UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549





FORM
20-F





[ ]
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE


SECURITIES


EXCHANGE
ACT OF 1934





OR





[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE


ACT OF
1934





For the
fiscal year ended December 31, 2008





OR





[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934





For the
transition period from ____ to ____





OR





[ ] SHELL
COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934








Date of
event requiring this shell company report: Not applicable





Commission
file number 001-13944








NORDIC
AMERICAN TANKER SHIPPING LIMITED


-----------------------------------------------


(Exact
name of Registrant as specified in its charter)





----------------------------------------------


(Translation
of Registrant’s name into English)





BERMUDA


----------------------------------------------


(Jurisdiction
of incorporation or organization)








LOM
Building


27 Reid
Street


Hamilton
HM 11


Bermuda


----------------------------------------------


(Address
of principal executive offices)








Herbjørn
      Hansson, Chairman, President, and Chief Executive Officer,
              Tel
      No. 1 (441) 292-7202,
              LOM
      Building, 27 Reid Street, Hamilton HM 11, Bermuda(Name,
      Telephone, E-mail and/or Facsimile number and
              Address
      of Company Contact Person








Securities
registered or to be registered pursuant to Section 12(b)


of the
Act:





Common
Stock, $0.01 par value


Series A
Participating Preferred Stock


-----------------------------


Title of
class





New York
Stock Exchange


----------------------------------------------


Name of
exchange on which registered








Securities
registered or to be registered pursuant to Section 12(g) of the
Act:  None








Securities
for which there is a reporting obligation pursuant to Section 15(d)


of the
Act: None








Indicate
the number of outstanding shares of each of the issuer’s classes of capital or
common stock as of the close of the period covered by the annual
report:





As of
December 31, 2008, there were 34,373,271 shares outstanding of the Registrant’s
common stock, $0.01 par value per share.





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





[X]
      Yes
            [_]
      No





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





[_]
      Yes
            [X]
      No





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





[X]
      Yes
            [_]
      No





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





[_]
      Yes
            [_]
      No








Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):





Large
      accelerated filer  [X]
            Accelerated
      filer  [_]Non-accelerated
      filer
              (Do
      not check if a smaller
              reporting
      company)  [_]
            Smaller
      reporting company  [_]








Indicate
      by check mark which basis of accounting
              the
      Registrant has used to prepare the financial
              statements
      included in this filing:[X]  U.S.
      GAAP[_]  International
      Financial Reporting Standards as issued by the International Accounting
      Standards Board[_]  OtherIf
      “Other” has been checked in response to the previous question, indicate by
      check mark which financial statement item the Registrant has elected to
      follow.[_]  Item
      17[_]  Item
      18





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





[_]
      Yes
            [X]
      No







TABLE
OF CONTENTS


Page




ITEM
      1.
                                  IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
                                  1ITEM
      2.
                                  OFFER
      STATISTICS AND EXPECTED TIMETABLE
                                  1ITEM
      3.
                                  KEY
      INFORMATION
                                  1ITEM
      4.
                                  INFORMATION
      ON THE COMPANY
                                  16ITEM
      4A.
                                  UNRESOLVED
      STAFF COMMENTS
                                  34ITEM
      5.
                                  OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS
                                  34ITEM
      6.
                                  DIRECTORS,
      SENIOR MANAGEMENT AND EMPLOYEES
                                  40ITEM
      7.
                                  MAJOR
      SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
                                  43ITEM
      8.
                                  FINANCIAL
      INFORMATION
                                  44ITEM
      9.
                                  THE
      OFFER AND LISTING
                                  44ITEM
      10.
                                  ADDITIONAL
      INFORMATION
                                  45ITEM
      11.
                                  QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                                  56ITEM
      12.
                                  DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY SECURITIES
                                  56ITEM
      13.
                                  DEFAULTS,
      DIVIDEND ARREARAGES AND DELINQUENCIES
                                  57ITEM
      14.
                                  MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      PROCEEDS
                                  57




ITEM
      15.
                      CONTROLS
      AND PROCEDURES
                      57ITEM
      16.
                      RESERVED.
                      58ITEM 16A.
                      AUDIT
      COMMITTEE FINANCIAL EXPERT
                      58ITEM 16B.
                      CODE
      OF ETHICS
                      58ITEM 16C.
                      PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                      58ITEM 16D.
                      EXEMPTIONS
      FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
                      59ITEM 16E.
                      PURCHASES
      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PERSONS
                      59ITEM 16G.
                      CORPORATE
      GOVERNANCE
                      59ITEM
      17.
                      FINANCIAL
      STATEMENTS
                      59ITEM
      18.
                      FINANCIAL
      STATEMENTS
                      59ITEM
      19.
                      EXHIBITS
                      59
  
 CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS




Certain
matters discussed herein may constitute forward-looking statements. The Private
Securities Litigation Reform Act of 1995 provides safe harbor protections for
forward-looking statements in order to encourage companies to provide
prospective information about their business. Forward-looking statements include
statements concerning plans, objectives, goals, strategies, future events or
performance, and underlying assumptions and other statements, which are other
than statements of historical facts.




The
Company desires to take advantage of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and is including this cautionary
statement in connection with this safe harbor legislation. The words “believe,”
“anticipate,” “intend,” “estimate,” “forecast,” “project,” “plan,” “potential,”
“may,” “should,” “expect,” “pending” and similar expressions identify
forward-looking statements.




The
forward-looking statements are based upon various assumptions, many of which are
based, in turn, upon further assumptions, including without limitation, our
management’s examination of historical operating trends, data contained in our
records and other data available from third parties. Although we believe that
these assumptions were reasonable when made, because these assumptions are
inherently subject to significant uncertainties and contingencies which are
difficult or impossible to predict and are beyond our control, we cannot assure
you that we will achieve or accomplish these expectations, beliefs or
projections. We undertake no obligation to update any forward-looking statement,
whether as a result of new information, future events or otherwise.




Important
factors that, in our view, could cause actual results to differ materially from
those discussed in the forward-looking statements include the strength of world
economies and currencies, general market conditions, including fluctuations in
charter rates and vessel values, changes in demand in the tanker market, as a
result of changes in OPEC’s petroleum production levels and world wide oil
consumption and storage, changes in our operating expenses, including bunker
prices, drydocking and insurance costs, the market for our vessels, availability
of financing and refinancing, changes in governmental rules and regulations or
actions taken by regulatory authorities, potential liability from pending or
future litigation, general domestic and international political conditions,
potential disruption of shipping routes due to accidents or political events,
vessels breakdowns and instances of off-hires and other important factors
described from time to time in the reports filed by the Company with the
Securities and Exchange Commission.




Please
note in this annual report, “we”, “us”, “our”, and the “Company”, all refer to
Nordic American Tanker Shipping Limited.





ITEM
      1.
            IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISERS




Not
Applicable




ITEM
      2.
            OFFER
      STATISTICS AND EXPECTED TIMETABLE




Not
Applicable




ITEM
      3.
            KEY
      INFORMATION




A.
            SELECTED
      FINANCIAL DATA




The
following historical financial information should be read in conjunction with
our audited financial statements and related notes all of which are included
elsewhere in this document and “Operating and Financial Review and Prospects.”
The statement of operations data for each of the three years ended December 31,
2008, 2007, and 2006 and selected balance sheet data as of December 31, 2008 and
2007 are derived from our audited financial statements included elsewhere in
this document. The statements of operations data for each of the years ended
December 31, 2005 and 2004 and selected balance sheet data for each of the years
ended December 31, 2006, 2005 and 2004 are derived from our audited financial
statements not included in this document.




1




SELECTED
      FINANCIAL
DATA




All
      figures in thousands of USD except share data
                                                                    
                                                                    2008
                                                                    
                                                                    
                                                                    2007
                                                                    
                                                                    
                                                                    2006
                                                                    
                                                                    
                                                                    2005
                                                                    
                                                                    
                                                                    2004Voyage
      revenue
                                                                    
                                                                    
                                                                    228,000
                                                                    
                                                                    
                                                                    
                                                                    186,986
                                                                    
                                                                    
                                                                    
                                                                    175,520
                                                                    
                                                                    
                                                                    
                                                                    117,110
                                                                    
                                                                    
                                                                    
                                                                    67,452Voyage
      expenses
                                                                    
                                                                    
                                                                    (10,051
                                                                    )
                                                                    
                                                                    
                                                                    (47,122
                                                                    )
                                                                    
                                                                    
                                                                    (40,172
                                                                    )
                                                                    
                                                                    
                                                                    (30,981
                                                                    )
                                                                    
                                                                    
                                                                    (4,925
                                                                    )Vessel
      operating expense –
                                                                      excl.
      depreciation expense presented below
                                                                    
                                                                    
                                                                    (35,593
                                                                    )
                                                                    
                                                                    
                                                                    (32,124
                                                                    )
                                                                    
                                                                    
                                                                    (21,102
                                                                    )
                                                                    
                                                                    
                                                                    (11,221
                                                                    )
                                                                    
                                                                    
                                                                    (1,977
                                                                    )General
      and administrative expenses
                                                                    
                                                                    
                                                                    (12,785
                                                                    )
                                                                    
                                                                    
                                                                    (12,132
                                                                    )
                                                                    
                                                                    
                                                                    (12,750
                                                                    )
                                                                    
                                                                    
                                                                    (8,492
                                                                    )
                                                                    
                                                                    
                                                                    (10,852
                                                                    )Depreciation
                                                                    
                                                                    
                                                                    (48,284
                                                                    )
                                                                    
                                                                    
                                                                    (42,363
                                                                    )
                                                                    
                                                                    
                                                                    (29,254
                                                                    )
                                                                    
                                                                    
                                                                    (17,529
                                                                    )
                                                                    
                                                                    
                                                                    (6,918
                                                                    )Net
      operating income
                                                                    
                                                                    
                                                                    121,288
                                                                    
                                                                    
                                                                    
                                                                    53,245
                                                                    
                                                                    
                                                                    
                                                                    72,242
                                                                    
                                                                    
                                                                    
                                                                    48,887
                                                                    
                                                                    
                                                                    
                                                                    42,780Interest
      income
                                                                    
                                                                    
                                                                    931
                                                                    
                                                                    
                                                                    
                                                                    904
                                                                    
                                                                    
                                                                    
                                                                    1,602
                                                                    
                                                                    
                                                                    
                                                                    850
                                                                    
                                                                    
                                                                    
                                                                    143Interest
      expense
                                                                    
                                                                    
                                                                    (3,392
                                                                    )
                                                                    
                                                                    
                                                                    (9,683
                                                                    )
                                                                    
                                                                    
                                                                    (6,339
                                                                    )
                                                                    
                                                                    
                                                                    (3,454
                                                                    )
                                                                    
                                                                    
                                                                    (1,971
                                                                    )Other
      financial (expense) income
                                                                    
                                                                    
                                                                    17
                                                                    
                                                                    
                                                                    
                                                                    (260
                                                                    )
                                                                    
                                                                    
                                                                    (112
                                                                    )
                                                                    
                                                                    
                                                                    34
                                                                    
                                                                    
                                                                    
                                                                    (136
                                                                    )Total
      other expenses
                                                                    
                                                                    
                                                                    (2,443
                                                                    )
                                                                    
                                                                    
                                                                    (9,039
                                                                    )
                                                                    
                                                                    
                                                                    (4,849
                                                                    )
                                                                    
                                                                    
                                                                    (2,570
                                                                    )
                                                                    
                                                                    
                                                                    (1,964
                                                                    )Net
      income
                                                                    
                                                                    
                                                                    118,844
                                                                    
                                                                    
                                                                    
                                                                    44,206
                                                                    
                                                                    
                                                                    
                                                                    67,393
                                                                    
                                                                    
                                                                    
                                                                    46,317
                                                                    
                                                                    
                                                                    
                                                                    40,816Basic
      earnings per share
                                                                    
                                                                    
                                                                    3.63
                                                                    
                                                                    
                                                                    
                                                                    1.56
                                                                    
                                                                    
                                                                    
                                                                    3.14
                                                                    
                                                                    
                                                                    
                                                                    3.03
                                                                    
                                                                    
                                                                    
                                                                    4.05Diluted
      earnings per share
                                                                    
                                                                    
                                                                    3.62
                                                                    
                                                                    
                                                                    
                                                                    1.56
                                                                    
                                                                    
                                                                    
                                                                    3.14
                                                                    
                                                                    
                                                                    
                                                                    3.03
                                                                    
                                                                    
                                                                    
                                                                    4.05Cash
      dividends declared per share
                                                                    
                                                                    
                                                                    4.89
                                                                    
                                                                    
                                                                    
                                                                    3.81
                                                                    
                                                                    
                                                                    
                                                                    5.85
                                                                    
                                                                    
                                                                    
                                                                    4.21
                                                                    
                                                                    
                                                                    
                                                                    4.84Basic
      weighted average shares outstanding
                                                                    
                                                                    
                                                                    32,739,057
                                                                    
                                                                    
                                                                    
                                                                    28,252,472
                                                                    
                                                                    
                                                                    
                                                                    21,476,196
                                                                    
                                                                    
                                                                    
                                                                    15,263,622
                                                                    
                                                                    
                                                                    
                                                                    10,078,391Diluted
      weighted average shares outstanding
                                                                    
                                                                    
                                                                    32,832,854
                                                                    
                                                                    
                                                                    
                                                                    28,294,997
                                                                    
                                                                    
                                                                    
                                                                    21,476,196
                                                                    
                                                                    
                                                                    
                                                                    15,263,622
                                                                    
                                                                    
                                                                    
                                                                    10,078,391Other
      financial data:Net
      cash from operating activities
                                                                    
                                                                    
                                                                    127,900
                                                                    
                                                                    
                                                                    
                                                                    83,649
                                                                    
                                                                    
                                                                    
                                                                    106,613
                                                                    
                                                                    
                                                                    
                                                                    51,056
                                                                    
                                                                    
                                                                    
                                                                    62,817Dividends
      paid
                                                                    
                                                                    
                                                                    165,886
                                                                    
                                                                    
                                                                    
                                                                    107,349
                                                                    
                                                                    
                                                                    
                                                                    122,590
                                                                    
                                                                    
                                                                    
                                                                    64,279
                                                                    
                                                                    
                                                                    
                                                                    47,196Selected
      Balance Sheet Data (at period end):Cash
      and cash equivalents
                                                                    
                                                                    
                                                                    31,378
                                                                    
                                                                    
                                                                    
                                                                    13,342
                                                                    
                                                                    
                                                                    
                                                                    11,729
                                                                    
                                                                    
                                                                    
                                                                    14,240
                                                                    
                                                                    
                                                                    
                                                                    30,733Total
      assets
                                                                    
                                                                    
                                                                    813,878
                                                                    
                                                                    
                                                                    
                                                                    804,628
                                                                    
                                                                    
                                                                    
                                                                    800,180
                                                                    
                                                                    
                                                                    
                                                                    505,844
                                                                    
                                                                    
                                                                    
                                                                    224,203Total
      debt
                                                                    
                                                                    
                                                                    15,000
                                                                    
                                                                    
                                                                    
                                                                    105,500
                                                                    
                                                                    
                                                                    
                                                                    173,500
                                                                    
                                                                    
                                                                    
                                                                    130,000
                                                                    
                                                                    
                                                                    
                                                                    0Common
      stock
                                                                    
                                                                    
                                                                    344
                                                                    
                                                                    
                                                                    
                                                                    300
                                                                    
                                                                    
                                                                    
                                                                    269
                                                                    
                                                                    
                                                                    
                                                                    166
                                                                    
                                                                    
                                                                    
                                                                    131Total
      shareholders’ equity
                                                                    
                                                                    
                                                                    788,586
                                                                    
                                                                    
                                                                    
                                                                    672,105
                                                                    
                                                                    
                                                                    
                                                                    611,946
                                                                    
                                                                    
                                                                    
                                                                    370,872
                                                                    
                                                                    
                                                                    
                                                                    221,868


2






B.
            CAPITALIZATION
      AND INDEBTEDNESS




Not
Applicable




C.
            REASONS
      FOR THE OFFER AND USE OF PROCEEDS




Not
Applicable




D.
            RISK
      FACTORS




Some
of the following risks relate principally to the industry in which we operate
and our business in general. Other risks relate principally to the securities
market and ownership of our common stock. The occurrence of any of the events
described in this section could significantly and negatively affect our
business, financial condition, operating results or cash available for dividends
or the trading price of our common stock.




Industry
Specific Risk Factors




If
the tanker industry, which has been cyclical, is depressed in the future, our
earnings and available cash flow may decrease.




The
current global financial crisis may adversely affect our ability to recharter
our vessels or to sell them on the expiration or termination of their charters
and the charter rates payable in respect of our twelve vessels currently
operating in the spot market, or any renewal or replacement charters.
Fluctuations in charter rates and tanker values result from changes in the
supply and demand for tanker capacity and changes in the supply and demand for
oil and oil products.




The
factors affecting the supply and demand for tankers are outside of our control,
and the nature, timing and degree of changes in industry conditions are
unpredictable.




The
factors that influence demand for tanker capacity include:




·
            demand
      for oil and oil products,




·
            supply
      of oil and oil products,




·
            regional
      availability of refining capacity,




·
            global
      and regional economic conditions,




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




·
            changes
      in seaborne and other transportation
patterns,




·
            weather,
      and




·
            competition
      from alternative sources of energy.




The
factors that influence the supply of tanker capacity include:





·
            the
      number of newbuilding deliveries,




·
            the
      scrapping rate of older vessels,




·
            conversion
      of tankers to other uses,




3


·
            the
      number of vessels that are out of service,
and




·
            environmental
      concerns and regulations.




Historically,
the tanker markets have been volatile as a result of the many conditions and
factors that can affect the price, supply and demand for tanker capacity. The
current global economic crisis may reduce demand for transportation of oil over
longer distances and supply of tankers to carry that oil, which may materially
affect our revenues, profitability and cash flows. Twelve of our thirteen
vessels are currently operated in the spot market, of which seven vessels are
under a cooperative agreement with Frontline Ltd. (NYSE:FRO) and five vessels
with Stena Bulk AB of Sweden.  We are highly
dependent on spot market charter rates. If spot charter rates decline, we may be
unable to achieve a level of charterhire sufficient for us to operate our
vessels profitably.




Changes
in the oil markets could result in decreased demand for our vessels and
services.




Demand
for our vessels and services in transporting oil will depend upon world and
regional oil markets. Any decrease in shipments of crude oil in those markets
could have a material adverse effect on our business, financial condition and
results of operations. Historically, those markets have been volatile as a
result of the many conditions and events that affect the price, production and
transport of oil, including competition from alternative energy sources. The
current recession affecting the U.S. and world economies may result in reduced
consumption of oil products and a decreased demand for our vessels and lower
charter rates, which could have a material adverse effect on our earnings and
our ability to pay dividends.




We
will be dependent on spot charters and any decrease in spot charter rates in the
future may adversely affect our earnings and our ability to pay
dividends.




We
currently operate a fleet of thirteen vessels. Of those thirteen vessels, one is
on a long-term fixed-rate charter, while the other twelve are employed in the
spot market. Therefore we are highly dependent on spot market charter
rates.




We may
enter into spot charters for any additional vessels that we may acquire in the
future. Although spot chartering is common in the tanker industry, the spot
charter market may fluctuate significantly based upon tanker and oil supply and
demand. The successful operation of our vessels in the spot charter market
depends upon, among other things, obtaining profitable spot charters and
minimizing, to the extent possible, time spent waiting for charters and time
spent travelling unladen to pick up cargo. The spot market is very volatile,
and, in the past, there have been periods when spot rates have declined below
the operating cost of vessels. If future spot charter rates decline, then we may
be unable to operate our vessels trading in the spot market profitably, meet our
obligations, including payments on indebtedness, or to pay
dividends.  Furthermore, as charter rates for spot charters are fixed
for a single voyage which may last up to several weeks, during periods in which
spot charter rates are rising, we will generally experience delays in realizing
the benefits from such increases.




Normally,
tanker markets are stronger in the fall and winter months (the fourth and first
quarters of the calendar year) in anticipation of increased oil consumption in
the Northern Hemisphere during the winter months. Unpredictable weather patterns
and variations in oil reserves disrupt tanker scheduling. Seasonal variations in
tanker demand will affect any spot market related rates that we may
receive.




Our
ability to renew the charters on our vessels on the expiration or termination of
our current charters, or on vessels that we may acquire in the future, the
charter rates payable under any replacement charters and vessel values will
depend upon, among other things, economic conditions in the sectors in which our
vessels operate at that time, changes in the supply and demand for vessel
capacity and changes in the supply and demand for the seaborne transportation of
energy resources.




Declines
in charter rates and other market deterioration could cause us to incur
impairment charges.




Our
vessels are evaluated for impairment annually or whenever events or changes in
circumstances indicate that the carrying amount of a vessel may not be
recoverable. If the estimated undiscounted future cash flows expected to result
from the use of the vessel and its eventual disposition is less than the
carrying amount of the vessel, the vessel is deemed
impaired. The carrying values of our vessels may not represent their fair market
value at any point in time because the new market prices of second-hand vessels
tend to fluctuate with changes in charter rates and the cost of newbuildings.
Any impairment charges incurred as a result of declines in charter rates could
negatively affect our business, financial condition, operating results or the
trading price of our common shares.


4


An
over-supply of tanker capacity may lead to reductions in charter rates, vessel
values, and profitability.





The
market supply of tankers is affected by a number of factors such as demand for
energy resources, oil, and petroleum products, as well as strong overall
economic growth in parts of the world economy including Asia. If the capacity of
new ships delivered exceeds the capacity of tankers being scrapped and lost,
tanker capacity will increase. In addition, the newbuilding order book which
extends to 2012 equalled approximately 38.9% of the existing world tanker fleet
as of April 2009 and the order book may increase further in proportion to the
existing fleet. If the supply of tanker capacity increases and if the demand for
tanker capacity does not increase correspondingly, charter rates could
materially decline. A reduction in charter rates and the value of our vessels
may have a material adverse effect on our results of operations and our ability
to pay dividends.




Acts of piracy on ocean-going vessels
have recently increased in frequency, which could adversely affect our
business.





Acts of
piracy have historically affected ocean-going vessels trading in regions of the
world such as the South China Sea and in the Gulf of Aden off the coast of
Somalia. Throughout 2008, the frequency of piracy incidents against commercial
shipping vessels has increased significantly, particularly in the Gulf of Aden
off the coast of Somalia. For example, in November 2008, the M/V Sirius Star, a tanker vessel
not affiliated with us, was captured by pirates in the Indian Ocean while
carrying crude oil estimated to be worth $100 million. If these pirate attacks
result in regions in which our vessels are deployed being characterized as “war
risk” zones by insurers, as the Gulf of Aden temporarily was in May 2008,
premiums payable for such coverage could increase significantly and such
insurance coverage may be more difficult to obtain. In addition, crew costs,
including due to employing onboard security guards, could increase in such
circumstances. We may not be adequately insured to cover losses from these
incidents, which could have a material adverse effect on us. In addition, any of
these events may result in loss of revenues, increased costs and decreased cash
flows to our customers, which could impair their ability to make payments to us
under our charters.




Changes
in the economic and political environment in China and policies adopted by the
government to regulate its economy may have a material adverse effect on our
business, financial condition and results of operations.




The
Chinese economy differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development, or OECD, in such respects
as structure, government involvement, level of development, growth rate, capital
reinvestment, allocation of resources, rate of inflation and balance of payments
position.  Prior to 1978, the Chinese economy was a planned
economy.  Since 1978, increasing emphasis has been placed on the
utilization of market forces in the development of the Chinese
economy.  Annual and five-year plans, or State Plans, are adopted by
the Chinese government in connection with the development of the
economy.  Although state-owned enterprises still account for a
substantial portion of the Chinese industrial output, in general, the Chinese
government is reducing the level of direct control that it exercises over the
economy through State Plans and other measures.  There is an
increasing level of freedom and autonomy in areas such as allocation of
resources, production, pricing and management and a gradual shift in emphasis to
a “market economy” and enterprise reform.  Limited price reforms were
undertaken, with the result that prices for certain commodities are principally
determined by market forces.  Many of the reforms are unprecedented or
experimental and may be subject to revision, change or abolition based upon the
outcome of such experiments.  If the Chinese government does not
continue to pursue a policy of economic reform the level of imports to and
exports from China could be adversely affected by changes to these economic
reforms by the Chinese government, as well as by changes in political, economic
and social conditions or other relevant policies of the Chinese government, such
as changes in laws, regulations or export and import restrictions, all of which
could, adversely affect our business, operating results and financial
condition.




If the contraction of the global
credit markets and the resulting volatility in the financial markets continues
or worsens that could have a material adverse impact on our results of
operations, financial condition and cash flows, and could cause the market price
of our common shares to decline.


5


Recently, a number of
major financial institutions have experienced serious financial difficulties
and, in some cases, have entered into bankruptcy proceedings or are in
regulatory enforcement actions. These difficulties have resulted, in part, from
declining markets for assets held by such institutions, particularly the
reduction in the value of their mortgage and asset-backed securities portfolios.
These difficulties have been compounded by a general decline in the willingness
by banks and other financial institutions to extend credit. In addition, these
difficulties may adversely affect the financial institutions that provide our
$500 million revolving credit facility, or the 2005 Credit Facility, and may
impair their ability to continue to perform under their financing obligations to
us, which could negatively impact our ability to fund current and future
obligations, including our ability to take delivery of our two
newbuildings.





If
further emergency governmental measures are implemented in response to the
economic downturn, that could have a material adverse impact on our results of
operations, financial condition and cash flows.





Over the
last year, global financial markets have experienced extraordinary disruption
and volatility following adverse changes in the global credit markets. The
credit markets in the United States have experienced significant contraction,
deleveraging and reduced liquidity, and governments around the world have taken
highly significant measures in response to such events, including the enactment
of the Emergency Economic Stabilization Act of 2008 in the United States, and
may implement other significant responses in the future. Securities and futures
markets and the credit markets are subject to comprehensive statutes,
regulations and other requirements. The U.S. Securities and Exchange Commission,
or the SEC, other regulators, self-regulatory organizations and exchanges have
enacted temporary emergency regulations and may take other extraordinary actions
in the event of market emergencies and may effect permanent changes in law or
interpretations of existing laws. We cannot predict what, if any, such measures
would be, but changes to securities, tax, environmental, or the laws of
regulations, could have a material adverse effect on our results of operations,
financial condition or cash flows.





Changes
in fuel, or bunker prices, may adversely affect profits.




Fuel, or
bunkers, is a significant, if not the largest, expense in our shipping
operations.  Changes in the price of fuel may adversely affect our
profitability.  The price and supply of fuel is unpredictable and
fluctuates based on events outside our control, including geopolitical
developments, supply and demand for oil and gas, actions by OPEC and other oil
and gas producers, war and unrest in oil producing countries and regions,
regional production patterns and environmental concerns.  Further,
fuel may become much more expensive in the future, which may reduce the
profitability and competitiveness of our business versus other forms of
transportation, such as truck or rail.





We
are subject to complex laws and regulations, including environmental regulations
that can adversely affect our business, results of operations, cash flows and
financial condition, and our ability to pay dividends.





Our
operations are subject to numerous laws and regulations in the form of
international conventions and treaties, national, state and local laws and
national and international regulations in force in the jurisdictions in which
our vessels operate or are registered, which can significantly affect the
ownership and operation of our vessels. These requirements include, but are not
limited to, the U.S. Oil Pollution Act of 1990, or OPA, the International
Convention on Civil Liability for Oil Pollution Damage of 1969, the
International Convention for the Prevention of Pollution from Ships of 1975, the
International Maritime Organization, or IMO, International Convention for the
Prevention of Marine Pollution of 1973, the IMO International Convention for the
Safety of Life at Sea of 1974, the International Convention on Load Lines of
1966 and the U.S. Marine Transportation Security Act of 2002. Compliance with
such laws, regulations and standards, where applicable, may require installation
of costly equipment or operational changes and may affect the resale value or
useful lives of our vessels. We may also incur additional costs in order to
comply with other existing and future regulatory obligations, including, but not
limited to, costs relating to air emissions, the management of ballast waters,
maintenance and inspection, elimination of tin-based paint, development and
implementation of emergency procedures and insurance coverage or other financial
assurance of our ability to address pollution incidents. These costs could have
a material adverse effect on our business, results of operations, cash flows and
financial condition and our ability to pay dividends. A failure to comply with
applicable laws and regulations may result in administrative and civil
penalties, criminal sanctions or the suspension or termination of our
operations. Environmental laws often impose strict liability for remediation of
spills and releases of oil and hazardous substances, which could subject us to
liability without regard to whether we were negligent or at fault. Under OPA,
for example, owners, operators and bareboat charterers are jointly and severally
strictly liable for the discharge of oil within the 200-mile exclusive economic
zone around the United States. An oil spill could result in significant
liability, including fines,
penalties, criminal liability and remediation costs for natural resource damages
under other federal, state and local laws, as well as third-party damages. We
are required to satisfy insurance and financial responsibility requirements for
potential oil (including marine fuel) spills and other pollution incidents.
Although we have arranged insurance to cover certain environmental risks, there
can be no assurance that such insurance will be sufficient to cover all such
risks or that any claims will not have a material adverse effect on our
business, results of operations, cash flows and financial condition, and our
ability to pay dividends.


6


If
we fail to comply with international safety regulations, we may be subject to
increased liability, which may adversely affect our insurance coverage and may
result in a denial of access to, or detention in, certain ports.





The
operation of our vessels is affected by the requirements set forth in the IMO,
International Management Code for the Safe Operation of Ships and Pollution
Prevention, or the ISM Code.  The ISM Code requires shipowners, ship
managers and bareboat charterers to develop and maintain an extensive “Safety
Management System” that includes the adoption of a safety and environmental
protection policy setting forth instructions and procedures for safe operation
and describing procedures for dealing with emergencies.  If we fail to
comply with the ISM Code, we may be subject to increased liability, may
invalidate existing insurance or decrease available insurance coverage for our
affected vessels and such failure may result in a denial of access to, or
detention in, certain ports.  As of the date of this annual report,
each of our vessels is ISM code-certified.




The
value of our vessels may fluctuate and any decrease in the value of our vessels
could result in a lower price of our common shares.




Tanker
values have generally experienced high volatility. You should expect the market
value of our oil tankers to fluctuate, depending on general economic and market
conditions affecting the tanker industry and competition from other shipping
companies, types and sizes of vessels, and other modes of transportation. The
current volatility in global financial markets may result in a decrease in
tanker values. In addition, as vessels grow older, they generally decline in
value. These factors will affect the value of our vessels. Declining tanker
values could affect our ability to raise cash by limiting our ability to
refinance our vessels, thereby adversely impacting our liquidity, or result in a
breach of our loan covenants, which could result in defaults under the 2005
Credit Facility. Under the 2005 Credit Facility, we are required to maintain
equity, defined as total assets less total debt, of at least $150.0 million. If
we determine at any time that a vessel’s future limited useful life and earnings
require us to impair its value on our financial statements, that could result in
a charge against our earnings and the reduction of our shareholders’ equity. Due
to the cyclical nature of the tanker market, if for any reason we sell vessels
at a time when tanker prices have fallen, the sale may be at less than the
vessel’s carrying amount on our financial statements, with the result that we
would also incur a loss and a reduction in earnings. Any such reduction could
result in a lower price of our common shares.




If
our vessels suffer damage due to the inherent operational risks of the tanker
industry, we may experience unexpected dry-docking costs and delays or total
loss of our vessels, which may adversely affect our business and financial
condition.





Our
vessels and their cargoes will be at risk of being damaged or lost because of
events such as marine disasters, bad weather, business interruptions caused by
mechanical failures, grounding, fire, explosions and collisions, human error,
war, terrorism, piracy and other circumstances or events. Changing economic,
regulatory and political conditions in some countries, including political and
military conflicts, have from time to time resulted in attacks on vessels,
mining of waterways, piracy, terrorism, labor strikes and boycotts. These
hazards may result in death or injury to persons, loss of revenues or property,
environmental damage, higher insurance rates, damage to our customer
relationships, market disruptions, delay or rerouting.  In addition,
the operation of tankers has unique operational risks associated with the
transportation of oil. An oil spill may cause significant environmental damage,
and the costs associated with a catastrophic spill could exceed the insurance
coverage available to us.  Compared to other types of vessels, tankers
are exposed to a higher risk of damage and loss by fire, whether ignited by a
terrorist attack, collision, or other cause, due to the high flammability and
high volume of the oil transported in tankers.





If our
vessels suffer damage, they may need to be repaired at a dry-docking facility.
The costs of dry-dock repairs are unpredictable and may be substantial. We may
have to pay dry-docking costs that our insurance does not cover in full. The
loss of earnings while these vessels are being repaired and repositioned, as
well as the actual cost of these repairs, may adversely affect our business and
financial condition. In addition, space at dry-docking facilities is sometimes
limited and not all dry-docking facilities are conveniently located. We may be
unable to find space at a suitable dry-docking facility or our vessels may be
forced to travel to a dry-docking facility that is not conveniently located to
our vessels’ positions. The loss of earnings while these vessels are forced to
wait for space or to travel to more distant dry-docking facilities may adversely
affect our business and financial condition.  Further, the total loss
of any of our vessels could harm our reputation as a safe and reliable vessel
owner and operator.  If we are unable to adequately maintain or
safeguard our vessels, we may be unable to prevent any such damage, costs, or
loss which could negatively impact our business, financial condition, results of
operations and ability to pay dividends.  7


If
labor interruptions are not resolved in a timely manner, they could have a
material adverse effect on our business, results of operations, cash flows,
financial condition and ability to pay dividends.





We employ
masters, officers and crews to man our vessels. If not resolved in a timely and
cost-effective manner, industrial action or other labor unrest could prevent or
hinder our operations from being carried out as we expect and could have a
material adverse effect on our business, results of operations, cash flows,
financial condition and ability to pay dividends.





We
operate our vessels worldwide and as a result, our vessels are exposed to
international risks which may reduce revenue or increase expenses.




The
international shipping industry is an inherently risky business involving global
operations. Our vessels are at a risk of damage or loss because of events such
as mechanical failure, collision, human error, war, terrorism, piracy, cargo
loss and bad weather. In addition, changing economic, regulatory and political
conditions in some countries, including political and military conflicts, have
from time to time resulted in attacks on vessels, mining of waterways, piracy,
terrorism, labor strikes and boycotts. These sorts of events could interfere
with shipping routes and result in market disruptions which may reduce our
revenue or increase our expenses.





Political
instability, terrorist or other attacks, war or international hostilities can
affect the tanker industry, which may adversely affect our
business.





We
conduct most of our operations outside of the United States, and our business,
results of operations, cash flows, financial condition and ability to pay
dividends may be adversely affected by the effects of political instability,
terrorist or other attacks, war or international hostilities. Terrorist attacks
such as the attacks on the United States on September 11, 2001, the bombings in
Spain on March 11, 2004 and in London on July 7, 2005 and the continuing
response of the United States to these attacks, as well as the threat of future
terrorist attacks, continue to contribute to world economic instability and
uncertainty in global financial markets. Future terrorist attacks could result
in increased volatility of the financial markets in the United States and
globally and could result in an economic recession in the United States or the
world. These uncertainties could also adversely affect our ability to obtain
additional financing on terms acceptable to us or at all.





In the
past, political instability has also resulted in attacks on vessels, such as the
attack on the M/T Limburgin October 2002, mining of waterways and other efforts to disrupt
international shipping, particularly in the Arabian Gulf region. Acts of
terrorism and piracy have also affected vessels trading in regions such as the
South China Sea and the Gulf of Aden off the coast of Somalia. Any of these
occurrences could have a material adverse impact on our business, financial
condition, results of operations and ability to pay dividends.




If
our vessels call on ports located in countries that are subject to restrictions
imposed by the U.S. government, that could adversely affect our reputation and
the market for our common stock.




From time
to time, vessels in our fleet call on ports located in countries subject to
sanctions and embargoes imposed by the U.S. government and countries identified
by the U.S. government as state sponsors of terrorism. Although these sanctions
and embargoes do not prevent our vessels from making calls to ports in these
countries, potential investors could view such port calls negatively, which
could adversely affect our reputation and the market for our common stock.
Investor perception of the value of our common stock may be adversely affected
by the consequences of war, the effects of terrorism, civil unrest and
governmental actions in these and surrounding countries.




Maritime
claimants could arrest our vessels, which would have a negative effect on our
cash flows.


8


Crew members,
suppliers of goods and services to a vessel, shippers of cargo and other parties
may be entitled to a maritime lien against a vessel for unsatisfied debts,
claims or damages. In many jurisdictions, a maritime lien holder may enforce its
lien by arresting or attaching a vessel through foreclosure proceedings. The
arrest or attachment of one or more of our vessels could interrupt our business
or require us to pay large sums of money to have the arrest lifted, which would
have a negative effect on our cash flows.





In
addition, in some jurisdictions, such as South Africa, under the “sister ship”
theory of liability, a claimant may arrest both the vessel which is subject to
the claimant’s maritime lien and any “associated” vessel, which is any vessel
owned or controlled by the same owner. Claimants could try to assert “sister
ship” liability against one vessel in our fleet for claims relating to another
of our ships.




Governments
could requisition our vessels during a period of war or emergency, which may
negatively impact our business, financial condition, results of operations and
ability to pay dividends.




A
government could requisition for title or seize our vessels. Requisition for
title occurs when a government takes control of a vessel and becomes the owner.
Also, a government could requisition our vessels for hire. Requisition for hire
occurs when a government takes control of a vessel and effectively becomes the
charterer at dictated charter rates. Generally, requisitions occur during a
period of war or emergency. Government requisition of one or more of our vessels
may negatively impact our business, financial condition, results of operations
and ability to pay dividends.




Company
Specific Risk Factors




We
operate in a cyclical and volatile industry and cannot guarantee that we will
continue to make cash distributions.




We have
made cash distributions quarterly since October 1997. It is possible that our
revenues could be reduced as a result of decreases in charter rates or that we
could incur other expenses or contingent liabilities that would reduce or
eliminate the cash available for distribution as dividends. The 2005 Credit
Facility prohibits the declaration and payment of dividends if we are in default
under the 2005 Credit Facility. We refer you to Item 5—Operating and Financial
Review and Prospectus— Liquidity and Capital Resources—Our Credit Facility for
more details. We may not continue to pay dividends at rates previously paid or
at all.





A
decision of our Board of Directors and the laws of Bermuda may prevent the
declaration and payment of dividends.





Our
ability to declare and pay dividends is subject at all times to the discretion
of our Board of Directors and compliance with Bermuda law, and may be dependent
upon the adoption at the annual meeting of shareholders of a resolution
effectuating a reduction in our share premium in an amount equal to the
estimated amount of dividends to be paid in the next succeeding year. We refer
you to Item 8—Financial Information—Dividend Policy for more details. We may not
continue to pay dividends at rates previously paid or at all.





If
we do not identify suitable tankers for acquisition or successfully integrate
any acquired tankers, we may not be able to grow or to effectively manage our
growth.




One of
our principal strategies is to continue to grow by expanding our operations and
adding to our fleet. Our future growth will depend upon a number of factors,
some of which may not be within our control. These factors include our ability
to:




·
            identify
      suitable tankers and/or shipping companies for acquisitions at attractive
      prices,




·
            identify
      businesses engaged in managing, operating or owning tankers for
      acquisitions or joint ventures,




·
            integrate
      any acquired tankers or businesses successfully with our existing
      operations,




9


·
            hire,
      train and retain qualified personnel and crew to manage and operate our
      growing business and fleet,




·
            identify
      additional new markets,




·
            improve
      our operating, financial and accounting systems and controls,
      and




·
            obtain
      required financing for our existing and new
  operations.




Our
failure to effectively identify, purchase, develop and integrate any tankers or
businesses could adversely affect our business, financial condition and results
of operations. In addition, in November 2004, we transitioned from a bareboat
charter company to an operating company. We may incur unanticipated expenses as
an operating company. The number of employees of Scandic American Shipping Ltd.,
or the Manager, that perform services for us and our current operating and
financial systems may not be adequate as we implement our plan to expand the
size of our fleet, and we may not be able to require the Manager to hire more
employees or adequately improve those systems.  Finally, acquisitions
may require additional equity issuances or debt issuances (with amortization
payments), both of which could lower dividends per share. If we are unable to
execute the points noted above, our financial condition and dividend rates may
be adversely affected.




If
we purchase and operate secondhand vessels we will be exposed to increased
operating costs which could adversely affect our earnings and, as our fleet
ages, the risks associated with older vessels could adversely affect our ability
to obtain profitable charters.




Our
current business strategy includes additional growth through the acquisition of
new and secondhand vessels. The twelfth and thirteenth vessel that we took
deliveries of in early December 2006 and February 2009, respectively, are
secondhand.  We have also agreed to acquire a secondhand double-hull
Suezmax tanker, which we expect to take delivery by no later than July 15, 2009.
While we typically inspect secondhand vessels prior to purchase, this does not
provide us with the same knowledge about their condition that we would have had
if these vessels had been built for and operated exclusively by us. Generally,
we do not receive the benefit of warranties from the builders for the secondhand
vessels that we acquire.




In
general, the costs to maintain a vessel in good operating condition increase
with the age of the vessel. Older vessels are typically less fuel-efficient than
more recently constructed vessels due to improvements in engine technology.
Cargo insurance rates increase with the age of a vessel, making older vessels
less desirable to charterers.




Governmental
regulations, safety or other equipment standards related to the age of vessels
may require expenditures for alterations, or the addition of new equipment, to
our vessels and may restrict the type of activities in which the vessels may
engage. As our vessels, age market conditions may not justify those expenditures
or enable us to operate our vessels profitably during the remainder of their
useful lives.




If
we do not set aside funds and are unable to borrow or raise funds for vessel
replacement, at the end of a vessel’s useful life our revenue will decline,
which would adversely affect our business, results of operations, financial
condition, and ability to pay dividends.





If we do
not set aside funds and are unable to borrow or raise funds for vessel
replacement, we will be unable to replace the vessels in our fleet upon the
expiration of their remaining useful lives, which we expect to range from 14
years to 23 years, depending on the type of vessel. Our cash flows and income
are dependent on the revenues earned by the chartering of our vessels. If we are
unable to replace the vessels in our fleet upon the expiration of their useful
lives, our business, results of operations, financial condition and ability to
pay dividends would be adversely affected. Any funds set aside for vessel
replacement will not be available for dividends.




We
are dependent on the Manager and there may be conflicts of interest arising from
the relationship between our Chairman and the Manager that may not be resolved
in our favor.




Our
success depends to a significant extent upon the abilities and efforts of the
Manager and our management team. Our success will depend upon our and the
Manager’s ability to hire and retain key members of our management team. The
loss of any of these individuals could adversely affect our business prospects
and financial condition.


10


Difficulty
in hiring and retaining personnel could adversely affect our results of
operations. We do not maintain “key man” life insurance on any of our
officers.




A company
which is 100% owned by Herbjørn Hansson, our Chairman, President and Chief
Executive Officer and his family, is the owner of the Manager. The Manager may
engage in business activities other than with respect to the Company. The
fiduciary duty of a director may compete with or be different from the interests
of the Manager and may create conflicts of interest in relation to that
director’s duties to the Company.




Under
Bermuda law, non-Bermudians (other than spouses of Bermudians) may not engage in
any gainful occupation in Bermuda without an appropriate governmental work
permit. Work permits may be granted or extended by the Bermuda government upon
showing that, after proper public advertisement in most cases, no Bermudian (or
spouse of a Bermudian) is available who meets the minimum standard requirements
for the advertised position. In 2001, the Bermuda government announced a new
policy limiting the duration of work permits to six years, with certain
exemptions for key employees. We may not be able to use the services of one or
more of our key employees in Bermuda if we are not able to obtain work permits
for them, which could have a material adverse effect on our
business.




An
increase in operating costs would decrease earnings and dividends per
share.




Under the
charter agreement for one of our vessels, the charterer is responsible for
vessel operating expenses and voyage costs.  Under the spot charters
of twelve of our thirteen vessels, we are responsible for such costs. Our vessel
operating expenses include the costs of crew, fuel (for spot chartered vessels),
provisions, deck and engine stores, insurance and maintenance and repairs, which
fuels depend on a variety of factors, many of which are beyond our control. Some
of these costs, primarily relating to insurance and enhanced security measures
implemented after September 11, 2001, have been increasing. If our vessels
suffer damage, they may need to be repaired at a drydocking facility. The costs
of drydock repairs are unpredictable and can be substantial. Increases in any of
these expenses would decrease earnings and dividends per share.




If
we are unable to operate our vessels profitably, we may be unsuccessful in
competing in the highly competitive international tanker market, which would
negatively affect our financial condition and our ability to expand our
business.




The
operation of tanker vessels and transportation of crude and petroleum products
is extremely competitive. The current global financial crisis may reduce the
demand for transportation of oil and oil products which could lead to increased
competition. Competition arises primarily from other tanker owners, including
major oil companies as well as independent tanker companies, some of whom have
substantially greater resources than we do. Competition for the transportation
of oil and oil products can be intense and depends on price, location, size,
age, condition and the acceptability of the tanker and its operators to the
charterers. We will have to compete with other tanker owners, including major
oil companies as well as independent tanker companies.




Our
market share may decrease in the future. We may not be able to compete
profitably as we expand our business into new geographic regions or provide new
services. New markets may require different skills, knowledge or strategies than
we use in our current markets, and the competitors in those new markets may have
greater financial strength and capital resources than we do.




Servicing
debt which we may incur in the future would limit funds available for other
purposes and if we cannot service our debt, we may lose our
vessels.




Borrowing
under the 2005 Credit Facility requires us to dedicate a part of our cash flow
from operations to paying interest on our indebtedness. These payments limit
funds available for working capital, capital expenditures and other purposes,
including making distributions to shareholders and further equity or debt
financing in the future. Amounts borrowed under the 2005 Credit Facility bear
interest at variable rates. Increases in prevailing rates could increase the
amounts that we would have to pay to our lenders, even though the outstanding
principal amount remains the same, and our net income and cash flows would
decrease. We expect our earnings and cash flow to vary from year to year due to
the cyclical nature of the tanker industry. In addition, our current policy is
not to accumulate cash, but rather to distribute
our available cash to shareholders. If we do not generate or reserve enough cash
flow from operations to satisfy our debt obligations, we may have to undertake
alternative financing plans, such as:


11




·
            seeking
      to raise additional capital,




·
            refinancing
      or restructuring our debt,




·
            selling
      tankers or other assets, or




·
            reducing
      or delaying capital investments.




However,
these alternative financing plans, if necessary, may not be sufficient to allow
us to meet our debt obligations. If we are unable to meet our debt obligations
or if some other default occurs under the 2005 Credit Facility, the lenders
could elect to declare that debt, together with accrued interest and fees, to be
immediately due and payable and proceed against the collateral securing that
debt, which constitutes our entire fleet and substantially all of our
assets.




Our
2005 Credit Facility contains restrictive covenants which limit our liquidity
and corporate activities,which could
negatively affect our growth and cause our financial performance to
suffer.




The 2005
Credit Facility imposes operating and financial restrictions on us. These
restrictions may limit our ability to:




·
            pay
      dividends and make capital expenditures if we do not repay amounts drawn
      under the 2005 Credit Facility or if there is another default under the
      2005 Credit Facility,




·
            incur
      additional indebtedness, including the issuance of
    guarantees,




·
            create
      liens on our assets,




·
            change
      the flag, class or management of our vessels or terminate or materially
      amend the management agreement relating to each
  vessel,




·
            sell
      our vessels,




·
            merge
      or consolidate with, or transfer all or substantially all our assets to,
      another person, or




·
            enter
      into a new line of business.




Therefore,
we may need to seek permission from our lenders in order to engage in some
corporate actions. Our lenders’ interests may be different from ours and we may
not be able to obtain our lenders’ permission when needed. This may limit our
ability to pay dividends to you, finance our future operations or capital
requirements, make acquisitions or pursue business opportunities.




If
we were to drawdown amounts under our 2005 Credit Facility, and if the recent
volatility in LIBOR rates continues, it could affect our profitability, earnings
and cash flow.




Amounts
borrowed under our 2005 Credit Facility bear interest at an annual rate equal to
LIBOR plus a margin between 0.70% and 1.20% (depending on the loan to vessel
value ratio).  LIBOR rates have recently been volatile, with the
spread between those rates and prime lending rates widening significantly at
times.  These conditions are the result of the recent disruptions in
the international credit markets.  Because the interest rates borne by
amounts that we may drawdown under our 2005 Credit Facility fluctuate with
changes in the LIBOR rates, if this volatility were to continue, it would affect
the amount of interest payable on amounts that we were to drawdown from our 2005
Credit Facility, which in turn, would have an adverse effect on our
profitability, earnings and cash flow.


12


We are subject to certain risks with
respect to our counterparties on contracts, and failure of such counterparties
to meet their obligations could cause us to suffer losses or negatively impact
our results of operations and cash flows.





We have
entered into various contracts, including charter parties with our customers,
including one long-term fixed-rate charter, newbuilding contracts with shipyards
and our 2005 Credit Facility. Such agreements subject us to counterparty risks.
The ability of each of our counterparties to perform its obligations under a
contract with us will depend on a number of factors that are beyond our control
and may include, among other things, general economic conditions, the condition
of the maritime and offshore industries, the overall financial condition of the
counterparty, charter rates received for specific types of vessels, and various
expenses. For example, the combination of a reduction of cash flow resulting
from declines in world trade, a reduction in borrowing bases under reserve-based
credit facilities and the lack of availability of debt or equity financing may
result in a significant reduction in the ability of our charterers to make
charter payments to us. In addition, in depressed market conditions, our
charterers and customers may no longer need a vessel that is currently under
charter or contract or may be able to obtain a comparable vessel at lower rates.
As a result, charterers and customers may seek to renegotiate the terms of their
existing charter parties or avoid their obligations under those contracts.
Should a counterparty fail to honor its obligations under agreements with us, we
could sustain significant losses which could have a material adverse effect on
our business, financial condition, results of operations and cash
flows.





Our
insurance may not be adequate to cover our losses that may result from our
operations due to the inherent operational risks of the tanker
industry.





We carry
insurance to protect us against most of the accident-related risks involved in
the conduct of our business, including marine hull and machinery insurance,
protection and indemnity insurance, which includes pollution risks, crew
insurance and war risk insurance. However, we may not be adequately insured to
cover losses from our operational risks, which could have a material adverse
effect on us.  Additionally, our insurers may refuse to pay particular
claims and our insurance may be voidable by the insurers if we take, or fail to
take, certain action, such as failing to maintain certification of our vessels
with applicable maritime regulatory organizations. Any significant uninsured or
under-insured loss or liability could have a material adverse effect on our
business, results of operations, cash flows and financial condition and our
ability to pay dividends. In addition, we may not be able to obtain adequate
insurance coverage at reasonable rates in the future during adverse insurance
market conditions.





As a
result of the September 11, 2001 attacks, the U.S. response to the attacks and
related concern regarding terrorism, insurers have increased premiums and
reduced or restricted coverage for losses caused by terrorist acts generally.
Accordingly, premiums payable for terrorist coverage have increased
substantially and the level of terrorist coverage has been significantly
reduced.





In
addition, while we carry loss of hire insurance to cover 100% of our fleet, we
may not be able to maintain this level of coverage.  Accordingly, any
loss of a vessel or extended vessel off-hire, due to an accident or otherwise,
could have a material adverse effect on our business, results of operations and
financial condition and our ability to pay dividends.




Because
we obtain some of our insurance through protection and indemnity associations,
which result in significant expenses to us, we may be required to make
additional premium payments.





We may be
subject to increased premium payments, or calls, in amounts based on our claim
records, the claim records of our Manager, as well as the claim records of other
members of the protection and indemnity associations through which we receive
insurance coverage for tort liability, including pollution-related liability. In
addition, our protection and indemnity associations may not have enough
resources to cover claims made against them. Our payment of these calls could
result in significant expense to us, which could have a material adverse effect
on our business, results of operations, cash flows, financial condition and
ability to pay dividends.




Because
some of our expenses are incurred in foreign currencies, we are exposed to
exchange rate fluctuations, which could negatively affect our results of
operations.




The
charterers of our vessels pay us in U.S. dollars. While we currently incur all
of our expenses in U.S. dollars, we have in the past incurred expenses in other
currencies, most notably the Norwegian Kroner. Declines in the value of
the U.S. dollar relative to the Norwegian Kroner, or the other currencies in
which we may incur expenses in the future, would increase the U.S. dollar cost
of paying these expenses and thus would adversely affect our results of
operations.


13


We
may have to pay tax on United States source income, which would reduce our
earnings.




Under the
United States Internal Revenue Code of 1986, or the Code, 50% of the gross
shipping income of a vessel owning or chartering corporation, such as ourselves,
attributable to transportation that begins or ends, but that does not both begin
and end, in the U.S. will be characterized as U.S. source shipping income and
such income will be subject to a 4% United States federal income tax unless that
corporation is entitled to a special tax exemption under the Code which applies
to the international shipping income derived by certain non-United States
corporations. We believe that we currently qualify for this statutory tax
exemption and we will take this position for U.S. tax return reporting purposes.
However, there are several risks that could cause us to become taxed on our U.S.
source shipping income. Due to the factual nature of the issues involved, we can
give no assurances on our tax-exempt status.




If we are
not entitled to this statutory tax exemption for any taxable year, we would be
subject for any such year to a 4% United States federal income tax on our U.S.
source shipping income. The imposition of this tax could have a negative effect
on our business and would result in decreased earnings available for
distribution to our shareholders.




If  we
become subject to taxes in Bermuda after 2016, our net income and cash flow
would decrease.




We have
received a standard assurance from the Bermuda Minister of Finance, under
Bermuda’s Exempted Undertakings Tax Protection Act 1966, that if any legislation
is enacted in Bermuda that would impose tax computed on profits or income, or
computed on any capital asset, gain or appreciation, or any tax in the nature of
estate duty or inheritance tax, then the imposition of any such tax will not be
applicable to us or to any of our operations or our shares, debentures or other
obligations until March 28, 2016. Consequently, if our Bermuda tax exemption is
not extended past March 28, 2016, we may be subject to any Bermuda tax after
that date.




Given the
limited duration of the Minister of Finance’s assurance, we cannot be certain
that we will not be subject to any Bermuda tax after March 28, 2016. In the
event that we become subject to any Bermuda tax after such date, it would
decrease our net income and cash flow.




If
U.S. tax authorities were to treat us as a “passive foreign investment company,”
that could have adverse consequences on U.S. holders.




A foreign
corporation will be treated as a “passive foreign investment company,” or PFIC,
for U.S. federal income tax purposes if either (1) at least 75% of its gross
income for any taxable year consists of certain types of “passive income” or (2)
at least 50% of the average value of the corporation’s assets produce or are
held for the production of those types of “passive income.” For purposes of
these tests, cash is treated as an asset that produces “passive income” and
“passive income” includes dividends, interest, and gains from the sale or
exchange of investment property and rents and royalties other than rents and
royalties which are received from unrelated parties in connection with the
active conduct of a trade or business. For purposes of these tests, income
derived from the performance of services does not constitute “passive income.”
U.S. shareholders of a PFIC may be subject to a disadvantageous U.S. federal
income tax regime with respect to the distributions they receive from the PFIC
and the gain, if any, they derive from the sale or other disposition of their
shares in the PFIC.





Based on
our current and expected future operations, we believe that we ceased to be a
passive foreign investment company beginning with the 2005 taxable year. We do
not anticipate that we will be a passive foreign investment company for any
taxable year in the future.  As a result, noncorporate U.S.
shareholders should be eligible to treat dividends paid by us in 2006, 2007,
2008, and thereafter as “qualified dividend income” which is subject to
preferential tax rates (through 2010). Since we expect to derive more than 25%
of our income each year from our time chartering and voyage chartering
activities, we believe that such income will be treated for relevant U.S.
Federal income tax purposes as services income, rather than rental income.
Correspondingly, such income should not constitute “passive income,” and the
assets that we own and operate in connection with the production of that income
(which should constitute more than 50% of our assets each year), in particular
our vessels, should not constitute passive assets for purposes of determining
whether we are a passive foreign investment company in any taxable
year.


14


There is, however, no
direct legal authority under the PFIC rules addressing our method of operation.
We believe there is substantial legal authority supporting our position
consisting of case law and United States Internal Revenue Service, or IRS,
pronouncements concerning the characterization of income derived from time
charters and voyage charters as services income for other tax
purposes.  However, we note that there is also authority which
characterizes time charter income as rental income rather than services income
for other tax purposes.  Accordingly, no assurance can be given that
the IRS or a court of law will accept our position, and there is a risk that the
IRS or a court of law could determine that we are a PFIC. Moreover, no
assurance can be given that we would not constitute a PFIC for any future
taxable year if there were to be changes in the nature and extent of our
operations.





If the
IRS were to find that we are or have been a PFIC for any taxable year beginning
with the 2005 taxable year, our U.S. shareholders who owned their shares during
such year will face adverse U.S. tax consequences. Under the PFIC rules, unless
those shareholders make an election available under the Code (which election
could itself have adverse consequences for such shareholders), such shareholders
would be liable to pay U.S. federal income tax at the then highest income tax
rates on ordinary income plus interest upon excess distributions (i.e.,
distributions received in a taxable year that are greater than 125% of the
average annual distributions received during the shorter of the three preceding
taxable years or the shareholder’s holding period for our common shares) and
upon any gain from the disposition of our common shares, as if the excess
distribution or gain had been recognized ratably over the shareholder’s holding
period of our common shares. In addition, non-corporate U.S. shareholders will
not be eligible to treat dividends paid by us as “qualified dividend income” if
we are a PFIC in the taxable year in which such dividends are paid or in the
preceding taxable year.




Risks
Relating to Our Common Shares




Our
common share price may be highly volatile and future sales of our common shares
could cause the market price of our common shares to decline.




The
market price of our common shares has historically fluctuated over a wide range
and may continue to fluctuate significantly in response to many factors, such as
actual or anticipated fluctuations in our operating results, changes in
financial estimates by securities analysts, economic and regulatory trends,
general market conditions, rumors and other factors, many of which are beyond
our control. Over the last year the stock market has experienced extreme price
and volume fluctuations. If the volatility in the market continues or worsens,
it could have a adverse affect on the market price of our common shares. The
Investors in our common shares may not be able to resell their shares at or
above their purchase price, which include the risks and uncertainties set forth
in this annual report.




Because
we are a foreign corporation, you may not have the same rights that a
shareholder in a U.S. corporation may have.




We are a
Bermuda exempted company. Our memorandum of association and bye-laws and The
Companies Act, 1981 of Bermuda, or the Companies Act, govern our affairs. The
Companies Act does not as clearly establish your rights and the fiduciary
responsibilities of our directors as do statutes and judicial precedent in some
U.S. jurisdictions. Therefore, you may have more difficulty in protecting your
interests as a shareholder in the face of actions by the management, directors
or controlling shareholders than would shareholders of a corporation
incorporated in a United States jurisdiction. There is a statutory remedy under
Section 111 of the Companies Act which provides that a shareholder may seek
redress in the courts as long as such shareholder can establish that our affairs
are being conducted, or have been conducted, in a manner oppressive or
prejudicial to the interests of some part of the shareholders, including such
shareholder. However, the principles governing Section 111 have not been
well developed.




We
are incorporated in Bermuda and it may not be possible for our investors to
enforce U.S. judgments against us.




We are
incorporated in the Islands of Bermuda. Substantially all of our assets are
located outside the U.S. In addition, most of our directors and officers are
non-residents of the U.S., and all or a substantial portion of the assets of
these non-residents are located outside the U.S. As a result, it may be
difficult or impossible for U.S. investors to serve process within the U.S. upon
us, or our directors and officers or to enforce a judgment against us for civil
liabilities in U.S. courts. In addition, you should not assume that courts in
the countries in which we are incorporated or where
our are located (1) would enforce judgments of U.S. courts obtained in actions
against us based upon the civil liability provisions of applicable U.S. federal
and state securities laws or (2) would enforce, in original actions, liabilities
against us based on those laws.


15




ITEM
      4.
            INFORMATION
      ON THE COMPANY




A.
            HISTORY
      AND DEVELOPMENT OF THE COMPANY




Nordic
American Tanker Shipping Limited, or the Company, was founded on June 12,
1995 under the laws of the Islands of Bermuda and we maintain our principal
offices at LOM Building, 27 Reid Street, Hamilton HM 11, Bermuda. Our telephone
number at such address is (441) 292-7202.




The
Company was formed for the purpose of acquiring and chartering three double-hull
Suezmax tankers that were built in 1997.  These three vessels were
initially bareboat chartered to BP Shipping Ltd., or BP Shipping, for a period
of seven years.  BP Shipping redelivered the three vessels to the
Company in September 2004, October 2004 and November 2004,
respectively.  We continued contracts with BP Shipping by time
chartering to it two of our original three vessels at spot market related rates
for three year terms that expired in the fourth quarter of
2007.  These two vessels are currently chartered in the spot market
pursuant to cooperative agreements with third parties. We have bareboat
chartered the third of our original three vessels to Gulf Navigation Company
LLC, or Gulf Navigation, of Dubai, U.A.E. at a fixed rate charterhire for a
five-year term that expires in November 2009, subject to two one-year extensions
at Gulf Navigation’s option.  Our fourth vessel was delivered to us in
November 2004, our fifth and sixth vessels in March 2005, our seventh vessel in
August 2005, our eighth vessel in November 2005, our ninth vessel in April 2006,
our tenth and eleventh vessels in November 2006, our twelfth vessel in December
2006 and our thirteenth vessel in February 2009. Twelve of these vessels are
currently chartered in the spot market or on spot market-related charters
pursuant to cooperative agreements with third parties.




In July
2007, the Company issued 3,000,000 common shares at a public offering price of
$41.50 per share in a registered transaction.  The net proceeds of the
offering were used to repay debt on our 2005 Credit Facility and to prepare for
further expansion.




In
November 2007, the Company agreed to acquire two Suezmax newbuildings, which are
expected to be delivered in the fourth quarter of 2009 and by the end April
2010, respectively.  The Company acquired these two newbuildings from
First Olsen Ltd. at a price at delivery of $90,000,000 per vessel, including
calculated predelivery interest expense and supervision expenses. The
acquisitions will be financed by borrowings under the 2005 Credit
Facility.  See Note 8 to the Company’s Audited Financial Statements
for more information.




In April
2008, the Company extended the term of the 2005 Credit Facility for three
years.  As a result, the 2005 Credit Facility matures in September
2013.




In May
2008, the Company issued 4,310,000 common shares at $37.00 per share in a
registered transaction. The net proceeds were used to prepare for further
expansion, repay the remaining debt on our 2005 Credit Facility and for working
capital.





In
January 2009, the Company issued 3,450,000 common shares at $32.50 per share in
a registered transaction. The net proceeds of the offering were used to fund
further acquisitions under planning and for general corporate
purposes.





In
January 2009, the Company announced the acquisition of the vessel, Nordic
Sprite, at the purchase price of $56.7 million. The vessel, a 1999-built, modern
double-hull Suezmax tanker, was acquired from an unaffiliated third
party.  We took delivery of this vessel in February 2009 and it is
currently chartered in the spot market or on spot market-related
charters.





In May
2009, the Company announced the acquisition of our sixteenth Suezmax vessel, a
150,000 dwt double-hull tanker for a purchase price of $57.0 million. The vessel
is expected to be delivered from the seller no later than July 15, 2009. The new
vessel will be operated in the spot market or on spot market-related
charters.


16




B.
            BUSINESS
      OVERVIEW




We are an
international tanker company that owns thirteen modern double-hull Suezmax
tankers averaging approximately 155,000 dwt each. We currently operate twelve of
our thirteen existing vessels in the spot market or on spot market-related
charters pursuant to cooperative arrangements with third parties and have
bareboat chartered one vessel to Gulf Navigation.  We have agreed to
acquire two Suezmax newbuildings, one of which is expected to be delivered in
the fourth quarter of 2009 and one of which is expected to be delivered by the
end of April 2010. We have also agreed to acquire a secondhand double-hull
Suezmax tanker, which we expect to take delivery by no later than Juy 15,
2009.




Tanker
markets are typically stronger in the fall and winter months (the fourth and
first quarters of the calendar) in anticipation of increased oil consumption in
the northern hemisphere during the winter months.  Seasonal variations
in tanker demand normally result in seasonal fluctuations in spot market charter
rates.




Our
Fleet




Our fleet
consists of fifteen modern double-hull Suezmax tankers of which two are
newbuildings. The following chart provides information regarding each vessel
status.




Vessel
                
                Dwt*
                
                Year
      Built
                Employment
                FlagGulf
      Scandic
                
                
                151,475
                
                1997
                Long
      term fixed charter
                Isle
      of ManNordic
      Hawk
                
                
                151,475
                
                1997
                Spot
                BahamasNordic
      Hunter
                
                
                151,400
                
                1997
                Spot
                BahamasNordic
      Freedom
                
                
                163,455
                
                2005
                Spot
                BahamasNordic
      Voyager
                
                
                149,591
                
                1997
                Spot
                NorwayNordic
      Fighter
                
                
                153,328
                
                1998
                Spot
                NorwayNordic
      Discovery
                
                
                153,328
                
                1998
                Spot
                NorwayNordic
      Sprite
                
                
                147,188
                
                1999
                Spot
      – delivered in February 2009
                NorwayNordic
      Saturn
                
                
                157,332
                
                1998
                Spot
                Marshall
      IslandsNordic
      Jupiter
                
                
                157,411
                
                1998
                Spot
                Marshall
      IslandsNordic
      Cosmos
                
                
                159,998
                
                2002
                Spot
                Marshall
      IslandsNordic
      Moon
                
                
                159,999
                
                2003
                Spot
                Marshall
      IslandsNordic
      Apollo
                
                
                159,999
                
                2003
                Spot
                Marshall
      IslandsNordic
      Galaxy
                
                
                163,000
                
                2009
                Delivery
      scheduled by end of December 2009Nordic Vega
                
                
                163,000
                
                2010
                Delivery scheduled by end of April
      2010Total
                
                
                2,341,979


*Deadweight ton





We
have also agreed to acquire our sixteenth vessel, a 150,000
dwt double-hull Suezmax tanker, which we expect to take delivery by no
later than Juy 15, 2009 and employ in the spot market or on spot market-related
charters.




OUR
CHARTERS




It is our
policy to operate our vessels either in the spot market, on time charters or on
bareboat charters. Our goal is to take advantage of potentially higher market
rates with spot market related rates and voyage charters. We currently operate
twelve of our thirteen existing vessels in the spot market or on spot market
related time charters although we may consider charters at fixed rates depending
on market conditions.




Cooperative
Arrangements




We
currently operate twelve of our thirteen existing vessels in spot market
cooperative arrangements with other vessels that are not owned by us. These
arrangements are managed and operated by the Swedish group Stena Bulk AB and by
Frontline Chartering Services Inc, both of which are third party administrators.
The administrators have the responsibility for the commercial management of the
participating vessels, including marketing, chartering, operating and purchasing
bunker (fuel oil) for the vessels. The participants remain responsible for all
other costs including the financing, insurance, crewing and technical management
of their vessels. The earnings of all of the vessels
are aggregated and divided according to the relative performance capabilities of
each vessel and the actual earning days of each vessel during the period. The
vessels are operated in the spot market under our
supervision.


17




Spot
Charters




During
2008, we temporarily operated several vessels (Nordic Jupiter, Nordic Hawk,
Nordic Hunter and Nordic Apollo) in the spot market, outside of the cooperative
arrangements. Tankers operating in the spot market are typically chartered for a
single voyage which may last up to several weeks. Tankers operating in the spot
market may generate increased profit margins during improvements in tanker
rates, while tankers on fixed-rate time charters generally provide more
predictable cash flows.




Under a
typical voyage charter in the spot market, we are paid freight on the basis of
moving cargo from a loading port to a discharge port. We are responsible for
paying both operating costs and voyage costs and the charterer is responsible
for any delay at the loading or discharging ports.





Bareboat
Charters




We have
chartered one of our vessels (the Gulf Scandic) under a bareboat charter to Gulf
Navigation, for a five- year term terminating in the fourth quarter of 2009 and
subject to two one-year extensions at Gulf Navigation’s option. Gulf Navigation
has exercised its first one-year option and extended the charter for one
additional year through the fourth quarter of 2010. Under the terms of this
bareboat charter, Gulf Navigation is obligated to pay a fixed charterhire of
$17,325 per day for the entire charter period. During the charter period, Gulf
Navigation is responsible for operating and maintaining the vessel and is
responsible for covering all operating costs and expenses with respect to the
vessel.





Management
Agreement




Under the
Management Agreement by and between the Company and Scandic American Shipping
Ltd., or the Manager, the Manager assumes commercial and operational
responsibility of our vessels and is generally required to manage our day-to-day
business subject to our objectives and policies as established by the Board of
Directors. All decisions of a material nature concerning our business are
reserved to our Board of Directors. The Management Agreement will terminate on
June 30, 2019, unless earlier terminated pursuant to its terms, as discussed
below, or extended by the parties following mutual agreement.




For its
services under the Management Agreement, the Manager is reimbursed for all its
costs incurred plus a management fee of $225,000 per annum, payable to the
Manager quarterly in advance.  Prior to October 12, 2004, the
Management Agreement provided that the Manager would receive 1.25% of any gross
charterhire paid to us. In order to further align the Manager’s interests with
those of the Company, on October 12, 2004, the Manager agreed with us to amend
the Management Agreement to eliminate this payment, and we issued to the Manager
restricted common shares equal to 2% of our outstanding common shares. Anytime
additional common shares are issued, the Manager will receive additional
restricted common shares to maintain the number of common shares issued to the
Manager at 2% of our total outstanding common shares. These restricted shares
are nontransferable for three years from issuance.




Under the
Management Agreement, the Manager pays, and receives reimbursement from us, for
our administrative expenses including such items as:




·
            all
      costs and expenses incurred on our behalf, including operating expenses
      and other costs for vessels that are chartered out on time charters or
      traded in the spot market and for monitoring the condition of our vessel
      that is operating under bareboat
charter,




·
            executive
      officer and staff salaries,




·
            administrative
      expenses, including, among others, for third party public relations,
      insurance, franchise fees and registrars’
fees,




·
            all
      premiums for insurance of any nature, including directors’ and officers’
      liability insurance and general liability
  insurance,




18


·
            brokerage
      commissions payable by us on the gross charter hire received in connection
      with the charters,




·
            directors’
      fees and meeting expenses,




·
            audit
      fees,




·
            other
      expenses approved by the Board of the Directors
  and




·
            attorneys’
      fees and expenses, incurred on our behalf in connection with (a) any
      litigation commenced by or against us or (b) any claim or investigation by
      any governmental, regulatory or self-regulatory authority involving
      us.




We have
agreed to defend, indemnify and hold the Manager and its affiliates (other than
us and our subsidiaries that we may form in the future), officers, directors,
employees and agents harmless from and against any and all loss, claim, damage,
liability, cost or expense, including reasonable attorneys’ fees, incurred by
the Manager or any such affiliates based upon a claim by or liability to a third
party arising out of the operation of our business, unless due to the Manager’s
or such affiliates’ negligence or wilful misconduct.




We may
terminate the Management Agreement in the event that:




·
            the
      Manager commits any material breach or omission of its material
      obligations or undertakings thereunder that is not remedied within thirty
      days of our notice to the Manager of such breach or
    omission,




·
            the
      Manager fails to maintain adequate authorization to perform its duties
      thereunder that is not remedied within thirty
  days,




·
            certain
      events of the Manager’s bankruptcy occur,
or




·
            it
      becomes unlawful for the Manager to perform its duties under the
      Management Agreement.




Commercial
and Technical Management Agreements




The
Company has outsourced its commercial and technical management of its vessels to
third party operators. Under the supervision of the Manager, the ship management
firm of V.Ships Norway AS or V.Ships, provides the technical management for
twelve of the Company’s thirteen vessels.





The
Company is also working together with Frontline Ltd. (NYSE:FRO) and the private
Stena group of Sweden – both world names in the tanker industry - to provide
commercial management services. These arrangements are expected to create
synergies through economies of scale, resulting in a positive impact on the our
overall results. Under the supervision of the Manager, Frontline and Stena’s
duties include seeking and negotiating charters for the Company’s
vessels.





We
believe that compensation under the commercial and technical management
agreements is in accordance with industry standards.




The
International Tanker Market




International
seaborne oil and petroleum products transportation services are mainly provided
by two types of operators: major oil company captive fleets (both private and
state-owned) and independent shipowner fleets.  Both types of
operators transport oil under short-term contracts (including single-voyage
“spot charters”) and long-term time charters with oil companies, oil traders,
large oil consumers, petroleum product producers and government
agencies.  The oil companies own, or control through long-term time
charters, approximately one third of the current world tanker capacity, while
independent companies own or control the balance of the fleet.  The
oil companies use their
fleets not only to transport their own oil, but also to transport oil for
third-party charterers in direct competition with independent owners and
operators in the tanker charter market.


19


The current
international financial crisis is affecting the international tanker market. It
is expected that the global fleet will increase during 2009 and 2010 because of
the present order book. However, some shipping companies are now facing
challenges in financing their large newbuilding programs, as shipping banks are
more restrictive than before in granting credit. The current financial upheaval
may delay deliveries of newbuildings and may also lead to the cancellation of
newbuilding orders, and there have been reports of cancellations of tanker
newbuildings from certain yards. Shipping companies with high debt or other
financial commitments may be unable to continue servicing their debt, which
could lead to foreclosure on vessels.




The oil
transportation industry has historically been subject to regulation by national
authorities and through international conventions.  Over recent years,
however, an environmental protection regime has evolved which has a significant
impact on the operations of participants in the industry in the form of
increasingly more stringent inspection requirements, closer monitoring of
pollution-related events, and generally higher costs and potential liabilities
for the owners and operators of tankers.




In order
to benefit from economies of scale, tanker charterers will typically charter the
largest possible vessel to transport oil or products, consistent with port and
canal dimensional restrictions and optimal cargo lot sizes.  A
tanker’s carrying capacity is measured in deadweight tons, or dwt, which is the
amount of crude oil measured in metric tons that the vessel is capable of
loading.  The oil tanker fleet is generally divided into the following
five major types of vessels, based on vessel carrying capacity: (i) Ultra Large
Crude Carrier, or ULCC, with a size range of approximately 320,000 to 450,000
dwt; (ii) Very Large Crude Carrier, or VLCC, with a size range of approximately
200,000 to 320,000 dwt; (iii) Suezmax-size range of approximately 120,000 to
200,000 dwt; (iv) Aframax-size range of approximately 80,000 to 120,000 dwt; (v)
Panamax-size range of approximately 60,000 to 70,000 dwt; and (v) small tankers
of less than approximately 60,000 dwt.  ULCCs and VLCCs typically
transport crude oil in long-haul trades, such as from the Arabian Gulf to
Rotterdam via the Cape of Good Hope.  Suezmax tankers also engage in
long-haul crude oil trades as well as in medium-haul crude oil trades, such as
from West Africa to the East Coast of the United States.  Aframax-size
vessels generally engage in both medium-and short-haul trades of less than 1,500
miles and carry crude oil or petroleum products.  Smaller tankers
mostly transport petroleum products in short-haul to medium-haul
trades.




The Tanker Market 2008(Source: R.S. Platou Economic Research
a.s.)




Despite
the global economic crisis and a decline in oil consumption, we believe the
tanker market experienced positive results in 2008.





As
discussed above, the oil tanker fleet is generally divided into five major
categories of vessels, based on carrying capacity.  A tanker’s
carrying capacity is measured in dwt, which is the amount of crude oil measured
in metric tons that the vessel is capable of loading. In the single voyage
market, the VLCC spot rates reached an average of $88,000 per day for the year
ended December 31, 2008, a significant increase from $51,000 per day for the
year ended December 31, 2007. Suezmaxes, achieved average spot rates of $67,000
per day for the year ended December 31, 2008, up from $40,000 for the year ended
December 31, 2007. Corresponding rates for Aframaxes were $50,000 per day for
the year ended December 31, 2008 as compared with $35,000 per day for the year
ended December 31, 2007. Our fleet is comprised of Suezmax tankers.





On an
annual average basis, the tanker fleet increased by 4.3% from 2007 to 2008.
Deliveries of new tankers reached approximately 33 million dwt for the year
ended December 31, 2008, up from 29 million dwt for the year ended December 31,
2007. Scrapping amounted to approximately 4 million dwt. Five VLCCs were sold
for scrapping; one Suezmax, nine Aframaxes and 54 smaller tankers were reported
as sold for scrapping. The average scrapping age for all tankers was 24.8 years
for the year ended December 31, 2008, compared with 27.6 years for the year
ended December 31, 2007. It has further been reported that 11.4 million dwt or
86 tankers were undergoing conversions to other uses, of which 19 were VLCCs and
14 were Suezmaxes.





Estimates
indicate an increase in seaborne oil trade of 1- 2% from 2007 to 2008 and a
relatively strong increase in the average transport distance, driven by a strong
rise in Middle East oil production. Other factors such as more floating storage
and reduced speed (due in part to the record-high bunker prices) contributed
strongly to the high growth in
demand for tonnage. Charterers’ steadily reduced acceptance of single-hull
tankers also played a large role in the increase in demand for double-hull
tonnage. In 2008, the single-hull vessels represented approximately an average
of 21% of the existing tanker fleet. Tonnage demand growth increased by
approximately 7%, resulting in an increase in capacity utilization from 88% in
2007 to 90.5% in 2008.


20


Extreme volatility
and record-high crude prices characterized the oil market in 2008. After OPEC
cut output in 2007, the year 2008 started with relatively low oil inventories
and an oil price of $100 per barrel on a distinct rising trend. OPEC then had a
strong incentive to raise its output until the capacity limit was reached in
July, at a price level of $147 per barrel. OPEC crude supply increased by 4% to
5% in the first half of the year, with the Middle East supply increasing by 6%
to 7%. This strong supply growth was the main driver of the strong tanker market
in 2008. As the global economy weakened sharply in the second half of the year,
oil prices steeply declined and OPEC cut output targets a number of times but
did not prevent prices falling as low as $35 per barrel. For the year ended
December 31, 2008, as a whole, OPEC crude production (including Angola and
Ecuador) was up 0.9 million barrels per day, or mbd, or 3%, while OPEC natural
gas liquid, or NGL, production increased by 0.2 mbd. World oil consumption
contracted for the first time since 1983, according to the International Energy
Agency, or IEA, by 0.4%. U.S. oil consumption fell dramatically by 6%, while
China increased its consumption by more than 4%.





Secondhand
tanker sales fell from approximately 400 in the year ended December 31, 2007 to
approximately 300 in the year ended December 31, 2008. After the collapse of the
U.S. and European financial markets, virtually no sales have been reported.
Values for double-hull vessels had increased some 40% to 50% from the start of
the year to the peak in July, then fell to values of approximately 30% lower
than at the beginning of the year.





According
to the IEA's World Energy Outlook, published in November 2008, as much as 84% of
the projected increase in world oil supply between 2007 and 2015 will come from
OPEC countries. The Middle East will account for 69% of this increase in oil
production, while two thirds of the projected increase in oil trade will be
exported from this region. According to BP's Statistical Review of World Energy
for 2008, the Middle East had 61% of the world’s proven oil reserves, which will
continue to drive long and medium haul seaborne transportation. Given the
dominance of world oil reserves located in this region, this share is expected
to grow in coming years as oil fields in other parts of the world gradually
reach maturity and begin a process of natural decline. The length of
transportation distances between the Middle East and consuming areas means that
such a trend would boost ton-miles (the product of volumes and transport
distances) and may increase tanker demand.





A
significant and ongoing shift toward quality in vessels and operations has taken
place during the last decade as charterers and regulators increasingly focus on
safety and protection of the environment. Since 1990, there has been an
increasing emphasis on environmental protection through legislation and
regulations such as the Oil Pollution Act of 1990, or OPA, International
Maritime Organization or IMO protocols and classification society procedures.
Such regulations emphasize higher quality tanker construction, maintenance,
repair and operations. Operators that have proven an ability to seamlessly
integrate these required safety regulations into their operations are being
rewarded. For example, the emergence of vessels equipped with double-hulls
represented a differentiation in vessel quality and enabled such vessels to
command improved earnings in the spot charter markets. The effect has been a
shift in major charterers’ preference towards greater use of double-hulls and,
therefore, more difficult trading conditions for older single-hull
vessels.





The
Tanker Market 2009





Notwithstanding
the volatility in the financial and commodities markets, the Suezmax tanker spot
market continued to be strong through the first quarter of fiscal year 2009.
Going into second quarter of fiscal year 2009, the spot tanker market has
tapered off while remaining subject to volatility. The Company does not predict
future spot rates.




Environmental
and Other Regulation




Government
regulations and laws significantly affect the ownership and operation of our
vessels.  We are subject to various international conventions, laws
and regulations in force in the countries in which our vessels may operate or
are registered. Compliance with such laws, regulations and other requirements
entails significant expense, including vessel modification and implementation
costs.


21


A variety
of government, quasi-governmental and private organizations subject our vessels
to both scheduled and unscheduled inspections.  These organizations
include the local port authorities, national authorities, harbor masters or
equivalent entities, classification societies, relevant flag state (country of
registry) and charterers, particularly terminal operators and oil
companies.  Some of these entities require us to obtain permits,
licenses and certificates for the operation of our vessels.  Our
failure to maintain necessary permits or approvals could require us to incur
substantial costs or temporarily suspend operation of one or more of the vessels
in our fleet.




We
believe that the heightened levels of environmental and quality concerns among
insurance underwriters, regulators and charterers have led to greater inspection
and safety requirements on all vessels and may accelerate the scrapping of older
vessels throughout the industry.  Increasing environmental concerns
have created a demand for tankers that conform to the stricter environmental
standards.  We are required to maintain operating standards for all of
our vessels that emphasize operational safety, quality maintenance, continuous
training of our officers and crews and compliance with applicable local,
national and international environmental laws and regulations.  We
believe that the operation of our vessels is in substantial compliance with
applicable environmental laws and regulations and that our vessels have all
material permits, licenses, certificates or other authorizations necessary for
the conduct of our operations; however, because such laws and regulations are
frequently changed and may impose increasingly stricter requirements, we cannot
predict the ultimate cost of complying with these requirements, or the impact of
these requirements on the resale value or useful lives of our
vessels.  In addition, a future serious marine incident that results
in significant oil pollution or otherwise causes significant adverse
environmental impact could result in additional legislation or regulation that
could negatively affect our profitability.




Our
vessels are subject to both scheduled and unscheduled inspections by a variety
of governmental and private entities, each of which may have unique
requirements. These entities include the local port authorities (U.S. Coast
Guard, harbor master or equivalent), classification societies, flag state
administration (country of registry) and charterers, particularly terminal
operators and oil companies. Failure to maintain necessary permits or approvals
could require us to incur substantial costs or temporarily suspend operation of
one or more of our vessels.




International
Maritime Organization




The
International Maritime Organization, or IMO (the United Nations agency for
maritime safety and the prevention of pollution by ships), has adopted the
International Convention for the Prevention of Marine Pollution from Ships,
1973, as modified by the Protocol of 1978 relating thereto, which has been
updated through various amendments, or the MARPOL Convention. The MARPOL
Convention implements environmental standards including oil leakage or spilling,
garbage management, as well as the handling and disposal of noxious liquids,
harmful substances in packaged forms, sewage and air emissions. These
regulations, which have been implemented in many jurisdictions in which our
vessels operate, provide, in part, that:




·
            25-year
      old tankers must be of double-hull construction or of a mid-deck design
      with double-sided construction,
unless:




(1)
            they
      have wing tanks or double-bottom spaces not used for the carriage of oil
      which cover at least 30% of the length of the cargo tank section of the
      hull or bottom; or




(2)
            they
      are capable of hydrostatically balanced loading (loading less cargo into a
      tanker so that in the event of a breach of the hull, water flows into the
      tanker, displacing oil upwards instead of into the
  sea);




·
            30-year
      old tankers must be of double-hull construction or mid-deck design with
      double-sided construction; and




·
            all
      tankers will be subject to enhanced
inspections.




Also,
under IMO regulations, a tanker must be of double-hull construction or a
mid-deck design with double-sided construction or be of another approved design
ensuring the same level of protection against oil pollution if the
tanker:




·
            is
      the subject of a contract for a major conversion or original construction
      on or after July 6, 1993;




22


·
            commences
      a major conversion or has its keel laid on or after January 6, 1994;
      or




·
            completes
      a major conversion or is a newbuilding delivered on or after July 6,
      1996.




Our
vessels are also subject to regulatory requirements, including the phase-out of
single-hull tankers, imposed by the IMO. Effective September 2002, the IMO
accelerated its existing timetable for the phase-out of single-hull oil tankers.
At that time, these regulations required the phase-out of most single-hull oil
tankers by 2015 or earlier, depending on the age of the tanker and whether it
has segregated ballast tanks. We do not currently own any single-hull
tankers.




Under the
regulations, the flag state may allow for some newer single-hull ships
registered in its country that conform to certain technical specifications to
continue operating until the 25th anniversary of their delivery. Any port state,
however, may deny entry of those single-hull tankers that are allowed to operate
until their 25th anniversary to ports or offshore terminals. These regulations
have been adopted by over 150 nations, including many of the jurisdictions in
which our tankers operate.




As a
result of the oil spill in November 2002 relating to the loss of the MT Prestige, which was owned
by a company not affiliated with us, in December 2003, the Marine
Environmental Protection Committee of the IMO, or MEPC, adopted an amendment to
the MARPOL Convention, which became effective in April 2005. The amendment
revised an existing regulation 13G accelerating the phase-out of single-hull oil
tankers and adopted a new regulation 13H on the prevention of oil pollution from
oil tankers when carrying heavy grade oil. Under the revised regulation,
single-hull oil tankers were required to be phased out no later than April 5,
2005 or the anniversary of the date of delivery of the ship on the date or in
the year specified in the following table:







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




Under the
revised regulations, a flag state may permit continued operation of certain
Category 2 or 3 tankers beyond the phase out date set forth in the above
schedule.  Under regulation 13G, the flag state may allow for some
newer single-hull oil tankers registered in its country that conform to certain
technical specifications to continue operating until the earlier of the
anniversary of the date of delivery of the vessel in 2015 or the 25th
anniversary of their delivery.  Under regulations 13G and 13H, as
described below, certain Category 2 and 3 tankers fitted with only double
bottoms or double sides may be allowed by the flag state to continue operations
until their 25th anniversary of delivery.  Any port state, however,
may deny entry of those single-hull oil tankers that are allowed to operate
under any of the flag state exemptions.


23


In October 2004, the
MEPC adopted a unified interpretation of regulation 13G that clarified the
delivery date for converted tankers.  Under the interpretation, where
an oil tanker has undergone a major conversion that has resulted in the
replacement of the fore-body, including the entire cargo carrying section, the
major conversion completion date shall be deemed to be the date of delivery of
the ship, provided that:




·
            the
      oil tanker conversion was completed before July 6,
  1996;




·
            the
      conversion included the replacement of the entire cargo section and
      fore-body and the tanker complies with all the relevant provisions of
      MARPOL Convention applicable at the date of completion of the major
      conversion; and




·
            the
      original delivery date of the oil tanker will apply when considering the
      15 years of age threshold relating to the first technical specifications
      survey to be completed in accordance with MARPOL
    Convention.




In
December 2003, the MEPC adopted a new regulation 13H on the prevention of
oil pollution from oil tankers when carrying heavy grade oil, or HGO, which
includes most of the grades of marine fuel.  The new regulation bans
the carriage of HGO in single-hull oil tankers of 5,000 dwt and above after
April 5, 2005, and in single-hull oil tankers of 600 dwt and above but less than
5,000 dwt, no later than the anniversary of their delivery in 2008.




Under
regulation 13H, HGO means any of the following:




·
            crude
      oils having a density at 15oC higher than 900 kg/m3;




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




·
            bitumen,
      tar and their emulsions.




Under the
regulation 13H, the flag state may allow continued operation of oil tankers of
5,000 dwt and above, carrying crude oil with a density at 15oC higher than 900
kg/m3 but
lower than 945 kg/m3, that
conform to certain technical specifications and, if, in the opinion of the flag
state, the ship is fit to continue such operation, having regard to the size,
age, operational area and structural conditions of the ship and provided that
the continued operation shall not go beyond the date on which the ship reaches
25 years after the date of its delivery.  The flag state may also
allow continued operation of a single-hull oil tanker of 600 dwt and above but
less than 5,000 dwt, carrying HGO as cargo, if, in the opinion of the such flag
state, the ship is fit to continue such operation, having regard to the size,
age, operational area and structural conditions of the ship, provided that the
operation shall not go beyond the date on which the ship reaches 25 years after
the date of its delivery.




The flag
state may also exempt an oil tanker of 600 dwt and above carrying HGO as cargo
if the ship is either engaged in voyages exclusively within an area under its
jurisdiction, or is engaged in voyages exclusively within an area under the
jurisdiction of another party, provided the party within whose jurisdiction the
ship will be operating agrees.  The same applies to vessels operating
as floating storage units of HGO.




Any port
state, however, can deny entry of single-hull tankers carrying HGO which have
been allowed to continue operation under the exemptions mentioned above, into
the ports or offshore terminals under its jurisdiction, or deny ship-to-ship
transfer of HGO in areas under its jurisdiction except when this is necessary
for the purpose of securing the safety of a ship or saving life at
sea.




Revised
Annex I to the MARPOL Convention entered into force in January
2007.  Revised Annex I incorporates various amendments adopted since
the MARPOL Convention entered into force in 1983, including the amendments to
regulation 13G (regulation 20 in the revised Annex) and regulation 13H
(regulation 21 in the revised Annex).  Revised Annex I also imposes
construction requirements for oil tankers delivered on or after January 1, 2010.  A
further amendment to revised Annex I includes an amendment to the definition of
heavy grade oil that will broaden the scope of regulation 21.  On
August 1, 2007, regulation 12A (an amendment to Annex I) came into force
requiring oil fuel tanks to be located inside the double-hull in all ships with
an aggregate oil fuel capacity of 600 m3 and
above, and which are delivered on or after August 1, 2010, including ships for
which the building contract is entered into on or after August 1, 2007 or, in
the absence of a contract, which keel is laid on or after February 1,
2008.


24


Air
Emissions




In
September 1997, the IMO adopted Annex VI to the MARPOL Convention to
address air pollution from ships. Effective in May 2005. Annex VI sets limits on
sulfur oxide and nitrogen oxide emissions from all commercial vessel exhausts
and prohibits deliberate emissions of ozone depleting substances, such as halons
and chlorofluorocarbons, emissions of volatile compounds from cargo tanks, and
the shipboard incineration of specific substances.  Annex VI also includes
a global cap on the sulfur content of fuel oil and allows for special areas to
be established with more stringent controls on sulfur emissions. We believe that
all our vessels are currently compliant in all material respects with these
regulations. Additional or new conventions, laws and regulations may be adopted
that could adversely affect our business, cash flows, results of operations and
financial condition.




In
October 2008, the IMO adopted amendments to Annex VI regarding particulate
matter, nitrogen oxide and sulfur oxide emission standards which are expected to
enter into force on July 1, 2010.  The amended Annex VI would reduce
air pollution from vessels by, among other things, (i) implementing a
progressive reduction of sulfur oxide, emissions from ships, with the global
sulfur cap reduced initially to 3.50% (from the current cap of 4.50%), effective
from January 1, 2012, then progressively to 0.50%, effective from January 1,
2020, subject to a feasibility review to be completed no later than 2018; and
(ii) establishing new tiers of stringent nitrogen oxide emissions standards for
new marine engines, depending on their date of installation. Once these
amendments become effective, we may incur costs to comply with these revised
standards.




Safety
Requirements




The IMO
has also adopted the International Convention for the Safety of Life at Sea, or
SOLAS Convention, and the International Convention on Load Lines, 1966, or LL
Convention, which impose a variety of standards to regulate design and
operational features of ships. SOLAS Convention and LL Convention standards are
revised periodically. We believe that all our vessels are in substantial
compliance with SOLAS Convention and LL Convention standards.




Under
Chapter IX of SOLAS, the requirements contained in the International Safety
Management Code for the Safe Operation of Ships and for Pollution Prevention, or
ISM Code, promulgated by the IMO, also affect our operations. The ISM Code
requires the party with operational control of a vessel to develop and maintain
an extensive safety management system that includes, among other things, the
adoption of a safety and environmental protection policy setting forth
instructions and procedures for operating its vessels safely and describing
procedures for responding to emergencies.




The ISM
Code requires that vessel operators obtain a safety management certificate for
each vessel they operate. This certificate evidences compliance by a vessel’s
management with code requirements for a safety management system. No vessel can
obtain a certificate unless its manager has been awarded a document of
compliance, issued by each flag state, under the ISM Code. We have obtained
documents of compliance for our offices and safety management certificates for
all of our vessels for which the certificates are required by the IMO. As
required by the ISM Code, we renew these documents of compliance and safety
management certificates annually.




Noncompliance
with the ISM Code and other IMO regulations may subject the shipowner or
bareboat charterer to increased liability, may lead to decreases in available
insurance coverage for affected vessels and may result in the denial of access
to, or detention in, some ports. The U.S. Coast Guard and European Union
authorities have indicated that vessels not in compliance with the ISM Code by
the applicable deadlines will be prohibited from trading in U.S. and European
Union ports, respectively.




The IMO
has negotiated international conventions that impose liability for oil pollution
in international waters and a signatory’s territorial waters. Additional or new
conventions, laws and regulations may be adopted which could
limit our ability to do business and which could have a material adverse effect
on our business and results of operations.


25


Ballast
Water Requirements




The IMO
adopted an International Convention for the Control and Management of Ships’
Ballast Water and Sediments, or the BWM Convention, in February 2004. The BWM
Convention’s implementing regulations call for a phased introduction of
mandatory ballast water exchange requirements (beginning in 2009), to be
replaced in time with mandatory concentration limits. The BWM Convention will
not become effective until 12 months after it has been adopted by 30 states, the
combined merchant fleets of which represent not less than 35% of the gross
tonnage of the world’s merchant shipping. The flag state, as defined by the
United Nations Convention on Law of the Sea, has overall responsibility for the
implementation and enforcement of international maritime regulations for all
ships granted the right to fly its flag. The “Shipping Industry Guidelines on
Flag State Performance” evaluates flag states based on factors such as
sufficiency of infrastructure, ratification of international maritime treaties,
implementation and enforcement of international maritime regulations,
supervision of surveys, casualty investigations and participation at IMO
meetings.




Oil
Pollution Liability




Although
the United States is not a party to these conventions, many countries have
ratified and follow the liability plan adopted by the IMO and set out in the
International Convention on Civil Liability for Oil Pollution Damage of 1969, as
amended in 2000,or
the CLC. Under this convention and depending on whether the country in which the
damage results is a party to the 1992 Protocol to the CLC, a vessel’s registered
owner is strictly liable for pollution damage caused in the territorial waters
of a contracting state by discharge of persistent oil, subject to certain
complete defenses.  The limits on liability outlined in the 1992
Protocol use the International Monetary Fund currency unit of Special Drawing
Rights, or SDR. Under an amendment to the 1992 Protocol that became effective on
November 1, 2003, for vessels of 5,000 to 140,000 gross tons (a unit of
measurement for the total enclosed spaces within a vessel), liability will be
limited to approximately 4.51 million SDR plus 631 SDR for each additional gross
ton over 5,000. For vessels of over 140,000 gross tons, liability will be
limited to 89.77 million SDR.  The exchange rate between SDRs and U.S.
dollars was 0.661056 SDR per U.S. dollar on March 23, 2009. The right to limit
liability is forfeited under the CLC where the spill is caused by the owner’s
actual fault and under the 1992 Protocol where the spill is caused by the
owner’s intentional or reckless conduct. Vessels trading to states thatare parties to these
conventions must provide evidence of insurance covering the liability of the
owner. In jurisdictions where the CLC has not been adopted, various legislative
schemes or common law govern, and liability is imposed either on the basis of
fault or in a manner similar to the CLC. We believe that our insurance will
coverthe liability
under the plan adopted by the IMO.




The IMO
adopted the International Convention on Civil Liability for Bunker Oil Pollution
Damage, or the Bunker Convention, to impose strict liability on ship owners for
pollution damage in jurisdictional waters of ratifying states caused by
discharges of bunker fuel. The Bunker Convention, which became effective on
November 21, 2008, requires registered owners of ships over 1,000 gross tons to
maintain insurance for pollution damage in an amount equal to the limits of
liability under the applicable national or international limitation regime (but
not exceeding the amount calculated in accordance with the Convention on
Limitation of Liability for Maritime Claims of 1976, as
amended).  With respect to non-ratifying states, liability for spills
or releases of oil carried as fuel in ship’s bunkers typically is determined by
the national or other domestic laws in the jurisdiction where the events or
damages occur.





Anti-Fouling
Requirements





In 2001,
the IMO adopted the International Convention on the Control of Harmful
Anti-fouling Systems on Ships, or the Anti-fouling Convention.  The
Anti-fouling Convention prohibits the use of organotin compound coatings to
prevent the attachment of mollusks and other sea life to the hulls of vessels
after September 1, 2003.  The exteriors of vessels constructed prior
to January 1, 2003 that have not been in dry-dock must, as of September 17,
2008, either not contain the prohibited compounds or have coatings applied to
the vessel exterior that act as a barrier to the leaching of the prohibited
compounds.  Vessels of over 400 gross tons engaged in international
voyages must obtain an International Anti-fouling System Certificate and undergo
a survey before the vessel is put into service or when the antifouling systems
are altered or replaced. We have obtained Anti-fouling System Certificates for
all of our vessels that are subject to the Anti-Fouling Convention.


26


The IMO continues to
review and introduce new regulations. It is impossible to predict what
additional regulations, if any, may be passed by the IMO and what effect, if
any, such regulations might have on our operations.




United
States Requirements




In 1990,
the United States Congress enacted OPA to establish an extensive regulatory and
liability regime for environmental protection and cleanup of oil spills. OPA
affects all owners and operators whose vessels trade with the United States or
its territories or possessions, or whose vessels operate in the waters of the
United States, which include the U.S. territorial sea and the 200 nautical mile
exclusive economic zone around the United States. The Comprehensive
Environmental Response, Compensation and Liability Act, or CERCLA, imposes
liability for cleanup and natural resource damage from the release of hazardous
substances (other than oil) whether on land or at sea. Both OPA and CERCLA
impact our operations.




Under
OPA, vessel owners, operators and bareboat charterers are responsible parties
who are jointly, severally and strictly liable (unless the spill results solely
from the act or omission of a third party, an act of God or an act of war) for
all containment and clean-up costs and other damages arising from oil spills
from their vessels. These other damages are defined broadly to
include:




·
            natural
      resource damages and related assessment
costs;




·
            real
      and personal property damages;




·
            net
      loss of taxes, royalties, rents, profits or earnings
    capacity;




·
            net
      cost of public services necessitated by a spill response, such as
      protection from fire, safety or health hazards; and loss of subsistence
      use of natural resources.




Under
amendments to OPA that became effective on July 11, 2006, liability of
responsible parties is limited, with respect to tanker vessels, to the greater
of $1,900 per gross ton or $16.0 million per vessel that is over 3,000 gross
tons. On September 24, 2008, the U.S. Coast Guard proposed adjustments to the
limits of liability that would increase the limits for tank vessels to the
greater of $2,000 per gross ton or $17.0 million per vessel that is over 3,000
gross tons and establish a procedure for adjusting the limits for inflation
every three years.  The comment period for the proposed rule closed on
November 24, 2008. The act specifically permits individual states to impose
their own liability regimes with regard to oil pollution incidents occurring
within their boundaries, and some states have enacted legislation providing for
unlimited liability for discharge of pollutants within their waters. In some
cases, states that have enacted this type of legislation have not yet issued
implementing regulations defining tanker owners’ responsibilities under these
laws. CERCLA, which applies to owners and operators of vessels, contains a
similar liability regime and provides for clean-up, removal and natural resource
damages. Liability under CERCLA is limited to the greater of $300 per gross ton
or $5.0 million for vessels carrying a hazardous substance as cargo and the
greater of $300 per gross ton or $0.5 million for any other vessel.




These
limits of liability do not apply, however, where the incident is caused by
violation of applicable U.S. federal safety, construction or operating
regulations, or by the responsible party’s gross negligence or willful
misconduct. These limits also do not apply if the responsible party fails or
refuses to report the incident or to cooperate and assist in connection with the
substance removal activities. OPA and CERCLA each preserve the right to recover
damages under existing law, including maritime tort law. We believe that we are
in substantial compliance with OPA, CERCLA and all applicable state regulations
in the ports where our vessels call.




OPA also
requires owners and operators of vessels to establish and maintain with the U.S.
Coast Guard evidence of financial responsibility sufficient to meet the limit of
their potential strict liability under the act. On October 17, 2008, the U.S.
Coast Guard enacted regulations requiring evidence of financial responsibility
in the amount of $1,500 per gross ton for tankers, coupling the former OPA
limitation on liability of $1,200 per gross ton with the CERCLA liability limit
of $300 per gross ton. The U.S. Coast Guard has indicated that it expects
regulations requiring evidence of financial responsibility in amounts that
reflect the higher limits of liability imposed by the July 2006 amendments to
OPA, as described above. The increased amounts became effective on January 15
2009. U.S. Coast
Guard regulations currently require evidence of financial responsibility in the
amount of $2,200 per gross ton for tankers, coupling the OPA limitation on
liability of $1,900 per gross ton with the CERCLA liability limit of $300 per
gross ton. Under the regulations, evidence of financial responsibility may be
demonstrated by insurance, surety bond, self-insurance or guaranty. Under OPA
regulations, an owner or operator of more than one tanker is required to
demonstrate evidence of financial responsibility for the entire fleet in an
amount equal only to the financial responsibility requirement of the tanker
having the greatest maximum strict liability under OPA and CERCLA. We have
provided such evidence and received certificates of financial responsibility
from the U.S. Coast Guard for each of our vessels as required to have
one.


27




Under
OPA, with certain limited exceptions, all newly-built or converted vessels
operating in U.S. waters must be built with double-hulls, and existing vessels
that do not comply with the double-hull requirement will be prohibited from
trading in U.S. waters over a 20-year period (1995-2015) based on size, age and
place of discharge, unless retrofitted with double-hulls.  Our current
fleet of 12 vessels are all of double-hull construction.




Owners or
operators of tankers operating in the waters of the United States must file
vessel response plans with the U.S. Coast Guard, and their tankers are required
to operate in compliance with their U.S. Coast Guard approved plans. These
response plans must, among other things:




·
            address
      a worst case scenario and identify and ensure, through contract or other
      approved means, the availability of necessary private response resources
      to respond to a worst case
discharge;




·
            describe
      crew training and drills; and




·
            identify
      a qualified individual with full authority to implement removal
      actions.




We have
obtained vessel response plans approved by the U.S. Coast Guard for our vessels
operating in the waters of the United States. We conduct regular oil spill
response drills in accordance with the guidelines set out in OPA.  In
addition, the U.S. Coast Guard has announced it intends to propose similar
regulations requiring certain vessels to prepare response plans for the release
of hazardous substances.




In
addition, the United States Clean Water Act, or CWA, prohibits the discharge of
oil or hazardous substances in United States navigable waters and imposes strict
liability in the form of penalties for unauthorized discharges.  The
CWA also imposes substantial liability for the costs of removal, remediation and
damages and complements the remedies available under OPA and CERCLA, discussed
above.  The United States Environmental Protection Agency, or EPA,
historically exempted the discharge of ballast water and other substances
incidental to the normal operation of vessels in U.S. waters from CWA permitting
requirements.  However, on March 31, 2005, a U.S. District Court ruled
that the EPA exceeded its authority in creating an exemption for ballast
water.  On September 18, 2006, the court issued an order invalidating
the exemption in the EPA’s regulations for all discharges incidental to the
normal operation of a vessel as of September 30, 2008, and directed the EPA to
develop a system for regulating all discharges from vessels by that
date.  The EPA has enacted rules governing the regulation of ballast
water discharges and other discharges incidental to the normal operation of
vessels within U.S. waters.  Under the new rules, which took effect
February 6, 2009, commercial vessels 79 feet in length or longer (other than
commercial fishing vessels), or Regulated Vessels, are required to obtain a CWA
permit regulating and authorizing such normal discharges.  This
permit, which the EPA has designated as the Vessel General Permit for Discharges
Incidental to the Normal Operation of Vessels, or VGP, incorporates the current
U.S. Coast Guard requirements for ballast water management as well as
supplemental ballast water requirements, and includes limits applicable to
specific discharge streams.




Although
the VGP became effective on February 6, 2009, the VGP application procedure,
known as the Notice of Intent, or NOI, has yet to be
finalized.  Accordingly, Regulated Vessels will effectively be covered
under the VGP from February 6, 2009 until June 19, 2009, at which time the
“eNOI” electronic filing interface will become
operational.  Thereafter, owners and operators of Regulated Vessels
must file their NOIs prior to September 19 2009, or the Deadline. Any Regulated
Vessel that does not file an NOI by the Deadline will not be allowed to
discharge into U.S. navigable waters until it has obtained a VGP. Our fleet is
composed entirely of Regulated Vessels, and we intend to submit NOIs for each
vessel in our fleet as soon after June 19, 2009 as practicable.


28


Owners
and operators of vessels visiting U.S. waters will be required to comply with
this VGP program or face penalties.  This could require the
installation of equipment on our vessels to treat ballast water before it is




The U.S.
National Invasive Species Act, or NISA, was enacted in 1996 in response to
growing reports of harmful organisms being released into U.S. ports through
ballast water taken on by ships in foreign ports.  The United States
Coast Guard adopted regulations under NISA in July 2004 that impose mandatory
ballast water management practices for all vessels equipped with ballast water
tanks entering U.S. waters.  These requirements can be met by
performing mid-ocean ballast exchange, by retaining ballast water on board the
ship, or by using environmentally sound alternative ballast water management
methods approved by the United States Coast Guard.  (However,
mid-ocean ballast exchange is mandatory for ships heading to the Great Lakes or
Hudson River, or vessels engaged in the foreign export of Alaskan North Slope
crude oil.) Mid-ocean ballast exchange is the primary method for compliance with
the United States Coast Guard regulations, since holding ballast water can
prevent ships from performing cargo operations upon arrival in the United
States, and alternative methods are still under development. Vessels that are
unable to conduct mid-ocean ballast exchange due to voyage or safety concerns
may discharge minimum amounts of ballast water (in areas other than the Great
Lakes and the Hudson River), provided that they comply with recordkeeping
requirements and document the reasons they could not follow the required ballast
water management requirements. The United States Coast Guard is developing a
proposal to establish ballast water discharge standards, which could set maximum
acceptable discharge limits for various invasive species, and/or lead to
requirements for active treatment of ballast water.




Our
operations occasionally generate and require the transportation, treatment and
disposal of both hazardous and non-hazardous solid wastes that are subject to
the requirements of the U.S. Resource Conservation and Recovery Act, or RCRA, or
comparable state, local or foreign requirements. In addition, from time to time
we arrange for the disposal of hazardous waste or hazardous substances at
offsite disposal facilities. If such materials are improperly disposed of by
third parties, we may still be held liable for clean up costs under applicable
laws.




In
addition, most U.S. states that border a navigable waterway have enacted
environmental pollution laws that impose strict liability on a person for
removal costs and damages resulting from a discharge of oil or a release of a
hazardous substance. These laws may be more stringent than U.S. federal
law.




The U.S.
Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and
1990, or the CAA, requires the EPA to promulgate standards applicable to
emissions of volatile organic compounds and other air contaminants. In December
1999 and January 2003, the EPA issued final rules regarding emissions standards
for marine diesel engines. The final rules apply emissions standards to new
engines beginning with the 2004 model year. In the preambles to the final rules,
the EPA noted that it may revisit the application for emissions standards for
marine diesel engines. Those final rules are applicable to marine diesel engines
on vessels flagged or registered in the United States. While we do not believe
that these current standards are applicable to our vessels, adoption of future
standards could require modifications to some existing marine diesel engines,
and the extent to which our vessels could be affected cannot be determined at
this time. Although a risk exists that new regulations could require significant
capital expenditures and otherwise increase our costs, based on the regulations
that have been proposed to date, we believe that no material capital
expenditures beyond those currently contemplated and no material increase in
costs are likely to be required of us.




Our
vessels are subject to vapor control and recovery requirements for certain
cargoes when loading, unloading, ballasting, cleaning and conducting other
operations in regulated port areas.  Our vessels that operate in such
port areas with restricted cargoes are equipped with vapor recovery systems that
satisfy these requirements.  The CAA also requires states to draft
State Implementation Plans, or SIPs, designed to attain national health-based
air quality standards in primarily major metropolitan and/or industrial areas.
Several SIPs regulate emissions resulting from vessel loading and unloading
operations by requiring the installation of vapor control equipment. As
indicated above, our vessels operating in covered port areas are already
equipped with vapor recovery systems that satisfy these requirements. Although a
risk exists that new regulations could require significant capital expenditures
and otherwise increase our costs, based on the regulations that have been
proposed to date, we believe that no material capital expenditures beyond those
currently contemplated and no material increase in costs are likely to be
required.


29


On
October 9, 2008, the United States ratified the amended Annex VI to the MARPOL
Convention, addressing air pollution from ships, which went into effect on
January 8, 2009.  The EPA and the state of California, however, have
each proposed more stringent regulations of air emissions from ocean-going
vessels.  On July 24, 2008, the California Air Resources Board of the
State of California, or CARB, approved clean-fuel regulations applicable to all
vessels sailing within 24 miles of the California coastline whose itineraries
call for them to enter any California ports, terminal facilities, or internal or
estuarine waters.  The new CARB regulations require such vessels to
use low sulfur marine fuels rather than bunker fuel.  By July 1, 2009,
such vessels are required to switch either to marine gas oil with a sulfur
content of no more than 1.5% or marine diesel oil with a sulfur content of no
more than 0.5%. By 2012, only marine gas oil and marine diesel oil fuels with
0.1% sulfur will be allowed.  CARB unilaterally approved the new
regulations in spite of legal defeats at both the district and appellate court
levels, but more legal challenges are expected to follow.  If CARB
prevails and the new regulations go into effect as scheduled on July 1, 2009, in
the event our vessels were to travel within such waters, these new regulations
would require significant expenditures on low-sulfur fuel and would increase our
operating costs.  Finally, although the more stringent CARB regime was
technically superseded when the United States ratified and implemented the
amended Annex VI, the possible declaration of various U.S. coastal waters as
Emissions Control Areas may in turn bring U.S. emissions standards into line
with the new CARB regulations, which would cause us to incur further
costs.




Other
Regulations




In
July 2003, in response to the MT Prestige oil spill in
November 2002, the European Union adopted legislation that prohibits all
single-hull tankers from entering into its ports or offshore terminals by 2010.
The European Union has also banned all single-hull tankers carrying heavy grades
of oil from entering or leaving its ports or offshore terminals or anchoring in
areas under its jurisdiction. Commencing in 2005, certain single-hull tankers
above 15 years of age will also be restricted from entering or leaving
European Union ports or offshore terminals and anchoring in areas under European
Union jurisdiction. The European Union has also adopted legislation that would:
(1) ban manifestly sub-standard vessels (defined as those over 15 years old that
have been detained by port authorities at least twice in a six month period)
from European waters and create an obligation of port states to inspect vessels
posing a high risk to maritime safety or the marine environment; and (2) provide
the European Union with greater authority and control over classification
societies, including the ability to seek to suspend or revoke the authority of
negligent societies. The sinking of the MT Prestige and resulting oil
spill in November 2002 has led to the adoption of other environmental
regulations by certain European Union nations, which could adversely affect the
remaining useful lives of all of our vessels and our ability to generate income
from them.




In 2005,
the European Union adopted a directive on ship-source pollution, imposing
criminal sanctions for intentional, reckless or negligent pollution discharges
by ships.  The directive could result in criminal liability for
pollution from vessels in waters of European countries that adopt implementing
legislation.  Criminal liability for pollution may result in
substantial penalties or fines and increased civil liability claims.
regulations, if any, may be adopted by the European Union or any other country
or authority.




Any
passage of climate control legislation or other regulatory initiatives by the
IMO or individual countries where we operate that restrict emissions of
greenhouse gases could require us to make significant financial expenditures we
cannot predict with certainty at this time.




Greenhouse
Gas Regulation




In
February 2005, the Kyoto Protocol to the United Nations Framework
Convention on Climate Change, which we refer to as the Kyoto Protocol, entered
into force. Pursuant to the Kyoto Protocol, adopting countries are required to
implement national programs to reduce emissions of certain gases, generally
referred to as greenhouse gases, which are suspected of contributing to global
warming. Currently, the emissions of greenhouse gases from international
shipping are not subject to the Kyoto Protocol. However, the European Union has
indicated that it intends to propose an expansion of the existing European Union
emissions trading scheme to include emissions of greenhouse gases from vessels.
In the United States, the California Attorney General and a coalition of
environmental groups in October 2007 petitioned the EPA to regulate
greenhouse gas emissions from ocean-going vessels under the CAA. According to
the IMO’s study of greenhouse gas emissions from the global shipping fleet,
greenhouse emissions from ships are predicted to rise by 38% to 72% due to
increased bunker consumption by 2020 if corrective measures are not
implemented.  Any passage of climate control legislation or other
regulatory initiatives by the IMO, European
Union, the United States or other countries where we operate that restrict
emissions of greenhouse gases could require us to make significant financial
expenditures we cannot predict with certainty at this time.


30


Vessel
Security Regulations




Since the
terrorist attacks of September 11, 2001, there have been a variety of
initiatives intended to enhance vessel security. On November 25, 2002, the U.S.
Maritime Transportation Security Act of 2002, or MTSA, came into effect. To
implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard
issued regulations requiring the implementation of certain security requirements
aboard vessels operating in waters subject to the jurisdiction of the United
States. Similarly, in December 2002, amendments to SOLAS created a new chapter
of the convention dealing specifically with maritime security. The new chapter
became effective in July 2004 and imposes various detailed security obligations
on vessels and port authorities, most of which are contained in the
International Ship and Port Facilities Security Code, or the ISPS Code. The ISPS
Code is designed to protect ports and international shipping against terrorism.
After July 1, 2004, to trade internationally, a vessel must attain an
International Ship Security Certificate, or ISSC, from a recognized security
organization approved by the vessel’s flag state. Among the various requirements
are:




·
            on-board
      installation of automatic identification systems to provide a means for
      the automatic transmission of safety-related information from among
      similarly equipped ships and shore stations, including information on a
      ship’s identity, position, course, speed and navigational
      status;




·
            on-board
      installation of ship security alert systems, which do not sound on the
      vessel but only alert the authorities on
shore;




·
            the
      development of vessel security
plans;




·
            ship
      identification number to be permanently marked on a vessel’s
      hull;




·
            a
      continuous synopsis record kept onboard showing a vessel’s history
      including, name of the ship and of the state whose flag the ship is
      entitled to fly, the date on which the ship was registered with that
      state, the ship’s identification number, the port at which the ship is
      registered and the name of the registered owner(s) and their registered
      address; and




·
            compliance
      with flag state security certification
  requirements.




The U.S.
Coast Guard regulations, intended to align with international maritime security
standards, exempt from MTSA vessel security measures non-U.S. vessels that have
on board, as of July 1, 2004, a valid ISSC attesting to the vessel’s compliance
with SOLAS security requirements and the ISPS Code. We have implemented the
various security measures addressed by MTSA, SOLAS and the ISPS Code, and our
fleet is in compliance with applicable security requirements.




Inspection
by Classification Societies




Every
seagoing vessel must be “classed” by a classification society. The
classification society certifies that the vessel is ‘‘in class,’’ signifying
that the vessel has been built and maintained in accordance with the rules of
the classification society and complies with applicable rules and regulations of
the vessel’s country of registry and the international conventions of which that
country is a member. In addition, where surveys are required by international
conventions and corresponding laws and ordinances of a flag state, the
classification society will undertake them on application or by official order,
acting on behalf of the authorities concerned.




The
classification society also undertakes on request other surveys and checks that
are required by regulations and requirements of the flag state. These surveys
are subject to agreements made in each individual case and/or to the regulations
of the country concerned.




For
maintenance of the class, regular and extraordinary surveys of hull, machinery,
including the electrical plant, and any special equipment classed are required
to be performed as follows:


31


Annual Surveys:For seagoing
ships, annual surveys are conducted for the hull and the machinery, including
the electrical plant, and where applicable for special equipment classed, at
intervals of 12 months from the date of commencement of the class period
indicated in the certificate.




Intermediate Surveys:Extended annual surveys are referred to as intermediate surveys and
typically are conducted two and one-half years after commissioning and each
class renewal. Intermediate surveys may be carried out on the occasion of the
second or third annual survey.




Class Renewal Surveys:Class
renewal surveys, also known as special surveys, are carried out for the ship’s
hull, machinery, including the electrical plant, and for any special equipment
classed, at the intervals indicated by the character of classification for the
hull. At the special survey, the vessel is thoroughly examined, including
audio-gauging to determine the thickness of the steel structures. Should the
thickness be found to be less than class requirements, the classification
society would prescribe steel renewals. The classification society may grant a
one-year grace period for completion of the special survey. Substantial amounts
of money may have to be spent for steel renewals to pass a special survey if the
vessel experiences excessive wear and tear. In lieu of the special survey every
four or five years, depending on whether a grace period was granted, a shipowner
has the option of arranging with the classification society for the vessel’s
hull or machinery to be on a continuous survey cycle, in which every part of the
vessel would be surveyed within a five-year cycle.




At an
owner’s application, the surveys required for class renewal may be split
according to an agreed schedule to extend over the entire period of class. This
process is referred to as continuous class renewal.




All areas
subject to survey as defined by the classification society are required to be
surveyed at least once per class period, unless shorter intervals between
surveys are prescribed elsewhere. The period between two subsequent surveys of
each area must not exceed five years.




Most
vessels are also dry-docked every 30 to 36 months for inspection of the
underwater parts and for repairs related to inspections. If any defects are
found, the classification surveyor will issue a ‘‘recommendation’’ which must be
rectified by the ship owner within prescribed time limits.




Most
insurance underwriters make it a condition for insurance coverage that a vessel
be certified as ‘‘in class’’ by a classification society which is a member of
the International Association of Classification Societies. All our vessels are
certified as being ‘‘in class’’ by Lloyd’s Register of Shipping (one vessel),
American Bureau of Shipping (three vessels) and Det norske Veritas (eight
vessels).  All new and secondhand vessels that we purchase must be
certified prior to their delivery under our standard contracts.




Risk
of Loss and Liability Insurance




The
operation of any cargo vessel includes risks such as mechanical failure,
collision, property loss, cargo loss or damage and business interruption due to
political circumstances in foreign countries, hostilities and labor strikes. In
addition, there is always an inherent possibility of marine disaster, including
oil spills and other environmental mishaps, and the liabilities arising from
owning and operating vessels in international trade. OPA, which imposes
virtually unlimited liability upon owners, operators and demise charterers of
any vessel trading in the United States exclusive economic zone for certain oil
pollution accidents in the United States, has made liability insurance more
expensive for ship owners and operators trading in the United States market.
While we carry loss of hire insurance to cover 100% of our fleet, we may not be
able to maintain this level of coverage. Furthermore, while we believe that our
present insurance coverage is adequate, not all risks can be insured, any
specific claim may not be paid, and we may not always be able to obtain adequate
insurance coverage at reasonable rates.




Hull
and Machinery Insurance




We have
obtained marine hull and machinery and war risk insurance, which include the
risk of actual or constructive total loss, for all of the vessels in our fleet.
The vessels in our fleet are each covered up to at least fair market value, with
deductibles of $350,000 per vessel per incident. We also arranged increased
value coverage for each vessel. Under this increased value coverage, in the
event of total loss of a vessel, we will be able recover for amounts not
recoverable under the hull and machinery policy by reason of any
under-insurance.


32




Protection and Indemnity
Insurance




Protection
and indemnity insurance is provided by mutual protection and indemnity
associations, or P&I Associations, which covers our third party liabilities
in connection with our shipping activities. This includes third party liability
and other related expenses of injury or death of crew, passengers and other
third parties, loss or damage to cargo, claims arising from collisions with
other vessels, damage to other third party property, pollution arising from oil
or other substances, and salvage, towing and other related costs, including
wreck removal. Protection and indemnity insurance is a form of mutual indemnity
insurance, extended by protection and indemnity mutual associations, or
‘‘clubs.’’ Our coverage, except for pollution, is unlimited.




Our
current protection and indemnity insurance coverage for pollution is $1 billion
per vessel per incident. The thirteen P&I Associations that comprise the
International Group insure approximately 90% of the world’s commercial tonnage
and have entered into a pooling agreement to reinsure each association’s
liabilities. Each P&I Association has capped its exposure to this pooling
agreement at $5.4 billion. As a member of a P&I Association, which is a
member of the International Group, we are subject to calls payable to the
associations based on its claim records as well as the claim records of all
other members of the individual associations, and members of the pool of P&I
Associations comprising the International Group.




Competition




We
operate in markets that are highly competitive and based primarily on supply and
demand. We compete for charters on the basis of price, vessel location, size,
age and condition of the vessel, as well as on our reputation as an operator.
Pursuant to our cooperative agreements with Stena Bulk AB and Frontline
Management Ltd., both of which are third party administrators, the
administrators have the responsibility for the commercial management of 12 of
the 13 vessels in our operating fleet. From time to time, we may also arrange
our time charters and voyage charters in the spot market through the use of
brokers, who negotiate the terms of the charters based on market conditions. We
compete primarily with owners of tankers in the Suezmax and class size.
Ownership of tankers is highly fragmented and is divided among major oil
companies and independent vessel owners.




Permits
and Authorizations




We are
required by various governmental and quasi-governmental agencies to obtain
certain permits, licenses and certificates with respect to our vessels. The
kinds of permits, licenses and certificates required depend upon several
factors, including the commodity transported, the waters in which the vessel
operates, the nationality of the vessel’s crew and the age of a vessel. We have
been able to obtain all permits, licenses and certificates currently required to
permit our vessels to operate. Additional laws and regulations, environmental or
otherwise, may be adopted which could limit our ability to do business or
increase the cost of us doing business.




C.
            ORGANIZATIONAL
      STRUCTURE




Prior to
September 30, 1997, the Company was a wholly owned subsidiary of Ugland Nordic
Shipping ASA, or UNS, a Norwegian shipping company whose shares were listed on
the Oslo Stock Exchange.  On September 30, 1997, 11,731,613 warrants
for the purchase of the Company’s common shares, which had been sold to the
public in 1995, were exercised.  Until May 30, 2003, UNS acted as the
Manager, and provided managerial, administrative and advisory services to the
Company pursuant to the Management Agreement.  Since May 30, 2003,
Scandic American Shipping Ltd. has acted as the Company’s Manager, and provides
such services pursuant to the Management Agreement.  The Management
Agreement was amended on October 12, 2004 to further align the Manager’s
interests with those of the Company as a shareholder of the
Company.  See Item 4—Information on the Company — Business Overview
—The Management Agreement.




D.
            PROPERTY,
      PLANT AND EQUIPMENT




See Items
4 – Information on the Company – Business Overview – Our Fleet, for a
description of our vessels. The vessels are mortgaged as collateral under the
2005 Credit Facility.


33


ITEM
      4A.
              UNRESOLVED
      STAFF COMMENTS


ITEM
      5.
            OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS




A.
            OPERATING
      RESULTS




We
present our income statement using voyage revenues and voyage expenses. The
Company’s vessels are operated under bareboat charters and spot charters. During
2008, we operated eleven of the twelve vessels we owned in that year
in the spot market or on time charters on spot market related terms,
while the twelfth vessel operated on a long-term fixed rate
charter.  We took delivery of our thirteenth vessel in February 2009. Under
a bareboat charter the charterer pays substantially all of the vessel voyage and
operating costs. Under a spot related time charter, the charterer pays
substantially all of the vessel voyage costs. Under a spot charter, the vessel
owner pays all such costs. Vessel voyage costs consist primarily of fuel, port
charges and commissions.




Since the
amount of voyage expenses that we incur for a charter depends on the type of the
charter, we use net voyage revenues to provide comparability among the different
types of charters. Management believes that net voyage revenue, a non-GAAP
financial measure, provides more meaningful disclosure than voyage revenues, the
most directly comparable financial measure under accounting principles generally
accepted in the United States, or US GAAP because it enables us to compare the
profitability of our vessels which are employed under bareboat charters, spot
related time charters and spot charters. Net voyage revenues divided by the
number of days on the charter provides the Time Charter Equivalent (TCE) Rate.
For bareboat charters, operating costs must be added in order to calculate TCE
rates. Net voyage revenues and TCE rates are widely used by investors and
analysts in the tanker shipping industry for comparing the financial performance
of companies and for preparing industry averages. We believe that our method of
calculating net voyage revenue is consistent with industry standards. The
following table reconciles our net voyage revenues to voyage
revenues.




All
      amounts in thousands of USD
                                                              
                                                              Year
      Ended December 31, 2008
                                                              
                                                              
                                                              Year
      Ended December 31, 2007
                                                              
                                                              
                                                              Year
      Ended December 31, 2006Voyage
      Revenue
                                                              
                                                              
                                                              228,000
                                                              
                                                              
                                                              
                                                              186,986
                                                              
                                                              
                                                              
                                                              175,520Voyage
      Expenses
                                                              
                                                              
                                                              (10,051
                                                              )
                                                              
                                                              
                                                              (47,122
                                                              )
                                                              
                                                              
                                                              (40,172
                                                              )Net
      Voyage Revenue
                                                              
                                                              
                                                              217,950
                                                              
                                                              
                                                              
                                                              139,864
                                                              
                                                              
                                                              
                                                              135,348




YEAR
ENDED DECEMBER 31, 2008 COMPARED TO YEAR ENDED DECEMBER 31, 2007




Voyage
revenues increased by 21.9% from $187.0 million for the year ended December 31,
2007 to $228.0 million for the year ended December 31, 2008. Voyage expenses
decreased by 78.7% to $10.1 million in 2008 from $47.1 million in 2007. The
increase in net voyage revenues was primarily the result of increase in the spot
market rates during 2008. The average spot market rate for our fleet during 2008
was $54,900 per day compared to $35,600 during 2007, a 54.2%
increase.





Vessel
operating expenses were $35.6 million for the year ended December 31, 2008
compared to $32.1 million for the year ended December 31, 2007. The average
operating expenses for the vessels increased from approximately $8,000 per day
per vessel for the fiscal year 2007 to approximately $8,800 per day per vessel
during fiscal year 2008. The increase in vessel operating expenses was primarily
a result of increased repair and maintenance activity in 2008. In addition, we
experienced an industry wide price increases in vessel operating costs, in
particular crewing costs, lubricating oil costs and repair and maintenance
costs.





General
and administrative expenses were $12.8 million for the year ended December 31,
2008 compared to $12.1 million for the year ended December 31, 2007. The
general and administrative expenses in 2008 include a non-cash charge related to
stock-based compensation to our Manager, Scandic American Shipping Ltd. of $3.6
million related to one follow-on offering in 2008 and costs of $1.4 million
related to the deferred compensation plan for the Company’s Chief Executive
Officer. For further details of the management agreement and administrative
expenses we refer you to the section “The Management Agreement” on page 18 and
Note 5 of the annual financial statements included
elsewhere herein. The general and administrative expenses in 2007 included a
non-cash charge of $2.2 million of stock-based compensation to our Manager,
related to one follow-on offering concluded last year and costs of $2.7 million
related to the deferred compensation plan for the Company’s
CEO.  34


Depreciation
expense was $48.3 million for the year ended December 31, 2008 compared to $42.4
million for the year ended December 31, 2007. The increase is primarily the
result of the depreciation of the costs deferred for the drydocking of seven
vessels during 2008.





Net
operating income was $121.3 million for year ended December 31, 2008 compared to
$53.2 million for the year ended December 31, 2007, an increase of approximately
127.8%. This increase is primarily due to significant higher spot market rates
during 2008 compared to 2007.





Interest
income was $0.9 million for both the year ended December 31, 2008 and the year
ended December 31, 2007. Interest income was derived from the excess cash in
interim periods from the proceeds of the follow-on offering in May 2008 and the
timing of subsequent repayment of debt during the year.





Interest
expense was $3.4 million for the year ended December 31, 2008 compared to $9.7
million for the year ended December 31, 2007. The decrease is primarily due
repayment of debt during 2008 with the proceeds from the follow-on offering
concluded in May 2008.




YEAR
ENDED DECEMBER 31, 2007 COMPARED TO YEAR ENDED DECEMBER 31, 2006




Voyage
revenues increased from $175.5 million for year ended December 31, 2006 to
$187.0 million for year ended December 31, 2007, an increase of 6.5%. Voyage
expenses increased by 17.2% to $47.1 million in 2007 from $40.2 million in 2006.
The increase in net voyage revenues was primarily the result of having twelve
vessels in operation during the entire year resulting in an increase in the
number of revenue days by 26.1% offset by lower spot market rates for the
period. The average spot market rate during 2007 was $35,600 per day compared to
$44,500 per day for 2006, a decrease of 20.0%.





Vessel
operating expenses were $32.1 million for the year ended December 31, 2007
compared to $21.1 million for the year ended December 31, 2006, an increase of
approximately 52.1%. The increase is primarily the resultof having all twelve
vessels in operation for the entire year. The average operating expenses for the
vessels increased from $7,200 per day per vessel in 2006 to $8,000 per day per
vessel in 2007.  The increases in daily operating expenses are
primarily due to increases in vessel operating costs, in particular crewing
costs, lubricating oil costs and repair and maintenance costs, which we believe
to be industry-wide.





General
and administrative expenses were $12.1 million for the year ended December 31,
2007 compared to $12.8 million for the year ended December 31, 2006. The general
and administrative expenses in 2006 included a non-cash charge of $6.3 million
of stock-based compensation to, our Manager
related to two public common stock offerings concluded last year. The general
and administrative expenses in 2007 include a non-cash charge related to
stock-based compensation to our Manager of $2.2 million related to one public
common stock offering in 2007 and expenses of $2.7 million related to the
pension plan for the Company’s CEO. We refer you to the section “Management
Agreement” on page 18 for further details of the management agreement and Note 5
for further details of our general and administrative expenses.





Depreciation
expense was $42.4 million for the year ended December 31, 2007 compared to $29.3
million for the year ended December 31, 2006, an increase of approximately
44.7%. The increase is primarily the result of owning twelve vessels for all of
2007.





Net
operating income was $53.2 million for year ended December 31, 2007 compared to
$72.2 million for the year ended December 31, 2006, a decrease of approximately
26.3%. This decrease is primarily due to lower spot market rates during 2007
compared to 2006 and higher average daily operating expenses.





Interest
income was $0.9 million for the year ended December 31, 2007 compared to $1.6
million for the year ended December 31, 2006. Interest income was higher in 2006
in part because of the excess cash in interim periods from the
proceeds of the two public common stock offerings and the timing of subsequent
payments for vessels acquired during the year.


35


Interest expense was
$9.7 million for the year ended December 31, 2007 compared to $6.3 million for
the year ended December 31, 2006. The increase is primarily due to the expansion
of our fleet. Our policy in the current market conditions is to maintain a debt
level of approximately $15 million per vessel.





B.
            LIQUIDITY
      AND CAPITAL RESOURCES




Our
Credit Facility




In September 2005, the Company entered
into a $300 million revolving credit facility, which is referred to as the 2005
Credit Facility. The 2005 Credit Facility provides funding for future vessel
acquisitions and general corporate purposes. The 2005 Credit Facility cannot be
reduced by the lender and there is no repayment obligation of the principal
during the original five year term, which was scheduled to mature in September
2010. Amounts borrowed under the 2005 Credit Facility bear interest at an annual
rate equal to LIBOR plus a margin between 0.70% and 1.20% (depending on the loan
to vessel value ratio). The Company pays a commitment fee of 30% of the
applicable margin on any undrawn amounts.  Total commitment fees paid
for the year ended December 31, 2008 and December 31, 2007 were $1.0 million and
$0.8 million, respectively.





In
September 2006, the Company increased the 2005 Credit Facility to $500 million.
The other terms of the 2005 Credit Facility were not amended. In April 2008, the
Company extended the term of the 2005 Credit Facility to September
2013.  All other terms are unchanged. The undrawn amount of this
facility as of December 31, 2008 and 2007 was $485.0 million and $394.5 million,
respectively.





Borrowings
under the 2005 Credit Facility are secured by first priority mortgages over the
Company’s vessels and assignment of earnings and insurance. The Company is
permitted to pay dividends in accordance with its dividend policy as long as it
is not in default under the 2005 Credit Facility.





As of
December 31, 2008, accrued interest and commitment fee in the aggregate were
$0.1 million. This amount was paid during the first quarter of 2009. Total
borrowings as of December 31, 2008 were $15 million.





The terms
and conditions of the 2005 Credit Facility require compliance with certain
restrictive covenants, which we believe are consistent with loan facilities
incurred by other shipping companies. Under the 2005 Credit Facility, we are,
among other things, required to:




·
            maintain
      certain loan to vessel value
ratios,




·
            maintain
      a book equity of no less than $150.0
million,




·
            remain
      listed on a recognized stock exchange,
and




·
            obtain
      the consent of the lenders prior to creating liens on or disposing of our
      vessels.




The 2005
Credit Facility provides that we may not pay dividends if following such payment
we would not be in compliance with certain financial covenants or there is a
default under the 2005 Credit Facility.  The Company was in compliance
with its restrictive covenants for the year ended December 31,
2008.




YEAR
ENDED DECEMBER 31, 2008 COMPARED TO YEAR ENDED DECEMBER 31, 2007




Cash
flows provided by operating activities increased by 53.0% for the year ended
December 31, 2008 to $127.9 million from $83.6 million for the year ended
December 31, 2007 primarily due to significant higher spot market rates during
2008.





Cash
flows used in investing activities decreased by 62.0% for the year ended
December 31, 2008 to $10.1 million compared to $26.4 million for the year ended
December 31, 2007. The investing activities during 2008 represent
vessel improvements, while the investing activities during 2007 represent both
deposits and vessel improvements.


36


Cash flows used in financing activities
increased by 79.5% for the year ended December 31, 2008 to $99.8 million
compared to $55.6 million for the year ended December 31, 2007. The financing
activities represent (i) net repayment of debt under the 2005 Credit Facility of
$90.5 million, (ii) payment of $2.3 million related to the extension of the 2005
Credit Facility, and (iii) dividends paid of $165.9 million, all of which were
offset by proceeds from a follow-on offering of $158.9 million.





In May
2008, the Company completed an underwritten public offering of 4,310,000 common
shares.  The net proceeds of the offering were $158.9 million which were
used to repay borrowings under the 2005 Credit Facility and prepare the Company
for further expansions.





The
Company believes that its borrowing capacity under the 2005 Credit Facility,
together with its working capital, are sufficient to fund its ongoing operations
and commitments for capital expenditures. For further information on capital
commitments and expenditures please see item 5F.




YEAR
ENDED DECEMBER 31, 2007 COMPARED TO YEAR ENDED DECEMBER 31, 2006




Cash
flows provided by operating activities decreased by 21.6% for the year ended
December 31, 2007 to $83.6 million from $106.6 million for the year ended
December 31, 2006, primarily due to lower spot market rates during 2007, as
described above, partially offset by an increase in accounts payable of $4.3
million.




Cash
flows used in investing activities decreased by 91.7% for the year ended
December 31, 2007 to $26.4 million compared to $317.8 million for the year ended
December 31, 2006. The Company acquired four vessels during 2006 compared to no
vessel acquisitions during 2007. In November 2007, the Company agreed to acquire
two Suezmax newbuildings one of which is expected to be delivered in the fourth
quarter of 2009 and one of which is expected to be delivered by end ofApril 2010.





Cash
flows provided by financing activities decreased 126.7% for the year ended
December 31, 2007 to $-55.6 million compared to $208.7 million for the year
ended December 31, 2006. The cash flows provided by financing activities were
attributable to (i) net repayment of debt under the 2005 Credit Facility of
$68.0 million, (ii) payment of deposit on contracts of $18.0 million and (iii)
dividends paid of $107.3 million, offset by proceeds from a public common stock
offering of $119.7 million.  The net decrease is primarily
attributable to one less public stock offering and a net repayment of debt
rather than net borrowings under the 2005 Credit Facility.





In July
2007, the Company sold 3,000,000 shares in a public offering in the U.S. to
repay borrowings under the 2005 Credit Facility, and to prepare the Company for
further expansion. The offering was priced at $41.50 per share, and net proceeds
to the Company were $119.7 million.




C.
            RESEARCH
      AND DEVELOPMENT, PATENTS AND LICENSES,
ETC.




Not
applicable.




D.
            TREND
      INFORMATION




The oil
tanker industry has been highly cyclical, experiencing volatility in charterhire
rates and vessel values resulting from changes in the supply of and demand for
crude oil and tanker capacity.  See Item 4. Information on the Company
– Business Overview – The Tanker Market 2008.




E.
            OFF
      BALANCE SHEET ARRANGEMENTS




We have
not created, and are not party to, any special-purpose or off-balance sheet
entities for the purpose of raising capital, incurring debt or operating our
business.  We do not have any arrangements or relationship with
entities that are not consolidated into our financial statements that have or
are reasonably likely to have a current or future
effect on the Company’s financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources that is material to investors.


37




F.
            TABULAR
      DISCLOSURE OF CONTRACTUAL
OBLIGATIONS




As of
December 31, 2008 significant contractual obligations consisted of our
obligations as borrower under our 2005 Credit Facility and our obligations under
the Management Agreement with Scandic American Shipping Ltd.




The
following table sets out long-term financial and other commercial obligations
outstanding as of December 31, 2008 (all figures in thousands of
USD).




Contractual
      Obligations
                                                                                                        
                                                                                                        Total
                                                                                                        
                                                                                                        
                                                                                                        Less
      than 1 year
                                                                                                        
                                                                                                        
                                                                                                        1-3
      years
                                                                                                        
                                                                                                        
                                                                                                        3-5
      years
                                                                                                        
                                                                                                        
                                                                                                        More
      than 5 years2005
      Credit Facility (1)
                                                                                                        
                                                                                                        
                                                                                                        15,000
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        15,000
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -Interest
      Payments (2)
                                                                                                        
                                                                                                        
                                                                                                        1,954
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        415
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        1,247
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        292
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -Commitment
      Fees (3)
                                                                                                        
                                                                                                        
                                                                                                        4,861
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        1,033
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        3,101
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        727
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -Deposit
      in Contract(4)
                                                                                                        
                                                                                                        
                                                                                                        211,330
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        148,755
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        62,575
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -Management
      Fees (5)
                                                                                                        
                                                                                                        
                                                                                                        2,363
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        225
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        675
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        675
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        788Total
                                                                                                        
                                                                                                        
                                                                                                        235,508
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        150,428
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        67,598
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        16,694
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        788





Notes:(1)
            Refers
      to our obligation to repay indebtedness outstanding as of December 31,
      2008(2)
            Refers
      to estimated interest payments over the term of the indebtedness
      outstanding as of December 31, 2008 assuming a weighted average interest
      rate of 3.50% per annum.(3)
            Refers
      to estimated commitment fees over the term of the indebtedness outstanding
      as of December 31, 2008(4)
            Refers
      to payment obligations in connection with the agreement to acquire two
      newbuildings entered into in November 2007, and the agreement to acquire
      the double-hull Suezmax tanker Nordic Sprite entered into December
      2008(5)
            Refers
      to the management fees payable to Scandic American Shipping Ltd. under the
      Management Agreement with the
Manager.





CRITICAL
ACCOUNTING ESTIMATES




We
prepare our financial statements in accordance with accounting principles
generally accepted in the United States of America (US GAAP). Following is a
discussion of the accounting policies that involve a high degree of judgment and
the methods of their application. For a further description of our material
accounting policies, please read Item 18 – Financial Statements— Note 1 –
Business and summary of Significant Accounting Policies.




Revenue
recognition




We
generate a majority of our revenues from vessels operating in cooperative
chartering arrangements based upon spot charters. Within the shipping industry,
the two methods used to account for voyage revenues and expenses are the
percentage of completion and the completed voyage methods. Most shipping
companies, including our commercial managers under our cooperative arrangements
are using the percentage of completion method. In applying the percentage of
completion method, we believe that in most cases the discharge-to-discharge
basis of calculating voyages more accurately reflects voyage results than the
load-to-load basis. At the time of cargo discharge, we generally have
information about the next load port and expected discharge port, whereas at the
time of loading we are normally less certain what the next load port will
be.




If actual
results are not consistent with our estimates in applying the percentage of
completion method, our revenues could be overstated or understated for any given
period by the amount of such difference.




Long-lived
assets and impairment




A
significant part of the Company’s total assets consists of our vessels. The oil
tanker market is highly cyclical and the useful lives of our vessels are
principally dependent on of the technical condition of our vessels and other
factors, such as future market demand for oil and future market supply of tanker
capacity.


38


Our
vessels are evaluated for impairment whenever events or changes in circumstances
indicate that the carrying amount of a vessel may not be recoverable. If the
estimated undiscounted future cash flows expected to result from the use of the
vessel and its eventual disposition is less than the carrying amount of the
vessel, the vessel is deemed impaired.  The amount of the impairment
is measured as the difference between the carrying value and the fair value of
the vessel. These assessments are based on our judgment.




We are
not aware of any indicators of impairments nor any regulatory changes or
environmental liabilities that we anticipate will have a material impact on our
current or future operations. The Company has performed analysis based on
development in observable market transactions of undiscounted future cashflows
and concluded that based on such analysis the vessels are not
impaired.




Depreciable
lives




Management
uses considerable judgment when establishing the depreciable lives of our
vessels. In order to estimate useful lives of our vessels, Management must make
assumptions about future market conditions in the oil tanker market. The Company
considers the establishment of depreciable lives to be a critical accounting
estimate.




We are
not aware of any regulatory changes or environmental liabilities that we
anticipate will have a material impact on our current or future
operations.




Drydocking




Our
vessels are required to be drydocked approximately every 30 to 60 months
for overhaul repairs and maintenance that cannot be performed while the vessels
are in operation. We follow the deferral method of accounting for drydocking
costs whereby actual costs incurred are deferred and are amortized on a
straight-line basis through the expected date of the next drydocking. Ballast
tank improvements are capitalized and amortized on a straight-line basis over a
period of eight years. Major steel improvements are capitalized and amortized on
a straight-line basis over the remaining useful life of the
vessel.  Unamortized drydocking costs of vessels that are sold are
written off to income in the year of the vessel's sale. The capitalized and
unamortized drydocking costs are included in the book value of the vessels.
Amortization expense of the drydocking costs is included in depreciation
expense.




If we
change our estimate of the next drydock date, we will adjust our annual
amortization of drydocking expenditures.




RECENT
ACCOUNTING PRONOUNCEMENTS




Recent Accounting
Pronouncements:  In February 2008, the FASB issued FASB Staff
Position (“FSP”) No. 157-2 (“FSP 157-2”), which delays the effective date of
SFAS No. 157, “Fair Value Measurement,” (“SFAS 157”) to fiscal
years beginning after November 15, 2008 and interim periods with those fiscal
years for all nonfinancial assets and liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually) until January 1, 2009 for calendar year end entities.
The Company adopted SFAS 157, except as it applies to nonfinancial assets and
liabilities as noted in FSP 157-2, beginning as from January 1, 2008. The
partial adoption of SFAS 157 did not have any effect on the Company’s financial
position or results of operations and cash flows. The Company is currently
evaluating the effect that the adoption of SFAS 157, as it relates to
nonfinancial assets and liabilities, will have on its financial position,
results of operations or cash flows.





In
December 2007, the FASB issued SFAS No. 141(R) “Business Combinations” (“SFAS
141(R)”), which replaces SFAS No. 141, “Business Combinations”. This statement
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree and the
goodwill acquired. SFAS 141(R) also establishes disclosure requirements to
enable the evaluation of the nature and financial effects of the business
combination. SFAS 141(R) applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008.  An entity
may not apply it before that date.  The Company must adopt this
standard as of January 1, 2009.  As the provisions of SFAS No. 141 (R)
are applied prospectively, the impact to the Company cannot be determined until
any such transaction occurs.


39


In December 2007, the
FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of Accounting Research Bulletin No. 51” (“SFAS 160”).
This statement establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest, changes in a parent’s ownership interest, and the valuation of
retained noncontrolling equity investments when a subsidiary is deconsolidated.
SFAS 160 also establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners. SFAS 160 is effective for fiscal years beginning after
December 15, 2008. The Company’s adoption of SFAS 160 did not have any impact on
the Company’s financial position, results of operations and cash
flows.





In March
2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The adoption of SFAS 161 did not have any impact on the Company’s
financial position, results of operations and cash flows.




ITEM
      6.
            DIRECTORS,
      SENIOR MANAGEMENT AND EMPLOYEES




A.
            DIRECTORS
      AND SENIOR MANAGEMENT




Directors
and Senior Management of the Company and the Manager




Pursuant
to the Management Agreement with Scandic American Shipping Ltd., or the Manager,
the Manager provides management, administrative and advisory services to us. The
Manager is owned by a company controlled by Herbjørn Hansson, our Chairman and
Chief Executive Officer. The Manager may engage in business activities other
than with respect to the Company.




Set forth
below are the names and positions of the directors of the Company and executive
officers of the Company and the Manager. The directors of the Company are
elected annually, and each director elected holds office until a successor is
elected. Officers of both the Company and the Manager are elected from time to
time by vote of the respective board of directors and hold office until a
successor is elected.




The
Company




Name
              Age
              PositionHerbjørn Hansson
              61
              Chairman,
      Chief Executive Officer, President and DirectorAndreas Ove Ugland
              54
              Vice
      Chairman and DirectorTurid M. Sørensen
              49
              Chief
      Financial OfficerRolf Amundsen
              64
              Chief
      Investor Relations OfficerHon. Sir David Gibbons
              81
              DirectorTorbjørn Gladsø
              62
              DirectorAndrew W. March
              53
              DirectorPaul J. Hopkins
              61
              DirectorRichard H. K. Vietor
              63
              Director





The
Manager




Name
              Age
              PositionHerbjørn Hansson
              61
              Director,
      President and Chief Executive OfficerTurid M. Sørensen
              49
              Chief
      Financial OfficerRolf Amundsen
              64
              Chief
      Investor Relations OfficerFrithjof Bettum
              47
              Vice
      President Technical Operations & CharteringJanne O. Foyn
              39
              Financial
      ManagerJan Erik Langangen
              59
              Executive
      Vice President—Business Development and
Legal





Certain
biographical information with respect to each director and executive officer of
the Company and the Manager listed above is set forth below.




Herbjørn Hansson earned his
M.B.A. at the Norwegian School of Economics and Business Administration and
Harvard Business School. In 1974 he was employed by the Norwegian Shipowners’
Association. In the period from 1975 to 1980, he was Chief Economist and
Research Manager of INTERTANKO, an industry association whose members control
about 70% of the world’s independently owned tanker fleet, excluding state owned
and oil company fleets. During the 1980s, he was Chief Financial Officer of
Kosmos/Andres Jahre, at the time one of the largest Norwegian based shipping and
industry groups. In 1989, Mr. Hansson founded Ugland Nordic Shipping AS, or
UNS, which became one of the world’s largest owners of specialized shuttle
tankers. He served as Chairman in the first phase and as Chief Executive Officer
as from 1993 to 2001 when UNS, under his management, was sold to Teekay Shipping
Corporation, or Teekay, for an enterprise value of $780.0 million. He continued
to work with Teekay, most recently as Vice Chairman of Teekay Norway AS, until
he started working full-time for the Company on September 1, 2004.
Mr. Hansson is the founder and has been Chairman and Chief Executive
Officer of the Company since its establishment in 1995. He also is a member of
various governing bodies of companies within shipping, insurance, banking,
manufacturing, national/international shipping agencies including classification
societies and protection and indemnity associations. Mr. Hansson is fluent
in Norwegian and English, and has a command of German and French for
conversational purposes.




Andreas Ove Ugland has been a
director of the Company since February 1997 and Vice Chairman since 1997.
Mr. Ugland has also served as director and Chairman of Ugland International
Holding plc, a shipping/transport company listed on the London Stock Exchange,
Andreas Ugland & Sons AS, Grimstad, Norway, Høegh Ugland Autoliners AS,
Oslo and Buld Associates Inc., Bermuda. Mr. Ugland has had his whole career
in shipping in the Ugland family owned shipping group.




Turid M. Sørensen was
appointed Chief Financial Officer by the Board of Directors on February 6,
2006. Ms. Sørensen has a M.B.A. in Management Control from the Norwegian School
of Economics and Business Administration and a bachelor degree in Business
Administration from the Norwegian School of Management. She has 20 years of
experience in the shipping industry. During the period from 1984 to 1987, she
worked for Anders Jahre AS and Kosmos AS in Norway and held various positions
within accounting and information technology. In the period from 1987 to 1995,
Ms. Sørensen was Manager of Accounting and IT for Skaugen PetroTrans Inc.,
in Houston, Texas. After returning to Norway she was employed by Ugland Nordic
Shipping ASA and Teekay Norway AS as Vice President, Accounting. From October
2004 until her appointment as Chief Financial Officer in February 2006, she
served as our Treasurer and Controller.




Rolf Amundsenwas appointed
Chief Investor Relations Officer and Advisor to the Chairman by the Board of
Directors on February 6, 2006 and prior to that time served as our Chief
Financial Officer from June 2004. Mr. Amundsen has an M.B.A. in economics
and business administration, and his entire career has been in international
banking. Previously, Mr. Amundsen has served as the president of the
financial analysts’ society in Norway. Mr. Amundsen served as the chief
executive officer of a Nordic investment bank for many years, where he
established a large operation for the syndication of international shipping
investments.




Andrew W. March has been a
director of the Company since June 2005. Mr. March also currently serves in
a management position with Vitol S.A., an international oil trader, involved in
supply, logistics and transport. From 1978 to 2004, Mr. March served in
various positions with subsidiaries of BP p.l.c., an international oil major
company. Most recently, from January 2001 to 2004, Mr. March was Commercial
Director of BP Shipping Ltd., responsible for all aspects of the business
including long term strategy. From 1986 to 2000, Mr. March was employed in
various positions with BP Trading,
serving as Global Product Trading Manager from 1999. Mr. March received his
MBA from Liverpool University.


40


Sir David Gibbonshas been a director of the Company since September 1995. Sir David served
as the Premier of Bermuda from August 1977 to January 1982. Sir David has served
as Chairman of The Bank of N.T. Butterfield and Son Limited from 1986 to 1997,
Chairman of Colonial Insurance Co. Ltd. since 1986 and as Chief Executive
Officer of Edmund Gibbons Ltd. since 1954. Sir David Gibbons is a member of our
Audit Committee.




Richard H. K. Vietorhas been
a director of the Company since July 2007. Mr. Vietor is the Senator John Heinz
Professor of Environmental Management at the Harvard Graduate School of Business
Administration where he teaches courses on the regulation of business and the
international political economy.  He was appointed Professor in
1984.  Before coming to Harvard Business School in 1978, Professor
Vietor held faculty appointments at Virginia Polytechnic Institute and the
University of Missouri.  He received a B.A. in economics from Union
College in 1967, an M.A. in history from Hofstra University in 1971, and a Ph.D.
from the University of Pittsburgh in 1975.




Paul J. Hopkins has been a
director of the Company since June 2005. Until March 2008, Mr. Hopkins was
also a Vice President and a director of Corridor Resources Inc., a Canadian
publicly traded exploration and production company. From 1989 through 1993 he
served with Lasmo as Project Manager during the start-up of the Cohasset/Panuke
oilfield offshore Nova Scotia, the first offshore oil production in Canada.
Earlier, Mr. Hopkins served as a consultant on frontier engineering and
petroleum economic evaluations in the international oil industry.
Mr. Hopkins was seconded to Chevron UK in 1978 to assist with the gas
export system for the Ninian Field. From 1973, he was employed with Ranger Oil
(UK) Limited, being involved in the drilling and production testing of oil wells
in the North Sea. Through the end of 1972 he worked with Shell Canada as part of
its offshore Exploration Group.




Torbjørn Gladsøhas been a
director of the Company since October 2003. Mr. Gladsø is a partner in Saga
Corporate Finance AS. He has extensive experience within investment banking
since 1978. He has been the Chairman of the Board of the Norwegian Register of
Securities and Vice Chairman of the Board of Directors of the Oslo Stock
Exchange. Mr. Gladsø is Chairman of our Audit Committee.




Jan Erik Langangen has been
the Executive Vice President, Business Development and Legal, of the Manager
since November 2004. Mr. Langangen previously served as the Chief Financial
Officer from 1979 to 1983, and as Chairman of the Board from 1987 to 1992, of
Statoil, an oil and gas company that is controlled by the Norwegian government
and that is the largest company in Norway. He also served as Chief Executive
Officer of UNI Storebrand from 1985 to 1992. Mr. Langangen was also
Chairman of the Board of the Norwegian Governmental Value Commission from 1998
to 2001. Mr. Langangen is a partner of Langangen & Helset, a
Norwegian law firm and previously was a partner of the law firm
Langangen & Engesæth from 1996 to 2000 and of the law firm
Thune & Co. from 1994 to 1996. Mr. Langangen received a Masters of
Economics from The Norwegian School of Business Administration and his law
degree from the University of Oslo.




Frithjof Bettumwas appointed
Vice President—Technical Operations & Chartering of the Manager on
October 1, 2005. Mr. Bettum has a Mechanical Engineering degree from
Vestfold University College. Mr. Bettum has 21 years of experience in the
shipping and the offshore business. From 1984 to 1992, Mr. Bettum was
employed by Allum Engineering AS in Sandefjord, Norway where he served as
project manager. At Allum Engineering AS Mr. Bettum worked on projects in
the areas of engineering, the new building and conversion management of shuttle
tankers, Floating Production, Storage and Offloading (FPSO), semi-submersible
drilling units and the shore based manufacturer industry. From 1993 to
2001, Mr. Bettum was employed by Nordic American Shipping AS (which later
became Ugland Nordic Shipping ASA) where he served as Vice
President—Offshore. In 2004, Mr. Bettum joined Teekay Norway AS as
Vice President Offshore where he was responsible for business development, the
daily operations of the company and the conversion of shuttle tankers and
offshore units.




Janne O. Foyn was appointed
Financial Manager of the Manager on May 1, 2006. Ms. Foyn has a Registered
Auditor degree from Bodø University College and Vestfold University College. Ms.
Foyn has 11 years of experience in the shipping industry. During the period 1995
to 2001, she was employed by Deloitte & Touche Statsautoriserte
Revisorer AS  in Tønsberg, Norway where she served as an auditor. In the
period from 2001 to 2005, she was employed by Ugland Nordic
Shipping ASA and Teekay Norway AS as Accounting Manager. From 2005 until her
appointment as Financial Manager in May 2006, she worked as an auditor for Inter
Revisjon AS in Tønsberg, Norway.


41




B.
            COMPENSATION




Compensation
of Directors




The six
non-employee directors received, in the aggregate, approximately $390,000 in
cash fees for their services as directors during 2008. The Vice Chairman of the
Board of Directors receives an additional annual cash retainer of $5,000 per
year. The members of the Audit Committee receive an additional annual cash
retainer of $10,000 each per year.  The Chairman of the Audit
Committee receives an additional annual cash retainer of $5,000 per year. We do
not pay director fees to employee directors. We do, however, reimburse all of
our directors for all reasonable expenses incurred by them in connection with
serving on our Board of Directors.  Directors may receive restricted
shares or other grants under our 2004 Stock Incentive Plan described
below.





2004
Stock Incentive Plan





Under the
terms of the Company’s 2004 Stock Incentive Plan, the directors, officers and
certain key employees of the Company and the Manager are eligible to receive
awards which include incentive stock options, non-qualified stock options, stock
appreciation rights, dividend equivalent rights, restricted stock, restricted
stock units, performance shares and phantom stock units. A total of 400,000
common shares are reserved for issuance upon exercise of options, as restricted
share grants or otherwise under the plan. Included under the 2004 Stock
Incentive Plan are options to purchase common shares at an exercise price equal
to $38.75, subject to annual downward adjustment if the payment of dividends in
the related fiscal year exceeds a 3% yield calculated based on the initial
strike price. During 2005 the Company granted, under the terms of the Company’s
2004 Stock Incentive Plan, an aggregate of 320,000 stock options that the Board
of Directors had agreed to issue during 2004. These options vest in equal
installments on each of the first four anniversaries of the grant dates. During
2006, the Company granted an aggregate of 16,700 restricted shares. No stock
options were granted in 2006.  The Company granted 10,000 stock
options in 2007 at an exercise price equal to $35.17, subject to annual downward
adjustment as described above.  These options vest in equal
installments on each of the first four anniversaries of the grant date. During
2008, a former Board member cancelled his stock incentive award in agreement
with the Company and received compensation of $100,000.





Executive
Pension Plan





In May
2007, the Board of Directors approved the implementation of an executive pension
plan for Herbjørn Hansson, our Chairman, President and Chief Executive Officer,
who has served in his present positions since the inception of the Company in
1995. Pursuant to this plan, the Company shall offer Mr. Hansson a pension of 66
percent of salary from 67 years of age, such pension to be fully earned
following a service period of 11 years (from 2004 until 2015), in addition to
normal disability coverage and contingent right of pension for his spouse, in
line with the practice in Norway. Please see Note 6 of the financial statements
for further information about this plan.





Employment
Agreements




We have
an employment agreement with Herbjørn Hansson, our Chairman, President and Chief
Executive Officer, Turid M. Sørensen, our Chief Financial Officer, and Rolf I.
Amundsen, our Chief Investor Relations Officer and Advisor to the Chairman. Mr.
Hansson does not receive any additional compensation for serving as a director
or the Chairman of the Board. The aggregate compensation of our executive
officers during 2008 was approximately $1.3 million. The aggregate compensation
of our executive officers is expected to be approximately $1.5 million during
2009. On certain terms, the employment agreement may be terminated by us or Mr.
Hansson upon six months’ written notice to the other party. The employment
agreement with Ms. Sørensen may be terminated by us or by Ms. Sørensen upon
six months’ written notice to the other party. The employment agreement with Mr.
Amundsen may be terminated by us or Mr. Amundsen upon three months’ written
notice to the other party.





42


C.
            BOARD
      PRACTICES




The
members of the Company’s board of directors serve until the next annual general
meeting following his or her election to the board.  The members of
the current board of directors were elected at the annual general meeting held in
2007.  The Company’s Board of Directors has established an Audit
Committee, consisting of two independent directors, Messrs. Gladsø and
Gibbons.  Mr. Gladsø serves as the audit committee financial
expert.  The members of the Audit Committee receive additional
remuneration of $25,000 in aggregate for serving on the Audit
Committee.  The Audit Committee provides assistance to the Company’s
board of directors in fulfilling their responsibility to shareholders, and
investment community relating to corporate accounting, reporting practices of
the Company, and the quality and integrity of the financial reports of the
Company.  The Audit Committee, among other duties, recommends to the
Company’s board of directors the independent auditors to be selected to audit
the financial statements of the Company; meets with the independent auditors and
financial management of the Company to review the scope of the proposed audit
for the current year and the audit procedures to be utilized; reviews with the
independent auditors, and financial and accounting personnel, the adequacy and
effectiveness of the accounting and financial controls of the Company; and
reviews the financial statements contained in the annual report to shareholders
with management and the independent auditors.




Pursuant
to an exemption for foreign private issuers, we are not required to comply with
many of the corporate governance requirements of the New York Stock Exchange
that are applicable to U.S. listed companies, see Item 16G – Corporate
Governance.




D.
            EMPLOYEES




As at
December 31, 2008, the Company had two full-time employees and one part-time
employee.




E.
            SHARE
      OWNERSHIP




The
following table sets forth information regarding the share ownership of the
Company as of May 8, 2009 by its directors and officers.  All of the
shareholders are entitled to one vote for each share of common stock
held.




Title
              Identity
      of Person
              No.
      of Shares
              Percent
      of ClassCommon
              Herbjørn
      Hansson(1)
              687,874
              1.8%Hon.
      Sir David Gibbons
              
              *Thorbjørn
      Gladsø
              
              *Andrew  W.
      March
              
              *Paul
      J. Hopkins
              
              *Andreas
      Ove Ugland
              
              *Turid
      M. Sørensen
              
              *Rolf
      Amundsen
              
              *Richard
      Vietor
              
              *





(1)
Includes 675,874 shares held by the Manager, of which Mr. Hansson is the sole
shareholder.




*  Less
than 1% of our outstanding shares of common stock.




A total
of 240,000 stock options has been granted to the directors and officers listed
above. For further information see Note 9.




ITEM
      7.
            MAJOR
      SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS




A.
            MAJOR
      SHAREHOLDERS




The
Company is not aware of any shareholder who beneficially owns 5% or more of the
Company’s outstanding common stock.




B.
            RELATED
      PARTY TRANSACTIONS




Since May
30, 2003, Scandic American Shipping Ltd., which is owned by a company controlled
by Mr. Hansson and owned by Mr. Hansson and members of his family, has been our
Manager pursuant to the Management Agreement
with the Company.  See Item 4—Information on the Company — Business
Overview — The Management Agreement.




43




Mr. Jan
Erik Langangen, Executive Vice President of the Manager, is a partner of
Langangen & Helset Advokatfirma AS which in the past has also provided and
may continue to provide legal services to us.




C.
            INTERESTS
      OF EXPERTS AND COUNSEL




Not
Applicable.




ITEM
      8.
            FINANCIAL
      INFORMATION




A.
            CONSOLIDATED
      STATEMENTS AND OTHER FINANCIAL
INFORMATION




See Item
18.




Legal
Proceedings




To the
best of the Company’s knowledge, the Company is not currently involved in any
legal or arbitration proceedings that would have a significant effect on the
Company’s financial position or profitability and no such proceedings are
pending or known to be contemplated by governmental authorities.




Dividend
Policy




Our
policy is to declare quarterly dividends to shareholders, substantially equal to
our net operating cash flow during the previous quarter after reserves as the
Board of Directors may from time to time determine are required, taking into
account contingent liabilities, the terms of our 2005 Credit Facility, our other
cash needs and the requirements of Bermuda law. However, if we declare a
dividend in respect of a quarter in which an equity issuance has taken place, we
calculate the dividend per share as our net operating cash flow for the quarter
(after taking into account the factors described above) divided by the weighted
average number of shares over that quarter. Net operating cash flow represents
net income plus depreciation and non-cash administrative charges. The dividend
paid is the calculated dividend per share multiplied by the number of shares
outstanding at the end of the quarter.




Total
dividends paid in 2008 were $165.9 million or $4.89 per share. The dividend
payments per share in 2008, 2007, 2006, 2005, and 2004 have been as
follows:




Period
                                                                                                                                        
                                                                                                                                        2008
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        2007
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        2006
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        2005
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        20041st
      Quarter
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $0.50
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $1.00
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $1.88
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $1.62
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $1.152nd
      Quarter
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1.18
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1.24
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1.58
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1.15
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1.703rd
      Quarter
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1.60
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1.17
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1.07
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        0.84
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        0.884th
      Quarter
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1.61
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        0.40
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1.32
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        0.60
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1.11Total
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $4.89
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $3.81
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $5.85
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $4.21
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $4.84





The
dividend paid in any quarter is in respect of the results of the previous
quarter.




The
Company declared a dividend of $0.87 per share in respect of the fourth quarter
of 2008 which was paid to shareholders in March 2009. In addition, the Company
declared a dividend of $0.88 per share in respect of the first quarter of 2009
which will be paid to shareholders in June 2009.




B.
            SIGNIFICANT
      CHANGES




Not
applicable.




ITEM
      9.
            THE
      OFFER AND LISTING




Not
applicable except for Item 9.A.4. and Item 9.C.


44




Since November 16,
2004, the primary trading market for our common shares has been the New York
Stock Exchange, or the NYSE, on which our shares are listed under the symbol
“NAT.” The primary trading market for our common shares was the American Stock
Exchange, or the AMEX, until November 15, 2004, at which time trading of our
common shares on the AMEX ceased. The secondary trading market for our common
shares was the Oslo Stock Exchange, or the OSE, until January 14, 2005, at which
time trading of our common share on the OSE ceased.




The
following table sets forth the high and low market prices for shares of our
common stock as reported by the New York Stock Exchange, the American Stock
Exchange and the Oslo Stock Exchange:




NYSE
                                      
                                      
                                      NYSE
                                      
                                      
                                      AMEX
                                      
                                      
                                      AMEX
                                      
                                      
                                      OSE
                                      
                                      
                                      OSEThe
      year ended:
                                      
                                      HIGH
                                      
                                      
                                      LOW
                                      
                                      
                                      HIGH
                                      
                                      
                                      LOW
                                      
                                      
                                      HIGH
                                      
                                      
                                      LOW2004
                                      
                                      
                                      $41.30
                                      
                                      
                                      
                                      $35.26
                                      
                                      
                                      
                                      $41.59
                                      
                                      
                                      
                                      $15.00
                                      
                                      
                                      NOK
      300.00
                                      
                                      
                                      NOK
      115.002005(1)
                                      
                                      
                                      $56.68
                                      
                                      
                                      
                                      $28.60
                                      
                                      
                                      
                                      N/A
                                      
                                      
                                      
                                      N/A
                                      
                                      
                                      NOK
      225.00
                                      
                                      
                                      NOK
      205.002006
                                      
                                      
                                      $41.70
                                      
                                      
                                      
                                      $27.90
                                      
                                      
                                      
                                      N/A
                                      
                                      
                                      
                                      N/A
                                      
                                      
                                      
                                      N/A
                                      
                                      
                                      
                                      N/A2007
                                      
                                      
                                      $44.16
                                      
                                      
                                      
                                      $29.50
                                      
                                      
                                      
                                      N/A
                                      
                                      
                                      
                                      N/A
                                      
                                      
                                      
                                      N/A
                                      
                                      
                                      
                                      N/A2008
                                      
                                      
                                      $42.00
                                      
                                      
                                      
                                      $22.00
                                      
                                      
                                      
                                      N/A
                                      
                                      
                                      
                                      N/A
                                      
                                      
                                      
                                      N/A
                                      
                                      
                                      
                                      N/A





For
      the quarter ended:
                
                NYSE
                  HIGH
                
                
                NYSE
                  LOWMarch 31,
      2007
                
                
                $37.53
                
                
                
                $32.06June 30,
      2007
                
                
                $41.24
                
                
                
                $35.79September 30,
      2007
                
                
                $40.20
                
                
                
                $32.00December 31,
      2007
                
                
                $36.49
                
                
                
                $29.50March
      31, 2008
                
                
                $34.30
                
                
                
                $25.51June 30,
      2008
                
                
                $42.00
                
                
                
                $27.90September 30,
      2008
                
                
                $41.39
                
                
                
                $28.27December 31,
      2008
                
                
                $36.00
                
                
                
                $22.00


(1)           The
OSE numbers for 2005 are based on trading through January 14,
2005





The high
and low market prices for our common shares by month since October 2008 have
been as follows:




For
      the month:
                
                NYSE
                  HIGH
                
                
                NYSE
                  LOWNovember 2008
                
                
                $35.31
                
                
                
                $24.03December 2008
                
                
                $36.00
                
                
                
                $25.76January
      2009
                
                
                $38.05
                
                
                
                $28.23February 2009
                
                
                $30.73
                
                
                
                $25.30March 2009
                
                
                $31.54
                
                
                
                $22.25April 2009
                
                
                $32.50
                
                
                
                $28.50




ITEM
      10.
            ADDITIONAL
      INFORMATION




A.
            SHARE
      CAPITAL




Not
Applicable.




B.
            MEMORANDUM
      AND ARTICLES OF ASSOCIATION




45









Under our Memorandum
of Association, as amended, our authorized capital consists of 51,200,000 common
shares having a par value of $0.01 per share.




The
purposes and powers of the Company are set forth in Items 6 and 7 of our
Memorandum of Association and in paragraphs (b) to (n) and (p) to (u) of the
Second Schedule of the Bermuda Companies Act of 1981, or the Companies Act,
which is attached as an exhibit to our Memorandum of
Association.  These purposes include the entering into of any
guarantee, contract, indemnity or suretyship and to assure, support, secure,
with or without the consideration or benefit, the performance of any obligations
of any person or persons; and the borrowing and raising of money in any currency
or currencies to secure or discharge any debt or obligation in any
manner.




Our
bye-laws provide that our board of directors shall convene and the Company shall
hold annual general meetings in accordance with the requirements of the
Companies Act at such times and places as the Board shall decide.  Our
board of directors may call special meetings at its discretion or as required by
the Companies Act.  Under the Companies Act, holders of one-tenth of
our issued common shares may call special meetings of shareholders.




Bermuda
law permits the bye-laws of a Bermuda company to contain a provision eliminating
personal liability of a director or officer to the company for any loss arising
or liability attaching to him by virtue of any rule of law in respect of any
negligence default, breach of duty or breach of trust of which the officer or
person may be guilty.  Bermuda law also grants companies the power
generally to indemnify directors and officers of the company if any such person
was or is a party or threatened to be made a party to a threatened, pending or
completed action, suit or proceeding by reason of the fact that he or she is or
was a director and officer of the company or was serving in a similar capacity
for another entity at the company’s request.




Our
bye-laws do not prohibit a director from being a party to, or otherwise having
an interest in, any transaction or arrangement with the Company or in which the
Company is otherwise interested.  Our bye-laws provide that a director
who has an interest in any transaction or arrangement with the Company and who
has complied with the provisions of the Companies Act and with our bye-laws with
regard to disclosure of such interest shall be taken into account in
ascertaining whether a quorum is present, and will be entitled to vote in
respect of any transaction or arrangement in which he is so
interested.  Our bye-laws provide our board of directors the authority
to exercise all of the powers of the Company to borrow money and to mortgage or
charge all or any part of our property and assets as collateral security for any
debt, liability or obligation.  Our directors are not required to
retire because of their age, and our directors are not required to be holders of
our common shares.  Directors serve for one year terms, and shall
serve until re-elected or until their successors are appointed at the next
annual general meeting.




Our
bye-laws provide that each director, alternate director, officer, person or
member of a committee, if any, resident representative, or his heirs, executors
or administrators, which we refer to collectively as an indemnitee, will be
indemnified and held harmless out of our funds to the fullest extent permitted
by Bermuda law against all liabilities, loss, damage or expense (including
liabilities under contract, tort and statute or any applicable foreign law or
regulation and all reasonable legal and other costs and expenses properly
payable) incurred or suffered by him as such director, alternate director,
officer, person or committee member or resident representative (or in his
reasonable belief that he is acting as any of the above).  In
addition, each indemnitee shall be indemnified against all liabilities incurred
in defending any proceedings, whether civil or criminal, in which judgment is
given in such indemnitee’s favor, or in which he is acquitted.




There are
no pre-emptive, redemption, conversion or sinking fund rights attached to our
common shares.  The holders of common shares are entitled to one vote
per share on all matters submitted to a vote of holders of common
shares.  Unless a different majority is required by law or by our
bye-laws, resolutions to be approved by holders of common shares require
approval by a simple majority of votes cast at a meeting at which a quorum is
present.




Special
rights attaching to any class of our shares may be altered or abrogated with the
consent in writing of not less than 75% of the issued and outstanding shares of
that class or with the sanction of a resolution passed at a separate general
meeting of the holders of such shares voting in person or by
proxy.


46


Our
Memorandum of Association and our bye-laws may be amended upon the consent of
not less than two-thirds of the issued and outstanding common
shares.




In the
event of our liquidation, dissolution or winding up, the holders of common
shares are entitled to share in our assets, if any, remaining after the payment
of all of our debts and liabilities, subject to any liquidation preference on
any outstanding preference shares.




Our
bye-laws provide that our board of directors may, from time to time, declare and
pay dividends out of contributed surplus.  Each common share is
entitled to dividends if and when dividends are declared by our board of
directors, subject to any preferred dividend right of the holders of any
preference shares.




There are
no limitations on the right of non-Bermudians or non-residents of Bermuda to
hold or vote our common shares.




Our
bye-laws permit the Company to refuse to register the transfer of any common
shares if the effect of that transfer would result in 50% or more of our
aggregated issued share capital, or 50% or more of the outstanding voting power
being held by persons who are resident for tax purposes in Norway or the United
Kingdom.




Our
bye-laws permit the Company to increase its capital, from time to time, with the
consent of not less than two-thirds of the outstanding voting power of the
Company’s issued and outstanding common shares.




C.
            MATERIAL
      CONTRACTS




For a
description of our 2005 Credit Facility, which was extended in April 2008, see
Item 5 — Operating and Financial Review and Prospectus — Liquidity and Capital
Resources — Our Credit Facility.




Otherwise,
the Company has not entered into any material contracts outside the ordinary
course of business during the past two years.




D.
            EXCHANGE
      CONTROLS




The
Company has been designated as a non-resident of Bermuda for exchange control
purposes by the Bermuda Monetary Authority, whose permission for the issue of
the Common Shares was obtained prior to the offering thereof.




The
transfer of shares between persons regarded as resident outside Bermuda for
exchange control purposes and the issuance of Common Shares to or by such
persons may be effected without specific consent under the Bermuda Exchange
Control Act of 1972 and regulations thereunder. Issues and transfers of Common
Shares involving any person regarded as resident in Bermuda for exchange control
purposes require specific prior approval under the Bermuda Exchange Control Act
1972.




Subject
to the foregoing, there are no limitations on the rights of owners of the Common
Shares to hold or vote their shares. Because the Company has been designated as
non-resident for Bermuda exchange control purposes, there are no restrictions on
its ability to transfer funds in and out of Bermuda or to pay dividends to
United States residents who are holders of the Common Shares, other than in
respect of local Bermuda currency.




In
accordance with Bermuda law, share certificates may be issued only in the names
of corporations or individuals. In the case of an applicant acting in a special
capacity (for example, as an executor or trustee), certificates may, at the
request of the applicant, record the capacity in which the applicant is acting.
Notwithstanding the recording of any such special capacity, the Company is not
bound to investigate or incur any responsibility in respect of the proper
administration of any such estate or trust.




The
Company will take no notice of any trust applicable to any of its shares or
other securities whether or not it had notice of such trust.




47


As an
“exempted company”, the Company is exempt from Bermuda laws which restrict the
percentage of share capital that may be held by non-Bermudians, but as an
exempted company, the Company may not participate in certain business
transactions including: (i) the acquisition or holding of land in Bermuda
(except that required for its business and held by way of lease or tenancy for
terms of not more than 21 years) without the express authorization of the
Bermuda legislature; (ii) the taking of mortgages on land in Bermuda to secure
an amount in excess of $50,000 without the consent of the Minister of Finance of
Bermuda; (iii) the acquisition of securities created or issued by, or any
interest in, any local company or business, other than certain types of Bermuda
government securities or securities of another “exempted company, exempted
partnership or other corporation or partnership resident in Bermuda but
incorporated abroad; or (iv) the carrying on of business of any kind in Bermuda,
except in so far as may be necessary for the carrying on of its business outside
Bermuda or under a license granted by the Minister of Finance of
Bermuda.




There is
a statutory remedy under Section 111 of the Companies Act 1981 which provides
that a shareholder may seek redress in the Bermuda courts as long as such
shareholder can establish that the Company’s affairs are being conducted, or
have been conducted, in a manner oppressive or prejudicial to the interests of
some part of the shareholders, including such shareholder. However, this remedy
has not yet been interpreted by the Bermuda courts.




The
Bermuda government actively encourages foreign investment in “exempted” entities
like the Company that are based in Bermuda but do not operate in competition
with local business. In addition to having no restrictions on the degree of
foreign ownership, the Company is subject neither to taxes on its income or
dividends nor to any exchange controls in Bermuda. In addition, there is no
capital gains tax in Bermuda, and profits can be accumulated by the Company, as
required, without limitation. There is no income tax treaty between the United
States and Bermuda pertaining to the taxation of income other than applicable to
insurance enterprises.




E.
            TAXATION




Bermuda
Tax Considerations




The
Company is incorporated in Bermuda.  Under current Bermuda law, the
Company is not subject to tax on income or capital gains, and no Bermuda
withholding tax will be imposed upon payments of dividends by the Company to its
shareholders.  No Bermuda tax is imposed on holders with respect to
the sale or exchange of Shares.  Furthermore, the Company has received
from the Minister of Finance of Bermuda under the Exempted Undertakings Tax
Protection Act 1966, as amended, an assurance that, in the event that Bermuda
enacts any legislation imposing any tax computed on profits or income, including
any dividend or capital gains withholding tax, or computed on any capital asset,
appreciation, or any tax in the nature of an estate, duty or inheritance tax,
then the imposition of any such tax shall not be applicable.  The
assurance further provides that such taxes, and any tax in the nature of estate
duty or inheritance tax, shall not be applicable to the Company or any of its
operations, nor to the shares, debentures or other obligations of the Company,
until March 2016.




United
States Federal Income Tax Considerations




The
following discussion is a summary of the material United States federal income
tax considerations relevant to us and to a United States Holder and Non-United
States Holder (each defined below) of our common shares.  This
discussion is based on advice received by us from Seward & Kissel LLP,
our United States counsel.  This discussion does not purport to deal
with the tax consequences of owning common shares to all categories of
investors, some of which (such as dealers in securities or currencies, investors
whose functional currency is not the United States dollar, financial
institutions, regulated investment companies, real estate investment trusts,
tax-exempt organizations, insurance companies, persons holding our common shares
as part of a hedging, integrated, conversion or constructive sale transaction or
a straddle, persons liable for alternative minimum tax and persons who are
investors in pass-through entities) may be subject to special rules. This
discussion only applies to shareholders who (i) own common shares as a
capital asset and (ii) own less than 10% of our common shares. Shareholders
are encouraged to consult their own tax advisors with respect to the specific
tax consequences to them of purchasing, holding or disposing of common
shares.


48




United
States Taxation of the Company




Taxation
of Operating Income: In General




Unless
exempt from United States taxation under Code section 883 as amended, a foreign
corporation is subject to United States federal income taxation in the manner
described below in respect of any income that is derived from the use of
vessels, from the hiring or leasing of vessels for use on a time, voyage or
bareboat charter basis, or from the performance of services directly related to
such use, which we refer to as Shipping Income, to the extent that such Shipping
Income is derived from sources within the United States, referred to as United
States-Source Shipping Income.




Shipping
Income that is attributable to transportation that begins or ends, but that does
not both begin and end, in the United States will be considered to be 50%
derived from sources within the United States. Shipping Income that is
attributable to transportation that both begins and ends in the United States
will be considered to be 100% derived from sources within the United
States.




Shipping
Income that is attributable to transportation exclusively between non-United
States ports will be considered to be 100% derived from sources outside the
United States. Shipping Income derived from sources outside the United States
will not be subject to United States federal income tax.




Our
vessels will be operated in various parts of the world and, in part, are
expected to be involved in transportation of cargoes that begins or ends, but
that does not both begin and end, in United States ports. Accordingly, it is not
expected that we will engage in transportation that gives rise to 100% United
States-Source Shipping Income.




Exemption
of Operating Income from United States Taxation




Pursuant
to Code section 883, we will be exempt from United States taxation on our United
States-Source Shipping Income if (i) we are organized in a foreign country
that grants an equivalent exemption from income taxation (an “equivalent
exemption”) to corporations organized in the United States, which we refer to as
the Country of Organization Requirement, and (ii) either (A) more than
50% of the value of our common shares is owned, directly or indirectly, by
individuals who are “residents” of such country or of another foreign country
that grants an equivalent exemption to corporations organized in the United
States, which we refer to as the 50% Ownership Test, or (B) our common
shares are “primarily and regularly traded on an established securities market”
in such country, in another country that grants an equivalent exemption to
United States corporations, or in the United States, which we refer to as the
Publicly-Traded Test.




Bermuda,
the country in which we are incorporated, grants an equivalent exemption to
United States corporations. Therefore, we will satisfy the Country of
Organization Requirement and will be exempt from United States federal income
taxation with respect to our United States-Source Shipping Income if we satisfy
either the 50% Ownership Test or the Publicly-Traded Test.





We
believe that we satisfied the Publicly-Traded Test for our 2008 taxable year.
Under Treasury regulations interpreting Code section 883, stock of a corporation
is treated as “primarily and regularly traded on an established securities
market” in any taxable year if (i) the stock is primarily traded on a
national securities exchange such as the New York Stock Exchange (on which our
common shares are traded) and satisfies certain trading volume and trading
frequency tests, and (ii) the corporation complies with certain record
keeping and reporting requirements.





However,
a foreign corporation will not satisfy the Publicly-Traded Test if, subject to
certain exceptions, 50% or more of the stock is beneficially owned (or is
treated as owned under certain stock ownership attribution rules) by persons
each of whom owns (or is treated as owning under certain stock ownership
attribution rules) 5% or more of the stock, which we refer to as 5%
Shareholders, for more than half the days during the taxable year.





We are
not aware of any facts which would indicate that 50% or more of our common
shares were actually or constructively owned by 5% Shareholders during our 2008
taxable year, although there can be no assurance that subsequent
changes in the ownership of our common shares will not result in 50% or more of
our common shares being so owned at any time in the
future.


49





Accordingly,
we expect that our common shares will be considered to be “primarily and
regularly traded on an established securities market” and that we will,
therefore, qualify for the Code section 883 exemption for our 2008 taxable
year.  However, because of the factual nature of the issues relating
to this determination, no assurance can be given that we will qualify for the
tax exemption in any future taxable year. If 5% Shareholders owned 50% or more
of our common shares, then we would have to satisfy certain requirements
regarding the identity and residence of our 5% shareholders. These requirements
are onerous and there is no assurance that we could satisfy them.




United
States Taxation of Gain on Sale of Vessels




Regardless
of whether we qualify for exemption under Code section 883, we will generally
not be subject to United States taxation with respect to gains realized on sales
of vessels.




Four
Percent Gross Basis Tax Regime




To the
extent the benefits of Code section 883 are unavailable with respect to any item
of United States-Source Shipping Income, such Shipping Income that is considered
not to be “effectively connected” with the conduct of a trade or business in the
United States as discussed below, would be subject to a four percent tax imposed
by Code section 887 on a gross basis, without benefit of deductions. Since under
the sourcing rules described above, no more than 50% of our Shipping Income
would be derived from United States sources, the maximum effective rate of
United States federal income tax on our gross Shipping Income would never exceed
two percent.




Net
Basis and Branch Profits Tax Regime




To the
extent the benefits of the Section 883 exemption are unavailable and our
United States-Source Shipping Income is considered to be “effectively connected”
with the conduct of a U.S. trade or business, as described below, any such
“effectively connected” United States-Source Shipping Income, net of applicable
deductions, would be subject to the U.S. federal corporate income tax currently
imposed at rates of up to 35%. In addition, we may be subject to the 30% “branch
profits” taxes on earnings effectively connected with the conduct of such trade
or business, as determined after allowance for certain adjustments, and on
certain interest paid or deemed paid attributable to the conduct of its U.S.
trade or business.




Our
United States-Source Shipping Income would be considered “effectively connected”
with the conduct of a U.S. trade or business only if we have, or are considered
to have, a fixed place of business in the United States involved in the earning
of Shipping Income and certain other requirements are satisfied.




We do not
intend to have a fixed place of business in the United States involved in the
earning of Shipping Income. Based on the foregoing and on the expected mode of
our shipping operations and other activities, we believe that none of our United
States-Source Shipping Income will be “effectively connected” with the conduct
of a U.S. trade or business.




United
States Taxation of United States Shareholders




As used
herein, the term “United States Holder” means, for United States federal income
tax purposes, a beneficial owner of common shares who is (A) an individual
citizen or resident of the United States, (B) a corporation (or other
entity treated as a corporation) created or organized in or under the laws of
the United States or of any state or the District of Columbia, (C) an
estate the income of which is includible in gross income for United States
federal income tax purposes regardless of its source, or (D) a trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust.




If a
partnership holds the common shares, the tax treatment of a partner will
generally depend on the status of the partner and the activities of the
partnership. If you are a partner in a partnership holding the common shares,
you are urged to consult your tax advisors.


50




Distributions




Subject
to the discussion of passive foreign investment companies below, any
distributions made by us with respect to our common shares to a United States
Holder will generally constitute dividends, which may be taxable as ordinary
income or “qualified dividend income” as described in more detail below, to the
extent of our current or accumulated earnings and profits, as determined under
United States federal income tax principles. Distributions in excess of our
earnings and profits will be treated first as a nontaxable return of capital to
the extent of the United States Holder’s tax basis in his common shares on a
dollar-for-dollar basis and thereafter as capital gain. Because we are not a
United States corporation, United States Holders that are corporations will not
be entitled to claim a dividends received deduction with respect to any
distributions they receive from us. Dividends paid with respect to our common
shares will generally be treated as “passive category income” or, in the case of
certain types of United States Holders, “general category income” for purposes
of computing allowable foreign tax credits for United States foreign tax credit
purposes.




Dividends
paid on our common shares to a United States Holder who is an individual, trust
or estate (a “United States Individual Holder”) will generally be treated as
“qualified dividend income” that is taxable to such United States Individual
Holders at preferential tax rates (through 2010) provided that (1) the
common shares are readily tradable on an established securities market in the
United States (such as the New York Stock Exchange on which our common shares
are traded); (2) we are not a passive foreign investment company for the
taxable year during which the dividend is paid or the immediately preceding
taxable year (as discussed below); (3) the United States Individual Holder
has owned the common shares for more than 60 days in the 121-day period
beginning 60 days before the date on which the common shares becomes
ex-dividend, and (4) the United States Individual Holder is not under an
obligation (whether pursuant to a short sale or otherwise) to make payments with
respect to positions in substantially similar or related positions. There is no
assurance that any dividends paid on our common shares will be eligible for
these preferential rates in the hands of a United States Individual Holder. Any
dividends paid by the company which are not eligible for these preferential
rates will be taxed as ordinary income to a United States Individual Holder.
Legislation was previously introduced in the U.S. Congress which, if enacted in
its present form, would preclude our dividends from qualifying for such
preferential rates prospectively from the date of enactment. We cannot assure
you as to whether this legislation will be enacted.




For
taxable years through 2004, we were a passive foreign investment company, or
PFIC. Therefore, the dividends paid by us through 2005 were not treated as
“qualified dividend income” but rather were taxed as ordinary income to a United
States Individual Holder. If we pay an “extraordinary dividend” on our common
shares (generally, a dividend in an amount which is equal to or in excess of ten
percent of a shareholder’s adjusted basis (or fair market value in certain
circumstances) in the shareholder’s common shares) that is treated as “qualified
dividend income,” then any loss derived by a United States Individual Holder
from the sale or exchange of such common shares will be treated as long-term
capital loss to the extent of such dividend.




Sale,
Exchange or other Disposition of Common Shares




Assuming
we do not constitute a PFIC for taxable years after 2004, a United States Holder
generally will recognize taxable gain or loss upon a sale, exchange or other
disposition of our common shares in an amount equal to the difference between
the amount realized by the United States Holder from such sale, exchange or
other disposition and the United States Holder’s tax basis in such shares. Such
gain or loss will be treated as long-term capital gain or loss if the United
States Holder’s holding period is greater than one year at the time of the sale,
exchange or other disposition. Such capital gain or loss will generally be
treated as United States-source income or loss, as applicable, for United States
foreign tax credit purposes. A United States Holder’s ability to deduct capital
losses is subject to certain limitations.





Special
rules may apply to a United States Holder who purchased shares before 2005 and
did not make a timely QEF election or a mark-to-market election (as discussed
below).  Such United States Holders are encouraged to consult their
tax advisors regarding the United States federal income tax consequences to them
of the disposal of our common shares.


51


Passive
Foreign Investment Company Considerations




Special
United States federal income tax rules apply to a United States Holder that
holds shares in a foreign corporation classified as a PFIC for United States
federal income tax purposes. In general, we will be treated as a PFIC with
respect to a United States Holder if, for any taxable year in which such holder
held our common shares, either




Ÿ
            at
      least 75% of our gross income for such taxable year consists of passive
      income (e.g., dividends, interest, capital gains and rents derived other
      than in the active conduct of a rental business),
  or




Ÿ
            at
      least 50% of the average value of the assets held by us during such
      taxable year produce, or are held for the production of, passive
      income.




For
purposes of determining whether we are a PFIC, we will be treated as earning and
owning our proportionate share of the income and assets, respectively, of any of
our subsidiary corporations in which we own at least 25% of the value of the
subsidiary’s shares. Income earned, or deemed earned, by us in connection with
the performance of services would not constitute passive income. By contrast,
rental income would generally constitute “passive income” unless we were treated
under specific rules as deriving our rental income in the active conduct of a
trade or business.




For
taxable years through 2004, we were a PFIC. However, based on our current
operations and future projections, we do not believe that we have been, or will
become, a PFIC with respect to our taxable years after 2004. Although there is
no legal authority directly on point, and we are not relying upon an opinion of
counsel on this issue, our belief is based principally on the position that, for
purposes of determining whether we are a PFIC, the gross income we derive or are
deemed to derive from the time chartering and voyage chartering activities of
our wholly-owned subsidiaries should constitute services income, rather than
rental income. Correspondingly, such income should not constitute passive
income, and the assets that we or our wholly-owned subsidiaries own and operate
in connection with the production of such income, in particular, the vessels,
should not constitute passive assets for purposes of determining whether we are
a PFIC. We believe there is substantial legal authority supporting our position
consisting of case law and Internal Revenue Service pronouncements concerning
the characterization of income derived from time charters and voyage charters as
services income for other tax purposes. However, we note that there is also
authority which characterizes time charter income as rental income rather than
services income for other tax purposes. In the absence of any legal authority
specifically relating to the statutory provisions governing passive foreign
investment companies, the Internal Revenue Service or a court could disagree
with our position. In addition, although we intend to conduct our affairs in a
manner to avoid being classified as a PFIC, we cannot assure you that the nature
of our operations will not change in the future.




As
discussed more fully below, if we were to be treated as a PFIC for any taxable
year which included a United States Holder’s holding period in our common
shares, then such United States Holder would be subject to different taxation
rules depending on whether the United States Holder makes an election to treat
us as a “Qualified Electing Fund,” which election we refer to as a “QEF
election.” As an alternative to making a QEF election, a United States Holder
should be able to make a “mark-to-market” election with respect to our common
shares, as discussed below.




Taxation
of United States Holders Making a Timely QEF Election




Pass-Through of Ordinary Earnings and
Net Capital Gain. A United States Holder who makes a timely QEF election
with respect to its common shares, or an Electing Holder, would report for
United States federal income tax purposes his pro rata share of our “ordinary
earnings” (i.e., the net operating income determined under United States federal
income tax principles) and our net capital gain, if any, for our taxable year
that ends with or within the taxable year of the Electing Holder. Our “net
capital gain” is any excess of any of our net long term capital gains over our
net short term capital losses and is reported by the Electing Holder as long
term capital gain. Our net operating losses or net capital losses would not pass
through to the Electing Holder and will not offset our ordinary earnings or net
capital gain reportable to Electing Holders in subsequent years (although such
losses would ultimately reduce the gain, or increase the loss, if any,
recognized by the Electing Holder on the sale of his common
shares).


52


For
purposes of calculating our ordinary earnings, the cost of each vessel is
depreciated on a straight-line basis over 18 years. Any gain on the sale of a
vessel would be treated as ordinary income, rather than capital gain, to the
extent of such depreciation deductions with respect to such vessel.




In
general, an Electing Holder would not be taxed twice on its share of our income.
Thus, distributions received from us by an Electing Holder are excluded from the
Electing Holder’s gross income to the extent of the Electing Holder’s prior
inclusions of our ordinary earnings and net capital gain. The Electing Holder’s
basis in its shares would be increased by any amount included in the Electing
Holder’s income under the QEF rules with respect to such holder. Distributions
received by an Electing Holder,which are not includible in income because they have been previously
taxed under the QEF rules, would decrease the Electing Holder’s tax basis in the
common shares. Distributions, if any, in excess of such basis would be treated
as capital gain (which gain will be treated as long term capital gain if the
Electing Holder held its common shares for more than one year at the time of
distribution).




Disposition of Common Shares.An Electing Holder would generally recognize capital gain or loss on the
sale or exchange of common shares in an amount equal to the difference between
the amount realized by the Electing Holder from such sale or exchange and the
Electing Holder’s tax basis in the common shares. Such gain or loss would
generally be treated as long term capital gain or loss if the Electing Holder’s
holding period in the common shares at the time of the sale or exchange is more
than one year. A United States Holder’s ability to deduct capital losses may be
limited.




Making a QEF Election.A
United States Holder makes a QEF election for a taxable year by completing and
filing IRS Form 8621, Return by a Shareholder of a Passive Foreign Investment
Company or Qualified Electing Fund, in accordance with the instructions thereto.
If we were aware that we were to be treated as a PFIC for any taxable year, we
would provide each United States Holder with all necessary information in order
to make the QEF election described above.




Taxation
of United States Holders Making a Timely Mark-to-Market Election




Mark-to-Market Regime.A
United States Holder who does not make a QEF election may make a mark-to-market
election under Code section 1296, provided that the common shares are regularly
traded on a “qualified exchange.” A “qualified exchange” includes a foreign
exchange that is regulated by a governmental authority in which the exchange is
located and with respect to which certain other requirements are met. The New
York Stock Exchange, on which the common shares are traded, is a “qualified
exchange” for United States federal income tax purposes. A United States Holder
who makes a timely mark-to-market election with respect to the common shares
would include annually in the United States Holder’s income, as ordinary income,
any excess of the fair market value of the common shares at the close of the
taxable year over the United States Holder’s then adjusted basis in the common
shares. The excess, if any, of the United States Holder’s adjusted basis at the
close of the taxable year over the then fair market value of the common shares
would be deductible in an amount equal to the lesser of the amount of the excess
or the net mark-to-market gains on the common shares that the United States
Holder included in income in previous years. A United States Holder’s basis in
its common shares would be adjusted to reflect any income or loss amount
recognized pursuant to the mark-to-market rules.




Disposition of Common Shares.A United States Holder who makes a timely mark-to-market election would
recognize ordinary income or loss on a sale, exchange or other disposition of
the common shares in an amount equal to the difference between the amount
realized by the United States Holder from such sale, exchange or other
disposition and the United States Holder’s tax basis in the common shares,
provided, however, that any ordinary loss on the sale, exchange or other
disposition may not exceed the net mark-to-market gains on the common shares
that the United States Holder included in income in previous years. The amount
of any loss in excess of such net mark-to market gains is treated as capital
loss.




Making the Mark-to-Market Election.A United States Holder makes a mark-to-market election for a taxable year
by completing and filing IRS Form 8621, Return by a Shareholder of a Passive
Foreign Investment Company or Qualified Electing Fund, in accordance with the
instructions thereto.


53


Taxation
of United States Holders Not Making a Timely QEF Election or a Timely
Mark-to-Market Election




A United
States Holder who does not make a timely QEF election or a timely mark-to-market
election, which we refer to as a Non-Electing Holder, would be subject to
special rules with respect to (i) any “excess distribution” (generally, the
portion of any distributions received by the Non-Electing Holder on the common
shares in a taxable year in excess of 125% of the average annual distributions
received by the Non-Electing Holder in the three preceding taxable years, or, if
shorter, the Non-Electing Holder’s holding period for the common shares), and
(ii) any gain realized on the sale or other disposition of common shares.
Under these rules, (i) the excess distribution or gain would be allocated
ratably over the Non-Electing Holder’s holding period for the common shares;
(ii) the amount allocated to the current taxable year, and any taxable year
prior to the first taxable year in which we were a PFIC, would be taxed as
ordinary income; and (iii) the amount allocated to each of the other prior
taxable years would be subject to tax at the highest rate of tax in effect for
the applicable class of taxpayer for that year, and an interest charge for the
deemed deferral benefit would be imposed with respect to the resulting tax
attributable to each such other taxable year. If a Non-Electing Holder dies
while owning common shares, the Non-Electing Holder’s successor would be
ineligible to receive a step-up in tax basis of those common
shares.




Distributions
received by a Non-Electing Holder that are not “excess distributions” would be
includible in the gross income of the Non-Electing Holder as dividend income to
the extent that such distributions are paid out of our current or accumulated
earnings and profits as determined under United States federal income tax
purposes. Such dividends would not be eligible to be treated as “qualified
dividend income” eligible for preferential tax rates. Distributions in excess of
our current or accumulated earnings and profits would be treated first as a
return of the United States Holder’s tax basis in the common shares (thereby
increasing the amount of any gain or decreasing the amount of any loss realized
on the subsequent sale or disposition of such common shares) and thereafter as
capital gain.





Taxation
of United States Holders Who Acquired Shares Before 2005





We were a
passive foreign investment company through the 2004 taxable
year.  Therefore, a United States Holder who acquired our common
shares before 2005 may be subject to special rules with respect to our common
shares.  In particular, a United States Holder who did not make a
timely QEF Election or a mark-to-market election may continue to be subject to
the passive foreign investment company rules with respect to our common
shares.  Such United States Holders are encouraged to consult their
tax advisors regarding the application of these rules as well as the
availability of certain elections which may ameliorate the application of these
rules.




United
States Federal Income Taxation of “Non-United States Holders”




A
beneficial owner of common shares (other than a partnership) that is not a
United States Holder is referred to herein as a “Non-United States
Holder.”




Dividends
on Common Shares




Non-United
States Holders generally will not be subject to United States federal income tax
or withholding tax on dividends received from us with respect to our common
shares, unless that income is effectively connected with the Non-United States
Holder’s conduct of a trade or business in the United States. If the Non-United
States Holder is entitled to the benefits of a United States income tax treaty
with respect to those dividends, that income is taxable only if it is
attributable to a permanent establishment maintained by the Non-United States
Holder in the United States.




Sale,
Exchange or Other Disposition of Common Shares




Non-United
States Holders generally will not be subject to United States federal income tax
or withholding tax on any gain realized upon the sale, exchange or other
disposition of our common shares, unless:




Ÿ
            the
      gain is effectively connected with the Non-United States Holder’s conduct
      of a trade or business in the United States (and, if the Non-United States
      Holder is entitled to the benefits of an income tax treaty with respect to
      that gain, that gain is attributable to a permanent establishment
      maintained by the Non-United States Holder in the United States);
      or


54





Ÿ
            the
      Non-United States Holder is an individual who is present in the United
      States for 183 days or more during the taxable year of disposition
      and other conditions are met.




If the
Non-United States Holder is engaged in a United States trade or business for
United States federal income tax purposes, the income from the common shares,
including dividends and the gain from the sale, exchange or other disposition of
the common shares, that is effectively connected with the conduct of that trade
or business will generally be subject to regular United States federal income
tax in the same manner as discussed in the previous section relating to the
taxation of United States Holders. In addition, if you are a corporate
Non-United States Holder, your earnings and profits that are attributable to the
effectively connected income, which are subject to certain adjustments, may be
subject to an additional branch profits tax at a rate of 30%, or at a lower rate
as may be specified by an applicable income tax treaty.




Backup
Withholding and Information Reporting




In
general, dividend payments, or other taxable distributions, made within the
United States to you will be subject to information reporting requirements if
you are a non-corporate United States Holder. Such payments may also be subject
to backup withholding tax if you are a non-corporate United States Holder and
you:




Ÿ
            fail
      to provide an accurate taxpayer identification
  number;





Ÿ
            are
      notified by the Internal Revenue Service that you have failed to report
      all interest or dividends required to be shown on your federal income tax
      returns; or





Ÿ
            in
      certain circumstances, fail to comply with applicable certification
      requirements.





Non-United
States Holders may be required to establish their exemption from information
reporting and backup withholding by certifying their status on Internal Revenue
Service Form W-8BEN, W-8ECI or W-8IMY, as applicable.




If you
are a Non-United States Holder and you sell your common stock to or through a
United States office or broker, the payment of the proceeds is subject to both
United States backup withholding and information reporting unless you certify
that you are a non-United States person, under penalties of perjury, or you
otherwise establish an exemption. If you are a Non-United States Holder and you
sell your common stock through a non-United States office of a non-United States
broker and the sales proceeds are paid to you outside the United States, then
information reporting and backup withholding generally will not apply to that
payment. However, United States information reporting requirements, but not
backup withholding, will apply to a payment of sales proceeds, even if that
payment is made to you outside the United States, if you sell your common stock
through a non-United States office of a broker that is a United States person or
has some other contacts with the United States. Such information reporting
requirements will not apply, however, if the broker has documentary evidence in
his records that you are a non-United States person and certain other conditions
are met, or you otherwise establish an exemption.




Backup
withholding tax is not an additional tax. Rather, you generally may obtain a
refund of any amounts withheld under backup withholding rules that exceed your
income tax liability by filing a refund claim with the Internal Revenue
Service.





F.
            DIVIDENDS
      AND PAYING AGENTS




Not
Applicable.




G.
            STATEMENT
      BY EXPERTS




Not
Applicable.




H.
            DOCUMENTS
      ON DISPLAY




55







We
furnish holders of our common shares with annual reports containing audited
financial statements and a report by our independent public accountants, and
intend to make available quarterly reports containing selected unaudited
financial data for the first three quarters of each fiscal year. The audited
financial statements will be prepared in accordance with United States generally
accepted accounting principles. As a “foreign private issuer,” we are exempt
from the rules under the Securities Exchange Act prescribing the furnishing and
content of proxy statements to shareholders. While we intend to furnish proxy
statements to shareholders in accordance with the rules of the New York Stock
Exchange, those proxy statements do not conform to Schedule 14A of the proxy
rules promulgated under the Exchange Act. All reports, proxy statements and
other information filed by us with the New York Stock Exchange may be inspected
at the New York Stock Exchange’s offices at 20 Broad Street, New York, New York
10005. In addition, as a “foreign private issuer,” we are exempt from the rules
under the Exchange Act relating to short swing profit reporting and
liability.




I.
            SUBSIDIARY
      INFORMATION




Not
applicable.




ITEM
      11.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




The
Company is exposed to market risk from changes in interest rates related to the
variable rate of the Company’s borrowings, or the Loan under our 2005 Credit
Facility.




Amounts
borrowed under the 2005 Credit Facility bears interest at a rate equal to LIBOR
plus a margin between 0.70% to 1.20% per year (depending on the loan to vessel
value ratio). Increasing interest rates could affect our future profitability.
In certain situations, the Company may enter into financial instruments to
reduce the risk associated with fluctuations in interest rates.




A 100
basis point increase in LIBOR would have resulted in an increase of
approximately $0.5 million in our interest expense for the year ended December
31, 2008.




The
Company is exposed to the spot market. Historically, the tanker markets have
been volatile as a result of the many conditions and factors that can affect the
price, supply and demand for tanker capacity. Changes in demand for
transportation of oil over longer distances and supply of tankers to carry that
oil may materially affect our revenues, profitability and cash flows. Twelve of
our thirteen vessels are currently operated in the spot market or on spot market
related time charters.  We believe that over time, spot employment
generates premium earnings compared to longer-term employment.




We
estimate that during 2008, a $1,000 per day decrease in the spot market rate
would have decreased our voyage revenue by approximately $3.8
million.




ITEM
      12.
              DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY
SECURITIES
  
 56
 PART
II




ITEM
      13.
            DEFAULTS,
      DIVIDEND ARREARAGES AND
DELINQUENCIES




Not
Applicable.




ITEM
      14.
            MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      PROCEEDS




Not
Applicable.




ITEM
      15.
            CONTROLS
      AND PROCEDURES




A.
            DISCLOSURE
      CONTROLS AND PROCEDURES.




Pursuant
to Rules 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”),
the Company’s management, under the supervision and with the participation of
the Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures as of December 31, 2008. The term disclosure controls and
procedures means controls and other procedures of an issuer that are designed to
ensure that information required to be disclosed by the issuer in the reports
that it files or submits under the Act is recorded, processed, summarized and
reported, within the time periods specified in the Commission’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by an
issuer in the reports that it files or submits under the Act is accumulated and
communicated to the issuer’s management, including its principal executive and
principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure.




Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are
effective.




B.
            MANAGEMENT’S
      ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL
  REPORTING.




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) under
the Exchange Act. Our internal control system was designed to provide reasonable
assurance to our management and board of directors regarding the reliability of
financial reporting and the preparation of published financial statements for
external purposes in accordance with Generally Accepted Accounting
Principles.  All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems determined to
be effective may not prevent or detect misstatements and can provide only
reasonable assurance with respect to financial statement preparation and
presentation.




Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2008. In making this assessment, management
used the criteria for effective internal control over financial reporting set
forth by the Committee of Sponsoring Organizations of the Treadway Commission
(‘‘COSO’’) in Internal Control-Integrated Framework. Based on this assessment,
management has concluded that, as of December 31, 2008, our internal control
over financial reporting was effective based on those criteria.




C.
            ATTESTATION
      REPORT OF THE REGISTERED PUBLIC ACCOUNTING
FIRM.




The
Company’s internal control over financial reporting as of December 31, 2008 has
been audited by Deloitte AS, an independent registered public accounting firm,
as stated in their report included in this annual report.




D.
            CHANGES
      IN INTERNAL CONTROL OVER FINANCIAL
REPORTING.




57


ITEM
      16.
              RESERVED.  ITEM
      16A.
              AUDIT
      COMMITTEE FINANCIAL EXPERT




The Board of
Directors has determined that Mr. Torbjørn Gladsø is an audit committee
financial expert and the Chairman of the committee. Mr. Gladsø is “independent”
as determined in accordance with the rules of the New York Stock
Exchange.




ITEM
      16B.
              CODE OF
      ETHICS.


The
Company has adopted a code of ethics that applies to all of the Company’s
employees, including our principal executive officer, principal financial
officer, principal accounting officer or controller.  The Code may be
downloaded at our website (www.nat.bm).  Additionally, any person,
upon request, may ask for a hard copy of electronic file of the
Code.  If we make any substantive amendment to the Code of Ethics or
grant any waivers, including any implicit waiver, from a provision of our Code
of Ethics, we will disclose the nature of that amendment or waiver on our
website.  During the year ended December 31, 2008, no such amendment
was made or waiver granted.


ITEM
      16C.
              PRINCIPAL
      ACCOUNTANT FEES AND SERVICES.


A.
            AUDIT
      FEES




The
Company’s Board of Directors has established preapproval and procedures for the
engagement of the Company’s independent public accounting firms for all audit
and non-audit services. The following table sets forth, for the two most recent
fiscal years, the aggregate fees billed for professional services rendered by
our principal accountant, Deloitte AS,  for the audit of the Company’s
annual financial statements and services provided by the principal accountant in
connection with statutory and regulatory filings or engagements for the two most
recent fiscal years.




FISCAL
      YEAR ENDED DECEMBER 31, 2008
                
                
                $197,974FISCAL
      YEAR ENDED DECEMBER 31, 2007
                
                
                $336,126





Included
in the amounts are costs associated with the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 for the fiscal years 2008 and 2007 of $59,400 and
$81,200, respectively.




B.
            AUDIT-RELATED
      FEES (1)




FISCAL
      YEAR ENDED DECEMBER 31, 2008
                
                
                $111,935FISCAL
      YEAR ENDED DECEMBER 31, 2007
                
                
                $59,541





(1)
            Audit-Related-Fees
      consists of professional services related to follow on
      offerings.




C.
            TAX
      FEES




Not
applicable.




D.
            ALL
      OTHER FEES




Not
applicable.


E.
            AUDIT
      COMMITTEE'S PRE-APPROVAL POLICIES AND
PROCEDURES




Our audit
committee pre-approves all audit, audit-related and non-audit services not
prohibited by law to be performed by our independent auditors and associated
fees prior to the engagement of the independent auditor with respect to such
services.




F.
            NOT
      APPLICABLE.




58




ITEM
      16D.
              EXEMPTIONS FROM THE LISTING
      STANDARDS FOR AUDIT
COMMITTEES.




Not
Applicable.




ITEM
      16E.
              PURCHASES
      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
  PERSONS.




Not
Applicable.




ITEM
      16G.
              CORPORATE
      GOVERNANCE.


Pursuant
to an exception for foreign private issuers, we, as a Bermuda company, are not
required to comply with the corporate governance practices followed by U.S.
companies under the NYSE listing standards. We believe that our established
practices in the area of corporate governance are in line with the spirit of the
NYSE standards and provide adequate protection to our shareholders.





There are
four significant differences between our corporate governance practices and the
NYSE standards applicable to listed U.S. companies. The NYSE requires that
non-management directors meet regularly in executive sessions without
management. The NYSE also requires that all independent directors meet in an
executive session at least once a year. As permitted under Bermuda law and our
byelaws, our non-management directors do not regularly hold executive sessions
without management and we do not expect them to do so in the future. The NYSE
requires that a listed U.S. company have a nominating/corporate governance
committee of independent directors and a committee charter specifying the
purpose, duties and evaluation procedures of the committee. As permitted under
Bermuda law and our byelaws, we do not currently have a nominating or corporate
governance committee. The NYSE requires, among other things, that a listed U.S.
company have an audit committee with a minimum of three members. As permitted by
Rule 10A-3 under the Securities Exchange Act of 1934, our audit committee
consists of two independent members of our Board of Directors. The NYSE requires
U.S. companies to adopt and disclose corporate governance guidelines. The
guidelines must address, among other things: director qualification standards,
director responsibilities, director access to management and independent
advisers, director compensation, director orientation and continuing education,
management succession and an annual performance evaluation. We are not required
to adopt such guidelines under Bermuda law and we have not adopted such
guidelines.





Information
about our corporate governance practices may also be found on our web-site,
www.nat.bm
under “Investor Relations/Corporate Governance.”




PART
III




ITEM
      17.
            FINANCIAL
      STATEMENTS




See Item
18.




ITEM
      18.
            FINANCIAL
      STATEMENTS




See
pages F-1 through F-20.




ITEM
      19.
            EXHIBITS











1.2  Bye-Laws
of the Company incorporated by reference to Form 6-K filed with the Securities
and Exchange Commission on November 18, 2004.





2.1  Form
of Share Certificate incorporated by reference to Exhibit 4.1 to the 1995
Registration Statement.





59


4.1  Amended
and Restated Management Agreement dated October 12, 2004, between Scandic
American Shipping Ltd. and Nordic American Tanker Shipping Limited, incorporated
by reference to Form 6-K filed with the Securities and Exchange Commission on
October 29, 2004.





4.2  Amendment
to Restated Management Agreement dated April 29, 2005, between Scandic American
Shipping Ltd. and Nordic American Tanker Shipping, incorporated by reference to
Exhibit 4.3 to the Company’s annual report on Form 20-F for the fiscal year
ended December 31, 2006 filed with the Securities and Exchange Commission on
June 29, 2007.





4.3  Amendment
to Restated Management Agreement dated May 3, 2008, between Scandic American
Shipping Ltd. and Nordic American Tanker Shipping Limited incorporated by
reference to Exhibit 4.3 to the Company’s annual report on Form 20-F for the
fiscal year ended December 31, 2007 filed with the Securities and Exchange
Commission on May 9, 2008.





4.4  2004
Stock Incentive Plan incorporated by reference to Exhibit 4.5 to the Company's
annual report on Form 20-F for the fiscal year ended December 31, 2004 filed
with the Securities and Exchange Commission on June 30, 2005.





4.5  Amendment
to 2004 Stock Incentive Plan incorporated by reference to Exhibit 4.5 to the
Company’s annual report on Form 20-F for the fiscal year ended December 31, 2007
filed with the Securities and Exchange Commission on May 9, 2008.


.


4.6  Revolving
Credit Facility Agreement by and among the Company and the financial
institutions listed in schedule 1 thereto, dated September 14, 2005,
incorporated by reference into the Company's annual report on Form 20-F for the
fiscal year ended December 31, 2005 filed June 30, 2006.





4.7  Addendum
No. 1 to Revolving Credit Facility Agreement by and among the Company and the
financial institutions listed in schedule 2 thereto, dated September 21, 2006,
incorporated by reference to Exhibit 4.6 to the Company’s annual report on Form
20-F for the fiscal year ended December 31, 2006 filed with the Securities and
Exchange Commission on June 29, 2007.




Addendum
No. 2 to Revolving Credit Facility Agreement by and among the Company and
the financial institutions listed in schedule 2 thereto, dated April 15,
2008, incorporated by reference to Exhibit 4.8 to the Company’s annual report on
Form 20-F for the fiscal year ended December 31, 2007 filed with the Securities
and Exchange Commission on May 9, 2008.







12.1 Rule
13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.





12.2 Rule
13a-14(a) /15d-14(a) Certification of the Chief Financial Officer.





13.1
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.





13.2
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.





15.1
Consent of Independent Registered Public Accounting Firm.


60


NORDIC
AMERICAN TANKER SHIPPING LIMITED








TABLE OF
CONTENTS


_________________________________________________________________________________


Page





REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           F-2





FINANCIAL
STATEMENTS:





Statements
of Operations for the years ended December 31, 2008, 2007 and
2006           F-3




Balance
Sheets as of December 31, 2008 and
2007                                                                                                                             
  F-4




Statements
of Shareholders’ Equity for the years ended December 31, 2008, 2007 and
2006              F-5




Statements
of Cash Flows for the years ended December 31, 2008, 2007 and 2006            F-6




Notes to
Financial
Statements                                                                                                                                 F-7


F-1


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To
the Board of Directors and Stockholders of Nordic American Tanker Shipping
Limited
 Hamilton,
Bermuda
 
 We have audited the accompanying balance sheets of Nordic American
Tanker Shipping Ltd. (the “Company”) as of December 31, 2008 and 2007, and the
related statements of operations, shareholders’ equity and cash flows for each
of the three years ended December 31, 2008. We also have audited the Company’s
internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company’s management is responsible for these financial
statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s annual report on internal
control over financial reporting.  Our responsibility is to express an
opinion on these financial statements and an opinion on the Company’s internal
control over financial reporting based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal
control over financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
 
 A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.  A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
 
 Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis.  Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
 
 In
our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Nordic American Tanker Shipping
Ltd  as of December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2008, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as
of December 31, 2008, based on the criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
 
 
 
 /s/
Deloitte AS
 
 Oslo,
Norway
 May
8, 2009


F-2


Statements
      of Operations for the Years Ended December 31, 2008, 2007 and
      2006All
      figures in USD ‘000, except share and per share amount


Year
      Ended December
      31,Notes
                                
                                
                                
                                2008
                                
                                
                                
                                2007
                                
                                
                                
                                2006Voyage
      Revenues
                                
                                
                                3
                                
                                
                                
                                228,000
                                
                                
                                
                                186,986
                                
                                
                                
                                175,520Voyage
      Expenses
                                
                                
                                
                                
                                
                                
                                (10,051
                                )
                                
                                
                                (47,122
                                )
                                
                                
                                (40,172
                                )Vessel
      Operating Expenses -
                                  excluding
      depreciation expense presented below
                                
                                
                                
                                
                                
                                
                                (35,593
                                )
                                
                                
                                (32,124
                                )
                                
                                
                                (21,102
                                )General
      and Administrative Expenses
                                
                                
                                2,
      5, 6, 9
                                
                                
                                
                                (12,785
                                )
                                
                                
                                (12,132
                                )
                                
                                
                                (12,750
                                )Depreciation
      Expense
                                
                                
                                7
                                
                                
                                
                                (48,284
                                )
                                
                                
                                (42,363
                                )
                                
                                
                                (29,254
                                )Net
      Operating Income
                                
                                
                                
                                
                                
                                
                                121,288
                                
                                
                                
                                53,245
                                
                                
                                
                                72,242Interest
      Income
                                
                                
                                
                                
                                
                                
                                931
                                
                                
                                
                                904
                                
                                
                                
                                1,602Interest
      Expense
                                
                                
                                11
                                
                                
                                
                                (3,392
                                )
                                
                                
                                (9,683
                                )
                                
                                
                                (6,339
                                )Other
      Financial Income (Expense)
                                
                                
                                
                                
                                
                                
                                17
                                
                                
                                
                                (260
                                )
                                
                                
                                (112
                                )Total
      Other Expense
                                
                                
                                
                                
                                
                                
                                (2,443
                                )
                                
                                
                                (9,039
                                )
                                
                                
                                (4,849
                                )Net
      Income
                                
                                
                                
                                
                                
                                
                                118,844
                                
                                
                                
                                44,206
                                
                                
                                
                                67,393Basic
      Earnings per Share          
    14
                                
                                
                                
                                3.63
                                
                                
                                
                                1.56
                                
                                
                                
                                3.14Diluted
      Earnings per Share         14
                                
                                
                                
                                3.62
                                
                                
                                
                                1.56
                                
                                
                                
                                3.14Basic
      Weighted Average Number of Common Shares Outstanding
                                
                                
                                
                                32,739,057
                                
                                
                                
                                28,252,472
                                
                                
                                
                                21,476,196Diluted
      Weighted Average Number of Common Shares Outstanding
                                
                                
                                
                                32,832,854
                                
                                
                                
                                28,294,997
                                
                                
                                
                                21,476,196


The
footnotes are an integral part of these financial statements.









F-3




Balance
      Sheets as of December 31, 2008 and 2007All
      figures in USD ‘000, except share and per share amount


Notes
                      December
      31,
                        2008
                      
                      December
      31,2007AssetsCurrent
      AssetsCash
      and Cash Equivalents
                      
                      
                      
                      
                      
                      31,378
                      
                      
                      
                      13,342Accounts
      Receivable, net $0 allowance at December 31, 2008 and 2007
                      
                      
                      3
                      
                      
                      
                      40,335
                      
                      
                      
                      14,489Voyages
      in Progress
                      
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      7,753Prepaid
      Expenses and Other Assets
                      
                      
                      4
                      
                      
                      
                      22,406
                      
                      
                      
                      9,219Total
      Current Assets
                      
                      
                      
                      
                      
                      
                      94,119
                      
                      
                      
                      44,803Non-current
      AssetsVessels,
      Net
                      
                      
                      7
                      
                      
                      
                      707,853
                      
                      
                      
                      740,631Deposit
      on Contract
                      
                      
                      8
                      
                      
                      
                      9,000
                      
                      
                      
                      18,305Other
      Non-current Assets
                      
                      
                      
                      
                      
                      
                      2,906
                      
                      
                      
                      889Total
      Non-current Assets
                      
                      
                      
                      
                      
                      
                      719,759
                      
                      
                      
                      759,825Total
      Assets
                      
                      
                      
                      
                      
                      
                      813,878
                      
                      
                      
                      804,628Liabilities
      and Shareholders’ EquityCurrent
      LiabilitiesAccounts
      Payable
                      
                      
                      2
                      
                      
                      
                      1,947
                      
                      
                      
                      7,290Deferred
      Revenue
                      
                      
                      12
                      
                      
                      
                      449
                      
                      
                      
                      537Accrued
      Liabilities
                      
                      
                      13
                      
                      
                      
                      3,817
                      
                      
                      
                      16,531Total
      Current Liabilities
                      
                      
                      
                      
                      
                      
                      6,214
                      
                      
                      
                      24,358Long-term
      Debt
                      
                      
                      10
                      
                      
                      
                      15,000
                      
                      
                      
                      105,500Deferred
      Compensation Liability
                      
                      
                      6
                      
                      
                      
                      4,078
                      
                      
                      
                      2,665Total
      Liabilities
                      
                      
                      
                      
                      
                      
                      25,292
                      
                      
                      
                      132,523Commitments
      and Contingencies
                      
                      
                      16Shareholders’
      EquityCommon
      Stock, par value $0.01 per Share;
                      
                      
                      15
                      
                      
                      
                      344
                      
                      
                      
                      30051,200,000
      shares authorized, 34,373,271 shares issued andoutstanding
      and 29,975,312 shares issued and outstanding at
                        December
      31, 2008 and December 31, 2007, respectivelyAdditional
      Paid-in Capital
                      
                      
                      
                      
                      
                      
                      905,262
                      
                      
                      
                      852,121Retained
      Earnings
                      
                      
                      
                      
                      
                      
                      (117,020
                      )
                      
                      
                      (180,316
                      )Total
      Shareholders’ Equity
                      
                      
                      
                      
                      
                      
                      788,586
                      
                      
                      
                      672,105Total
      Liabilities and Shareholders’ Equity
                      
                      
                      
                      
                      
                      
                      813,878
                      
                      
                      
                      804,628




The
footnotes are an integral part of these financial statements.





F-4










Statements
      of Shareholders' Equity for the Years Ended December 31, 2008,
      2007 and 2006All
      figures in USD ‘000, except number of sharesNumber
      of Shares
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      Common
      Stock
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      Additional
      Paid-in Capital
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      Retained
      Earnings
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      Total
      Shareholders’ EquityBalance
      at December 31, 2005
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      16,644,496
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      166
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      432,682
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      (61,977
                                                                                                                                                                                                                                                                                                                                      )
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      370,872Net
      Income
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      67,393
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      67,393Common
      Shares Issued, net of $16.5 million issuance costs
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      10,047,500
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      103
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      288,254
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      288,357Issuance
      of Restricted Shares
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      222,092
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      6,369
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      6,369Share-based
      Compensation
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      1,545
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      1,545Dividend
      Paid, $5.85 per share
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      (122,590
                                                                                                                                                                                                                                                                                                                                      )
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      (122,590
                                                                                                                                                                                                                                                                                                                                      )Balance
      at December 31, 2006
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      26,914,088
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      269
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      728,851
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      (117,174
                                                                                                                                                                                                                                                                                                                                      )
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      611,946Net
      Income
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      44,206
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      44,206Common
      Shares Issued, net of $4.5 million issuance costs
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      3,000,000
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      31
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      119,720
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      119,751Issuance
      of  Restricted Shares
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      61,224
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      2,289
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      2,289Share-based
      Compensation
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      1,261
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      1,261Dividend
      Paid, $3.81 per share
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      (107,349
                                                                                                                                                                                                                                                                                                                                      )
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      (107,349
                                                                                                                                                                                                                                                                                                                                      )Balance
      at December 31, 2007
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      29,975,312
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      300
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      852,121
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      (180,316
                                                                                                                                                                                                                                                                                                                                      )
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      672,105Net
      Income
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      118,844
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      118,844Common
      Shares Issued, net of $6.5 million issuance costs
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      4,310,000
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      43
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      158,847
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      158,890Issuance
      of  Restricted Shares
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      87,959
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      1
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      3,617
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      3,618Share-based
      Compensation
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      1,015
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      1,015Dividend
      Paid, $4.89 per share
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      (110,338
                                                                                                                                                                                                                                                                                                                                      )
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      (55,548
                                                                                                                                                                                                                                                                                                                                      )
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      (165,886
                                                                                                                                                                                                                                                                                                                                      )Balance
      at December 31, 2008
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      34,373,271
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      344
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      905,262
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      (117,020
                                                                                                                                                                                                                                                                                                                                      )
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                      788,586





The
footnotes are an integral part of these financial statements.


F-5





Statements
      of Cash Flows for the Years Ended December 31, 2008, 2007 and
      2006All
      figures in USD ‘000Year
      Ended December 31,
 2008
                          
                          
                          2007
                          
                          
                          2006Cash
      Flows from Operating ActivitiesNet
      Income
                          
                          
                          118,844
                          
                          
                          
                          44,206
                          
                          
                          
                          67,393Reconciliation
      of Net Income to Net Cash
                            Provided
      by Operating ActivitiesDepreciation
      Expense
                          
                          
                          48,284
                          
                          
                          
                          42,363
                          
                          
                          
                          29,254Amortization
      of Deferred Finance Costs
                          
                          
                          618
                          
                          
                          
                          514
                          
                          
                          
                          402Deferred
      Compensation Liability
                          
                          
                          1,413
                          
                          
                          
                          2,665
                          
                          
                          
                          -Compensation
      - Restricted Shares
                          
                          
                          1,015
                          
                          
                          
                          2,289
                          
                          
                          
                          6,369Share-based
      Compensation
                          
                          
                          3,618
                          
                          
                          
                          1,261
                          
                          
                          
                          1,545Capitalized
      Interest
                          
                          
                          (607
                          )
                          
                          
                          (305
                          )
                          
                          
                          -Changes
      in Operating Assets and Liabilities:Accounts
      Receivables
                          
                          
                          (25,846
                          )
                          
                          
                          (1,072
                          )
                          
                          
                          6,140Accounts
      Payable and Accrued Liabilities
                          
                          
                          (5,461
                          )
                          
                          
                          (2,971
                          )
                          
                          
                          9,763Dry-dock
      Expenditures
                          
                          
                          (18,049
                          )
                          
                          
                          (9,496
                          )
                          
                          
                          -Prepaid
      and Other Assets
                          
                          
                          (3,585
                          )
                          
                          
                          2,260
                          
                          
                          
                          (8,332
                          )Deferred
      Revenue
                          
                          
                          (88
                          )
                          
                          
                          -
                          
                          
                          
                          -Voyages
      in Progress
                          
                          
                          7,753
                          
                          
                          
                          100
                          
                          
                          
                          (5,407
                          )Other
      Non-current Assets
                          
                          
                          (9
                          )
                          
                          
                          1,835
                          
                          
                          
                          (514
                          )Net
      Cash Provided by Operating Activities
                          
                          
                          127,900
                          
                          
                          
                          83,649
                          
                          
                          
                          106,613Cash
      Flows from Investing ActivitiesDeposit
      on Contract
                          
                          
                          -
                          
                          
                          
                          (18,000
                          )
                          
                          
                          -Investment
      in Vessels
                          
                          
                          (10,053
                          )
                          
                          
                          (8,424
                          )
                          
                          
                          (317,800
                          )Net
      Cash (Used in) Investing Activities
                          
                          
                          (10,053
                          )
                          
                          
                          (26,424
                          )
                          
                          
                          (317,800
                          )Cash
      Flows from Financing ActivitiesProceeds
      from Issuance of Common Stock
                          
                          
                          158,890
                          
                          
                          
                          119,751
                          
                          
                          
                          288,357Proceeds
      from Use of Credit Facility
                          
                          
                          25,000
                          
                          
                          
                          55,000
                          
                          
                          
                          274,500Repayments
      on Credit Facility
                          
                          
                          (115,500
                          )
                          
                          
                          (123,000
                          )
                          
                          
                          (231,000
                          )Credit
      Facility Costs
                          
                          
                          (2,316
                          )
                          
                          
                          (14
                          )
                          
                          
                          (591
                          )Dividends
      Paid
                          
                          
                          (165,886
                          )
                          
                          
                          (107,349
                          )
                          
                          
                          (122,590
                          )Net
      Cash (Used in) Provided by Financing Activities
                          
                          
                          (99,812
                          )
                          
                          
                          (55,612
                          )
                          
                          
                          208,676Net
      Increase (Decrease)  in Cash and Cash
Equivalents
                          
                          
                          18,036
                          
                          
                          
                          1,613
                          
                          
                          
                          (2,
      511
                          )Cash
      and Cash Equivalents at the Beginning of Year
                          
                          
                          13,342
                          
                          
                          
                          11,729
                          
                          
                          
                          14,240Cash
      and Cash Equivalents at the End of Year
                          
                          
                          31,378
                          
                          
                          
                          13,342
                          
                          
                          
                          11,729Cash
      Paid for Interest
                          
                          
                          3,441
                          
                          
                          
                          9,690
                          
                          
                          
                          5,499Cash
      Paid for Taxes
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -




The
footnotes are an integral part of these financial statements.


F-6


NORDIC
AMERICAN TANKER SHIPPING LIMITED





NOTES TO
FINANCIAL STATEMENTS




(All
amounts in USD ‘000 except where noted)








1.
            BUSINESS
      AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES








Nature of Business: Nordic
American Tanker Shipping Limited (the “Company”) was formed on June 12, 1995
under the laws of the Islands of Bermuda. The Company owns and operates crude
oil tankers.  The Company trades under the symbol “NAT” on the New
York Stock Exchange.





As of
December 31, 2008 the Company owns 15 double hull Suezmax tankers including one
vessel delivered in February 2009 and two newbuildings. The following chart
provides information regarding each vessel.




Vessel
                  Yard
                  Year
      Built
                  Dwt(1)
                  Employment
      Status
                  FlagGulf
      Scandic
                  Samsung
                  1997
                  151,475
                  Bareboat
                  Isle
      of ManNordic
      Hawk
                  Samsung
                  1997
                  151,475
                  Spot
                  BahamasNordic
      Hunter
                  Samsung
                  1997
                  151,400
                  Spot
                  BahamasNordic
      Freedom
                  Daewoo
                  2005
                  163,455
                  Spot
                  BahamasNordic
      Voyager
                  Dalian
      New
                  1997
                  149,591
                  Spot
                  NorwayNordic
      Fighter
                  Hyundai
                  1998
                  153,328
                  Spot
                  NorwayNordic
      Discovery
                  Hyundai
                  1998
                  153,328
                  Spot
                  NorwayNordic
      Sprite
                  Samsung
                  1999
                  147,188
                  Spot,
      delivered Feb 2009
                  NorwayNordic
      Saturn
                  Daewoo
                  1998
                  157,332
                  Spot
                  Marshall
      IslandsNordic
      Jupiter
                  Daewoo
                  1998
                  157,411
                  Spot
                  Marshall
      IslandsNordic
      Apollo
                  Samsung
                  2003
                  159,999
                  Spot
                  Marshall
      IslandsNordic
      Cosmos
                  Samsung
                  2002
                  159,998
                  Spot
                  Marshall
      IslandsNordic
      Moon
                  Samsung
                  2003
                  159,999
                  Spot
                  Marshall
      IslandsNordic
      Galaxy
                  Bohai
                  2009
                  163,000
                  Expected
      delivery end of Dec. 2009Nordic
      Vega
                  Bohai
                  2010
                  163,000
                  Expected
      delivery end of Apr. 2010
 (1)  Deadweight
tons.





Basis of Accounting:These
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“US GAAP”).




Use of Estimates: Preparation
of financial statements in accordance with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those amounts. The
affects of changes in accounting estimates are accounted for in the same period
in which the estimates are changed.





Foreign Currency
Translation:The functional currency of the Company is the
United States (“U.S.”) dollar as all revenues are received in U.S. dollars and
the majority of the Company’s expenditures are incurred and paid in U.S.
dollars.  The Company’s reporting currency is also the U.S. dollar.
Transactions in foreign currencies during the year are translated into U.S
dollars at the rates of exchange in effect at the date of the transaction.





Cash and Cash Equivalents:
Cash and cash equivalents consist of deposits with original maturities of three
months or less.


F-7


Inventories:Inventories,
which are comprised of bunker fuel and lubrication oil, are stated at cost which
is determined on a first-in, first-out (FIFO) basis.  Inventory is
reported within "Prepaid Expenses and Other Current Assets" within the balance
sheet.





Vessels, net: Vessels are
stated at their historical cost, which consists of the contracted purchase price
and any direct material expenses incurred upon acquisition (including
improvements, on site supervision expenses incurred during the construction
period, commissions paid, delivery expenses and other expenditures to prepare
the vessel for her initial voyage) less accumulated depreciation. Financing
costs incurred during the construction period of the vessels are also
capitalized and included in vessels’ cost based on the weighted average method.
Certain subsequent expenditures for conversions and major improvements are also
capitalized if it is determined that they appreciably extend the life, increase
the earning capacity or improve the efficiency or safety of the vessel.
Depreciation is calculated based on cost less estimated residual value and is
provided over the estimated useful life of the related assets using the
straight-line method. The estimated useful life of a vessel is 25 years from the
date the vessel is delivered from the shipyard. Repairs and maintenance are
expensed as incurred.





Impairment of Long-Lived
Assets: Long-lived assets are required to be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If the estimated undiscounted future cash flows
expected to result from the use of the asset and its eventual disposition is
less than the carrying amount of the asset, the asset is deemed impaired. The
amount of the impairment is measured as the difference between the carrying
value and the fair value of the asset. There have been no impairments recorded
for the years ended December 31, 2008, 2007 or 2006.





Drydocking: The Company's
vessels are required to be drydocked approximately every 30 to 60 months
for overhaul repairs and maintenance that cannot be performed while the vessels
are in operation. The Company follows the deferral method of accounting for
drydocking costs whereby actual costs incurred are deferred and are amortized on
a straight-line basis through the expected date of the next drydocking. Ballast
tank improvements are capitalized and amortized on a straight-line basis over a
period of eight years. Major steel improvements are capitalized and amortized on
a straight-line basis over the remaining useful life of the
vessel.  Unamortized drydocking costs of vessels that are sold are
written off to income in the year of the vessel's sale. The capitalized and
unamortized drydocking costs are included in the book value of the vessels.
Amortization expense of the drydocking costs is included in depreciation
expense.





Segment Information:The
Company has identified only one operating segment under Statement of Financial
Accounting Standards (“SFAS”) No. 131 “Segments of an Enterprise and Related
Information.” The Company has only one type of vessel – Suezmax crude oil
tankers – operating on time charter contracts at market related rates, in the
spot market and on long-term bareboat contract.





Geographical
Segment:  The Company currently operates 12 of its 13 vessels
in spot market cooperations with other vessels that are not owned by the
Company. The cooperations are managed by third party commercial managers. The
earnings of all of the vessels are aggregated and divided according to the
relative performance capabilities of the vessel and the actual earning days each
vessel is available. The vessels in the cooperations are operated in the spot
market by the commercial managers. As a significant portion of the Company’s
vessels are operated in cooperations, it is not practical to allocate
geographical data to each vessel nor would it give meaningful information to the
reader.





Fair Value of Financial
Instruments: The fair values of cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities approximate carrying value
because of the short-term nature of these instruments.





Deferred Financing
Costs:  Finance costs, including fees, commissions and legal
expenses, which are recorded as “Other assets” on the balance sheet are deferred
and amortized on a straight-line basis over the term of the relevant debt
borrowings.  Amortization of finance costs is included in “Interest
Expense” in the statement of operations.





Revenue and Expense Recognition:Revenue and expense recognition policies for voyage and time
charter agreements are as follows:




F-8


Cooperative agreements:
Revenues and voyage expenses of the vessels operating in cooperative agreements
are combined and the resulting net revenues, calculated on a time charter
equivalent basis, are allocated to the participants according to an agreed
formula. Formulas used to allocate net revenues vary among different cooperative
arrangements, but generally, revenues are allocated to participants on the basis
of the number of days a vessel operates with weighting adjustments made to
reflect each vessels’ differing capacities and performance capabilities. The
administrators of the cooperations are responsible for collecting voyage
revenue, paying voyage expenses and distributing net pool revenues to the
participants.





Based on
the guidance from Emerging Issuance Task Force (“EITF”) No. 99-19, “Reporting
Revenue Gross as a Principal versus Net as an Agent” (“EITF 99-19”), earnings
generated from cooperative agreements in which the Company is the principal of
its vessels’ activities are recorded based on gross method. Earnings generated
from cooperative agreements in which the Company is not regarded as the
principal of its vessels’ activities are recorded based on the net
method.





The
Company accounts for the net revenues allocated by these cooperative agreements
as “Voyage Revenue” in its statements of operations.  See Note 3 for
further information





Spot charters:  Voyage
revenues are recognized on a pro rata basis based on the relative transit time
in each period. A voyage is deemed to commence upon the completion of discharge
of the vessel’s previous cargo and is deemed to end upon the completion of
discharge of the current cargo. Voyage expenses are recognized as incurred and
primarily include only those specific costs which are borne by the Company in
connection with voyage charters which would otherwise have been borne by the
charterer under time charter agreements. These expenses principally consist of
fuel, canal and port charges. Demurrage income represents payments by the
charterer to the vessel owner when loading and discharging time exceed the
stipulated time in the voyage charter. Demurrage income is measured in
accordance with the provisions of the respective charter agreements and the
circumstances under which demurrage claims arise and is recognized on a pro rata
basis over the length of the voyage to which it pertains. Demurrage income is
included in “Voyage Revenues” in the Statement of Operations. At December 31,
2008 and 2007, the Company had no reserves associated with demurrage
revenues.





Bareboat:  Revenues
from bareboat charters are recorded at a fixed charterhire rate per day over the
term of the charter. The charterhire is payable monthly in advance. During the
charter period the charterer is responsible for operating and maintaining the
vessel and bears all costs and expenses with respect to the vessel. The expected
minimum payments to be received under the bareboat charter to Gulf Navigation
amount to $6.3 million annually. The contract was scheduled to terminate in the
fourth quarter of 2009, and subject to two one-year extensions. Gulf Navigation
has exercised its first one-year option and extended the charter for one
additional year.





Vessel Operating Expenses:
Vessel operating expenses include crewing, repair and maintenance, insurance,
stores, lubricants, communication expenses and tonnage tax. These expenses are
recognized when incurred.





Derivative Instruments:The
Company did not hold any derivative instruments at December 31, 2008 or
2007.





Share-Based Compensation:Effective December 31, 2005, the Company adopted Statement of
Financial Accounting Standards (“SFAS”) No. 123(R) “Share-Based Payment”
(“SFAS 123R”), using the modified prospective application transition method
which requires measurement of compensation cost for all stock based awards at
fair value and recognition of compensation over the requisite service period for
awards expected to vest. See Note 9 for additional information.





Restricted Shares to Manager:
Restricted shares issued to the Manager are accounted for in accordance with
EITF Issue No. 00-18, "Accounting for Certain Transactions Involving Equity
Instruments Granted to Other Than Employees", which states that the measurement
date for an award that is nonforfeitable and that vests immediately should be
the date the award is issued, even though services have not yet been performed.
Accordingly the compensation expense for each of the respective issuances was
measured at fair value on the date the award was issued, or the grant date, and
expensed immediately as performance was deemed to be complete. The fair value
was determined using the stated par value, the number of shares issued, and the
Company's stock price on the date of grant.





Income
Taxes:The Company is incorporated in
Bermuda. Under current Bermuda law, the Company is not subject to corporate
income taxes.


F-9


Other Comprehensive Income
(Loss):   The Company follows the provisions of SFAS No.
130 "Statement of Comprehensive Income” (“SFAS 130”) which requires separate
presentation of certain transactions that are recorded directly as components of
stockholders' equity. The Company has no other comprehensive income / (loss) and
accordingly comprehensive income / (loss) is equal to net income for the periods
presented.





Concentrations:


Fair value:  The
Company operates in the shipping industry which historically has been cyclical
with corresponding volatility in profitability and vessel values. Vessel values
are strongly influenced by charter rates which in turn are influenced by the
level and pattern of global economic growth and the world-wide supply and demand
for vessels. The spot market for tankers is highly competitive and charter rates
are subject to significant fluctuations. Dependence on the spot market may
result in lower utilization. Each of the aforementioned factors are important
considerations associated with the Company’s assessment of whether the carrying
amount of its own vessels are recoverable.





Credit risk: Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash and cash equivalents and accounts receivable.
The fair value of the financial instrument approximates the net book value. The
Company maintains its cash with financial institutions it believes are
reputable. The terms of these deposits are on demand to minimize risk. The
Company has not experienced any losses related to these cash deposits and
believes it is not exposed to any significant credit risk.  However,
due to the current financial crisis the maximum credit risk the Company would be
exposed to is a total loss of outstanding cash and cash equivalents and accounts
receivable. See Note 3 for further information.





Accounts
receivable consist of uncollateralized receivables from international customers
engaged in the international shipping industry. The Company routinely assesses
the financial strength of its customers. Accounts receivable are presented net
of allowances for doubtful accounts. If amounts become uncollectible, they will
be charged to operations when that determination is made.  For the
years ended December 31, 2008 and 2007, the Company did not record an allowance
for doubtful accounts.





Interest risk:  The
Company is exposed to interest rate risk for its debt borrowed under
the  2005 Credit Facility. In certain situations, the Company may
enter into financial instruments to reduce the risk associated with fluctuations
in interest rates. The Company has no outstanding derivatives at December 31,
2008 and 2007, and has not entered into any such arrangements during
2008.







Recent Accounting
Pronouncements:  In February 2008, the FASB issued FASB Staff
Position (“FSP”) No. 157-2 (“FSP 157-2”), which delays the effective date of
SFAS No. 157, “Fair Value Measurement,” (“SFAS 157”) to fiscal
years beginning after November 15, 2008 and interim periods with those fiscal
years for all nonfinancial assets and liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually) until January 1, 2009 for calendar year end entities.
The Company adopted SFAS 157, except as it applies to nonfinancial assets and
liabilities as noted in FSP 157-2, beginning from January 1, 2008. The partial
adoption of SFAS 157 did not have any effect on the Company’s financial position
or results of operations and cash flows. The Company is currently evaluating the
effect that the adoption of SFAS 157, as it relates to nonfinancial assets and
liabilities, will have on its financial position, results of operations or cash
flows.





In
December 2007, the FASB issued SFAS No. 141(R) “Business Combinations” (“SFAS
141(R)”), which replaces SFAS No. 141, “Business Combinations”. This statement
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree and the
goodwill acquired. SFAS 141(R) also establishes disclosure requirements to
enable the evaluation of the nature and financial effects of the business
combination. SFAS 141(R) applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008.  An entity
may not apply it before that date.  The Company must adopt this
standard as of January 1, 2009.  As the provisions of SFAS No. 141 (R)
are applied prospectively, the impact to the Company cannot be determined until
any such transaction occurs.





In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of Accounting Research Bulletin
No. 51” (“SFAS 160”). This statement establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other than the
parent, the amount of consolidated net income attributable
to the parent and to the noncontrolling interest, changes in a parent’s
ownership interest, and the valuation of retained noncontrolling equity
investments when a subsidiary is deconsolidated. SFAS 160 also establishes
disclosure requirements that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. SFAS 160
is effective for fiscal years beginning after December 15, 2008. The Company’s
adoption of SFAS 160 did not have any impact on the Company’s financial
position, results of operations and cash flows.


F-10




In March
2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The adoption of SFAS 161 did not have any impact on the Company’s
financial position, results of operations and cash flows.




2.
            RELATED
      PARTY TRANSACTIONS




Scandic
American Shipping Ltd. (the “Manager”), is owned by a company owned by the
Chairman and Chief Executive Officer (“CEO”) of the Company, Mr. Herbjørn
Hansson, and his family. The Manager, under a management agreement with the
Company (the “Management Agreement”), assumes commercial and operational
responsibility for the Company’s vessels and is required to manage the Company’s
day-to-day business, subject to the objectives and policies established by the
Board of Directors. For its services under the Management Agreement, the Manager
is entitled to reimbursement of costs directly related to the Company plus a
management fee equal to $225,000 per annum. The Manager also has a right to
ownership of 2% of the Company’s total outstanding shares. During 2008, the
Company issued to the Manager 87,959 shares at an average fair value of $39.45.
The Company recognized $2.2 million, $2.2 million and $1.6 million of total
costs for services provided under the Management Agreement for the years ended
December 31, 2008, 2007, and 2006, respectively. Additionally, the Company
recognized $3.6 million, $2.3 million and $6.3 million in non-cash share-based
compensation expense for the years ended December 31, 2008, 2007 and 2006,
respectively, related to the issuance of shares to the Manager.  All
of these costs are included in “General and Administrative Expenses” within the
statement of operations.  The related party balances included within
accounts payable were $0.4 million and $0.7 million at December 31, 2008 and
2007, respectively.





Mr. Jan
Erik Langangen, Executive Vice President of the Manager, is a partner of
Langangen & Helset Advokatfirma AS, a firm which provides legal services to
the Company. The Company recognized $0.1 million, $0.2 million, and $0.1 million
in costs for the years ended December 31, 2008, 2007 and 2006, respectively, for
the services provided by Langangen & Helset Advokatfirma AS. These costs are
included in “General and Administrative Expenses” within the statement of
operations.  There were no related amounts included within “Accounts
Payable” at December 31, 2008 and December 31, 2007, respectively.




3.
            REVENUE




For the
twelve months ending December 31, 2008, the Company’s only source of revenue was
from the Company’s 12 existing vessels.





Revenues
generated from cooperations in which the Company is the principal of its
vessels’ activities are recorded based on the gross method. Revenues generated
from cooperations in which the Company is not regarded as the principal of its
vessels’ activities are recorded per the net method.





The table
below provides the breakdown of revenues recorded as per the net method and the
gross method.





All
      figures in USD ‘000
                                            
                                            2008
                                            
                                            
                                            2007
                                            
                                            
                                            2006Net
      Method
                                            
                                            
                                            204,402
                                            
                                            
                                            
                                            65,354
                                            
                                            
                                            
                                            53,177Gross
      Method
                                            
                                            
                                            23,598
                                            
                                            
                                            
                                            121,632
                                            
                                            
                                            
                                            122,343Total
      Voyage Revenue
                                            
                                            
                                            228,000
                                            
                                            
                                            
                                            186,986
                                            
                                            
                                            
                                            175,520





F-11


Two
cooperation arrangements accounted for 50% and 41% of the Company’s revenues for
the year ended December 31, 2008. Five cooperation arrangements accounted for
24%, 23%, 16%, 15% and 14% of the Company’s revenues, respectively, for the year
ended December 31, 2007. One cooperation arrangement accounted for 23% of the
Company’s revenues during the year ended December 31, 2006.





Accounts
receivable at December 31, 2008 and 2007 are $40.3 million and $14.5 million,
respectively. The following is a breakdown of this amount:





All
      figures in USD ‘000
                            
                            2008
                            
                            
                            2007Accounts
      Receivable
                            
                            
                            -
                            
                            
                            
                            113Accounts
      Receivable  - Technical and Commercial Managers
                            
                            
                            40,335
                            
                            
                            
                            14,376Total
      as per December 31,
                            
                            
                            40,335
                            
                            
                            
                            14,489





Two
cooperation arrangements accounted for 53% and 43% of the Company’s accounts
receivables for the year ended December 31, 2008. Two cooperation arrangements
accounted for 45% and 40% of the Company’s accounts receivables, for the year
ended December 31, 2007.




4.
            PREPAID
      EXPENSES AND OTHER ASSETS




All
      figures in USD ‘000
                                  
                                  2008
                                  
                                  
                                  2007Bunkers
      and lubricants - Technical and Commercial Managers
                                  
                                  
                                  2,137
                                  
                                  
                                  
                                  6,835Other
      current assets - Technical and Commercial Managers
                                  
                                  
                                  -
                                  
                                  
                                  
                                  580Prepaid
      expenses - Technical and Commercial Managers
                                  
                                  
                                  2,304
                                  
                                  
                                  
                                  1,046Deposit
      on Contract
                                  
                                  
                                  9,000
                                  
                                  
                                  
                                  -Receivables
      related to Newbuildings
                                  
                                  
                                  7,370
                                  
                                  
                                  
                                  -Financial
      Charges
                                  
                                  
                                  653
                                  
                                  
                                  
                                  514Other
                                  
                                  
                                  942
                                  
                                  
                                  
                                  244Total
      as per December 31,
                                  
                                  
                                  22,406
                                  
                                  
                                  
                                  9,219




5.
            GENERAL
      AND ADMINISTRATIVE EXPENSES




All
      figures in USD ‘000
                                                                                        
                                                                                        2008
                                                                                        
                                                                                        
                                                                                        2007
                                                                                        
                                                                                        
                                                                                        2006Management
      fee to related party
                                                                                        
                                                                                        
                                                                                        225
                                                                                        
                                                                                        
                                                                                        
                                                                                        162
                                                                                        
                                                                                        
                                                                                        
                                                                                        100Directors
      and officers insurance
                                                                                        
                                                                                        
                                                                                        87
                                                                                        
                                                                                        
                                                                                        
                                                                                        109
                                                                                        
                                                                                        
                                                                                        
                                                                                        116Salary
      and wages
                                                                                        
                                                                                        
                                                                                        1,711
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,331
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,022Audit,
      legal and consultants
                                                                                        
                                                                                        
                                                                                        684
                                                                                        
                                                                                        
                                                                                        
                                                                                        849
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,171Administrative
      services provided by related party
                                                                                        
                                                                                        
                                                                                        2,208
                                                                                        
                                                                                        
                                                                                        
                                                                                        2,162
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,564Other
      fees and expenses
                                                                                        
                                                                                        
                                                                                        1,724
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,304
                                                                                        
                                                                                        
                                                                                        
                                                                                        864Total
      General and Administration expense with cash effect
                                                                                        
                                                                                        
                                                                                        6,639
                                                                                        
                                                                                        
                                                                                        
                                                                                        5,917
                                                                                        
                                                                                        
                                                                                        
                                                                                        4,836Compensation
      – restricted shares issued to related party
                                                                                        
                                                                                        
                                                                                        3,618
                                                                                        
                                                                                        
                                                                                        
                                                                                        2,289
                                                                                        
                                                                                        
                                                                                        
                                                                                        6,369Share-based
      compensation (2004 Stock Incentive Plan)
                                                                                        
                                                                                        
                                                                                        1,115
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,261
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,545Deferred
      compensation plan
                                                                                        
                                                                                        
                                                                                        1,413
                                                                                        
                                                                                        
                                                                                        
                                                                                        2,665
                                                                                        
                                                                                        
                                                                                        
                                                                                        -Total
      General and Administrative expense without cash effect
                                                                                        
                                                                                        
                                                                                        6,146
                                                                                        
                                                                                        
                                                                                        
                                                                                        6,215
                                                                                        
                                                                                        
                                                                                        
                                                                                        7,914Total
      as per December 31,
                                                                                        
                                                                                        
                                                                                        12,785
                                                                                        
                                                                                        
                                                                                        
                                                                                        12,132
                                                                                        
                                                                                        
                                                                                        
                                                                                        12,750




F-12


6.
            DEFERRED COMPENSATION
LIABILITY




In May
2007, the Board of Directors approved a new unfunded deferred compensation plan
for Herbjørn Hansson, the Chairman, President and CEO. The plan provides for
unfunded deferred compensation computed as a percentage of salary. Benefits vest
over a period of employment of 11 years up to a maximum of 66% of the salary
level at the time of retirement. Interest is imputed at 6.0% and 4.5% as per
December 31, 2008 and 2007, respectively.





The
rights under the plan commenced on October 2004. The total expense recognized in
2008 was $1.4 million. The total expense recognized in 2007 was $2.7 million, of
which $1.8 million relates to retroactive effect.  As the plan was
effective in 2007, the full expense was recognized in 2007. The CEO has served
in his present position since the inception of the Company in 1995.








7.
            VESSELS,
      NET




Vessels,
net consist of 12 modern double hull Suezmax crude oil tankers and drydocking
charges.  Depreciation is calculated on a straight-line basis over the
estimated useful life of the vessels. The estimated useful life of a new vessel
is 25 years.





All
      figures in USD ‘000
                                    
                                    Vessels
                                    
                                    
                                    Drydocking
                                    
                                    
                                    TotalNet
      Book Value December 31, 2008
                                    
                                    
                                    686,788
                                    
                                    
                                    
                                    21,066
                                    
                                    
                                    
                                    707,853Accumulated
      depreciation December 31, 2008
                                    
                                    
                                    176,611
                                    
                                    
                                    
                                    9,339
                                    
                                    
                                    
                                    185,950Depreciation
      expense 2008
                                    
                                    
                                    41,063
                                    
                                    
                                    
                                    7,222
                                    
                                    
                                    
                                    48,284Net
      Book Value December 31, 2007
                                    
                                    
                                    717,799
                                    
                                    
                                    
                                    22,832
                                    
                                    
                                    
                                    740,631Accumulated
      depreciation December 31, 2007
                                    
                                    
                                    135,548
                                    
                                    
                                    
                                    3,211
                                    
                                    
                                    
                                    138,759Depreciation
      expense 2007
                                    
                                    
                                    39,893
                                    
                                    
                                    
                                    2,470
                                    
                                    
                                    
                                    42,363








8.
            DEPOSIT
      ON CONTRACT




In
November 2007, the Company entered into an agreement to acquire two Suezmax
newbuildings which are expected to be delivered in the fourth quarter of 2009
and in April 2010, respectively. The Company will take ownership of the vessels
upon delivery from the shipyard at which time the title is transferred from the
seller. The vessels will be built by a Chinese shipyard. The sellers are
subsidiaries of First Olsen Ltd. and the agreed all inclusive price at delivery
is $90.0 million per vessel, including supervision expenses.





The
Company has agreed to furnish to the sellers a loan equivalent to the remaining
payment installments under the shipbuilding contract. The loan will be paid in
installments on the dates and in amounts corresponding to the payment schedule
under the shipbuilding contract. The debt shall accrue interest at a rate equal
to the Company’s cost of funds at any time. The debt will be repayable on
delivery of the vessels.





As of
December 31, 2008, the Company has paid a deposit of 10% of the purchase price
in the aggregate amount of $18.0 million for both vessels.




F-13


The table
below shows total capitalized costs related to the two
newbuildings:





All
      figures in USD ‘000
                                                          
                                                          2008
                                                          
                                                          
                                                          2007Newbuilding
      - Nordic Galaxy expected delivery 4Q09Deposit
      on contract
                                                          
                                                          
                                                          9,000
                                                          
                                                          
                                                          
                                                          9,000Capitalized
      interest
                                                          
                                                          
                                                          163
                                                          
                                                          
                                                          
                                                          152Capitalized
      cost
                                                          
                                                          
                                                          108
                                                          
                                                          
                                                          
                                                          -Total
      Newbuilding – Nordic Galaxy as per December 31,
                                                          
                                                          
                                                          9,271
                                                          
                                                          
                                                          
                                                          9,152Newbuilding
      – Nordic Vega expected delivery April 2010Deposit
      on contract
                                                          
                                                          
                                                          9,000
                                                          
                                                          
                                                          
                                                          9,000Capitalized
      interest
                                                          
                                                          
                                                          143
                                                          
                                                          
                                                          
                                                          153Capitalized
      cost
                                                          
                                                          
                                                          108
                                                          
                                                          
                                                          
                                                          -Total
      Newbuilding - Nordic Vega as per December 31,
                                                          
                                                          
                                                          9,251
                                                          
                                                          
                                                          
                                                          9,153Total
      as per December 31,
                                                          
                                                          
                                                          18,522
                                                          
                                                          
                                                          
                                                          18,305





Due to
the expected delivery of the newbuilding Nordic Galaxy in 4Q09, items related to
this vessel have been classified as current assets and recorded within “Prepaid
and Other Expenses” in the balance sheet.








9.
            SHARE-BASED
      COMPENSATION PLAN




The
Company has a share-based compensation plan which is described
below.  Total compensation cost related to the plan was $1.1 million,
$1.3 million and $1.5 million for the years ended December 31, 2008, 2007, and
2006, respectively and was recorded within “General and Administrative expense”
in the statement of operations.  Unrecognized compensation cost
related to the plan was $0.3 million (stock options plus restricted shares) as
of December 31, 2008.





2004
Stock Incentive Plan




Under the
terms of the Company’s 2004 Stock Incentive Plan (the “Plan”), the directors,
officers and certain key employees of the Company and the Manager are eligible
to receive awards which include incentive stock options, non-qualified stock
options, stock appreciation rights, dividend equivalent rights, restricted
stock, restricted stock units, performance shares and phantom stock units. The
Company believes that such awards better align the interests of its employees
with those of its shareholders. A total of 400,000 common shares are reserved
for issuance upon exercise of options, as restricted share grants or otherwise
under the Plan.  A total of 330,000 options and 16,700 restricted
shares have been issued as of December 31, 2008.  New shares are
issued upon exercise of stock options. In August 2007, the Board of Directors
adopted amendments to the Plan to provide for the issuance of Phantom Stock
Units and to give discretion to the Administrator of the Plan with respect to
dividends paid on common shares awarded under the Plan. No modifications were
made to the terms of the Plan.





Stock
option awards were granted with an exercise price equal to the market price of
the Company’s stock at the date of a public offering in November 2004, with
later adjustments for dividends to shareholders exceeding 3% of the initial
stock option exercise price. Stock options granted in 2007 have an exercise
price equal to the market price of the shares at the grant date, with later
adjustments for dividends exceeding 3%. Stock option awards generally vest
equally over four years from grant date and have a 10-year contractual
term.





The fair
value of each option award is estimated on the date of grant using the
Black-Scholes option valuation model that uses the assumptions noted in the
table below. Stock options to non-employees are measured at each reporting
date and fair value is estimated with the same model used for estimating fair
value of the options granted to employees.  Because the option
valuation model incorporates ranges of assumptions for inputs, those ranges are
disclosed. Expected volatilities are based on implied volatilities from
historical volatility of the Company’s stock and other factors. Expected life of
the options is estimated to be equal to the vesting period for employees when
calculating the fair value of the options. When calculating the fair value of
the options issued to non-employees the expected life is equal to the actual
life of options. The Company recognizes the compensation cost for stock options
issued to non-employees over the service period, which is considered to be equal
to the vesting period. All options issued are expected to be
exercised.


F-14


Stock
options to employees are measured at fair value at the grant date and the
compensation cost is recognized on a straight-line basis over the vesting
period. The assumptions used when estimating the fair value at grant date are
specified in the table below.





Stock
options to non-employees are treated in accordance with EITF 96-18 and unvested
options are measured at fair value at each balance sheet date with a final
measurement date upon vesting. Fair value measurement of unvested options are
considered to be appropriate since the performance commitment for non-employees
has not been reached for unvested options. The fair value of the options is used
to measure the value of the services provided by the non-employees as it is
considered to be more reliable than measuring the fair value of the services
received. The compensation cost is recognized using the accelerated method. The
assumptions used are specified separately in the table below.





The
risk-free rate for periods within the contractual life of the stock options is
based on the U.S. Treasury yield curve in effect at the time of grant for
options to employees. The risk-free rate at year-end is used for stock options
issued to non-employees.





December
      31, 2008Weighted
      average figures
              
              Employees
              
              
              Non-employeesExpected
      volatility
              
              
              40.90
              %
              
              
              41.47
              %Expected
      dividends
              
              
              3.0
              %
              
              
              3.0
              %Expected
      life
              
              
              2.81
              
              
              
              6.27Risk-free
      rate (range)
              
              
              3.25
      % - 4.43
              %
              
              
              1.69
      – 1.85
              %





A summary
of option activity under the Plan as of December 31, 2008, and changes during
the year then ended is presented below:





Options
                                    
                                    Options
                                      employees
                                    
                                    
                                    Options
                                      non-employees
                                    
                                    
                                    Weighted-average
      exercise priceOutstanding
      at January 1, 2008
                                    
                                    
                                    250,000
                                    
                                    
                                    
                                    80,000
                                    
                                    
                                    
                                    $28.54Granted
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Exercised
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Forfeited
      or expired
                                    
                                    
                                    (10,000
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    $24.64Outstanding
      at December 31, 2008
                                    
                                    
                                    240,000
                                    
                                    
                                    
                                    80,000
                                    
                                    
                                    
                                    $24.81Exercisable
      at December 31, 2008
                                    
                                    
                                    227,500
                                    
                                    
                                    
                                    72,500
                                    
                                    
                                    
                                    $24.69





Outstanding
and exercisable stock options as at December 31, 2008 have a weighted-average
remaining contractual term of 6.22 years for employees and 6.33 years for
non-employees. The exercise price for outstanding stock options as at December
31, 2008 is in the range of $24.64 – $30.19.  The intrinsic value of
options outstanding at December 31, 2008 was $2.9 million and the intrinsic
value of exercisable options was $2.8 million.





One stock
option agreement with a non-executive Director was cancelled in November 2008.
The Company paid a lump sum of $ 0.1 million as full and final consideration for
this cancellation. The remaining compensation cost for this specific agreement
was less than $0.1 million and the Company has recognized $0.1 million as an
expense in the period. There have been no other exercise or payments related to
the stock option plan during the fiscal years 2006, 2007 or 2008.





Options
                                                -
                                                Employees
                                              
                                              
                                              Weighted-average
      grant-date fair value
                                                -
      Employees
                                              
                                              
                                              Options
                                                -
                                                Non-employees
                                              
                                              
                                              Weighted-average
      grant-date fair value
                                                -
      Non-employeesNon-vested
      at January 1, 2006
                                              
                                              
                                              185,000
                                              
                                              
                                              
                                              $18.38
                                              
                                              
                                              
                                              67,500
                                              
                                              
                                              
                                              $21.75Granted
      during the year
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Vested
      during the year
                                              
                                              
                                              (60,000
                                              )
                                              
                                              
                                              $17.84
                                              
                                              
                                              
                                              (20,000
                                              )
                                              
                                              
                                              $22.93Forfeited
      during the year
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Estimated
      forfeitures unvested options
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Non-vested
      at December 31, 2006
                                              
                                              
                                              125,000
                                              
                                              
                                              
                                              $18.64
                                              
                                              
                                              
                                              47,500
                                              
                                              
                                              
                                              $21.25





F-15





Options
                                              –
                                              Employees
                                            
                                            
                                            Weighted-average
      grant-date fair value
                                              -
      Employees
                                            
                                            
                                            Options
                                              -
                                              Non-employees
                                            
                                            
                                            Weighted-average
      grant-date fair value
                                              -
      Non-employeesNon-vested
      at January 1, 2007
                                            
                                            
                                            125,000
                                            
                                            
                                            
                                            $18.64
                                            
                                            
                                            
                                            47,500
                                            
                                            
                                            
                                            $21.25Granted
      during the year
                                            
                                            
                                            10,000
                                            
                                            
                                            
                                            $7.00
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Vested
      during the year
                                            
                                            
                                            (60,000
                                            )
                                            
                                            
                                            $17.84
                                            
                                            
                                            
                                            (20,000
                                            )
                                            
                                            
                                            $22.93Forfeited
      during the year
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Estimated
      forfeitures unvested options
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Non-vested
      at December 31, 2007
                                            
                                            
                                            75,000
                                            
                                            
                                            
                                            $17.73
                                            
                                            
                                            
                                            27,500
                                            
                                            
                                            
                                            $20.03








Options
                                              -
                                              Employees
                                            
                                            
                                            Weighted-average
      grant-date fair value
                                              -
      Employees
                                            
                                            
                                            Options
                                              -
                                              Non-employees
                                            
                                            
                                            Weighted-average
      grant-date fair value
                                              -
      Non-employeesNon-vested
      at January 1, 2008
                                            
                                            
                                            75,000
                                            
                                            
                                            
                                            $17.73
                                            
                                            
                                            
                                            27,500
                                            
                                            
                                            
                                            $20.03Granted
      during the year
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Vested
      during the year
                                            
                                            
                                            (52,500
                                            )
                                            
                                            
                                            $16.84
                                            
                                            
                                            
                                            (20,000
                                            )
                                            
                                            
                                            $22.93Forfeited
      during the year
                                            
                                            
                                            (10,000
                                            )
                                            
                                            
                                            $20.36
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Estimated
      forfeitures unvested options
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Non-vested
      at December 31, 2008
                                            
                                            
                                            12,500
                                            
                                            
                                            
                                            $7.78
                                            
                                            
                                            
                                            7,500
                                            
                                            
                                            
                                            $12.32





The total
fair value of options vested during the years ended December 31, 2008, 2007 and
2006 approximates the amounts expensed in the periods. Unrecognized compensation
cost related to the stock options is $0.1 million, which will be recognized over
a weighted average period of 1.44 years.





Specification
of the aggregate compensation cost related to the 2004 Stock Incentive Plan
recognized in the profit and loss account is disclosed in Note 5.





There is
no material income tax benefit for stock-based compensation due to the Company’s
tax structure.





Restricted
Shares to Employees and Non-Employees




Under the
terms of the Company’s 2004 Stock Incentive Plan 16,700 shares of restricted
stock awards were granted to certain employees and non-employees during 2006.
The restricted shares were granted on May 12, 2006 (the date the awards were
approved by the Board) at a grant date fair value of $31.99 per
share.





The fair
value of restricted shares is estimated based on the market price of the
Company’s shares. The fair value of restricted shares granted to employees is
measured at grant date and the fair value of unvested restricted shares granted
to non-employees is measured at fair value at each reporting date. See further
comments above related to measurement of options and restricted shares issued to
non-employees.





The
shares are considered restricted as the shares vest equally in annual
installments over a period of four years. The holders of the restricted shares
are entitled to receive dividends paid in the period as well as voting
rights.





The
restricted shares vest in four equal amounts in May 2007, May 2008, May 2009 and
May 2010. There were 9,700 restricted shares granted to employees and 7,000
restricted shares granted to non-employees in 2006. 2,425 (2007: 2,425)
restricted shares to employees and 1,750 (2007: 1,750) restricted shares to
non-employees vested in 2008.





The
compensation cost for employees and non-employees is recognized on a
straight-line basis over the vesting period. The total compensation cost in 2008
related to restricted shares was $ 0.1 million (2007: $0.1 million). The
intrinsic value of outstanding and vested restricted shares at December 31, 2008
was $0.6 million and $0.3 million, respectively.





F-16


At
December 31, 2008, there were 16,700 restricted shares outstanding at a
weighted-average grant date fair value of $31.99 for employees and $31.99 for
non-employees. As of December 31, 2008, unrecognized compensation cost related
to unvested restricted stock aggregated $0.2 million ($0.3 million per December
31, 2007), which will be recognized over a weighted average period of 0.92
years.





Specification
of the aggregate compensation cost related to the 2004 Stock Incentive Plan
recognized in the profit and loss account is disclosed in Note 5.





The
tables below summarize the Company’s restricted stock awards as of December 31,
2008 and December 31, 2007:





Restricted
      shares -Employees
                                            
                                            
                                            Weighted-average
      grant-date fair value
                                              -
      Employees
                                            
                                            
                                            Restricted
      shares
                                              -
      Non-employees
                                            
                                            
                                            Weighted-average
      grant-date fair value
                                              -
      Non-employeesNon-vested
      at January 1, 2007
                                            
                                            
                                            9,700
                                            
                                            
                                            
                                            $31.99
                                            
                                            
                                            
                                            7,000
                                            
                                            
                                            
                                            $31.99Granted
      during the year
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Vested
      during the year
                                            
                                            
                                            2,425
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,750
                                            
                                            
                                            
                                            -Forfeited
      during the year
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Non-vested
      at December 31, 2007
                                            
                                            
                                            7,275
                                            
                                            
                                            
                                            $31.99
                                            
                                            
                                            
                                            5,250
                                            
                                            
                                            
                                            $31.99





Restricted
      shares -Employees
                                            
                                            
                                            Weighted-average
      grant-date fair value
                                              -
      Employees
                                            
                                            
                                            Restricted
      shares
                                              -
      Non-employees
                                            
                                            
                                            Weighted-average
      grant-date fair value
                                              -
      Non-employeesNon-vested
      at January 1, 2008
                                            
                                            
                                            7,275
                                            
                                            
                                            
                                            $31.99
                                            
                                            
                                            
                                            5,250
                                            
                                            
                                            
                                            $31.99Granted
      during the year
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Vested
      during the year
                                            
                                            
                                            2,425
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,750
                                            
                                            
                                            
                                            -Forfeited
      during the year
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Non-vested
      at December 31, 2008
                                            
                                            
                                            4,850
                                            
                                            
                                            
                                            $31.99
                                            
                                            
                                            
                                            3,500
                                            
                                            
                                            
                                            $31.99




10.
            LONG-TERM
      DEBT




In
September 2005, the Company entered into a $300 million revolving credit
facility, which is referred to as the 2005 Credit Facility. The 2005 Credit
Facility provides funding for future vessel acquisitions and general corporate
purposes. The 2005 Credit Facility cannot be reduced by the lender and there is
no repayment obligation of the principal during the term of the facility.
Amounts borrowed under the 2005 Credit Facility bear interest at an annual rate
equal to LIBOR plus a margin between 0.70% and 1.20% (depending on the loan to
vessel value ratio). The Company pays a commitment fee of 30% of the applicable
margin on any undrawn amounts.  Total commitment fees paid for the
year ended December 31, 2008 and December 31, 2007 were $1.0 million and $0.8
million, respectively.





In
September 2006, the amount of the 2005 Credit Facility was increased to $500
million. The other terms of the 2005 Credit Facility were not amended. In April
2008, the Company extended the original five year term of the 2005 Credit
Facility to 2013. All other terms are unchanged The undrawn amount of this
facility as of December 31, 2008 and 2007 was $485.0 million and $ 394.5
million, respectively.





Borrowings
under the 2005 Credit Facility are secured by first priority mortgages over the
Company’s vessels and assignment of earnings and insurance. Under the terms and
conditions of the 2005 Credit Facility the Company is, among other things,
required to maintain certain loan to vessel value ratios, and to maintain a book
equity of no less than $150.0 million, and to remain listed on a recognized
stock exchange, and to obtain the consent of the lenders prior to creating liens
on or disposing of the Company’s vessels. The Company is permitted to pay
dividends in accordance with its dividend policy as long as it is not in default
under the 2005 Credit Facility.





At
December 31, 2008, accrued interest and commitment fee was $0.1 million which
was paid during the first quarter of 2009.





The
Company was in compliance with its loan covenants for the year ended December
31, 2008.


F-17





11.
            INTEREST
      EXPENSE




Interest
expense consists of interest expense on the long-term debt, the commitment fee
and amortization of the deferred financing costs related to the 2005 Credit
Facility. The $15 million drawn on the facility bears interest equal to LIBOR
plus a margin between 0.7% and 1.2%.  The deferred financing costs
incurred in connection with the refinancing of the previous credit facility are
deferred and amortized over the term of the 2005 Credit Facility on a
straight-line basis. The amortization of deferred financing costs for the years
ended December 2008, 2007 and 2006 was $0.6 million, $0.5 million and $0.4
million, respectively. Total capitalized deferred financing costs were $3.1
million and $1.4 million at December 31, 2008 and 2007,
respectively.








12.
            DEFERRED
      REVENUE




Deferred
revenue at December 31, 2008 of $0.4 million represents prepaid freight received
from one of our customers prior to December 31, 2008 for services to be rendered
during January 2009.








13.
            ACCRUED
      LIABILITIES







All figures in USD ‘000
                                        
                                        2008
                                        
                                        
                                        2007Accrued
      Interest
                                        
                                        
                                        85
                                        
                                        
                                        
                                        572Accrued
      Expenses - Technical and Commercial Managers
                                        
                                        
                                        2,997
                                        
                                        
                                        
                                        11,989Accrued
      commission
                                        
                                        
                                        462
                                        
                                        
                                        
                                        190Other
      Current Liabilities
                                        
                                        
                                        273
                                        
                                        
                                        
                                        3,780Total
      as per December 31,
                                        
                                        
                                        3,817
                                        
                                        
                                        
                                        16,531








14.
            EARNING
      PER SHARE




Basic
earnings per share (“EPS”) is computed by dividing net income by the weighted
average number of common shares outstanding for the period. Diluted EPS is
computed by dividing net income by the weighted average number of common shares
and dilutive common stock equivalents (i.e. stock options, warrants) outstanding
during the period.





All
      figures in USD
                                                          
                                                          2008
                                                          
                                                          
                                                          2007
                                                          
                                                          
                                                          2006Numerator:Net
      Income
                                                          
                                                          
                                                          118,844,410
                                                          
                                                          
                                                          
                                                          44,205,635
                                                          
                                                          
                                                          
                                                          67,393,423Denominator:Basic
      - Weighted Average Common Shares Outstanding
                                                          
                                                          
                                                          32,739,057
                                                          
                                                          
                                                          
                                                          28,252,472
                                                          
                                                          
                                                          
                                                          21,476,196Dilutive
      Effect of Stock Options *
                                                          
                                                          
                                                          93,797
                                                          
                                                          
                                                          
                                                          42,525
                                                          
                                                          
                                                          
                                                          -Dilutive
      – Weighted Average Common Shares Outstanding
                                                          
                                                          
                                                          32,832,854
                                                          
                                                          
                                                          
                                                          28,294,997
                                                          
                                                          
                                                          
                                                          21,476,196Income
      per Common Share:Basic
                                                          
                                                          
                                                          3.63
                                                          
                                                          
                                                          
                                                          1.56
                                                          
                                                          
                                                          
                                                          3.14Diluted
                                                          
                                                          
                                                          3.62
                                                          
                                                          
                                                          
                                                          1.56
                                                          
                                                          
                                                          
                                                          3.14





* For
2006 the Company’s average stock price was above the average exercise price of
the options and a dilutive effect on EPS could potentially arise. However, the
proceeds of an exercise of all outstanding options calculated as per the
Treasury Stock Method would exceed the costs of acquiring the shares at the
average stock price. The potential effect of the outstanding options is
therefore anti-dilutive and is not included in the calculation of diluted
earnings per share.  The average number of potentially dilutive
options was 320,000 for the year ended December 31, 2006.





F-18





15.
            SHAREHOLDERS’
      EQUITY




Authorized,
and issued and outstanding common shares roll-forward is as
follows:





All
      figures in USD  ́000, except number of shares
                                                                                                    
                                                                                                    Authorized
      Shares
                                                                                                    
                                                                                                    
                                                                                                    Issued
      and Out-standing Shares
                                                                                                    
                                                                                                    
                                                                                                    Common
      StockBalance
      at January 1, 2006
                                                                                                    
                                                                                                    
                                                                                                    51,200,000
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    16,644,496
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    166Issuance
      of Common
      Shares                      in
      Follow-on Offering
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    4,297,500
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    43Share-based
      Compensation
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    87,704
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1Issuance
      of Common
      Shares                      in
      Follow-on Offering
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    5,750,000
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    58Share-based
      Compensation
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    117,347
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1Restricted
      Shares
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    16,700Share-based
      Compensation
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    341Balance
      at December 31, 2006
                                                                                                    
                                                                                                    
                                                                                                    51,200,000
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    26,914,088
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    269Issuance
      of Common
      Shares                      in
      Follow-on Offering
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    3,000,000
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    30Share-based
      Compensation
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    61,224
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1Balance
      at December 31, 2007
                                                                                                    
                                                                                                    
                                                                                                    51,200,000
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    29,975,312
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    300Issuance
      of Common
      Shares                      in
      Follow-on Offering
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    4,310,000
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    43Share-based
      Compensation
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    87,959
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1Balance
      at December 31, 2008
                                                                                                    
                                                                                                    
                                                                                                    51,200,000
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    34,373,271
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    344





In May
2008, the Company completed an underwritten public offering of 4,310,000 common
shares.  The net proceeds from the offering were $158.9 million which were
used to prepare the Company for further expansions and repay borrowings under
the 2005 Credit Facility.





The total
issued and outstanding shares as of December 31, 2008 were 34,373,271 shares of
which 354,575 shares were restricted shares issued to the Manager and 8,350
shares were restricted shares issued to employees and non-employees as described
in Note 9. The total issued and outstanding shares as of December 31, 2007 were
29,975,312 shares of which 343,274 shares were restricted.




Additional
Paid in Capital





Included
in Additional Paid in Capital is the Company’s Share Premium Fund as defined by
Bermuda Law. The Share Premium Fund cannot be distributed without complying with
certain legal procedures designed to protect the creditors of the Company. The
Share Premium Fund was $0.0 million and $851.5 million as of December 31, 2008
and 2007 respectively.





On June
23, 2008, at the Company’s Annual General Assembly Meeting, shareholders voted
to reduce the Share Premium Fund by the amount of $1,010.3 million. The legal
procedures related to this reduction were finalized on August 29, 2008, upon
which the amount became eligible for distribution.




16.
            COMMITMENTS
      AND CONTINGENCIES




The
Company may be a party to various legal proceedings generally incidental to its
business and is subject to a variety of environmental and pollution control laws
and regulations. As is the case with other companies in similar industries, the
Company faces exposure from actual or potential claims and legal proceedings.
Although the ultimate disposition of legal proceedings cannot be predicted with
certainty, it is the opinion of the Company’s management that the outcome of any
claim which might be pending or threatened, either individually or on a combined
basis, will not have a materially adverse effect on the financial position of
the Company, but could materially affect the Company’s results of operations in
a given year.





F-19


No claims
have been filed against the Company for the fiscal year 2008 or 2007. The
Company is not a party to any legal proceedings for the year ended December 31,
2008 and December 31, 2007, respectively.





At
December 31, 2008, the Company had payment obligations totalling $211.3 million
in connection with the agreement to acquire two newbuildings entered into in
November 2007 and the double-hull Suezmax tanker Nordic Sprite agreed to
acquire in December 2008. The payments due in 2009 and 2010 are $148.8
million and $62.6 million, respectively.  Please see Note 8 for
further information related to the newbuildings.




17.
            SUBSEQUENT
      EVENTS




In
January 2009, the Company completed an underwritten public offering of 3,450,000
common shares which strengthened its equity by $107.5 million in order to
enhance the capacity of the Company to make further accretive
acquisitions.





In
February 2009, the double-hull Suezmax tanker Nordic Sprite was delivered to the
Company.





In
February 2009, the Company declared a dividend of $0.87 per share in respect of
the fourth quarter of 2008 which was paid to shareholders in March
2009.





In May
2009, the Company declared a dividend of $0.88 per share in respect of the first
quarter of 2009 which is expected to be paid to shareholders in June
2009.





In May
2009, the Company announced the acquisition of the Company's sixteenth
Suezmax vessel, a 150,000 dwt double-hull tanker for a purchase price of $57.0
million. The vessel is expected to be delivered from the seller no later than
July 15, 2009. The new vessel will be operated in the spot market or on spot
market-related charters.





* * * *
*





F-20


The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.











NORDIC
      AMERICAN TANKER SHIPPING LIMITEDBy:
              /s/
      Herbjørn HanssonName:
              Herbjørn
      HanssonTitle:
              Chairman
      andChief
      Executive Officer