 and 2013 is as follows:

 	  	Three Months Ended
March 31,	 	
(U.S. Dollars in thousands)	  	2014	 	  	2013	 	
Statements of operations:	  				  				
Time charter revenues:	  				  				
Commercial commission fee from KNOT to Vessels (1)	  	$	141	  	  	$	—  	  	
Operating expenses:	  				  				
Technical and operational management fee from KOAS and KNOT to Vessels (2)	  	 	219	  	  	 	—  	  	
General and administrative expenses:	  				  				
Administration fee from KNOT (3)	  	 	8	  	  	 	15	  	
Accounting service fee from KNOT (4)	  	 	7	  	  	 	7	  	
Finance expense:	  				  				
Interest expense charged from KNOT (5)	  	 	64	  	  	 	—  	  	
Guarantee commission from KNOT to Vessels (6)	  	 	287	  	  	 	129	  	
	  	 	 	 	  	 	 	 	
Total	  	$	726	  	  	$	151	  	

(U.S. Dollars in thousands)	  	At March 31,
2014	 	  	At December 31,
2013	 	
Balance sheets:	  				  				
Vessels:	  				  				
New building supervision fee from KOAS to Vessels (7)	  	$	—  	  	  	$	2,350	  	
Licensing of technology fees from TSSI to Vessels (8)	  	 	—  	  	  	 	1,080	  	
Interest capitalized charged from KNOT to subsidiaries (9)	  	 	—  	  	  	 	395	  	
	  	 	 	 	  	 	 	 	
Total	  	$	—  	  	  	$	3,825	  	

(1)	Commercial commission fee from KNOT to Vessels: KNOT provides commercial services related to negotiating and maintaining the charters. KNOT invoices a fixed percentage of revenue as a commercial commission fee for these services.	
(2)	Technical and operational management fee from KOAS and KNOT to Vessels : KNOT provides technical and operational management of the vessels on time charter including crewing, purchasing, maintenance and other operational, bookkeeping and administrative support.	
(3)	Administration fee from KNOT : Administration costs include the compensation and benefits of KNOT management and administrative staff as well as other general and administration expenses. Net administration costs are total administration cost plus a 5% margin, reduced for the total fees for services delivered by the administration staffs (the accounting service fees (see (4) below), the financing service fees (see (6) below) and the estimated shareholder costs for KNOT that have not been allocated. As such, the level of net administration costs as a basis for the allocation can vary from year to year based on the administration and financing services offered by KNOT to all the vessels in its fleet each year.	
(4)	Accounting service fee from KNOT : KNOT invoiced each subsidiary a fixed fee for the preparation of the statutory financial statements.	
(5)	Interest expense charged from, interest income charged to KNOT : KNOT invoiced interest expense (income) for any outstanding payables to (receivable from) owners and affiliates to the vessel-owning subsidiaries. Interest expense has been allocated based upon the allocated payables to owners and affiliates and the historical interest rates charged.	
(6)	Guarantee commission from KNOT to Vessels : KNOT was a guarantor for the Companies’ loan facilities (see Note 12—Long-term Debt and Note 14(b)—Related Party Transactions: Guarantees). KNOT invoiced an annual commission to each of the Vessels as a fixed percentage of the outstanding balance as compensation for the guarantee.	
(7)	New building supervision fee from KOAS to Vessels : KOAS charges a fixed fee for supervision of each vessel under construction that is invoiced on a straight-line basis over the period of construction. Such fees, along with direct and incremental supervision costs incurred, are capitalized as part of the Vessels under construction.	
(8)	Knutsen Ballast Water Treatment installation from TSSI to Vessel : TSSI has developed Knutsen ballast water treatment technology and the system was installed during the construction and all cost is capitalized as part of the Vessels under construction.	
(9)	Interest capitalized charged from KNOT to Vessels : KNOT invoiced interest expense for outstanding payables to owners and affiliates to the vessel owning subsidiaries as explained in (5) above. Such interest expense is capitalized for qualifying Vessels under construction.	
(b) Guarantees
As of March 31, 2014, KNOT is guarantor for the Hilda Facility and Torill Facility.
 
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(c) Transaction with Management
The Companies had no personnel during the three months ended March 31, 2014.There has been no direct remuneration to any members of the Board of Directors of KNOT. Trygve Seglem, the President and CEO of KNOT has received $119,000 in salary from KNOT Management AS during the three months ended March 31, 2014. He also controls Seglem Holding AS, which has a 100% equity interest of TSSI, which controls KOAS. TSSI owns 50% in KNOT. Trygve Seglem owns 70% of the equity interests in Seglem Holding AS, and each of his daughters, Synnøve Seglem and Jorunn Seglem, each own 15% of the equity interests.
NYK, which own 50% of KNOT, has management and administrative personnel on secondment to KNOT starting in March 2011. The cost for such services was $0.8 million during the three months ended March 31, 2014. NYK has no other related party transactions with KNOT apart from interest income on financing offered to KNOT.
See this Note 14 – Related Party Transactions Items 3 and 4 for discussion of the allocation principles for KNOT’s administrative costs, including management and administrative staff, included in the combined statements of operations for the two entities.
(d) Amounts Due from (to) Related Parties
Balances with related parties consisted of the following:

(U.S. Dollars in thousands)	  	At March 31,
2014	 	  	At December 31,
2013	 	
Balance Sheets:	  				  				
Trading balances due from KOAS	  	$	107	  	  	$	—  	 	
Trading balances due from KNOT and affiliates	  	 	3,224	  	  	 	775	  	
	  	 	 	 	  	 	 	 	
Amount due from related parties	  	$	3,331	  	  	$	775	  	
	  	 	 	 	  	 	 	 	
Trading balances due to KOAS	  	$	18	  	  	$	143	  	
Trading balances due to KNOT and affiliates	  	 	550	  	  	 	6,922	  	
	  	 	 	 	  	 	 	 	
Amount due to related parties	  	$	568	  	  	$	7,065	  	
	  	 	 	 	  	 	 	 	
Amounts due from (to) related parties are unsecured and intended to be settled in the ordinary course of business. They primarily relate to vessel management and other fees due to KNOT and KOAS.
15) Commitments and Contingencies
Assets Pledged
As of March 31, 2014, Vessels with a book value of $ 281.5 million were pledged as security held as guarantee for the Companies’ long-term debt and interest rate obligations. See Note 7 – Derivative Instruments and Note 12—Long-Term Debt.
Insurance
The Companies maintain insurance to insure against marine and war risks, which include damage to or total loss of the Vessels, subject to deductible amounts that average $0.150 million per Vessel, and loss of hire.
Under the loss of hire policies, the insurer will pay a compensation for the lost hire rate agreed in respect of each Vessel for each day, in excess of 14 deductible days, for the time that the Vessel is out of service as a result of damage, for a maximum of 180 days. In addition, the Companies maintain protection and indemnity insurance, which covers third-party legal liabilities arising in connection with the Vessels’ activities, including, among other things, the injury or death of third-party persons, loss or damage to cargo, claims arising from collisions with other vessels and other damage to other third-party property, including pollution arising from oil or other substances. This insurance is unlimited, except for pollution, which is limited to $1 billion per vessel per incident. The protection and indemnity insurance is maintained through a protection and indemnity association, and as a member of the association, the Companies may be required to pay amounts above budgeted premiums if the member claims exceed association reserves, subject to certain reinsured amounts. If the Companies experience multiple claims each with individual deductibles, losses due to risks that are not insured or claims for insured risks that are not paid, it could have a material adverse effect on the Companies’ results of operations and financial condition.
 
34

Exhibit 10.3
SHARE PURCHASE AGREEMENT
Between
Knutsen NYK Offshore Tankers AS
(as Seller)
And
KNOT Shuttle Tankers AS
(as Buyer)

 
					
	  	for the sale and purchase of the shares in	  		
			
	  	Knutsen Shuttle Tankers 15 AS	  		

 

SHARE PURCHASE AGREEMENT
This agreement (this “ Agreement ”) is entered into the 23 rd day of June, 2014 between:
(1) Knutsen NYK Offshore Tankers AS , company registration no. 995 221 713
(the “ Seller ”), and
(2) KNOT Shuttle Tankers AS , company registration no. 998 942 829
(the “ Buyer ”).
The Seller and the Buyer are hereinafter individually referred to as a “ Party ” and jointly the “ Parties ”.
 
1	RECITALS	
WHEREAS:
 
a)	Knutsen Shuttle Tankers 15 AS, company registration no. 997 006 968, is a private limited liability company that has as its purpose to engage in shipowning activities, is duly incorporated under Norwegian law and has its registered place of business in Haugesund, Norway (the “ Company ”);	
 
b)	The Seller is the sole owner of the ownership interest in the Company, with a share capital of NOK 200,000;	
 
c)	The Company is the owner of the MT “Torill Knutsen”, having IMO No. 9630030 (the “ Vessel ”); and	
 
d)	The Seller and the Buyer have agreed that the Buyer shall acquire 100% of the shares in the Company (the “ Shares ”) on the terms and conditions set forth in this Agreement.	
 
2	DEFINITIONS	
In this Agreement, the following definitions shall have the following meanings:

a)	  	Accounting Principles	  	means the applicable United States generally accepted accounting principles, applied on a consistent basis;	
			
b)	  	Accounts	  	means, in respect of the Company and Knutsen Shuttle Tankers 14 AS, its combined accounts, consisting of the income statement, balance sheet, statement of cash flow and the notes thereto, consolidated profit and loss account, consolidated balance sheet and statement of cash flow and the notes thereto, for the financial years and quarters attached as Schedule 2 ;	
 
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c)	  	Accounts Date	  	means 31 March 2014;	
			
d)	  	Agreement	  	shall have the meaning ascribed to such term in the preamble to this Agreement;	
			
e)	  	Business	  	means the current business of the Company, being to own the Vessel, and charter the same under the Charter;	
			
f)	  	Business Day	  	means a day on which banks are open for general banking business in Norway;	
			
g)	  	Buyer	  	shall have the meaning ascribed to such term in the preamble to this Agreement;	
			
h)	  	Buyer Indemnitees	  	shall have the meaning ascribed to such term in Clause 12.1;	
			
i)	  	Charter	  	means the Time Charter Party, dated May 31, 2011, between the Company and the Charterer in relation to the Vessel;	
			
j)	  	Charterer	  	means Eni Trading and Shipping S.P.A.	
			
k)	  	Closing	  	shall have the meaning ascribed to such term in Clause 5.1;	
			
l)	  	Closing Date	  	means the date when the Closing actually takes place according to Clause 5.1;	
			
m)	  	Companies Act	  	means the Norwegian Limited Liability Companies Act of 1997	
			
n)	  	Company	  	means Knutsen Shuttle Tankers 15 AS;	
			
o)	  	Encumbrance	  	means any mortgage, charge, pledge, lien, option or other security interest or restriction of any kind;	
			
p)	  	Governmental Authority	  	means any domestic or foreign government, including federal, provincial, state, municipal, county or regional government or governmental or regulatory authority, domestic or foreign, and includes any department, commission, bureau, board, administrative agency or regulatory body of any of the foregoing and any multinational or supranational organization.	
			
q)	  	Indemnified Party	  	shall have the meaning ascribed to such term in Clause 12.3;	
			
r)	  	Indemnifying Party	  	shall have the meaning ascribed to such term in Clause 12.3;	
			
s)	  	Losses	  	means any loss, liability, claim, damage, expense (including costs of investigation and defence and reasonable attorneys’ fees) or diminution of value, whether or not involving a third-party claim;	
 
3

					
			
t)	  	Material Adverse Effect	  	means a material adverse effect on the condition (financial, commercial, technical, legal or otherwise) of the Business, assets, results of operations or prospects of the Company;	
			
u)	  	Material Agreement	  	shall have the meaning ascribed to such term in Clause 8.11;	
			
v)	  	Omnibus Agreement	  	means the Omnibus Agreement, dated as of April 15, 2013, by and among the Seller, the Partnership, KNOT Offshore Partners GP LLC, KNOT Shuttle Tankers 17 AS and KNOT Shuttle Tankers 18 AS;	
			
w)	  	Party	  	shall have the meaning ascribed to such term in the preamble to this Agreement;	
			
x)	  	Parties	  	shall have the meaning ascribed to such term in the preamble to this Agreement;	
			
y)	  	Partnership	  	means KNOT Offshore Partners LP, a Marshall Islands limited partnership;	
			
z)	  	Purchase Price	  	shall have the meaning ascribed to such term in Clause 4;	
			
aa)	  	Purchase Price Adjustments	  	shall have the meaning ascribed to such term in Clause 5.4a);	
			
bb)	  	Seller	  	shall have the meaning ascribed to such term in the preamble to this Agreement;	
			
cc)	  	Seller Indemnitees	  	shall have the meaning ascribed to such term in Clause 12.2;	
			
dd)	  	Shares	  	shall have the meaning ascribed to such term in Clause 1;	
			
ee)	  	Signing Date	  	means the date of this Agreement;	
			
ff)	  	Swap Agreements	  	means the 2002 ISDA Master Agreement dated 3 February 2014, and entered into between the Company and DNB Bank ASA and the Schedule thereto and all Transactions and/or Confirmations (as each of the said expressions is defined in the Master Agreement) supplemental thereto.	
			
gg)	  	Taxes	  	means all taxes (including value-added tax and similar taxes), however denominated, including interest, penalties and other additions to tax that may become payable or imposed by any applicable statute, rule or regulation or any governmental agency, including all taxes, withholdings and other charges in respect of income, profits, gains, payroll, social security or other social benefit taxes, sales, use, excise, real or personal property, stamps, transfers and workers’ compensation, which the Company is required to pay, withhold or collect;	
 
4

					
			
hh)	  	Third-Party Claim	  	shall have the meaning ascribed to such term in Clause 12.3;	
			
ii)	  	Torill Knutsen Facility	  	means the USD 117,000,000 pre- and post-delivery term loan facility agreement in respect of the Vessel dated November 3, 2011, made between (i) the Company as borrower, (ii) the Seller as parent guarantor, (iii) the banks and financial institutions listed in Schedule 1 thereto as lenders, (iv) DnB Bank ASA, Nordea Bank Norge ASA, Skandinaviska Enskilda Banken AB (Publ) and Sparebanken Vest as mandated lead arrangers and bookrunners and (vi) Nordea Bank Norge ASA as agent; and	
			
jj)	  	Vessel	  	shall have the meaning ascribed to such term in Clause 1.	
 
3	SALE AND PURCHASE	
Subject to the terms and conditions set forth in this Agreement, the Seller agrees to sell, and the Buyer agrees to purchase, the Shares, together with all rights attached to them.
The Shares shall be transferred to the Buyer on the Closing Date, free and clear from any Encumbrances.
 
4	PURCHASE PRICE	
The Seller agrees to sell and transfer to the Buyer, and the Buyer agrees to purchase from the Seller for USD 169,000,000, less USD 112,125,000 of outstanding debt obligations under the Torill Knutsen Facility, and as adjusted for the balance under the Swap Agreements being USD 59,439 according to a mark-to-market determination as of 17 June 2014 (the “ Purchase Price ”), plus the Purchase Price Adjustments, all in accordance with and subject to the terms and conditions set forth in this Agreement, the Shares.
The Purchase Price is to be settled by way of a cash settlement in the amount of USD 56,934,439 on the Closing Date
 
5	CLOSING	
 
5.1	Time and place	
Subject to the satisfaction or waiver of the conditions set forth in Clause 6, the completion of the transactions contemplated by this Agreement (the “ Closing ”) shall take place at the offices of the Seller at such time and date as the Parties agree.
 
5.2	The Seller’s Closing obligations	
At the Closing, the Seller shall:
 
a)	deliver to the Buyer a copy of the minutes of the meeting of the board of directors of the Seller authorising the execution of, and the consummation of the transaction completed by, this Agreement; and	
 
b)	in exchange for the payment of the Purchase Price, transfer the Shares to the Buyer and deliver to the Buyer the share register of the Company with the Buyer duly registered as the owner of the Shares, as well as the related notices according to Sections 4-7 and 4-10 of the Companies Act.	
 
5

5.3	The Buyer’s Closing obligations	
At the Closing, the Buyer shall settle the Purchase Price in accordance with Clause 4.
 
5.4	Post-Closing Adjustment	
 
a)	Within 60 days following the Closing Date, the Buyer and the Seller shall agree on the amount of the post-Closing adjustments to the Purchase Price based on the Company’s working capital as of 30 June 2014 (the “ Purchase Price Adjustments ”).	
 
b)	Within 15 days following the date on which the Purchase Price Adjustments have been agreed pursuant to item a) above, the Buyer shall pay to the Seller an amount, in cash, equal to the Purchase Price Adjustments. Any other elements than those covered by the Purchase Price Adjustments varying in the period between the Signing Date and the Closing Date shall be for Seller’s account.	
 
6	CLOSING CONDITIONS	
 
6.1	Conditions to the Buyer’s Closing obligations	
The obligations of the Buyer to purchase the Shares and to take the other actions required to be taken by it at the Closing are subject to the satisfaction of each of the following conditions (any of which may be waived in whole or in part by the Buyer) on or before the Closing Date:
 
a)	there is no material breach of any of the representations and warranties of the Seller set forth in Clause 8 and Clause 9;	
 
b)	in all respects material to the transactions contemplated hereby, the Seller shall have performed or complied with all of its obligations pursuant to this Agreement to be performed or complied with by the Seller at or prior to the Closing Date and shall have delivered each document or instrument to be delivered by it pursuant to this Agreement;	
 
c)	the Buyer shall have obtained the funds necessary to consummate the purchase of the Shares and to pay all related fees and expenses; and	
 
d)	the results of the searches, surveys, tests and inspection of the Vessel referred to in Clause 10.1(h) are reasonably satisfactory to Buyer.	
 
6.2	Conditions to the Seller’s Closing obligations	
The obligations of the Seller to sell the Shares and to take the other actions required to be taken by it at the Closing are subject to the satisfaction of each of the following conditions (any of which may be waived in whole or in part by the Seller) on or before the Closing Date:
 
a)	there is no material breach of any of the representations and warranties of the Buyer set forth in Clause 7;	
 
b)	each of the Partnership and the Buyer shall substitute and replace the Seller as guarantor under the Torill Knutsen Facility and the Swap Agreements, and the Seller will be released as guarantor thereunder; and	
 
c)	in all respects material to the transactions contemplated hereby, the Buyer shall have performed or complied with all of its obligations pursuant to this Agreement to be performed or complied with by the Buyer at or prior to the Closing Date and shall have delivered each document or instrument to be delivered by it pursuant to this Agreement.	
 
6

6.3	Conditions of the Parties .	
The obligations of Seller to sell the Shares and the obligations of Buyer to purchase the Shares is subject to the satisfaction (or waiver by each of Seller and Buyer) on or prior to the Closing Date of the following conditions:
 
a)	The Seller shall have received any and all written consents, permits, approvals or authorizations of any Governmental Authority or any other Person (including, but not limited to, with respect to the Charter, the Torill Knutsen Facility and the Swap Agreements) and shall have made any and all notices or declarations to or filing with any Governmental Authority or any other Person, including those related to any environmental laws or regulations, required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereunder, including the transfer of the Shares; and	
 
b)	No legal or regulatory action or proceeding shall be pending or threatened by any Governmental Authority to enjoin, restrict or prohibit the purchase and sale of the Shares.	
 
7	REPRESENTATIONS AND WARRANTIES OF THE BUYER	
The Buyer represents and warrants to the Seller that as of the Signing Date and on the Closing Date, unless otherwise expressly stated:
 
7.1	Corporate existence and power	
The Buyer is duly incorporated, validly existing and in good standing under the laws of Norway.
The Buyer has not been declared insolvent; become the subject of a petition in bankruptcy; had a receiver appointed with respect to it or to the Business or part thereof; entered into any arrangement with, or made an assignment for the benefit of, its creditors; or ceased to function as a going concern.
 
7.2	Corporate authorisation and non-contravention	
This Agreement and each other document or instrument delivered or to be delivered in connection with this Agreement has been duly authorised by all necessary corporate action(s) of the Buyer and constitutes or will, when executed, constitute valid and binding obligations of the Buyer enforceable in accordance with its respective terms.
The execution by the Buyer of this Agreement and each other document or instrument delivered or to be delivered in connection with it, and the performance by the Buyer of its obligations under this Agreement and the consummation of the transactions provided for in this Agreement, do not and will not result in a breach of any provision of the articles of association of the Buyer or of any applicable law, order, judgment or decree of any court or any Governmental Authority or of any agreement to which the Buyer is bound.
 
7

The Buyer is not required to obtain any authorisations, consents, approvals or exemptions by any Governmental Authority in connection with the entering into or performance of its obligations under this Agreement.
 
8	REPRESENTATIONS AND WARRANTIES OF THE SELLER	
The Seller represents and warrants to the Buyer as of the Signing Date and on the Closing Date, unless otherwise expressly stated:
 
8.1	Corporate existence and power	
Each of the Company and the Seller is duly incorporated, validly existing and in good standing under the laws of Norway.
Each of the Company and the Seller has not been declared insolvent; become the subject of a petition in bankruptcy; had a receiver appointed with respect to it or to the Business or part thereof; entered into any arrangement with, or made an assignment for the benefit of, its creditors; or ceased to function as a going concern.
 
8.2	Corporate authorisation and non-contravention	
This Agreement and each other document or instrument delivered or to be delivered in connection with this Agreement has been duly authorised by all necessary corporate action(s) of each of the Company and the Seller, as appropriate, and constitutes or will, when executed, constitute valid and binding obligations of each of the Company and the Seller, as appropriate, enforceable in accordance with its respective terms.
The execution by each of the Company and the Seller, as appropriate, of this Agreement and each other document or instrument delivered or to be delivered in connection with it, and the performance by each of the Company and the Seller, as appropriate, of its obligations under this Agreement and the consummation of the transactions provided for in this Agreement, do not and will not result in a breach of any provision of the articles of association of each of the Company and the Seller, as appropriate, or of any applicable law, order, judgment or decree of any court or any Governmental Authority or of any agreement to which each of the Company and the Seller, as appropriate, is bound.
Each of the Company and the Seller, as appropriate, is not required to obtain any authorisations, consents, approvals or exemptions by any Governmental Authority in connection with the entering into or performance of its obligations under this Agreement.
 
8.3	Capitalisation and title	
The Seller has full ownership to the Shares. The Shares are fully authorised, validly issued, fully paid and are, at the time of transfer pursuant to this Agreement, free and clear from any Encumbrances.
There is no outstanding subscription, option or similar rights relating to the Shares.
 
8.4	Records	
The Company’s articles of association and shareholders’ register are true, accurate, up-to-date and complete.
 
8

8.5	Charter documents; validity of the Charter	
The Seller has supplied to the Buyer true and correct copies of the Charter and any related documents, as amended to the Closing Date. The Charter is a valid and binding agreement of the Company enforceable against the Company in accordance with its terms and, to the knowledge of the Seller, the Charter is a valid and binding agreement of all other parties thereto enforceable against such parties in accordance with its terms.
 
8.6	Accounts	
The Accounts have been prepared in accordance with the Accounting Principles and in accordance with the books and records of the Company. The Accounts give a true and accurate view of the financial position, solvency, assets, liabilities, liquidity, cash flow and the result of the operations of the Company as of the Accounts Date.
 
8.7	No undisclosed liabilities	
Neither the Company nor the Vessel has any Encumbrances, or other liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise, and whether due or to become due (including, without limitation, any liability for Taxes and interest, penalties and other charges payable with respect to any such liability or obligation), except for such Encumbrances or other liabilities or obligations appearing in the ship registry of the Vessel and those arising under the Torill Knutsen Facility and the Swap Agreements.
 
8.8	Loans and other financial facilities	
All loans and other financial facilities available to the Company have been made available for review by the Buyer. As of the Signing Date, the principal outstanding amount under the Torill Knutsen Facility is USD 112,125,000.
No event has occurred which gives, or after notice or lapse of time, or both, would give any third party the right to call for repayment from the Company prior to normal maturity of any loan or other financial facility. The Company shall not be indebted, directly or indirectly, to any person who is an officer, director, stockholder or employee of any of the Seller or any spouse, child or other relative or any affiliate of any such person, nor shall any such officer, director, stockholder, employee, relative or affiliate be indebted to the Company.
 
8.9	Assets	
At the Closing Date, the Company shall not be using assets in the Business that it neither owns nor has the right to use pursuant to written agreements with third parties. At the Closing Date, the assets of the Company will comprise all the assets necessary for carrying on the Business fully and effectively to the extent to which it is conducted at the Signing Date.
 
8.10	Absence of certain changes or events	
Since the Accounts Date, there has not occurred or arisen:
 
a)	any change of accounting methods, principles or practices, accounting, invoicing and supplier practice or procedures for the Company;	
 
b)	any acquisition or disposal of, or the entering into any agreement to acquire or dispose of, any asset, other than the sale of products in the ordinary course of business;	
 
9

c)	the termination of any Material Agreement;	
 
d)	any obligations, commitments or liabilities, contingent or otherwise, whether for Taxes or otherwise, except obligations, commitments and liabilities arising in the ordinary course of business;	
 
e)	any event or condition, whether covered by insurance or not, which has resulted in or may result in a Material Adverse Effect; or	
 
f)	the entering into of any agreements or commitments other than on customary terms.	
 
8.11	Agreements	
Each Material Agreement is in full force and effect. No other Material Agreements will be entered into by the Company prior the Closing Date without the prior consent of the Buyer (such consent not to be unreasonably withheld). The Company has fulfilled all material obligations required pursuant to the Material Agreements to have been performed by it prior to the Signing Date and has not waived any material rights thereunder.
There has not occurred any material default on the part of the Company under any of the Material Agreements, or to the knowledge of the Seller, on the part of any other party thereto, nor has any event occurred that with the giving of notice or the lapse of time, or both, would constitute any material default on the part of the Company under any of the Material Agreements nor, to the knowledge of the Seller, has any event occurred that with the giving of notice or the lapse of time, or both, would constitute any material default on the part of any other party to any of the Material Agreements.
The term “ Material Agreement ” means each agreement, contract or other undertaking by or of the Company (a) that is of material importance to the Business or (b) the value of which, in respect of total turnover during one year, is not less than USD 100,000, provided, however, that such term includes the Charter, the Torill Knutsen Facility and the Swap Agreements.
 
8.12	Insurance	
The Company maintains insurance policies on fire, theft, loss, disruption, product and general liability and other forms of insurance with reputable insurers that would reasonably be judged to be sound and required for the Business.
The Company’s insurance policies do not contain any provisions regarding a change of control or ownership of the insured.
The Company is in compliance with all terms and conditions contained in the insurance policies, and nothing has been done or omitted to be done that would make any insurance policy or insurance void or voidable or that would result in a reduction of the coverage ( No: avkortning ).
 
8.13	Environmental matters	
The Company is not and has not been in breach of any applicable laws (whether civil, criminal or administrative), statutes, regulations, directives, codes, judgments, orders or any other measures imposed by any governmental, statutory or regulatory body with regard to the pollution or the protection of the environment or to the protection of human health or human safety, or any other living organisms supported by the environment.
 
10

There is no current governmental investigation or disciplinary proceeding relating to any alleged breach of any law or permit by the Company, and none is pending, nor threatened.
The Company has not, other than as permitted under applicable permits or applicable laws or regulations held from time to time, disposed of, discharged, released, placed, dumped or emitted any hazardous substances, such as pollutants, contaminants, hazardous or toxic materials, wastes or chemicals. Neither the Seller nor the Company has received any formal or informal notice or other communication from which it appears that the Company may be or has been in violation of any laws or permits. There are no actual or contingent obligations on the Company to pay money or carry out any work in order to keep or be granted an extension or renewal of any existing permit. There are no facts or circumstances that could result in such an obligation. The properties used by the Company are not made of or do not contain any form of asbestos or any other toxic substance that may cause damage to the health of the persons working or visiting the premises.
 
8.14	Compliance with laws	
The Company has at all times conducted the Business in accordance with and has complied with any applicable laws in Norway and in any other relevant countries relating to its operations and the Business.
All necessary licences, consents, permits and authorisations have been obtained by the Company to enable the Company to carry on the Business in the places and in the manner in which such Business is now conducted and all such licences, consents, permits and authorisations are valid and subsisting and have been complied with in all respects.
 
8.15	Litigation	
There are no claims, actions, lawsuits, administrative, governmental, arbitration or other legal proceedings (including but not limited to proceedings related to Taxes) pending or threatened against or involving the Company, the Business or properties or assets of the Company and which would result in a Material Adverse Effect if adversely determined.
 
8.16	Taxes	
The Company has properly filed with the appropriate Tax authorities all Tax returns and reports required to be filed for all Tax periods ending prior to the Closing Date. Such filings are true, correct and complete. All information required for a correct assessment of Taxes has been provided.
The Tax returns of the Company have been assessed and approved by the Tax authorities through the Tax years up to and including the years for which such assessment and approval is required, and the Company is not subject to any dispute with any such authority.
All Taxes that have become due have been fully paid or fully provided for in the Accounts, and the Company shall not be liable for any additional Tax pertaining to the period before the Accounts Date. All Taxes for the period after the Accounts Date have been fully paid when due.
 
11

There are no Tax audits, Tax disputes or Tax litigation pending or threatened against or involving the Company. There is no basis for assessment of any deficiency in any Taxes against the Company that has not been provided for in the Accounts or that has not been paid.
The Company is not and has not been involved in any transaction that could be considered as Tax-evasive. All losses for Tax purposes incurred by of the Company are trading losses and are available to be carried forward and set off against income in succeeding periods without limitation and have been accepted by the relevant Tax authorities.
The Company is not and has not been subject to any Tax outside its respective country of fiscal residence.
 
8.17	Relationship with the Seller	
Except as disclosed to the Buyer, there are no written or oral agreements or arrangements between the Company and the Seller, and no liabilities or obligations (contingent or otherwise) owed by the Company to the Seller.
No services provided by the Seller to the Company are necessary in the ordinary course of business.
No payments of any kind, including, but not limited to management charges, have been made by the Company to the Seller, save for payments under agreements or arrangements made on an arm’s-length basis in accordance with applicable law and regulations.
 
8.18	Information	
All documents provided to the Buyer by or on behalf of the Seller or the Company are true and correct, and no document provided to the Buyer by or on behalf of the Seller or the Company contains any untrue statement of a relevant fact or omits to state a relevant fact necessary to make the statements contained in the document not misleading.
There are no facts or circumstances known to the Seller, relating to the affairs of the Company, that have not been disclosed to the Buyer, which, if disclosed, reasonably could have been expected to influence the decision of the Buyer to purchase the Shares on the terms of this Agreement.
The Seller confirms that the Seller, prior to the Signing Date, has made, and until the Closing Date, shall continue to make, all investigations necessary in order to ensure that the statements in Clause 7 are correct.
 
12

9	REPRESENTATIONS AND WARRANTIES OF THE SELLER REGARDING THE VESSEL	
The Seller represents and warrants to the Buyer as of the Signing Date and on the Closing Date, unless otherwise expressly stated:
 
9.1	Flag and title	
The Company is the registered owner of the Vessel and has good and marketable title to the Vessel, free and clear of any and all Encumbrances, other than those arising under the Torill Knutsen Facility. The Vessel is properly registered in the name of the Seller under and pursuant to the flag and law of the United Kingdom, and all fees due and payable in connection with such registration have been paid.
 
9.2	Classification	
The Vessel is entered with Det Norske Veritas and has the highest classification rating. The Vessel is in class without any recommendations or notation as to class or other requirement of the relevant classification society, and if the Vessel is in a port, it is in such condition that it cannot be detached by any port state authority or the flag state authority for any deficiency.
 
9.3	Maintenance	
The Vessel has been maintained in a proper and efficient manner in accordance with internationally accepted standards for good ship maintenance, is in good operating order, condition and repair and is seaworthy, and all repairs made to the Vessel during the last two years and all known scheduled repairs due to be made and all known deficiencies have been disclosed to the Buyer.
 
9.4	Liens	
The Vessel is not (a) under arrest or otherwise detained, (b) other than in the ordinary course of business, in the possession of any person (other than her master and crew) or (c) subject to a possessory lien.
 
9.5	Safety	
The Vessel is supplied with valid and up-to-date safety, safety construction, safety equipment, radio, loadline, health, tonnage, trading and other certificates or documents as may for the time being be prescribed by the laws of the United Kingdom or of any other pertinent jurisdiction, or that would otherwise be deemed necessary by a shipowner acting in accordance with internationally accepted standards for good ship management and operations.
 
9.6	No blacklisting or boycotts	
No blacklisting or boycotting of any type has been applied or currently exists against or in respect of the Vessel.
 
9.7	No options	
There are not outstanding any options or other rights to purchase the Vessel other than the option held by the Buyer pursuant to the Omnibus Agreement.
 
9.8	Insurance	
The insurance policies relating to the Vessel are as set forth on Schedule 1 hereto, each of which is in full force and effect and, to the Seller’s knowledge, not subject to being voided or terminated for any reason.
 
10	COVENANTS PRIOR TO THE CLOSING	
 
10.1	Covenants of the Seller Prior to the Closing	
From the Signing Date to the Closing Date, the Seller shall cause the Company to conduct its business in the usual, regular and ordinary course in substantially the same manner as previously
 
13

conducted. The Seller shall not permit the Company to enter into any contracts or other written or oral agreements prior to the Closing Date, other than such contracts and agreements as have been disclosed to the Buyer prior to the Signing Date, without the prior consent of the Buyer (such consent not to be unreasonably withheld). In addition, the Seller shall not permit the Company to take any action that would result in any of the conditions to the purchase and sale of the Shares set forth in Clause 6 not being satisfied. Furthermore, the Seller hereby agrees and covenants that it:
 
a)	shall use its best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary to consummate and make effective as promptly as possible the transactions contemplated by this Agreement and to co-operate with the Buyer and others in connection with the foregoing;	
 
b)	shall use its best efforts to obtain the authorisations, consents, orders and approvals of regulatory bodies and officials that may be or become necessary for the performance of its obligations pursuant to this Agreement and the completion of the transactions contemplated by it;	
 
c)	shall co-operate with the Buyer and promptly seek to obtain such authorisations, consents, orders and approvals as may be necessary for the performance of the Parties’ respective obligations pursuant to this Agreement;	
 
d)	shall not amend, alter or otherwise modify or permit any amendment, alteration or modification of any material provision of or terminate the Charter or any other contract prior to the Closing Date without the prior written consent of the Buyer, such consent not to be unreasonably withheld or delayed;	
 
e)	shall not exercise or permit any exercise of any rights or options contained in the Charter, without the prior written consent of the Buyer, not to be unreasonably withheld or delayed;	
 
f)	shall observe and perform in a timely manner, all of its covenants and obligations under the Charter, the Torill Knutsen Facility and the Swap Agreements, if any, and in the case of a default by another party thereto, it shall forthwith advise the Buyer of such default and shall, if requested by the Buyer, enforce all of its rights under such Charter, the Torill Knutsen Facility or the Swap Agreements, as applicable, in respect of such default;	
 
g)	shall not cause or, to the extent reasonably within its control, permit any Encumbrances to attach to the Vessel other than in connection with the Torill Knutsen Facility and the Swap Agreements; and	
 
h)	shall permit representatives of the Buyer to make, prior to the Closing Date, at the Buyer’s risk and expense, such surveys, tests and inspections of the Vessel as the Buyer may deem desirable, so long as such surveys, tests or inspections do not damage the Vessel or interfere with the activities of the Seller, the Company or the Charterer thereon and so long as the Buyer shall have furnished the Seller with evidence that adequate liability insurance is in full force and effect.	
 
10.2	Covenants of the Buyer Prior to the Closing	
The Buyer hereby agrees and covenants that during the period of time after the Signing Date and prior to the Closing Date, the Buyer shall, in respect of the Shares to be transferred on the Closing
 
14

Date, take, or cause to be taken, all necessary partnership action, steps and proceedings to approve or authorize validly and effectively the purchase and sale of the Shares and the execution and delivery of this Agreement and the other agreements and documents contemplated hereby.
 
11	TERMINATION	
 
11.1	Termination	
This Agreement may be terminated, and the transactions contemplated by this Agreement may be abandoned, at any time prior to the Closing Date:
 
a)	by either Party if a breach of any provision of this Agreement has been committed by the other Party, such breach has not been waived and such breach is material to the transactions contemplated hereby, the Business or the assets, financial condition or prospect of the Company;	
 
b)	by either Party if satisfaction of any of the conditions in Clause 6.3 is or becomes impossible and Buyer and Seller have not waived such condition;	
 
c)	by the Buyer if satisfaction of any of the conditions in Clause 6.1 is or becomes impossible (other than through the failure of the Buyer to comply with its obligations under this Agreement) and the Buyer has not waived such condition;	
 
d)	by the Seller if satisfaction of any of the conditions in Clause 6.2 is or becomes impossible (other than through the failure of the Seller to comply with its obligations under this Agreement) and the Seller has not waived such condition;	
 
e)	by the Buyer due to a change having occurred that has resulted or may result in a Material Adverse Effect; or	
 
f)	by mutual written consent of the Seller and the Buyer.	
 
11.2	Rights on termination	
If this Agreement is terminated pursuant to Clause 11.1, all further obligations of the Parties pursuant to this Agreement shall terminate without further liability of a Party to the other, provided, however, that the obligations of the Parties contained in Clause 14 (Costs) and Clause 18 (Governing Law and arbitration) shall survive such termination, and further provided, that if this Agreement is terminated by a Party because of the breach of this Agreement by the other Party or because one or more of the conditions to the terminating Party’s obligations under this Agreement is not satisfied as a result of the other Party’s failure to comply with its obligations under this Agreement, the terminating Party’s right to pursue all legal remedies will survive such termination unimpaired.
 
15

12	INDEMNIFICATION	
 
12.1	Indemnity by the Seller	
Subject to Clause 13, following the Closing, the Seller shall be liable for, and shall indemnify, defend and hold harmless the Buyer and its respective officers, directors, employees, agents and representatives (the “ Buyer Indemnitees ”) from and against, any Losses, suffered or incurred by such Buyer Indemnitees:
 
a)	by reason of, arising out of or otherwise in respect of any inaccuracy in, breach of any representation or warranty, or a failure to perform or observe fully any covenant, agreement or obligation of, the Seller in or under this Agreement or in or under any document, instrument or agreement delivered pursuant to this Agreement by the Seller;	
 
b)	subject to Clause 14 (b), any fees, expenses or other payments incurred or owed by the Seller to any brokers, financial advisors or comparable other persons retained or employed by it in connection with the transaction contemplated by this Agreement; or	
 
c)	any Losses suffered or incurred by such Buyer Indemnitees in connection with any claim for the repayment of hire or Losses in relation to the Vessel for periods prior to the Closing.	
 
12.2	Indemnity by the Buyer	
Following the Closing, the Buyer shall be liable for, and shall indemnify, defend and hold harmless the Seller and its respective officers, directors, employees, agents and representatives (the “ Seller Indemnitees ”) from and against, any Losses, suffered or incurred by such Seller Indemnitees by reason of, arising out of or otherwise in respect of any inaccuracy in, breach of any representation or warranty, or a failure to perform or observe fully any covenant, agreement or obligation of, the Buyer in or under this Agreement or in or under any document, instrument or agreement delivered pursuant to this Agreement by the Buyer.
 
12.3	Indemnification procedures with respect to third-party claims	
If the Seller or the Buyer, as the case may be (an “ Indemnified Party ”), shall receive notice of any claim by a third party that is or may be subject to indemnification or compensation from the other Party pursuant to this Agreement (a “ Third-Party Claim ”), the Indemnified Party shall give the other Party (the “ Indemnifying Party ”) prompt written notice of such Third-Party Claim and the Indemnifying Party shall, at the Indemnifying Party’s option, have the right to participate in the defence thereof by counsel at the Indemnifying Party’s own cost and expense. If the Indemnifying Party acknowledges within 30 days from such written notice in writing its obligation to indemnify the Indemnified Party against all Losses that may result from such Third-Party Claim, the Indemnifying Party shall be entitled, at the Indemnifying Party’s option, to assume and control the defence of such Third-Party Claim at the Indemnifying Party’s cost and expense and through counsel of the Indemnifying Party’s choice. No such Third-Party Claim may be settled by the Indemnifying Party without the written consent of the Indemnified Party, unless the settlement involves only the payment of money by the Indemnifying Party. No Third-Party Claim that is being defended in good faith by the Indemnifying Party shall be settled by the Indemnified Party without the written consent of the Indemnifying Party. The Indemnifying Party shall have no obligation to indemnify the Indemnified Party for any losses resulting from the settlement of Third-Party Claims in violation of the provisions of this Clause 12.3.
 
16

13	OMNIBUS AGREEMENT INDEMNIFICATION	
Notwithstanding any other provision of this Agreement, the Seller shall be liable for, and shall indemnify, defend and hold harmless the Partnership and any person controlled by the Partnership, including the Buyer, from and against the matters set forth in Article XIII of the Omnibus Agreement, subject to the terms and conditions set forth therein.
The Seller’s indemnification obligations under this Clause 13 shall only be subject to limitations insofar as such limitations follow from Article XIII of the Omnibus Agreement.
 
14	COSTS	
 
a)	Subject to Clause 14 (b), each party shall pay its own costs and expenses in connection with the preparation for and completion of the transactions contemplated by this Agreement, including but not limited to all fees and expenses of its own representatives, agents, brokers, legal and financial advisers and authorities and no such costs or expenses shall be charged to or paid by, neither directly or indirectly, the Company.	
 
b)	The fees and expenses of AMA Securities Inc. in providing its fairness opinion pursuant to Clause 9.2(b) of the Omnibus Agreement, will be divided equally between the Buyer and the Seller.	
 
15	NOTICES	
All notices, requests, demands, approvals, waivers and other communications required or permitted under this Agreement must be in writing in the English language and shall be deemed to have been received by a Party when:
 
a)	delivered by post, unless actually received earlier, on the third Business Day after posting, if posted within Norway, or the fifth Business Day, if posted to or from a place outside Norway;	
 
b)	delivered by hand, on the day of delivery; or	
 
c)	delivered by fax, on the day of dispatch if supported by a written confirmation from the sender’s fax machine that the message has been properly transmitted.	
All such notices and communications shall be addressed as set forth below or to such other addresses as may be given by written notice in accordance with this Clause 15.
If to the Seller:
Knutsen NYK Offshore Tankers AS
Attention: Chairman of the Board
Smedasundet 40, Postboks 2017, 5504 Haugesund, Norway
Fax no.: +47 52 70 40 40
If to the Buyer:
KNOT Shuttle Tankers AS
Attention: Chairman of the Board
Smedasundet 40, Postboks 2017, 5504 Haugesund, Norway
Fax no.: +47 52 70 40 40
 
17

16	ASSIGNMENT	
This Agreement shall be binding upon and inure to the benefit of the successors of the Parties, but shall not be assignable by any of the Parties without the prior written consent of the other Party. The benefit of this Agreement may, however, be assigned by either of the Parties to any group directly or indirectly controlling, controlled by or under common control of the assignor, provided that the assignor shall remain liable for its own debt and for all obligations under this Agreement.
 
17	MISCELLANEOUS	
 
17.1	Further Assurances	
From time to time after the Signing Date, and without any further consideration, the Parties agree to execute, acknowledge and deliver all such additional deeds, assignments, bills of sale, conveyances, instruments, notices, releases, acquittances and other documents, and shall do all such other acts and things, all in accordance with applicable law, as may be necessary or appropriate (a) more fully to assure that the applicable Parties own all of the properties, rights, titles, interests, estates, remedies, powers and privileges granted by this Agreement, or which are intended to be so granted, (b) more fully and effectively to vest in the applicable Parties and their respective successors and assigns beneficial and record title to the interests contributed and assigned by this Agreement or intended so to be and (c) more fully and effectively to carry out the purposes and intent of this Agreement.
 
17.2	Integration	
This Agreement, the Schedules and Appendices hereto and the instruments referenced herein supersede all previous understandings or agreements among the Parties, whether oral or written, with respect to its subject matter hereof. This Agreement, the Schedules and Appendices hereto and the instruments referenced herein contain the entire understanding of the Parties with respect to the subject matter hereof and thereof. No understanding, representation, promise or agreement, whether oral or written, is intended to be or shall be included in or form part of this Agreement unless it is contained in a written amendment hereto executed by the Parties hereto after the Signing Date.
 
17.3	No Broker’s Fees	
No one is entitled to receive any finder’s fee, brokerage or other commission in connection with the purchase of the Shares or the consummation of the transactions contemplated by this Agreement.
 
18	GOVERNING LAW AND ARBITRATION	
This Agreement shall be governed by and construed in accordance with Norwegian law.
The Parties shall seek to solve through negotiations any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity hereof. If the Parties fail to solve such dispute, controversy or claim by a written agreement within 60 days after one of the Parties has requested such negotiations by notice to the other Party, such dispute, controversy or claim shall be finally settled by arbitration in Haugesund in the English language in accordance with the Norwegian Arbitration Act. The arbitration tribunal shall consist of three arbitrators, of which the Buyer shall appoint one arbitrator and the Seller shall appoint one arbitrator. The arbitrators so appointed shall appoint the third arbitrator, who shall be the chairman of the arbitration tribunal. In the event of failure by a Party to appoint its arbitrator within 30 days after the request for arbitration first is given, or the failure by the first two arbitrators to appoint the third arbitrator
 
18

within 30 days after appointment of the last of the first two arbitrators to be appointed, such arbitrator or arbitrators shall be appointed by the district judge (No: “ Sorenskriver ”) of Haugesund District Court. Any Party may seek judgement upon any award in any court having jurisdiction, or an application may be made to such court for the judicial acceptance of the award and for an order of enforcement.
Notwithstanding the above, either Party may bring an action in any court of competent jurisdiction (a) for provisional relief pending the outcome of arbitration, including, without limitation, provisional injunctive relief or pre-judgement attachment of assets, or (b) to compel arbitration or enforce any arbitral award. For purposes of any proceeding authorised by this Clause 17, each Party hereby consents to the non-exclusive jurisdiction of Haugesund, Norway.
* * *
 
19

This Agreement has been executed in two original copies, of which each Party has retained one copy.

Knutsen NYK Offshore Tankers AS	 		 	KNOT Shuttle Tankers AS	
					
By:	 	/ S / Ø YSTEIN M OKSHEIM K ALLEKLEV	 		 	By:	 	/ S / K ARL G ERHARD B RASTEIN D AHL	
					
Name:	 	Øystein Moksheim Kalleklev	 		 	Name:	 	Karl Gerhard Brastein Dahl	
					
Title:	 	Chief Financial Officer	 		 	Title:	 	Senior Vice President Board Member	
 
20

INSURANCES
Schedule 1
Insurance Policies (all quoted values are USD)
 
Hull & Machinery

Hull	  	Insured Value:	  	$	145 000 000	  	  	Policy Renewal:	  	04.11.2013	
Hull Interest	  	Insured Value:	  	$	36 250 000	  	  	Policy Renewal:	  	04.11.2013	
Freight Interest	  	Insured Value:	  	$	36 250 000	  	  	Policy Renewal:	  	04.11.2013	
Loss of Hire (14-day deductible, 180-day maximum single claim, 180-day maximum sum of all claims paid)

Daily Amount: $ 63 500	  	Insured Value:	  	$	    5 715 000	  	  	Policy Renewal:	  	 	04.11.2013	  	

P&I Insurance	

Gross Tonnage: 80 850	  		  		  	Policy Renewal:	  	 	20.02.2014	  	

War Risk	

	  	Insured Value:	  	$	217 500 000	  	  	Policy Renewal:	  	 	01.01.2014	  	
Hull & Machinery

 	5	% 	 	Security through Edge Insurance Brokers (Singapore) PTE. Ltd.	
		
 	5	% 	 	India International Insurances, Singapore	
 	2,75	% 	 	Security Through Edge Insurance Brokers (Singapore) Pte. Ltd.	
 	2,75	% 	 	Asia Capital Re. Singapore	
 	2,25	% 	 	Security through JLJ Maritime S.A	
 	2,25	% 	 	Vienna Insurance Group AG	
 	 	 	 		
 	10	% 	 	Total	
		
 	12,5	% 	 	Norwegian Hull Club-Gjensidige Assuranseforening, bergen	
 	12,5	% 	 	Gard AS, as agent only for Gard M&E Ltd.	
 	2	% 	 	Codan Forsikring NUF	
 	10	% 	 	Aon London Broking Center	
 	10	% 	 	Lloyds Syndicate 1209 XL	
 	5	% 	 	Aon London Broking Center	
 	5	% 	 	Arch Insurance Comp. (Europe) Ltd.	
 	2,5	% 	 	International Insurance Company of Hannover Ltd.	
 	5	% 	 	Skuld 1897	
 	3	% 	 	Mitsui Sumitomo Insurance Co. Ltd.	
 	5	% 	 	Chaucer Underwriting	
 	5	% 	 	Lloyds Syndicate 1084 Chaucer	
 	2	% 	 	Alandia Insurance Co. Ltd	
 	6,5	% 	 	Tokio Marine & Nichido Fire Ins. Co. Ltd.	
 	2,5	% 	 	The Swedish Club	
 	5	% 	 	Aon Benfield Italia S.p.A	
 	5	% 	 	S.I.A.T	
 	2,5	% 	 	UNIQA Österreich Versicherungen AG	
 	2	% 	 	Markel International Sweden	
 	9	% 	 	Aon London Broking Center	
 	9	% 	 	Swiss Re International SE, UK Branch	
 	3	% 	 	Ingosstrakh Insurance Company Ltd.	
 	 	 	 		
 	90	% 	 	Total	
		
 	100	% 	 	Total	
 
21

Hull Interest/Freight Interest

 	2,5	% 	 	Alandia Insurance Co. Ltd	
 	10	% 	 	Aon London Broking Center	
 	10	% 	 	Lloyds Syndicate 1209 XL	
 	5	% 	 	Aon London Broking Center	
 	5	% 	 	Arch Insurance Comp. (Europe) Ltd.	
 	9	% 	 	Aon London Broking Center	
 	9	% 	 	Swiss Re International SE, UK Branch	
 	2	% 	 	Chaucer Underwriting A/S	
 	2	% 	 	Lloyds Syndicate 1084 Chaucer	
 	18	% 	 	Codan Forsikring NUF	
 	19	% 	 	Gard A, as agents only for Gard M&E Ltd.	
 	2,5	% 	 	International Insurance Company of Hannover Ltd.	
 	20	% 	 	Norwegian Hull Club	
 	3	% 	 	Skuld 1897	
 	2,5	% 	 	The Swedish Club	
 	6,5	% 	 	Tokio Marine & Nichido Fire Ins. Co. Ltd.	
 	 	 	 		
 	100	% 	 	Total	
Loss of Hire

 	10	% 	 	Codan Forsikring, Norw. Branch of Codan Fors. AS,DK	
 	10	% 	 	Försäkringsaktiebolaget Alandia, Mariehamn	
 	25	% 	 	Gard AS as Agent Only for Gard M.&e:, bergen	
 	10	% 	 	Lloyds Syndicate NO 1897 Skuld	
 	10	% 	 	Security Through Mar Risk Services Ltd.	
 	10	% 	 	Lloyds Syndicate No. 1209 XL	
 	25	% 	 	Norwegian Hull Club, Bergen (20134375)	
 	10	% 	 	Tokio Marine & Nichido Fire Ins. Co. Ltd. Tokyo	
 	 	 	 		
 	100	% 	 	Total	
OR

 	10	% 	 	Codan Forsikring, Norw. Branch of Codan Fors. AS,DK	
 	15	% 	 	Försäkringsaktiebolaget Alandia, Mariehamn	
 	22	% 	 	Gard AS AS Agent Only for Gard M.&e:, bergen	
 	10	% 	 	Lloyds Syndicate NO 1897 Skuld	
 	10	% 	 	Security Through Mar Risk Services Ltd.	
 	10	% 	 	Lloyds Syndicate No. 1209 XL	
 	3	% 	 	Mitsui Sumitomo Insurance Co. Ltd. Tokyo	
 	15	% 	 	Norwegian Hull Club, Bergen (20134368)	
 	15	% 	 	Tokio Marine & Nichido Fire	
 	 	 	 		
 	100	% 	 	Total	
War Risk

 	100	% 	 	The Norwegian Shipowners Mutual War Risk Insurance Association	
P&I

 	100	% 	 	Skuld	
FDD

 	100	% 	 	Nordisk	
 
22

Schedule 2
ACCOUNTS
[Separate attachment]
 
23

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Audited Combined Financial Statements as of and for the Years Ended December 31, 2013 and 2012
Index to Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Audited Combined Financial Statements as of and for the Years Ended December 31, 2013 and 2012

Report of Independent Auditors	  	 	2	  	
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Combined Statement of Operations for the Years Ended December 31, 2013 and 2012	  	 	3	  	
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Combined Balance Sheet as of December 31, 2013 and 2012	  	 	4	  	
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Combined Statement of Owner’s Equity for the Years Ended December 31, 2013 and 2012	  	 	5	  	
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Combined Statement of Cash Flows for the Years Ended December 31, 2013 and 2012	  	 	6	  	
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Notes to Combined Financial Statements as of and for the Years Ended December 31, 2013 and 2012	  	 	7	  	
 
1

Report of Independent Registered Public Accounting Firm
To the Board of Directors of KNOT Offshore Partners LP
We have audited the combined financial statements of Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS, which comprise the combined balance sheets as of December 31, 2013 and 2012, and the related combined statements of operations, combined statements of owner’s equity and combined statements of cash flows for the years then ended, and the related notes to the combined financial statements.
Management’s Responsibility for the Combined Financial Statements
Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements.
Opinion
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Knutsen Shuttle Tanker 14 AS and Knutsen Shuttle Tanker 15 AS as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ Ernst & Young AS
Bergen, Norway
June 23, 2014
 
2

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS
Combined Statements of Operations
For the Years Ended December 31, 2013 and 2012
(U.S. Dollars in thousands)

 	  	Year Ended
December 31,	 	
 	  	2013	 	 	2012	 	
Time charter revenues	  	$	12,451	  	 	$	—  	 	
Total revenues (Notes 2(d), 4, 5, and 13)	  	 	12,451	  	 	 	—  	 	
Operating expenses: (Note 13)	  				 				
Vessel operating expenses (Note 2(d))	  	 	3,759	  	 	 	1	  	
Depreciation and amortization (Note 9)	  	 	3,303	  	 	 	—  	 	
General and administrative expenses	  	 	100	  	 	 	72	  	
	  	 	 	 	 	 	 	 	
Total operating expenses	  	 	7,162	  	 	 	73	  	
	  	 	 	 	 	 	 	 	
Operating income	  	 	5,289	  	 	 	(73	)	
	  	 	 	 	 	 	 	 	
Finance income (expense): (Notes 2(e) and 13)	  				 				
Interest income	  	 	1	  	 	 	1	  	
Interest expense (Notes 6(a), 9(a) and 13)	  	 	(2,293	)	 	 	(2	)	
Other finance expense (Note 6(b))	  	 	(749	)	 	 	(18	)	
Net gain (loss) on foreign currency transactions	  	 	748	  	 	 	(293	)	
	  	 	 	 	 	 	 	 	
Total finance expense	  	 	(2,293	)	 	 	(312	)	
	  	 	 	 	 	 	 	 	
Income (loss) before income taxes	  	 	2,996	  	 	 	(385	)	
Income tax benefit (expense) (Note 12)	  	 	—  	 	 	 	—  	 	
	  	 	 	 	 	 	 	 	
Net income (loss)	  	$	2,996	  	 	$	(385	)	
	  	 	 	 	 	 	 	 	
A Statement of Other Comprehensive Income (Loss) has not been presented as there are no items recognized in other comprehensive income (loss).
The accompanying notes are an integral part of these financial statements
 
3

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS
Combined Balance Sheets
As of December 31, 2013 and 2012
(U.S. Dollars in thousands)

 	  	December 31,	 	
 	  	2013	 	 	2012	 	
Assets	  				 				
Current assets:	  				 				
Cash and cash equivalents (Notes 2(f) and 7)	  	$	11,841	  	 	$	228	  	
Trade accounts receivable, less allowance for doubtful accounts of $0 in 2013 and $0 in 2012	  	 	3,777	  	 	 	—  	  	
Receivables from owners and affiliates	  	 	775	  	 	 	—  	  	
Inventories (Note 2(h))	  	 	289	  	 	 	—  	  	
Other current assets (Notes 2(i) and 8(b))	  	 	1,641	  	 	 	1,325	  	
	  	 	 	 	 	 	 	 	
Total current assets	  	 	18,323	  	 	 	1,553	  	
	  	 	 	 	 	 	 	 	
Long-term assets:	  				 				
Vessels and equipment (Notes 2(j), 2(k), 2(l), and 9):	  				 				
Vessels	  	 	287,486	  	 	 	—  	  	
Vessels under construction	  	 	—  	  	 	 	126,663	  	
Less accumulated depreciation and amortization	  	 	(3,303	)	 	 	—  	  	
	  	 	 	 	 	 	 	 	
Net property, plant, and equipment	  	 	284,183	  	 	 	126,663	  	
	  	 	 	 	 	 	 	 	
Deferred debt issuance cost (Note 2(m))	  	 	4,114	  	 	 	4,301	  	
	  	 	 	 	 	 	 	 	
Total assets	  	$	306,620	  	 	$	132,517	  	
	  	 	 	 	 	 	 	 	
Liabilities and Owner’s Equity	  				 				
Current liabilities:	  				 				
Trade accounts payable	  	$	580	  	 	$	28	  	
Accrued expenses (Note 10)	  	 	1,830	  	 	 	584	  	
Current portion of long-term debt (Notes 7 and 11)	  	 	19,500	  	 	 	2,438	  	
Prepaid charter and deferred revenue (Note 2(o))	  	 	1,487	  	 	 	—  	  	
Payables to owners and affiliates	  	 	7,065	  	 	 	9,667	  	
Other current liabilities	  	 	—  	  	 	 	218	  	
	  	 	 	 	 	 	 	 	
Total current liabilities	  	 	30,462	  	 	 	12,935	  	
	  	 	 	 	 	 	 	 	
Long-term liabilities:	  				 				
Long-term debt (Notes 7 and 11)	  	 	212,063	  	 	 	73,269	  	
Other long-term liabilities	  	 	5,518	  	 	 	—  	  	
	  	 	 	 	 	 	 	 	
Total liabilities	  	 	248,043	  	 	 	86,204	  	
	  	 	 	 	 	 	 	 	
Commitments and contingencies (Notes 2(p) and 14)	  				 				
Equity:	  				 				
Share capital, par value $366.3, 200 shares issued at December 31, 2013 and 2012	  	 	73	  	 	 	73	  	
Share premium	  	 	43,077	  	 	 	43,077	  	
Other paid in equity	  	 	11,229	  	 	 	1,961	  	
Retained earnings	  	 	4,198	  	 	 	1,202	  	
Total equity	  	 	58,577	  	 	 	46,313	  	
	  	 	 	 	 	 	 	 	
Total liabilities and equity	  	$	306,620	  	 	$	132,517	  	
	  	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these financial statements.
 
4

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS
Combined Statements of Owner’s Equity
For the Years Ended December 31, 2013 and 2012
(U.S. Dollars in thousands)

 	  	Share Capital (1)	 	  	Share
Premium	 	  	Other
Paid-in
Equity	 	  	Retained
Earnings	 	 	Total Equity	 	
Equity as of January 1, 2012	  	$	73	  	  	$	43,077	  	  	$	—  	  	  	$	1,587	  	 	$	44,737	  	
Net loss for the year	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	(385	) 	 	 	(385	) 	
Group contribution	  	 	—  	  	  	 	—  	  	  	 	1,961	  	  	 	—  	  	 	 	1,961	  	
Total equity as of December 31, 2012	  	 	73	  	  	 	43,077	  	  	 	1,961	  	  	 	1,202	  	 	 	46,313	  	
Net income for the year	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	2,996	  	 	 	2,996	  	
Group contribution	  	 	—  	  	  	 	—  	  	  	 	9,268	  	  	 	—  	  	 	 	9,268	  	
Total equity as of December 31, 2013	  	$	73	  	  	$	43,077	  	  	$	11,229	  	  	$	4,198	  	 	$	58,577	  	

(1)	All shares have the same rights in the Companies.	
The accompanying notes are an integral part of these financial statements.
 
5

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS
Combined Statements of Cash Flows
For the Years Ended December 31, 2013 and 2012
(U.S. Dollars in thousands)

 	  	Year Ended December 31,	 	
 	  	2013	 	 	2012	 	
Cash flows provided by operating activities:	  				 				
Net income (loss)	  	$	2,996	  	 	$	(385	) 	
Adjustments to reconcile net income (loss) to cash provided by operating activities:	  				 				
Depreciation and amortization	  	 	3,303	  	 	 	—  	  	
Amortization of deferred debt issuance cost	  	 	331	  	 	 	—  	  	
Unrealized (gain) loss on foreign currency transactions	  	 	(345	) 	 	 	346	  	
Other items	  	 	7,005	  	 	 	—  	  	
Changes in operating assets and liabilities	  				 				
Decrease (increase) in trade accounts receivable	  	 	(3,777	) 	 	 	—  	  	
Decrease (increase) in receivables from owner and affiliates	  	 	(775	) 	 	 	—  	  	
Decrease (increase) in inventories	  	 	(289	) 	 	 	—  	  	
Decrease (increase) in other current assets	  	 	(118	) 	 	 	(397	) 	
Increase (decrease) in trade accounts payable	  	 	552	  	 	 	(54	) 	
Increase (decrease) in payable to owners and affiliates	  	 	7,065	  	 	 	—  	  	
Increase (decrease) in accrued expenses	  	 	1,246	  	 	 	365	  	
Increase (decrease) in other liabilities	  	 	(218	) 	 	 	218	  	
	  	 	 	 	 	 	 	 	
Net cash provided by operating activities	  	 	16,976	  	 	 	93	  	
	  	 	 	 	 	 	 	 	
Cash flows from investing activities:	  				 				
Disposals (additions) to vessel and equipment	  	 	(160,054	) 	 	 	(46,334	) 	
	  	 	 	 	 	 	 	 	
Net cash used in investing activities	  	 	(160,054	) 	 	 	(46,334	) 	
	  	 	 	 	 	 	 	 	
Cash flows from financing activities:	  				 				
Proceeds from issuance of long-term debt	  	 	158,294	  	 	 	39,035	  	
Repayment of long-term debt	  	 	(2,438	) 	 	 	—  	  	
Payments of debt issuance cost	  	 	(1,111	) 	 	 	(2,023	) 	
Changes in payables to owners and affiliates	  	 	(9,327	) 	 	 	7,343	  	
Contributions from/distribution to owner, net	  	 	9,268	  	 	 	1,961	  	
	  	 	 	 	 	 	 	 	
Net cash provided by (used in) financing activities	  	 	154,686	  	 	 	46,316	  	
	  	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash	  	 	5	  	 	 	(6	) 	
Net increase (decrease) in cash and cash equivalents	  	 	11,613	  	 	 	69	  	
Cash and cash equivalents at the beginning of the year	  	 	228	  	 	 	159	  	
	  	 	 	 	 	 	 	 	
Cash and cash equivalents at the end of the year	  	$	11,841	  	 	$	228	  	
	  	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these financial statements.
 
6

1) Description of Business
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS (hereafter referred as the “Companies”) own the 123,000 DWT Suez-max shuttle tanker, Hilda Knutsen , and the 123,000 DWT Suez-max shuttle tanker, Torill Knutsen , respectively, delivered from Hyundai Heavy Industries (HHI) Shipyard in South Korea on August 5, 2013 and November 4, 2013.
Knutsen Shuttle Tankers 14 AS was established on March 25, 2011 to take ownership of one building contract for one 123,000 DWT Suez-max shuttle tanker, Hilda Knutsen, delivered on August 5, 2013. Knutsen Shuttle Tankers 15 AS was established on June 1, 2011 to take ownership of one building contract for one 123,000 DWT Suez-max shuttle tanker, Torill Knutsen, delivered on November 4, 2013. Both the Hilda Knutsen and the Torill Knutsen (the “Vessels”) are on time-charter contracts to Eni Trading and Shipping S.p.A. (“Eni”), for operation primarily on the Goliat offshore oil field outside northern Norway on a five-year time-charter agreement with five one-year-options. In the case of the charter for the Torill Knutsen , Eni has the option, at any time before May 31, 2016, to extend the charter term to ten years in exchange for a reduction in the hire rate.
The Companies are owned by Knutsen NYK Offshore Tankers AS (“KNOT”), and are operating as an integrated part of KNOT. KNOT is owned 50% by TS Shipping Invest AS (“TSSI”) and 50% by Nippon Yusen Kaisha (“NYK”). Technical and commercial management of the vessels have been subcontracted to Knutsen OAS Shipping AS (“KOAS”) up to July 1, 2012 and thereafter by KNOT Management AS, a 100% owned subsidiary of KNOT. KOAS is controlled 99% by TSSI.
There are no employees in the Companies and daily operation is managed by KNOT Management AS.
2) Summary of Significant Accounting Policies
(a) Basis of Preparation
The combined financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
(b) Reporting Currency
The combined financial statements are prepared in the reporting currency of U.S. Dollars. The functional currency of the Companies is the U.S. Dollar, because both entities operate in the international shipping market all revenues are U.S. Dollars denominated and the majority of the expenditures are made in U.S. Dollars. Transactions involving other currencies during the year are converted into U.S. Dollars using the exchange rates in effect at the time of the transactions. As of the balance sheet dates, monetary assets and liabilities that are denominated in currencies other than the U.S. Dollar are translated to reflect the year-end exchange rates. Resulting gains and losses are reflected separately in the accompanying combined statements of operations.
(c) Use of Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives and impairment of Vessels, drydocking, and income taxes.
(d) Revenues and Operating Expenses
The Companies recognize revenues from time charters as operating leases on a straight-line basis over the term of the charter, net of any commissions. Under time charters, revenue is not recognized during days the Vessel is off-hire. Revenue is recognized from delivery of the Vessel to the charterer, until the end of the contract period. Under time charters, the Companies are responsible for providing the crewing and other services related to the Vessel’s operations, the cost of which is included in the daily hire rate, except when off-hire. Fees received from customers for customized equipment are deferred and recognized over the contract period. The Companies recognize revenues from spot contracts as voyage revenues using the percentage of completion method on a discharge-to-discharge basis.
Voyage expenses are all expenses unique to a particular voyage, including bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls and agency fees. Voyage expenses are paid by the customer under time charters.
Vessel operating expenses include crewing, repairs and maintenance, insurance, stores, lube oils and communication expenses. Vessel operating expenses are paid by the Companies for time charters and during off-hire and are recognized when incurred.
As further discussed in Note 13—Related Party Transactions, related parties have provided the management services for the Vessels and employ the crews that work on the Vessels. The Companies have no direct employees and, accordingly, are not liable for any pension or post-retirement benefits.
(e) Financial Income (Expense)
Interest expenses incurred on the Companies’ debt incurred during the construction of the Vessels exceeding one year are capitalized during the construction period.
 
7

(f) Cash and Cash Equivalents
The Companies consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
(g) Trade Accounts Receivable
Accounts receivable are recorded at the invoiced amount and do not bear interest. Under terms of the current time charters, the customers are committed to pay for the full month’s charter the first day of each month. See Note 2(o) —Summary of Significant Accounting Policies: Prepaid Charter and Deferred Revenue. The allowance for doubtful accounts is the Companies’ best estimate of the amount of probable credit losses in existing accounts receivable. The Companies establish provisions for doubtful accounts on a case-by-case basis when it is unlikely that required payments of specific amounts will occur. In establishing these provisions, the Companies consider the financial condition of the customer as well as specific circumstances related to the receivable. Receivable amounts determined to be unrecoverable are written-off. There were no provisions as allowance for doubtful accounts or amounts written-off against the allowance for doubtful accounts as of December 31, 2013 and 2012. The Companies do not have any off-balance-sheet credit exposure related to their customers.
(h) Inventories
Inventories, which are comprised principally of lubricating oils, are stated at the lower of cost or market. For vessels on time charters, there are no bunkers, as the charterer supplies the bunkers, which principally consist of fuel oil. Cost is determined using the first-in, first-out method for all inventories.
(i) Other Current Assets
Other current assets principally consist of prepaid expenses, the current portion of deferred cost and other receivables.
(j) Vessels and Equipment
Vessels and equipment are stated at the historical acquisition or construction cost, including capitalized interest, supervision and technical and delivery cost, net of accumulated depreciation and impairment loss, if any. Expenditures for subsequent conversions and major improvements are capitalized, provided that such costs increase the earnings capacity or improve the efficiency or safety of the vessels.
Generally, the Companies drydock each vessel every 60 months until the vessel is 15 years old and every 30 months thereafter, as required for the renewal of certifications issued by classification societies. For vessels operating on time charters, the Companies capitalize the costs directly associated with the classification and regulatory requirements for inspection of the vessels, major repairs and improvements incurred during drydocking. Drydock cost is amortized on a straight-line basis over the period until the next planned drydocking takes place. The Companies expense costs related to routine repairs and maintenance performed during drydocking or as otherwise incurred. For vessels that are newly built or acquired, an element of the cost of the vessel is initially allocated to a drydock component and amortized on a straight-line basis over the period until the next planned drydocking. When significant drydocking expenditures occur prior to the expiration of this period, the Companies expense the remaining unamortized balance of the original drydocking cost in the month of the subsequent drydocking. For vessels operating on bareboat charters, the charter party bears the cost of any drydocking.
Depreciation on vessels and equipment is calculated on a straight-line basis over the asset’s estimated useful life, less an estimated residual value, as follows:

 	  	Useful Life	 	
Hull	  	 	25 years	  	
Anchor-handling, loading and unloading equipment	  	 	25 years	  	
Main/auxiliary engine	  	 	25 years	  	
Thruster, dynamic positioning systems, cranes and other equipment	  	 	25 years	  	
Drydock costs	  	 	2.5–5 years	  	
A Vessel is depreciated to its estimated residual value, which is calculated based on the weight of the ship and estimated steel price. Any cost related to the disposal is deducted from the residual value.
(k) Capitalized Interest
Interest expense incurred on the Companies’ debt during the construction of the Vessels exceeding one year is capitalized during the construction period.
(l) Impairment of Long-Lived Assets
Vessels and equipment, vessels under construction and intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Companies first compare undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
 
8

(m) Debt Issuance Costs
Debt issuance costs, including fees, commissions and legal expenses, are deferred. Debt issuance costs of term loans are amortized over the term of the relevant loan. Amortization of debt issuance costs is included in interest expense.
(n) Income Taxes
The tax expense in the income statement includes both tax payable and changes in deferred tax. Deferred tax is calculated at 28% on the basis of temporary differences between accounting and tax values and tax loss carried forward at the year end. Tax increasing and tax reducing temporary differences which reverse or may be reversed in the same period are assessed and netted. The Companies are subject to the Norwegian Tonnage Tax regime (“the tonnage tax regime”). Under the tonnage tax regime, the tax is based on the tonnage of the vessel and the operating income is tax free. The net financial income and expense remains taxable as ordinary income tax for entities subject to the tonnage tax regime. Tonnage tax is classified as an operating expense. To be within the scheme the Companies should meet certain requirements, such as only ownership of ship/ shares in the shipping companies, and only own certain types of financial assets.
(o) Prepaid Charter and Deferred Revenue
Under terms of the time charters, the customer pays for the month’s charter the first day of each month and that is recorded as prepaid charter revenues. Deferred revenues for fees received from customers for customized equipment are classified as prepaid charter and deferred revenue for the current portion and as other long-term liabilities for the non-current portion.
(p) Commitments, Contingencies and Insurance Proceeds
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. See Note 14—Commitments and Contingencies.
Insurance claims for property damage for recoveries up to the amount of loss recognized are recorded when the claims submitted to insurance carriers are probable of recovery. Claims for property damage in excess of the loss recognized and for loss off-hire are considered gain contingencies, which are generally recognized when the proceeds are received.
(q) Fair Value Measurements
The Companies utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Companies determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
 
 	•	 	Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.	
 
 	•	 	Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.	
 
 	•	 	Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.	
(r) Recently Issued Accounting Standards
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, Fair Value measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). The new standards do not extend the use of fair value but, rather, provide guidance about how fair value should be applied where it already is required or permitted under International Financial Reporting Standards (“IFRS”) or U.S. GAAP. For U.S. GAAP, most of the changes are clarifications of existing guidance or wording changes to align with IFRS. A public entity is required to apply ASC 2011-04 prospectively for interim and annual periods beginning after December 5, 2011. The adoption of ASU 2011-04 did not have a material impact on the Companies’ combined financial statements.
In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on its financial position, and to allow investors to better compare financial statements prepared under U.S. GAAP with financial statements prepared under IFRS. The new standards are effective for annual periods beginning January 1, 2013, and interim periods within those annual periods. Retrospective application is required. The Companies adopted the provisions of ASU 2011-11 as of January 1, 2013. The adoption of ASU 2011-11 did not have a material impact on the Companies’ combined financial statements.
 
9

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). ASU 2013-02 requires reporting and disclosure about changes in accumulated other comprehensive income (“AOCI”) balances and reclassifications out of AOCI. For public companies, the ASU is effective prospectively for fiscal years and interim periods within those years beginning after December 15, 2012. The adoption of ASU 2013-02 did not have a material impact on the Companies’ combined financial statements.
There are no recent accounting pronouncements issued whose adoption would have a material impact on the Companies’ financial statements in the current year or are expected to have a material impact on future years.
3) Significant Risks and Uncertainties Including Business and Credit Concentrations
Each of the Vessels is currently employed under long-term fixed charters, which mitigates earnings risk. The Companies’ operational results are dependent on the worldwide market for shuttle tankers and timing of entrance into long-term charters. Market conditions for shipping activities are typically volatile, and, as a consequence, the hire rates may vary from year to year. The market is mainly dependent upon two factors: the supply of vessels and the overall growth in the world economy. The general supply of vessels is a combination of newbuilds, demolition activity of older vessels and legislation that limits the use of older vessels or new standards for vessels used in specific trades.
The Companies did not incur any loss relating to their customers during the years ended December 31, 2013, and 2012.
The following table presents revenues and percentage of combined revenues for customers that accounted for more than 10% of the combined revenues during the years ended December 31, 2013, and 2012.

 	  	Year Ended December 31,	 	
(U.S. Dollars in thousands)	  	2013	 	 	2012	 	
Eni Trading and Shipping S.p.A	  	$	12,451	  	  	 	100	%	 	$	—  	 	  	 	0	%	
The Companies have financial assets that expose them to credit risk arising from possible default by a counterparty. The Companies consider their counterparties to be creditworthy financial institutions and do not expect any significant loss to result from non-performance by such counterparties. The maximum loss due to credit risk that the Companies would incur if counterparties failed completely to perform would be the carrying value of cash and cash equivalents and trade accounts receivable. The Companies, in the normal course of business, do not demand collateral from their counterparties.
4) Operating Leases
The time charters of the vessels with third parties are accounted for as operating leases. The minimum contractual future revenues to be received from time charters as of December 31, 2013, were as follows:

(U.S. Dollars in thousands)	  	 	 	
2014	  	$	44,472	  	
2015	  	 	44,472	  	
2016	  	 	44,472	  	
2017	  	 	44,472	  	
2018	  	 	32,188	  	
2019 and thereafter	  	 	0	  	
	  	 	 	 	
Total	  	$	210,076	  	

 	•	 	Knutsen Shuttle Tanker 14 AS owns the vessel, Hilda Knutsen , a shuttle tanker built in 2013 that is currently operating under a time charter that expires in August 2018, with Eni, with five one-year-options to extend until August 2023.	
 
 	•	 	Knutsen Shuttle Tanker 15 AS owns the vessel, Torill Knutsen , a shuttle tanker built in 2013 that is currently operating under a time charter that expires in November 2018, with Eni, with five one-year-options to extend until November 2023. In the case of the charter for the Torill Knutsen , Eni has the option, at any time before May 31, 2016, extend the charter term to ten years in exchange for a reduction in the hire rate.	
5) Segment Information
The Companies have not presented segment information as they consider their operations to occur in one reportable segment, the shuttle tanker market. In time charters, the charterer, not the Companies, controls the choice of which trading areas the vessel will serve. Accordingly, the Companies’ management, including the chief operating decision makers, does not evaluate performance according to geographical region.
During 2013, the vessels operated under two charters. See Note 3—Significant Risks and Uncertainties Including Business and Credit Concentrations for revenues from customers accounting for over 10% of the combined revenue. In both time charters, the charterer controls the choice of which trading areas the Vessels will serve. Accordingly, the Companies’ management, including the chief decision makers, do not evaluate performance according to geographical region.
 
10

6) Finance Income (Expense)
(a) Interest Expense
A reconciliation of total interest cost to interest expense as reported in the statement of operations for the years ended December 31, 2013 and 2012 is as follows:

(U.S. Dollars in thousands)	  	2013	 	  	2012	 	
Interest cost capitalized	  	$	2,762	  	  	$	2,557	  	
Interest expense	  	 	2,293	  	  	 	2	  	
	  	 	 	 	  	 	 	 	
Total interest cost	  	$	5,055	  	  	$	2,559	  	
	  	 	 	 	  	 	 	 	
(b) Other Finance Expense
The following table presents the other finance expense for the years ended December 31, 2013 and 2012:

(U.S. Dollars in thousands)	  	2013	 	  	2012	 	
Bank fees, charges and external guarantee costs	  	$	76	  	  	$	18	  	
Related party guarantee commission	  	 	673	  	  	 	—  	 	
	  	 	 	 	  	 	 	 	
Total other finance expense	  	$	749	  	  	$	18	  	
	  	 	 	 	  	 	 	 	
7) Fair Value Measurements
(a) Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of the Companies’ financial instruments as of December 31, 2013 and 2012. Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 	  	December 31, 2013	 	  	December 31, 2012	 	
(U.S. Dollars in thousands)	  	Carrying
Amount	 	  	Fair Value	 	  	Carrying
Amount	 	  	Fair
Value	 	
Financial assets:	  				  				  				  				
Cash and cash equivalents	  	$	11,841	  	  	$	11,841	  	  	$	228	  	  	$	228	  	
Financial liabilities:	  				  				  				  				
Long-term debt, current and non-current	  	 	231,563	  	  	 	232,894	  	  	 	75,707	  	  	 	74,162	  	
The carrying amounts shown in the table above are included in the Companies’ balance sheets under the indicated captions. The carrying value of trade accounts receivable, trade accounts payable and receivables/payables to owners and affiliates approximate their fair value.
The fair values of the financial instruments shown in the above table as of December 31, 2013 and 2012 represent the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Companies’ own judgment about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Companies based on the best information available in the circumstances, including expected cash flows, appropriately risk-adjusted discount rates and available observable and unobservable inputs.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
 
 	•	 	Cash and cash equivalents : The fair value of the Companies’ cash balances approximates the carrying amounts due to the current nature of the amounts.	
 
 	•	 	Long-term debt : With respect to long-term debt measurements, the Companies use market interest rates and adjust that rate for all necessary risks, including its own credit risk. In determining an appropriate spread to reflect its credit standing, the Companies considered interest rates currently offered to KNOT for similar debt instruments of comparable maturities by KNOT’s and the Companies’ bankers as well as other banks that regularly compete to provide financing to the Companies.	
 
11

(b) Fair Value Hierarchy
The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis (including items that are required to be measured at fair value or for which fair value is required to be disclosed) as of December 31, 2013 and 2012:

 	  	 	 	  	Fair Value Measurements at
Reporting Date Using	 	
(U.S. Dollars in thousands)	  	December 31,
2013	 	  	Quoted Price
in Active
Markets for
Identical
Assets
(Level 1)	 	  	Significant
Other
Observable
Inputs
(Level 2)	 	  	Significant
Unobservable
Inputs
(Level 3)	 	
Financial assets:	  				  				  				  				
Cash and cash equivalents	  	$	11,841	  	  	$	11,841	  	  	$	—  	 	  	$	—  	  	
Financial liabilities:	  				  				  				  				
Long-term debt, current and non-current	  	 	232,894	  	  	 	—  	 	  	 	232,894	  	  	 	—  	 	

 	  	 	 	  	Fair Value Measurements at
Reporting Date Using	 	
(U.S. Dollars in thousands)	  	December 31,
2012	 	  	Quoted Price
in Active
Markets for
Identical
Assets
(Level 1)	 	  	Significant
Other
Observable
Inputs
(Level 2)	 	  	Significant
Unobservable
Inputs
(Level 3)	 	
Financial assets:	  				  				  				  				
Cash and cash equivalents	  	$	228	  	  	$	228	  	  	$	—  	 	  	$	—  	  	
Financial liabilities:	  				  				  				  				
Long-term debt, current and non-current	  	 	74,162	  	  	 	—  	 	  	 	74,162	  	  	 	—  	 	
The Companies’ accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of Level 1, Level 2 or Level 3 as of December 31, 2013 and 2012.
8) Trade Accounts Receivables
(a) Trade Accounts Receivables
Trade accounts receivable are presented net of provisions for doubtful accounts. As of December 31, 2013 and 2012, there was no provision for doubtful accounts.
(b) Other Current Assets
Other current assets consist of the following:

 	  	Year Ended December 31,	 	
(U.S. Dollars in thousands)	  	2013	 	  	2012	 	
Refund of value added tax	  	$	88	  	  	$	206	  	
Prepaid expenses	  	 	43	  	  	 	—  	 	
Current portion of deferred debt issuance cost	  	 	1,120	  	  	 	923	  	
Other receivable	  	 	390	  	  	 	196	  	
	  	 	 	 	  	 	 	 	
Total other current assets	  	$	1,641	  	  	$	1,325	  	

12

9) Vessels and Equipment

(U.S. Dollars in thousands)	  	Vessel &
equipment	 	  	Vessel under
construction	 	 	Accumulated
depreciation	 	 	Net vessels	 	
Balance December 31, 2011	  	$	—  	 	  	$	79,533	 	 	$	—  	 	 	$	79,533	 	
	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Additions	  	 	—  	 	  	 	47,130	  	 	 	—  	 	 	 	47,130	  	
Drydock costs	  	 	—  	 	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Transfer from vessels under construction	  	 	—  	 	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Disposal	  	 	—  	 	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Depreciation	  	 	—  	 	  	 	—  	 	 	 	—  	 	 	 	—  	 	
	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Balance December 31, 2012	  	$	—  	 	  	$	126,663	 	 	$	—  	 	 	$	126,663	 	
	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Additions	  	 	—  	 	  	 	155,823	  	 	 	—  	 	 	 	155,823	  	
Drydock costs	  	 	5,000	  	  	 	—  	 	 	 	—  	 	 	 	5,000	  	
Transfer from vessels under construction	  	 	282,486	  	  	 	(282,486	)	 	 	—  	 	 	 	—  	 	
Disposal	  	 	—  	 	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Depreciation	  	 	—  	 	  	 	—  	 	 	 	(3,303	)	 	 	(3,303	)	
	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Balance December 31, 2013	  	$	287,486	  	  	 	—  	 	 	$	(3,303	)	 	$	284,183	  	
	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
As of December 31, 2013 and 2012, Vessels with a book value of $ 287.5 million and $ 126.7 million, respectively, are pledged as security held as a guarantee for the Companies’ long-term debt. See Note 11—Long-Term Debt.
Drydocking activity for the years ended December 31, 2013 and 2012 is summarized as follows:

 	  	Year Ended
December 31,	 	
(U.S. Dollars in thousands)	  	2013	 	 	2012	 	
Balance at the beginning of the year	  	$	—  	 	 	$	—  	 	
Costs incurred for drydocking	  	 	5,000	  	 	 	—  	 	
Drydock amortization	  	 	(291	)	 	 	—  	 	
	  	 	 	 	 	 	 	 	
Balance at the end of the year	  	$	4,709	  	 	$	—  	 	
	  	 	 	 	 	 	 	 	
10) Accrued Expenses
The following table presents accrued expenses as of December 31, 2013 and 2012:

 	  	Year Ended December 31,	 	
(U.S. Dollars in thousands)	  	2013	 	  	2012	 	
Operating expenses	  	$	670	  	  	$	163	  	
Interest expenses	  	 	1,160	  	  	 	421	  	
	  	 	 	 	  	 	 	 	
Total accrued expenses	  	$	1,830	  	  	$	584	  	
	  	 	 	 	  	 	 	 	
11) Long-Term Debt
Long-term debt as of December 31, 2013 and 2012 consisted of following:

(U.S. Dollars in thousands)	  	Vessel	  	December 31,
2013	 	  	December 31,
2012	 	
$117 million Loan facility	  	Hilda Knutsen	  	$	114,563	  	  	$	44,359	  	
$117 million Loan facility	  	Torill Knutsen	  	 	117,000	  	  	 	31,348	  	
	  		  	 	 	 	  	 	 	 	
Total long-term debt	  		  	 	231,563	  	  	 	75,707	  	
Less current installments	  		  	 	19,500	  	  	 	2,438	 	
	  		  	 	 	 	  	 	 	 	
Long-term debt, excluding current	  		  	$	212,063	  	  	$	73,269	  	

13

Hilda Facility
The $117 million secured loan facility (the “Hilda Facility”) is repayable in quarterly installments over five years with a final balloon payment due at maturity in August 2018. The Hilda Facility bears interest at LIBOR plus a fixed margin of 2.5%.
The Hilda Knutsen , assignments of earnings, charterparty contracts and insurance proceeds are pledged as collateral for the Hilda Facility. KNOT is the sole guarantor.
The Hilda Facility contains the following financial covenants:
 
 	•	 	Market value of the Hilda Knutsen to be no less than 100% of the outstanding balance under the Hilda Facility for the first 4 years and 125% for the 5 th year;	
 
 	•	 	Positive working capital of the borrower and of KNOT and its subsidiaries on a consolidated basis (“KNOT Group”);	
 
 	•	 	Minimum liquidity of (i) $2 million for the borrower; (ii) $25 million for the guarantor, and (iii) 4% of interest bearing debt for the KNOT Group;	
 
 	•	 	Minimum book equity ratio for the KNOT Group of 22.5 % until December 31, 2014, and thereafter 25%; and	
 
 	•	 	EBITDA must exceed interest payable, any amounts payable for the interest rate swaps and debt installments for the KNOT Group calculated on a four quarter rolling basis.	
The Hilda Facility also identifies various events that may trigger mandatory reduction, prepayment and cancellation of the facility, including total loss or sale of a vessel and customary events of default.
The borrower and the guarantor were in compliance with all covenants as of December 31, 2013. However, as of December 31, 2012, a waiver was obtained for the Hilda Facility for KNOT Group’s compliance with the EBITDA covenant for all interim and annual periods from December 31, 2011 to January 31, 2014. In addition, the minimum book equity ratio for the KNOT Group was reduced from 22.5% to 19% for all interim and annual periods starting December 31, 2012 to January 31, 2014. Except for the EBITDA covenant covered by the waiver, the borrower, the guarantor and KNOT Group were in compliance with all covenants, as amended, as of December 31, 2012.
Torill Facility
The $117 million secured loan facility (the “Torill Facility”) is repayable in quarterly installments over five years with a final balloon payment due at maturity in November 2018. The Torill Facility bears interest at LIBOR plus a fixed margin of 2.75%.
The Torill Knutsen , assignments of earnings, charterparty contracts and insurance proceeds are pledged as collateral for the Hilda Facility. Knutsen NYK Offshore Tankers AS is the sole guarantor.
The Torill Facility contains the following financial covenants:
 
 	•	 	Market value of the Torill Knutsen to be no less than 100% of the outstanding balance under the Torill Facility for the first 4 years and 125% for the 5 th year;	
 
 	•	 	Positive working capital of the borrower and KNOT Group;	
 
 	•	 	Minimum liquidity of (i) $2 million for the borrower; (ii) $25 million for the guarantor, and (iii) 4% of interest bearing debt for the KNOT Group;	
 
 	•	 	Minimum book equity ratio for the KNOT Group of 22.5 % until December 31, 2014, and thereafter 25%; and	
 
 	•	 	EBITDA must exceed interest payable, any amounts payable for the interest rate swaps and debt installments for the KNOT Group calculated on a four quarter rolling basis.	
The Torill Facility also identifies various events that may trigger mandatory reduction, prepayment and cancellation of the facility, including total loss or sale of a vessel and customary events of default.
The borrower and the guarantor were in compliance with all covenants as of December 31, 2013. However, as of December 31, 2012, a waiver was obtained for the Torill Facility for KNOT Group’s compliance with the EBITDA covenant for all interim and annual periods from December 31, 2011 to January 31, 2014. In addition, the minimum book equity ratio for the KNOT Group was reduced from 22.5% to 19% for all interim and annual periods starting December 31, 2012 to January 31, 2014. Except for the EBITDA covenant covered by the waiver, the borrower, the guarantor and KNOT Group were in compliance with all covenants, as amended, as of December 31, 2012.
 
14

The total outstanding debt as of December 31, 2013 is repayable as follows:

(US $ in thousands)	  	 	 	
2014	  	$	19,500	  	
2015	  	 	19,500	  	
2016	  	 	19,500	  	
2017	  	 	19,500	  	
2018 and thereafter	  	 	153,563	  	
Total	  	$	231,563	  	
12) Income Taxes
Components of Current and Deferred Tax Expense (Benefit)
The Companies are subject to the Norwegian Tonnage Tax regime (“the tonnage tax regime”). Under the tonnage tax regime, the tax is based on the tonnage of the vessel and the operating income is tax free. The net financial income and expense remains taxable as ordinary income tax for entities subject to the tonnage tax regime. Tonnage tax is classified as an operating expense. Tonnage tax amounted to $13,000 in 2013 and $0.0 in 2012.

 	  	Year Ended
December 31,	 	
(US $ in thousands)	  	2013	 	 	2012	 	
Income (loss) before income taxes	  	$	2,996	  	 	$	(385	)	
Income tax expense (benefit)	  	 	—  	 	 	 	—  	 	
Effective tax rate	  	 	0	% 	 	 	0	% 	
A valuation allowance for deferred tax assets is recorded when it is more likely than not that some of or all of the benefit from the deferred tax asset will not be realized. The valuation allowances relate to the financial loss carry forwards and other deferred tax assets for tonnage tax that, in the judgment of the Companies, are more-likely-than not to be realized reflecting the Companies’ cumulative loss position for tonnage tax. In assessing the realizability of deferred tax assets, the Companies consider whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized taking into account all the positive and negative evidence available, and there is no deferred tax assets recognized as of December 31, 2013 and December 31, 2012.
The financial loss carry forwards for tonnage tax have no expiration dates.
The Companies’ Norwegian income tax returns are subject to examination by Norwegian tax authorities going back ten years from 2013. The Companies had no unrecognized tax benefits as of December 31, 2013 and 2012. During the years ended December 31, 2013 and 2012, the Companies did not incur any interest or penalties on its tax regime.
13) Related Party Transactions
(a) Related Parties
The Companies are owned 100% by KNOT. KNOT is owned 50% by TSSI and 50% by NYK. TSSI also controls 99% of KOAS, which subcontracts services to Knutsen OAS Management AS, which served as the vessel management companies for KNOT and its subsidiaries until June 30, 2012. As of July 1, 2012, KNOT Management AS, a 100% owned subsidiary of KNOT, assumed responsibility for the commercial and technical management of the Vessels.
The Companies have been charged by KNOT, KOAS and TSSI for commercial services related to the charters, technical and operational support related to the operation of the Vessels, certain administrative costs and finance fees, as well as fees for shipyard supervision for the Vessels under construction. The amounts of such costs and expenses included in the combined statements of operations for the years ended December 31, 2013, and 2012 are as follows:
 
15

									
 	  	Years Ended December 31,	 	
(U.S. Dollars in thousands)	  	2013	 	  	2012	 	
Statements of operations:	  				  				
Time charter revenues:	  				  				
Commercial commission fee from KNOT to Vessels (1)	  	$	154	  	  	$	—  	  	
Operating expenses:	  				  				
Technical and operational management fee from KOAS and KNOT to Vessels (2)	  	 	244	  	  	 	—  	 	
General and administrative expenses:	  				  				
Administration fee from KNOT (3)	  	 	60	  	  	 	61	  	
Accounting service fee from KNOT (4)	  	 	7	  	  	 	7	  	
Finance expense:	  				  				
Interest expense charged from KNOT (5)	  	 	86	  	  	 	—  	 	
Guarantee commission from KNOT to Vessels (6)	  	 	673	  	  	 	—  	 	
	  	 	 	 	  	 	 	 	
Total	  	$	1,224	  	  	$	68	  	

									
 	  	Years Ended December 31,	 	
(U.S. Dollars in thousands)	  	2013	 	  	2012	 	
Balance sheets:	  				  				
Vessels:	  				  				
New building supervision fee from KOAS to Vessels (7)	  	$	2,350	  	  	$	2,500	  	
Licensing of technology fees from TSSI to Vessels (8)	  	 	1,080	  	  	 	2,520	  	
Interest capitalized charged from KNOT to subsidiaries (9)	  	 	395	  	  	 	491	  	
	  	 	 	 	  	 	 	 	
Total	  	$	3,825	  	  	$	5,511	  	

(1)	Commercial commission fee from KNOT to Vessels : KNOT provides commercial services related to negotiating and maintaining the charters. KNOT invoices a fixed percentage of revenue as a commercial commission fee for these services.	
(2)	Technical and operational management fee from KOAS and KNOT to Vessels : KOAS and KNOT provides technical and operational management of the vessels on time charter including crewing, purchasing, maintenance and other operational, bookkeeping and administrative support.	
(3)	Administration fee from KNOT : Administration costs include the compensation and benefits of KNOT management and administrative staff as well as other general and administration expenses. Net administration costs are total administration cost plus a 5% margin, reduced for the total fees for services delivered by the administration staffs (the accounting service fees (see (4) below), the financing service fees (see (6) below) and the estimated shareholder costs for KNOT that have not been allocated. As such, the level of net administration costs as a basis for the allocation can vary from year to year based on the administration and financing services offered by KNOT to all the vessels in its fleet each year.	
(4)	Accounting service fee from KNOT : KNOT invoiced each subsidiary a fixed fee for the preparation of the statutory financial statements.	
(5)	Interest expense charged from, interest income charged to KNOT : KNOT invoiced interest expense (income) for any outstanding payables to (receivable from) owners and affiliates to the vessel-owning subsidiaries. Interest expense has been allocated based upon the allocated payables to owners and affiliates and the historical interest rates charged.	
(6)	Guarantee commission from KNOT to Vessels : KNOT was a guarantor for the Companies’ loan facilities (see Note 11—Long-term Debt and Note 13(b)—Related Party Transactions: Guarantees). KNOT invoiced an annual commission to each of the Vessels as a fixed percentage of the outstanding balance as compensation for the guarantee.	
(7)	New building supervision fee from KOAS to Vessels : KOAS charges a fixed fee for supervision of each vessel under construction that is invoiced on a straight-line basis over the period of construction. Such fees, along with direct and incremental supervision costs incurred, are capitalized as part of the Vessels under construction.	
(8)	Knutsen Ballast Water Treatment installation from TSSI to Vessel : TSSI has developed Knutsen ballast water treatment technology and the system was installed during the construction and all cost is capitalized as part of the Vessels under construction.	
(9)	Interest capitalized charged from KNOT to Vessels : KNOT invoiced interest expense for outstanding payables to owners and affiliates to the vessel owning subsidiaries as explained in (5) above. Such interest expense is capitalized for qualifying Vessels under construction.	
(b) Guarantees
As of December 31, 2013 and 2012, KNOT is guarantor for the Hilda Facility and Torill Facility.
 
16

(c) Transaction with Management
The Companies had no personnel during 2013 and 2012. There has been no direct remuneration to any members of the Board of Directors of KNOT. Trygve Seglem, the President and CEO of KNOT has received $474,000 and $427,000, respectively in salary from KNOT Management AS during 2013 and 2012. He also controls Seglem Holding AS, which has a 100% equity interest of TSSI, which controls KOAS. TSSI owns 50% in KNOT. Trygve Seglem owns 70% of the equity interests in Seglem Holding AS, and each of his daughters, Synnøve Seglem and Jorunn Seglem, each own 15% of the equity interests.
In 2013 and 2012, all remuneration and cost related to the members of the Board of Directors of KNOT was paid directly by the respective owners of KNOT.
NYK, which own 50% of KNOT, has management and administrative personnel on secondment to KNOT starting in March 2011. The cost for such services was $1.3 million in 2013 and $639,000 in 2012. NYK has no other related party transactions with KNOT apart from interest income on financing offered to KNOT.
See this Note 13 – Related Party Transactions Items 3 and 4 for discussion of the allocation principles for KNOT’s administrative costs, including management and administrative staff, included in the combined statements of operations for the two entities.
(d) Amounts Due from (to) Related Parties
Balances with related parties consisted of the following:

(U.S. Dollars in thousands)	  	At December 31,
2013	 	  	At December 31,
2012	 	
Balance Sheets:	  				  				
Trading balances due from KNOT and affiliates	  	$	775	  	  	$	—  	 	
	  	 	 	 	  	 	 	 	
Amount due from related parties	  	$	775	  	  	$	—  	 	
	  	 	 	 	  	 	 	 	
Trading balances due to KOAS	  	$	143	  	  	$	—  	 	
Trading balances due to KNOT and affiliates	  	 	6,922	  	  	 	9,667	  	
	  	 	 	 	  	 	 	 	
Amount due to related parties	  	$	7,065	  	  	$	9,667	  	
	  	 	 	 	  	 	 	 	
Amounts due from (to) related parties are unsecured and intended to be settled in the ordinary course of business. They primarily relate to vessel management and other fees due to KNOT and KOAS.
14) Commitments and Contingencies
Assets Pledged
As of December 31, 2013 and 2012, Vessels with a book value of $ 287.5 million and $ 126.7 million, respectively, were pledged as security held as guarantee for the Companies’ long-term debt obligations. See Note 11—Long-Term Debt.
Insurance
The Companies maintain insurance to insure against marine and war risks, which include damage to or total loss of the Vessels, subject to deductible amounts that average $0.150 million per Vessel, and loss of hire.
Under the loss of hire policies, the insurer will pay a compensation for the lost hire rate agreed in respect of each Vessel for each day, in excess of 14 deductible days, for the time that the Vessel is out of service as a result of damage, for a maximum of 180 days. In addition, the Companies maintain protection and indemnity insurance, which covers third-party legal liabilities arising in connection with the Vessels’ activities, including, among other things, the injury or death of third-party persons, loss or damage to cargo, claims arising from collisions with other vessels and other damage to other third-party property, including pollution arising from oil or other substances. This insurance is unlimited, except for pollution, which is limited to $1 billion per vessel per incident. The protection and indemnity insurance is maintained through a protection and indemnity association, and as a member of the association, the Companies may be required to pay amounts above budgeted premiums if the member claims exceed association reserves, subject to certain reinsured amounts. If the Companies experience multiple claims each with individual deductibles, losses due to risks that are not insured or claims for insured risks that are not paid, it could have a material adverse effect on the Companies’ results of operations and financial condition.
 
17

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Unaudited Combined Financial Statements as of
March 31, 2014 and for the Three Months Ended March 31, 2014 and 2013
Index to Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Unaudited Combined Financial Statements as of
March 31, 2014 and for the Three Months Ended March 31, 2014 and 2013

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Unaudited Combined Statement of Operations for the Three Months Ended March 31, 2014 and 2013	  	 	2	  	
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Unaudited Combined Balance Sheets as of March 31, 2014 and December 31, 2013	  	 	3	  	
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Unaudited Combined Statements of Owner’s Equity for the Three Months Ended March 31, 2014 and 2013	  	 	4	  	
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Unaudited Combined Statements of Cash Flows for the Three Months Ended March 31, 2014 and 2013	  	 	5	  	
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Notes to Unaudited Combined Financial Statements as of March 31, 2014 and for the Three Months Ended March 31, 2014 and 2013	  	 	6	  	
 
1

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS
Unaudited Combined Statement of Operations
For the Three Months Ended March 31, 2014 and 2013
(U.S. Dollars in thousands)

 	  	Three Months Ended
March 31,	 	
 	  	2014	 	 	2013	 	
Time charter revenues	  	$	11,372	  	 	$	—  	 	
Total revenues (Notes 2(d), 4, 5, and 14)	  	 	11,372	  	 	 	—  	 	
Operating expenses: (Note 14)	  				 				
Vessel operating expenses (Note 2(d))	  	 	2,675	  	 	 	—  	 	
Depreciation and amortization (Note 10)	  	 	2,835	  	 	 	—  	 	
General and administrative expenses	  	 	45	  	 	 	25	  	
	  	 	 	 	 	 	 	 	
Total operating expenses	  	 	5,555	  	 	 	25	  	
	  	 	 	 	 	 	 	 	
Operating income	  	 	5,817	  	 	 	(25	)	
	  	 	 	 	 	 	 	 	
Finance income (expense): (Notes 2(e) and 14)	  				 				
Interest income	  	 	15	  	 	 	—  	 	
Interest expense (Notes 6(a) and 14)	  	 	(1,979	) 	 	 	—  	 	
Other finance expense (Note 6(b))	  	 	(281	) 	 	 	(148	)	
Realized and unrealized gain (loss) on derivative instruments (Note 7)	  	 	632	  	 	 	—  	 	
Net gain (loss) on foreign currency transactions	  	 	(31	) 	 	 	486	  	
	  	 	 	 	 	 	 	 	
Total finance expense	  	 	(1,644	) 	 	 	338	  	
	  	 	 	 	 	 	 	 	
Income (loss) before income taxes	  	 	4,173	  	 	 	313	  	
Income tax benefit (expense) (Note 13)	  	 	—  	 	 	 	—  	 	
	  	 	 	 	 	 	 	 	
Net income (loss)	  	$	4,173	  	 	$	313	  	
	  	 	 	 	 	 	 	 	
A Statement of Other Comprehensive Income has not been presented as there are no items recognized in other comprehensive income.
The accompanying notes are an integral part of these financial statements.
 
2

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS
Unaudited Combined Balance Sheets
As of March 31, 2014 and December 31, 2013
(U.S. Dollars in thousands)

 	  	March 31,
2014	 	 	December 31,
2013	 	
Assets	  				 				
Current assets:	  				 				
Cash and cash equivalents (Notes 2(f) and 8)	  	$	6,860	  	 	$	11,841	  	
Trade accounts receivable, less allowance for doubtful accounts of $0 in March 31, 2014 and December 31, 2013	  	 	—  	  	 	 	3,777	  	
Receivables from owners and affiliates	  	 	3,331	  	 	 	775	  	
Inventories (Note 2(h))	  	 	260	  	 	 	289	  	
Other current assets (Notes 2(i) and 9(b))	  	 	2,409	  	 	 	1,641	  	
	  	 	 	 	 	 	 	 	
Total current assets	  	 	12,860	  	 	 	18,323	  	
	  	 	 	 	 	 	 	 	
Long-term assets:	  				 				
Vessels and equipment (Notes 2(j), 2(k), 2(l), and 10):	  				 				
Vessels	  	 	287,607	  	 	 	287,486	  	
Vessels under construction	  	 	—  	 	 	 	—  	 	
Less accumulated depreciation and amortization	  	 	(6,138	)	 	 	(3,303	)	
	  	 	 	 	 	 	 	 	
Net property, plant, and equipment	  	 	281,469	  	 	 	284,183	  	
	  	 	 	 	 	 	 	 	
Deferred debt issuance cost (Note 2(m))	  	 	3,885	  	 	 	4,114	  	
Derivative assets (Notes 7 and 8)	  	 	1,550	  	 	 	—  	 	
	  	 	 	 	 	 	 	 	
Total assets	  	$	299,764	  	 	$	306,620	  	
	  	 	 	 	 	 	 	 	
Liabilities and Owner’s Equity	  				 				
Current liabilities:	  				 				
Trade accounts payable	  	$	474	  	 	$	580	  	
Accrued expenses (Note 11)	  	 	1,735	  	 	 	1,830	  	
Current portion of long-term debt (Notes 8 and 12)	  	 	19,500	  	 	 	19,500	  	
Derivative liabilities (Notes 7 and 8)	  	 	918	  	 	 	—  	 	
Prepaid charter and deferred revenue (Note 2(p))	  	 	1,487	  	 	 	1,487	  	
Payables to owners and affiliates	  	 	568	  	 	 	7,065	  	
Other current liabilities	  	 	—  	 	 	 	—  	 	
	  	 	 	 	 	 	 	 	
Total current liabilities	  	 	24,682	  	 	 	30,462	  	
	  	 	 	 	 	 	 	 	
Long-term liabilities:	  				 				
Long-term debt (Notes 8 and 12)	  	 	207,188	  	 	 	212,063	  	
Other long-term liabilities	  	 	5,144	  	 	 	5,518	  	
	  	 	 	 	 	 	 	 	
Total liabilities	  	 	237,014	  	 	 	248,043	  	
	  	 	 	 	 	 	 	 	
Commitments and contingencies (Notes 2(q) and 15)	  				 				
Equity:	  				 				
Share capital, par value $366.3, 200 shares issued at March 31, 2014 and December 31, 2013	  	 	73	  	 	 	73	  	
Share premium	  	 	43,077	  	 	 	43,077	  	
Other paid in equity	  	 	11,229	  	 	 	11,229	  	
Retained earnings	  	 	8,371	  	 	 	4,198	  	
Total equity	  	 	62,750	  	 	 	58,577	  	
	  	 	 	 	 	 	 	 	
Total liabilities and equity	  	$	299,764	  	 	$	306,620	  	
	  	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these financial statements.
 
3

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS
Unaudited Combined Statement of Owner’s Equity
For the Three Months Ended March 31, 2014 and 2013
(U.S. Dollars in thousands)

 	  	Share Capital (1)	 	  	Share
Premium	 	  	Other
Paid-in
Equity	 	  	Retained
Earnings	 	  	Total Equity	 	
Total equity as of December 31, 2012	  	$	73	  	  	$	43,077	  	  	$	1,961	  	  	$	1,202	  	  	$	46,313	  	
Net income for the period	  	 	—  	 	  	 	—  	  	  	 	—  	  	  	 	313	  	  	 	313	  	
Group contribution	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	
Total equity as of March 31, 2013	  	$	73	  	  	$	43,077	  	  	$	1,961	  	  	$	1,515	  	  	$	46,626	  	

																					
 	  	Share Capital (1)	 	  	Share
Premium	 	  	Other
Paid-in
Equity	 	  	Retained
Earnings	 	  	Total Equity	 	
Total equity as of December 31, 2013	  	$	73	  	  	$	43,077	  	  	$	11,229	  	  	$	4,198	  	  	$	58,577	  	
Net income for the period	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	4,173	  	  	 	4,173	  	
Group contribution	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	
Total equity as of March 31, 2014	  	$	73	  	  	$	43,077	  	  	$	11,229	  	  	$	8,371	  	  	$	62,750	  	

(1)	All shares have the same rights in the Companies.	
The accompanying notes are an integral part of these financial statements.
 
4

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS
Unaudited Combined Statement of Cash Flows
For the Three Months Ended 31, 2014 and 2013
(U.S. Dollars in thousands)

 	  	Three Months Ended
March 31,	 	
 	  	2014	 	 	2013	 	
Cash flows provided by operating activities:	  				 				
Net income (loss)	  	$	4,173	  	 	$	313	  	
Adjustments to reconcile net income (loss) to cash provided by operating activities:	  				 				
Depreciation and amortization	  	 	2,835	  	 	 	—  	  	
Amortization of deferred debt issuance cost	  	 	284	  	 	 	—  	  	
Unrealized (gain) loss on derivative instruments	  	 	(632	) 	 				
Unrealized (gain) loss on foreign currency transactions	  	 	5	  	 	 	(491	) 	
Other items	  	 	(374	) 	 	 	—  	  	
Changes in operating assets and liabilities	  				 				
Decrease (increase) in trade accounts receivable	  	 	3,777	  	 	 	—  	  	
Decrease (increase) in receivables from owner and affiliates	  	 	(2,556	) 	 	 	—  	  	
Decrease (increase) in inventories	  	 	29	  	 	 	—  	  	
Decrease (increase) in other current assets	  	 	(749	) 	 	 	214	  	
Increase (decrease) in trade accounts payable	  	 	(106	) 	 	 	915	  	
Increase (decrease) in payable to owners and affiliates	  	 	(6,497	) 	 	 	—  	  	
Increase (decrease) in accrued expenses	  	 	(95	) 	 	 	1,864	  	
Increase (decrease) in other liabilities	  	 	—  	  	 	 	(26	) 	
	  	 	 	 	 	 	 	 	
Net cash provided by operating activities	  	 	94	  	 	 	2,789	  	
	  	 	 	 	 	 	 	 	
Cash flows from investing activities:	  				 				
Disposals (additions) to vessel and equipment	  	 	(121	) 	 	 	(18,157	) 	
	  	 	 	 	 	 	 	 	
Net cash used in investing activities	  	 	(121	) 	 	 	(18,157	) 	
	  	 	 	 	 	 	 	 	
Cash flows from financing activities:	  				 				
Proceeds from issuance of long-term debt	  	 	—  	  	 	 	13,012	  	
Repayment of long-term debt	  	 	(4,875	) 	 	 	—  	  	
Payments of debt issuance cost	  	 	(74	) 	 	 	(472	) 	
Changes in payables to owners and affiliates	  	 	—  	  	 	 	2,893	  	
	  	 	 	 	 	 	 	 	
Net cash provided by (used in) financing activities	  	 	(4,949	) 	 	 	15,433	  	
	  	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash	  	 	(5	) 	 	 	3	  	
Net increase (decrease) in cash and cash equivalents	  	 	(4,981	) 	 	 	68	  	
Cash and cash equivalents at the beginning of the year	  	 	11,841	  	 	 	228	  	
	  	 	 	 	 	 	 	 	
Cash and cash equivalents at the end of the year	  	$	6,860	  	 	$	296	  	
	  	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these financial statements.
 
5

1) Description of Business
Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS (hereafter referred as the “Companies”) own the 123,000 DWT Suez-max shuttle tanker, Hilda Knutsen , and the 123,000 DWT Suez-max shuttle tanker, Torill Knutsen , respectively, delivered from Hyundai Heavy Industries (HHI) Shipyard in South Korea on August 5, 2013 and November 4, 2013.
Knutsen Shuttle Tankers 14 AS was established on March 25, 2011 to take ownership of one building contract for one 123,000 DWT Suez-max shuttle tanker, Hilda Knutsen, delivered on August 5, 2013. Knutsen Shuttle Tankers 15 AS was established on June 1, 2011 to take ownership of one building contract for one 123,000 DWT Suez-max shuttle tanker, Torill Knutsen, delivered on November 4, 2013. Both the Hilda Knutsen and the Torill Knutsen (the “Vessels”) are on time-charter contracts to Eni Trading and Shipping S.p.A. (“Eni”), for operation primarily on the Goliat offshore oil field outside northern Norway on a five-year time-charter agreement with five one-year-options. In the case of the charter for the Torill Knutsen , Eni has the option, at any time before May 31, 2016, to extend the charter term to ten years in exchange for a reduction in the hire rate.
The Companies are owned by Knutsen NYK Offshore Tankers AS (“KNOT”), and are operating as an integrated part of KNOT. KNOT is owned 50% by TS Shipping Invest AS (“TSSI”) and 50% by Nippon Yusen Kaisha (“NYK”). Technical and commercial management of the vessels have been subcontracted to Knutsen OAS Shipping AS (“KOAS”) up to July 1, 2012 and thereafter by KNOT Management AS, a 100% owned subsidiary of KNOT. KOAS is controlled 99% by TSSI.
There are no employees in the Companies and daily operation is managed by KNOT Management AS.
2) Summary of Significant Accounting Policies
(a) Basis of Preparation
The combined financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
(b) Reporting Currency
The combined financial statements are prepared in the reporting currency of U.S. Dollars. The functional currency of the Companies is the U.S. Dollar, because both entities operate in the international shipping market all revenues are U.S. Dollars denominated and the majority of the expenditures are made in U.S. Dollars. Transactions involving other currencies during the year are converted into U.S. Dollars using the exchange rates in effect at the time of the transactions. As of the balance sheet dates, monetary assets and liabilities that are denominated in currencies other than the U.S. Dollar are translated to reflect the year-end exchange rates. Resulting gains and losses are reflected separately in the accompanying combined statements of operations.
(c) Use of Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives and impairment of Vessels, drydocking, and income taxes.
(d) Revenues and Operating Expenses
The Companies recognize revenues from time charters as operating leases on a straight-line basis over the term of the charter, net of any commissions. Under time charters, revenue is not recognized during days the Vessel is off-hire. Revenue is recognized from delivery of the Vessel to the charterer, until the end of the contract period. Under time charters, the Companies are responsible for providing the crewing and other services related to the Vessel’s operations, the cost of which is included in the daily hire rate, except when off-hire. Fees received from customers for customized equipment are deferred and recognized over the contract period. The Companies recognize revenues from spot contracts as voyage revenues using the percentage of completion method on a discharge-to-discharge basis.
Voyage expenses are all expenses unique to a particular voyage, including bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls and agency fees. Voyage expenses are paid by the customer under time charters.
Vessel operating expenses include crewing, repairs and maintenance, insurance, stores, lube oils and communication expenses. Vessel operating expenses are paid by the Companies for time charters and during off-hire and are recognized when incurred. As further discussed in Note 14—Related Party Transactions, related parties have provided the management services for the Vessels and employ the crews that work on the Vessels. The Companies have no direct employees and, accordingly, are not liable for any pension or post-retirement benefits.
(e) Financial Income (Expense)
Interest expenses incurred on the Companies’ debt incurred during the construction of the Vessels exceeding one year are capitalized during the construction period.
 
6

(f) Cash and Cash Equivalents
The Companies consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
(g) Trade Accounts Receivable
Accounts receivable are recorded at the invoiced amount and do not bear interest. Under terms of the current time charters, the customers are committed to pay for the full month’s charter the first day of each month. See Note 2(p) —Summary of Significant Accounting Policies: Prepaid Charter and Deferred Revenue. The allowance for doubtful accounts is the Companies’ best estimate of the amount of probable credit losses in existing accounts receivable. The Companies establish provisions for doubtful accounts on a case-by-case basis when it is unlikely that required payments of specific amounts will occur. In establishing these provisions, the Companies consider the financial condition of the customer as well as specific circumstances related to the receivable. Receivable amounts determined to be unrecoverable are written-off. There were no provisions as allowance for doubtful accounts or amounts written-off against the allowance for doubtful accounts as of March 31, 2014. The Companies do not have any off-balance-sheet credit exposure related to their customers.
(h) Inventories
Inventories, which are comprised principally of lubricating oils, are stated at the lower of cost or market. For vessels on time charters, there are no bunkers, as the charterer supplies the bunkers, which principally consist of fuel oil. Cost is determined using the first-in, first-out method for all inventories.
(i) Other Current Assets
Other current assets principally consist of prepaid expenses, the current portion of deferred cost and other receivables.
(j) Vessels and Equipment
Vessels and equipment are stated at the historical acquisition or construction cost, including capitalized interest, supervision and technical and delivery cost, net of accumulated depreciation and impairment loss, if any. Expenditures for subsequent conversions and major improvements are capitalized, provided that such costs increase the earnings capacity or improve the efficiency or safety of the vessels.
Generally, the Companies drydock each vessel every 60 months until the vessel is 15 years old and every 30 months thereafter, as required for the renewal of certifications issued by classification societies. For vessels operating on time charters, the Companies capitalize the costs directly associated with the classification and regulatory requirements for inspection of the vessels, major repairs and improvements incurred during drydocking. Drydock cost is amortized on a straight-line basis over the period until the next planned drydocking takes place. The Companies expense costs related to routine repairs and maintenance performed during drydocking or as otherwise incurred. For vessels that are newly built or acquired, an element of the cost of the vessel is initially allocated to a drydock component and amortized on a straight-line basis over the period until the next planned drydocking. When significant drydocking expenditures occur prior to the expiration of this period, the Companies expense the remaining unamortized balance of the original drydocking cost in the month of the subsequent drydocking. For vessels operating on bareboat charters, the charter party bears the cost of any drydocking.
Depreciation on vessels and equipment is calculated on a straight-line basis over the asset’s estimated useful life, less an estimated residual value, as follows:

 	  	Useful Life	 	
Hull	  	 	25 years	  	
Anchor-handling, loading and unloading equipment	  	 	25 years	  	
Main/auxiliary engine	  	 	25 years	  	
Thruster, dynamic positioning systems, cranes and other equipment	  	 	25 years	  	
Drydock costs	  	 	2.5–5 years	  	
A vessel is depreciated to its estimated residual value, which is calculated based on the weight of the ship and estimated steel price. Any cost related to the disposal is deducted from the residual value.
(k) Capitalized Interest
Interest expense incurred on the Companies’ debt during the construction of the Vessels exceeding one year is capitalized during the construction period.
(l) Impairment of Long-Lived Assets
Vessels and equipment, vessels under construction and intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Companies first compare undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
 
7

(m) Debt Issuance Costs
Debt issuance costs, including fees, commissions and legal expenses, are deferred. Debt issuance costs of term loans are amortized over the term of the relevant loan. Amortization of debt issuance costs is included in interest expense.
(n) Derivative Instruments
All derivative instruments are initially recorded at fair value as either assets or liabilities in the accompanying combined balance sheets and subsequently measured to fair value. The Companies do not apply hedge accounting to their derivative instruments. Changes in the fair value of the derivative instruments are recognized in earnings. Gains and losses from the interest rate swap contracts of the Companies related to long-term mortgage debt are recorded in realized and unrealized gain (loss) on derivative instruments in the combined statements of operations. Cash flows related to interest rate swap contracts are presented as cash flows provided by operating activities in the combined statements of cash flows.
(o) Income Taxes
The tax expense in the income statement includes both tax payable and changes in deferred tax. Deferred tax is calculated at 28% on the basis of temporary differences between accounting and tax values and tax loss carried forward at the year end. Tax increasing and tax reducing temporary differences which reverse or may be reversed in the same period are assessed and netted. The Companies are subject to the Norwegian Tonnage Tax regime (“the tonnage tax regime”). Under the tonnage tax regime, the tax is based on the tonnage of the vessel and the operating income is tax free. The net financial income and expense remains taxable as ordinary income tax for entities subject to the tonnage tax regime. Tonnage tax is classified as an operating expense. To be within the scheme the Companies should meet certain requirements, such as only ownership of ship/ shares in the shipping companies, and only own certain types of financial assets.
(p) Prepaid Charter and Deferred Revenue
Under terms of the time charters, the customer pays for the month’s charter the first day of each month and that is recorded as prepaid charter revenues. Deferred revenues for fees received from customers for customized equipment are classified as prepaid charter and deferred revenue for the current portion and as other long-term liabilities for the non-current portion.
(q) Commitments, Contingencies and Insurance Proceeds
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. See Note 15—Commitments and Contingencies.
Insurance claims for property damage for recoveries up to the amount of loss recognized are recorded when the claims submitted to insurance carriers are probable of recovery. Claims for property damage in excess of the loss recognized and for loss off-hire are considered gain contingencies, which are generally recognized when the proceeds are received.
(r) Fair Value Measurements
The Companies utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Companies determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
 
 	•	 	Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.	
 
 	•	 	Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.	
 
 	•	 	Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.	
(s) Recently Issued Accounting Standards
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, Fair Value measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). The new standards do not extend the use of fair value but, rather, provide guidance about how fair value should be applied where it already is required or permitted under International Financial Reporting Standards (“IFRS”) or U.S. GAAP. For U.S. GAAP, most of the changes are clarifications of existing guidance or wording changes to align with IFRS. A public entity is required to apply ASC 2011-04 prospectively for interim and annual periods beginning after December 5, 2011. The adoption of ASU 2011-04 did not have a material impact on the Companies’ combined financial statements.
 
8

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on its financial position, and to allow investors to better compare financial statements prepared under U.S. GAAP with financial statements prepared under IFRS. The new standards are effective for annual periods beginning January 1, 2013, and interim periods within those annual periods. Retrospective application is required. The Companies adopted the provisions of ASU 2011-11 as of January 1, 2013. The adoption of ASU 2011-11 did not have a material impact on the Companies’ combined financial statements.
In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). ASU 2013-02 requires reporting and disclosure about changes in accumulated other comprehensive income (“AOCI”) balances and reclassifications out of AOCI. For public companies, the ASU is effective prospectively for fiscal years and interim periods within those years beginning after December 15, 2012. The adoption of ASU 2013-02 did not have a material impact on the Companies’ combined financial statements.
There are no recent accounting pronouncements issued whose adoption would have a material impact on the Companies’ financial statements in the current year or are expected to have a material impact on future years.
3) Significant Risks and Uncertainties Including Business and Credit Concentrations
Each of the Vessels is currently employed under long-term fixed charters, which mitigates earnings risk. The Companies’ operational results are dependent on the worldwide market for shuttle tankers and timing of entrance into long-term charters. Market conditions for shipping activities are typically volatile, and, as a consequence, the hire rates may vary from year to year. The market is mainly dependent upon two factors: the supply of vessels and the overall growth in the world economy. The general supply of vessels is a combination of newbuilds, demolition activity of older vessels and legislation that limits the use of older vessels or new standards for vessels used in specific trades.
The Companies did not incur any loss relating to their customers during the three months ended March 31, 2014. The following table presents revenues and percentage of combined revenues for customers that accounted for more than 10% of the combined revenues during the three months ended March 31, 2014 and 2013.

 	  	Three Months Ended March 31,	 	
(U.S. Dollars in thousands)	  	2014	 	 	2013	 	
Eni Trading and Shipping S.p.A	  	$	11,372	  	  	 	100	%	 	$	—  	  	  	 	0	%	
The Companies have financial assets that expose them to credit risk arising from possible default by a counterparty. The Companies consider their counterparties to be creditworthy financial institutions and do not expect any significant loss to result from non-performance by such counterparties. The maximum loss due to credit risk that the Companies would incur if counterparties failed completely to perform would be the carrying value of cash and cash equivalents and trade accounts receivable. The Companies, in the normal course of business, do not demand collateral from their counterparties.
4) Operating Leases
The time charters of the vessels with third parties are accounted for as operating leases. The minimum contractual future revenues to be received from time charters as of March 31, 2014, were as follows:

(U.S. Dollars in thousands)	  	 	 	
2014 as of March 31, 2014	  	$	33,506	  	
2015	  	 	44,472	  	
2016	  	 	44,472	  	
2017	  	 	44,472	  	
2018	  	 	32,188	  	
2019 and thereafter	  	 	0	  	
	  	 	 	 	
Total	  	$	199,110	  	

 	•	 	Knutsen Shuttle Tanker 14 AS owns the vessel, Hilda Knutsen , a shuttle tanker built in 2013 that is currently operating under a time charter that expires in August 2018, with Eni, with five one-year-options to extend until August 2023.	
 
 	•	 	Knutsen Shuttle Tanker 15 AS owns the vessel, Torill Knutsen , a shuttle tanker built in 2013 that is currently operating under a time charter that expires in November 2018, with Eni, with five one-year-options to extend until November 2023. In the case of the charter for the Torill Knutsen , Eni has the option, at any time before May 31, 2016, to extend the charter term to ten years in exchange for a reduction in the hire rate.	
 
9

5) Segment Information
The Companies have not presented segment information as they consider their operations to occur in one reportable segment, the shuttle tanker market. In time charters, the charterer, not the Companies, controls the choice of which trading areas the vessel will serve. Accordingly, the Companies’ management, including the chief operating decision makers, does not evaluate performance according to geographical region.
For the three month ended period as of March 31, 2014, the vessels operated under two charters. See Note 3- Significant Risks and Uncertainties Including Business and Credit Concentrations for revenues from customers accounting for over 10% of the combined revenue. In both time charters, the charterer controls the choice of which trading areas the Vessels will serve. Accordingly, the Companies’ management, including the chief decision makers, do not evaluate performance according to geographical region.
6) Finance Income (Expense)
(a) Interest Expense
A reconciliation of total interest cost to interest expense as reported in the statement of operations for the three months ended March 31, 2014 and 2013 is as follows:

 	  	Three Months Ended
March 31,	 	
(U.S. Dollars in thousands)	  	2014	 	  	2013	 	
Interest cost capitalized	  	$	—  	 	  	$	871	  	
Interest expense	  	 	1,979	  	  	 	—  	 	
	  	 	 	 	  	 	 	 	
Total interest cost	  	$	1,979	  	  	$	871	  	
	  	 	 	 	  	 	 	 	
(b) Other Finance Expense
The following table presents the other finance expense for the three months ended March 31, 2014 and 2013:

 	  	Three Months Ended
March 31,	 	
(U.S. Dollars in thousands)	  	2014	 	 	2013	 	
Bank fees, charges and external guarantee costs	  	$	(6	)	 	$	20	  	
Related party guarantee commission	  	 	287	  	 	 	129	  	
	  	 	 	 	 	 	 	 	
Total other finance expense	  	$	281	  	 	$	148	  	
	  	 	 	 	 	 	 	 	
7) Derivative Instruments
Interest Rate Risk Management
In February 2014, the Companies entered into interest rate swap agreements effective from July, 2014 and until July 2018, for a total notional amount of $100 million to hedge against the interest rate risks of their variable rate borrowings. Under the terms of the interest rate swap agreements, the Companies will receive from the counterparty interest on the notional amount based on three-month LIBOR and will pay to the counterparty a fixed rate. For the interest rate swap agreements above, the Companies will pay to the counterparty a fixed rate of 1.455%.
The combined financial statements include the results of interest rate swap contracts to manage the Companies’ exposure related to changes in interest rates on its variable rate debt instruments. The Companies does not apply hedge accounting for derivative instruments. The Companies do not speculate using derivative instruments.
By using derivative financial instruments to economically hedge exposures to changes in interest rates, the Companies expose itself to credit risk and market risk. Derivative instruments that economically hedge exposures are used for risk management purposes, but these instruments are not designated as hedges for accounting purposes. Credit risk is the failure of the counterparty to perform under the terms of the derivative instrument. When the fair value of a derivative instrument is positive, the counterparty owes the Companies, which creates credit risk for the Companies. When the fair value of a derivative instrument is negative, the Companies owe the counterparty, and, therefore, the Companies are not exposed to the counterparty’s credit risk in those circumstances. The Companies minimizes counterparty credit risk in derivative instruments by entering into transactions with major banking and financial institutions. The derivative instruments entered into by the Companies do not contain credit risk-related contingent features.
 
10

Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates, currency exchange rates or commodity prices. The market risk associated with interest rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.
The Companies assesses interest rate risk by monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating economical hedging opportunities.
The variable interest rate mortgage debt obligations expose the Companies to variability in interest payments due to changes in interest rates. The Companies believes that it is prudent to limit the variability of a portion of its interest payments. To meet this objective, the Companies entered into London Interbank Offered Rate (“LIBOR”)-based interest rate swap contracts to manage fluctuations in cash flows resulting from changes in the benchmark interest rate of LIBOR. These swaps change the variable rate cash flow exposure on the mortgage debt obligations to fixed cash flows. Under the terms of the interest rate swap contracts, the Companies receive LIBOR-based variable interest rate payments and make fixed interest rate payments, thereby creating the equivalent of fixed rate debt for the notional amount of their debt hedged.
As of March 31, 2014, the total notional amount of the Companies outstanding interest rate swap contracts that were entered into in order to hedge outstanding or forecasted debt obligations were $100 million. As of March 31, 2014, the carrying amount of the interest rate swaps contracts were net assets of $0.7 million. See Note 8—Fair Value Measurements.
Changes in the fair value of interest rate swap contracts are reported in realized and unrealized gain (loss) on derivative instruments in the same period in which the related interest affects earnings.
The Companies did not have any interest rate swap agreements as of March 31, 2013.
The following table presents the realized and unrealized gains and losses that are recognized in earnings as net gain (loss) on derivative instruments for the three months ended March 31, 2014 and 2013.

 	  	Three Months Ended
March 31,	 	
(U.S. Dollars in thousands)	  	2014	 	  	2013	 	
Realized gain (loss)	  				  				
Interest rate swap contracts	  	$	—  	 	  	$	—  	 	
Unrealized gain (loss)	  				  				
Interest rate swap contracts	  	 	632	  	  	 	—  	 	
	  	 	 	 	  	 	 	 	
Total	  	$	632	  	  	$	—  	 	
	  	 	 	 	  	 	 	 	
8) Fair Value Measurements
(a) Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of the Companies’ financial instruments as of March 31, 2014 and 2013. Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 	  	March 31, 2014	 	  	December 31, 2013	 	
(U.S. Dollars in thousands)	  	Carrying
Amount	 	  	Fair Value	 	  	Carrying
Amount	 	  	Fair Value	 	
Financial assets:	  				  				  				  				
Cash and cash equivalents	  	$	6,860	  	  	$	6,860	  	  	$	11,841	  	  	$	11,841	  	
Restricted cash	  	 	—  	 	  	 	—  	 	  	 	—  	 	  	 	—  	 	
Non-current derivative assets:	  				  				  				  				
Interest rate swap contracts	  	 	1,550	  	  	 	1,550	  	  				  				
Financial liabilities:	  				  				  				  				
Long-term debt, current and non-current	  	 	226,688	  	  	 	227,926	  	  	 	231,563	  	  	 	232,894	  	
Current derivative liabilities:	  				  				  				  				
Interest rate swap contracts	  	 	918	  	  	 	918	  	  	 	—  	 	  	 	—  	 	
 
11

The carrying amounts shown in the table above are included in the Companies’ balance sheets under the indicated captions. The carrying value of trade accounts receivable, trade accounts payable and receivables/payables to owners and affiliates approximate their fair value.
The fair values of the financial instruments shown in the above table as of March 31, 2014 and December 31, 2013 represent the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Companies’ own judgment about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Companies based on the best information available in the circumstances, including expected cash flows, appropriately risk-adjusted discount rates and available observable and unobservable inputs.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
 
•	 	Cash and cash equivalents : The fair value of the Companies’ cash balances approximates the carrying amounts due to the current nature of the amounts.	
 
•	 	Interest rate swap contracts: The fair value of interest-rate swaps is determined using an income approach using the following significant inputs: the term of the swap, the notional amount of the swap, discount rates interpolated based on relevant LIBOR swap curves and the rate on the fixed leg of the swap.	
 
•	 	Long-term debt : With respect to long-term debt measurements, the Companies use market interest rates and adjust that rate for all necessary risks, including its own credit risk. In determining an appropriate spread to reflect its credit standing, the Companies considered interest rates currently offered to KNOT for similar debt instruments of comparable maturities by KNOT’s and the Companies’ bankers as well as other banks that regularly compete to provide financing to the Companies.	
(b) Fair Value Hierarchy
The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis (including items that are required to be measured at fair value or for which fair value is required to be disclosed) as of March 31, 2014 and December 31, 2013:

 	  	 	 	  	Fair Value Measurements at
Reporting Date Using	 	
(U.S. Dollars in thousands)	  	March 31,
2014	 	  	Quoted Price
in Active
Markets for
Identical
Assets
(Level 1)	 	  	Significant
Other
Observable
Inputs
(Level 2)	 	  	Significant
Unobservable
Inputs
(Level 3)	 	
Financial assets:	  				  				  				  				
Cash and cash equivalents	  	$	6,860	  	  	$	6,860	  	  	$	—  	 	  	$	—  	 	
Non-current derivative assets:	  				  				  				  				
Interest rate swap contracts	  	 	1,550	  	  	 	—  	 	  	 	1,550	  	  	 	—  	 	
Financial liabilities:	  				  				  				  				
Current derivative liabilities:	  				  				  				  				
Interest rate swap contracts	  	 	918	  	  				  	 	918	  	  				
Long-term debt, current and non-current	  	 	227,926	  	  	 	—  	 	  	 	227,926	  	  	 	—  	 	
			
 	  	 	 	  	Fair Value Measurements at
Reporting Date Using	 	
(U.S. Dollars in thousands)	  	December 31,
2013	 	  	Quoted Price
in Active
Markets for
Identical
Assets
(Level 1)	 	  	Significant
Other
Observable
Inputs
(Level 2)	 	  	Significant
Unobservable
Inputs
(Level 3)	 	
Financial assets:	  				  				  				  				
Cash and cash equivalents	  	$	11,841	  	  	$	11,841	  	  	$	—  	 	  	$	—  	 	
Non-current derivative assets:	  				  				  				  				
Interest rate swap contracts	  	 	—  	 	  	 	—  	 	  	 	—  	 	  	 	—  	 	
Financial liabilities:	  				  				  				  				
Current derivative liabilities:	  				  				  				  				
Interest rate swap contracts	  	 	—  	 	  	 	—  	 	  	 	—  	 	  	 	—  	 	
Long-term debt, current and non-current	  	 	232,894	  	  	 	—  	 	  	 	232,894	  	  	 	—  	 	
 
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The Companies’ accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of Level 1, Level 2 or Level 3 as of March 31, 2014 and December 31, 2013.
9) Trade Accounts Receivables
(a) Trade Accounts Receivables
Trade accounts receivable are presented net of provisions for doubtful accounts. As of March 31, 2014 and December 2013, there was no provision for doubtful accounts.
(b) Other Current Assets
Other current assets consist of the following:

(U.S. Dollars in thousands)	  	At March 31,
2014	 	  	At December 31,
2013	 	
Refund of value added tax	  	$	27	  	  	$	88	  	
Prepaid expenses	  	 	157	  	  	 	43	  	
Current portion of deferred debt issuance cost	  	 	1,139	  	  	 	1,120	  	
Other receivable	  	 	1,086	  	  	 	390	  	
	  	 	 	 	  	 	 	 	
Total other current assets	  	$	2,409	  	  	$	1,641	  	
	  	 	 	 	  	 	 	 	
10) Vessels and Equipment

(U.S. Dollars in thousands)	  	Vessels &
equipment	 	  	Vessels under
construction	 	 	Accumulated
depreciation	 	 	Net vessels	 	
Balance December 31, 2012	  	$	—  	  	  	 	126,663	 	 	$	—  	  	 	$	126,663	 	
Additions	  	 	—  	  	  	 	155,823	  	 	 	—  	  	 	 	155,823	  	
Drydock costs	  	 	5,000	  	  	 	—  	  	 	 	—  	  	 	 	5,000	  	
Transfer from vessels under construction	  	 	282,486	  	  	 	(282,486	)	 	 	—  	  	 	 	—  	  	
Disposal	  	 	—  	  	  	 	—  	  	 	 	—  	  	 	 	—  	  	
Depreciation	  	 	—  	  	  	 	—  	  	 	 	(3,303	)	 	 	(3,303	)	
Balance December 31, 2013	  	$	287,486	  	  	$	—  	  	 	$	(3,303	)	 	$	284,183	  	
	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Additions	  	 	121	  	  	 	—  	  	 	 	—  	  	 	 	121	  	
Drydock costs	  	 	—  	  	  	 	—  	  	 	 	—  	  	 	 	—  	  	
Transfer from vessels under construction	  	 	—  	  	  	 	—  	  	 	 	—  	  	 	 	—  	  	
Disposal	  	 	—  	  	  	 	—  	  	 	 	—  	  	 	 	—  	  	
Depreciation	  	 	—  	  	  	 	—  	  	 	 	(2,835	)	 	 	(2,835	)	
	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Balance March 31, 2014	  	$	287,607	  	  	 	—  	  	 	$	(6,138	)	 	$	281,469	  	
	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
As of March 31, 2014, Vessels with a book value of $281.5 million are pledged as security held as a guarantee for the Companies’ long-term debt. See Note 12—Long-Term Debt.
Drydocking activity for the three months ended March 31, 2014 is summarized as follows:

(U.S. Dollars in thousands)	  	At March 31,
2014	 	 	At December 31,
2013	 	
Balance at the beginning of the year	  	$	4,709	  	 	$	—  	  	
Costs incurred for drydocking	  	 	—  	  	 	 	5,000	  	
Drydock amortization	  	 	(250	) 	 	 	(291	)	
	  	 	 	 	 	 	 	 	
Balance at the end of the year	  	$	4,459	  	 	$	4,709	  	

13

11) Accrued Expenses
The following table presents accrued expenses as of March 31, 2014:

(U.S. Dollars in thousands)	  	At March 31,
2014	 	  	At December 31,
2013	 	
Operating expenses	  	$	585	 	  	$	670	  	
Interest expenses	  	 	1,150	  	  	 	1,160	  	
	  	 	 	 	  	 	 	 	
Total accrued expenses	  	$	1,735	  	  	$	1,830	  	
	  	 	 	 	  	 	 	 	
12) Long-Term Debt
Long-term debt as of March 31, 2014 and December 31, 2013 consisted of following:

(U.S. Dollars in thousands)	  	Vessel	 	  	March 31,
2014	 	  	December 31,
2013	 	
$117 million Loan facility	  	 	Hilda Knutsen	  	  	$	112,125	  	  	$	114,563	  	
$117 million Loan facility	  	 	Torill Knutsen	  	  	 	114,563	  	  	 	117,000	  	
	  				  	 	 	 	  	 	 	 	
Total long-term debt	  				  	 	226,688	  	  	 	231,563	  	
Less current installments	  				  	 	19,500	  	  	 	19,500	  	
	  				  	 	 	 	  	 	 	 	
Long-term debt, excluding current	  				  	$	207,188	  	  	$	212,063	  	
	  				  	 	 	 	  	 	 	 	
Hilda Facility
The $117 million secured loan facility (the “Hilda Facility”) is repayable in quarterly installments over five years with a final balloon payment due at maturity in August 2018. The Hilda Facility bears interest at LIBOR plus a fixed margin of 2.5%.
The Hilda Knutsen , assignments of earnings, charterparty contracts and insurance proceeds are pledged as collateral for the Hilda Facility. KNOT is the sole guarantor.
The Hilda Facility contains the following financial covenants:
 
 	•	 	Market value of the Hilda Knutsen to be no less than 100% of the outstanding balance under the Hilda Facility for the first 4 years and 125% for the 5 th year;	
 
 	•	 	Positive working capital of the borrower and of KNOT and its subsidiaries on a consolidated basis (“KNOT Group”);	
 
 	•	 	Minimum liquidity of (i) $2 million for the borrower; (ii) $25 million for the guarantor, and (iii) 4% of interest bearing debt for the KNOT Group;	
 
 	•	 	Minimum book equity ratio for the KNOT Group of 22.5 % until December 31, 2014, and thereafter 25%; and	
 
 	•	 	EBITDA must exceed interest payable, any amounts payable for the interest rate swaps and debt installments for the KNOT Group calculated on a four quarter rolling basis.	
The Hilda Facility also identifies various events that may trigger mandatory reduction, prepayment and cancellation of the facility, including total loss or sale of a vessel and customary events of default.
The borrower and the guarantor were in compliance with all covenants as of March 31, 2014, and December 31, 2013.
 
14

Torill Facility
The $117 million secured loan facility (the “Torill Facility”) is repayable in quarterly installments over five years with a final balloon payment due at maturity in November 2018. The Torill Facility bears interest at LIBOR plus a fixed margin of 2.75%.
The Torill Knutsen , assignments of earnings, charterparty contracts and insurance proceeds are pledged as collateral for the Hilda Facility. Knutsen NYK Offshore Tankers AS is the sole guarantor.
The Torill Facility contains the following financial covenants:
 
 	•	 	Market value of the Torill Knutsen to be no less than 100% of the outstanding balance under the Torill Facility for the first 4 years and 125% for the 5 th year;	
 
 	•	 	Positive working capital of the borrower and KNOT Group;	
 
 	•	 	Minimum liquidity of (i) $2 million for the borrower; (ii) $25 million for the guarantor, and (iii) 4% of interest bearing debt for the KNOT Group;	
 
 	•	 	Minimum book equity ratio for the KNOT Group of 22.5 % until December 31, 2014, and thereafter 25%; and	
 
 	•	 	EBITDA must exceed interest payable, any amounts payable for the interest rate swaps and debt installments for the KNOT Group calculated on a four quarter rolling basis.	
The Torill Facility also identifies various events that may trigger mandatory reduction, prepayment and cancellation of the facility, including total loss or sale of a vessel and customary events of default.
The borrower and the guarantor were in compliance with all covenants as of March 31, 2014, and December 31, 2013.
The total outstanding debt as of March 31, 2014 is repayable as follows:

(US $ in thousands)	  	 	 	
2014	  	$	14,625	  	
2015	  	 	19,500	  	
2016	  	 	19,500	  	
2017	  	 	19,500	  	
2018 and thereafter	  	 	153,563	  	
Total	  	$	226,688	  	
13) Income Taxes
Components of Current and Deferred Tax Expense (Benefit)
The Companies are subject to the Norwegian Tonnage Tax regime (“the tonnage tax regime”). Under the tonnage tax regime, the tax is based on the tonnage of the vessel and the operating income is tax free. The net financial income and expense remains taxable as ordinary income tax for entities subject to the tonnage tax regime. Tonnage tax is classified as an operating expense. Tonnage tax amounted to $11,000 in the three months ended March 31, 2014, and $0 in the three months ended March 31, 2013.

 	  	Three Months Ended
March 31,	 	
(US $ in thousands)	  	2014	 	 	2013	 	
Income (loss) before income taxes	  	$	4,173	  	 	$	313	  	
Income tax expense (benefit)	  	 	—  	 	 	 	—  	 	
Effective tax rate	  	 	0	% 	 	 	0	% 	
A valuation allowance for deferred tax assets is recorded when it is more likely than not that some of or all of the benefit from the deferred tax asset will not be realized. The valuation allowances relate to the financial loss carry forwards and other deferred tax assets for tonnage tax that, in the judgment of the Companies, are more-likely-than not to be realized reflecting the Companies’ cumulative loss position for tonnage tax. In assessing the realizability of deferred tax assets, the Companies consider whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized taking into account all the positive and negative evidence available, and there is no deferred tax assets recognized as of March 31, 2014 and December 31, 2013.
 
15

14) Related Party Transactions
(a) Related Parties
The Companies have been charged by KNOT and KOAS for commercial services related to the charters, technical and operational support related to the operation of the Vessels, certain administrative costs and finance fees.
The amounts of such costs and expenses included in the combined statements of operations for the three month ended March 31, 2014 and 2013 is as follows:

 	  	Three Months Ended
March 31,	 	
(U.S. Dollars in thousands)	  	2014	 	  	2013	 	
Statements of operations:	  				  				
Time charter revenues:	  				  				
Commercial commission fee from KNOT to Vessels (1)	  	$	141	  	  	$	—  	  	
Operating expenses:	  				  				
Technical and operational management fee from KOAS and KNOT to Vessels (2)	  	 	219	  	  	 	—  	  	
General and administrative expenses:	  				  				
Administration fee from KNOT (3)	  	 	8	  	  	 	15	  	
Accounting service fee from KNOT (4)	  	 	7	  	  	 	7	  	
Finance expense:	  				  				
Interest expense charged from KNOT (5)	  	 	64	  	  	 	—  	  	
Guarantee commission from KNOT to Vessels (6)	  	 	287	  	  	 	129	  	
	  	 	 	 	  	 	 	 	
Total	  	$	726	  	  	$	151	  	

(U.S. Dollars in thousands)	  	At March 31,
2014	 	  	At December 31,
2013	 	
Balance sheets:	  				  				
Vessels:	  				  				
New building supervision fee from KOAS to Vessels (7)	  	$	—  	  	  	$	2,350	  	
Licensing of technology fees from TSSI to Vessels (8)	  	 	—  	  	  	 	1,080	  	
Interest capitalized charged from KNOT to subsidiaries (9)	  	 	—  	  	  	 	395	  	
	  	 	 	 	  	 	 	 	
Total	  	$	—  	  	  	$	3,825	  	

(1)	Commercial commission fee from KNOT to Vessels: KNOT provides commercial services related to negotiating and maintaining the charters. KNOT invoices a fixed percentage of revenue as a commercial commission fee for these services.	
(2)	Technical and operational management fee from KOAS and KNOT to Vessels : KNOT provides technical and operational management of the vessels on time charter including crewing, purchasing, maintenance and other operational, bookkeeping and administrative support.	
(3)	Administration fee from KNOT : Administration costs include the compensation and benefits of KNOT management and administrative staff as well as other general and administration expenses. Net administration costs are total administration cost plus a 5% margin, reduced for the total fees for services delivered by the administration staffs (the accounting service fees (see (4) below), the financing service fees (see (6) below) and the estimated shareholder costs for KNOT that have not been allocated. As such, the level of net administration costs as a basis for the allocation can vary from year to year based on the administration and financing services offered by KNOT to all the vessels in its fleet each year.	
(4)	Accounting service fee from KNOT : KNOT invoiced each subsidiary a fixed fee for the preparation of the statutory financial statements.	
(5)	Interest expense charged from, interest income charged to KNOT : KNOT invoiced interest expense (income) for any outstanding payables to (receivable from) owners and affiliates to the vessel-owning subsidiaries. Interest expense has been allocated based upon the allocated payables to owners and affiliates and the historical interest rates charged.	
(6)	Guarantee commission from KNOT to Vessels : KNOT was a guarantor for the Companies’ loan facilities (see Note 12—Long-term Debt and Note 14(b)—Related Party Transactions: Guarantees). KNOT invoiced an annual commission to each of the Vessels as a fixed percentage of the outstanding balance as compensation for the guarantee.	
(7)	New building supervision fee from KOAS to Vessels : KOAS charges a fixed fee for supervision of each vessel under construction that is invoiced on a straight-line basis over the period of construction. Such fees, along with direct and incremental supervision costs incurred, are capitalized as part of the Vessels under construction.	
(8)	Knutsen Ballast Water Treatment installation from TSSI to Vessel : TSSI has developed Knutsen ballast water treatment technology and the system was installed during the construction and all cost is capitalized as part of the Vessels under construction.	
(9)	Interest capitalized charged from KNOT to Vessels : KNOT invoiced interest expense for outstanding payables to owners and affiliates to the vessel owning subsidiaries as explained in (5) above. Such interest expense is capitalized for qualifying Vessels under construction.	
(b) Guarantees
As of March 31, 2014, KNOT is guarantor for the Hilda Facility and Torill Facility.
 
16

(c) Transaction with Management
The Companies had no personnel during the three months ended March 31, 2014. There has been no direct remuneration to any members of the Board of Directors of KNOT. Trygve Seglem, the President and CEO of KNOT has received $119,000 in salary from KNOT Management AS during the three months ended March 31, 2014. He also controls Seglem Holding AS, which has a 100% equity interest of TSSI, which controls KOAS. TSSI owns 50% in KNOT. Trygve Seglem owns 70% of the equity interests in Seglem Holding AS, and each of his daughters, Synnøve Seglem and Jorunn Seglem, each own 15% of the equity interests.
NYK, which own 50% of KNOT, has management and administrative personnel on secondment to KNOT starting in March 2011. The cost for such services was $0.8 million during the three months ended March 31, 2014. NYK has no other related party transactions with KNOT apart from interest income on financing offered to KNOT.
See this Note 14 – Related Party Transactions Items 3 and 4 for discussion of the allocation principles for KNOT’s administrative costs, including management and administrative staff, included in the combined statements of operations for the two entities.
(d) Amounts Due from (to) Related Parties
Balances with related parties consisted of the following:

(U.S. Dollars in thousands)	  	At March 31,
2014	 	  	At December 31,
2013	 	
Balance Sheets:	  				  				
Trading balances due from KOAS	  	$	107	  	  	$	—  	 	
Trading balances due from KNOT and affiliates	  	 	3,224	  	  	 	775	  	
	  	 	 	 	  	 	 	 	
Amount due from related parties	  	$	3,331	  	  	$	775	  	
	  	 	 	 	  	 	 	 	
Trading balances due to KOAS	  	$	18	  	  	$	143	  	
Trading balances due to KNOT and affiliates	  	 	550	  	  	 	6,922	  	
	  	 	 	 	  	 	 	 	
Amount due to related parties	  	$	568	  	  	$	7,065	  	
	  	 	 	 	  	 	 	 	
Amounts due from (to) related parties are unsecured and intended to be settled in the ordinary course of business. They primarily relate to vessel management and other fees due to KNOT and KOAS.
15) Commitments and Contingencies
Assets Pledged
As of March 31, 2014, Vessels with a book value of $ 281.5 million were pledged as security held as guarantee for the Companies’ long-term debt and interest rate obligations. See Note 7 – Derivative Instruments and Note 12—Long-Term Debt.
Insurance
The Companies maintain insurance to insure against marine and war risks, which include damage to or total loss of the Vessels, subject to deductible amounts that average $0.150 million per Vessel, and loss of hire.
Under the loss of hire policies, the insurer will pay a compensation for the lost hire rate agreed in respect of each Vessel for each day, in excess of 14 deductible days, for the time that the Vessel is out of service as a result of damage, for a maximum of 180 days. In addition, the Companies maintain protection and indemnity insurance, which covers third-party legal liabilities arising in connection with the Vessels’ activities, including, among other things, the injury or death of third-party persons, loss or damage to cargo, claims arising from collisions with other vessels and other damage to other third-party property, including pollution arising from oil or other substances. This insurance is unlimited, except for pollution, which is limited to $1 billion per vessel per incident. The protection and indemnity insurance is maintained through a protection and indemnity association, and as a member of the association, the Companies may be required to pay amounts above budgeted premiums if the member claims exceed association reserves, subject to certain reinsured amounts. If the Companies experience multiple claims each with individual deductibles, losses due to risks that are not insured or claims for insured risks that are not paid, it could have a material adverse effect on the Companies’ results of operations and financial condition.
 
17

Exhibit 99.1
KNOT Offshore Partners LP announces pricing of public offering of 4,600,000 common units
Aberdeen, United Kingdom, June 24, 2014 – KNOT Offshore Partners LP (the “Partnership”) (NYSE: KNOP) announced today that it has priced its public offering of 4,600,000 common units, representing limited partner interests, at a price of $28.43 per unit. The Partnership has granted the underwriters a 30-day option to purchase up to an additional 690,000 common units.
The Partnership intends to use the net proceeds that it receives in the offering and the related capital contribution by its general partner to maintain its 2% general partner interest to fund the purchase prices of its previously announced acquisitions of two shuttle tankers, the  Hilda Knutsen and the Torill Knutsen , from Knutsen NYK Offshore Tankers AS and the remainder for general partnership purposes. If the Acquisitions do not close, the Partnership will use the net proceeds from the offering and the related capital contribution by its general partner for general partnership purposes.
The Partnership owns, operates and acquires shuttle tankers under long-term charters in the offshore oil production regions of the North Sea and Brazil. The Partnership is structured as a master limited partnership. The Partnership’s common units trade on the New York Stock Exchange under the symbol “KNOP.”
BofA Merrill Lynch, Citigroup, Barclays, Raymond James, RBC Capital Markets, UBS Investment Bank and Wells Fargo Securities are acting as the joint book-running managers in connection with the offering. In addition, ABN AMRO and DNB Markets are acting as the co-managers in connection with the offering.
When available, copies of the prospectus supplement and accompanying base prospectus relating to the offering may be obtained free of charge on the Securities and Exchange Commission’s website at http://www.sec.gov or from the underwriters of the offering as follows:
BofA Merrill Lynch
222 Broadway
New York, NY 10038
Attn: Prospectus Department
Email: dg.prospectus_requests@baml.com
Citigroup
c/o Broadridge Financial Solutions
1155 Long Island Avenue
Edgewood, NY 11717
Telephone: (800) 831-9146
Barclays
c/o Broadridge Financial Solutions
1155 Long Island Avenue
Edgewood, NY 11717
Telephone: (888) 603-5847
Email: barclaysprospectus@broadridge.com

Raymond James
880 Carillon Parkway
St. Petersburg, FL 33716
Attn: Prospectus Department
Telephone: (800) 248-8863
Email: prospectus@raymondjames.com
RBC Capital Markets
Attn: Equity Syndicate
Three World Financial Center
200 Vesey Street, 8th Floor
New York, NY 10281
Telephone: (877) 822-4089
UBS Investment Bank
Attn: Prospectus Department
299 Park Avenue
New York, NY 10171
Telephone: (888) 827-7275
Wells Fargo Securities
Attn: Equity Syndicate Department
375 Park Avenue
New York, NY 10152
Telephone: (800) 326-5897
Email: cmclientsupport@wellsfargo.com
This press release does not constitute an offer to sell or a solicitation of an offer to buy the securities described herein, nor shall there be any sale of these securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. The common units in the public offering will be offered and sold pursuant to an effective registration statement on Form F-3 previously filed with the Securities and Exchange Commission (the “SEC”) (File No. 333-195976). This offering may be made only by means of a prospectus supplement and accompanying base prospectus, which will be filed with the SEC.
The statements in this press release that are not historical facts may be forward-looking statements. These forward-looking statements are based upon the current beliefs and expectations of the Partnership’s management and are subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements. The information set forth herein should be read in light of such risks. The Partnership does not assume any obligation to update the information contained in this press release.

Media:
KNOT Offshore Partners LP
Arild Vik
Chief Executive Officer and Chief Financial Officer
+44 758 1899 777
Source: KNOT Offshore Partners LP