Document:

EX-10.1

 Exhibit 10.1 

10 June 2014 
 TERM AND
REVOLVING FACILITIES AGREEMENT 
 between 

KNOT SHUTTLE TANKERS 18 AS, KNOT SHUTTLE TANKERS 17 AS and KNUTSEN SHUTTLE TANKERS 13 AS 

as borrowers 
 THE BORROWERS, KNOT
SHUTTLE TANKERS AS and KNOT OFFSHORE PARTNERS L.P 
 as guarantors 

THE FINANCIAL INSTITUTIONS 
 listed
in Schedule 1 
 as original lenders 

ABN AMRO BANK N.V., BNP PARIBAS, DNB BANK ASA and NORDEA BANK FINLAND PLC 

as original hedging banks 
 ABN
AMRO BANK N.V., OSLO BRANCH, BNP PARIBAS, DNB BANK ASA and NORDEA BANK NORGE ASA 
 as mandated lead arrangers and bookrunners 

NORDEA BANK NORGE ASA 
 as agent

  
  

USD 240,000,000 
  

 
  

 

 INDEX 
  

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

  
 2/120 

							
			
	 35
	 	 REMEDIES AND WAIVERS
	  	 	96	  
			
	 36
	 	 AMENDMENTS AND WAIVERS
	  	 	96	  
			
	 37
	 	 CONFIDENTIALITY
	  	 	99	  
			
	 38
	 	 COUNTERPARTS
	  	 	101	  
			
	 39
	 	 GOVERNING LAW
	  	 	101	  
			
	 40
	 	 ENFORCEMENT
	  	 	102	  

  

							
	 Schedules
	 	 	  	Page	 
			
	 1.
	 	 Lenders and Commitments
	  	 	103	  
			
	 2.
	 	 Conditions precedent documents
	  	 	104	  
			
	 3.
	 	 Form of Utilisation Request
	  	 	109	  
			
	 4.
	 	 Form of Selection Notice
	  	 	110	  
			
	 5.
	 	 Form of Transfer Certificate
	  	 	111	  
			
	 6.
	 	 Form of Increase Confirmation
	  	 	113	  
			
	 7.
	 	 Form of Compliance Certificate
	  	 	115	  
			
	 8.
	 	 List of Existing Hedging Agreements
	  	 	118	  

  
 3/120 

 THIS AGREEMENT (the “Agreement”) is dated 10 June 2014 and made between: 

 

	(1)	KNOT SHUTTLE TANKERS 18 AS, business enterprise no. NO 998 943 035, Smedasundet 40, NO-5529 Haugesund, Norway (the “Vessel A Owner”), KNOT SHUTTLE TANKERS 17 AS, business enterprise no. NO
998 942 969, Smedasundet 40, NO-5529 Haugesund, Norway (the “Vessel B Owner”) and KNUTSEN SHUTTLE TANKERS 13 AS, business enterprise no. NO 996 661 016, Smedasundet 40, NO-5529 Haugesund, Norway (the “Vessel C
Owner”), as borrowers (the “Borrowers”); 

  

	(2)	THE BORROWERS, KNOT SHUTTLE TANKERS AS, business enterprise no. NO 998 942 829, Smedasundet 40, NO-5529 Haugesund, Norway and KNOT OFFSHORE PARTNERS L.P., KNOT Offshore Partners LP, a limited
partnership organised under the laws of the Marshall Islands and having its registered office at Ajeltake Road, Ajeltake Island, Majuro, the Marshall Islands and its principal executive office at 2 Queen’s Cross, Aberdeen, Aberdeenshire AB15
4YB, United Kingdom (the “Parent Guarantor”), as guarantors (the “Guarantors”); 

  

	(3)	THE FINANCIAL INSTITUTIONS listed in Schedule 1 as original lenders (the “Original Lenders”); 

  

	(4)	ABN AMRO BANK N.V., Gustav Mahlerlaan 10, 1082 PP Amsterdam, The Netherlands, BNP PARIBAS, 16, Boulevard des Italiens, 75009 Paris, France, DNB BANK ASA, Dronning Eufemias gate 30, NO-0191 Oslo,
Norway and NORDEA BANK FINLAND PLC, Aleksis Kiven katu 9, FIN-00020 Nordea, Helsinki, Finland, as original hedging banks (the “Original Hedging Banks”); 

 

	(5)	ABN AMRO BANK N.V., OSLO BRANCH, Gustav Mahlerlaan 10, 1082 PP Amsterdam, The Netherlands, acting through its Oslo Branch, Olav V’s gt. 5, NO-0161 Oslo, Norway, BNP PARIBAS, 16, Boulevard des
Italiens, 75009 Paris, France, DNB BANK ASA, Dronning Eufemias gate 30, NO-0191 Oslo, Norway and NORDEA BANK NORGE ASA, Middelthuns gate 17, NO-0368 Oslo, Norway, as mandated lead arrangers and bookrunners (the
“Arrangers”); 

  

	(6)	NORDEA BANK NORGE ASA, Middelthuns gate 17, NO-0368 Oslo, Norway, as facility and security agent and trustee (the “Agent”). 

IT IS AGREED as follows: 
  

	1	INTERPRETATION 

  

	1.1	Definitions 

 In this Agreement: 

“Acceptable Bank” 

means a Lender or a bank or financial institution which has a rating for its long-term unsecured and non credit-enhanced debt obligations of A-
or higher by Standard & Poor’s Rating Services or Fitch Ratings Ltd or A3 or higher by Moody’s Investor Services Limited or a comparable rating from an internationally recognised credit rating agency. 

  
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 “Account Pledge” 

means a first priority pledge of an Earnings Account, to be entered into between each Borrower and the Agent, in such form and substance as the
Agent may require. 
 “Affiliate” 

means, in relation to any person, a Subsidiary of that person or a Holding Company of that person or any other Subsidiary of that Holding
Company. 
 “Approved Accounting Principles” 

means NGAAP in relation to the Borrowers and KNOT Shuttle Tankers AS and USGAAP in relation to the Parent Guarantor. 

“Approved Brokers” 

means Fearnleys A/S, RS Platou ASA, Lorentzen & Stemoco AS and any other ship broker approved by the Lenders. 

“Approved Ship Registers” 

means the official ship registers of Bahamas, Cayman Islands, Denmark, Hong Kong, Isle of Man, Liberia, Malta, Marshall Islands, Norway,
Singapore, United Kingdom and any other jurisdictions approved by the Lenders. 
 “Assignment Agreement” 

means a first priority assignment for each Vessel in respect of (i) all insurances to be taken out in respect of the Vessel and/or
(ii) any contract of employment (including, inter alia, step-in rights) entered into in respect of the Vessel for a period exceeding 18 months (including any options, extensions and/or renewals), to be entered into between each Borrower and the
Agent, in such form and substance as the Agent may require. 
 “Authorisation” 

means an authorisation, consent, approval, resolution, licence, exemption, filing, notarisation or registration. 

“Availability Period” 

means: 
  

	 	(i)	in relation to the Term Loan Facility, the period from and including the date of this Agreement to and including 30 June 2014; and 

 

	 	(ii)	in relation to the Revolving Facility, the period from and including the date of this Agreement to an including the date falling one month prior to the Termination Date. 

  
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 “Available Commitment” 

means, in relation to a Facility, a Lender’s Commitment under that Facility minus: 

 

	 	(i)	the amount of its participation in any outstanding Loans under that Facility; and 

  

	 	(ii)	in relation to any proposed Utilisation, the amount of its participation in any Loans that are due to be made under that Facility on or before the proposed Utilisation Date. 

“Available Facility” 

means, in relation to a Facility, the aggregate for the time being of each Lender’s Available Commitment in respect of that Facility. 

“Break Costs” 

means the amount (if any) by which: 
  

	 	(i)	the interest which a Lender should have received for the period from the date of receipt of all or any part of its participation in a Loan or Unpaid Sum to the last day of the current Interest Period in respect of that
Loan or Unpaid Sum, had the principal amount or Unpaid Sum received been paid on the last day of that Interest Period; 

exceeds: 
  

	 	(ii)	the amount which that Lender would be able to obtain by placing an amount equal to the principal amount or Unpaid Sum received by it on deposit with a leading bank in the London interbank market for a period starting on
the Business Day following receipt or recovery and ending on the last day of the current Interest Period. 

 “Business
Day” 
 means a day (other than a Saturday or Sunday) on which banks are open for general business in Oslo, London, Amsterdam, Paris
and New York. 
 “Change of Control” 

has the meaning given to that term in Clause 7.2 (Mandatory prepayment – Change of Control). 

“Code” 
 means
the US Internal Revenue Code of 1986. 
 “Commitment” 

means a Tranche A Commitment, a Tranche B Commitment, a Tranche C Commitment or a Revolving Facility Commitment. 

“Compliance Certificate” 

means a certificate substantially in the form set out in Schedule 7 (Form of Compliance Certificate). 

  
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 “Confidential Information” 

means all information relating to a Borrower, any Obligor, the Group, the Finance Documents or a Facility of which a Finance Party becomes
aware in its capacity as, or for the purpose of becoming, a Finance Party or which is received by a Finance Party in relation to, or for the purpose of becoming a Finance Party under, the Finance Documents or the Facilities from either: 

 

	 	(i)	any member of the Group or any of its advisers; or 

  

	 	(ii)	another Finance Party, if the information was obtained by that Finance Party directly or indirectly from any member of the Group or any of its advisers, 

in whatever form, and includes information given orally and any document, electronic file or any other way of representing or recording
information which contains or is derived or copied from such information but excludes information that: 
  

	 	(iii)	is or becomes public information other than as a direct or indirect result of any breach by that Finance Party of Clause 37 (Confidentiality); or 

 

	 	(iv)	is identified in writing at the time of delivery as non-confidential by any member of the Group or any of its advisers; or 

  

	 	(v)	is known by that Finance Party before the date the information is disclosed to it in accordance with paragraphs (i) or (ii) above or is lawfully obtained by that Finance Party after that date, from a source
which is, as far as that Finance Party is aware, unconnected with the Group and which, in either case, as far as that Finance Party is aware, has not been obtained in breach of, and is not otherwise subject to, any obligation of confidentiality.

 “Confidentiality Undertaking” 

means a confidentiality undertaking substantially in a recommended form of the LMA or in any other form agreed between the Borrowers and the
Agent. 
 “Default” 

means an Event of Default or any event or circumstance specified in Clause 24 (Events of Default) which would (with the expiry of a
grace period, the giving of notice, the making of any determination under the Finance Documents or any combination of any of the foregoing) be an Event of Default. 

“Defaulting Lender” 

means any Lender: 
  

	 	(i)	which has failed to make its participation in a Loan available or has notified the Agent that it will not make its participation in a Loan available by the Utilisation Date of that Loan in accordance with Clause 5.4
(Lender’s participation); 

  

	 	(ii)	which has otherwise rescinded or repudiated a Finance Document; or 

  

	 	(iii)	 with respect to which an Insolvency Event has occurred and is continuing, 

  
 7/120 

 unless, in the case of paragraph (i) above; 

 

	 	(iv)	its failure to pay is caused by: 

  

	 	(A)	administrative or technical error; or 

  

	 	(B)	a Disruption Event; and 

 payment is made within three (3) Business Days of its due date;
or 
  

	 	(v)	the Lender is disputing in good faith whether it is contractually obliged to make the payment in question. 

“Disruption Event” 

means either or both of: 
  

	 	(i)	a material disruption to those payment or communications systems or to those financial markets which are, in each case, required to operate in order for payments to be made in connection with a Facility (or otherwise in
order for the transactions contemplated by the Finance Documents to be carried out) which disruption is not caused by, and is beyond the control of, any of the Parties; or 

 

	 	(ii)	the occurrence of any other event which results in a disruption (of a technical or systems-related nature) to the treasury or payments operations of a Party preventing that, or any other Party: 

 

	 	(A)	from performing its payment obligations under the Finance Documents; or 

  

	 	(B)	from communicating with other Parties in accordance with the terms of the Finance Documents, 

and which (in either such case) is not caused by, and is beyond the control of, the Party whose operations are disrupted. 

“Earnings” 

means: 
  

	 	(i)	all freight, hire and passage moneys payable to any of the Borrowers as a consequence of the operation of any of the Vessels; 

  

	 	(ii)	any claim under any guarantee in respect of any charterparty, pool agreement or other contract of employment entered into by any of the Borrowers in respect of any of the Vessels or otherwise related to freight, hire or
passage moneys payable to any of the Borrowers as a consequence of the operation of any of the Vessels; 

  

	 	(iii)	compensation payable to any of the Borrowers in the event of any requisition of any of the Vessels; 

  

	 	(iv)	remuneration for salvage, towage and other services performed by any of the Vessels and payable to any of the Borrowers; 

  
 8/120 

	 	(v)	demurrage and retention money receivable by any of the Borrowers in relation to any of the Vessels; 

  

	 	(vi)	all moneys which are at any time payable under the insurances in respect of loss of Earnings; 

  

	 	(vii)	if and whenever any Vessel is employed on terms whereby any moneys falling within (i) to (vi) above are pooled or shared with any other person, that proportion of the net receipts of the relevant pooling or
sharing arrangement which is attributable to the relevant Vessel; and 

  

	 	(viii)	other money whatsoever due or to become due to any of the Borrowers from third parties in relation to any of the Vessels. 

“Earnings Account” 

means an account in the name of a Borrower with the Agent designated “Earnings Account” and to which any part of the Earnings of that
Borrower shall be paid. 
 “Environmental Approval” 

means any permit, licence, consent, approval and other authorisations and the filing of any notification, report or assessment required under
any Environmental Law. 
 “Environmental Claim” 

means: 
  

	 	(i)	any claim by any governmental, judicial or regulatory authority which arises out of an Environmental Incident or an alleged Environmental Incident or which relates to any Environmental Law; or 

 

	 	(ii)	any claim by any other person which relates to an Environmental Incident or to an alleged Environmental Incident, 

and “claim” means a claim for damages, compensation, fines, penalties or any other payment of any kind, whether or not similar to the
foregoing; an order or direction to take, or not to take, certain action or to desist from or suspend certain action; and any form of enforcement or regulatory action, including the arrest or attachment of any asset. 

“Environmental Incident” 

means: 
  

	 	(i)	any release of Environmentally Sensitive Material from a Vessel; or 

  

	 	(ii)	any incident in which Environmentally Sensitive Material is released from another Vessel or vessel and which involves a collision between a Vessel and such other Vessel or vessel or some other incident of navigation or
operation in connection with which a Vessel is actually or potentially liable to be arrested, attached, detained or injuncted and/or where a Vessel and/or an Obligor and/or any operator or manager of a Vessel is at fault or allegedly at fault or
otherwise liable to any legal or administrative action; or 

  
 9/120 

	 	(iii)	any other incident in which Environmentally Sensitive Material is released otherwise than from a Vessel and in connection with which a Vessel is actually or potentially liable to be arrested, attached, detained or
injuncted and/or where a Vessel and/or an Obligor and/or any operator or manager of a Vessel is at fault or allegedly at fault or otherwise liable to any legal or administrative action. 

“Environmental Law” 

means any law relating to pollution or protection of the environment, to the carriage of Environmentally Sensitive Material or to actual or
threatened releases of Environmentally Sensitive Material. 
 “Environmentally Sensitive Material” 

means oil, oil products and any other substance (including any chemical, gas or other hazardous or noxious substance) which is (or is capable
of being or becoming) polluting, toxic or hazardous. 
 “Event of Default” 

means an event specified as such in Clause 24 (Events of Default). 

“Existing Facilities” 

means: 
  

	 	(i)	the USD 85,000,000 term loan facility agreement dated 25 April 2007 entered into between, amongst others, by the Vessel A Owner as borrower and with HSH Nordbank AG as lender and agent (as later amended and
restated); 

  

	 	(ii)	the USD 120,000,000 loan and guarantee facility agreement dated 11 February 2011 entered into between, amongst others, the Vessel B Owner as borrower, Eksportfinans ASA, DNB Bank ASA and Nordea Bank Norge ASA
as lenders and Nordea Bank Norge ASA as agent (as later amended and restated); and 

  

	 	(iii)	the USD 93,000,000 secured term loan facility agreement dated 11 July 2011 entered into between, amongst others, the Vessel C Owner as borrower, with DNB Bank ASA, Nordea Bank Norge ASA, ABN AMRO Bank N.V.
Oslo Branch and Crédit Agricole Corporate and Investment Bank as lenders and mandated lead arrangers and DNB Bank ASA as agent (as later amended and restated). 

“Existing Hedging Agreements” 

means the hedging agreements listed in Schedule 8 (List of Existing Hedging Agreements). 

“Facility” 

means the Term Loan Facility or the Revolving Facility. 

  
 10/120 

 “Facility Office” 

means: 
  

	 	(i)	in respect of a Lender, the office or offices notified by that Lender to the Agent in writing on or before the date it becomes a Lender (or, following that date, by not less than five (5) Business Days’
written notice) as the office or offices through which it will perform its obligations under this Agreement; or 

  

	 	(ii)	in respect of any other Finance Party, the office in the jurisdiction in which it is resident for tax purposes. 

“Factoring Agreement” 

means a floating charge (Norw.: Avtale om factoringpant) over the trade receivables of a Borrower in the amount of USD 290,000,000, to
be executed by each Borrower in favour of the Agent, in such form and substance as the Agent may require. 
 “FATCA” 

means: 
  

	 	(i)	sections 1471 to 1474 of the Code or any associated regulations or other official guidance; 

  

	 	(ii)	any treaty, law, regulation or other official guidance enacted in any other jurisdiction, or relating to an intergovernmental agreement between the US and any other jurisdiction, which (in either case) facilitates the
implementation of paragraph (a) above; or 

  

	 	(iii)	any agreement pursuant to the implementation of paragraphs (a) or (b) above with the US Internal Revenue Service, the US government or any governmental or taxation authority in any other jurisdiction.

 “FATCA Application Date” 

means: 
  

	 	(i)	in relation to a “withholdable payment” described in section 1473(1)(A)(i) of the Code (which relates to payments of interest and certain other payments from sources within the US), 1 July 2014;

  

	 	(ii)	in relation to a “withholdable payment” described in section 1473(1)(A)(ii) of the Code (which relates to “gross proceeds” from the disposition of property of a type that can produce interest from
sources within the US), 1 January 2017; or 

  

	 	(iii)	in relation to a “passthru payment” described in section 1471(d)(7) of the Code not falling within paragraphs (a) or (b) above, 1 January 2017, 

or, in each case, such other date from which such payment may become subject to a deduction or withholding required by FATCA as a result of any
change in FATCA after the date of this Agreement. 
 “FATCA Deduction” 

means a deduction or withholding from a payment under a Finance Document required by FATCA. 

  
 11/120 

 “FATCA Exempt Party” 

means a Party that is entitled to receive payments free from any FATCA Deduction. 

“FATCA FFI” 

means a foreign financial institution as defined in section 1471(d)(4) of the Code which, if any Finance Party is not a FATCA Exempt Party,
could be required to make a FATCA Deduction. 
 “Fee Letter” 

means the letters dated 2 April 2014 between the Agent and the Borrowers setting out certain of the fees referred to in Clause 11
(Fees). 
 “Finance Document” 

means this Agreement, any Hedging Agreement, any Security Document, the Intercreditor Agreement, any Fee Letter and any other document
designated as such by the Agent and the Borrowers. 
 “Finance Lease” 

means any lease or hire purchase contract which would, in accordance with the Approved Accounting Principles, be treated as a finance or
capital lease. 
 “Finance Parties” 

means the Agent, the Arrangers, the Hedging Banks and the Lenders. 

“Financial Indebtedness” 

means any indebtedness for or in respect of: 
  

	 	(i)	moneys borrowed and debit balances at banks or other financial institutions; 

  

	 	(ii)	any acceptance under any acceptance credit or bill discounting facility (or dematerialised equivalent); 

  

	 	(iii)	any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; 

  

	 	(iv)	the amount of any liability in respect of Finance Leases; 

  

	 	(v)	receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis); 

  

	 	(vi)	any Treasury Transaction (and, when calculating the value of that Treasury Transaction, only the marked to market value (or, if any actual amount is due as a result of the termination or close-out of that Treasury
Transaction, that amount) shall be taken into account); 

  

	 	(vii)	 any counter-indemnity obligation in respect of a guarantee, bond, standby or documentary letter of credit or any other instrument issued by a bank or
financial 

  
 12/120 

	 	
institution in respect of an underlying liability of an entity which is not a member of the Group which liability would fall within one of the other paragraphs of this definition;

  

	 	(viii)	any amount raised by the issue of shares which are redeemable (other than at the option of the issuer) before the Termination Date or are otherwise classified as borrowings under the Approved Accounting Principles);

  

	 	(ix)	any amount of any liability under an advance or deferred purchase agreement if (A) one of the primary reasons behind entering into the agreement is to raise finance or to finance the acquisition or construction of
the asset or service in question or (B) the agreement is in respect of the supply of assets or services and payment is due more than ninety (90) days after the date of supply; 

 

	 	(x)	any amount raised under any other transaction (including any forward sale or purchase, sale and sale back or sale and leaseback agreement) having the commercial effect of a borrowing or otherwise classified as
borrowings under the Accounting Principles; and 

  

	 	(xi)	the amount of any liability in respect of any guarantee for any of the items referred to in paragraphs (i) to (x) above. 

“First Share Pledge Agreement” 

means the first priority pledge of all of the shares in each Borrower, to be entered into between KNOT Shuttle Tankers AS and the Agent, in
such form and substance as the Agent may require. 
 “General Partner” 

means KNOT Offshore Partners GP LLC, a limited partnership organised under the laws of the Marshall Islands and having its registered office at
Ajeltake Road, Ajeltake Island, Majuro, the Marshall Islands and its principal executive office at 2 Queen’s Cross, Aberdeen, Aberdeenshire, AB15 4YB, United Kingdom, being the general partner in KNOT Offshore Partners LP. 

“Group” 
 means
the Parent Guarantor and its Subsidiaries from time to time. 
 “Hedging Agreement” 

means any agreement entered into or to be entered into between a Borrower and a Hedging Bank for the hedging of the interest rate or currency
exposure of that Borrower or any part thereof, including the Existing Hedging Agreements, in each case (other than in respect of the Existing Hedging Agreements) notified in writing by the relevant Hedging Bank to the Agent as being a “Hedging
Agreement” for the purpose of this Agreement pursuant to paragraph (c) of Clause 17 (Security). 
 “Hedging
Agreement Assignment Agreement” 
 means a first priority assignment agreement in respect of the moneys payable to a Borrower under
any Hedging Agreement to which it is a party, to be entered into between each relevant Borrower and the Agent, in such form and substance as the Agent may require. 

  
 13/120 

 “Hedging Bank” 

means: 
  

	 	(i)	any Original Hedging Bank; and 

  

	 	(ii)	any Lender or Affiliate of a Lender which has become a Party as a Hedging Bank in accordance with Clause 25.7 (Accession of Hedging Banks). 

“Holding Company” 

means, in relation to any company or corporation, any other company or corporation in respect of which it is a Subsidiary. 

“IFRS” 
 means
international accounting standards within the meaning of the IAS Regulation 1606/2002 to the extent applicable to the relevant financial statements. 

“Impaired Agent” 

means the Agent at any time when: 
  

	 	(i)	it has failed to make (or has notified a Party that it will not make) a payment required to be made by it under the Finance Documents by the due date for payment; 

 

	 	(ii)	the Agent otherwise rescinds or repudiates a Finance Document; 

  

	 	(iii)	(if the Agent is also a Lender) it is a Defaulting Lender under paragraph (i) or (ii) of the definition of “Defaulting Lender”; or 

 

	 	(iv)	an Insolvency Event has occurred and is continuing with respect to the Agent; 

 unless, in the
case of paragraph (i) above: 
  

	 	(v)	its failure to pay is caused by: 

  

	 	(A)	administrative or technical error; or 

  

	 	(B)	a Disruption Event; and 

 payment is made within five (5) Business Days of its due date;
or 
  

	 	(vi)	the Agent is disputing in good faith whether it is contractually obliged to make the payment in question. 

“Increase Confirmation” 

means a confirmation substantially in the form set out in Schedule 6 (Form of Increase Confirmation). 

  
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 “Increase Lender” 

has the meaning given to that term in Clause 2.2 (Increase). 

“Insolvency Event” 

in relation to a Finance Party means that the Finance Party: 
  

	 	(i)	is dissolved (other than pursuant to a consolidation, amalgamation or merger); 

  

	 	(ii)	becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; 

 

	 	(iii)	makes a general assignment, arrangement or composition with or for the benefit of its creditors; 

  

	 	(iv)	institutes or has instituted against it, by a regulator, supervisor or any similar official with primary insolvency, rehabilitative or regulatory jurisdiction over it in the jurisdiction of its incorporation or
organisation or the jurisdiction of its head or home office, a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition
is presented for its winding-up or liquidation by it or such regulator, supervisor or similar official; 

  

	 	(v)	has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is
presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition is instituted or presented by a person or entity not described in paragraph
(iv) above and: 

  

	 	(A)	results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation; or 

 

	 	(B)	is not dismissed, discharged, stayed or restrained in each case within thirty (30) days of the institution or presentation thereof; 

 

	 	(vi)	has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); 

 

	 	(vii)	seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets;

  

	 	(viii)	has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all
its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within thirty (30) days thereafter; 

 

	 	(ix)	causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in paragraphs (i) to (viii) above; or

  

	 	(x)	takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts. 

  
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 “Intercreditor Agreement” 

means an intercreditor agreement to be entered into between the Agent, DNB Bank ASA as agent under the KST XII Facility Agreement, KNOT Shuttle
Tankers 12 AS and KNOT Shuttle Tankers AS in relation to the ranking and priority of the First Share Pledge Agreement and the Second Share Pledge Agreement. 

“Interest Period” 

means, in relation to a Loan, each period determined in accordance with Clause 9 (Interest Periods) and, in relation to an Unpaid Sum,
each period determined in accordance with Clause 8.3 (Default interest). 
 “Interpolated Screen Rate” 

means, in relation to LIBOR for any Loan, the rate which results from interpolating on a linear basis between: 

 

	 	(i)	the applicable Screen Rate for the longest period (for which that Screen Rate is available) which is less than the Interest Period of that Loan; and 

 

	 	(ii)	the applicable Screen Rate for the shortest period (for which that Screen Rate is available) which exceeds the Interest Period of that Loan, 

each as of 12:00 noon on the Quotation Day for the currency of that Loan. 

“ISM Code” 

means the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevent. 

“ISPS Code” 

means the International Ship and Port Facility Security (ISPS) Code as adopted by the International Maritime Organization’s (IMO)
Diplomatic Conference of December 2002. 
 “KST XII Facility Agreement” 

means the USD 140,000,000 term loan facility agreement entered into or to be entered into between Knutsen Shuttle Tankers XII KS as borrower,
the Parent Guarantor and KNOT Shuttle Tankers AS as guarantors, the financial institutions listed in schedule 1 thereto as original lenders, the Original Hedging Banks as original hedging banks, the Arrangers as mandated lead arrangers and
bookrunners and DNB Bank ASA as agent. 
 “Legal Reservations” 

means: 
  

	 	(i)	the principle that equitable remedies may be granted or refused at the discretion of a court and the limitation of enforcement by laws relating to insolvency, reorganisation and other laws generally affecting the rights
of creditors; 

  
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	 	(ii)	the time barring of claims under applicable statutes of limitation, the possibility that an undertaking to assume liability for or indemnify a person against non-payment of stamp duty may be void and defences of set-off
or counterclaim; 

  

	 	(iii)	similar principles, rights and defences under the laws of any relevant jurisdiction; and 

  

	 	(iv)	any other matters which are specifically set out as qualifications or reservations as to matters of law of general application in any legal opinion delivered in relation to the Finance Documents. 

“Lender” 

means: 
  

	 	(i)	any Original Lender; and 

  

	 	(ii)	any bank or financial institution which has become a Party in accordance with Clause 25 (Changes to the Lenders), 

which in each case has not ceased to be a Party in accordance with the terms of this Agreement. 

“LIBOR” 
 means
in relation to any Loan: 
  

	 	(i)	the applicable Screen Rate; 

  

	 	(ii)	(if no Screen Rate is available for the Interest Period of that Loan) the Interpolated Screen Rate for that Loan; or 

  

	 	(iii)	(if no Screen Rate is available for the Interest Period of that Loan and it is not possible to calculate an Interpolated Screen Rate for that Loan) the arithmetic mean (rounded upward to four decimal places) of the
rates per annum, as supplied to the Agent at its request, quoted by each Reference Bank to leading banks in the London interbank market, 

as of 12:00 noon on the applicable Quotation Day for the offering of deposits in USD for a period comparable to the Interest Period of the
relevant Loan, and if that rate is less than zero, LIBOR shall be deemed to be zero. 
 “LMA” 

means the Loan Market Association. 

“Loan” 
 means a
Term Loan or a Revolving Facility Loan. 

  
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 “Loan Period” 

means the period commencing on the date of this Agreement and ending on the day on which all amounts outstanding under the Finance Documents,
or any of them, have been repaid in full and no Commitment is longer in force. 
 “Majority Lenders” 

means: 
  

	 	(i)	if there are no Loans then outstanding, a Lender or Lenders whose Commitments aggregate more than 66 2⁄3 per cent. of the
Total Commitments (or, if the Total Commitments have been reduced to zero, aggregated more than 66 2⁄3 per cent. of the Total Commitments immediately
prior to the reduction); or 

  

	 	(ii)	at any other time, a Lender or Lenders whose participations in the Loans then outstanding aggregate more than 66 2⁄3 per
cent. of all the Loans then outstanding. 

 “Margin” 

means 2.125 (two point one hundred and twenty five) per cent. per annum. 

“Market Value” 

means the fair market value of each Vessel denominated in USD and determined by calculating the arithmetic mean of the independent valuations
of each Vessel obtained by the Borrowers from two (2) of the Approved Brokers. Such valuations to be made on the basis of a sale for prompt delivery, for cash at arm’s length on normal commercial terms as between a willing buyer and
seller, on an “as is where is” basis free of any existing charter or other contract of employment and/or pool arrangements. 

“Material Adverse Effect” 

means in the reasonable opinion of the Majority Lenders a material adverse effect on: 

 

	 	(i)	the business, operations, property or condition (financial or otherwise) of the Group taken as a whole; or 

  

	 	(ii)	the ability of any Obligor to perform its obligations under the Finance Documents; or 

  

	 	(iii)	the validity or enforceability of, or the effectiveness or ranking of any Security granted or purporting to be granted pursuant to any of, the Finance Documents or the rights or remedies of any Finance Party under any
of the Finance Documents. 

 “Mortgage” 

means a first priority mortgage in respect of each Vessel (and a deed of covenants collateral thereto if required by the Agent or by the law of
the relevant jurisdiction) executed or to be executed and recorded by the relevant Borrower against each Vessel in the relevant ship register in favour of the Agent, in such form and substance as the Agent may require. 

  
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 “NGAAP” 

means generally accepted accounting principles in Norway. 

“Obligor” 

means a Borrower or a Guarantor. 

“Original Financial Statements” 

means the audited consolidated financial statements of the Parent Guarantor for the financial year ended 31 December 2013. 

“Party” 
 means
a party to this Agreement. 
 “Quotation Day” 

means in relation to any period for which an interest rate is to be determined, two (2) Business Days before the first day of that period.

 “Reference Banks” 

means such banks as may be appointed by the Agent in consultation with the Borrowers and approved by the Majority Lenders. 

“Repayment Instalment” 

means each repayment instalment payable as set out in Clause 6.1 (Repayment of Term Loans). 

“Repeating Representations” 

means each of the representations set out in Clause 19 (Representations and warranties) other than those set out in Clause 19.7
(Deduction of tax), Clause 19.8 (No filing or stamp taxes), paragraph (a) and (b) of Clause 19.10 (No misleading information) and paragraph (a) of Clause 19.11 (Financial statements). 

“Representative” 

means any delegate, agent, manager, administrator, nominee, attorney, trustee or custodian. 

“Restricted Party” 

means a person: 
  

	 	(i)	that is listed on any Sanctions List (whether designated by name or by reason of being included in a class of person); 

  

	 	(ii)	that is domiciled, registered as located or having its main place of business in, or is incorporated under the laws of, a country which is subject to Sanctions Laws; 

  
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	 	(iii)	that is directly or indirectly owned or controlled by a person referred to in (i) and/or (ii) above; or 

  

	 	(iv)	with which any Lender is prohibited from dealing or otherwise engaging in transactions with by any Sanctions Laws. 

“Revolving Facility” 

means the revolving credit facility made available under this Agreement as described in paragraph (b) of Clause 2.1 (The
Facilities). 
 “Revolving Facility Commitment” 

means: 
  

	 	(i)	in relation to an Original Lender, the amount in USD set opposite its name under the heading “Revolving Facility Commitment” in Schedule 1 (Lenders and Commitments) and the amount of any other Revolving
Facility Commitment transferred to it under this Agreement or assumed by it in accordance with Clause 2.2 (Increase); and 

  

	 	(ii)	in relation to any other Lender, the amount of any other Revolving Facility Commitment transferred to it under this Agreement or assumed by it in accordance with Clause 2.2 (Increase), 

to the extent not cancelled, reduced or transferred by it under this Agreement. 

“Revolving Facility Loan” 

means a loan made or to be made under the Revolving Facility or the principal amount outstanding for the time being of that loan. 

“Rollover Loan” 
  

	 	(i)	means one or more Revolving Facility Loans made or to be made on the same day that a maturing Revolving Facility Loan is due to be repaid; 

 

	 	(ii)	the aggregate amount of which is equal to or less than the amount of the maturing Revolving Facility Loan; and 

  

	 	(iii)	made or to be made to the same Borrower for the purpose of refinancing that maturing Revolving Facility Loan. 

“Sanctions Authority” 

means the Norwegian State, the United Nations, the European Union, the member states of the European Union, the United States of America and
any authority acting on behalf of any of them in connection with Sanctions Laws, including, without limitation, the Office of Foreign Assets Control of the US Department of Treasury (“OFAC”), the United States Department of State
and Her Majesty’s Treasury (“HMT”). 

  
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 “Sanctions Laws” 

means the economic or financial sanctions laws and/or regulations, trade embargoes, prohibitions, restrictive measures, decisions, executive
orders or notices from regulators implemented, adapted, imposed administered, enacted and/or enforced by any Sanctions Authority. 

“Sanctions List” 

means any list of persons or entities published in connections with Sanctions Laws by or on behalf of any Sanctions Authority, including,
without limitation, the “Specially Designated Nationals and Blocked Persons” list maintained by OFAC, the “Consolidated List of Financial Sanctions Targets”, maintained by HMT. 

“Screen Rate” 

means the London interbank offered rate administered by ICE Benchmark Administration Limited (or any other person which takes over the
administration of that rate) for the relevant currency and period displayed on pages LIBOR01 or LIBOR02 of the Reuters screen (or any replacement Reuters page which displays that rate), or on the appropriate page of such other information service
which publishes that rate from time to time in place of Reuters. If such page or service ceases to be available, the Agent may specify another page or service displaying the relevant rate after consultation with the Borrowers. 

“Second Limited Partnership Pledge Agreement” 

means the second priority pledge of all of the limited partnership shares in Knutsen Shuttle Tankers XII KS, to be entered into between KNOT
Shuttle Tankers 12 AS and the Agent, and the second priority pledge of all the shares in Knutsen Shuttle Tankers XII AS, to be entered into between KNOT Shuttle Tankers AS and the Agent, each in such form and substance as the Agent may require. 

“Second Share Pledge Agreement” 

means the second priority pledge of all of the shares in each Borrower, to be entered into between KNOT Shuttle Tankers AS and DNB Bank ASA as
agent under the KST XII Facility Agreement. 
 “Security Documents” 

means each of the documents referred to in Clause 17 (Security) and all such other documents which may be executed by any of the
Obligors at any time in favour of the Agent or any of the Finance Parties directly as security for the obligations of any Obligor under the Finance Documents or any of them. 

“Security” 

means a mortgage, charge, pledge, lien or other security interest securing any obligation of any person or any other agreement or arrangement
having a similar effect. 
 “Selection Notice” 

means a notice substantially in the form set out in Schedule 4 (Form of Selection Notice) given in accordance with Clause 9 (Interest
Periods). 

  
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 “Sponsor” 

means Knutsen NYK Offshore Tankers AS, business enterprise no. NO 995 221 703, Smedasundet 40, NO-5529 Haugesund, Norway. 

“Subordinated Loan” 

means any loan made by a member of the Group to a Borrower which is subordinated to the rights of the Finance Parties under the Finance
Documents on terms acceptable to the Lenders. 
 “Subsidiary” 

means an entity of which a person has direct or indirect control or owns directly or indirectly more than fifty (50) per cent. of the
voting capital or similar right of ownership, and “control” for this purpose means the power to direct the management and the policies of the entity whether through the ownership of voting capital, by contract or otherwise. 

“Tax” 
 means
any tax, levy, impost, duty or other charge or withholding of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same). 

“Term Loan” 

means a loan made or to be made under the Term Loan Facility or the principal amount outstanding for the time being of that loan. 

“Term Loan Facility” 

means the term loan facility made available under this Agreement as described in paragraph (a) of Clause 2.1 (The Facilities). 

“Termination Date” 

means the date falling five (5) years after the date of this Agreement. 

“Total Commitments” 

means the aggregate of the Total Term Loan Facility Commitments and the Total Revolving Facility Commitments, being USD 240,000,000 at the date
of this Agreement. 
 “Total Loss” 

means: 
  

	 	(i)	an actual, constructive, compromised, agreed, arranged or other total loss of a Vessel; 

  

	 	(ii)	 any expropriation, confiscation, requisition or acquisition of a Vessel, whether for full consideration, a consideration less than her proper value, a
nominal consideration or without any consideration, which is effected by any government or 

  
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official authority or by any person or persons claiming to be or to represent a government or official authority, excluding a requisition for hire for a fixed period against payment of market
hire, not exceeding one year without any right to extension, or any piracy or hijacking of a Vessel, unless the relevant Vessel is released and restored to the relevant Borrower from such piracy, hijacking, expropriation, confiscation, requisition
or acquisition within two (2) months after the occurrence thereof; and 

  

	 	(iii)	any condemnation of a Vessel by any tribunal or by any person or persons claiming to be a tribunal. 

“Total Loss Date” 

means: 
  

	 	(i)	in the case of an actual loss of a Vessel, the date on which it occurred or, if that is unknown, the date when the relevant Vessel was last heard of; 

 

	 	(ii)	in the case of a constructive, compromised, agreed or arranged total loss of a Vessel, the earlier of (A) the date on which a notice of the abandonment is given to the insurers, and (B) the date of any
compromise, arrangement or agreement made by or on behalf of the relevant Borrower with the relevant Vessel’s insurers in which the insurers agree to treat the Vessel as a total loss; and 

 

	 	(iii)	in the case of any other type of total loss, on the date (or the most likely date) on which it appears to the Agent that the event constituting the total loss occurred. 

“Total Revolving Facility Commitments” 

means the aggregate of the Revolving Facility Commitments, being USD 20,000,000 at the date of this Agreement. 

“Total Term Loan Facility Commitments” 

means the aggregate of the Tranche A Commitments, the Tranche B Commitments and the Tranche C Commitments, being USD 220,000,000 at the date of
this Agreement. 
 “Total Tranche A Commitments” 

means the aggregate of the Tranche A Commitments, being USD 71,159,030 at the date of this Agreement. 

“Total Tranche B Commitments” 

means the aggregate of the Tranche B Commitments, being USD 77,681,940 at the date of this Agreement. 

“Total Tranche C Commitments” 

means the aggregate of the Tranche C Commitments, being USD 71,159,030 at the date of this Agreement. 

  
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 “Tranche” 

means Tranche A, Tranche B or Tranche C. 

“Tranche A” 

means a part of the Term Loan Facility made available to the Vessel A Owner. 

“Tranche A Commitment” 

means: 
  

	 	(i)	in relation to an Original Lender, the amount in USD set opposite its name under the heading “Tranche A Commitment” in Schedule 1 (Lenders and Commitments) and the amount of any other Tranche A
Commitment transferred to it under this Agreement or assumed by it in accordance with Clause 2.2 (Increase); and 

  

	 	(ii)	in relation to any other Lender, the amount of any other Tranche A Commitment transferred to it under this Agreement or assumed by it in accordance with Clause 2.2 (Increase), 

to the extent not cancelled, reduced or transferred by it under this Agreement. 

“Tranche B” 

means a part of the Term Loan Facility made available to the Vessel B Owner. 

“Tranche B Commitment” 

means: 
  

	 	(i)	in relation to an Original Lender, the amount in USD set opposite its name under the heading “Tranche B Commitment” in Schedule 1 (Lenders and Commitments) and the amount of any other Tranche B
Commitment transferred to it under this Agreement or assumed by it in accordance with Clause 2.2 (Increase); and 

  

	 	(ii)	in relation to any other Lender, the amount of any other Tranche B Commitment transferred to it under this Agreement or assumed by it in accordance with Clause 2.2 (Increase), 

to the extent not cancelled, reduced or transferred by it under this Agreement. 

“Tranche C” 

means a part of the Term Loan Facility made available to the Vessel C Owner. 

“Tranche C Commitment” 

means: 
  

	 	(i)	in relation to an Original Lender, the amount in USD set opposite its name under the heading “Tranche C Commitment” in Schedule 1 (Lenders and Commitments) and the amount of any other Tranche C
Commitment transferred to it under this Agreement or assumed by it in accordance with Clause 2.2 (Increase); and 

  

	 	(ii)	in relation to any other Lender, the amount of any other Tranche C Commitment transferred to it under this Agreement or assumed by it in accordance with Clause 2.2 (Increase), 

  
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 to the extent not cancelled, reduced or transferred by it under this Agreement. 

“Transaction Security” 

means the security created or expressed to be created in favour of the Agent pursuant to the Security Documents. 

“Transfer Certificate” 

means a certificate substantially in the form set out in Schedule 5 (Form of Transfer Certificate) or any other form agreed between the
Agent and the Borrowers. 
 “Transfer Date” 

means, in relation to an assignment or a transfer, the later of: 
  

	 	(i)	the proposed Transfer Date specified in the relevant Transfer Certificate; and 

  

	 	(ii)	the date on which the Agent executes the relevant Transfer Certificate. 

 “Treasury
Transaction” 
 means any derivative transaction entered into in connection with protection against or benefit from fluctuation in
any rate or price. 
 “Unpaid Sum” 

means any sum due and payable but unpaid by an Obligor under any of the Finance Documents. 

“US Tax Obligor” 

means: 
  

	 	(i)	a Borrower if it is resident for tax purposes in the United States of America; or 

  

	 	(ii)	an Obligor some or all of whose payments under the Finance Documents are from sources within the United States for US federal income tax purposes. 

“USD” 
 means
the lawful currency for the time being of the United States of America. 
 “USGAAP” 

means generally accepted accounting principles in the United States of America. 

  
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 “Utilisation” 

means a utilisation of a Facility. 

“Utilisation Date” 

means the date of a Utilisation, being the date on which the relevant Loan is to be made. 

“Utilisation Request” 

means a notice substantially in the form set out in Schedule 3 (Form of Utilisation Request). 

“VAT” 
 means
value added tax as provided for in the Norwegian Value Added Tax Act of 19 June 2009 No. 58 and any other tax of a similar nature. 

“Vessel” 
 means
Vessel A, Vessel B or Vessel C. 
 “Vessel A” 

means the 159,000 dwt suezmax tanker “Windsor Knutsen” built in 2007 and registered in the name of the Vessel A Owner in the
Norwegian international ship registry. 
 “Vessel B” 

means the 160,000 dwt suezmax tanker “Bodil Knutsen” built in 2011 and registered in the name of the Vessel B Owner in the Isle of
Man ship registry. 
 “Vessel C” 

means the 157,000 dwt suezmax tanker “Carmen Knutsen” built in 2013 and registered in the name of the Vessel C Owner in the Maltese
ship registry. 
  

	1.2	Construction 

  

	(a)	Unless a contrary indication appears, any reference in this Agreement to: 

  

	 	(i)	the “Agent”, any “Arranger”, any “Borrower”, any “Finance Party”, any “Guarantor”, any “Hedging Bank”, any
“Lender”, any “Obligor” or any “Party” shall be construed so as to include its successors in title, permitted assigns and permitted transferees; 

 

	 	(ii)	“assets” includes present and future properties, revenues and rights of every description; 

  

	 	(iii)	a “Finance Document” or any other agreement or instrument is a reference to that Finance Document or other agreement or instrument as amended, novated, supplemented, extended or restated;

  
 26/120 

	 	(iv)	“guarantee” means (other than in Clause 18 (Guarantee and indemnity)) any guarantee, letter of credit, bond, indemnity or similar assurance against loss, or any obligation, direct or indirect,
actual or contingent, to purchase or assume any indebtedness of any person or to make an investment in or loan to any person or to purchase assets of any person where, in each case, such obligation is assumed in order to maintain or assist the
ability of such person to meet its indebtedness; 

  

	 	(v)	“indebtedness” includes any obligation (whether incurred as principal or as surety) for the payment or repayment of money, whether present or future, actual or contingent; 

 

	 	(vi)	a “person” includes any individual, firm, company, corporation, government, state or agency of a state or any association, trust, joint venture, consortium, partnership or other entity (whether or not
having separate legal personality); 

  

	 	(vii)	a “regulation” includes any regulation, rule, official directive, request or guideline (whether or not having the force of law) of any governmental, intergovernmental or supranational body, agency,
department or of any regulatory, self-regulatory or other authority or organisation; 

  

	 	(viii)	a provision of law is a reference to that provision as amended or re-enacted; and 

  

	 	(ix)	a time of day is a reference to Oslo time. 

  

	(b)	Clause and Schedule headings are for ease of reference only. 

  

	(c)	Unless a contrary indication appears, a term used in any other Finance Document or in any notice given under or in connection with any Finance Document has the same meaning in that Finance Document or notice as in this
Agreement. 

  

	(d)	A Default (other than an Event of Default) is “continuing” if it has not been remedied or waived and an Event of Default is “continuing” if it has not been waived. 

 

	2	THE FACILITIES 

  

	2.1	The Facilities 

  

	(a)	Subject to the terms of this Agreement, the Lenders make available to the Borrowers a term loan facility in an aggregate amount equal to the Total Term Loan Facility Commitments. 

 

	(b)	Subject to the terms of this Agreement, the Lenders make available to the Borrowers a revolving credit facility in an aggregate amount equal to the Total Revolving Facility Commitments. 

 

	2.2	Increase 

  

	(a)	The Borrowers may by giving prior notice to the Agent by no later than the date falling five (5) Business Days after the effective date of a cancellation of: 

 

	 	(i)	the Available Commitments of a Defaulting Lender in accordance with Clause 7.7 (Right of cancellation in relation to a Defaulting Lender); or 

 

	 	(ii)	the Commitments of a Lender in accordance with Clause 7.1 (Illegality), 

  
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 request that the Total Commitments be increased (and the Total Commitments shall be so increased)
in an aggregate amount of up to the amount of the Available Commitments or Commitments so cancelled as follows: 
  

	 	(iii)	the increased Commitments will be assumed by one or more Lenders or other banks or financial institutions (each an “Increase Lender”) selected by the Borrowers (and which is acceptable to the Agent
(acting reasonably)) and each of which confirms its willingness to assume and does assume all the obligations of a Lender corresponding to that part of the increased Commitments which it is to assume, as if it had been an Original Lender;

  

	 	(iv)	each of the Obligors and any Increase Lender shall assume obligations towards one another and/or acquire rights against one another as the Obligors and the Increase Lender would have assumed and/or acquired had the
Increase Lender been an Original Lender; 

  

	 	(v)	each Increase Lender shall become a Party as a “Lender” and any Increase Lender and each of the other Finance Parties shall assume obligations towards one another and acquire rights against one another as that
Increase Lender and those Finance Parties would have assumed and/or acquired had the Increase Lender been an Original Lender; 

  

	 	(vi)	the Commitments of the other Lenders shall continue in full force and effect; and 

  

	 	(vi)	any increase in the Total Commitments shall take effect on the date specified by the Borrowers in the notice referred to above or any later date on which the conditions set out in paragraph (b) below are satisfied.

  

	(b)	An increase in the Total Commitments will only be effective on: 

  

	 	(i)	the execution by the Agent of an Increase Confirmation from the relevant Increase Lender; and 

  

	 	(ii)	in relation to an Increase Lender which is not a Lender immediately prior to the relevant increase, the performance by the Agent of all necessary “know your customer” or other similar checks under all
applicable laws and regulations in relation to the assumption of the increased Commitments by that Increase Lender, the completion of which the Agent shall promptly notify to the Borrowers and the Increase Lender. 

 

	(c)	Each Increase Lender, by executing the Increase Confirmation, confirms (for the avoidance of doubt) that the Agent has authority to execute on its behalf any amendment or waiver that has been approved by or on behalf of
the requisite Lender or Lenders in accordance with this Agreement on or prior to the date on which the increase becomes effective. 

  

	(d)	Unless the Agent otherwise agrees or the increased Commitment is assumed by an existing Lender, the Borrowers shall, on the date upon which the increase takes effect, promptly on demand pay the Agent the amount of all
costs and expenses (including legal fees) reasonably incurred by it in connection with any increase in Commitments under this Clause 2.2. 

  

	(e)	The Borrowers may pay to the Increase Lender a fee in the amount and at the times agreed between the Borrowers and the Increase Lender. 

  
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	(f)	Clause 25.4 (Limitation of responsibility of Existing Lenders) shall apply mutatis mutandis in this Clause 2.2 in relation to an Increase Lender as if references in that Clause to:

  

	 	(i)	an “Existing Lender” were references to all the Lenders immediately prior to the relevant increase; 

  

	 	(ii)	the “New Lender” were references to that “Increase Lender”; and 

  

	 	(iii)	a “re-transfer” and “re-assignment” were references to respectively a “transfer” and “assignment”. 

 

	2.3	Finance Parties’ rights and obligations 

  

	(a)	The obligations of each Finance Party under the Finance Documents are several. Failure by a Finance Party to perform its obligations under the Finance Documents does not affect the obligations of any other Party under
the Finance Documents. No Finance Party is responsible for the obligations of any other Finance Party under the Finance Documents. 

  

	(b)	The rights of each Finance Party under or in connection with the Finance Documents are separate and independent rights and any debt arising under the Finance Documents to a Finance Party from an Obligor shall be a
separate and independent debt. 

  

	(c)	A Finance Party may, except as otherwise stated in the Finance Documents, separately enforce its rights under the Finance Documents. 

 

	3	PURPOSE AND APPLICATION 

  

	3.1	Purpose 

  

	(a)	Each Borrower shall apply all amounts borrowed by it under the Term Loan Facility towards: 

  

	 	(i)	the refinancing of the Existing Facilities; and 

  

	 	(ii)	the financing of its general corporate purposes. 

  

	(b)	Each Borrower shall apply all amounts borrowed by it under the Revolving Facility towards the financing of its general corporate purposes. 

 

	3.2	Monitoring 

 No Finance Party is bound to monitor or verify the application of any amount
borrowed pursuant to this Agreement. 

  
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	4	CONDITIONS OF UTILISATION 

  

	4.1	Initial conditions precedent 

  

	(a)	The obligation of each Lender to participate in the first Loan under the Term Loan Facility is subject to the condition precedent that the Agent has notified the Borrowers and the Lenders that it has received all of the
documents set out in Part 1 of Schedule 2 (Conditions precedent documents), in a form and substance satisfactory to the Agent. 

  

	(b)	The obligation of each Lender to participate in any further Loans under the Term Loan Facility is subject to the condition precedent that the Agent has notified the Borrowers and the Lenders that it has received all of
the documents set out in Part 2 of Schedule 2 (Conditions precedent documents), in a form and substance satisfactory to the Agent. 

  

	4.2	Further conditions precedent 

 The Lenders will only be obliged to comply with Clause 5.4
(Lenders’ participation) if on the date of the Utilisation Request and on the proposed Utilisation Date: 
  

	 	(i)	in the case of a Rollover Loan, no Event of Default is continuing or would result from the proposed Loan, and in the case of any other Utilisation, no Default is continuing or would result from the proposed Utilisation;
and 

  

	 	(ii)	the Repeating Representations to be made by each Obligor are true in all material respects. 

  

	4.3	Maximum number of Loans 

 No Borrower may (unless otherwise agreed by the Majority
Lenders) deliver a Utilisation Request if as a result of the proposed Utilisation: 
  

	 	(i)	more than one Loan under a Tranche would be outstanding, or 

  

	 	(ii)	eleven (11) or more Revolving Facility Loans would be outstanding. 

  

	5	UTILISATION 

  

	5.1	Delivery of a Utilisation Request 

 A Borrower may utilise a Facility by delivery to the
Agent of a duly completed Utilisation Request not later than 11:00 a.m. three (3) Business Days (or such shorter period as may be agreed by the Lenders) prior to the requested Utilisation Date of such Utilisation. 

 

	5.2	Completion of a Utilisation Request 

  

	(a)	Each Utilisation Request is irrevocable and will not be regarded as having been duly completed unless: 

  

	 	(i)	it identifies the Tranche and the Facility to be utilised; 

  
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	 	(ii)	the proposed Utilisation Date is a Business Day within the Availability Period applicable to that Facility; 

  

	 	(iii)	the currency and amount of the Utilisation comply with Clause 5.3 (Currency and amount); and 

  

	 	(iv)	the proposed Interest Period complies with Clause 9 (Interest Periods). 

  

	(b)	Only one Loan may be requested in each Utilisation Request. 

  

	5.3	Currency and amount 

  

	(a)	The currency specified in a Utilisation Request must be USD. 

  

	(b)	The amount of the proposed Loan must be: 

  

	 	(i)	an amount not exceeding the Total Tranche A Commitments for Tranche A; 

  

	 	(ii)	an amount not exceeding the Total Tranche B Commitments for Tranche B; 

  

	 	(iii)	an amount not exceeding the Total Tranche C Commitments for Tranche C; or 

  

	 	(iv)	an amount equal to USD 1,000,000 and in integral multiples thereof or, if less, the Available Facility for the Revolving Facility. 

  

	5.4	Lenders’ participation 

  

	(a)	If the conditions set out in this Agreement have been met, each Lender shall make its participation in each Loan available by the Utilisation Date through its Facility Office. 

 

	(b)	The amount of each Lender’s participation in each Loan will be equal to the proportion borne by its Available Commitment to the Available Facility immediately prior to making the Loan. 

 

	5.5	Limitations in Utilisations 

 The Revolving Facility shall not be utilised unless the
Term Loan Facility has been fully utilised. 
  

	5.6	Cancellation of Commitment 

  

	(a)	The Tranche A Commitments which, at that time, are not drawn shall be immediately cancelled at the end of the Availability Period for the Term Loan Facility. 

 

	(b)	The Tranche B Commitments which, at that time, are not drawn shall be immediately cancelled at the end of the Availability Period for the Term Loan Facility. 

 

	(c)	The Tranche C Commitments which, at that time, are not drawn shall be immediately cancelled at the end of the Availability Period for the Term Loan Facility. 

 

	(d)	The Revolving Facility Commitments which, at that time, are not drawn shall be immediately cancelled at the end of the Availability Period for the Revolving Facility. 

  
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	6	REPAYMENT 

  

	6.1	Repayment of Term Loans 

  

	(a)	The Vessel A Owner shall repay the Loan under Tranche A in twenty (20) consecutive equal quarterly instalments each in an amount of USD 1,580,649. The first instalment shall be payable on the date falling three
(3) months after the Utilisation Date for Tranche A and the subsequent instalments shall be payable quarterly thereafter until the Termination Date. The balance of such Loan shall be repaid in full on the Termination Date. 

 

	(b)	The Vessel B Owner shall repay the Loan under Tranche B in twenty (20) consecutive equal quarterly instalments each in an amount of USD 1,294,156. The first instalment shall be payable on the date falling three
(3) months after the Utilisation Date for Tranche B and the subsequent instalments shall be payable quarterly thereafter until the Termination Date. The balance of such Loan shall be repaid in full on the Termination Date. 

 

	(c)	The Vessel C Owner shall repay the Loan under Tranche C in twenty (20) consecutive equal quarterly instalments each in an amount of USD 1,053,766. The first instalment shall be payable on the date falling three
(3) months after the Utilisation Date for Tranche C and the subsequent instalments shall be payable quarterly thereafter until the Termination Date. The balance of such Loan shall be repaid in full on the Termination Date. 

 

	6.2	Repayment of Revolving Facility Loans 

  

	(a)	Each Borrower which has drawn a Revolving Facility Loan shall repay that Loan on the last day of its Interest Period. 

  

	(b)	Without prejudice to each Borrower’s obligation under paragraph (a) above, if: 

  

	 	(i)	one or more Revolving Facility Loans are to be made available to a Borrower: 

  

	 	(A)	on the same day that a maturing Loan under the same Facility is due to be repaid by that Borrower; and 

  

	 	(B)	in whole or in part for the purpose of refinancing the maturing Revolving Facility Loan; and 

  

	 	(ii)	the proportion borne by each Lender’s participation in the maturing Revolving Facility Loan to the amount of that maturing Revolving Facility Loan is the same as the proportion borne by that Lender’s
participation in the new Revolving Facility Loan(s) to the aggregate amount of those new Revolving Facility Loan(s), 

 the
aggregate amount of the new Revolving Facility Loan(s) shall, unless the relevant Borrower notifies the Agent to the contrary in the relevant Utilisation Request, be treated as if applied in or towards repayment of the maturing Revolving Facility
Loan so that: 
  

	 	(C)	if the amount of the maturing Revolving Facility Loan exceeds the aggregate amount of the new Revolving Facility Loan(s): 

  

	 	(1)	the relevant Borrower will only be required to pay an amount in cash in the relevant currency equal to that excess; and 

  
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	 	(2)	each Lender’s participation in the new Revolving Facility Loan(s) shall be treated as having been made available and applied by the relevant Borrower in or towards repayment of that Lender’s participation in
the maturing Revolving Facility Loan and that Lender will not be required to make its participation in the new Revolving Facility Loan(s) available in cash; and 

  

	 	(D)	if the amount of the maturing Revolving Facility Loan is equal to or less than the aggregate amount of the new Revolving Facility Loan(s): 

 

	 	(1)	the relevant Borrower will not be required to make any payment in cash; and 

  

	 	(2)	each Lender will be required to make its participation in the new Revolving Facility Loan(s) available in cash only to the extent that its participation in the new Revolving Facility Loan(s) exceeds that Lender’s
participation in the maturing Revolving Facility Loan and the remainder of that Lender’s participation in the new Revolving Facility Loan(s) shall be treated as having been made available and applied by the relevant Borrower in or towards
repayment of that Lender’s participation in the maturing Revolving Facility Loan. 

  

	6.3	Termination Date 

 On the Termination Date, each Borrower shall pay to the Finance
Parties all amounts then outstanding and owing by it to the Finance Parties under the Finance Documents. 
  

	7	PREPAYMENT AND CANCELLATION 

  

	7.1	Illegality 

 If it becomes unlawful in any applicable jurisdiction for a Lender to
perform any of its obligations as contemplated by this Agreement or to fund or maintain its participation in any Loan: 
  

	 	(i)	that Lender shall promptly notify the Agent upon becoming aware of that event; 

  

	 	(ii)	upon the Agent notifying the Borrowers, the Commitment of that Lender will be immediately cancelled; and 

  

	 	(iii)	each Borrower shall repay that Lender’s participation in all Loans made to it on the last day of the Interest Period for the relevant Loans occurring after the Agent has notified the Borrowers or, if earlier, the
date specified by the Lender in the notice delivered to the Agent (being no earlier than the last day of any applicable grace period permitted by law). 

  
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	7.2	Mandatory prepayment - Change of Control 

  

	(a)	Upon the occurrence of a Change of Control all of the Commitments shall immediately be automatically cancelled in full and all amounts owing under the Finance Documents will become due and payable on the date falling
sixty (60) days after the occurrence of the relevant Change of Control. 

  

	(b)	For the purpose of this Clause 7.2: 

 “acting in concert” 

means a group of persons who, pursuant to an agreement or understanding (whether formal or informal), actively co-operate, through the
acquisition directly or indirectly of units in the Parent Guarantor by any of them, either directly or indirectly, to obtain or consolidate control of the Parent Guarantor. 

“Change of Control” 

means: 
  

	 	(i)	that the Parent Guarantor does not own or is not able to vote for (directly or indirectly) all of the shares in a Borrower; 

  

	 	(ii)	that the Parent Guarantor does not own or is not able to vote for (directly or indirectly) all of the shares in KNOT Shuttle Tankers AS; 

 

	 	(iii)	that the Sponsor does not own or is not able to vote for (directly or indirectly) all of the shares in the General Partner; 

  

	 	(iv)	that the Sponsor does not own at least 25 per cent. of all of the units in the Parent Guarantor (capital and voting rights to be subject to the limitations on voting rights relating to election of board members,
amendments and certain other matters as set out in the limited partnership agreement entered into in relation to the Parent Guarantor); or 

  

	 	(v)	that any person or group of persons acting in concert (other than the Sponsor and/or any of its wholly owned Subsidiaries) acquires, legally or beneficially, and either directly or indirectly, more than 33.33 per
cent. of the capital or voting rights in the Parent Guarantor. 

  

	7.3	Mandatory prepayment – sale or Total Loss etc. 

  

	(a)	If a Vessel is sold, transferred or otherwise disposed of, or all of the shares in a Borrower are sold, transferred or otherwise disposed of, or a Vessel becomes a Total Loss, the Borrowers shall make prepayment of the
Loans, and the Total Term Loan Facility Commitments shall be reduced, in an amount equal to the higher of (i) the principal amount outstanding in respect of the Term Loan applied for the financing of the relevant Vessel or borrowed by the
relevant Borrower (as the case may be) and (ii) an amount equivalent to a fraction of the Total Term Loan Facility Commitments of which the numerator is the relevant Vessel’s updated (not older than ninety (90) days) Market Value and
the denominator is the aggregate updated (not older than ninety (90) days) Market Value of all the Vessels. In addition the Total Revolving Facility Commitments shall be reduced by an amount equal to one third thereof, and the Borrowers shall
make repayments of the Revolving Facility Loans in order to ensure that the aggregate principal amount of the outstanding Revolving Facility Loans does not exceed the reduced Total Revolving Facility Commitments. 

  
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	(b)	Such prepayment and reduction shall be made: 

  

	 	(i)	in the case of a sale, transfer or other disposal of a Vessel or all of the shares in a Borrower, on or before the date on which the sale, transfer or other disposal is completed by delivery of the Vessel or relevant
shares to the buyer thereof; or 

  

	 	(ii)	in the case of a Total Loss, on the earlier of (A) the date falling one hundred and eighty (180) days after the Total Loss Date, and (B) the date of receipt by the Agent of the proceeds of insurance or
requisition for title relating to such Total Loss. 

  

	7.4	Voluntary cancellation 

 A Borrower may, by giving not less than three (3) Business
Days’ prior written notice to the Agent (or such shorter period as the Agent may agree), cancel the whole or any part of the Available Facility (but, if in part, in an amount being a minimum of USD 5,000,000). Any cancellation under this Clause
7.4 shall reduce the Commitments of the Lenders rateably under that Facility. 
  

	7.5	Voluntary prepayment 

 A Borrower to which a Loan has been made may by giving not less
than three (3) Business Days’ prior written notice to the Agent (or such shorter period as the Agent may agree), prepay the whole or any part of that Loan (but, if in part, in an amount being a minimum of USD 5,000,000). 

 

	7.6	Right of replacement or repayment and cancellation in relation to a single Lender 

  

	(a)	If: 

  

	 	(i)	any sum payable to any Lender by an Obligor is required to be increased under paragraph (c) of Clause 12.2 (Tax gross-up); or 

 

	 	(ii)	any Lender claims indemnification from a Borrower under Clause 12.3 (Tax indemnity) or Clause 13 (Increased costs), 

the Borrowers may with the prior written consent of the Majority Lenders, whilst the circumstance giving rise to the requirement for that
increase or indemnification continues, give the Agent notice of cancellation of the Commitment of that Lender and its intention to procure the repayment of that Lender’s participation in the Loans or give the Agent notice of its intention to
replace that Lender in accordance with paragraph (d) below. 
  

	(b)	On receipt of a notice referred to in paragraph (a) above in relation to a Lender, the Commitment of that Lender shall immediately be reduced to zero. 

 

	(c)	On the last day of each Interest Period which ends after the Borrowers have given notice of cancellation under paragraph (a) above (or, if earlier, the date specified by the Borrowers in that notice), the Borrowers
shall repay that Lender’s participation in that Loan. 

  
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	7.7	Right of cancellation in relation to a Defaulting Lender 

  

	(a)	If any Lender becomes a Defaulting Lender, the Borrowers may, at any time whilst the Lender continues to be a Defaulting Lender, give the Agent five (5) Business Days’ notice of cancellation of each Available
Commitment of that Lender. 

  

	(b)	On the notice referred to in paragraph (a) above becoming effective, each Available Commitment of the Defaulting Lender shall immediately be reduced to zero. 

 

	(c)	The Agent shall as soon as practicable after receipt of a notice referred to in paragraph (a) above, notify all the Lenders. 

  

	7.8	Restrictions 

  

	(a)	Any notice of cancellation or prepayment given by any Party under this Clause 7 shall be irrevocable and, unless a contrary indication appears in this Agreement, shall specify the date or dates upon which the
relevant cancellation or prepayment is to be made and the amount of that cancellation or prepayment. 

  

	(b)	Any prepayment under this Agreement shall be made together with accrued interest on the amount prepaid and, subject to any Break Costs, without premium or penalty. 

 

	(c)	No Borrower may reborrow any part of the Term Loan Facility which is prepaid. 

  

	(d)	Unless a contrary indication appears in this Agreement, any part of the Revolving Facility which is prepaid or repaid may be reborrowed in accordance with the terms of this Agreement. 

 

	(e)	Any prepayment of any part of the Term Loan Facility shall be applied against the remaining Repayment Instalments thereof (including the balloon payment payable on the Termination Date) in the inverse order of maturity.

  

	(f)	No Borrower shall repay or prepay all or any part of the Loans or cancel all or any part of the Commitments except at the times and in the manner expressly provided for in this Agreement. 

 

	(g)	No amount of the Total Commitments cancelled under this Agreement may be subsequently reinstated. 

  

	(h)	If the Agent receives a notice under this Clause 7, it shall promptly forward a copy of that notice to either the Borrowers or the affected Lender, as appropriate. 

 

	(i)	If all or part of a Loan under a Facility is repaid or prepaid and is not available for redrawing, an amount of the Commitments (equal to the amount of the Loan which is repaid or prepaid) in respect of that Facility
will be deemed to be cancelled on the date of repayment or prepayment. Any cancellation under this paragraph (i) shall reduce the Commitments of the Lenders rateably under that Facility. 

  
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	8	INTEREST 

  

	8.1	Calculation of interest 

 The rate of interest on each Loan for each Interest Period is
the percentage rate per annum which is the aggregate of the applicable: 
  

	 	(i)	Margin; and 

  

	 	(ii)	LIBOR. 

  

	8.2	Payment of interest 

 The Borrower to which a Loan has been made shall pay accrued
interest on that Loan on the last day of each Interest Period (and, if the Interest Period is longer than three (3) months, on the dates falling at three (3) monthly intervals after the first day of the Interest Period). 

 

	8.3	Default interest 

  

	(a)	If an Obligor fails to pay any amount payable by it under a Finance Document on its due date, interest shall accrue on the Unpaid Sum from the due date up to the date of actual payment (both before and after judgment)
at a rate which, subject to paragraph (b) below, is 2.00 percentage points higher than the rate which would have been payable if the Unpaid Sum had, during the period of non-payment, constituted a loan in the currency of the Unpaid Sum for
successive Interest Periods, each of a duration selected by the Agent (acting reasonably). Any interest accruing under this Clause 8.3 shall be immediately payable by the Obligor on demand by the Agent. 

 

	(b)	If an Unpaid Sum consists of all or part of a Loan which became due on a day which was not the last day of an Interest Period relating to it: 

 

	 	(i)	the first Interest Period for that Unpaid Sum shall have a duration equal to the unexpired portion of the current Interest Period relating to that Loan; and 

 

	 	(ii)	the rate of interest applying to that Unpaid Sum during that first Interest Period shall be 2.00 percentage points higher than the rate which would have applied if that Unpaid Sum had not become due. 

 

	(c)	Default interest (if unpaid) arising on an Unpaid Sum will be compounded with the Unpaid Sum at the end of each Interest Period applicable to that Unpaid Sum but will remain immediately due and payable.

  

	(d)	Additionally the rate of interest payable on any amount to which Clause 8.1 (Calculation of interest) continues to apply shall increase by 2.00 percentage points on the date following any notice served by the
Agent to the Borrowers following an Event of Default and whilst it is continuing. 

  

	8.4	Notification of rates of interest 

 The Agent shall promptly notify the Lenders and the
relevant Borrower of the determination of a rate of interest under this Agreement. 

  
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	9	INTEREST PERIODS 

  

	9.1	Selection of Interest Periods 

  

	(a)	A Borrower may select an Interest Period for a Loan in the Utilisation Request for that Loan or (if the Loan is a Term Loan and has already been borrowed) in a Selection Notice. 

 

	(b)	Each Selection Notice for a Term Loan is irrevocable and must be delivered to the Agent by the relevant Borrower not later than 11:00 a.m. three (3) Business Days prior to the last day of the then current Interest
Period for such Loan. 

  

	(c)	If a Borrower fails to deliver a Selection Notice to the Agent in accordance with paragraph (b) above, the relevant Interest Period will be three (3) months. 

 

	(d)	Subject to this Clause 9, a Borrower may select an Interest Period of three (3) or six (6) months or any other period agreed between the relevant Borrower and the Agent (acting on the instructions of all the
Lenders in relation to the relevant Loan). 

  

	(e)	An Interest Period for a Loan shall not extend beyond the Termination Date. 

  

	(f)	Each Interest Period for a Term Loan shall start on the Utilisation Date or (if already made) on the last day of its preceding Interest Period. 

 

	(g)	A Revolving Facility Loan has one Interest Period only. 

  

	9.2	Non-Business Days 

 If an Interest Period would otherwise end on a day which is not a
Business Day, that Interest Period will instead end on the next Business Day in that calendar month (if there is one) or the preceding Business Day (if there is not). 
  

	10	CHANGES TO THE CALCULATION OF INTEREST 

  

	10.1	Absence of quotation 

 Subject to Clause 10.2 (Market disruption), if LIBOR is to
be determined by reference to the Reference Banks, but a Reference Bank does not supply a quotation by 12:00 noon on the Quotation Day, the applicable LIBOR shall be determined on the basis of the quotations of the remaining Reference Banks. 

 

	10.2	Market disruption 

  

	(a)	If a Market Disruption Event occurs in relation to a Loan for any Interest Period, then the rate of interest on each Lender’s share of that Loan for the Interest Period shall be the rate per annum which is the sum
of: 

  

	 	(i)	the Margin; and 

  

	 	(ii)	 the rate notified to the Agent by that Lender as soon as practicable, and in any event by 12:00 noon on the date falling one (1) Business Day
after the Quotation Day (or, if earlier, on the date falling one (1) Business Day prior to the date on 

  
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which interest is due to be paid in respect of that Interest Period), to be that which expresses as a percentage rate per annum the cost to that Lender of funding its participation in that Loan
from whatever source it may reasonably select. 

  

	(b)	In this Agreement “Market Disruption Event” means: 

  

	 	(i)	at or about 13:00 on the Quotation Day for the relevant Interest Period the Screen Rate is not available and none or only one of the Reference Banks supplies a rate to the Agent to determine LIBOR for the relevant
Interest Period; or 

  

	 	(ii)	before close of business in London on the Quotation Day for the relevant Interest Period, the Agent receives notifications from a Lender or Lenders (whose participations in a Loan exceed 50 per cent. of that Loan)
that the cost to it of obtaining matching deposits for the relevant Interest Period in the London interbank market would be in excess of LIBOR. 

  

	10.3	Alternative basis of interest or funding 

  

	(a)	If a Market Disruption Event occurs and the Agent or a Borrower so requires, the Agent and the Borrowers shall enter into negotiations (for a period of not more than thirty (30) days) with a view to agreeing a
substitute basis for determining the rate of interest. 

  

	(b)	Any alternative basis agreed pursuant to paragraph (a) above shall, with the prior consent of all the Lenders and the Borrowers, be binding on all Parties. 

 

	10.4	Break Costs 

  

	(a)	The Borrowers shall, within three (3) Business Days of demand by a Finance Party, pay to that Finance Party its Break Costs attributable to all or any part of a Loan or Unpaid Sum being paid by a Borrower on a day
other than the last day of an Interest Period for that Loan or Unpaid Sum. 

  

	(b)	Each Lender shall, as soon as reasonably practicable after a demand by the Agent, provide a certificate confirming the amount of its Break Costs for any Interest Period in which they accrue, and the Agent shall upon
receipt thereof at the written request of the relevant Borrower provide the relevant Borrower with a copy of such certificate. 

  

	11	FEES 

  

	11.1	Commitment fee 

  

	(a)	The Borrowers shall pay to the Agent (for the account of each Lender) a commitment fee in USD computed at the rate of: 

  

	 	(i)	40 per cent. of the applicable Margin on that Lender’s Available Commitment under the Term Loan Facility for the period starting on the date of this Agreement and ending on the last date of the Availability
Period applicable to the Term Loan Facility; and 

  

	 	(ii)	40 per cent. of the applicable Margin on that Lender’s Available Commitment under the Revolving Facility for the period starting on the date of this Agreement and ending on the last date of the Availability
Period applicable to the Revolving Facility. 

  
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	(b)	The accrued commitment fee is payable on the last day of each successive period of three (3) months which ends during the relevant Availability Period, on the last day of the relevant Availability Period and, if
cancelled in full, the commitment fee shall be calculated on the cancelled amount of the relevant Lender’s Available Commitment under the relevant Facility and be payable at the time the cancellation is effective. 

 

	11.2	Agency and other fees 

 The Borrowers shall pay to the Agent (for its own account) a
non-refundable annual agency fee and other fees in the amount and at the times set out in a Fee Letter. 
  

	11.3	Arrangement fee 

 The Borrowers shall pay to the Agent (for the account of the Arrangers)
a non-refundable arrangement fee in the amount and at the times set out in a Fee Letter. 
  

	12	TAX GROSS UP AND INDEMNITIES 

  

	12.1	Definitions 

  

	(a)	In this Agreement: 

 “Protected Party” 

means a Finance Party which is or will be subject to any liability, or required to make any payment, for or on account of Tax in relation to a
sum received or receivable (or any sum deemed for the purposes of Tax to be received or receivable) under a Finance Document. 

“Tax Credit” 

means a credit against, relief or remission for, or repayment of any Tax. 

“Tax Deduction” 

means a deduction or withholding for or on account of Tax from a payment under a Finance Document, other than a FATCA Deduction. 

“Tax Payment” 

means either the increase in a payment made by an Obligor to a Finance Party under Clause 12.2 (Tax gross-up) or a payment under
Clause 12.3 (Tax indemnity). 
  

	(b)	Unless a contrary indication appears, in this Clause 12 a reference to “determines” or “determined” means a determination made in the absolute discretion of the person making the
determination. 

  
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	12.2	Tax gross-up 

  

	(a)	Each Obligor shall make all payments to be made by it without any Tax Deduction, unless a Tax Deduction is required by law. 

  

	(b)	An Obligor shall promptly upon becoming aware that an Obligor must make a Tax Deduction (or that there is any change in the rate or the basis of a Tax Deduction) notify the Agent accordingly. Similarly, a Lender shall
notify the Agent on becoming so aware in respect of a payment payable to that Lender. If the Agent receives such notification from a Lender it shall notify the Borrowers and that Obligor. 

 

	(c)	If a Tax Deduction is required by law to be made by an Obligor, the amount of the payment due from that Obligor shall be increased to an amount which (after making any Tax Deduction) leaves an amount equal to the
payment which would have been due if no Tax Deduction had been required. 

  

	(d)	If an Obligor is required to make a Tax Deduction, that Obligor shall make that Tax Deduction and any payment required in connection with that Tax Deduction within the time allowed and in the minimum amount required by
law. 

  

	(e)	Within thirty (30) days of making either a Tax Deduction or any payment required in connection with that Tax Deduction, the Obligor making that Tax Deduction shall deliver to the Agent for the Finance Party
entitled to the payment evidence reasonably satisfactory to that Finance Party that the Tax Deduction has been made or (as applicable) any appropriate payment paid to the relevant taxing authority. 

 

	(f)	A Lender and each Obligor which makes a payment to which that Lender is entitled shall co-operate in completing any procedural formalities necessary for that Obligor to obtain authorisation to make that payment without
a Tax Deduction. 

  

	12.3	Tax indemnity 

  

	(a)	The Borrowers shall (within three (3) Business Days of demand by the Agent) pay to a Protected Party an amount equal to the loss, liability or cost which that Protected Party determines will be or has been
(directly or indirectly) suffered for or on account of Tax by that Protected Party in respect of a Finance Document. 

  

	(b)	Paragraph (a) above shall not apply: 

  

	 	(i)	with respect to any Tax assessed on a Finance Party: 

  

	 	(A)	under the law of the jurisdiction in which that Finance Party is incorporated or, if different, the jurisdiction (or jurisdictions) in which that Finance Party is treated as resident for tax purposes; or

  

	 	(B)	under the law of the jurisdiction in which that Finance Party’s Facility Office is located in respect of amounts received or receivable in that jurisdiction, 

if that Tax is imposed on or calculated by reference to the net income received or receivable (but not any sum deemed to be received or
receivable) by that Finance Party; or 

  
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	 	(ii)	to the extent a loss, liability or cost: 

  

	 	(A)	is compensated for by an increased payment under Clause 12.2 (Tax gross-up); or 

  

	 	(B)	relates to a FATCA Deduction required to be made by a Party. 

  

	(c)	A Protected Party making, or intending to make, a claim under paragraph (a) above must promptly notify the Agent of the event which will give, or has given, rise to the claim, following which the Agent shall notify
the Borrowers. 

  

	(d)	A Protected Party shall, on receiving a payment from an Obligor under this Clause 12.3, notify the Agent. 

  

	12.4	Tax Credit 

 If an Obligor makes a Tax Payment and the relevant Finance Party determines
that: 
  

	 	(i)	a Tax Credit is attributable either to an increased payment of which that Tax Payment forms part, or to that Tax Payment; and 

  

	 	(ii)	that Finance Party has obtained, utilised and retained that Tax Credit, 

 the Finance Party
shall pay an amount to the Obligor which that Finance Party determines will leave it (after that payment) in the same after-Tax position as it would have been in had the Tax Payment not been required to be made by the Obligor. 

 

	12.5	Stamp taxes 

 The Borrowers shall pay and, within three (3) Business Days of demand,
indemnify each Finance Party against any cost, loss or liability that Finance Party incurs in relation to all stamp duty, registration and other similar Taxes payable in respect of any Finance Document, except for any such Tax payable in connection
with the entering into of a Transfer Certificate. 
  

	12.6	VAT 

  

	(a)	All amounts set out or expressed in a Finance Document to be payable by any Party to a Finance Party which (in whole or in part) constitute the consideration for a supply or supplies for VAT purposes shall be deemed to
be exclusive of any VAT which is chargeable on such supply or supplies, and accordingly, subject to paragraph (b) below, if VAT is or becomes chargeable on any supply made by any Finance Party to any Party under a Finance Document, that Party
shall pay to the Finance Party (in addition to and at the same time as paying any other consideration for such supply) an amount equal to the amount of such VAT (and such Finance Party shall promptly provide an appropriate VAT invoice to such
Party). 

  

	(b)	 If VAT is or becomes chargeable on any supply made by any Finance Party (the “Supplier”) to any other Finance Party (the
“Recipient”) under a Finance Document, and any Party other than the Recipient (the “Subject Party”) is required by the terms of any Finance Document to pay an amount equal to the consideration for such supply to the
Supplier (rather than being required to reimburse the Recipient in respect of that consideration), such Party shall also pay to the Supplier (in addition to and at the same time as paying such amount) an

  
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amount equal to the amount of such VAT. The Recipient will promptly pay to the Subject Party an amount equal to any credit or repayment obtained by the Recipient from the relevant tax authority
which the Recipient reasonably determines is in respect of such VAT. 

  

	(c)	Where a Finance Document requires any Party to reimburse or indemnify a Finance Party for any cost or expense, that Party shall reimburse or indemnify (as the case may be) such Finance Party for the full amount of such
cost or expense, including such part thereof as represents VAT, save to the extent that such Finance Party reasonably determines that it is entitled to credit or repayment in respect of such VAT from the relevant tax authority. 

 

	12.7	FATCA information 

  

	(a)	Subject to paragraph (c) below, each Party shall, within ten (10) Business Days of a reasonable request by another Party: 

  

	 	(i)	confirm to that other Party whether it is: 

  

	 	(A)	a FATCA Exempt Party; or 

  

	 	(B)	not a FATCA Exempt Party; and 

  

	 	(ii)	supply to that other Party such forms, documentation and other information relating to its status under FATCA (including its applicable “passthru payment percentage” or other information required under the US
Treasury Regulations or other official guidance including intergovernmental agreements) as that other Party reasonably requests for the purposes of that other Party’s compliance with FATCA. 

 

	(b)	If a Party confirms to another Party pursuant to paragraph (a)(i) above that it is a FATCA Exempt Party and it subsequently becomes aware that it is not, or has ceased to be a FATCA Exempt Party, that Party shall notify
that other Party reasonably promptly. 

  

	(c)	Paragraph (a) above shall not oblige any Finance Party to do anything which would or might in its reasonable opinion constitute a breach of: 

 

	 	(i)	any law or regulation; 

  

	 	(ii)	any fiduciary duty; or 

  

	 	(iii)	any duty of confidentiality. 

  

	(d)	If a Party fails to confirm its status or to supply forms, documentation or other information requested in accordance with paragraph (a) above (including, for the avoidance of doubt, where paragraph (c) above
applies), then: 

  

	 	(i)	if that Party failed to confirm whether it is (and/or remains) a FATCA Exempt Party then such Party shall be treated for the purposes of the Finance Documents as if it is not a FATCA Exempt Party; and 

 

	 	(ii)	if that Party failed to confirm its applicable “passthru payment percentage” then such Party shall be treated for the purposes of the Finance Documents (and payments made thereunder) as if its applicable
“passthru payment percentage” is 100 per cent., 

  
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 until (in each case) such time as the Party in question provides the requested confirmation,
forms, documentation or other information. 
  

	12.8	FATCA Deduction 

  

	(a)	Each Party may make any FATCA Deduction it is required to make by FATCA, and any payment required in connection with that FATCA Deduction, and no Party shall be required to increase any payment in respect of which it
makes such a FATCA Deduction or otherwise compensate the recipient of the payment for that FATCA Deduction. 

  

	(b)	Each Party shall promptly, upon becoming aware that it must make a FATCA Deduction (or that there is any change in the rate or the basis of such FATCA Deduction) notify the Party to whom it is making the payment and, in
addition, shall notify the Company, the Agent and the other Finance Parties. 

  

	13	INCREASED COSTS 

  

	13.1	Increased costs 

  

	(a)	Subject to Clause 13.3 (Exceptions) the Borrowers shall, within three (3) Business Days of a demand by the Agent, pay for the account of a Finance Party the amount of any Increased Costs incurred by that
Finance Party or any of its Affiliates as a result of (i) the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation, (ii) compliance with any law or regulation made after the
date of this Agreement or (iii) compliance with Basel III. 

  

	(b)	In this Agreement: 

 “Basel III” 

means: 
  

	 	(i)	the agreements on capital requirements, a leverage ratio and liquidity standards contained in “Basel III: A global regulatory framework for more resilient banks and banking systems”, “Basel III:
International framework for liquidity risk measurement, standards and monitoring” and “Guidance for national authorities operating the countercyclical capital buffer” published by the Basel Committee on Banking Supervision in December
2010, each as amended, supplemented and/or restated; 

  

	 	(ii)	the rules for global systemically important banks contained in the “Globally systemically important banks: assessments, methodology and the additional loss absorbency requirements – Rules text” published
by the Basel Committee on Banking Supervision in November 2011, as amended, supplemented and/or restated; and 

  

	 	(iii)	any further guidance or standards published by the Basel Committee on Banking Supervision relating to Basel III. 

“Increased Costs” 

means: 
  

	 	(i)	a reduction in the rate of return from a Facility or on a Finance Party’s (or its Affiliate’s) overall capital; 

  
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	 	(ii)	an additional or increased cost; or 

  

	 	(iii)	a reduction of any amount due and payable under any Finance Document, 

 which is incurred or
suffered by a Finance Party or any of its Affiliates to the extent that it is attributable to that Finance Party having entered into its Commitment or funding or performing its obligations under any Finance Document. 

 

	13.2	Increased cost claims 

  

	(a)	A Finance Party intending to make a claim pursuant to Clause 13.1 (Increased costs) shall notify the Agent of the event giving rise to the claim, following which the Agent shall promptly notify the Borrowers.

  

	(b)	Each Finance Party shall, as soon as practicable after a demand by the Agent, provide a certificate confirming the amount of its Increased Costs, and the Agent shall upon receipt thereof at the written request of the
relevant Borrower provide the relevant Borrower with a copy of such certificate. 

  

	13.3	Exceptions 

  

	(a)	Clause 13.1 (Increased costs) does not apply to the extent any Increased Cost is: 

  

	 	(i)	attributable to a Tax Deduction required by law to be made by an Obligor; 

  

	 	(ii)	attributable to a FATCA Deduction required to be made by a Party; 

  

	 	(iii)	compensated for under any other provision of this Agreement, other than any provision for the payment of interest, instalments, reductions or fees hereunder (or would have been compensated for under any such provision
but was not so compensated solely because any of the exclusions in any such provision applied); or 

  

	 	(iv)	attributable to the wilful breach by the relevant Finance Party or its Affiliates of any law or regulation. 

  

	(b)	In this Clause 13.3, a reference to a “Tax Deduction” has the same meaning given to the term in Clause 12.1 (Definitions). 

 

	14	OTHER INDEMNITIES 

  

	14.1	Currency indemnity 

  

	(a)	If any sum due from an Obligor under the Finance Documents (a “Sum”), or any order, judgment or award given or made in relation to a Sum, has to be converted from the currency (the “First
Currency”) in which that Sum is payable into another currency (the “Second Currency”) for the purpose of: 

  

	 	(i)	making or filing a claim or proof against that Obligor; or 

  

	 	(ii)	obtaining or enforcing an order, judgment or award in relation to any litigation or arbitration proceedings, 

  
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 that Obligor shall as an independent obligation, within three (3) Business Days of demand,
indemnify each Finance Party to whom that Sum is due against any cost, loss or liability arising out of or as a result of the conversion including any discrepancy between (A) the rate of exchange used to convert that Sum from the First Currency
into the Second Currency and (B) the rate or rates of exchange available to that person at the time of its receipt of that Sum. 
  

	(b)	Each Obligor waives any right it may have in any jurisdiction to pay any amount under the Finance Documents in a currency or currency Vessel other than that in which it is expressed to be payable. 

 

	14.2	Other indemnities 

 The Borrowers shall, within three (3) Business Days of demand,
indemnify each Finance Party against any cost, loss or liability incurred by that Finance Party as a result of: 
  

	 	(i)	the occurrence of any Event of Default; 

  

	 	(ii)	any claim, action, civil penalty or fine against, any settlement, and any other kind of loss or liability, and all reasonable costs and expenses (including reasonable legal fees and disbursements) incurred by the Agent
or any other Finance Party as a result of conduct of any Obligor or any of its partners, directors, officers, employees, agents or advisors, that violates any Sanctions Laws; 

 

	 	(iii)	a failure by an Obligor to pay any amount due under a Finance Document on its due date, including without limitation, any cost, loss or liability arising as a result of Clause 29 (Sharing among the Finance
Parties); 

  

	 	(iv)	funding, or making arrangements to fund, its participation in a Loan requested by a Borrower in a Utilisation Request but not made by reason of the operation of any one or more of the provisions of this Agreement (other
than by reason of default or negligence by that Finance Party alone); or 

  

	 	(v)	a Loan (or part of a Loan) not being prepaid in accordance with a notice of prepayment given by a Borrower. 

  

	14.3	Indemnity to the Agent 

 The Borrowers shall promptly indemnify the Agent against: 

 

	 	(i)	any cost, loss or liability incurred by the Agent (acting reasonably) as a result of: 

  

	 	(A)	any failure by the Company to comply with its obligations under Clause 16 (Costs and expenses); 

  

	 	(B)	investigating any event which it reasonably believes is a Default; 

  

	 	(C)	acting or relying on any notice, request or instruction which it reasonably believes to be genuine, correct and appropriately authorised; 

  
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	 	(D)	any default by any Obligor in the performance of any of the obligations expressed to be assumed by it under the Finance Documents; 

  

	 	(E)	the taking, holding, protection or enforcement of the Transaction Security; 

  

	 	(F)	the exercise of any of its rights, powers, discretions, authorities and remedies vested in the Agent by the Finance Parties or by law; or 

 

	 	(G)	instructing lawyers, accountants, tax advisers, surveyors or other professional advisers or experts permitted under this Agreement; and 

 

	 	(ii)	any cost, loss or liability incurred by the Agent (otherwise than by reason of the Agent’s gross negligence or wilful misconduct) in acting as Agent under the Finance Documents. 

 

	15	MITIGATION BY THE LENDERS 

  

	15.1	Mitigation 

  

	(a)	Each Finance Party shall, in consultation with the Borrowers, take all reasonable steps to mitigate (unless the Borrowers expressly request it in writing not to do so) any circumstances which arise and which would
result in any amount becoming payable under or pursuant to, or cancelled pursuant to, any of Clause 7.1 (Illegality), Clause 12 (Tax gross-up and indemnities) or Clause 13 (Increased costs) including (but not limited to)
transferring its rights and obligations under the Finance Documents to another Affiliate or Facility Office. 

  

	(b)	Paragraph (a) above does not in any way limit the obligations of any Obligor under the Finance Documents. 

  

	15.2	Limitation of liability 

  

	(a)	The Borrowers shall indemnify each Finance Party for all costs and expenses reasonably incurred by that Finance Party as a result of steps taken by it under Clause 15.1 (Mitigation). 

 

	(b)	A Finance Party is not obliged to take any steps under Clause 15.1 (Mitigation) if, in the opinion of that Finance Party (acting reasonably), to do so might be prejudicial to it. 

 

	16	COSTS AND EXPENSES 

  

	16.1	Transaction expenses 

 The Borrowers shall promptly on demand pay the Agent the amount of
all documented costs and expenses (including, but not limited to, internal and external legal and collateral fees and costs relating to operating a secure website for communicating with the Lenders) reasonably incurred by the Agent and/or the
Arrangers in connection with the negotiation, preparation, printing, execution, syndication and perfection of: 
  

	 	(i)	this Agreement and any other documents referred to in this Agreement; and 

  

	 	(ii)	any other Finance Documents executed after the date of this Agreement. 

  
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	16.2	Amendment costs 

 If (i) an Obligor requests an amendment, waiver or consent or
(ii) an amendment is required pursuant to Clause 30.10 (Change of currency), the Borrowers shall, within three (3) Business Days of demand, reimburse the Agent for the amount of all costs and expenses (including, but not limited to,
internal and external legal fees) reasonably incurred by the Agent in responding to, evaluating, negotiating or complying with that request or requirement. 
  

	16.3	Agent’s management time and additional remuneration 

 Any amount payable to the
Agent under Clause 14.3 (Indemnity to the Agent) and this Clause 16 shall include the cost of utilising the Agent’s management time or other resources and will be calculated on the basis of such reasonable daily or hourly rates as the
Agent may notify to the Borrowers and the Lenders, and is in addition to any other fee paid or payable to the Agent. 
  

	16.4	Enforcement costs 

 The Borrowers shall, within three (3) Business Days of demand,
pay to each Finance Party the amount of all costs and expenses (including, but not limited to, external legal fees) incurred by that Finance Party in connection with the enforcement of, or the preservation of any rights under, any Finance Document.

  

	17	SECURITY 

  

	(a)	The obligations and liabilities of the Obligors under this Agreement and the other Finance Documents, including without limitation any derived liability whatsoever of the Obligors towards the Finance Parties in
connection therewith, shall be secured by: 

  

	 	(i)	the Mortgages; 

  

	 	(ii)	the Assignment Agreements; 

  

	 	(iii)	the Factoring Agreements; 

  

	 	(iv)	the Account Pledges; 

  

	 	(v)	the Hedging Agreement Assignment Agreements; 

  

	 	(vi)	the First Share Pledge Agreement; 

  

	 	(vii)	the Second Limited Partnership Pledge Agreement; and 

  

	 	(viii)	the guarantee set out in Clause 18 (Guarantee and indemnity). 

  
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	(b)	Each Hedging Bank hereby declares and agrees that: 

  

	 	(i)	its rights under the Security Documents in relation to any Hedging Agreements shall always be subordinated to and rank in priority behind the rights of the other Finance Parties; and 

 

	 	(ii)	it shall not take any action to enforce any of its rights under any Security Document unless and until all monies outstanding to the other Finance Parties have been fully and irrevocably paid and discharged in full and
no Commitment is longer in force. 

  

	(c)	Each Hedging Bank shall notify the Agent of any Hedging Agreement entered into with a Borrower without undue delay after the entering into thereof, and shall promptly upon request by the Agent provide the Agent with the
details of any transactions entered into under any such Hedging Agreement, including the marked to market value thereof. 

  

	(d)	The Agent shall notify the Lenders upon receipt of any written notice from a Hedging Bank of any agreement being designated a “Hedging Agreement” for the purpose of this Agreement. 

 

	18	GUARANTEE AND INDEMNITY 

  

	18.1	Guarantee obligations 

 Each Guarantor irrevocably and unconditionally, jointly and
severally: 
  

	 	(i)	guarantees to each Finance Party punctual performance by each other Obligor of all of that Obligor’s obligations under the Finance Documents; 

 

	 	(ii)	undertakes with each Finance Party that whenever another Obligor does not pay any amount when due under or in connection with any Finance Document, it shall immediately on demand (Norw.: påkravsgaranti) pay
that amount as if it was the principal obligor; and 

  

	 	(iii)	agrees with each Finance Party that if any obligation guaranteed by it is or becomes unenforceable, invalid or illegal, it will, as an independent and primary obligation, indemnify that Finance Party immediately on
demand against any cost, loss or liability it incurs as a result of an Obligor not paying any amount which would, but for such unenforceability, invalidity or illegality, have been payable by it under any Finance Document on the date when it would
have been due. The amount payable by a Guarantor under this indemnity will not exceed the amount it would have had to pay under this Clause 18 if the amount claimed had been recoverable on the basis of a guarantee. 

 

	18.2	Demands 

 Each Guarantor unconditionally and irrevocably undertakes immediately on
written demand by the Agent from time to time to make payment in accordance with its obligations under Clause 18.1 (Guarantee obligations) where such demand is accompanied by a statement of the Agent that a payment has fallen due under the
Finance Documents, that an Obligor has failed to make such payment when due and that notice of such non-payment has been issued. Each of such payments so demanded shall be made by the Guarantors to such account as the Agent may from time to time
notify in writing. 

  
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	18.3	Maximum liability 

 The liability of each Guarantor under this guarantee shall be limited
to USD 290,000,000 plus any unpaid amount of interest, fees and expenses in respect of the obligations guaranteed hereby. 
  

	18.4	Number of claims 

 There is no limit on the number of claims that may be made by the
Agent on behalf of the Finance Parties under this guarantee. 
  

	18.5	Continuing guarantee 

 This guarantee is a continuing guarantee and will extend to the
ultimate balance of sums payable by any Obligor under the Finance Documents, regardless of any intermediate payment or discharge in whole or in part. 
  

	18.6	Reinstatement 

 If any discharge, release or arrangement (whether in respect of the
obligations of any Obligor or any security for those obligations or otherwise) is made by a Finance Party in whole or in part on the basis of any payment, security or other disposition which is avoided or must be restored in insolvency, liquidation,
administration or otherwise, without limitation, then the liability of each Guarantor under this Clause 18 will continue or be reinstated as if the discharge, release or arrangement had not occurred. 

 

	18.7	Waiver of defences 

  

	(a)	The obligations of each Guarantor under this Clause 18 will not be affected by an act, omission, matter or thing which, but for this Clause 18, would reduce, release or prejudice any of its obligations under this Clause
18 (without limitation and whether or not known to it or any Finance Party) including: 

  

	 	(i)	any time, waiver or consent granted to, or composition with, any Obligor or other person; 

  

	 	(ii)	the release of any other Obligor or any other person under the terms of any composition or arrangement with any creditor of any member of the Group; 

 

	 	(iii)	the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect, take up or enforce, any rights against, or security over assets of, any Obligor or other person or any
non-presentation or non-observance of any formality or other requirement in respect of any instrument or any failure to realise the full value of any security; 

  

	 	(iv)	any incapacity or lack of power, authority or legal personality of or dissolution or change in the members or status of an Obligor or any other person; 

 

	 	(v)	 any amendment, novation, supplement, extension restatement (however fundamental and whether or not more onerous) or replacement of a Finance

  
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Document or any other document or security including, without limitation, any change in the purpose of, any extension of or increase in any facility or the addition of any new facility under any
Finance Document or other document or security; 

  

	 	(vi)	any unenforceability, illegality or invalidity of any obligation of any person under any Finance Document or any other document or security; or 

 

	 	(vii)	any insolvency or similar proceedings. 

  

	(b)	Each Guarantor specifically waives all defenses based on the Finance Documents, any relationship or circumstance in connection therewith and any transactions made in connection therewith. 

 

	18.8	Financial Agreements Act 

 Each Guarantor specifically waives all rights under the
provisions of the Norwegian Financial Agreements Act of 25 June 1999 No. 46 not being mandatory provisions, including the following provisions (the main contents of the relevant provisions being as indicated in the brackets): 

 

	 	(i)	§ 62 (1) (a) (to be notified of any security the giving of which was a precondition for the making of any Loan, but which has not been validly granted or has lapsed); 

 

	 	(ii)	§ 63 (1) - (2) (to be notified of any event of default hereunder and to be kept informed thereof); 

  

	 	(iii)	§ 63 (3) (to be notified of any extension granted to an Obligor in payment of principal and/or interest); 

  

	 	(iv)	§ 63 (4) (to be notified of an Obligor’s bankruptcy proceedings or debt reorganisation proceedings and/or any application for the latter); 

 

	 	(v)	§ 65 (3) (that the consent of the Guarantor is required for the Guarantor to be bound by amendments to the Finance Documents that may be detrimental to its interest); 

 

	 	(vi)	§ 66 (1) - (2) (that the Guarantor shall be released from its liabilities hereunder if security which was given, or the giving of which was a precondition for the making of any Loan, is released by the
Finance Parties without the consent of the Guarantor); 

  

	 	(vii)	§ 66 (3) (that the Guarantor shall be released from its liabilities hereunder if, without its consent, security the giving of which was a precondition for the making of any Loan, was not validly
granted); 

  

	 	(viii)	§ 67 (2) (about reduction of the Guarantor’s liabilities hereunder); 

  

	 	(ix)	§ 67 (4) (that the Guarantor’s liabilities hereunder shall lapse after ten (10) years, as the Guarantor shall remain liable hereunder as long as any amount is outstanding in respect of the
obligations guaranteed hereby); 

  

	 	(x)	§ 70 (as the Guarantor shall have no right of subrogation into the rights of the Finance Parties under the Finance Documents until and unless the Finance Parties shall have received all amounts due or to
become due to them in respect of the obligations guaranteed hereby); 

  
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	 	(xi)	§ 71 (as the Finance Parties shall have no liability first to make demand upon or seek to enforce remedies against any other Obligor or any other security provided in respect of the Obligors’
liabilities under the Finance Documents before demanding payment under or seeking to enforce the security created hereunder); 

  

	 	(xii)	§ 72 (as all interest and default interest due in respect of the obligations guaranteed hereby shall be secured hereunder); 

 

	 	(xiii)	§ 73 (1) - (2) (as all costs and expenses related to a default in respect of the obligations guaranteed hereby shall be secured hereunder); and 

 

	 	(xiv)	§ 74 (1) - (2) (as the Guarantor shall make no claim against any other Obligor for payment until and unless the Finance Parties first shall have received all amounts due or to
become due to them in respect of the obligations guaranteed hereby). 

  

	18.9	Guarantor intent 

 Without prejudice to the generality of Clauses 18.7 (Waiver of
defences) and 18.8 (Financial Agreements Act), each Guarantor expressly confirms that it intends that this guarantee shall extend from time to time to any (however fundamental) variation, increase, extension or addition of or to any of
the Finance Documents and/or any facility or amount made available under any of the Finance Documents for the purposes of or in connection with any of the following: business acquisitions of any nature; increasing working capital; enabling investor
distributions to be made; carrying out restructurings; refinancing existing facilities; refinancing any other indebtedness; making facilities available to new borrowers; any other variation or extension of the purposes for which any such facility or
amount might be made available from time to time; and any fees, costs and/or expenses associated with any of the foregoing. 
  

	18.10	Immediate recourse 

 Each Guarantor waives any right it may have of first requiring any
Finance Party (or any trustee or agent on its behalf) to proceed against or enforce any other rights or security or claim payment from any person before claiming from that Guarantor under this Clause 18. This waiver applies irrespective of any law
or any provision of a Finance Document to the contrary. 
  

	18.11	Appropriations 

 Until all amounts which may be or become payable by the Obligors under
or in connection with the Finance Documents have been irrevocably paid in full, each Finance Party (or any trustee or agent on its behalf) may: 
  

	 	(i)	refrain from applying or enforcing any other moneys, security or rights held or received by that Finance Party (or any trustee or agent on its behalf) in respect of those amounts, or apply and enforce the same in such
manner and order as it sees fit (whether against those amounts or otherwise) and no Guarantor shall be entitled to the benefit of the same; and 

  

	 	(ii)	hold in an interest-bearing suspense account any moneys received from any Guarantor or on account of any Guarantor’s liability under this Clause 18. 

  
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	18.12	Deferral of Guarantors’ rights 

  

	(a)	Until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full and unless the Agent otherwise directs, no Guarantor will exercise
any rights which it may have by reason of performance by it of its obligations under the Finance Documents or by reason of any amount being payable, or liability arising, under this Clause 18: 

 

	 	(i)	to be indemnified by an Obligor; 

  

	 	(ii)	to claim any contribution from any other guarantor of any Obligor’s obligations under the Finance Documents; 

  

	 	(iii)	to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Finance Parties under the Finance Documents or of any other guarantee or security taken pursuant to, or in
connection with, the Finance Documents by any Finance Party; 

  

	 	(iv)	to bring legal or other proceedings for an order requiring any Obligor to make any payment, or perform any obligation, in respect of which any Guarantor has given a guarantee, undertaking or indemnity under this Clause
18; 

  

	 	(v)	to exercise any right of set-off against any Obligor; and/or 

  

	 	(vi)	to claim or prove as a creditor of any Obligor in competition with any Finance Party. 

  

	(b)	If a Guarantor receives any benefit, payment or distribution in relation to such rights as referred to in paragraph (a) above, it shall hold that benefit, payment or distribution to the extent necessary to enable
all amounts which may be or become payable to the Finance Parties by the Obligors under or in connection with the Finance Documents to be repaid in full on behalf of and for the account of the Finance Parties and shall promptly pay or transfer the
same to the Agent or as the Agent may direct for application in accordance with Clause 30 (Payment mechanics). 

  

	18.13	Additional security 

 This guarantee is in addition to and is not in any way prejudiced
by any other guarantee or security now or subsequently held by any Finance Party. 
  

	19	REPRESENTATIONS AND WARRANTIES 

 Each Obligor makes the representations and warranties
set out in this Clause 19 to each Finance Party on the date of this Agreement. 

  
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	19.1	Status 

  

	(a)	It and each of its Subsidiaries is a limited liability corporation (or in the case of the Parent Guarantor, a limited partnership), duly incorporated (or in the case of the Parent, formed) and validly existing under the
law of its jurisdiction of incorporation (or in the case of the Parent, formation). 

  

	(b)	It and each of its Subsidiaries has the power to own its assets and carry on its business as it is being conducted. 

  

	19.2	Binding obligations 

 Subject to the Legal Reservations: 

 

	 	(i)	the obligations expressed to be assumed by it in each Finance Document to which it is a party are legal, valid, binding and enforceable obligations; and 

 

	 	(ii)	(without limiting the generality of paragraph (i) above) each Security Document to which it is a party creates the security interests which that Security Document purports to create and those security interests are
valid and effective. 

  

	19.3	Non-conflict with other obligations 

 The entry into and performance by it of, and the
transactions contemplated by, the Finance Documents and the granting of the Transaction Security do not and will not conflict with: 
  

	 	(i)	any law or regulation applicable to it; 

  

	 	(ii)	its or any of its Subsidiaries’ constitutional documents; or 

  

	 	(iii)	any agreement or instrument binding upon it or any member of the Group or any of its or any member of the Group’s assets or constitute a default or termination event (however described) under any such agreement or
instrument. 

  

	19.4	Power and authority 

 It has the power to enter into, perform and deliver, and has taken
all necessary action to authorise its entry into, performance and delivery of, the Finance Documents to which it is a party and the transactions contemplated by those Finance Documents. 

 

	19.5	Validity and admissibility in evidence 

 All Authorisations required or desirable: 

 

	 	(i)	to enable it lawfully to enter into, exercise its rights and comply with its obligations in the Finance Documents to which it is a party; and 

 

	 	(ii)	to make the Finance Documents to which it is a party admissible in evidence in its jurisdiction of incorporation, 

have been obtained or effected and are in full force and effect. 

  
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	19.6	Governing law and enforcement 

  

	(a)	The choice of governing law of the Finance Documents will be recognised and enforced in its jurisdiction of incorporation. 

  

	(b)	Any judgment obtained in relation to a Finance Document in the jurisdiction of the governing law of that Finance Document will be recognised and enforced in its jurisdiction of incorporation. 

 

	19.7	Deduction of Tax 

 It is not required to make any deduction for or on account of Tax from
any payment it may make under any Finance Document. 
  

	19.8	No filing or stamp taxes 

 Under the law of its jurisdiction of incorporation it is not
necessary that the Finance Documents be filed, recorded or enrolled with any court or other authority in that jurisdiction or that any stamp, registration or similar tax be paid on or in relation to the Finance Documents or the transactions
contemplated by the Finance Documents other than: 
  

	 	(i)	registration of the Mortgages in the relevant Approved Ship Register; and 

  

	 	(ii)	registration of the Factoring Agreements in the Norwegian Register of Moveable Property (Løsøreregisteret). 

  

	19.9	No default 

  

	(a)	No Event of Default is continuing or is reasonably likely to result from the making of any Utilisation or the entry into, the performance of, or any transaction contemplated by, any Finance Document. 

 

	(b)	No other event or circumstance is outstanding which constitutes (or, with the expiry of a grace period, the giving of notice, the making of any determination or any combination of any of the foregoing, would constitute)
a default or termination event (however described) under any other agreement or instrument which is binding on it or any of its Subsidiaries (if applicable) or to which its (or any of its Subsidiaries’ (if applicable)) assets are subject which
has or is reasonably likely to have a Material Adverse Effect. 

  

	19.10	No misleading information 

  

	(a)	Any factual information provided by any member of the Group for the purposes of this Agreement was true and accurate in all material respects as at the date it was provided or as at the date (if any) at which it is
stated. 

  

	(b)	Any financial projections provided to the Finance Parties in connection with this Agreement have been prepared on the basis of recent historical information and on the basis of reasonable assumptions. 

 

	(c)	Nothing has occurred or been omitted from the information given to the Finance Parties in connection with this Agreement and no information has been given or withheld that results in the information given to the Finance
Parties in connection with this Agreement being untrue or misleading in any material respect. 

  
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	19.11	Financial statements 

  

	(a)	Its Original Financial Statements were prepared in accordance with the Approved Accounting Principles consistently applied, and fairly represent its consolidated financial condition and operations during the relevant
financial year. 

  

	(b)	There has been no material adverse change in its business or financial condition (or the business or consolidated financial condition of the Group, in the case of the Parent Guarantor) since the date of the financial
statements most recently delivered to the Agent pursuant to Clause 20.1 (Financial statements). 

  

	19.12	Pari passu ranking 

 Its payment obligations under the Finance Documents rank at least
pari passu with the claims of all its other unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law applying to companies generally. 
  

	19.13	No proceedings pending or threatened 

 No litigation, arbitration or administrative
proceedings or investigations of, or before, any court, arbitral body or agency which, if adversely determined, are reasonably likely to have a Material Adverse Effect have (to the best of its knowledge and belief (having made due and careful
enquiry)) been started or threatened against it or any of its Subsidiaries. 
  

	19.14	Compliance with Environmental Laws and other laws 

  

	(a)	It is in compliance in all respects with the provisions of all Environmental Laws applicable to it and to the best of its knowledge and belief (having made due and careful enquiry) no circumstances have occurred which
would prevent such compliance in a manner or to an extent which has or is reasonably likely to have a Material Adverse Effect. 

  

	(b)	No Environmental Claim has been commenced or (to the best of its knowledge and belief (having made due and careful enquiry)) is threatened against it or any of its Subsidiaries where that claim has or is reasonably
likely, if determined against the relevant member of the Group, to have a Material Adverse Effect. 

  

	(c)	It has not (and none of its Subsidiaries has) breached any law or regulation which breach has or is reasonably likely to have a Material Adverse Effect. 

 

	19.15	Taxation 

 It is not (and none of its Subsidiaries is) materially overdue in the filing
of any Tax returns and is not overdue in the payment of any amount in respect of Tax, unless such payment has been contested in good faith and with due diligence and provided that it maintains adequate reserves in respect of thereof in accordance
with the Approved Accounting Principles. 

  
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	19.16	Transaction Security 

 It has all of the rights, title and interest in the assets subject
to the Transaction Security to the extent and in the manner contemplated by the Security Documents. 
  

	19.17	No money laundering 

 Each Borrower is acting for its own account and not as lender or
trustee or in any other capacity whatsoever on behalf of any third party in relation to the Loans and in relation to the performance and the discharge of its obligations and liabilities under the Finance Documents and the transactions and other
arrangements effected or contemplated by the Finance Documents, and the foregoing will not involve or lead to contravention of any law, official requirement or other regulatory measure or procedure implemented to combat money laundering (as defined
in Directive 2005/60/EEC) of the Council of the European Communities). 
  

	19.18	Anti-corruption law 

 Each member of the Group has conducted its businesses in compliance
with applicable anti-corruption laws and has instituted and maintained policies and procedures designed to promote and achieve compliance with such laws. 
  

	19.19	Use of proceeds 

 The proceeds of the Loan will from time to time be applied for the
purposes set out in Clause 3.1 (Purpose). 
  

	19.20	Sanctions 

  

	(a)	It and each of its Subsidiaries and joint ventures, and its or their respective directors, officers, employees, agents and/or representatives has been and is in compliance with Sanctions Laws. 

 

	(b)	Neither it, nor any of its Subsidiaries, nor any of its or their joint ventures, nor any of its or their respective directors, officers, employees, agents or representatives: 

 

	 	(i)	is a Restricted Party, or is involved in any transaction through which it is likely to become a Restricted Party; or 

  

	 	(ii)	is subject to or involved in any inquiry, claim, action, suit, proceeding or investigation against it with respect to Sanctions Laws by any Sanctions Authority. 

 

	19.21	Repetition 

 The Repeating Representations are deemed to be made by each Obligor by
reference to the facts and circumstances then existing on the date of each Utilisation Request, on each Utilisation Date and on the first day of each Interest Period. 

  
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	20	INFORMATION UNDERTAKINGS 

 The undertakings in this Clause 20 remain in force from the
date of this Agreement for so long as any amount is outstanding under the Finance Documents or any Commitment is in force. 
  

	20.1	Financial statements 

  

	(a)	Each Borrower and the Parent Guarantor shall supply to the Agent in sufficient copies for all the Lenders: 

  

	 	(i)	as soon as the same become available, but in any event within 150 days after the end of each of its financial years, its audited financial statements (consolidated if it has Subsidiaries) for that financial year; and

  

	 	(ii)	as soon as the same become available, but in any event within 60 days after the end of each quarter of each of its financial years, its unaudited financial statements (consolidated if it has Subsidiaries) for that
financial quarter. 

  

	(b)	The Parent Guarantor shall supply to the Agent as soon as reasonably practicable after the same are available (and in any event on or before 31 January each year), its consolidated budget and cash flow projections
for that financial year and for the next five (5) financial years, and such updates of such budget and/or projections as the Agent may reasonably require. 

  

	20.2	Provision and contents of Compliance Certificate 

  

	(a)	The Parent Guarantor shall supply to the Agent, with each set of consolidated financial statements of the Parent Guarantor delivered pursuant to Clause 20.1 (Financial statements), a Compliance Certificate
setting out (in reasonable detail) computations as to compliance with Clause 21 (Financial covenants). 

  

	(b)	Each Compliance Certificate shall be signed by the chief financial officer of the Parent Guarantor. 

  

	20.3	Requirements as to financial statements 

  

	(a)	Each set of financial statements delivered pursuant to Clause 20.1 (Financial statements) shall be certified by the chief financial officer of the Parent Guarantor as fairly representing the financial
condition of the relevant Obligor as at the date as at which those financial statements were drawn up. 

  

	(b)	The Parent Guarantor shall procure that each set of financial statements delivered pursuant to Clause 20.1 (Financial statements) is prepared using the Approved Accounting Principles, accounting practices and
financial reference periods consistent with those applied in the preparation of the Original Financial Statements unless, in relation to any set of financial statements, it notifies the Agent that there has been a change in the Approved Accounting
Principles, the accounting practices or reference periods and the Parent Guarantor (or if required by any of the Lenders, its auditors) deliver to the Agent: 

  

	 	(i)	a description of any change necessary for those financial statements to reflect the Approved Accounting Principles, accounting practices and reference periods upon which the Original Financial Statements were prepared;
and 

  
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	 	(ii)	sufficient information, in form and substance as may be reasonably required by the Agent, to enable the Lenders to determine whether Clause 21 (Financial covenants) has been complied with and make an accurate
comparison between the financial position indicated in those financial statements and the Original Financial Statements. 

 Any
reference in this Agreement to those financial statements shall be construed as a reference to those financial statements as adjusted to reflect the basis upon which the Original Financial Statements were prepared. 

 

	20.4	Market valuations 

  

	(a)	The Parent Guarantor shall no later than ten (10) Business Days after the end of each of its financial years and each of its financial half years, or at such other intervals as may be required by the Agent (acting
on the instructions of the Majority Lenders) in the event that an Event of Default has occurred and is continuing, forward to the Agent in sufficient copies for all the Lenders updated valuation reports (not more than thirty (30) days old) from
two (2) of the Approved Brokers setting out the Market Value of each of the Vessels, as well as a calculation signed by the chief financial officer of the Parent Guarantor evidencing compliance with Clause 23.12 (Minimum value).

  

	(b)	All such valuations referred to in paragraph (a) above shall be obtained at the cost of the Borrowers. 

  

	20.5	Information: miscellaneous 

 Each Obligor shall supply to the Agent (in sufficient copies
for all the Lenders, if the Agent so requests): 
  

	 	(i)	at the same time as they are dispatched, copies of all documents dispatched by it to its shareholders generally (or any class of them) or to its creditors generally (or any class of them); 

 

	 	(ii)	promptly upon becoming aware of them, the details of any inquiry, claim, action, suit, proceeding or investigation pursuant to Sanctions Laws by an Sanctions Authority against it, any of its direct or indirect owners,
Subsidiaries or Affiliates, any of its or their joint ventures or any of its or their respective directors, officers, employees, agents or representatives, as well as information on what steps are being taken with regards to answer or oppose such
inquiry, claim, action, suit, proceeding or investigation; 

  

	 	(iii)	promptly upon becoming aware that it, any of its direct or indirect owners, Subsidiaries or Affiliates, any of its or their joint ventures or any of its or their respective directors, officers, employees, agents or
representatives has become or is likely to become a Restricted Party; 

  

	 	(iv)	promptly upon becoming aware of them, the details of any litigation, arbitration or administrative proceedings which are current, threatened or pending against any member of the Group, and which, if adversely
determined, are reasonably likely have a Material Adverse Effect; 

  
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	 	(v)	promptly, such information as the Agent may reasonably require about any asset subject to the Transaction Security and compliance of the Obligors with the terms of any Security Document; and 

 

	 	(vi)	promptly on request, such further information regarding the financial condition, assets and operations of the Group and/or any member of the Group (including any requested amplification or explanation of any item in the
financial statements, budgets or other material provided by any Obligor under this Agreement and an up to date copy of its shareholders’ register (or equivalent in any relevant jurisdiction)) as any Finance Party through the Agent may
reasonably request. 

  

	20.6	Notification of Default and Change of Control 

  

	(a)	Each Obligor shall notify the Agent of any Default (and the steps, if any, being taken to remedy it) promptly upon becoming aware of its occurrence (unless that Obligor is aware that a notification has already been
provided by another Obligor). 

  

	(b)	Promptly upon a request by the Agent, the Parent Guarantor shall supply to the Agent a certificate signed by two (2) of its directors or senior officers on its behalf certifying that no Default is continuing (or if
a Default is continuing, specifying the Default and the steps, if any, being taken to remedy it). 

  

	(c)	Each Obligor shall notify the Agent of the occurrence of any Change of Control promptly upon becoming aware of its occurrence (unless that Obligor is aware that a notification has already been provided by another
Obligor). 

  

	20.7	Use of websites 

  

	(a)	Each Obligor may satisfy its obligation under this Agreement to deliver any information in relation to the Lenders by posting this information onto an electronic website designated by the Obligors and the Agent (the
“Designated Website”) if: 

  

	 	(i)	both the Obligors and the Agent are aware of the address of and any relevant password specifications for the Designated Website; and 

 

	 	(ii)	the information is in a format previously agreed between the Obligors and the Agent. 

  

	(b)	The Agent shall supply each Lender with the address of and any relevant password specifications for the Designated Website following designation of that website by the Obligors and the Agent. 

 

	(c)	an Obligor shall promptly upon becoming aware of its occurrence notify the Agent if: 

  

	 	(i)	the Designated Website cannot be accessed due to technical failure; 

  

	 	(ii)	the password specifications for the Designated Website change; 

  

	 	(iii)	any new information which is required to be provided under this Agreement is posted onto the Designated Website; 

  
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	 	(iv)	any existing information which has been provided under this Agreement and posted onto the Designated Website is amended; or 

  

	 	(v)	it becomes aware that the Designated Website or any information posted onto the Designated Website is or has been infected by any electronic virus or similar software. 

If and Obligor notifies the Agent under paragraph (c)(i) or paragraph (c)(v) above, all information to be provided by the Obligors under this
Agreement after the date of that notice shall be supplied in paper form unless and until the Agent and each Lender is satisfied that the circumstances giving rise to the notification are no longer continuing. 

 

	(d)	Any Lender may request, through the Agent, one paper copy of any information required to be provided under this Agreement which is posted onto the Designated Website. The Obligors shall comply with any such request
within ten (10) Business Days. 

  

	20.8	“Know your customer” checks 

  

	(a)	If: 

  

	 	(i)	the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of this Agreement; 

 

	 	(ii)	any change in the status of an Obligor after the date of this Agreement; or 

  

	 	(iii)	a proposed assignment or transfer by a Lender of any of its rights and obligations under this Agreement to a party that is not a Lender prior to such assignment or transfer, 

obliges the Agent or any Lender (or, in the case of paragraph (iii) above, any prospective new Lender) to comply with “know your
customer” or similar identification procedures in circumstances where the necessary information is not already available to it, the Obligors shall promptly upon the request of the Agent or any Lender supply, or procure the supply of, such
documentation and other evidence as is reasonably requested by the Agent (for itself or on behalf of any Lender) or any Lender (for itself or, in the case of the event described in paragraph (iii) above, on behalf of any prospective new Lender)
in order for the Agent, such Lender or, in the case of the event described in paragraph (iii) above, any prospective new Lender to carry out and be satisfied it has complied with all necessary “know your customer” or other similar
checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents. 
  

	(b)	Each Lender shall promptly upon the request of the Agent supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself) in order for the Agent to carry out
and be satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents. 

  
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	21	FINANCIAL COVENANTS 

  

	21.1	Financial definitions 

 In this Agreement: 

“Borrowings” 

means, at any time, the aggregate outstanding principal, capital or nominal amount (and any fixed or minimum premium payable on prepayment or
redemption) of any indebtedness of members of the Group for or in respect of: 
  

	 	(i)	moneys borrowed and debit balances at banks or other financial institutions; 

  

	 	(ii)	any acceptances under any acceptance credit or bill discount facility (or dematerialised equivalent); 

  

	 	(iii)	any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; 

  

	 	(iv)	any Finance Lease; 

  

	 	(v)	receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis and meet any requirements for de-recognition under the Approved Accounting Principles); 

 

	 	(vi)	any counter-indemnity obligation in respect of a guarantee, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution in respect of an underlying liability of an
entity which is not a member of the Group which liability would fall within one of the other paragraphs of this definition; 

  

	 	(vii)	any amount raised by the issue of shares which are redeemable (other than at the option of the issuer) before the Termination Date or are otherwise classified as borrowings under the Approved Accounting Principles;

  

	 	(viii)	any amount of any liability under an advance or deferred purchase agreement if (A) one of the primary reasons behind the entry into the agreement is to raise finance or to finance the acquisition or construction of
the asset or service in question, or (B) the agreement is in respect of the supply of assets or services and payment is due more than ninety (90) days after the date of supply; 

 

	 	(ix)	any amount raised under any other transaction (including any forward sale or purchase agreement, sale and sale back or sale and leaseback agreement) having the commercial effect of a borrowing or otherwise classified as
borrowings under the Approved Accounting Principles; and 

  

	 	(x)	(without double counting) the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (i) to (ix) above. 

  
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 “Cash and Cash Equivalents” 

means, at any time, the aggregate amount of: 
  

	 	(i)	cash in hand or on deposit with any bank or financial institution; 

  

	 	(ii)	2/3 of the Available Facility in respect of the Revolving Facility; and 

  

	 	(iii)	cash equivalents (as reported in accordance with the Approved Accounting Principles), 

 to which
any member of the Group is alone (or together with another member of the Group) beneficially entitled at that time and which is not issued or guaranteed by a member of the Group or subject to any security (other than Security arising under the
Security Documents). 
 “Current Assets” 

means the aggregate value of the Group’s (on a consolidated basis) or a Borrower’s (as the case may be) assets, which are treated as
current assets in accordance with the Approved Accounting Principles. 
 “Current Liabilities” 

means the aggregate amount of the Group’s (on a consolidated basis) or a Borrower’s (as the case may be) liabilities, which are
treated as current liabilities in accordance with the Approved Accounting Principles, but excluding instalments on long-term debt and Finance Leases which fall due during the next twelve months. 

“EBITDA” 

means, in respect of any Relevant Period, earnings before interest, taxation, depreciation and amortisation, not taking into account any
exceptional or extraordinary items. 
 “Finance Charges” 

means, for any Relevant Period, the aggregate amount of the accrued interest in respect of Borrowings paid or payable by any member of the
Group (calculated on a consolidated basis) in cash in respect of that Relevant Period: 
  

	 	(i)	including the interest (but not the capital) element of payments in respect of Finance Leases; 

  

	 	(ii)	including any commission, fees, discounts and other finance payments payable by (and deducting any such amounts payable to) any member of the Group under any interest rate hedging arrangement; and 

 

	 	(iii)	excluding any capitalised interest in respect of any Subordinated Loan, 

 and so that no amount
shall be added (or deducted) more than once. 
 “Relevant Period” 

means each period of twelve (12) months ending on or about the last day of the financial year of the relevant Obligor and each period of
twelve (12) months ending on or about the last day of each financial quarter of the relevant Obligor. 

  
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 “Total Assets” 

means the aggregate book value of those assets which, according to the Approved Accounting Principles, shall be included as assets in a balance
sheet. 
 “Total Equity” 

means book equity. 

“Working Capital” 

means, on any date, Current Assets less Current Liabilities. 
  

	21.2	Calculations 

  

	(a)	Except as provided to the contrary in this Agreement, an accounting term used in this Clause 21 is to be construed in accordance with the principles applied in connection with the Original Financial Statements.

  

	(b)	No item must be credited or deducted more than once in any calculation under this Clause 21. 

  

	21.3	Working Capital 

  

	(a)	The Parent Guarantor shall procure that the Working Capital of the Parent Guarantor (on a consolidated basis) measured at the end of each of its financial quarters (starting with the financial quarter ending
30 June 2014) shall at all times be positive. 

  

	(b)	Each Borrower shall procure that its Working Capital measured at the end of each of its financial quarters (starting with the financial quarter ending 30 June 2014) shall at all times be positive.

  

	21.4	Equity ratio 

 The Parent Guarantor shall procure that the ratio of Total Equity to Total
Assets of the Parent Guarantor (on a consolidated basis) measured at the end of each of its financial quarters (starting with the financial quarter ending 30 June 2014) shall not at any time be less than 0.30. 

 

	21.5	Interest cover ratio 

 The Parent Guarantor shall procure that the ratio of EBITDA to
Finance Charges for it (on a consolidated basis) in respect of any Relevant Period (starting with the Relevant Period ending 30 June 2014) shall be no less than 2.50:1.00. 

  
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	21.6	Liquidity 

 The Parent Guarantor shall procure that it (on a consolidated basis) at all
times maintains Cash and Cash Equivalents in an amount equal to or greater than USD 15,000,000: 
  

	 	(i)	plus an amount of USD 1,500,000 for each vessel owned by a member of the Group with no employment contract or an employment contract with less than twelve (12) months remaining tenor (excluding options), provided
always that employment contracts entered into with the Sponsor or any of its Subsidiaries shall not count as employment contracts in relation to this paragraph (i); and 

 

	 	(ii)	plus an amount of USD 1,000,000 for each vessel owned by the members of the Group in excess of eight (8) vessels. 

  

	22	GENERAL UNDERTAKINGS 

 The undertakings in this Clause 22 remain in force from the date
of this Agreement for so long as any amount is outstanding under the Finance Documents or any Commitment is in force. 
  

	22.1	Use of proceeds 

 No proceeds of the Loan shall be made available, directly or
indirectly, to or for the benefit of a Restricted Party nor shall they otherwise be applied in a manner or for a purpose prohibited by Sanctions Laws. 
  

	22.2	Authorisations 

  

	(a)	Each Obligor shall promptly: 

  

	 	(i)	obtain, comply with and do all that is necessary to maintain in full force and effect; and 

  

	 	(ii)	supply certified copies to the Agent of, 

 any Authorisation required under any law or
regulation of its jurisdiction of incorporation to enable it to perform its obligations under the Finance Documents and to ensure the legality, validity, enforceability or admissibility in evidence in its jurisdiction of incorporation of any Finance
Document. 
  

	(b)	The Obligors shall obtain or cause to be obtained, at the time the same are required, maintain or cause to be maintained in full force and effect and promptly renew or cause to be renewed and comply in all material
respects with the conditions and restrictions (if any) imposed in, or in connection with, every Authorisation required to be obtained and maintained in order to continue the performance and operation of each Vessel under any contract entered into in
respect of it and any law and regulation to which it and/or any Obligor may be subject. 

  

	22.3	Negative pledge 

 In this Clause 22.3, “Quasi-Security” means an
arrangement or transaction described in paragraph (b) below. 
  

	(a)	No Borrower shall create or permit to subsist any Security over any of its assets and the Parent Guarantor shall not create or permit to subsist any Security over any of the shares or other ownership interests in any of
the Borrowers (other than the Security granted under the Second Share Pledge Agreement), KNOT Offshore Partners UK LLC or KNOT Shuttle Tankers AS. 

  
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	(b)	No Borrower shall: 

  

	 	(i)	sell, transfer or otherwise dispose of any of its assets on terms whereby they are or may be leased to or re-acquired by any other member of the Group; 

 

	 	(ii)	sell, transfer or otherwise dispose of any of its receivables on recourse terms; 

  

	 	(iii)	enter into any arrangement under which money or the benefit of a bank or other account may be applied, set-off or made subject to a combination of accounts; or 

 

	 	(iv)	enter into any other preferential arrangement having a similar effect, 

 in circumstances where
the arrangement or transaction is entered into primarily as a method of raising Financial Indebtedness or of financing the acquisition of an asset. 
  

	(c)	Paragraphs (a) and (b) above do not apply to any Security or (as the case may be) Quasi-Security listed below: 

  

	 	(i)	any Security or Quasi-Security constituted by the Security Documents or entered into under a Finance Document; 

  

	 	(ii)	any Security or Quasi-Security disclosed in writing by a Borrower to the Agent prior to the date of this Agreement and approved in writing by the Agent (in its sole discretion) for the purposes of this Agreement;

  

	 	(iii)	any Security or Quasi-Security comprising a netting or set-off arrangement entered into by a Borrower in the ordinary course of its banking arrangements for the purpose of netting debit and credit balances;

  

	 	(iv)	any Security or Quasi-Security arising by operation of law or in the ordinary course of business securing obligations not more than 30 days overdue; 

 

	 	(v)	any Security or Quasi-Security to which the Lenders have given their prior written consent. 

  

	22.4	Financial Indebtedness restrictions 

  

	(a)	No Borrower shall incur, create or permit to subsist any Financial Indebtedness. 

  

	(b)	Paragraph (a) above does not apply to Financial Indebtedness: 

  

	 	(i)	incurred under the Finance Documents; 

  

	 	(ii)	incurred by way of a Subordinated Loan made at a time when no Default is continuing or would occur from the borrowing of such Subordinated Loan, and provided that the Parent Guarantor and the Borrowers will be in
compliance with the financial covenants set out in Clause 21 (Financial covenants) following the borrowing of such Subordinated Loan; or 

  

	 	(iii)	incurred with the prior written consent of the Lenders. 

  
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	22.5	Change of business etc. 

  

	(a)	The Parent Guarantor shall procure that no substantial change is made to the general nature of the business of the Group from that carried on at the date of this Agreement without the prior written consent of the
Lenders. 

  

	(b)	No Borrower shall engage in any business other than the ownership and operation of the Vessel owned by it. 

  

	(c)	No Obligor shall change its type of company, legal name or jurisdiction of incorporation without the prior written consent of the Lenders. 

 

	22.6	Loans or credit 

  

	(a)	No Borrower shall be a creditor in respect of any Financial Indebtedness. 

  

	(b)	Paragraph (a) above does not apply to: 

  

	 	(i)	normal trade credit extended to its customers on normal commercial terms and in the ordinary course of its trading activities; 

  

	 	(ii)	any loan or other credit made to another member of the Group at a time when no Default is continuing or would occur from the making of such loan or other credit, and provided that the Parent Guarantor and the Borrowers
will be in compliance with the financial covenants set out in Clause 21 (Financial covenants) following the making of such loan or other credit; or 

  

	 	(iii)	any creditor relationship entered into with the consent of the Lenders. 

  

	22.7	No guarantees or indemnities 

  

	(a)	No Borrower shall incur or allow to remain outstanding any guarantee or indemnity in respect of any obligation of any person. 

  

	(b)	Paragraph (a) above does not apply to a guarantee or indemnity which is: 

  

	 	(i)	granted pursuant to the Finance Documents; 

  

	 	(ii)	from time to time required in the ordinary course of business and operation of the Vessels, or by any protection and indemnity or war risks association with which a Vessel is entered, guarantees required to procure the
release of that Vessel from any arrest, detention, attachment or levy or guarantees required for the salvage of that Vessel; 

  

	 	(iii)	granted in respect of any obligation of another member of the Group at a time when no Default is continuing or would occur from the granting of such guarantee or indemnity, and provided that the Parent Guarantor and the
Borrowers will be in compliance with the financial covenants set out in Clause 21 (Financial covenants) following the granting of such guarantee or indemnity; or 

 

	 	(iv)	granted with the prior written consent of the Lenders. 

  
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	22.8	Merger 

 No Obligor shall enter into any amalgamation, demerger, merger, consolidation or
corporate reconstruction without the prior written consent of the Lenders. 
  

	22.9	Investments 

 No Borrower shall, without the prior written consent of the Lenders, make
any further investments, other than investments relating to the Vessel owned by it, provided that such investment is made at a time when no Default is continuing or would occur from the making of the relevant investment, and provided further that
the Parent Guarantor and the Borrowers will be in compliance with the financial covenants set out in Clause 21 (Financial covenants) following the making of the relevant investment. 

 

	22.10	Arm’s length terms 

 All agreements and transactions entered into by an Obligor with
an Affiliate, a shareholder or an Affiliate of a shareholder shall be entered into and made on arm’s length terms. 
  

	22.11	Hedging 

 The Hedging Banks shall have the first right of refusal on competitive terms in
relation to any interest hedging or other derivatives products relating to the Vessels or any of them or the Facilities or any of them. 
  

	22.12	Pari passu ranking 

 Each Obligor shall ensure that at all times any unsecured and
unsubordinated claims of a Finance Party against it under the Finance Documents rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors except those creditors whose claims are mandatorily preferred by
laws of general application to companies. 
  

	22.13	Dividend restrictions 

  

	(a)	No Obligor shall make, pay or declare any dividend, reduction of share capital or other distribution to its shareholders or any of them. 

 

	(b)	Paragraph (a) above shall not apply to dividend, reduction of share capital or other distributions where the following conditions are fulfilled: 

 

	 	(i)	no Default has occurred and is continuing at the time the making, payment or declaration of the relevant dividend, reduction of share capital or other distribution is made, or would result from the making, payment or
declaration of the relevant dividend, reduction of share capital or other distribution; and 

  

	 	(ii)	the Parent Guarantor and the Borrowers will be in compliance with the financial covenants set out in Clause 21 (Financial covenants) following the making, payment or declaration of the relevant dividend,
reduction of share capital or other distribution. 

  
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	22.14	Change of financial year 

 No Obligor will, without the prior written consent of the
Majority Lenders, change its financial year. 
  

	22.15	Payment of Taxes 

 Each Obligor shall (and the Borrower shall ensure that each member of
the Group will) pay and discharge all Taxes imposed upon it or its assets within the time period allowed without incurring penalties unless and only to the extent that: 
  

	 	(i)	such payment is being contested in good faith; 

  

	 	(ii)	adequate reserves are being maintained for those Taxes and the costs required to contest them which have been disclosed in its latest financial statements delivered to the Agent under Clause 20.1 (Financial
statements); and 

  

	 	(iii)	such payment can be lawfully withheld. 

  

	22.16	Listing 

 The Parent Guarantor shall maintain its listing at the New York Stock Exchange
or such other stock exchange as may be approved by the Lenders. 
  

	22.17	Further security 

  

	(a)	Each Borrower shall if it enters into any any contract of employment (including, inter alia, step-in rights) in respect of the Vessel owned by it for a period exceeding 18 months (including any options, extensions
and/or renewals), within 30 days after the entering into of such contract enter into an Assignment Agreement with the Agent in respect of its rights under such contract, and do all such acts and execute all such documents in favour of the Agent and
provide such documentation to the Agent as the Agent may reasonably require to perfect the security created or intended to be created thereunder and evidence that the Assignment Agreement has been validly executed by the relevant Borrower.

  

	(b)	Each Borrower shall if it enters into any Hedging Agreement, within 30 days after the entering into of such Hedging Agreement enter into a Hedging Agreement Assignment Agreement with the Agent in respect of its claims
relating to any such Hedging Agreement, and do all such acts and execute all such documents in favour of the Agent and provide such documentation to the Agent as the Agent may reasonably require to perfect the security created or intended to be
created thereunder and evidence that the Hedging Agreement Assignment Agreement has been validly executed by the relevant Borrower. 

  

	22.18	Sanctions 

  

	(a)	No Obligor shall be or become, and each Obligor shall ensure that none of its Subsidiaries or Affiliates or its or their respective directors, officers, employees, agents or representatives or any other persons acting
on its or their behalf is or will become, a Restricted Party. 

  

	(b)	The Borrowers and the Parent shall ensure that its assets, the assets, including assets subject to the Security Documents (including the Vessels), shall not be used directly or indirectly: 

 

	 	(i)	by or for the direct or indirect benefit of any Restricted Party; or 

  
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	 	(ii)	in any trade which is prohibited under applicable Sanctions or which could expose a Borrower or the Parent, any of their assets, any assets subject to the Security Documents, any Vessel, any Finance Party or any other
person being party to or which benefits from any Finance Document, any manager of a Vessel or any charterer or insurer of a Vessel to enforcement proceedings or any other consequences whatsoever arising from Sanctions. 

 

	(c)	The Borrowers and the Parent shall ensure that the Vessels shall not be trading to Iranian ports or carrying or storing/warehousing crude oil, petroleum products or petrochemical products or other products subject to
Sanctions if they originate in Iran, or are being exported from Iran to any other country, as long as Iran is subject to Sanctions by a Sanctions Authority. 

  

	22.19	Most favoured lender status 

 If as a result of, or in connection with, or to obtain any
consent or agreement of any finance party under any agreement in respect of Financial Indebtedness in an amount of USD 10,000,000 (or its equivalent) or more, a Borrower, the Parent Guarantor or Knutsen Shuttle Tankers XII KS has entered into or
enters into documentation or other arrangements containing any financial covenants more favourable to the finance party or finance parties than, or in addition to, those contained in this Agreement, the Borrower undertakes to immediately notify the
Agent of the existence and details of such documentation or other arrangements and, if so requested by the Agent, the Obligors undertake to as soon as reasonably practicable (and in no event later than thirty (30) days after the occurrence
thereof) enter into an amendment of this Agreement in the form reasonably required by the Majority Lenders for the purpose of incorporating equivalent (or the functional equivalent of such) financial covenants in this Agreement. 

 

	23	VESSEL UNDERTAKINGS 

 The undertakings in this Clause 23 remain in force from the date of
this Agreement for so long as any amount is outstanding under the Finance Documents or any Commitment is in force. 
  

	23.1	Insurances 

  

	(a)	The Borrowers shall procure that each Vessel is fully insured on an agreed value basis against such risks (including, but not limited to Hull and Machinery, Hull Interest, Freight Interest, Protection &
Indemnity (including a maximum club cover for oil pollution liability for each Vessel, presently USD 1,000,000,000) and War Risk (including terrorism, piracy, hijacking and confiscation)), in such amounts, on such terms (always applying
Norwegian law and including the terms of the Nordic Marine Insurance Plan of 2013 (as amended from time to time) or such other terms as the Agent (acting reasonably) may approve in relation to losses payable thereunder) and with such insurance
brokers and insurers as the Agent (acting on the instructions of the Majority Lenders) may approve. The Borrowers will procure that the Agent is named as mortgagee and loss payee under the insurances, also if the insurances are effected by a
charterer of a Vessel. 

  
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	(b)	The insured value of each Vessel shall at all times be equal to or greater than its Market Value, and the aggregate insured value of all Vessels shall be equal to or greater than 120 per cent. of the amount of the
Total Commitments. 

 Furthermore, the Hull and Machinery insured value of each Vessel shall at all times cover at least
80 per cent. of the Market Value of the Vessel, and the aggregate Hull and Machinery insured value of the Vessels shall at all times cover at least an amount equal to the amount of the Total Commitments, while the remaining cover may be taken
out by way of Hull and/or Freight Interest insurances. 
  

	(c)	In addition to the insurances specified above, the Agent shall take out (i) Mortgagee Interest Insurance and (ii) Mortgagee Interest Additional Perils Pollution Insurance, each such insurance to be taken out
in an amount covering up to 120 per cent. of the Total Commitments, and the Borrowers shall reimburse to the Agent any and all sums paid as premium in respect of such insurance cover. 

 

	(d)	If any of the insurances referred to in paragraph (a) above form part of a fleet cover, the Borrowers shall procure that the insurers shall undertake to the Agent that they shall neither set-off against any claims
in respect of a Vessel any premiums due in respect of other vessels under such fleet cover or any premiums due for other insurances, nor cancel any insurances in relation of a Vessel for reason of non-payment of premiums for other vessels under such
fleet cover or of premiums for such other insurances, and shall undertake to issue a separate policy in respect of each Vessel if and when so requested by the Agent. 

 

	(e)	Not later than seven (7) days before the expiry date of the relevant insurances, the Borrowers shall deliver to the Agent a confirmation from the insurance broker(s) through whom the insurances relevant to the
Vessels have been placed, evidencing that all insurances referred to in paragraph (a) above have been renewed and taken out in respect of the Vessels with insurance values as required by paragraph (b) above, that such insurances will be in
full force and effect immediately upon the expiry of the expiring insurances and that the interests of the Finance Parties therein have been noted by the relevant insurers. The Borrowers shall procure that Letters of Undertaking, as required by the
Agent, and copies of all insurance policies, cover notes and certificates of entry are delivered to the Agent. 

  

	(f)	The Borrowers shall procure that each Vessel is always employed in conformity with the terms of the instruments of insurance (including any expressed or implied warranties) applicable to it and shall comply with such
requirements as to extra premium or otherwise as the insurers may prescribe. 

  

	(g)	The Agent shall prior to each Utilisation Date, for the account of the Borrowers, appoint an independent and well reputed insurance consultant to consider and determine whether each Vessel is fully and properly insured
and employed in accordance with paragraphs (a) – (f) above. If at any time during the Loan Period, the contrary is so determined, the Borrowers shall, following a written request from the Agent (on behalf of the Finance Parties)
immediately ensure that the relevant Vessel(s) is fully and properly insured and employed as set out in paragraphs (a) – (f) above and provide the Agent with evidence in a form and substance satisfactory to it thereof.

  

	23.2	Notification 

 The Obligors shall immediately notify the Agent of: 

 

	 	(i)	any accident to a Vessel involving repairs the cost of which is likely to exceed USD 3,000,000; 

  
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	 	(iii)	any occurrence as a result of which a Vessel has become or is, by the passing of time or otherwise, likely to become a Total Loss; 

  

	 	(iv)	the occurrence of any Environmental Claim against an Obligor or a Vessel which is likely to be determined adversely to it, or any incident, event or circumstances which is likely to give rise to any such Environmental
Claim and which, if so adversely determined or otherwise, is reasonably likely to have a Material Adverse Effect; and 

  

	 	(v)	any capture, seizure, arrest, confiscation or detention of, or the exercise or purported exercise of any lien on, a Vessel, its insurances, its Earnings or any other assets of an Obligor. 

 

	23.3	Total Loss of a Vessel 

 In the event that a Vessel shall suffer a Total Loss, the
Borrowers shall, within a period of ninety (90) days after the Total Loss Date, obtain and present to the Agent a written confirmation from the relevant insurers that the claim relating to the Total Loss has been accepted in full, or - if
sooner - promptly upon receipt of insurance proceeds in respect of the Total Loss, apply such proceeds in prepayment of the Loans. Such prepayment shall in the event of Total Loss in any event be made within one hundred and eighty (180) days
from the Total Loss Date, in accordance with Clause 7.3 (Mandatory prepayment – sale or Total Loss etc.). 
  

	23.4	Compliance with laws etc. 

 Each Obligor shall (and shall ensure that each of its
Subsidiaries and Affiliates, as well as any manager of any of the Vessels, shall): 
  

	 	(i)	comply with all laws or regulations: 

  

	 	(A)	applicable to its business; or 

  

	 	(B)	applicable to the Vessel, its ownership, employment, operation, management and registration, 

including the ISM Code, the ISPS Code, all Environmental Laws, all Sanctions Laws and the laws of the flag of each Vessel; and 

 

	 	(ii)	obtain, comply with and do all that is necessary to maintain in full force and effect any Environmental Approvals, 

and without limiting paragraph (a) above, not employ any Vessel nor allow its employment, operation or management in any manner, contrary
to any law or regulation including but not limited to the ISM Code, the ISPS Code, all Environmental Laws and all Sanctions Laws. 

  
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	23.5	Class 

  

	(a)	The Borrowers shall procure that each Vessel is classified and maintained in the highest class, free of any overdue recommendations, with DNV GL or any other classification society approved by the Majority Lenders, and
at all times complies with the rules and regulations of the relevant classification society. The Borrowers shall not change the classification society for a Vessel without the prior written consent of the Lenders. 

 

	(b)	The Borrowers shall procure that the classification society sends to the Agent, following receipt of a written request from the Agent, copies of all class records held by the classification society in relation to a
Vessel. 

  

	(c)	The Borrowers shall at all times ensure compliance with all international conventions and regulations, including the SOLAS conventions, the International Management Code for the Safe Operation of Ships and for Pollution
Prevention and the International Ship and Port Security Code adopted by the International Maritime Organisation. In particular, the Borrowers shall ensure compliance with the ISM-Code and shall ensure that any charterer of a Vessel and any company
performing management services on behalf of a Borrowers complies with said conventions and regulations. 

  

	23.6	Repair and maintenance 

 The Borrowers shall procure that each Vessel is kept in a good
and safe condition and state of repair consistent with good ownership and operational standards, and that each Vessel is operated and maintained in accordance with the requirements of any employment contract entered into in respect of it. 

 

	23.7	Inspection 

  

	(a)	Each Borrower shall permit, and shall procure that any manager or charterer permits, the Agent (acting through surveyors or other persons appointed by it for that purpose) to board each Vessel once a year and with prior
notice to the Borrower owning the relevant Vessel, and provided that such inspection does not unreasonably interfere with the relevant Borrower’s or end user’s normal operations (unless a Default has occurred and is continuing, in which
case such inspections may be conducted at any time and on any number of occasions), to inspect its condition or to satisfy itself about proposed or executed repairs, and shall afford all proper facilities for such inspections. 

 

	(b)	Any such inspection made once a year, or in the event that a Default has occurred and is continuing, shall be made at the cost of the Borrower owning the relevant Vessel, and in any other event such costs shall be
carried by the Lenders. 

  

	23.8	Flag, name and registry 

 The Borrowers shall procure that each Vessel is registered in a
Approved Ship Register, or another ship registry acceptable to the Lenders, in the name of the relevant Borrower, keep each Vessel registered in such register and not do or suffer to be done anything, or omit to do anything the doing or omission of
which could or might result in such registration being forfeited or imperilled. No Borrower shall change the flag, name or registry of a Vessel, or register a Vessel simultaneously in more than one registry, without the prior written consent of the
Lenders. 

  
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	23.9	No sale or other disposal 

 The Obligors shall procure that no Vessel or shares in a
Borrower is sold or otherwise disposed of without the prior written consent of the Lenders. 
  

	23.10	Management 

 The Borrowers shall procure that commercial and technical management of each
Vessel at all times is performed by KNOT Management AS, another company controlled by the Parent Guarantor and/or any such other manager as may be approved by the Majority Lenders. No change of management shall take place without the prior written
consent of the Majority Lenders. 
  

	23.11	Earnings Accounts 

  

	(a)	Each Borrower shall open and maintain an Earnings Account with the Agent and procure that all Earnings, insurance proceeds, requisition compensation and other sums payable in respect of the Vessel owned by it shall be
paid directly to such Earnings Account without deductions. 

  

	(b)	The amounts credited to the Earnings Accounts shall be freely available to the relevant Borrower as long as no Default has occurred and is continuing. 

 

	23.12	Minimum value 

  

	(a)	The Borrowers shall ensure that the aggregate Market Value of the Vessels (plus any additional security previously provided by the Borrowers under paragraph (b) below) is at all times: 

 

	 	(i)	during the period from and including the first Utilisation Date until the second anniversary thereof, at least equal to 110 per cent. of the aggregate of the principal amount of the Loans; 

 

	 	(ii)	during the period from and including the second anniversary of the first Utilisation Date until fourth anniversary thereof, at least equal to 120 per cent. of the aggregate of the principal amount of the Loans; and

  

	 	(iii)	at any time thereafter at least equal to 125 per cent. of the aggregate of the principal amount of the Loans. 

  

	(b)	The Borrowers shall, if the Market Value does not at any time comply with the requirements set out in paragraph (a) above, within thirty (30) days from receipt of a written demand from the Agent (acting on the
instructions of the Majority Lenders) either make a prepayment of the Loans in accordance with Clause 7.5 (Voluntary prepayment), or provide the Finance Parties with such additional security, in form and substance satisfactory to the Lenders,
required to restore the aforesaid ratio. 

  

	24	EVENTS OF DEFAULT 

 Each of the events or circumstances set out in Clause 24 is an Event
of Default (save for Clause 24.16 (Acceleration)). 

  
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	24.1	Non-payment 

 An Obligor does not pay on the due date any amount payable pursuant to a
Finance Document at the place and in the currency in which it is expressed to be payable unless: 
  

	 	(i)	its failure to pay is caused by: 

  

	 	(A)	a one-off administrative or technical error; or 

  

	 	(B)	a Disruption Event; and 

  

	 	(ii)	payment is made within three (3) Business Days of its due date. 

  

	24.2	Financial covenants 

 Any requirement of Clause 21 (Financial covenants) is not
satisfied, or an Obligor does not comply with the provisions of Clause 20 (Information undertakings). 
  

	24.3	Other obligations 

  

	(a)	An Obligor does not comply with any provision of the Finance Documents (other than those referred to in Clause 24.1 (Non-payment) and Clause 24.2 (Financial covenants)). 

 

	(b)	No Event of Default under paragraph (a) above will occur if the failure to comply is capable of remedy and is remedied within fifteen (15) Business Days of the earlier of: 

 

	 	(i)	the Agent giving notice to the Borrower; and 

  

	 	(ii)	an Obligor becoming aware of the failure to comply. 

  

	(c)	For the avoidance of doubt, a breach of Clause 23.1 (Insurances) is not (at the discretion of the Lenders) capable of remedy. 

 

	24.4	Misrepresentation 

 Any representation or statement made or deemed to be made by an
Obligor in the Finance Documents or any other document delivered by or on behalf of any Obligor under or in connection with any Finance Document is or proves to have been incorrect or misleading in any material respect when made or deemed to be
made. 
  

	24.5	Cross-default 

  

	(a)	Any Financial Indebtedness of an Obligor is not paid when due nor within any originally applicable grace period. 

  

	(b)	Any Financial Indebtedness of an Obligor is declared to be or otherwise becomes due and payable prior to its specified maturity as a result of an event of default (however described). 

 

	(c)	Any commitment for any Financial Indebtedness of an Obligor is cancelled or suspended by a creditor of the relevant Obligor as a result of an event of default (however described). 

  
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	(d)	Any creditor of an Obligor becomes entitled to declare any Financial Indebtedness of an Obligor due and payable prior to its specified maturity as a result of an event of default (however described). 

 

	(e)	No Event of Default will occur under this Clause 24.5 if the aggregate amount of Financial Indebtedness or commitment for Financial Indebtedness falling within paragraphs (a) to (d) above is less than USD
8,000,000 (or its equivalent in any other currencies). 

  

	24.6	Insolvency 

  

	(a)	An Obligor is, or for the purpose of applicable law is deemed to be, unable or admits inability to pay its debts as they fall due or becomes insolvent. 

 

	(b)	An Obligor suspends making payments on any of its debts or, by reason of actual or anticipated financial difficulties, commences negotiations with one or more of its creditors with a view to rescheduling any of its
indebtedness. 

  

	(c)	The value of the assets of an Obligor is less than its liabilities (taking into account contingent and prospective liabilities). 

  

	(d)	A moratorium is declared in respect of any indebtedness of an Obligor. 

  

	24.7	Insolvency proceedings 

  

	(a)	Any corporate action, legal proceedings or other procedure or step is taken in relation to: 

  

	 	(i)	the suspension of payments, a moratorium of any indebtedness, winding-up, dissolution, administration or reorganisation (by way of voluntary arrangement, scheme of arrangement or otherwise) of an Obligor;

  

	 	(ii)	a composition, compromise, assignment or arrangement with any creditor of an Obligor; 

  

	 	(iii)	the appointment of a liquidator, receiver, administrative receiver, administrator, compulsory manager or other similar officer in respect of an Obligor any of its assets; 

 

	 	(iv)	enforcement of any Security over any assets of an Obligor, 

 or any analogous procedure or step
is taken in any jurisdiction. 
  

	(b)	Paragraph (a) above shall not apply to any winding-up petition which is being contested in good faith and with due diligence and is discharged, stayed or dismissed within 14 days of commencement. 

 

	24.8	Creditor’s process 

 Any expropriation, attachment, sequestration, lien, arrest,
distress or execution affects any asset or assets of an Obligor, and is not discharged within 14 days of commencement. 

  
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	24.9	Cessation of business or winding up 

 An Obligor is wound up or ceases or threatens to
cease to carry on all or a substantial part of its business or makes a substantial change in the nature of its business, without the prior written consent of the Lenders. 
  

	24.10	Loss of property 

 A substantial part of an Obligor’s business or assets is
destroyed, abandoned, seized, appropriated or forfeited for any reason provided, in the reasonable opinion of the Majority Lenders, that such occurrence has or is reasonably likely to have a Material Adverse Effect. 

 

	24.11	Failure to comply with final judgment 

 An Obligor fails (within five (5) Business
Days after becoming obliged to do so) to comply with or pay any sum in an amount exceeding USD 8,000,000 (or the equivalent in any other currencies) due from it under any final judgment or any final order (being one against which there is no right
of appeal or if a right of appeal exists the time limit for making such appeal has expired and no appeal has been made or if an appeal has been made such appeal has been dismissed) made or given by any court of competent jurisdiction, provided,
however, that such event shall not constitute an Event of Default if the relevant Obligor is entitled to insurance cover for the whole of such sum and the relevant insurers have confirmed liability and undertaken to make payment of the whole of such
sum in writing to the person(s) entitled to payment and it is likely (in the reasonable opinion of the Majority Lenders) that the insurers will be able to make such payment within 30 days. 

 

	24.12	Unlawfulness and invalidity 

  

	(a)	It is or becomes unlawful for an Obligor to perform any of its obligations under the Finance Documents or any Transaction Security created or expressed to be created or evidenced by the Security Documents ceases to be
effective or any subordination created in respect of a Subordinated Loan is or becomes unlawful. 

  

	(b)	Any obligation or obligations of any Obligor under any Finance Documents are not (subject to the Legal Reservations) or cease to be legal, valid, binding or enforceable and the cessation individually or cumulatively
materially and adversely affects the interests of the Lenders under the Finance Documents. 

  

	(c)	Any Finance Document ceases to be in full force and effect or any Transaction Security or any subordination of any Subordinated Loan ceases to be legal, valid, binding, enforceable or effective or is alleged by a party
to it (other than a Finance Party) to be ineffective. 

  

	24.13	Repudiation and rescission of agreements 

  

	(a)	An Obligor (or any other relevant party) rescinds or purports to rescind or repudiates or purports to repudiate a Finance Document or any of the Transaction Security or evidences an intention to rescind or repudiate a
Finance Document or any Transaction Security. 

  

	(b)	Any party to an agreement or instrument entered into in relation to a Subordinated Loan rescinds or purports to rescind or repudiates or purports to repudiate any such agreement or instrument in whole or in part where
to do so has or is, in the reasonable opinion of the Majority Lenders, likely to have a material adverse effect on the interests of the Lenders under the Finance Documents. 

  
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	24.14	Litigation 

 Any litigation, arbitration, administrative, governmental, regulatory or
other investigations, proceedings or disputes are commenced or threatened in relation to the Transaction Documents or the transactions contemplated in the Transaction Documents or against any member of the Group or its assets which have or are
reasonably likely to have a Material Adverse Effect. 
  

	24.15	Material adverse change 

 Any event or circumstance occurs which the Majority Lenders
reasonably believe has or would have a Material Adverse Effect. 
  

	24.16	Acceleration 

 On and at any time after the occurrence of an Event of Default which is
continuing the Agent may, and shall if so directed by the Majority Lenders, by notice to the Borrowers:- 
  

	 	(i)	cancel all or any part of the Commitments whereupon they shall immediately be cancelled; 

  

	 	(ii)	declare that all or part of the Loans, together with accrued interest, and all other amounts accrued or outstanding under the Finance Documents be immediately due and payable, whereupon they shall become immediately due
and payable; 

  

	 	(iii)	declare that all or part of the Loans be payable on demand, whereupon they shall immediately become payable on demand by the Agent acting on the instructions of the Majority Lenders; and/or 

 

	 	(iv)	exercise any or all of its rights, remedies, powers or discretions under the Finance Documents. 

  

	25	CHANGES TO THE LENDERS 

  

	25.1	Transfers by the Lenders 

 Subject to this Clause 25, a Lender (the “Existing
Lender”) may: 
  

	 	(i)	assign any of its rights; or 

  

	 	(ii)	transfer any of its rights and obligations, 

 under the Finance Documents to another bank or
financial institution or to a trust, fund or other entity which is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets (the “New Lender”). 

  
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	25.2	Conditions of assignment or transfer 

  

	(a)	The consent of the Agent and the Borrowers is required for an assignment or transfer by an Existing Lender, unless the assignment or transfer is to another Lender or an Affiliate of a Lender or an Event of Default has
occurred and is continuing. 

  

	(b)	The consent of the Agent and the Borrowers to an assignment or transfer must not be unreasonably withheld or delayed. Each Borrower will be deemed to have given its consent five (5) Business Days after the Existing
Lender has requested it unless consent is expressly refused by the relevant Borrower within that time. 

  

	(c)	Unless the Borrowers and the relevant Lender otherwise agree, each assignment or transfer by an Existing Lender shall be in an amount equal to no less than USD 20,000,000, or, if lower, the entire participation of the
relevant Lender under each of the Facilities. 

  

	(d)	An assignment or transfer will only be effective if the procedure set out in Clause 25.5 (Procedure for transfer) is complied with. 

 

	(e)	If: 

  

	 	(i)	a Lender assigns or transfers any of its rights or obligations under the Finance Documents or changes its Facility Office; and 

  

	 	(ii)	as a result of circumstances existing at the date the assignment, transfer or change occurs, a Borrower would be obliged to make a payment to the New Lender or Lender acting through its new Facility Office under Clause
12 (Tax gross-up and indemnities) or Clause 13 (Increased Costs), 

 then the New Lender or Lender acting through
its new Facility Office is only entitled to receive payment under those Clauses to the same extent as the Existing Lender or Lender acting through its previous Facility Office would have been if the assignment, transfer or change had not occurred.
This paragraph (e) shall not apply in respect of an assignment or transfer made in the ordinary course of the primary syndication of the Facilities. 
  

	(f)	Each New Lender, by executing the relevant Transfer Certificate, confirms, for the avoidance of doubt, that the Agent has authority to execute on its behalf any amendment or waiver that has been approved by or on behalf
of the requisite Lender or Lenders in accordance with this Agreement on or prior to the date on which the transfer becomes effective in accordance with this Agreement and that it is bound by that decision to the same extent as the Existing Lender
would have been had it remained a Lender. 

  

	25.3	Transfer fee 

 The New Lender shall, on the date upon which a transfer takes effect, pay
to the Agent (for its own account) a fee of USD 3,500. 
  

	25.4	Limitation of responsibility of Existing Lenders 

  

	(a)	Unless expressly agreed to the contrary, an Existing Lender makes no representation or warranty and assumes no responsibility to a New Lender for: 

 

	 	(i)	the legality, validity, effectiveness, adequacy or enforceability of the Finance Documents or any other documents; 

  
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	 	(ii)	the financial condition of any Obligor; 

  

	 	(iii)	the performance and observance by any Obligor of its obligations under the Finance Documents or any other documents; or 

  

	 	(iv)	the accuracy of any statements (whether written or oral) made in or in connection with any Finance Document or any other document, 

and any representations or warranties implied by law are excluded. 
  

	(b)	Each New Lender confirms to the Existing Lender and the other Finance Parties that it: 

  

	 	(i)	has made (and shall continue to make) its own independent investigation and assessment of the financial condition and affairs of each Obligor and its related entities in connection with its participation in this
Agreement and has not relied exclusively on any information provided to it by the Existing Lender in connection with any Finance Document; and 

  

	 	(ii)	will continue to make its own independent appraisal of the creditworthiness of each Obligor and its related entities whilst any amount is or may be outstanding under the Finance Documents or any Commitment is in force.

  

	(c)	Nothing in any Finance Document obliges an Existing Lender to: 

  

	 	(i)	accept a re-transfer from a New Lender of any of the rights and obligations transferred under this Clause 25; 

  

	 	(ii)	support any losses directly or indirectly incurred by the New Lender by reason of the non-performance by any Obligor of its obligations under the Finance Documents or otherwise. 

 

	25.5	Procedure for transfer 

  

	(a)	Subject to the conditions set out in Clause 25.2 (Conditions of assignment or transfer) a transfer is effected in accordance with paragraph (c) below when the Agent executes an otherwise duly completed
Transfer Certificate delivered to it by the Existing Lender and the New Lender. The Agent shall, subject to paragraph (b) below, as soon as reasonably practicable after receipt by it of a duly completed Transfer Certificate appearing on its
face to comply with the terms of this Agreement and delivered in accordance with the terms of this Agreement, execute that Transfer Certificate. 

  

	(b)	The Agent shall only be obliged to execute a Transfer Certificate delivered to it by the Existing Lender and the New Lender once it is satisfied it has complied with all necessary “know your customer” or other
similar checks under all applicable laws and regulations in relation to the transfer to such New Lender. 

  

	(c)	On the Transfer Date: 

  

	 	(i)	to the extent that in the Transfer Certificate the Existing Lender seeks to transfer its rights and obligations under the Finance Documents each of the Obligors and the Existing Lender shall be released from further
obligations towards one another under the Finance Documents and their respective rights against one another under the Finance Documents shall be cancelled (being the “Discharged Rights and Obligations”); 

  
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	 	(ii)	each of the Obligors and the New Lender shall assume obligations towards one another and/or acquire rights against one another which differ from the Discharged Rights and Obligations only insofar as that Obligor and the
New Lender have assumed and/or acquired the same in place of that Obligor and the Existing Lender; 

  

	 	(iii)	the Agent, the New Lender and other Lenders shall acquire the same rights and assume the same obligations between themselves as they would have acquired and assumed had the New Lender been an Original Lender with the
rights and/or obligations acquired or assumed by it as a result of the transfer and to that extent the Agent and the Existing Lender shall each be released from further obligations to each other under the Finance Documents; and 

 

	 	(iv)	the New Lender shall become a Party as a “Lender”. 

  

	25.6	Copy of Transfer Certificate to the Borrowers 

 The Agent shall, as soon as reasonably
practicable after it has executed a Transfer Certificate, send to the Borrowers a copy of that Transfer Certificate. 
  

	25.7	Accession of Hedging Banks 

 Any Lender or an Affiliate of a Lender which shall become a
party to this Agreement as a Hedging Bank shall execute a document in the form required by the Agent whereby it shall accede to this Agreement as a Hedging Bank. 
  

	25.8	Security over Lenders’ rights 

 In addition to the other rights provided to Lenders
under this Clause 25, each Lender may without consulting with or obtaining consent from any Obligor, at any time charge, assign or otherwise create security in or over (whether by way of collateral or otherwise) all or any of its rights under any
Finance Document to secure obligations of that Lender including, without limitation: 
  

	 	(i)	any charge, assignment or other Security to secure obligations to a federal reserve or central bank; and 

  

	 	(ii)	in the case of any Lender which is a fund, any charge, assignment or other security granted to any holders (or trustee or representatives of holders) of obligations owed, or securities issued, by that Lender as security
for those obligations or securities, 

 except that no such charge, assignment or security shall: 

 

	 	(iii)	release a Lender from any of its obligations under the Finance Documents or substitute the beneficiary of the relevant charge, assignment or security for the Lender as a party to any of the Finance Documents; or

  

	 	(iv)	require any payments to be made by an Obligor other than or in excess of, or grant to any person any more extensive rights than, those required to be made or granted to the relevant Lender under the Finance Documents.

  
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	26	CHANGES TO THE OBLIGORS 

  

	26.1	Assignments and transfer by Obligors 

 No Obligor may assign, transfer or dispose of any
of, or any interest in, its rights and/or obligations under any of the Finance Documents. 
  

	27	THE ROLE OF THE AGENT AND THE ARRANGERS 

  

	27.1	Appointment of the Agent 

  

	(a)	Each other Finance Party appoints the Agent to act as its agent under and in connection with the Finance Documents. 

  

	(b)	Each other Finance Party authorises the Agent to exercise the rights, powers, authorities and discretions specifically given to the Agent under or in connection with the Finance Documents together with any other
incidental rights, powers, authorities and discretions. 

  

	27.2	Duties of the Agent 

  

	(a)	Subject to paragraph (b) below, the Agent shall promptly forward to a Party the original or a copy of any document which is delivered to the Agent for that Party by any other Party. 

 

	(b)	Without prejudice to Clause 25.6 (Copy of Transfer Certificate to the Borrowers), paragraph (a) above shall not apply to any Transfer Certificate. 

 

	(c)	Except where a Finance Document specifically provides otherwise, the Agent is not obliged to review or check the adequacy, accuracy or completeness of any document it forwards to another Party. 

 

	(d)	If the Agent (in its capacity as agent) receives notice from a Party referring to this Agreement, describing a Default and stating that the circumstance described is a Default, it shall promptly notify the other Finance
Parties. 

  

	(e)	If the Agent (in its capacity as agent) is aware of the non-payment of any principal, interest, commitment fee or other fee payable to a Finance Party (other than the Agent or the Arrangers) under this Agreement it
shall promptly notify the other Finance Parties. 

  

	(f)	The Agent’s duties under the Finance Documents are solely mechanical and administrative in nature. 

  

	27.3	Role of the Arrangers 

 Except as specifically provided in the Finance Documents, no
Arranger has any obligations of any kind to any other Party under or in connection with any Finance Document. 

  
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	27.4	No fiduciary duties 

  

	(a)	Nothing in this Agreement constitutes the Agent or an Arranger as a trustee or fiduciary of any other person. 

  

	(b)	Neither the Agent nor any Arranger shall be bound to account to any Lender for any sum or the profit element of any sum received by it for its own account. 

 

	27.5	Business with the Group 

 The Agent and the Arrangers may accept deposits from, lend
money to and generally engage in any kind of banking or other business with any member of the Group. 
  

	27.6	Rights and discretions of the Agent 

  

	(a)	The Agent may rely on: 

  

	 	(i)	any representation, notice or document believed by it to be genuine, correct and appropriately authorized; and 

  

	 	(ii)	any statement made by a director, authorised signatory or employee of any person regarding any matters which may reasonably be assumed to be within his knowledge or within his power to verify. 

 

	(b)	The Agent may assume (unless it has received notice to the contrary in its capacity as agent for the Lenders) that: 

  

	 	(i)	no Default has occurred (unless it has actual knowledge of a Default arising under Clause 24.1 (Non-payment)); 

  

	 	(ii)	any right, power, authority or discretion vested in any Party or the Majority Lenders has not been exercised; and 

  

	 	(iii)	any notice made by the Parent Guarantor or a Borrower is made on behalf of and with the consent and knowledge of all the Obligors. 

  

	(c)	The Agent may engage, pay for and rely on the advice or services of any lawyers, accountants, surveyors or other experts. 

  

	(d)	The Agent may act in relation to the Finance Documents through its personnel and agents. 

  

	(e)	The Agent may disclose to any other Party any information it reasonably believes it has received as agent under this Agreement. 

  

	(f)	Without prejudice to the generality of paragraph (e) above, the Agent may disclose the identity of a Defaulting Lender to the other Finance Parties and the Obligors and shall disclose the same upon the written
request of the Borrowers or the Majority Lenders. 

  

	(g)	Notwithstanding any other provision of any Finance Document to the contrary, neither the Agent nor any Arranger is obliged to do or omit to do anything if it would or might in its reasonable opinion constitute a breach
of any law or regulation or a breach of a fiduciary duty or duty of confidentiality. 

  
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	27.7	Majority Lenders’ instructions 

  

	(a)	Unless a contrary indication appears in a Finance Document, the Agent shall (i) exercise any right, power, authority or discretion vested in it as Agent in accordance with any instructions given to it by the
Majority Lenders (or, if so instructed by the Majority Lenders, refrain from exercising any right, power, authority or discretion vested in it as Agent) and (ii) not be liable for any act (or omission) if it acts (or refrains from taking any
action) in accordance with an instruction of the Majority Lenders. 

  

	(b)	Unless a contrary indication appears in a Finance Document, any instructions given by the Majority Lenders will be binding on all the Finance Parties. 

 

	(c)	The Agent may refrain from acting in accordance with the instructions of the Majority Lenders (or, if appropriate, the Lenders) until it has received such security as it may require for any cost, loss or liability
(together with any associated VAT) which it may incur in complying with the instructions. 

  

	(d)	In the absence of instructions from the Majority Lenders, (or, if appropriate, the Lenders) the Agent may act (or refrain from taking action) as it considers to be in the best interest of the Lenders. 

 

	(e)	The Agent is not authorised to act on behalf of a Lender (without first obtaining that Lender’s consent) in any legal or arbitration proceedings relating to any Finance Document. 

 

	27.8	Responsibility for documentation 

 Neither the Agent nor any Arranger: 

 

	 	(i)	is responsible for the adequacy, accuracy and/or completeness of any information (whether oral or written) supplied by the Agent, an Arranger, an Obligor or any other person given in or in connection with any Finance
Document or the transactions contemplated in the Finance Documents; 

  

	 	(ii)	is responsible for the legality, validity, effectiveness, adequacy or enforceability of any Finance Document or any other agreement, arrangement or document entered into, made or executed in anticipation of or in
connection with any Finance Document; or 

  

	 	(iii)	is responsible for any determination as to whether any information provided or to be provided to any Finance Party is non-public information the use of which may be regulated or prohibited by applicable law or
regulation relating to insider dealing or otherwise. 

  

	27.9	Exclusion of liability 

  

	(a)	Without limiting paragraph (b) below, the Agent will not be liable for any action taken by it under or in connection with any Finance Document, unless directly caused by its gross negligence or wilful misconduct.

  

	(b)	No Party (other than the Agent) may take any proceedings against any officer, employee or agent of the Agent in respect of any claim it might have against the Agent or in respect of any act or omission of any kind by
that officer, employee or agent in relation to any Finance Document and any officer, employee or agent of the Agent may rely on this Clause 27.9. 

  
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	(c)	The Agent will not be liable for any delay (or any related consequences) in crediting an account with an amount required under the Finance Documents to be paid by the Agent if the Agent has taken all necessary steps as
soon as reasonably practicable to comply with the regulations or operating procedures of any recognised clearing or settlement system used by the Agent for that purpose. 

 

	(d)	Nothing in this Agreement shall oblige the Agent or an Arranger to carry out any “know your customer” or other checks in relation to any person on behalf of any Lender and each Lender confirms to the Agent and
each Arranger that it is solely responsible for any such checks it is required to carry out and that it may not rely on any statement in relation to such checks made by the Agent or an Arranger. 

 

	27.10	Lenders’ indemnity to the Agent 

 Each Lender shall (in proportion to its share of
the Total Commitments or, if the Total Commitments are then zero, to its share of the Total Commitments immediately prior to their reduction to zero) indemnify the Agent, within three (3) Business Days of demand, against any cost, loss or
liability incurred by the Agent (otherwise than by reason of the Agent’s gross negligence or wilful misconduct) in acting as Agent under the Finance Documents (unless the Agent has been reimbursed by an Obligor pursuant to a Finance Document).

  

	27.11	Resignation of the Agent 

  

	(a)	The Agent may resign and appoint one of its Affiliates as successor by giving notice to the Lenders and the Borrowers. 

  

	(b)	Alternatively the Agent may resign by giving thirty (30) days notice to the Lenders and the Borrowers, in which case the Majority Lenders (after consultation with the Borrowers) may appoint a successor Agent.

  

	(c)	If the Majority Lenders have not appointed a successor Agent in accordance with paragraph (b) above within twenty (20) days after notice of resignation was given, the retiring Agent (after consultation with
the Borrowers) may appoint a successor Agent. 

  

	(d)	If the Agent wishes to resign because (acting reasonably) it has concluded that it is no longer appropriate for it to remain as agent and the Agent is entitled to appoint a successor Agent under paragraph
(c) above, the Agent may (if it concludes (acting reasonably) that it is necessary to do so in order to persuade the proposed successor Agent to become a party to this Agreement as Agent) agree with the proposed successor Agent amendments to
this Clause 27 and any other term of this Agreement dealing with the rights or obligations of the Agent consistent with then current market practice for the appointment and protection of corporate trustees together with any reasonable amendments to
the agency fee payable under this Agreement which are consistent with the successor Agent’s normal fee rates and those amendments will bind the Parties. 

  

	(e)	The retiring Agent shall, at its own cost, make available to the successor Agent such documents and records and provide such assistance as the successor Agent may reasonably request for the purposes of performing its
functions as Agent under the Finance Documents. 

  

	(f)	The Agent’s resignation notice shall only take effect upon the appointment of a successor. 

  
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	(g)	Upon the appointment of a successor, the retiring Agent shall be discharged from any further obligation in respect of the Finance Documents but shall remain entitled to the benefit of this Clause 27. Any successor and
each of the other Parties shall have the same rights and obligations amongst themselves as they would have had if such successor had been an original Party. 

  

	(h)	The Agent shall resign in accordance with paragraph (b) above (and, to the extent applicable, shall use reasonable endeavours to appoint a successor Agent pursuant to paragraph (c) above) if on or after the
date which is three (3) months before the earliest FATCA Application Date relating to any payment to the Agent under the Finance Documents, either: 

  

	 	(i)	the Agent fails to respond to a request under Clause 12.7 (FATCA information) and a Lender reasonably believes that the Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that
FATCA Application Date; 

  

	 	(ii)	the information supplied by the Agent pursuant to Clause 12.7 (FATCA information) indicates that the Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that FATCA Application Date; or

  

	 	(iii)	the Agent notifies the Borrowers and the Lenders that the Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that FATCA Application Date, 

and (in each case) a Lender reasonably believes that a Party will be required to make a FATCA Deduction that would not be required if the Agent
were a FATCA Exempt Party, and that Lender, by notice to the Agent, requires it to resign. 
  

	27.12	Replacement of the Agent 

  

	(a)	After consultation with the Borrowers, the Majority Lenders may, by giving thirty (30) days’ notice to the Agent (or, at any time the Agent is an Impaired Agent, by giving any shorter notice determined by the
Majority Lenders) replace the Agent by appointing a successor Agent. 

  

	(b)	The retiring Agent shall (at its own cost if it is an Impaired Agent and otherwise at the expense of the Lenders) make available to the successor Agent such documents and records and provide such assistance as the
successor Agent may reasonably request for the purposes of performing its functions as Agent under the Finance Documents. 

  

	(c)	The appointment of the successor Agent shall take effect on the date specified in the notice from the Majority Lenders to the retiring Agent. As from this date, the retiring Agent shall be discharged from any further
obligation in respect of the Finance Documents but shall remain entitled to the benefit of this Clause 27 (and any agency fees for the account of the retiring Agent shall cease to accrue from (and shall be payable on) that date).

  

	(d)	Any successor Agent and each of the other Parties shall have the same rights and obligations amongst themselves as they would have had if such successor had been an original Party. 

 

	27.13	Confidentiality 

  

	(a)	In acting as agent for the Finance Parties, the Agent shall be regarded as acting through its agency division which shall be treated as a separate entity from any other of its divisions or departments.

  
 86/120 

	(b)	If information is received by another division or department of the Agent, it may be treated as confidential to that division or department and the Agent shall not be deemed to have notice of it. 

 

	(c)	Notwithstanding any other provision of any Finance Document to the contrary, neither the Agent nor any Arranger is obliged to disclose to any other person (i) any confidential information or (ii) any other
information if the disclosure would or might in its reasonable opinion constitute a breach of any law or a breach of a fiduciary duty. 

  

	27.14	Relationship with the Lenders 

  

	(a)	The Agent may treat the person shown in its records as Lender at the opening of business (in the place of the Agent’s principal office as notified to the Finance Parties from time to time) as the Lender acting
through its Facility Office. 

  

	(b)	Any Lender may by notice to the Agent appoint a person to receive on its behalf all notices, communications, information and documents to be made or despatched to that Lender under the Finance Documents. Such notice
shall contain the address, fax number and/or any other information required to enable the sending and receipt of information by that means (and, in each case, the department or officer, if any, for whose attention communication is to be made) and be
treated as a notification of a substitute address, fax number, electronic mail address, department and officer by that Lender for the purposes of Clause 32.2 (Addresses) and the Agent shall be entitled to treat such person as the person
entitled to receive all such notices, communications, information and documents as though that person were that Lender. 

  

	27.15	Credit appraisal by the Lenders 

 Without affecting the responsibility of any Obligor for
information supplied by it or on its behalf in connection with any Finance Document, each Lender confirms to the Agent and each Arranger that it has been, and will continue to be, solely responsible for making its own independent appraisal and
investigation of all risks arising under or in connection with any Finance Document including but not limited to: 
  

	 	(i)	the financial condition, status and nature of each member of the Group; 

  

	 	(ii)	the legality, validity, effectiveness, adequacy or enforceability of any Finance Document and any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with
any Finance Document; 

  

	 	(iii)	whether that Lender has recourse, and the nature and extent of that recourse, against any Party or any of its respective assets under or in connection with any Finance Document, the transactions contemplated by the
Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document; and 

 

	 	(iv)	the adequacy, accuracy and/or completeness of any information provided by the Agent, any Party or by any other person under or in connection with any Finance Document, the transactions contemplated by the Finance
Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document. 

  
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	27.16	Reference Banks 

 If a Reference Bank (or, if a Reference Bank is not a Lender, the
Lender of which it is an Affiliate) ceases to be a Lender, the Agent shall (in consultation with the Borrowers) appoint another Lender or an Affiliate of a Lender to replace that Reference Bank. 

 

	27.17	Deduction from amounts payable by the Agent 

 If any Party owes an amount to the Agent
under the Finance Documents the Agent may, after giving notice to that Party, deduct an amount not exceeding that amount from any payment to that Party which the Agent would otherwise be obliged to make under the Finance Documents and apply the
amount deducted in or towards satisfaction of the amount owed. For the purposes of the Finance Documents that Party shall be regarded as having received any amount so deducted. 

 

	28	CONDUCT OF BUSINESS BY THE FINANCE PARTIES 

 No provision of this Agreement will: 

 

	 	(i)	interfere with the right of any Finance Party to arrange its affairs (tax or otherwise) in whatever manner it thinks fit; 

  

	 	(ii)	oblige any Finance Party to investigate or claim any credit, relief, remission or repayment available to it or the extent, order and manner of any claim; or 

 

	 	(iii)	oblige any Finance Party to disclose any information relating to its affairs (tax or otherwise) or any computations in respect of Tax. 

 

	29	SHARING AMONG THE FINANCE PARTIES 

  

	29.1	Payments to the Finance Parties 

 Subject to paragraph (b) below, if a Finance Party
(a “Recovering Finance Party”) receives or recovers any amount from an Obligor other than in accordance with Clause 30 (Payment mechanics) (a “Recovered Amount”) and applies that amount to a payment due under
the Finance Documents then: 
  

	 	(i)	the Recovering Finance Party shall, within three (3) Business Days, notify details of the receipt or recovery, to the Agent; 

  

	 	(ii)	the Agent shall determine whether the receipt or recovery is in excess of the amount the Recovering Finance Party would have been paid had the receipt or recovery been received or made by the Agent and distributed in
accordance with Clause 30 (Payment mechanics), without taking account of any Tax which would be imposed on the Agent in relation to the receipt, recovery or distribution; and 

 

	 	(iii)	the Recovering Finance Party shall, within three (3) Business Days of demand by the Agent, pay to the Agent an amount (the “Sharing Payment”) equal to such receipt or recovery less any amount which
the Agent determines may be retained by the Recovering Finance Party as its share of any payment to be made, in accordance with Clause 30.6 (Partial payments). 

  
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	29.2	Redistribution of payments 

 The Agent shall treat the Sharing Payment as if it had been
paid by the relevant Obligor and distribute it between the Finance Parties (other than the Recovering Finance Party) (the “Sharing Finance Parties”) in accordance with Clause 30.6 (Partial payments) towards the obligations of
that Obligor to the Sharing Finance Parties. 
  

	29.3	Recovering Finance Party’s rights 

 On a distribution by the Agent under Clause 29.2
(Redistribution of payments) of a payment received by a Recovering Finance Party from an Obligor, as between the relevant Obligor and the Recovering Finance Party, an amount of the Recovered Amount equal to the Sharing Payment will be treated
as not having been paid by that Obligor. 
  

	29.4	Reversal of redistribution 

 If any part of the Sharing Payment received or recovered by
a Recovering Finance Party becomes repayable and is repaid by that Recovering Finance Party, then: 
  

	 	(i)	each Sharing Finance Party shall, upon request of the Agent, pay to the Agent for the account of that Recovering Finance Party an amount equal to the appropriate part of its share of the Sharing Payment (together with
an amount as is necessary to reimburse that Recovering Finance Party for its proportion of any interest on the Sharing Payment which that Recovering Finance Party is required to pay) (the “Redistributed Amount”); and

  

	 	(ii)	as between the relevant Obligor and each relevant Sharing Finance Party, an amount equal to the relevant Redistributed Amount will be treated as not having been paid by that Obligor. 

 

	29.5	Exceptions 

  

	(a)	This Clause 29 shall not apply to the extent that the Recovering Finance Party would not, after making any payment pursuant to this Clause, have a valid and enforceable claim against the relevant Obligor.

  

	(b)	A Recovering Finance Party is not obliged to share with any other Finance Party any amount which the Recovering Finance Party has received or recovered as a result of taking legal or arbitration proceedings, if:

  

	 	(i)	it notified the other Finance Party of the legal or arbitration proceedings; and 

  

	 	(ii)	the other Finance Party had an opportunity to participate in those legal or arbitration proceedings but did not do so as soon as reasonably practicable having received notice and did not take separate legal or
arbitration proceedings. 

  

	29.6	Distribution of enforcement proceeds 

 All moneys from time to time received or recovered
by the Agent in connection with the realisation and enforcement of all or any part of the Transaction Security shall be held by the Agent on trust to apply them as soon as reasonably practicable and to the extent permitted by applicable law, in the
following order of priority: 
  

	 	(i)	firstly, in or towards payment of costs and expenses incurred by the Agent and the other Finance Parties in connection with such realisation and enforcement; 

  
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	 	(ii)	secondly, in or towards payment pro rata of any other sum due but unpaid under the Finance Documents other than any Hedging Agreements; and 

 

	 	(iii)	thirdly, in or towards payment pro rata of any other sum due but unpaid under any Hedging Agreements. 

  

	30	PAYMENT MECHANICS 

  

	30.1	Payments to the Agent 

  

	(a)	On each date on which an Obligor or a Lender is required to make a payment under a Finance Document, that Obligor or Lender shall make the same available to the Agent (unless a contrary indication appears in a Finance
Document) for value on the due date at the time and in such funds specified by the Agent as being customary at the time for settlement of transactions in the relevant currency in the place of payment. 

 

	(b)	Payment shall be made to such account in the principal financial centre of the country of that currency with such bank as the Agent specifies. 

 

	30.2	Distributions by the Agent 

 Each payment received by the Agent under the Finance
Documents for another Party shall, subject to Clause 30.3 (Distributions to an Obligor) and Clause 30.4 (Clawback) be made available by the Agent as soon as practicable after receipt to the Party entitled to receive payment in
accordance with this Agreement (in the case of a Lender, for the account of its Facility Office), to such account as that Party may notify to the Agent by not less than five (5) Business Days’ notice with a bank in the principal financial
centre of the country of that currency. 
  

	30.3	Distributions to an Obligor 

 The Agent may (with the consent of the relevant Obligor or
in accordance with Clause 31 (Set-Off)) apply any amount received by it for that Obligor in or towards payment (on the date and in the currency and funds of receipt) of any amount due from that Obligor under the Finance Documents or in or
towards purchase of any amount of any currency to be so applied. 
  

	30.4	Clawback 

  

	(a)	Where a sum is to be paid to the Agent under the Finance Documents for another Party, the Agent is not obliged to pay that sum to that other Party (or to enter into or perform any related exchange contract) until it has
been able to establish to its satisfaction that it has actually received that sum. 

  

	(b)	If the Agent pays an amount to another Party and it proves to be the case that the Agent had not actually received that amount, then the Party to whom that amount (or the proceeds of any related exchange contract) was
paid by the Agent shall on demand refund the same to the Agent together with interest on that amount from the date of payment to the date of receipt by the Agent, calculated by the Agent to reflect its cost of funds. 

  
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	30.5	Impaired Agent 

  

	(a)	If, at any time, the Agent becomes an Impaired Agent, an Obligor or a Lender which is required to make a payment under the Finance Documents to the Agent in accordance with Clause 30.1 (Payments to the
Agent) may instead either pay that amount direct to the required recipient or pay that amount to an interest-bearing account held with an Acceptable Bank and in relation to which no Insolvency Event has occurred and is continuing, in the name of
the Obligor or the Lender making the payment and designated as a trust account for the benefit of the Party or Parties beneficially entitled to that payment under the Finance Documents. In each case such payments must be made on the due date for
payment under the Finance Documents. 

  

	(b)	All interest accrued on the amount standing to the credit of the trust account shall be for the benefit of the beneficiaries of that trust account pro rata to their respective entitlements. 

 

	(c)	A Party which has made a payment in accordance with this Clause 30.5 shall be discharged of the relevant payment obligation under the Finance Documents and shall not take any credit risk with respect to the amounts
standing to the credit of the trust account. 

  

	(d)	Promptly upon the appointment of a successor Agent in accordance with Clause 27.12 (Replacement of the Agent), each Party which has made a payment to a trust account in accordance with this Clause 30.5
shall give all requisite instructions to the bank with whom the trust account is held to transfer the amount (together with any accrued interest) to the successor Agent for distribution in accordance with Clause 30.2 (Distributions by the
Agent). 

  

	30.6	Partial payments 

  

	(a)	If the Agent receives a payment for application against amounts due in respect of any Finance Documents that is insufficient to discharge all the amounts then due and payable by an Obligor under those Finance Documents,
the Agent shall apply that payment towards the obligations of that Obligor under those Finance Documents in the following order: 

  

	 	(i)	first, in or towards payment pro rata of any unpaid fees, costs and expenses of the Agent under those Finance Documents; 

  

	 	(ii)	secondly, in or towards payment pro rata of any accrued interest, fee or commission due but unpaid under those Finance Documents (other than any Hedging Agreements); 

 

	 	(iii)	thirdly, in or towards payment pro rata of any principal due but unpaid under those Finance Documents (other than any Hedging Agreements); 

 

	 	(iv)	fourthly, in or towards payment pro rata of any other sum due but unpaid under the Finance Documents (other than any Hedging Agreements); and 

 

	 	(v)	fifthly, in or towards payment pro rata of any sum due but unpaid under the Hedging Agreements. 

  
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	(b)	The Agent shall, if so directed by the Lenders, vary the order set out in paragraphs (a)(ii) to (iv) above. 

  

	(c)	Paragraphs (a) and (b) above will override any appropriation made by an Obligor. 

  

	30.7	No set-off by Obligors 

 All payments to be made by an Obligor under the Finance
Documents shall be calculated and be made without (and free and clear of any deduction for) set-off or counterclaim. 
  

	30.8	Business Days 

  

	(a)	Any payment which is due to be made on a day that is not a Business Day shall be made on the next Business Day in the same calendar month (if there is one) or the preceding Business Day (if there is not).

  

	(b)	During any extension of the due date for payment of any principal or Unpaid Sum under this Agreement interest is payable on the principal or Unpaid Sum at the rate payable on the original due date. 

 

	30.9	Currency of account 

  

	(a)	Subject to paragraphs (b) to (e) below, USD is the currency of account and payment for any sum due from an Obligor under any Finance Document. 

 

	(b)	A repayment of a Loan or Unpaid Sum or a part of a Loan or Unpaid Sum shall be made in the currency in which that Loan or Unpaid Sum is denominated on its due date. 

 

	(c)	Each payment of interest shall be made in the currency in which the sum in respect of which the interest is payable was denominated when that interest accrued. 

 

	(d)	Each payment in respect of costs, expenses or Taxes shall be made in the currency in which the costs, expenses or Taxes are incurred. 

 

	(e)	Any amount expressed to be payable in a currency other than USD shall be paid in that other currency. 

  

	30.10	Change of currency 

  

	(a)	Unless otherwise prohibited by law, if more than one currency or currency unit are at the same time recognised by the central bank of any country as the lawful currency of that country, then: 

 

	 	(i)	any reference in the Finance Documents to, and any obligations arising under the Finance Documents in, the currency of that country shall be translated into, or paid in, the currency or currency unit of that country
designated by the Agent (after consultation with the Borrowers); and 

  

	 	(ii)	any translation from one currency or currency unit to another shall be at the official rate of exchange recognised by the central bank for the conversion of that currency or currency unit into the other, rounded up or
down by the Agent (acting reasonably). 

  

	(b)	If a change in any currency of a country occurs, this Agreement will, to the extent the Agent (acting reasonably and after consultation with the Borrowers) specifies to be necessary, be amended to comply with any
generally accepted conventions and market practice in the relevant interbank market and otherwise to reflect the change in currency. 

  
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	31	SET-OFF 

 A Finance Party may set off any matured obligation due from an Obligor under
the Finance Documents (to the extent beneficially owned by that Finance Party) against any obligation owed by that Finance Party to that Obligor, regardless of the place of payment, booking branch or currency of either obligation. If the obligations
are in different currencies, the Finance Party may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off. 
  

	32	NOTICES 

  

	32.1	Communications in writing 

 Any communication to be made under or in connection with the
Finance Documents shall be made in writing and, unless otherwise stated, may be made by fax, e-mail or letter. 
  

	32.2	Addresses 

 The postal address, e-mail address and fax number (and the department or
officer, if any, for whose attention the communication is to be made) of the Agent and the Borrowers for any communication or document to be made or delivered under or in connection with the Finance Documents is: 

 

	 	(i)	of the Agent: 

 Nordea Bank Norge ASA 

Middelthuns gate 17 
 NO-0368 Oslo

 Norway 
 Telefax: +47 22 48
66 68 
 Attn.: Nordea Agency 
  

	 	(iii)	of the Borrowers: 

 c/o KNOT Shuttle Tankers AS 

Smedasundet 40 
 NO-5529 Haugesund

 Norway 
 Telefax: +47 52 70
40 40 

  
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 E-mail: omk@knotgroup.com 

Attn.: Øystein M. Kalleklev 

or any substitute postal address, e-mail address or fax number or department or officer as the Party may notify to the Agent (or the Agent may
notify to the other Parties, if a change is made by the Agent) by the giving of not less than five (5) Business Days’ notice. 
  

	32.3	Delivery 

  

	(a)	Any communication or document made or delivered by one person to another under or in connection with the Finance Documents will only be effective: 

 

	 	(i)	if by way of fax or e-mail, when received in legible form; or 

  

	 	(ii)	if by way of letter, when it has been left at the relevant address or five (5) Business Days after being deposited in the post postage prepaid in an envelope addressed to it at that address; 

and, if a particular department or officer is specified as part of its address details provided under Clause 32.2 (Addresses), if
addressed to that department or officer. 
  

	(b)	Any communication or document to be made or delivered to the Agent will be effective only when actually received by the Agent and then only if it is expressly marked for the attention of the department or officer
identified with the Agent’s signature below (or any substitute department or officer as the Agent shall specify for this purpose). 

  

	(c)	All notices from or to an Obligor shall be sent through the Agent. 

  

	32.4	Notification of postal address, e-mail address and fax number 

 Promptly upon receipt of
notification of a postal address, e-mail address or fax number or change of postal address, e-mail address or fax number pursuant to Clause 32.2 (Addresses) or changing its own postal address, e-mail address or fax number, the Agent shall
notify the other Parties. 
  

	32.5	Electronic communication 

  

	(a)	Any communication to be made between any two Parties under or in connection with the Finance Documents may be made by electronic mail or other electronic means, to the extent that those two Parties agree that, unless
and until notified to the contrary, this is to be an accepted form of communication and if those two Parties: 

  

	 	(i)	notify each other in writing of their electronic mail address and/or any other information required to enable the sending and receipt of information by that means; and 

 

	 	(ii)	notify each other of any change to their address or any other such information supplied by them by not less than five (5) Business Days’ notice. 

 

	(b)	Any electronic communication made between those two parties will be effective only when actually received in readable form and in the case of any electronic communication made by a Party to the Agent only if it is
addressed in such a manner as the Agent shall specify for this purpose. 

  

	(c)	Any electronic communication which becomes effective, in accordance with paragraph (b) above, after 4.00 p.m. in the place of receipt shall be deemed only to become effective on the following day.

  
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	32.6	English language 

  

	(a)	Any notice given under or in connection with any Finance Document must be in English. 

  

	(b)	All other documents provided under or in connection with any Finance Document must be: 

  

	 	(i)	in English; or 

  

	 	(ii)	if not in English, and if so required by the Agent, accompanied by a certified English translation and, in this case, the English translation will prevail unless the document is a constitutional, statutory or other
official document. 

  

	33	CALCULATIONS AND CERTIFICATES 

  

	33.1	Accounts 

 In any litigation or arbitration proceedings arising out of or in connection
with a Finance Document, the entries made in the accounts maintained by a Finance Party are prima facie evidence of the matters to which they relate. 
  

	33.2	Certificates and determinations 

 Any certification or determination by a Finance Party
of a rate or amount under any Finance Document is, in the absence of manifest error, conclusive evidence of the matters to which it relates. 
  

	33.3	Day count convention 

 Any interest, commission or fee accruing under a Finance Document
will accrue from day to day and is calculated on the basis of the actual number of days elapsed and a year of 360 days or, in any case where the practice in the relevant interbank market differs, in accordance with that market practice. 

 

	34	PARTIAL INVALIDITY 

 If, at any time, any provision of the Finance Documents is or
becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of
any other jurisdiction will in any way be affected or impaired. 

  
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	35	REMEDIES AND WAIVERS 

 No failure to exercise, nor any delay in exercising, on the part
of any Finance Party, any right or remedy under the Finance Documents shall operate as a waiver, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise or the exercise of any other right or remedy. The
rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law. 
  

	36	AMENDMENTS AND WAIVERS 

  

	36.1	Required consents 

  

	(a)	Subject to Clause 36.2 (Exceptions) any term of the Finance Documents may be amended or waived only with the consent of the Majority Lenders and the Obligors and any such amendment or waiver will be binding on
all Parties. 

  

	(b)	The Agent may effect, on behalf of any Finance Party, any amendment or waiver permitted by this Clause 36. 

  

	36.2	Exceptions 

  

	(a)	An amendment or waiver that has the effect of changing or which relates to: 

  

	 	(i)	the definition of “Majority Lenders” in Clause 1.1 (Definitions); 

  

	 	(ii)	an extension to the date of payment of any amount under the Finance Documents; 

  

	 	(iii)	a reduction in the Margin or a reduction in the amount of any payment of principal, interest, fees or commission payable; 

  

	 	(iv)	an increase in or an extension of any Commitment; 

  

	 	(v)	a change to the Borrowers or the Guarantors; 

  

	 	(vi)	any provision which expressly requires the consent of all the Lenders; 

  

	 	(vii)	Clauses 2.3 (Finance Parties’ rights and obligations), 25 (Changes to the Lenders), or this Clause 36; or 

  

	 	(viii)	the release of any guarantee and indemnity granted under Clause 18 (Guarantee and indemnity) or of any Transaction Security unless permitted under this Agreement or any other Finance Document or relating to a
sale or disposal of an asset which is the subject of the Transaction Security where such sale or disposal is expressly permitted under this Agreement or any other Finance Document, 

may not be effected without the consent of all the Lenders. 
  

	(b)	An amendment or waiver which relates to the rights or obligations of the Agent or an Arranger (each in its capacity as such) may not be effected without the consent of the Agent or the relevant Arranger.

  
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	36.3	Replacement of Lender 

  

	(a)	If any Lender becomes a Non-Consenting Lender (as defined in paragraph (d) below), then the Borrowers may, on five (5) Business Days’ prior written notice to the Agent and such Lender, replace such Lender
by requiring such Lender to (and, to the extent permitted by law, such Lender shall) transfer pursuant to Clause 25 (Changes to the Lenders) all (and not part only) of its rights and obligations under this Agreement to a Lender or other bank
or financial institution (a “Replacement Lender”) selected by the Borrowers, which confirms its willingness to assume and does assume all the obligations of the transferring Lender in accordance with Clause 25 (Changes to the
Lenders) for a purchase price in cash payable at the time of transfer in an amount equal to the outstanding principal amount of such Lender’s participation in the outstanding Utilisations and all accrued interest, Break Costs and other
amounts payable in relation thereto under the Finance Documents. 

  

	(b)	The replacement of a Lender pursuant to this Clause 36.3 shall be subject to the following conditions: 

  

	 	(i)	the Borrowers shall indemnify the Finance Parties in respect of all costs incurred by the Finance Parties in connection with the replacement of the Non-Consenting Lender; 

 

	 	(ii)	the Borrowers shall have no right to replace the Agent; 

  

	 	(iii)	neither the Agent nor the Lender shall have any obligation to the Borrowers to find a Replacement Lender; 

  

	 	(iv)	in the event of a replacement of a Non-Consenting Lender such replacement must take place no later than thirty (30) days after the date on which that Lender is deemed a Non-Consenting Lender; 

 

	 	(v)	in no event shall the Lender replaced under this Clause 36.3 be required to pay or surrender to such Replacement Lender any of the fees received by such Lender pursuant to the Finance Documents; and 

 

	 	(vi)	the Lender shall only be obliged to transfer its rights and obligations pursuant to paragraph (a) above once it is satisfied that it has complied with all necessary “know your customer” or other similar
checks under all applicable laws and regulations in relation to that transfer. 

  

	(c)	A Lender shall perform the checks described in paragraph (b)(vi) above as soon as reasonably practicable following delivery of a notice referred to in paragraph (a) above and shall notify the Agent and the
Borrowers when it is satisfied that it has complied with those checks. 

  

	(d)	In the event that: 

  

	 	(i)	an Obligor or the Agent (at the request of an Obligor) has requested the Lenders to give a consent in relation to, or to agree to a waiver or amendment of, any provisions of the Finance Documents; 

 

	 	(ii)	the consent, waiver or amendment in question requires the approval of all the Lenders; and 

  

	 	(iii)	Lenders whose Commitments aggregate more than 66 2/3 per cent. of the Total Commitments (or, if the Total Commitments have been reduced to zero, aggregated more than 66 2/3 per cent. of the Total Commitments
prior to that reduction) have consented or agreed to such waiver or amendment, 

  
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 then any Lender who does not and continues not to consent or agree to such waiver or amendment
shall be deemed a “Non-Consenting Lender”. 
  

	36.4	Disenfranchisement of Defaulting Lenders 

  

	(a)	For so long as a Defaulting Lender has any Available Commitment, in ascertaining the Majority Lenders or whether any given percentage (including, for the avoidance of doubt, unanimity) of the Total Commitments has been
obtained to approve any request for a consent, waiver, amendment or other vote under the Finance Documents, that Defaulting Lender’s Commitment will be reduced by the amount of its Available Commitment. 

 

	(b)	For the purposes of this Clause 36.4, the Agent may assume that the following Lenders are Defaulting Lenders: 

  

	 	(i)	any Lender which has notified the Agent that it has become a Defaulting Lender; 

  

	 	(ii)	any Lender in relation to which it is aware that any of the events or circumstances referred to in paragraphs (i), (ii) or (iii) of the definition of “Defaulting Lender” has occurred,

 unless it has received notice to the contrary from the Lender concerned (together with any supporting evidence reasonably
requested by the Agent) or the Agent is otherwise aware that the Lender has ceased to be a Defaulting Lender. 
  

	36.5	Replacement of a Defaulting Lender 

  

	(a)	A Borrower may, at any time a Lender has become and continues to be a Defaulting Lender, by giving five (5) Business Days’ prior written notice to the Agent and such Lender, replace such Lender by requiring
such Lender to (and such Lender shall) transfer pursuant to Clause 25 (Changes to the Lenders) all (and not part only) of its rights and obligations under this Agreement to a Lender or other bank or financial institution (a
“Replacement Lender”) selected by that Borrower, and which (unless the Agent is an Impaired Agent) is acceptable to the Agent (acting reasonably) and which confirms its willingness to assume and does assume all the obligations or
all the relevant obligations of the transferring Lender (including the assumption of the transferring Lender’s participations or unfunded participations (as the case may be) on the same basis as the transferring Lender) for a purchase price in
cash payable at the time of transfer equal to the outstanding principal amount of such Lender’s participation in the outstanding Loans and all accrued interest and/or Break Costs and other amounts payable in relation thereto under the Finance
Documents. 

  

	(b)	Any transfer of rights and obligations of a Defaulting Lender pursuant to this Clause 36.5 shall be subject to the following conditions: 

 

	 	(i)	no Borrower shall have any right to replace the Agent; 

  

	 	(ii)	neither the Agent nor the Defaulting Lender shall have any obligation to any Borrower to find a Replacement Lender; 

  
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	 	(iii)	the transfer must take place no later than ten (10) Business Days after the notice referred to in paragraph (a) above; and 

 

	 	(iv)	in no event shall the Defaulting Lender be required to pay or surrender to the Replacement Lender any of the fees received by the Defaulting Lender pursuant to the Finance Documents. 

 

	37	CONFIDENTIALITY 

  

	37.1	Confidential Information 

 Each Finance Party agrees to keep all Confidential Information
confidential and not to disclose it to anyone, save to the extent permitted by Clause 37.2 (Disclosure of Confidential Information), and to ensure that all Confidential Information is protected with security measures and a degree of care that
would apply to its own confidential information. 
  

	37.2	Disclosure of Confidential Information 

 Any Finance Party may disclose: 

 

	 	(i)	to any of its Affiliates and any of its or their officers, directors, employees, professional advisers, auditors, partners and Representatives such Confidential Information as that Finance Party shall consider
appropriate if any person to whom the Confidential Information is to be given pursuant to this sub-paragraph (i) is informed in writing of its confidential nature and that some or all of such Confidential Information may be price-sensitive
information except that there shall be no such requirement to so inform if the recipient is subject to professional obligations to maintain the confidentiality of the information or is otherwise bound by requirements of confidentiality in relation
to the Confidential Information; 

  

	 	(ii)	to any person: 

  

	 	(A)	to (or through) whom it assigns or transfers (or may potentially assign or transfer) all or any of its rights and/or obligations under one or more Finance Documents and to any of that person’s Affiliates,
Representatives and professional advisers; 

  

	 	(B)	with (or through) whom it enters into (or may potentially enter into), whether directly or indirectly, any sub-participation in relation to, or any other transaction under which payments are to be made or may be made by
reference to, one or more Finance Documents and one or more Obligors and to any of that person’s Affiliates, Representatives and professional advisers; 

  

	 	(C)	appointed by any Finance Party or by a person to whom sub-paragraph (ii)(A) or (B) above applies to receive communications, notices, information or documents delivered pursuant to the Finance Documents on its
behalf (including, without limitation, any person appointed under paragraph (b) of Clause 27.14 (Relationship with the Lenders)); 

  
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	 	(D)	who invests in or otherwise finances (or may potentially invest in or otherwise finance), directly or indirectly, any transaction referred to in sub-paragraph (ii)(A) or (B) above; 

 

	 	(E)	to whom information is required or requested to be disclosed by any court of competent jurisdiction or any governmental, banking, taxation or other regulatory authority or similar body, the rules of any relevant stock
exchange or pursuant to any applicable law or regulation; 

  

	 	(F)	to whom or for whose benefit that Finance Party charges, assigns or otherwise creates Security (or may do so) pursuant to Clause 25.8 (Security over Lenders’ rights); 

 

	 	(G)	to whom information is required to be disclosed in connection with, and for the purposes of, any litigation, arbitration, administrative or other investigations, proceedings or disputes; 

 

	 	(H)	who is a Party; or 

  

	 	(I)	with the consent of the Borrowers; 

 in each case, such Confidential Information as that
Finance Party shall consider appropriate if: 
  

	 	(J)	in relation to sub-paragraphs (ii)(A), (B) and (C) above, the person to whom the Confidential Information is to be given has entered into a Confidentiality Undertaking except that there shall be no requirement
for a Confidentiality Undertaking if the recipient is a professional adviser and is subject to professional obligations to maintain the confidentiality of the Confidential Information; 

 

	 	(K)	in relation to sub-paragraph (ii)(D) above, the person to whom the Confidential Information is to be given has entered into a Confidentiality Undertaking or is otherwise bound by requirements of confidentiality in
relation to the Confidential Information they receive and is informed that some or all of such Confidential Information may be price-sensitive information; 

  

	 	(L)	in relation to sub-paragraphs (ii)(E), (F) and (G) above, the person to whom the Confidential Information is to be given is informed of its confidential nature and that some or all of such Confidential
Information may be price-sensitive information except that there shall be no requirement to so inform if, in the opinion of that Finance Party, it is not practicable so to do in the circumstances; and 

 

	 	(iii)	to any person appointed by that Finance Party or by a person to whom sub-paragraph (ii)(A) or (B) above applies to provide administration or settlement services in respect of one or more of the Finance Documents
including without limitation, in relation to the trading of participations in respect of the Finance Documents, such Confidential Information as may be required to be disclosed to enable such service provider to provide any of the services referred
to in this paragraph (iii) if the service provider to whom the Confidential Information is to be given has entered into such form of confidentiality undertaking agreed between the Borrower and the relevant Finance Party. 

  
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	37.3	Entire agreement 

 This Clause 37 constitutes the entire agreement between the Parties in
relation to the obligations of the Finance Parties under the Finance Documents regarding Confidential Information and supersedes any previous agreement, whether express or implied, regarding Confidential Information. 

 

	37.4	Inside information 

 Each of the Finance Parties acknowledges that some or all of the
Confidential Information is or may be price-sensitive information and that the use of such information may be regulated or prohibited by applicable legislation including securities law relating to insider dealing and market abuse and each of the
Finance Parties undertakes not to use any Confidential Information for any unlawful purpose. 
  

	37.5	Notification of disclosure 

 Each of the Finance Parties agrees (to the extent permitted
by law and regulation) to inform the Borrowers: 
  

	 	(i)	of the circumstances of any disclosure of Confidential Information made pursuant to sub-paragraph (ii)(E) of Clause 37.2 (Disclosure of Confidential Information) except where such disclosure is made to any
of the persons referred to in that paragraph during the ordinary course of its supervisory or regulatory function; and 

  

	 	(ii)	upon becoming aware that Confidential Information has been disclosed in breach of this Clause 37. 

  

	37.6	Continuing obligations 

 The obligations in this Clause 37 are continuing and, in
particular, shall survive and remain binding on each Finance Party for a period of twelve (12) months from the earlier of: 
  

	 	(i)	the date on which all amounts payable by the Obligors under or in connection with this Agreement have been paid in full and all Commitments have been cancelled or otherwise cease to be available; and 

 

	 	(ii)	the date on which such Finance Party otherwise ceases to be a Finance Party. 

  

	38	COUNTERPARTS 

 Each Finance Document may be executed in any number of counterparts, and
this has the same effect as if the signatures on the counterparts were on a single copy of the Finance Document. 
  

	39	GOVERNING LAW 

 This Agreement is governed by Norwegian law. 

  
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	40	ENFORCEMENT 

  

	40.1	Jurisdiction 

  

	(a)	The courts of Norway, with the Oslo district court as the court of first instance, have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute relating to
the existence, validity or termination of this Agreement (a “Dispute”). 

  

	(b)	This Clause 40.1 is for the benefit of the Finance Parties only. As a result, no Finance Party shall be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction. To the extent
allowed by law, the Finance Parties may take concurrent proceedings in any number of jurisdictions. 

  

	40.2	Service of process 

 Without prejudice to any other mode of service allowed under any
relevant law, each Obligor (other than an Obligor incorporated in Norway): 
  

	 	(i)	irrevocably appoints KNOT Shuttle Tankers AS, Smedasundet 40, NO-5529 Haugesund, Norway, Norway as its agent for service of process in relation to any proceedings before the Norwegian courts in connection with any
Finance Document; and 

  

	 	(ii)	agrees that failure by the process agent to notify the relevant Obligor of the process will not invalidate the proceedings concerned. 

This Agreement has been entered into on the date stated at the beginning of this Agreement. 

  
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 SCHEDULE 1 

LENDERS AND COMMITMENTS 
  

									
	 Original Lenders:
	  	Tranche A Commitment:	 	  	Tranche B Commitment:	 
			
	 ABN AMRO Bank N.V.,

Oslo Branch

Olav V’s gt. 5

NO-0161 Oslo

Norway
	  	USD	 17,789,757.50	  	  	USD	 19,420,485	  
			
	 BNP Paribas

16, Boulevard des Italiens

75009 Paris

France
	  	USD	 17,789,757.50	  	  	USD	 19,420,485	  
			
	 DNB Bank ASA

Dronning Eufemias gate 30

NO-0191 Oslo

Norway
	  	USD	 17,789,757.50	  	  	USD	 19,420,485	  
			
	 Nordea Bank Norge ASA

Middelthuns gate 17

NO-0368 Oslo

Norway
	  	USD	 17,789,757.50	  	  	USD	 19,420,485	  
			
	 Total:
	  	USD	 71,159,030	  	  	USD	 77,681,940	  
			
	 Original Lenders:
	  	Tranche C Commitment:	 	  	Revolving Facility
Commitment:	 
			
	 ABN AMRO Bank N.V.,

Oslo Branch

Olav V’s gt. 5

NO-0161 Oslo

Norway
	  	USD	 17,789,757.50	  	  	USD	 5,000,000	  
			
	 BNP Paribas

16, Boulevard des Italiens

75009 Paris

France
	  	USD	 17,789,757.50	  	  	USD	 5,000,000	  
			
	 DNB Bank ASA

Dronning Eufemias gate 30

NO-0191 Oslo

Norway
	  	USD	 17,789,757.50	  	  	USD	 5,000,000	  
			
	 Nordea Bank Norge ASA

Middelthuns gate 17

NO-0368 Oslo

Norway
	  	USD	 17,789,757.50	  	  	USD	 5,000,000	  
			
	 Total:
	  	USD	 71,159,030	  	  	USD	 20,000,000	  

  
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 SCHEDULE 2 

CONDITIONS PRECEDENT DOCUMENTS 

Part 1 
 (in respect of the
first Utilisation of the Term Loan Facility) 
  

	1.	In respect of each Obligor, copies of: 

  

	 	(i)	its articles of association, partnership agreement or similar documentation; 

  

	 	(ii)	its certificate of registration or good standing; 

  

	 	(iii)	a resolution of its board of directors authorising the execution of this Agreement and the other Finance Documents to which it is a party; 

 

	 	(iv)	if not included in the resolutions referred to in paragraph (iii) above, a power of attorney to its representatives for the execution and registration of this Agreement and the other Finance Documents to which it
is a party; 

  

	 	(v)	if required under applicable law, a resolution of its shareholders or members approving the terms of, and the transactions contemplated by, the Finance Documents to which it is a party; 

 

	 	(vi)	such other documents and evidence as the Agent (or any Lender through the Agent) shall from time to time require, based on law and regulations applicable from time to time and the Lenders’ own internal guidelines
applicable from time to time to identify each Obligor and any other identification or similar document any Lender may reasonably require in order to satisfy any “know your customer” requirements applicable to such Lender;

  

	 	(vii)	a specimen of the signature of each person authorised by the resolutions referred to in paragraph (iii) above and each person authorised to sign Utilisation Requests and Selection Notices; and 

 

	 	(viii)	a certificate of an authorised signatory of the relevant Obligor certifying that each copy document relating to it specified in this Part 1 of Schedule 2 is correct, complete and in full force and effect as at a date no
earlier than the date of this Agreement. 

  

	2.	Evidence that all fees due and payable under the Agreement on or before the first Utilisation Date have been paid or will be paid on or before the first Utilisation Date. 

 

	3.	Confirmation of acceptance from the Borrowers to the Agent’s letter in respect of effective annual interest. 

  

	4.	In respect of the Security Documents: 

  

	 	(i)	the Mortgage over the relevant Vessel duly executed by the owner thereof; 

  

	 	(ii)	the Assignment Agreement in relation to the relevant Vessel duly executed by the owner thereof; 

  
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	 	(iii)	the notices of assignment and acknowledgements required to be executed under the Assignment Agreement, duly executed, provided that the Obligors shall use their best commercial efforts to obtain acknowledgements from
third parties in respect of the assignment of Earnings and/or contracts of employment; 

  

	 	(iv)	a Factoring Agreement duly executed by the relevant Borrower; 

  

	 	(v)	the Account Pledge in respect of the Earnings Account held by the owner of the relevant Vessel duly executed by such owner; 

  

	 	(vi)	the First Share Pledge Agreement duly executed by KNOT Shuttle Tankers AS; 

  

	 	(vii)	the notices and acknowledgements required to be executed under the First Share Pledge Agreement, duly executed, and delivery of an updated register of shareholders of each Borrower evidencing that the pledge has been
duly noted therein; 

  

	 	(viii)	the Second Limited Partnership Pledge Agreement duly executed by KNOT Shuttle Tankers 12 AS and KNOT Shuttle Tankers AS; 

  

	 	(ix)	the notices and acknowledgements required to be executed under the Second Limited Partnership Pledge Agreement, duly executed, and delivery to the Agent of the original limited partnership share certificates of Knutsen
Shuttle Tankers XII KS and an updated register of shareholders of Knutsen Shuttle Tankers XII AS evidencing that the pledge of shares has been duly noted therein; 

 

	 	(x)	a Hedging Agreement Assignment Agreement duly executed by the relevant Borrower (if relevant); and 

  

	 	(xi)	the notices of assignment and acknowledgements and consents required to be executed under the Hedging Agreement Assignment Agreement, duly executed. 

 

	5.	In respect of the relevant Vessel: 

  

	 	(i)	certificates of valuation not older than 30 days from two (2) of the Approved Brokers; 

  

	 	(ii)	evidence that the Vessel is classed with the highest class in accordance with Clause 23.5 (Class), free of all material overdue recommendations of the relevant classification society; 

 

	 	(iii)	copies of the following documentation: 

  

	 	(A)	the ISM Code Document of Compliance; 

  

	 	(B)	the ISM Code Safety Management Certificate; and 

  

	 	(C)	the ISPS Code Ship Security Certificate; 

  

	 	(iv)	evidence by way of a transcript of registry issued by the relevant Approved Ship Register that the Vessel is registered in the name of the relevant Borrower, free from encumbrances other than the relevant Mortgage, and
that the relevant Mortgage has been registered in favour of the Agent on first priority; 

  
 105/120 

	 	(v)	copies of insurance policies/cover notes documenting that insurance cover has been taken out in respect of the Vessel in accordance with Clause 23.1 (Insurances), and evidence that the Agent’s security
interests in the insurance policies have been noted in accordance with relevant notices and acknowledgements as required under the relevant Assignment Agreement; 

  

	 	(vi)	a report by the insurance consultant appointed by the Agent confirming, inter alia, that that insurance cover has been taken out in respect of the Vessel in accordance with Clause 23.1 (Insurances);

  

	 	(vii)	a copy of any contract of employment entered into in respect of the Vessel; and 

  

	 	(viii)	copies of all management agreements entered into in respect of the Vessel and a subordination undertaking in favour of the Finance Parties duly executed by each manager. 

 

	6.	The Intercreditor Agreement duly executed by the parties thereto. 

  

	7.	Evidence that the Earnings Account has been opened by the relevant Borrower with the Agent. 

  

	8.	Copies of the Original Financial Statements. 

  

	9.	A duly executed Compliance Certificate evidencing pro forma compliance with the financial covenants set out in Clause 21 (Financial covenants). 

 

	10.	An updated group structure chart showing all members of the Group and identifying the percentage of ownership in each member of the Group. 

 

	11.	Evidence that the relevant part of the Existing Facilities, and all commitments in respect thereof, have been, or at the latest simultaneously with the making of the first Utilisation will be, repaid and paid and
cancelled in full, and that any Security (including, without limitation, any guarantee or indemnity undertaking) granted or undertaken by or in respect of any member of the Group under or in respect thereof, has been, or at the latest simultaneously
with the making of the first Utilisation will be, unconditionally and irrevocably released and discharged in full by the holder(s) of any such Security. 

  

	12.	If relevant, assurance that any withholding tax under the Finance Documents will be paid or application to tax authorities is or will be sent on the Utilisation Date. 

 

	13.	Evidence that the process agent referred to in Clause 40.2 (Service of process) and any other process agent appointed pursuant to any of the Finance Documents, has accepted its appointment. 

 

	14.	Favourable legal opinions in form and substance satisfactory to the Agent from lawyers appointed by the Agent on matters concerning all relevant jurisdictions. 

 

	15.	A copy of any other Authorisation or other document, opinion or assurance which the Agent considers to be necessary or desirable (if it has notified the Borrowers accordingly) in connection with the entry into and
performance of the transactions contemplated by any Finance Document or for the validity and enforceability of any Finance Document. 

  
 106/120 

 Part 2 

(in respect of each further Utilisation of the Term Loan Facility) 
  

	1.	A certificate of an authorised signatory of the relevant Borrower certifying that each copy document relating to it specified in this Part 2 of Schedule 2 is correct, complete and in full force and effect as at a date
no earlier than the date falling five (5) Business Days prior to the relevant Utilisation Date. 

  

	2.	In respect of the Security Documents: 

  

	 	(i)	the Mortgage over the relevant Vessel duly executed by the owner thereof; 

  

	 	(ii)	the Assignment Agreement in relation to the relevant Vessel duly executed by the owner thereof; 

  

	 	(iii)	the notices of assignment and acknowledgements required to be executed under the Assignment Agreement, duly executed, provided that the Obligors shall use their best commercial efforts to obtain acknowledgements from
third parties in respect of the assignment of Earnings and/or contracts of employment; 

  

	 	(iv)	a Factoring Agreement duly executed by the relevant Borrower; 

  

	 	(v)	the Account Pledge in respect of the Earnings Account held by the owner of the relevant Vessel duly executed by such owner; 

  

	 	(vi)	a Hedging Agreement Assignment Agreement duly executed by the relevant Borrower (if relevant); and 

  

	 	(vii)	the notices of assignment and acknowledgements and consents required to be executed under the Hedging Agreement Assignment Agreement, duly executed. 

 

	3.	In respect of the relevant Vessel: 

  

	 	(i)	certificates of valuation not older than 30 days from two (2) of the Approved Brokers; 

  

	 	(ii)	evidence that the Vessel is classed with the highest class in accordance with Clause 23.5 (Class), free of all material overdue recommendations of the relevant classification society; 

 

	 	(iii)	copies of the following documentation: 

  

	 	(A)	the ISM Code Document of Compliance; 

  

	 	(B)	the ISM Code Safety Management Certificate; and 

  

	 	(C)	the ISPS Code Ship Security Certificate; 

  

	 	(iv)	evidence by way of a transcript of registry issued by the relevant Approved Ship Register that the Vessel is registered in the name of the relevant Borrower, free from encumbrances other than the relevant Mortgage, and
that the relevant Mortgage has been registered in favour of the Agent on first priority; 

  
 107/120 

	 	(v)	copies of insurance policies/cover notes documenting that insurance cover has been taken out in respect of the Vessel in accordance with Clause 23.1 (Insurances), and evidence that the Agent’s security
interests in the insurance policies have been noted in accordance with relevant notices and acknowledgements as required under the relevant Assignment Agreement; 

  

	 	(vi)	a report by the insurance consultant appointed by the Agent confirming, inter alia, that that insurance cover has been taken out in respect of the Vessel in accordance with Clause 23.1 (Insurances);

  

	 	(vii)	a copy of any contract of employment entered into in respect of the Vessel; and 

  

	 	(viii)	copies of all management agreements entered into in respect of the Vessel and a subordination undertaking in favour of the Finance Parties duly executed by each manager. 

 

	6.	Evidence that the Earnings Account has been opened by the relevant Borrower with the Agent. 

  

	7.	Evidence that the relevant part of the Existing Facilities, and all commitments in respect thereof, have been, or at the latest simultaneously with the making of the first Utilisation will be, repaid and paid and
cancelled in full, and that any Security (including, without limitation, any guarantee or indemnity undertaking) granted or undertaken by or in respect of any member of the Group under or in respect thereof, has been, or at the latest simultaneously
with the making of the first Utilisation will be, unconditionally and irrevocably released and discharged in full by the holder(s) of any such Security. 

  

	8.	Evidence that any process agent appointed pursuant to any of the Security Documents referred to in paragraph 3 hereof, has accepted its appointment. 

 

	9.	Favourable legal opinions in form and substance satisfactory to the Agent from lawyers appointed by the Agent on matters concerning all relevant jurisdictions. 

 

	10.	A copy of any other Authorisation or other document, opinion or assurance which the Agent considers to be necessary or desirable (if it has notified the Borrowers accordingly) in connection with the entry into and
performance of the transactions contemplated by any Finance Document or for the validity and enforceability of any Finance Document. 

  
 108/120 

 SCHEDULE 3 

FORM OF 
 UTILISATION
REQUEST 
  

			
	To:	 	NORDEA BANK NORGE ASA as Agent
		
		 	Telefax: +47 22 48 66 68
		
		 	Attn: Nordea Agency
		
	Date:	 	[                    ]

 USD 240,000,000 TERM AND REVOLVING FACILITIES AGREEMENT DATED 10 JUNE 2014 (THE “AGREEMENT”) 

 

	1.	We refer to the Agreement. This is a Utilisation Request. Terms defined in the Agreement have the same meaning in this Utilisation Request unless given a different meaning in this Utilisation Request. 

 

	2.	We wish to borrow a Loan on the following terms: 

  

			
	Borrower:	  	[            ]
		
	Proposed Utilisation Date:	  	[            ] (or, if that is not a Business Day, the next Business Day)
		
	Tranche/Facility to be utilized:	  	[Tranche A1]/[Tranche A2]/[Tranche B1]/[Tranche B2]/[Revolving Facility]
		
	Amount:	  	USD [            ] or, if less, the Available Facility
		
	Interest Period:	  	[            ]

  

	3.	We confirm that on the date of this Utilisation Request: 

  

	 	(i)	no Default is continuing or would result from the proposed Loan; and 

  

	 	(ii)	the Repeating Representations are true in all material respects. 

  

	4.	The proceeds of this Loan should be credited to [account]. 

  

	5.	This Utilisation Request is irrevocable. 

  

			
	By:	 	
		
	[    ]	 	
	
	Authorised signatory

  
 109/120 

 SCHEDULE 4 

FORM OF 
 SELECTION
NOTICE 
 (applicable to a Term Loan) 
  

			
	To:	 	NORDEA BANK NORGE ASA as Agent
		
		 	Telefax: +47 22 48 66 68
		
		 	Attn: Nordea Agency
		
	Date:	 	[                    ]

 USD 240,000,000 TERM AND REVOLVING FACILITIES AGREEMENT DATED 10 JUNE 2014 (THE “AGREEMENT”) 

 

	1.	We refer to the Agreement. This is a Selection Notice. Terms defined in the Agreement have the same meaning in this Selection Notice unless given a different meaning in this Selection Notice. 

 

	2.	We refer to the Term Loan with an Interest Period ending on [                    ]. 

 

	3.	We request that the next Interest Period for the above Term Loan is [                    ]]. 

 

	4.	We confirm that on the date of this Selection Notice: 

  

	 	(i)	no Event of Default is continuing; and 

  

	 	(ii)	the Repeating Representations are true in all material respects. 

  

	5.	This Selection Notice is irrevocable. 

  

			
	By:	 	
		
	[    ]	 	
	
	Authorised signatory

  
 110/120 

 SCHEDULE 5 

FORM OF 
 TRANSFER
CERTIFICATE 
  

			
	To:	 	NORDEA BANK NORGE ASA as Agent
		
	From:	 	[The Existing Lender] (the “Existing Lender”) and [The New Lender] (the “New Lender”)
	
	Dated: [                    ]

 USD 240,000,000 TERM AND REVOLVING FACILITIES AGREEMENT DATED 10 JUNE 2014 (THE “AGREEMENT”) 

 

	1.	We refer to the Agreement. This is a Transfer Certificate. Terms defined in the Agreement have the same meaning in this Transfer Certificate unless given a different meaning in this Transfer Certificate.

  

	2.	We refer to Clause 25.5 (Procedure for transfer): 

  

	 	(i)	The Existing Lender and the New Lender agree to the Existing Lender transferring to the New Lender all or part of the Existing Lender’s Commitment, rights and obligations referred to in the Schedule in accordance
with Clause 25.5 (Procedure for transfer) together with a proportional interest in the Security Documents. 

  

	 	(ii)	The proposed Transfer Date is [                    ]. 

 

	 	(iii)	The Facility Office and address, fax number and attention details for notices of the New Lender for the purposes of Clause 32.2 (Addresses) are set out in the Schedule. 

 

	3.	The New Lender expressly acknowledges the limitations on the Existing Lender’s obligations set out in paragraph (c) of Clause 25.4 (Limitation of responsibility of Existing Lenders).

  

	4.	This Transfer Certificate may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of this Transfer Certificate. 

 

	5.	This Transfer Certificate is governed by Norwegian law. 

  

	6.	This Transfer Certificate has been entered into on the date stated at the beginning of this Transfer Certificate. 

  
 111/120 

 THE SCHEDULE 

Commitment/rights and obligations to be transferred 

[insert relevant details] 

[Facility Office address, fax number and attention details for notices and account details for payments] 

 

									
	[Existing Lender]	 		 	[New Lender]
					
	By:	 		 		 	By:	 	
	Name:	 		 		 	Name:	 	
	Title:	 		 		 	Title:	 	

 This Transfer Certificate is accepted by the Agent and the Transfer Date is confirmed as
[                    ]. 
  

			
	Nordea Bank Norge ASA
		
	By:	 	
	Name:	 	
	Title:	 	

  
 112/120 

 SCHEDULE 6 

FORM OF 
 INCREASE
CONFIRMATION 
  

			
	To:	 	NORDEA BANK NORGE ASA as Agent and KNOT OFFSHORE PARTNERS L.P. as Parent Guarantor, for and on behalf of each Borrower
		
	From:	 	[The Increase Lender] (the “Increase Lender”)
	
	Dated: [                    ]

 USD 240,000,000 TERM AND REVOLVING FACILITIES AGREEMENT DATED 10 JUNE 2014 (THE “FACILITIES AGREEMENT”) 

 

	1.	We refer to the Facilities Agreement. This agreement (the “Agreement”) shall take effect as an Increase Confirmation for the purpose of the Facilities Agreement. Terms defined in the Facilities
Agreement have the same meaning in this Agreement unless given a different meaning in this Agreement. 

  

	2.	We refer to Clause 2.2 (Increase) of the Facilities Agreement. 

  

	3.	The Increase Lender agrees to assume and will assume all of the obligations corresponding to the Commitment specified in the Schedule (the “Relevant Commitment”) as if it was an Original Lender under
the Facilities Agreement. 

  

	4.	The proposed date on which the increase in relation to the Increase Lender and the Relevant Commitment is to take effect (the “Increase Date”) is
[                    ]. 

  

	5.	On the Increase Date, the Increase Lender becomes party to the relevant Finance Documents as a Lender. 

  

	6.	The Facility Office and address, fax number and attention details for notices to the Increase Lender for the purposes of Clause 32.2 (Addresses) are set out in the Schedule. 

 

	7.	The Increase Lender expressly acknowledges the limitations on the Lenders’ obligations referred to in paragraph (f) of Clause 2.2 (Increase). 

 

	8.	This Agreement may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of this Agreement. 

 

	9.	This Agreement is governed by Norwegian law. 

  

	10.	This Agreement has been entered into on the date stated at the beginning of this Agreement. 

  
 113/120 

 THE SCHEDULE 

Relevant Commitment/rights and obligations to be assumed by the Increase Lender 

[insert relevant details] 

[Facility office address, fax number and attention details for notices and account details for payments] 

 

			
	[Increase Lender]
		
	By:	 	
	Name:	 	
	Title:	 	

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

			
	Nordea Bank Norge ASA
		
	By:	 	
	Name:	 	
	Title:	 	

  
 114/120 

 SCHEDULE 7 

FORM OF 
 COMPLIANCE
CERTIFICATE 
  

			
	To:	 	NORDEA BANK NORGE ASA as Agent
		
		 	Telefax: +47 22 48 66 68
		
		 	Attn: Nordea Agency
		
	Date:	 	[                    ]

 USD 240,000,000 TERM AND REVOLVING FACILITIES AGREEMENT DATED 10 JUNE 2014 (THE “AGREEMENT”) 

We refer to Clause 20.2 (Provision and contents of Compliance Certificate) of the Agreement. This is a Compliance Certificate. Terms used in this
Compliance Certificate have the same meanings as in the Agreement. 
 The undersigned, being the [chief financial officer] of the Parent Guarantor, hereby
confirms that the Obligors are in compliance with the financial covenants set out in Clause 21 (Financial covenants), that no Event of Default set out in Clause 24 (Events of Default) has occurred or is threatened and that the
representations and warranties set out in Clause 19 (Representations and warranties) are true in all respects. 
 Enclosed are copies of the [audited
consolidated annual financial statements of the Parent Guarantor and each Borrower for the financial year ending 31 December [            ] / unaudited consolidated quarterly financial
statements of the Parent Guarantor and each Borrower for the financial quarter ending [            ]] and the relevant calculations demonstrating compliance with financial covenants. 

 

			
	KNOT OFFSHORE PARTNERS L.P.
		
	By:	 	
	Name:	 	

  
 115/120 

 FINANCIAL COVENANTS 

[quarter] [year] 

Working Capital – Parent Guarantor: 
  

					
	 Current Assets (a)
	  	USD	            	  
		
	 Current Liabilities (b)
	  	USD	            	  
		
	 (a) less (b)
	  			
		  	  
	  
	 

 Requirement: To be positive 

Working Capital – Vessel A Owner: 
  

					
	 Current Assets (c)
	  	USD	            	  
		
	 Current Liabilities (d)
	  	USD	            	  
		
	 (c) less (d)
	  			
		  	  
	  
	 

 Requirement: To be positive 

Working Capital – Vessel B Owner: 
  

					
	 Current Assets (e)
	  	USD	            	  
		
	 Current Liabilities (f)
	  	USD	            	  
		
	 (e) less (f)
	  			
		  	  
	  
	 

 Requirement: To be positive 

Working Capital – Vessel C Owner: 
  

					
	 Current Assets (g)
	  	USD	            	  
		
	 Current Liabilities (h)
	  	USD	            	  
		
	 (g) less (h)
	  			
		  	  
	  
	 

 Requirement: To be positive 

  
 116/120 

 Equity ratio: 
  

					
	 Total Equity (i)
	  	USD	            	  
		
	 Total Assets (j)
	  	USD	            	  
		
	 Ratio (i)/(j)
	  			
		  	  
	  
	 

 Requirement: Ratio not to be less than 0.30 

Interest cover ratio: 
  

					
	 EBITDA (k)
	  	USD	            	  
		
	 Finance Charges (l)
	  	USD	            	  
		
	 Ratio (k)/(l)
	  			
		  	  
	  
	 

 Requirement: Ratio not to be less than 2.50:1.00 

Liquidity: 
  

					
	 Cash in hand or on deposit
	  	USD	            	  
		
	 2/3 of Available Facility
	  	USD	            	  
		
	 Cash equivalents
	  	USD	            	  
		
	 Total
	  	USD	            	  
		
	 Number of vessels owned by the members of the Group
	  			
		
	 Number of vessels owned by the members of the Group

With an employment contract with less than twelve (12) months remaining tenor (excluding options)
	  			
		  	  
	  
	 

 Requirement: USD [            ] 

  
 117/120 

 SCHEDULE 8 

LIST OF 
 EXISTING
HEDGING AGREEMENTS 
  

	1.	ISDA Master Agreement dated 25 June 2013 entered into between KNOT Shuttle Tankers 17 AS and Nordea Bank Finland Plc 

  

	2.	ISDA Master Agreement dated 3 February 2014 entered into between Knutsen Shuttle Tankers 13 AS and Nordea Bank Finland Plc 

  

	3.	ISDA Master Agreement dated 20 June 2013 entered into between KNOT Shuttle Tankers 17 AS and DNB Bank ASA 

  

	4.	ISDA Master Agreement dated 3 February 2014 entered into between Knutsen Shuttle Tankers 13 AS and DNB Bank ASA 

 SIGNATORIES 
  

			
	The Obligors:
	
	KNOT Shuttle Tankers 18 AS
		
	By:	 	/s/ BJØRN SANDE URTEGAARD
	Name:	 	Bjørn Sande Urtegaard
	Title:	 	Attorney-in-fact
	
	in its capacities as Borrower and Guarantor
	
	KNOT Shuttle Tankers 17 AS
		
	By:	 	/s/ BJØRN SANDE URTEGAARD
	Name:	 	Bjørn Sande Urtegaard
	Title:	 	Attorney-in-fact
	
	in its capacities as Borrower and Guarantor
	
	Knutsen Shuttle Tankers 13 AS
		
	By:	 	/s/ BJØRN SANDE URTEGAARD
	Name:	 	Bjørn Sande Urtegaard
	Title:	 	Attorney-in-fact
	
	in its capacities as Borrower and Guarantor
	
	KNOT Offshore Partners L.P.
		
	By:	 	/S/ ARILD VIK
	Name:	 	Arild Vik
	Title:	 	CEO/CFO
	
	in its capacity as Guarantor
	
	KNOT Shuttle Tankers AS
		
	By:	 	/s/ BJØRN SANDE URTEGAARD
	Name:	 	Bjørn Sande Urtegaard
	Title:	 	Attorney-in-fact
	
	in its capacities as Guarantor

  
 119/120 

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

  
 120/120EX-10.2

 Exhibit 10.2 

SHARE PURCHASE AGREEMENT 

Between 
 Knutsen NYK
Offshore Tankers AS 
 (as Seller) 

And 
 KNOT Shuttle
Tankers AS 
 (as Buyer) 
  

 
  

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

  
  

 SHARE PURCHASE AGREEMENT 

This agreement (this “Agreement”) is entered into the 23rd day of June, 2014 between:

 (1) Knutsen NYK Offshore Tankers AS, company registration no. 995 221 713 

(the “Seller”), and 
 (2) KNOT Shuttle
Tankers AS, company registration no. 998 942 829 
 (the “Buyer”). 

The Seller and the Buyer are hereinafter individually referred to as a “Party” and jointly the “Parties”. 

 

	1	RECITALS 

 WHEREAS: 
  

	a)	Knutsen Shuttle Tankers 14 AS, company registration no. 996 821 374, is a private limited liability company that has as its purpose to engage in shipowning activities, is duly incorporated under Norwegian law and
has its registered place of business in Haugesund, Norway (the “Company”); 

  

	b)	The Seller is the sole owner of the ownership interest in the Company, with a share capital of NOK 200,000; 

  

	c)	The Company is the owner of the MT “Hilda Knutsen”, having IMO No. 9628300 (the “Vessel”); and 

  

	d)	The Seller and the Buyer have agreed that the Buyer shall acquire 100% of the shares in the Company (the “Shares”) on the terms and conditions set forth in this Agreement. 

 

	2	DEFINITIONS 

 In this Agreement, the following definitions shall have the following meanings: 

 

					
	a)	    	Accounting Principles	  	means the applicable United States generally accepted accounting principles, applied on a consistent basis;
			
	b)	    	Accounts	  	means, in respect of the Company and Knutsen Shuttle Tankers 15 AS, its combined accounts, consisting of the income statement, balance sheet, statement of cash flow and the notes thereto, consolidated profit and loss account,
consolidated balance sheet and statement of cash flow and the notes thereto, for the financial years and quarters attached as Schedule 2;

  
 2 

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

  
 3 

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

  
 4 

					
	hh)	    	Taxes	  	means all taxes (including value-added tax and similar taxes), however denominated, including interest, penalties and other additions to tax that may become payable or imposed by any applicable statute, rule or regulation or any
governmental agency, including all taxes, withholdings and other charges in respect of income, profits, gains, payroll, social security or other social benefit taxes, sales, use, excise, real or personal property, stamps, transfers and workers’
compensation, which the Company is required to pay, withhold or collect; and
			
	ii)	    	Third-Party Claim	  	shall have the meaning ascribed to such term in Clause 12.3; and
			
	jj)	    	Vessel	  	shall have the meaning ascribed to such term in Clause 1.

  

	3	SALE AND PURCHASE 

 Subject to the terms and conditions set forth in this Agreement, the Seller agrees to
sell, and the Buyer agrees to purchase, the Shares, together with all rights attached to them. 
 The Shares shall be transferred to the Buyer on the
Closing Date, free and clear from any Encumbrances. 
  

	4	PURCHASE PRICE 

 The Seller agrees to sell and transfer to the Buyer, and the Buyer agrees to purchase
from the Seller for USD 166,000,000, less USD 109,687,500 of outstanding debt obligations under the Hilda Knutsen Facility, and as adjusted for the balance under the Swap Agreements being USD 59,439 according to a mark-to-market determination
as of 17 June 2014 (the “Purchase Price”), plus the Purchase Price Adjustments, all in accordance with and subject to the terms and conditions set forth in this Agreement, the Shares. 

The Purchase Price is to be settled by way of a cash settlement in the amount of USD 56,371,939 on the Closing Date. 

 

	5	CLOSING 

  

	5.1	Time and place 

 Subject to the satisfaction or waiver of the conditions set forth in Clause 6, the
completion of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of the Seller at such time and date as the Parties agree. 

 

	5.2	The Seller’s Closing obligations 

 At the Closing, the Seller shall: 

 

	a)	deliver to the Buyer a copy of the minutes of the meeting of the board of directors of the Seller authorising the execution of, and the consummation of the transaction completed by, this Agreement; and

  

	b)	in exchange for the payment of the Purchase Price, transfer the Shares to the Buyer and deliver to the Buyer the share register of the Company with the Buyer duly registered as the owner of the Shares, as well as the
related notices according to Sections 4-7 and 4-10 of the Companies Act. 

  
 5 

	5.3	The Buyer’s Closing obligations 

 At the Closing, the Buyer shall settle the Purchase Price in
accordance with Clause 4. 
  

	5.4	Post-Closing Adjustment 

  

	a)	Within 60 days following the Closing Date, the Buyer and the Seller shall agree on the amount of the post-Closing adjustments to the Purchase Price based on the Company’s working capital as of the 30 June 2014
(the “Purchase Price Adjustments”). 

  

	b)	Within 15 days following the date on which the Purchase Price Adjustments have been agreed pursuant to item a) above, the Buyer shall pay to the Seller an amount, in cash, equal to the Purchase Price Adjustments. Any
other elements than those covered by the Purchase Price Adjustments varying in the period between the Signing Date and the Closing Date shall be for Seller’s account. 

 

	6	CLOSING CONDITIONS 

  

	6.1	Conditions to the Buyer’s Closing obligations 

 The obligations of the Buyer to purchase the Shares
and to take the other actions required to be taken by it at the Closing are subject to the satisfaction of each of the following conditions (any of which may be waived in whole or in part by the Buyer) on or before the Closing Date: 

 

	a)	there is no material breach of any of the representations and warranties of the Seller set forth in Clause 8 and Clause 9; 

  

	b)	in all respects material to the transactions contemplated hereby, the Seller shall have performed or complied with all of its obligations pursuant to this Agreement to be performed or complied with by the Seller at or
prior to the Closing Date and shall have delivered each document or instrument to be delivered by it pursuant to this Agreement; 

  

	c)	the Buyer shall have obtained the funds necessary to consummate the purchase of the Shares and to pay all related fees and expenses; and 

 

	d)	the results of the searches, surveys, tests and inspection of the Vessel referred to in Clause 10.1(h) are reasonably satisfactory to Buyer. 

 

	6.2	Conditions to the Seller’s Closing obligations 

 The obligations of the Seller to sell the Shares
and to take the other actions required to be taken by it at the Closing are subject to the satisfaction of each of the following conditions (any of which may be waived in whole or in part by the Seller) on or before the Closing Date: 

 

	a)	there is no material breach of any of the representations and warranties of the Buyer set forth in Clause 7; 

  
 6 

	b)	each of the Partnership and the Buyer shall substitute and replace the Seller as guarantor under the Hilda Knutsen Facility and the Swap Agreements, and the Seller will be released as guarantor thereunder; and

  

	c)	in all respects material to the transactions contemplated hereby, the Buyer shall have performed or complied with all of its obligations pursuant to this Agreement to be performed or complied with by the Buyer at or
prior to the Closing Date and shall have delivered each document or instrument to be delivered by it pursuant to this Agreement. 

  

	6.3	Conditions of the Parties. The obligations of Seller to sell the Shares and the obligations of Buyer to purchase the Shares is subject to the satisfaction (or waiver by each of Seller and Buyer) on or prior to
the Closing Date of the following conditions: 

  

	a)	The Seller shall have received any and all written consents, permits, approvals or authorizations of any Governmental Authority or any other Person (including, but not limited to, with respect to the Charter, the Hilda
Knutsen Facility and the Swap Agreements) and shall have made any and all notices or declarations to or filing with any Governmental Authority or any other Person, including those related to any environmental laws or regulations, required in
connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereunder, including the transfer of the Shares; and 

 

	b)	No legal or regulatory action or proceeding shall be pending or threatened by any Governmental Authority to enjoin, restrict or prohibit the purchase and sale of the Shares. 

 

	7	REPRESENTATIONS AND WARRANTIES OF THE BUYER 

 The Buyer represents and warrants to the Seller that as of
the Signing Date and on the Closing Date, unless otherwise expressly stated: 
  

	7.1	Corporate existence and power 

 The Buyer is duly incorporated, validly existing and in good standing
under the laws of Norway. 
 The Buyer has not been declared insolvent; become the subject of a petition in bankruptcy; had a receiver appointed with
respect to it or to the Business or part thereof; entered into any arrangement with, or made an assignment for the benefit of, its creditors; or ceased to function as a going concern. 

 

	7.2	Corporate authorisation and non-contravention 

 This Agreement and each other document or instrument
delivered or to be delivered in connection with this Agreement has been duly authorised by all necessary corporate action(s) of the Buyer and constitutes or will, when executed, constitute valid and binding obligations of the Buyer enforceable in
accordance with its respective terms. 
 The execution by the Buyer of this Agreement and each other document or instrument delivered or to be delivered in
connection with it, and the performance by the Buyer of its obligations under this Agreement and the consummation of the transactions provided for in this Agreement, do not and will not result in a breach of any provision of the articles of
association of the Buyer or of any applicable law, order, judgment or decree of any court or any Governmental Authority or of any agreement to which the Buyer is bound. 

  
 7 

 The Buyer is not required to obtain any authorisations, consents, approvals or exemptions by any Governmental
Authority in connection with the entering into or performance of its obligations under this Agreement. 
  

	8	REPRESENTATIONS AND WARRANTIES OF THE SELLER 

 The Seller represents and warrants to the Buyer as of the
Signing Date and on the Closing Date, unless otherwise expressly stated: 
  

	8.1	Corporate existence and power 

 Each of the Company and the Seller is duly incorporated, validly existing
and in good standing under the laws of Norway. 
 Each of the Company and the Seller has not been declared insolvent; become the subject of a petition in
bankruptcy; had a receiver appointed with respect to it or to the Business or part thereof; entered into any arrangement with, or made an assignment for the benefit of, its creditors; or ceased to function as a going concern. 

 

	8.2	Corporate authorisation and non-contravention 

 This Agreement and each other document or instrument
delivered or to be delivered in connection with this Agreement has been duly authorised by all necessary corporate action(s) of each of the Company and the Seller, as appropriate, and constitutes or will, when executed, constitute valid and binding
obligations of each of the Company and the Seller, as appropriate, enforceable in accordance with its respective terms. 
 The execution by each of the
Company and the Seller, as appropriate, of this Agreement and each other document or instrument delivered or to be delivered in connection with it, and the performance by each of the Company and the Seller, as appropriate, of its obligations under
this Agreement and the consummation of the transactions provided for in this Agreement, do not and will not result in a breach of any provision of the articles of association of each of the Company and the Seller, as appropriate, or of any
applicable law, order, judgment or decree of any court or any Governmental Authority or of any agreement to which each of the Company and the Seller, as appropriate, is bound. 

Each of the Company and the Seller, as appropriate, is not required to obtain any authorisations, consents, approvals or exemptions by any Governmental
Authority in connection with the entering into or performance of its obligations under this Agreement. 
  

	8.3	Capitalisation and title 

 The Seller has full ownership to the Shares. The Shares are fully authorised,
validly issued, fully paid and are, at the time of transfer pursuant to this Agreement, free and clear from any Encumbrances. 
 There is no outstanding
subscription, option or similar rights relating to the Shares. 

  
 8 

	8.4	Records 

 The Company’s articles of association and shareholders’ register are true, accurate,
up-to-date and complete. 
  

	8.5	Charter documents; validity of the Charter 

 The Seller has supplied to the Buyer true and correct copies
of the Charter and any related documents, as amended to the Closing Date. The Charter is a valid and binding agreement of the Company enforceable against the Company in accordance with its terms and, to the knowledge of the Seller, the Charter is a
valid and binding agreement of all other parties thereto enforceable against such parties in accordance with its terms. 
  

	8.6	Accounts 

 The Accounts have been prepared in accordance with the Accounting Principles and in accordance
with the books and records of the Company. The Accounts give a true and accurate view of the financial position, solvency, assets, liabilities, liquidity, cash flow and the result of the operations of the Company as of the Accounts Date. 

 

	8.7	No undisclosed liabilities 

 Neither the Company nor the Vessel has any Encumbrances, or other
liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise, and whether due or to become due (including, without limitation, any liability for Taxes and interest, penalties and other charges payable with respect to
any such liability or obligation), except for such Encumbrances or other liabilities or obligations appearing in the ship registry of the Vessel and those arising under the Hilda Knutsen Facility and the Swap Agreements. 

 

	8.8	Loans and other financial facilities 

 All loans and other financial facilities available to the Company
have been made available for review by the Buyer. As of the Signing Date, the principal outstanding amount under the Hilda Knutsen Facility is USD 109,687,500. 

No event has occurred which gives, or after notice or lapse of time, or both, would give any third party the right to call for repayment from the Company
prior to normal maturity of any loan or other financial facility. The Company shall not be indebted, directly or indirectly, to any person who is an officer, director, stockholder or employee of any of the Seller or any spouse, child or other
relative or any affiliate of any such person, nor shall any such officer, director, stockholder, employee, relative or affiliate be indebted to the Company. 
  

	8.9	Assets 

 At the Closing Date, the Company shall not be using assets in the Business that it neither owns
nor has the right to use pursuant to written agreements with third parties. At the Closing Date, the assets of the Company will comprise all the assets necessary for carrying on the Business fully and effectively to the extent to which it is
conducted at the Signing Date. 
  

	8.10	Absence of certain changes or events 

 Since the Accounts Date, there has not occurred or arisen: 

 

	a)	any change of accounting methods, principles or practices, accounting, invoicing and supplier practice or procedures for the Company; 

  
 9 

	b)	any acquisition or disposal of, or the entering into any agreement to acquire or dispose of, any asset, other than the sale of products in the ordinary course of business; 

 

	c)	the termination of any Material Agreement; 

  

	d)	any obligations, commitments or liabilities, contingent or otherwise, whether for Taxes or otherwise, except obligations, commitments and liabilities arising in the ordinary course of business; 

 

	e)	any event or condition, whether covered by insurance or not, which has resulted in or may result in a Material Adverse Effect; or 

  

	f)	the entering into of any agreements or commitments other than on customary terms. 

  

	8.11	Agreements 

 Each Material Agreement is in full force and effect. No other Material Agreements will be
entered into by the Company prior the Closing Date without the prior consent of the Buyer (such consent not to be unreasonably withheld). The Company has fulfilled all material obligations required pursuant to the Material Agreements to have been
performed by it prior to the Signing Date and has not waived any material rights thereunder. 
 There has not occurred any material default on the part of
the Company under any of the Material Agreements, or to the knowledge of the Seller, on the part of any other party thereto, nor has any event occurred that with the giving of notice or the lapse of time, or both, would constitute any material
default on the part of the Company under any of the Material Agreements nor, to the knowledge of the Seller, has any event occurred that with the giving of notice or the lapse of time, or both, would constitute any material default on the part of
any other party to any of the Material Agreements. 
 The term “Material Agreement” means each agreement, contract or other undertaking by
or of the Company (a) that is of material importance to the Business or (b) the value of which, in respect of total turnover during one year, is not less than USD 100,000, provided, however, that such term includes the Charter, the Hilda
Knutsen Facility and the Swap Agreements. 
  

	8.12	Insurance 

 The Company maintains insurance policies on fire, theft, loss, disruption, product and
general liability and other forms of insurance with reputable insurers that would reasonably be judged to be sound and required for the Business. 
 The
Company’s insurance policies do not contain any provisions regarding a change of control or ownership of the insured. 
 The Company is in compliance
with all terms and conditions contained in the insurance policies, and nothing has been done or omitted to be done that would make any insurance policy or insurance void or voidable or that would result in a reduction of the coverage (No:
avkortning). 

  
 10 

	8.13	Environmental matters 

 The Company is not and has not been in breach of any applicable laws (whether
civil, criminal or administrative), statutes, regulations, directives, codes, judgments, orders or any other measures imposed by any governmental, statutory or regulatory body with regard to the pollution or the protection of the environment or to
the protection of human health or human safety, or any other living organisms supported by the environment. 
 There is no current governmental
investigation or disciplinary proceeding relating to any alleged breach of any law or permit by the Company, and none is pending, nor threatened. 
 The
Company has not, other than as permitted under applicable permits or applicable laws or regulations held from time to time, disposed of, discharged, released, placed, dumped or emitted any hazardous substances, such as pollutants, contaminants,
hazardous or toxic materials, wastes or chemicals. Neither the Seller nor the Company has received any formal or informal notice or other communication from which it appears that the Company may be or has been in violation of any laws or permits.
There are no actual or contingent obligations on the Company to pay money or carry out any work in order to keep or be granted an extension or renewal of any existing permit. There are no facts or circumstances that could result in such an
obligation. The properties used by the Company are not made of or do not contain any form of asbestos or any other toxic substance that may cause damage to the health of the persons working or visiting the premises. 

 

	8.14	Compliance with laws 

 The Company has at all times conducted the Business in accordance with and has
complied with any applicable laws in Norway and in any other relevant countries relating to its operations and the Business. 
 All necessary licences,
consents, permits and authorisations have been obtained by the Company to enable the Company to carry on the Business in the places and in the manner in which such Business is now conducted and all such licences, consents, permits and authorisations
are valid and subsisting and have been complied with in all respects. 
  

	8.15	Litigation 

 There are no claims, actions, lawsuits, administrative, governmental, arbitration or other
legal proceedings (including but not limited to proceedings related to Taxes) pending or threatened against or involving the Company, the Business or properties or assets of the Company and which would result in a Material Adverse Effect if
adversely determined. 
  

	8.16	Taxes 

 The Company has properly filed with the appropriate Tax authorities all Tax returns and reports
required to be filed for all Tax periods ending prior to the Closing Date. Such filings are true, correct and complete. All information required for a correct assessment of Taxes has been provided. 

The Tax returns of the Company have been assessed and approved by the Tax authorities through the Tax years up to and including the years for which such
assessment and approval is required, and the Company is not subject to any dispute with any such authority. 

  
 11 

 All Taxes that have become due have been fully paid or fully provided for in the Accounts, and the Company shall
not be liable for any additional Tax pertaining to the period before the Accounts Date. All Taxes for the period after the Accounts Date have been fully paid when due. 

There are no Tax audits, Tax disputes or Tax litigation pending or threatened against or involving the Company. There is no basis for assessment of any
deficiency in any Taxes against the Company that has not been provided for in the Accounts or that has not been paid. 
 The Company is not and has not been
involved in any transaction that could be considered as Tax-evasive. All losses for Tax purposes incurred by of the Company are trading losses and are available to be carried forward and set off against income in succeeding periods without
limitation and have been accepted by the relevant Tax authorities. 
 The Company is not and has not been subject to any Tax outside its respective country
of fiscal residence. 
  

	8.17	Relationship with the Seller 

 Except as disclosed to the Buyer, there are no written or oral agreements
or arrangements between the Company and the Seller, and no liabilities or obligations (contingent or otherwise) owed by the Company to the Seller. 
 No
services provided by the Seller to the Company are necessary in the ordinary course of business. 
 No payments of any kind, including, but not limited to
management charges, have been made by the Company to the Seller, save for payments under agreements or arrangements made on an arm’s-length basis in accordance with applicable law and regulations. 

 

	8.18	Information 

 All documents provided to the Buyer by or on behalf of the Seller or the Company are true
and correct, and no document provided to the Buyer by or on behalf of the Seller or the Company contains any untrue statement of a relevant fact or omits to state a relevant fact necessary to make the statements contained in the document not
misleading. 
 There are no facts or circumstances known to the Seller, relating to the affairs of the Company, that have not been disclosed to the Buyer,
which, if disclosed, reasonably could have been expected to influence the decision of the Buyer to purchase the Shares on the terms of this Agreement. 

The Seller confirms that the Seller, prior to the Signing Date, has made, and until the Closing Date, shall continue to make, all investigations necessary in
order to ensure that the statements in Clause 7 are correct. 
  

	9	REPRESENTATIONS AND WARRANTIES OF THE SELLER REGARDING THE VESSEL 

 The Seller represents and warrants to
the Buyer as of the Signing Date and on the Closing Date, unless otherwise expressly stated: 
  

	9.1	Flag and title 

 The Company is the registered owner of the Vessel and has good and marketable title to
the Vessel, free and clear of any and all Encumbrances, other than those arising under the Hilda Knutsen 

  
 12 

 
Facility. The Vessel is properly registered in the name of the Seller under and pursuant to the flag and law of the United Kingdom, and all fees due and payable in connection with such
registration have been paid. 
  

	9.2	Classification 

 The Vessel is entered with Det Norske Veritas and has the highest classification rating.
The Vessel is in class without any recommendations or notation as to class or other requirement of the relevant classification society, and if the Vessel is in a port, it is in such condition that it cannot be detached by any port state authority or
the flag state authority for any deficiency. 
  

	9.3	Maintenance 

 The Vessel has been maintained in a proper and efficient manner in accordance with
internationally accepted standards for good ship maintenance, is in good operating order, condition and repair and is seaworthy, and all repairs made to the Vessel during the last two years and all known scheduled repairs due to be made and all
known deficiencies have been disclosed to the Buyer. 
  

	9.4	Liens 

 The Vessel is not (a) under arrest or otherwise detained, (b) other than in the
ordinary course of business, in the possession of any person (other than her master and crew) or (c) subject to a possessory lien. 
  

	9.5	Safety 

 The Vessel is supplied with valid and up-to-date safety, safety construction, safety equipment,
radio, loadline, health, tonnage, trading and other certificates or documents as may for the time being be prescribed by the laws of the United Kingdom or of any other pertinent jurisdiction, or that would otherwise be deemed necessary by a
shipowner acting in accordance with internationally accepted standards for good ship management and operations. 
  

	9.6	No blacklisting or boycotts 

 No blacklisting or boycotting of any type has been applied or currently
exists against or in respect of the Vessel. 
  

	9.7	No options 

 There are not outstanding any options or other rights to purchase the Vessel other than the
option held by the Buyer pursuant to the Omnibus Agreement. 
  

	9.8	Insurance 

 The insurance policies relating to the Vessel are as set forth on Schedule 1 hereto,
each of which is in full force and effect and, to the Seller’s knowledge, not subject to being voided or terminated for any reason. 
  

	10	COVENANTS PRIOR TO THE CLOSING 

  

	10.1	Covenants of the Seller Prior to the Closing 

 From the Signing Date to the Closing Date, the Seller
shall cause the Company to conduct its business in the usual, regular and ordinary course in substantially the same manner as previously conducted. The Seller shall not permit the Company to enter into any contracts or other written or oral
agreements prior to the Closing Date, other than such contracts and agreements as have been disclosed to the Buyer prior to the Signing Date, without the prior consent of the Buyer (such 

  
 13 

 
consent not to be unreasonably withheld). In addition, the Seller shall not permit the Company to take any action that would result in any of the conditions to the purchase and sale of the Shares
set forth in Clause 6 not being satisfied. Furthermore, the Seller hereby agrees and covenants that it: 
  

	a)	shall use its best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary to consummate and make effective as promptly as possible the transactions contemplated by this
Agreement and to co-operate with the Buyer and others in connection with the foregoing; 

  

	b)	shall use its best efforts to obtain the authorisations, consents, orders and approvals of regulatory bodies and officials that may be or become necessary for the performance of its obligations pursuant to this
Agreement and the completion of the transactions contemplated by it; 

  

	c)	shall co-operate with the Buyer and promptly seek to obtain such authorisations, consents, orders and approvals as may be necessary for the performance of the Parties’ respective obligations pursuant to this
Agreement; 

  

	d)	shall not amend, alter or otherwise modify or permit any amendment, alteration or modification of any material provision of or terminate the Charter or any other contract prior to the Closing Date without the prior
written consent of the Buyer, such consent not to be unreasonably withheld or delayed; 

  

	e)	shall not exercise or permit any exercise of any rights or options contained in the Charter, without the prior written consent of the Buyer, not to be unreasonably withheld or delayed; 

 

	f)	shall observe and perform in a timely manner, all of its covenants and obligations under the Charter, the Hilda Knutsen Facility and the Swap Agreements, if any, and in the case of a default by another party thereto, it
shall forthwith advise the Buyer of such default and shall, if requested by the Buyer, enforce all of its rights under such Charter, the Hilda Knutsen Facility or the Swap Agreements, as applicable, in respect of such default; 

 

	g)	shall not cause or, to the extent reasonably within its control, permit any Encumbrances to attach to the Vessel other than in connection with the Hilda Knutsen Facility and the Swap Agreements; and 

 

	h)	shall permit representatives of the Buyer to make, prior to the Closing Date, at the Buyer’s risk and expense, such surveys, tests and inspections of the Vessel as the Buyer may deem desirable, so long as such
surveys, tests or inspections do not damage the Vessel or interfere with the activities of the Seller, the Company or the Charterer thereon and so long as the Buyer shall have furnished the Seller with evidence that adequate liability insurance is
in full force and effect. 

  

	10.2	Covenants of the Buyer Prior to the Closing 

 The Buyer hereby agrees and covenants that during the
period of time after the Signing Date and prior to the Closing Date, the Buyer shall, in respect of the Shares to be transferred on the Closing Date, take, or cause to be taken, all necessary partnership action, steps and proceedings to approve or
authorize validly and effectively the purchase and sale of the Shares and the execution and delivery of this Agreement and the other agreements and documents contemplated hereby. 

  
 14 

	11	TERMINATION 

  

	11.1	Termination 

 This Agreement may be terminated, and the transactions contemplated by this Agreement may
be abandoned, at any time prior to the Closing Date: 
  

	a)	by either Party if a breach of any provision of this Agreement has been committed by the other Party, such breach has not been waived and such breach is material to the transactions contemplated hereby, the Business or
the assets, financial condition or prospect of the Company; 

  

	b)	by either Party if satisfaction of any of the conditions in Clause 6.3 is or becomes impossible and Buyer and Seller have not waived such condition; 

 

	c)	by the Buyer if satisfaction of any of the conditions in Clause 6.1 is or becomes impossible (other than through the failure of the Buyer to comply with its obligations under this Agreement) and the Buyer has not waived
such condition; 

  

	d)	by the Seller if satisfaction of any of the conditions in Clause 6.2 is or becomes impossible (other than through the failure of the Seller to comply with its obligations under this Agreement) and the Seller has not
waived such condition; 

  

	e)	by the Buyer due to a change having occurred that has resulted or may result in a Material Adverse Effect; or 

  

	f)	by mutual written consent of the Seller and the Buyer. 

  

	11.2	Rights on termination 

 If this Agreement is terminated pursuant to Clause 11.1, all further obligations
of the Parties pursuant to this Agreement shall terminate without further liability of a Party to the other, provided, however, that the obligations of the Parties contained in Clause 14 (Costs) and Clause 18 (Governing Law and arbitration) shall
survive such termination, and further provided, that if this Agreement is terminated by a Party because of the breach of this Agreement by the other Party or because one or more of the conditions to the terminating Party’s obligations under
this Agreement is not satisfied as a result of the other Party’s failure to comply with its obligations under this Agreement, the terminating Party’s right to pursue all legal remedies will survive such termination unimpaired. 

 

	12	INDEMNIFICATION 

  

	12.1	Indemnity by the Seller 

 Subject to Clause 13, following the Closing, the Seller shall be liable for,
and shall indemnify, defend and hold harmless the Buyer and its respective officers, directors, employees, agents and representatives (the “Buyer Indemnitees”) from and against, any Losses, suffered or incurred by such Buyer
Indemnitees: 
  

	a)	by reason of, arising out of or otherwise in respect of any inaccuracy in, breach of any representation or warranty, or a failure to perform or observe fully any covenant, agreement or obligation of, the Seller in or
under this Agreement or in or under any document, instrument or agreement delivered pursuant to this Agreement by the Seller; 

  
 15 

	b)	subject to Clause 14 (b), any fees, expenses or other payments incurred or owed by the Seller to any brokers, financial advisors or comparable other persons retained or employed by it in connection with the transaction
contemplated by this Agreement; or 

  

	c)	any Losses suffered or incurred by such Buyer Indemnitees in connection with any claim for the repayment of hire or Losses in relation to the Vessel for periods prior to the Closing. 

 

	12.2	Indemnity by the Buyer 

 Following the Closing, the Buyer shall be liable for, and shall indemnify,
defend and hold harmless the Seller and its respective officers, directors, employees, agents and representatives (the “Seller Indemnitees”) from and against, any Losses, suffered or incurred by such Seller Indemnitees by reason of,
arising out of or otherwise in respect of any inaccuracy in, breach of any representation or warranty, or a failure to perform or observe fully any covenant, agreement or obligation of, the Buyer in or under this Agreement or in or under any
document, instrument or agreement delivered pursuant to this Agreement by the Buyer. 
  

	12.3	Indemnification procedures with respect to third-party claims 

 If the Seller or the Buyer, as the case
may be (an “Indemnified Party”), shall receive notice of any claim by a third party that is or may be subject to indemnification or compensation from the other Party pursuant to this Agreement (a “Third-Party
Claim”), the Indemnified Party shall give the other Party (the “Indemnifying Party”) prompt written notice of such Third-Party Claim and the Indemnifying Party shall, at the Indemnifying Party’s option, have the right
to participate in the defence thereof by counsel at the Indemnifying Party’s own cost and expense. If the Indemnifying Party acknowledges within 30 days from such written notice in writing its obligation to indemnify the Indemnified Party
against all Losses that may result from such Third-Party Claim, the Indemnifying Party shall be entitled, at the Indemnifying Party’s option, to assume and control the defence of such Third-Party Claim at the Indemnifying Party’s cost and
expense and through counsel of the Indemnifying Party’s choice. No such Third-Party Claim may be settled by the Indemnifying Party without the written consent of the Indemnified Party, unless the settlement involves only the payment of money by
the Indemnifying Party. No Third-Party Claim that is being defended in good faith by the Indemnifying Party shall be settled by the Indemnified Party without the written consent of the Indemnifying Party. The Indemnifying Party shall have no
obligation to indemnify the Indemnified Party for any losses resulting from the settlement of Third-Party Claims in violation of the provisions of this Clause 12.3. 
  

	13	OMNIBUS AGREEMENT INDEMNIFICATION 

 Notwithstanding any other provision of this Agreement, the Seller
shall be liable for, and shall indemnify, defend and hold harmless the Partnership and any person controlled by the Partnership, including the Buyer, from and against the matters set forth in Article XIII of the Omnibus Agreement, subject to
the terms and conditions set forth therein. 
 The Seller’s indemnification obligations under this Clause 13 shall only be subject to limitations
insofar as such limitations follow from Article XIII of the Omnibus Agreement. 
  

	14	COSTS 

  

	a)	Subject to Clause 14 (b), each party shall pay its own costs and expenses in connection with the preparation for and completion of the transactions contemplated by this Agreement, including but not limited to all fees
and expenses of its own representatives, agents, brokers, legal and financial advisers and authorities and no such costs or expenses shall be charged to or paid by, neither directly or indirectly, the Company. 

 

	b)	The fees and expenses of AMA Securities Inc. in providing its fairness opinion pursuant to Clause 8.2(b) of the Omnibus Agreement, will be divided equally between the Buyer and the Seller. 

  
 16 

	15	NOTICES 

 All notices, requests, demands, approvals, waivers and other communications required or
permitted under this Agreement must be in writing in the English language and shall be deemed to have been received by a Party when: 
  

	a)	delivered by post, unless actually received earlier, on the third Business Day after posting, if posted within Norway, or the fifth Business Day, if posted to or from a place outside Norway; 

 

	b)	delivered by hand, on the day of delivery; or 

  

	c)	delivered by fax, on the day of dispatch if supported by a written confirmation from the sender’s fax machine that the message has been properly transmitted. 

All such notices and communications shall be addressed as set forth below or to such other addresses as may be given by written notice in accordance with this
Clause 15. 
 If to the Seller: 
 Knutsen NYK Offshore
Tankers AS 
 Attention: Chairman of the Board 
 Smedasundet 40,
Postboks 2017, 5504 Haugesund, Norway 
 Fax no.: +47 52 70 40 40 

If to the Buyer: 
 KNOT Shuttle Tankers AS 

Attention: Chairman of the Board 
 Smedasundet 40, Postboks 2017,
5504 Haugesund, Norway 
 Fax no.: +47 52 70 40 40 
  

	16	ASSIGNMENT 

 This Agreement shall be binding upon and inure to the benefit of the successors of the
Parties, but shall not be assignable by any of the Parties without the prior written consent of the other Party. The benefit of this Agreement may, however, be assigned by either of the Parties to any group directly or indirectly controlling,
controlled by or under common control of the assignor, provided that the assignor shall remain liable for its own debt and for all obligations under this Agreement. 
  

	17	MISCELLANEOUS 

  

	17.1	Further Assurances 

 From time to time after the Signing Date, and without any further consideration, the
Parties agree to execute, acknowledge and deliver all such additional deeds, assignments, bills of sale, conveyances, 

  
 17 

 
instruments, notices, releases, acquittances and other documents, and shall do all such other acts and things, all in accordance with applicable law, as may be necessary or appropriate
(a) more fully to assure that the applicable Parties own all of the properties, rights, titles, interests, estates, remedies, powers and privileges granted by this Agreement, or which are intended to be so granted, (b) more fully and
effectively to vest in the applicable Parties and their respective successors and assigns beneficial and record title to the interests contributed and assigned by this Agreement or intended so to be and (c) more fully and effectively to carry
out the purposes and intent of this Agreement. 
  

	17.2	Integration 

 This Agreement, the Schedules and Appendices hereto and the instruments referenced herein
supersede all previous understandings or agreements among the Parties, whether oral or written, with respect to its subject matter hereof. This Agreement, the Schedules and Appendices hereto and the instruments referenced herein contain the entire
understanding of the Parties with respect to the subject matter hereof and thereof. No understanding, representation, promise or agreement, whether oral or written, is intended to be or shall be included in or form part of this Agreement unless it
is contained in a written amendment hereto executed by the Parties hereto after the Signing Date. 
  

	17.3	No Broker’s Fees 

 No one is entitled to receive any finder’s fee, brokerage or other
commission in connection with the purchase of the Shares or the consummation of the transactions contemplated by this Agreement. 
  

	18	GOVERNING LAW AND ARBITRATION 

 This Agreement shall be governed by and construed in accordance with
Norwegian law. 
 The Parties shall seek to solve through negotiations any dispute, controversy or claim arising out of or relating to this
Agreement, or the breach, termination or invalidity hereof. If the Parties fail to solve such dispute, controversy or claim by a written agreement within 60 days after one of the Parties has requested such negotiations by notice to the other Party,
such dispute, controversy or claim shall be finally settled by arbitration in Haugesund in the English language in accordance with the Norwegian Arbitration Act. The arbitration tribunal shall consist of three arbitrators, of which the Buyer shall
appoint one arbitrator and the Seller shall appoint one arbitrator. The arbitrators so appointed shall appoint the third arbitrator, who shall be the chairman of the arbitration tribunal. In the event of failure by a Party to appoint its arbitrator
within 30 days after the request for arbitration first is given, or the failure by the first two arbitrators to appoint the third arbitrator within 30 days after appointment of the last of the first two arbitrators to be appointed, such arbitrator
or arbitrators shall be appointed by the district judge (No: “Sorenskriver”) of Haugesund District Court. Any Party may seek judgement upon any award in any court having jurisdiction, or an application may be made to such court for
the judicial acceptance of the award and for an order of enforcement. 
 Notwithstanding the above, either Party may bring an action in any court of
competent jurisdiction (a) for provisional relief pending the outcome of arbitration, including, without limitation, provisional injunctive relief or pre-judgement attachment of assets, or (b) to compel arbitration or enforce any arbitral
award. For purposes of any proceeding authorised by this Clause 17, each Party hereby consents to the non-exclusive jurisdiction of Haugesund, Norway. 

* * * 

  
 18 

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

 

									
	Knutsen NYK Offshore Tankers AS	 		 	KNOT Shuttle Tankers AS
					
	By:	 	 /s/ ØYSTEIN MOKSHEIM KALLEKLEV
	 		 	By:	 	 /s/ KARL GERHARD BRÅSTEIN
DAHL

					
	Name:	 	 Øystein Moksheim Kalleklev
	 		 	Name:	 	 Karl Gerhard Bråstein Dahl

					
	Title:	 	 Chief Financial Officer
	 		 	Title:	 	 Senior Vice President, Board Member

  
 19 

 INSURANCES 

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

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

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

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

									
	
	P&I Insurance

									
					
	 Gross Tonnage: 80 850
	  		  		  	Policy Renewal:	  	20.02.2014

									
	
	War Risk

											
					
		  	Insured Value:	  	$	217 500 000	  	  	Policy Renewal:	  	01.01.2014

 Hull & Machinery 
  

					
	 	5	% 	 	 Security through Edge Insurance Brokers (Singapore) PTE. Ltd.

	 	5	% 	 	 India International Insurances, Singapore

	 	2,75	% 	 	 Security Through Edge Insurance Brokers (Singapore) Pte. Ltd.

	 	2,75	% 	 	 Asia Capital Re. Singapore

	 	2,25	% 	 	 Security through JLJ Maritime S.A

	 	2,25	% 	 	 Vienna Insurance Group AG

	  
	  
	 	 	
	 	10	% 	 	 Total

		
	 	12,5	% 	 	 Norwegian Hull Club-Gjensidige Assuranseforening, bergen

	 	12,5	% 	 	 Gard AS, as agent only for Gard M&E Ltd.

	 	2	% 	 	 Codan Forsikring NUF

	 	10	% 	 	 Aon London Broking Center

	 	10	% 	 	 Lloyds Syndicate 1209 XL

	 	5	% 	 	 Aon London Broking Center

	 	5	% 	 	 Arch Insurance Comp. (Europe) Ltd.

	 	2	% 	 	 Alandia Insurance Co. Ltd

	 	6,5	% 	 	 Tokio Marine & Nichido Fire Ins. Co. Ltd.

	 	2,5	% 	 	 The Swedish Club

	 	5	% 	 	 Aon Benfield Italia S.p.A.

	 	5	% 	 	 S.I.A.T

	 	2,5	% 	 	 UNIQA Österreich Versicherungen AG

	 	2	% 	 	 Markel Internatinal Sweden

	 	9	% 	 	 Aon London Broking Center

	 	9	% 	 	 Swiss Re Internatinal SE, UK Branch

	 	3	% 	 	 Ingosstrakh Insurance Company Ltd.

	  
	  
	 	 	
	 	90	% 	 	 Total

		
	 	100	% 	 	 Total

  
 20 

 Hull Interest/Freight Interest 
  

					
	 	2,5	% 	 	 Alandia Insurance Co. Ltd

	 	10	% 	 	 Aon London Broking Center

	 	10	% 	 	 Lloyds Syndicate 1209 XL

	 	5	% 	 	 Aon London Broking Center

	 	5	% 	 	 Arch Insurance Comp. (Europe) Ltd.

	 	9	% 	 	 Aon London Broking Center

	 	9	% 	 	 Swiss Re International SE, UK Branch

	 	2	% 	 	 Chaucer Underwriting A/S

	 	2	% 	 	 Lloyds Syndicate 1084 Chaucer

	 	18	% 	 	 Codan Forsikring NUF

	 	19	% 	 	 Gard A, as agents only for Gard M&E Ltd.

	 	2,5	% 	 	 International Insurance Company of Hannover Ltd.

	 	20	% 	 	 Norwegian Hull Club

	 	3	% 	 	 Skuld 1897

	 	2,5	% 	 	 The Swedish Club

	 	6,5	% 	 	 Tokio Marine & Nichido Fire Ins. Co. Ltd.

	  
	  
	 	 	
	 	100	% 	 	 Total

 Loss of Hire 
  

					
	 	10	% 	 	 Codan Forsikring, Norw. Branch of Codan Fors. AS,DK

	 	10	% 	 	 Försäkringsaktiebolaget Alandia, Mariehamn

	 	25	% 	 	 Gard AS as Agent Only for Gard M.&e:, bergen

	 	10	% 	 	 Lloyds Syndicate NO 1897 Skuld

	 	10	% 	 	 Security Through Mar Risk Services Ltd.

	 	10	% 	 	 Lloyds Syndicate No. 1209 XL

	 	25	% 	 	 Norwegian Hull Club, Bergen (20134375)

	 	10	% 	 	 Tokio Marine & Nichido Fire Ins. Co. Ltd. Tokyo

	  
	  
	 	 	
	 	100	% 	 	 Total

 OR 
  

					
	 	10	% 	 	 Codan Forsikring, Norw. Branch of Codan Fors. AS,DK

	 	15	% 	 	 Försäkringsaktiebolaget Alandia, Mariehamn

	 	22	% 	 	 Gard AS AS Agent Only for Gard M.&e:, bergen

	 	10	% 	 	 Lloyds Syndicate NO 1897 Skuld

	 	10	% 	 	 Security Through Mar Risk Services Ltd.

	 	10	% 	 	 Lloyds Syndicate No. 1209 XL

	 	3	% 	 	 Mitsui Sumitomo Insurance Co. Ltd. Tokyo

	 	15	% 	 	 Norwegian Hull Club, Bergen (20134368)

	 	15	% 	 	 Tokio Marine & Nichido Fire

	  
	  
	 	 	
	 	100	% 	 	 Total

 War Risk 
  

					
	 	100	% 	 	 The Norwegian Shipowners Mutual War Risk Insurance Association

 P&I 
  

					
	 	100	% 	 	 Skuld

 FDD 
  

					
	 	100	% 	 	 Nordisk

  
 21 

 Schedule 2 

ACCOUNTS 
 [Separate
attachment] 

  
 22 

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

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

  
 1 

 Report of Independent Registered Public Accounting Firm 

To the Board of Directors of KNOT Offshore Partners LP 
 We have
audited the combined financial statements of Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS, which comprise the combined balance sheets as of December 31, 2013 and 2012, and the related combined statements of operations,
combined statements of owner’s equity and combined statements of cash flows for the years then ended, and the related notes to the combined financial statements. 

Management’s Responsibility for the Combined Financial Statements 

Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with accounting principles generally
accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement,
whether due to fraud or error. 
 Auditor’s Responsibility 

Our responsibility is to express an opinion on the combined financial statements based on our audits. We conducted our audits in accordance with auditing
standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures
selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal
control relevant to the entity’s preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the combined financial statements. 
 Opinion 

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Knutsen Shuttle Tanker
14 AS and Knutsen Shuttle Tanker 15 AS as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

 /s/ Ernst & Young AS 
 Bergen, Norway 

June 23, 2014 

  
 2 

 Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS 

Combined Statements of Operations 

For the Years Ended December 31, 2013 and 2012 

(U.S. Dollars in thousands) 
  

									
	 	  	Year Ended
December 31,	 
	 	  	2013	 	 	2012	 
	 Time charter revenues
	  	$	12,451	  	 	$	—  	 
	 Total revenues (Notes 2(d), 4, 5, and 13)
	  	 	12,451	  	 	 	—  	 
	 Operating expenses: (Note 13)
	  				 			
	 Vessel operating expenses (Note 2(d))
	  	 	3,759	  	 	 	1	  
	 Depreciation and amortization (Note 9)
	  	 	3,303	  	 	 	—  	 
	 General and administrative expenses
	  	 	100	  	 	 	72	  
		  	  
	  
	 	 	  
	  
	 
	 Total operating expenses
	  	 	7,162	  	 	 	73	  
		  	  
	  
	 	 	  
	  
	 
	 Operating income
	  	 	5,289	  	 	 	(73	)
		  	  
	  
	 	 	  
	  
	 
	 Finance income (expense): (Notes 2(e) and 13)
	  				 			
	 Interest income
	  	 	1	  	 	 	1	  
	 Interest expense (Notes 6(a), 9(a) and 13)
	  	 	(2,293	)	 	 	(2	)
	 Other finance expense (Note 6(b))
	  	 	(749	)	 	 	(18	)
	 Net gain (loss) on foreign currency transactions
	  	 	748	  	 	 	(293	)
		  	  
	  
	 	 	  
	  
	 
	 Total finance expense
	  	 	(2,293	)	 	 	(312	)
		  	  
	  
	 	 	  
	  
	 
	 Income (loss) before income taxes
	  	 	2,996	  	 	 	(385	)
	 Income tax benefit (expense) (Note 12)
	  	 	—  	 	 	 	—  	 
		  	  
	  
	 	 	  
	  
	 
	 Net income (loss)
	  	$	2,996	  	 	$	(385	)
		  	  
	  
	 	 	  
	  
	 

 A Statement of Other Comprehensive Income (Loss) has not been presented as there are no items recognized in other
comprehensive income (loss). 
 The accompanying notes are an integral part of these financial statements 

  
 3 

 Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS 

Combined Balance Sheets 
 As of
December 31, 2013 and 2012 
 (U.S. Dollars in thousands) 

 

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

 The accompanying notes are an integral part of these financial statements. 

  
 4 

 Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS 

Combined Statements of Owner’s Equity 

For the Years Ended December 31, 2013 and 2012 

(U.S. Dollars in thousands) 
  

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

  

	(1)	All shares have the same rights in the Companies. 

 The accompanying notes are an integral
part of these financial statements. 

  
 5 

 Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS 

Combined Statements of Cash Flows 

For the Years Ended December 31, 2013 and 2012 

(U.S. Dollars in thousands) 
  

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

 The accompanying notes are an integral part of these financial statements. 

  
 6 

 1) Description of Business 

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS (hereafter referred as the “Companies”) own the 123,000 DWT Suez-max
shuttle tanker, Hilda Knutsen, and the 123,000 DWT Suez-max shuttle tanker, Torill Knutsen, respectively, delivered from Hyundai Heavy Industries (HHI) Shipyard in South Korea on August 5, 2013 and November 4, 2013. 

Knutsen Shuttle Tankers 14 AS was established on March 25, 2011 to take ownership of one building contract for one 123,000 DWT Suez-max
shuttle tanker, Hilda Knutsen, delivered on August 5, 2013. Knutsen Shuttle Tankers 15 AS was established on June 1, 2011 to take ownership of one building contract for one 123,000 DWT Suez-max shuttle tanker, Torill Knutsen,
delivered on November 4, 2013. Both the Hilda Knutsen and the Torill Knutsen (the “Vessels”) are on time-charter contracts to Eni Trading and Shipping S.p.A. (“Eni”), for operation primarily on the Goliat
offshore oil field outside northern Norway on a five-year time-charter agreement with five one-year-options. In the case of the charter for the Torill Knutsen, Eni has the option, at any time before May 31, 2016, to extend the charter term to
ten years in exchange for a reduction in the hire rate. 
 The Companies are owned by Knutsen NYK Offshore Tankers AS (“KNOT”),
and are operating as an integrated part of KNOT. KNOT is owned 50% by TS Shipping Invest AS (“TSSI”) and 50% by Nippon Yusen Kaisha (“NYK”). Technical and commercial management of the vessels have been subcontracted to Knutsen
OAS Shipping AS (“KOAS”) up to July 1, 2012 and thereafter by KNOT Management AS, a 100% owned subsidiary of KNOT. KOAS is controlled 99% by TSSI. 

There are no employees in the Companies and daily operation is managed by KNOT Management AS. 

2) Summary of Significant Accounting Policies 
 (a)
Basis of Preparation 
 The combined financial statements are prepared in accordance with accounting principles generally accepted in
the United States (“U.S. GAAP”). 
 (b) Reporting Currency 

The combined financial statements are prepared in the reporting currency of U.S. Dollars. The functional currency of the Companies is the
U.S. Dollar, because both entities operate in the international shipping market all revenues are U.S. Dollars denominated and the majority of the expenditures are made in U.S. Dollars. Transactions involving other currencies during the year are
converted into U.S. Dollars using the exchange rates in effect at the time of the transactions. As of the balance sheet dates, monetary assets and liabilities that are denominated in currencies other than the U.S. Dollar are translated to
reflect the year-end exchange rates. Resulting gains and losses are reflected separately in the accompanying combined statements of operations. 
 (c)
Use of Estimates 
 The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives and impairment of Vessels, drydocking, and income taxes. 

(d) Revenues and Operating Expenses 

The Companies recognize revenues from time charters as operating leases on a straight-line basis over the term of the charter, net of any
commissions. Under time charters, revenue is not recognized during days the Vessel is off-hire. Revenue is recognized from delivery of the Vessel to the charterer, until the end of the contract period. Under time charters, the Companies are
responsible for providing the crewing and other services related to the Vessel’s operations, the cost of which is included in the daily hire rate, except when off-hire. Fees received from customers for customized equipment are deferred and
recognized over the contract period. The Companies recognize revenues from spot contracts as voyage revenues using the percentage of completion method on a discharge-to-discharge basis. 

Voyage expenses are all expenses unique to a particular voyage, including bunker fuel expenses, port fees, cargo loading and unloading
expenses, canal tolls and agency fees. Voyage expenses are paid by the customer under time charters. 
 Vessel operating expenses include
crewing, repairs and maintenance, insurance, stores, lube oils and communication expenses. Vessel operating expenses are paid by the Companies for time charters and during off-hire and are recognized when incurred. 

As further discussed in Note 13—Related Party Transactions, related parties have provided the management services for the Vessels and
employ the crews that work on the Vessels. The Companies have no direct employees and, accordingly, are not liable for any pension or post-retirement benefits. 

(e) Financial Income (Expense) 

Interest expenses incurred on the Companies’ debt incurred during the construction of the Vessels exceeding one year are capitalized
during the construction period. 

  
 7 

 (f) Cash and Cash Equivalents 

The Companies consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

 (g) Trade Accounts Receivable 

Accounts receivable are recorded at the invoiced amount and do not bear interest. Under terms of the current time charters, the customers are
committed to pay for the full month’s charter the first day of each month. See Note 2(o) —Summary of Significant Accounting Policies: Prepaid Charter and Deferred Revenue. The allowance for doubtful accounts is the Companies’ best
estimate of the amount of probable credit losses in existing accounts receivable. The Companies establish provisions for doubtful accounts on a case-by-case basis when it is unlikely that required payments of specific amounts will occur. In
establishing these provisions, the Companies consider the financial condition of the customer as well as specific circumstances related to the receivable. Receivable amounts determined to be unrecoverable are written-off. There were no provisions as
allowance for doubtful accounts or amounts written-off against the allowance for doubtful accounts as of December 31, 2013 and 2012. The Companies do not have any off-balance-sheet credit exposure related to their customers. 

(h) Inventories 
 Inventories,
which are comprised principally of lubricating oils, are stated at the lower of cost or market. For vessels on time charters, there are no bunkers, as the charterer supplies the bunkers, which principally consist of fuel oil. Cost is determined
using the first-in, first-out method for all inventories. 
 (i) Other Current Assets 

Other current assets principally consist of prepaid expenses, the current portion of deferred cost and other receivables. 

(j) Vessels and Equipment 
 Vessels
and equipment are stated at the historical acquisition or construction cost, including capitalized interest, supervision and technical and delivery cost, net of accumulated depreciation and impairment loss, if any. Expenditures for subsequent
conversions and major improvements are capitalized, provided that such costs increase the earnings capacity or improve the efficiency or safety of the vessels. 

Generally, the Companies drydock each vessel every 60 months until the vessel is 15 years old and every 30 months thereafter, as required for
the renewal of certifications issued by classification societies. For vessels operating on time charters, the Companies capitalize the costs directly associated with the classification and regulatory requirements for inspection of the vessels, major
repairs and improvements incurred during drydocking. Drydock cost is amortized on a straight-line basis over the period until the next planned drydocking takes place. The Companies expense costs related to routine repairs and maintenance performed
during drydocking or as otherwise incurred. For vessels that are newly built or acquired, an element of the cost of the vessel is initially allocated to a drydock component and amortized on a straight-line basis over the period until the next
planned drydocking. When significant drydocking expenditures occur prior to the expiration of this period, the Companies expense the remaining unamortized balance of the original drydocking cost in the month of the subsequent drydocking. For vessels
operating on bareboat charters, the charter party bears the cost of any drydocking. 
 Depreciation on vessels and equipment is calculated
on a straight-line basis over the asset’s estimated useful life, less an estimated residual value, as follows: 
  

					
	 	  	Useful Life	 
	 Hull
	  	 	25 years	  
	 Anchor-handling, loading and unloading equipment
	  	 	25 years	  
	 Main/auxiliary engine
	  	 	25 years	  
	 Thruster, dynamic positioning systems, cranes and other equipment
	  	 	25 years	  
	 Drydock costs
	  	 	2.5–5 years	  

 A Vessel is depreciated to its estimated residual value, which is calculated based on the weight of the ship
and estimated steel price. Any cost related to the disposal is deducted from the residual value. 
 (k) Capitalized Interest 

Interest expense incurred on the Companies’ debt during the construction of the Vessels exceeding one year is capitalized during the
construction period. 
 (l) Impairment of Long-Lived Assets 

Vessels and equipment, vessels under construction and intangible assets subject to amortization are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Companies first compare undiscounted cash flows
expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying
value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. 

  
 8 

 (m) Debt Issuance Costs 

Debt issuance costs, including fees, commissions and legal expenses, are deferred. Debt issuance costs of term loans are amortized over the
term of the relevant loan. Amortization of debt issuance costs is included in interest expense. 
 (n) Income Taxes 

The tax expense in the income statement includes both tax payable and changes in deferred tax. Deferred tax is calculated at 28% on the basis
of temporary differences between accounting and tax values and tax loss carried forward at the year end. Tax increasing and tax reducing temporary differences which reverse or may be reversed in the same period are assessed and netted. The Companies
are subject to the Norwegian Tonnage Tax regime (“the tonnage tax regime”). Under the tonnage tax regime, the tax is based on the tonnage of the vessel and the operating income is tax free. The net financial income and expense remains
taxable as ordinary income tax for entities subject to the tonnage tax regime. Tonnage tax is classified as an operating expense. To be within the scheme the Companies should meet certain requirements, such as only ownership of ship/ shares in the
shipping companies, and only own certain types of financial assets. 
 (o) Prepaid Charter and Deferred Revenue 

Under terms of the time charters, the customer pays for the month’s charter the first day of each month and that is recorded as prepaid
charter revenues. Deferred revenues for fees received from customers for customized equipment are classified as prepaid charter and deferred revenue for the current portion and as other long-term liabilities for the non-current portion. 

(p) Commitments, Contingencies and Insurance Proceeds 

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is
probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. See Note 14—Commitments and Contingencies. 

Insurance claims for property damage for recoveries up to the amount of loss recognized are recorded when the claims submitted to insurance
carriers are probable of recovery. Claims for property damage in excess of the loss recognized and for loss off-hire are considered gain contingencies, which are generally recognized when the proceeds are received. 

(q) Fair Value Measurements 
 The
Companies utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Companies determines fair value based on assumptions that market participants would use in
pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs,
which are categorized in one of the following levels: 
  

	 	•	 	Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. 

 

	 	•	 	Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or
liability. 

  

	 	•	 	Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if
any, market activity for the asset or liability at the measurement date. 

 (r) Recently Issued Accounting Standards 

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, Fair
Value measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). The new standards do not extend the use of fair value but, rather, provide guidance
about how fair value should be applied where it already is required or permitted under International Financial Reporting Standards (“IFRS”) or U.S. GAAP. For U.S. GAAP, most of the changes are clarifications of existing guidance or wording
changes to align with IFRS. A public entity is required to apply ASC 2011-04 prospectively for interim and annual periods beginning after December 5, 2011. The adoption of ASU 2011-04 did not have a material impact on the Companies’
combined financial statements. 
 In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about
Offsetting Assets and Liabilities (“ASU 2011-11”). ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements
on its financial position, and to allow investors to better compare financial statements prepared under U.S. GAAP with financial statements prepared under IFRS. The new standards are effective for annual periods beginning January 1, 2013, and
interim periods within those annual periods. Retrospective application is required. The Companies adopted the provisions of ASU 2011-11 as of January 1, 2013. The adoption of ASU 2011-11 did not have a material impact on the Companies’
combined financial statements. 

  
 9 

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

																	
	 	  	Year Ended December 31,	 
	 (U.S. Dollars in thousands)
	  	2013	 	 	2012	 
	 Eni Trading and Shipping S.p.A
	  	$	12,451	  	  	 	100	%	 	$	—  	 	  	 	0	%

 The Companies have financial assets that expose them to credit risk arising from possible default by a
counterparty. The Companies consider their counterparties to be creditworthy financial institutions and do not expect any significant loss to result from non-performance by such counterparties. The maximum loss due to credit risk that the Companies
would incur if counterparties failed completely to perform would be the carrying value of cash and cash equivalents and trade accounts receivable. The Companies, in the normal course of business, do not demand collateral from their counterparties.

 4) Operating Leases 
 The time
charters of the vessels with third parties are accounted for as operating leases. The minimum contractual future revenues to be received from time charters as of December 31, 2013, were as follows: 

 

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

  

	 	•	 	Knutsen Shuttle Tanker 14 AS owns the vessel, Hilda Knutsen, a shuttle tanker built in 2013 that is currently operating under a time charter that expires in August 2018, with Eni, with five one-year-options to
extend until August 2023. 

  

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

5) Segment Information 
 The Companies
have not presented segment information as they consider their operations to occur in one reportable segment, the shuttle tanker market. In time charters, the charterer, not the Companies, controls the choice of which trading areas the vessel will
serve. Accordingly, the Companies’ management, including the chief operating decision makers, does not evaluate performance according to geographical region. 

During 2013, the vessels operated under two charters. See Note 3—Significant Risks and Uncertainties Including Business and Credit
Concentrations for revenues from customers accounting for over 10% of the combined revenue. In both time charters, the charterer controls the choice of which trading areas the Vessels will serve. Accordingly, the Companies’ management,
including the chief decision makers, do not evaluate performance according to geographical region. 

  
 10 

 6) Finance Income (Expense) 

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

									
	(U.S. Dollars in thousands)	  	2013	 	  	2012	 
	 Interest cost capitalized
	  	$	2,762	  	  	$	2,557	  
	 Interest expense
	  	 	2,293	  	  	 	2	  
		  	  
	  
	 	  	  
	  
	 
	 Total interest cost
	  	$	5,055	  	  	$	2,559	  
		  	  
	  
	 	  	  
	  
	 

 (b) Other Finance Expense 

The following table presents the other finance expense for the years ended December 31, 2013 and 2012: 

 

									
	(U.S. Dollars in thousands)	  	2013	 	  	2012	 
	 Bank fees, charges and external guarantee costs
	  	$	76	  	  	$	18	  
	 Related party guarantee commission
	  	 	673	  	  	 	—  	 
		  	  
	  
	 	  	  
	  
	 
	 Total other finance expense
	  	$	749	  	  	$	18	  
		  	  
	  
	 	  	  
	  
	 

 7) Fair Value Measurements 

(a) Fair Value of Financial Instruments 

The following table presents the carrying amounts and estimated fair values of the Companies’ financial instruments as of
December 31, 2013 and 2012. Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 

 

																	
	 	  	December 31, 2013	 	  	December 31, 2012	 
	(U.S. Dollars in thousands)	  	Carrying
Amount	 	  	Fair Value	 	  	Carrying
Amount	 	  	Fair
Value	 
	 Financial assets:
	  				  				  				  			
	 Cash and cash equivalents
	  	$	11,841	  	  	$	11,841	  	  	$	228	  	  	$	228	  
	 Financial liabilities:
	  				  				  				  			
	 Long-term debt, current and non-current
	  	 	231,563	  	  	 	232,894	  	  	 	75,707	  	  	 	74,162	  

 The carrying amounts shown in the table above are included in the Companies’ balance sheets under the
indicated captions. The carrying value of trade accounts receivable, trade accounts payable and receivables/payables to owners and affiliates approximate their fair value. 

The fair values of the financial instruments shown in the above table as of December 31, 2013 and 2012 represent the amounts that would
be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations
where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Companies’ own judgment about the assumptions that market participants would use in pricing the asset or
liability. Those judgments are developed by the Companies based on the best information available in the circumstances, including expected cash flows, appropriately risk-adjusted discount rates and available observable and unobservable inputs. 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments: 

 

	 	•	 	Cash and cash equivalents: The fair value of the Companies’ cash balances approximates the carrying amounts due to the current nature of the amounts. 

 

	 	•	 	Long-term debt: With respect to long-term debt measurements, the Companies use market interest rates and adjust that rate for all necessary risks, including its own credit risk. In determining an appropriate
spread to reflect its credit standing, the Companies considered interest rates currently offered to KNOT for similar debt instruments of comparable maturities by KNOT’s and the Companies’ bankers as well as other banks that regularly
compete to provide financing to the Companies. 

  
 11 

 (b) Fair Value Hierarchy 

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

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

  

																	
	 	  	 	 	  	Fair Value Measurements at
Reporting Date Using	 
	(U.S. Dollars in thousands)	  	December 31,
2012	 	  	Quoted Price
in Active
Markets for
Identical
Assets
(Level 1)	 	  	Significant
Other
Observable
Inputs
(Level 2)	 	  	Significant
Unobservable
Inputs
(Level 3)	 
	 Financial assets:
	  				  				  				  			
	 Cash and cash equivalents
	  	$	228	  	  	$	228	  	  	$	—  	 	  	$	—  	  
	 Financial liabilities:
	  				  				  				  			
	 Long-term debt, current and non-current
	  	 	74,162	  	  	 	—  	 	  	 	74,162	  	  	 	—  	 

 The Companies’ accounting policy is to recognize transfers between levels of the fair value hierarchy on
the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of Level 1, Level 2 or Level 3 as of December 31, 2013 and 2012. 

8) Trade Accounts Receivables 
 (a) Trade Accounts
Receivables 
 Trade accounts receivable are presented net of provisions for doubtful accounts. As of December 31, 2013 and
2012, there was no provision for doubtful accounts. 
 (b) Other Current Assets 

Other current assets consist of the following: 
  

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

  
 12 

 9) Vessels and Equipment 
  

																	
	(U.S. Dollars in thousands)	  	Vessel &
equipment	 	  	Vessel under
construction	 	 	Accumulated
depreciation	 	 	Net vessels	 
	 Balance December 31, 2011
	  	$	—  	 	  	$	79,533	 	 	$	—  	 	 	$	79,533	 
		  	  
	  
	 	  	  
	  
	 	 	  
	  
	 	 	  
	  
	 
	 Additions
	  	 	—  	 	  	 	47,130	  	 	 	—  	 	 	 	47,130	  
	 Drydock costs
	  	 	—  	 	  	 	—  	 	 	 	—  	 	 	 	—  	 
	 Transfer from vessels under construction
	  	 	—  	 	  	 	—  	 	 	 	—  	 	 	 	—  	 
	 Disposal
	  	 	—  	 	  	 	—  	 	 	 	—  	 	 	 	—  	 
	 Depreciation
	  	 	—  	 	  	 	—  	 	 	 	—  	 	 	 	—  	 
		  	  
	  
	 	  	  
	  
	 	 	  
	  
	 	 	  
	  
	 
	 Balance December 31, 2012
	  	$	—  	 	  	$	126,663	 	 	$	—  	 	 	$	126,663	 
		  	  
	  
	 	  	  
	  
	 	 	  
	  
	 	 	  
	  
	 
	 Additions
	  	 	—  	 	  	 	155,823	  	 	 	—  	 	 	 	155,823	  
	 Drydock costs
	  	 	5,000	  	  	 	—  	 	 	 	—  	 	 	 	5,000	  
	 Transfer from vessels under construction
	  	 	282,486	  	  	 	(282,486	)	 	 	—  	 	 	 	—  	 
	 Disposal
	  	 	—  	 	  	 	—  	 	 	 	—  	 	 	 	—  	 
	 Depreciation
	  	 	—  	 	  	 	—  	 	 	 	(3,303	)	 	 	(3,303	)
		  	  
	  
	 	  	  
	  
	 	 	  
	  
	 	 	  
	  
	 
	 Balance December 31, 2013
	  	$	287,486	  	  	 	—  	 	 	$	(3,303	)	 	$	284,183	  
		  	  
	  
	 	  	  
	  
	 	 	  
	  
	 	 	  
	  
	 

 As of December 31, 2013 and 2012, Vessels with a book value of $ 287.5 million and $
126.7 million, respectively, are pledged as security held as a guarantee for the Companies’ long-term debt. See Note 11—Long-Term Debt. 

Drydocking activity for the years ended December 31, 2013 and 2012 is summarized as follows: 

 

									
	 	  	Year Ended
December 31,	 
	(U.S. Dollars in thousands)	  	2013	 	 	2012	 
	 Balance at the beginning of the year
	  	$	—  	 	 	$	—  	 
	 Costs incurred for drydocking
	  	 	5,000	  	 	 	—  	 
	 Drydock amortization
	  	 	(291	)	 	 	—  	 
		  	  
	  
	 	 	  
	  
	 
	 Balance at the end of the year
	  	$	4,709	  	 	$	—  	 
		  	  
	  
	 	 	  
	  
	 

 10) Accrued Expenses 

The following table presents accrued expenses as of December 31, 2013 and 2012: 

 

									
	 	  	Year Ended December 31,	 
	(U.S. Dollars in thousands)	  	2013	 	  	2012	 
	 Operating expenses
	  	$	670	  	  	$	163	  
	 Interest expenses
	  	 	1,160	  	  	 	421	  
		  	  
	  
	 	  	  
	  
	 
	 Total accrued expenses
	  	$	1,830	  	  	$	584	  
		  	  
	  
	 	  	  
	  
	 

 11) Long-Term Debt 

Long-term debt as of December 31, 2013 and 2012 consisted of following: 

 

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

  
 13 

 Hilda Facility 

The $117 million secured loan facility (the “Hilda Facility”) is repayable in quarterly installments over five years with a final
balloon payment due at maturity in August 2018. The Hilda Facility bears interest at LIBOR plus a fixed margin of 2.5%. 
 The Hilda
Knutsen , assignments of earnings, charterparty contracts and insurance proceeds are pledged as collateral for the Hilda Facility. KNOT is the sole guarantor. 

The Hilda Facility contains the following financial covenants: 
  

	 	•	 	Market value of the Hilda Knutsen to be no less than 100% of the outstanding balance under the Hilda Facility for the first 4 years and 125% for the 5th year;

  

	 	•	 	Positive working capital of the borrower and of KNOT and its subsidiaries on a consolidated basis (“KNOT Group”); 

  

	 	•	 	Minimum liquidity of (i) $2 million for the borrower; (ii) $25 million for the guarantor, and (iii) 4% of interest bearing debt for the KNOT Group; 

 

	 	•	 	Minimum book equity ratio for the KNOT Group of 22.5 % until December 31, 2014, and thereafter 25%; and 

  

	 	•	 	EBITDA must exceed interest payable, any amounts payable for the interest rate swaps and debt installments for the KNOT Group calculated on a four quarter rolling basis. 

The Hilda Facility also identifies various events that may trigger mandatory reduction, prepayment and cancellation of the facility, including
total loss or sale of a vessel and customary events of default. 
 The borrower and the guarantor were in compliance with all covenants as
of December 31, 2013. However, as of December 31, 2012, a waiver was obtained for the Hilda Facility for KNOT Group’s compliance with the EBITDA covenant for all interim and annual periods from December 31, 2011 to
January 31, 2014. In addition, the minimum book equity ratio for the KNOT Group was reduced from 22.5% to 19% for all interim and annual periods starting December 31, 2012 to January 31, 2014. Except for the EBITDA covenant covered by
the waiver, the borrower, the guarantor and KNOT Group were in compliance with all covenants, as amended, as of December 31, 2012. 
 Torill
Facility 
 The $117 million secured loan facility (the “Torill Facility”) is repayable in quarterly installments over five
years with a final balloon payment due at maturity in November 2018. The Torill Facility bears interest at LIBOR plus a fixed margin of 2.75%. 

The Torill Knutsen, assignments of earnings, charterparty contracts and insurance proceeds are pledged as collateral for the Hilda
Facility. Knutsen NYK Offshore Tankers AS is the sole guarantor. 
 The Torill Facility contains the following financial covenants: 

 

	 	•	 	Market value of the Torill Knutsen to be no less than 100% of the outstanding balance under the Torill Facility for the first 4 years and 125% for the 5th
year; 

  

	 	•	 	Positive working capital of the borrower and KNOT Group; 

  

	 	•	 	Minimum liquidity of (i) $2 million for the borrower; (ii) $25 million for the guarantor, and (iii) 4% of interest bearing debt for the KNOT Group; 

 

	 	•	 	Minimum book equity ratio for the KNOT Group of 22.5 % until December 31, 2014, and thereafter 25%; and 

  

	 	•	 	EBITDA must exceed interest payable, any amounts payable for the interest rate swaps and debt installments for the KNOT Group calculated on a four quarter rolling basis. 

The Torill Facility also identifies various events that may trigger mandatory reduction, prepayment and cancellation of the facility,
including total loss or sale of a vessel and customary events of default. 
 The borrower and the guarantor were in compliance with all
covenants as of December 31, 2013. However, as of December 31, 2012, a waiver was obtained for the Torill Facility for KNOT Group’s compliance with the EBITDA covenant for all interim and annual periods from December 31, 2011 to
January 31, 2014. In addition, the minimum book equity ratio for the KNOT Group was reduced from 22.5% to 19% for all interim and annual periods starting December 31, 2012 to January 31, 2014. Except for the EBITDA covenant covered by
the waiver, the borrower, the guarantor and KNOT Group were in compliance with all covenants, as amended, as of December 31, 2012. 

  
 14 

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

 

					
	(US $ in thousands)	  	 	 
	 2014
	  	$	19,500	  
	 2015
	  	 	19,500	  
	 2016
	  	 	19,500	  
	 2017
	  	 	19,500	  
	 2018 and thereafter
	  	 	153,563	  
	 Total
	  	$	231,563	  

 12) Income Taxes 

Components of Current and Deferred Tax Expense (Benefit) 

The Companies are subject to the Norwegian Tonnage Tax regime (“the tonnage tax regime”). Under the tonnage tax regime, the tax is
based on the tonnage of the vessel and the operating income is tax free. The net financial income and expense remains taxable as ordinary income tax for entities subject to the tonnage tax regime. Tonnage tax is classified as an operating expense.
Tonnage tax amounted to $13,000 in 2013 and $0.0 in 2012. 
  

									
	 	  	Year Ended
December 31,	 
	(US $ in thousands)	  	2013	 	 	2012	 
	 Income (loss) before income taxes
	  	$	2,996	  	 	$	(385	)
	 Income tax expense (benefit)
	  	 	—  	 	 	 	—  	 
	 Effective tax rate
	  	 	0	% 	 	 	0	% 

 A valuation allowance for deferred tax assets is recorded when it is more likely than not that some of or all
of the benefit from the deferred tax asset will not be realized. The valuation allowances relate to the financial loss carry forwards and other deferred tax assets for tonnage tax that, in the judgment of the Companies, are more-likely-than not to
be realized reflecting the Companies’ cumulative loss position for tonnage tax. In assessing the realizability of deferred tax assets, the Companies consider whether it is more-likely-than-not that some portion or all of the deferred tax assets
will not be realized taking into account all the positive and negative evidence available, and there is no deferred tax assets recognized as of December 31, 2013 and December 31, 2012. 

The financial loss carry forwards for tonnage tax have no expiration dates. 

The Companies’ Norwegian income tax returns are subject to examination by Norwegian tax authorities going back ten years from 2013. The
Companies had no unrecognized tax benefits as of December 31, 2013 and 2012. During the years ended December 31, 2013 and 2012, the Companies did not incur any interest or penalties on its tax regime. 

13) Related Party Transactions 
 (a) Related Parties

 The Companies are owned 100% by KNOT. KNOT is owned 50% by TSSI and 50% by NYK. TSSI also controls 99% of KOAS, which subcontracts
services to Knutsen OAS Management AS, which served as the vessel management companies for KNOT and its subsidiaries until June 30, 2012. As of July 1, 2012, KNOT Management AS, a 100% owned subsidiary of KNOT, assumed responsibility for
the commercial and technical management of the Vessels. 
 The Companies have been charged by KNOT, KOAS and TSSI for commercial services
related to the charters, technical and operational support related to the operation of the Vessels, certain administrative costs and finance fees, as well as fees for shipyard supervision for the Vessels under construction. The amounts of such
costs and expenses included in the combined statements of operations for the years ended December 31, 2013, and 2012 are as follows: 

  
 15 

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

  

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

  

	(1)	Commercial commission fee from KNOT to Vessels: KNOT provides commercial services related to negotiating and maintaining the charters. KNOT invoices a fixed percentage of revenue as a commercial commission fee
for these services. 

	(2)	Technical and operational management fee from KOAS and KNOT to Vessels: KOAS and KNOT provides technical and operational management of the vessels on time charter including crewing, purchasing, maintenance and
other operational, bookkeeping and administrative support. 

	(3)	Administration fee from KNOT: Administration costs include the compensation and benefits of KNOT management and administrative staff as well as other general and administration expenses. Net administration costs
are total administration cost plus a 5% margin, reduced for the total fees for services delivered by the administration staffs (the accounting service fees (see (4) below), the financing service fees (see (6) below) and the estimated
shareholder costs for KNOT that have not been allocated. As such, the level of net administration costs as a basis for the allocation can vary from year to year based on the administration and financing services offered by KNOT to all the vessels in
its fleet each year. 

	(4)	Accounting service fee from KNOT: KNOT invoiced each subsidiary a fixed fee for the preparation of the statutory financial statements. 

	(5)	Interest expense charged from, interest income charged to KNOT: KNOT invoiced interest expense (income) for any outstanding payables to (receivable from) owners and affiliates to the vessel-owning subsidiaries.
Interest expense has been allocated based upon the allocated payables to owners and affiliates and the historical interest rates charged. 

	(6)	Guarantee commission from KNOT to Vessels: KNOT was a guarantor for the Companies’ loan facilities (see Note 11—Long-term Debt and Note 13(b)—Related Party Transactions: Guarantees). KNOT invoiced
an annual commission to each of the Vessels as a fixed percentage of the outstanding balance as compensation for the guarantee. 

	(7)	New building supervision fee from KOAS to Vessels: KOAS charges a fixed fee for supervision of each vessel under construction that is invoiced on a straight-line basis over the period of construction. Such fees,
along with direct and incremental supervision costs incurred, are capitalized as part of the Vessels under construction. 

	(8)	Knutsen Ballast Water Treatment installation from TSSI to Vessel: TSSI has developed Knutsen ballast water treatment technology and the system was installed during the construction and all cost is capitalized as
part of the Vessels under construction. 

	(9)	Interest capitalized charged from KNOT to Vessels: KNOT invoiced interest expense for outstanding payables to owners and affiliates to the vessel owning subsidiaries as explained in (5) above. Such interest
expense is capitalized for qualifying Vessels under construction. 

 (b) Guarantees 

As of December 31, 2013 and 2012, KNOT is guarantor for the Hilda Facility and Torill Facility. 

  
 16 

 (c) Transaction with Management 

The Companies had no personnel during 2013 and 2012. There has been no direct remuneration to any members of the Board of Directors of KNOT.
Trygve Seglem, the President and CEO of KNOT has received $474,000 and $427,000, respectively in salary from KNOT Management AS during 2013 and 2012. He also controls Seglem Holding AS, which has a 100% equity interest of TSSI, which controls KOAS.
TSSI owns 50% in KNOT. Trygve Seglem owns 70% of the equity interests in Seglem Holding AS, and each of his daughters, Synnøve Seglem and Jorunn Seglem, each own 15% of the equity interests. 

In 2013 and 2012, all remuneration and cost related to the members of the Board of Directors of KNOT was paid directly by the respective
owners of KNOT. 
 NYK, which own 50% of KNOT, has management and administrative personnel on secondment to KNOT starting in March 2011. The
cost for such services was $1.3 million in 2013 and $639,000 in 2012. NYK has no other related party transactions with KNOT apart from interest income on financing offered to KNOT. 

See this Note 13 – Related Party Transactions Items 3 and 4 for discussion of the allocation principles for KNOT’s administrative
costs, including management and administrative staff, included in the combined statements of operations for the two entities. 
 (d) Amounts Due from
(to) Related Parties 
 Balances with related parties consisted of the following: 

 

									
	(U.S. Dollars in thousands)	  	At December 31,
2013	 	  	At December 31,
2012	 
	 Balance Sheets:
	  				  			
	 Trading balances due from KNOT and affiliates
	  	$	775	  	  	$	—  	 
		  	  
	  
	 	  	  
	  
	 
	 Amount due from related parties
	  	$	775	  	  	$	—  	 
		  	  
	  
	 	  	  
	  
	 
	 Trading balances due to KOAS
	  	$	143	  	  	$	—  	 
	 Trading balances due to KNOT and affiliates
	  	 	6,922	  	  	 	9,667	  
		  	  
	  
	 	  	  
	  
	 
	 Amount due to related parties
	  	$	7,065	  	  	$	9,667	  
		  	  
	  
	 	  	  
	  
	 

 Amounts due from (to) related parties are unsecured and intended to be settled in the ordinary course of
business. They primarily relate to vessel management and other fees due to KNOT and KOAS. 
 14) Commitments and Contingencies 

Assets Pledged 
 As of
December 31, 2013 and 2012, Vessels with a book value of $ 287.5 million and $ 126.7 million, respectively, were pledged as security held as guarantee for the Companies’ long-term debt obligations. See Note 11—Long-Term
Debt. 
 Insurance 
 The
Companies maintain insurance to insure against marine and war risks, which include damage to or total loss of the Vessels, subject to deductible amounts that average $0.150 million per Vessel, and loss of hire. 

Under the loss of hire policies, the insurer will pay a compensation for the lost hire rate agreed in respect of each Vessel for each day, in
excess of 14 deductible days, for the time that the Vessel is out of service as a result of damage, for a maximum of 180 days. In addition, the Companies maintain protection and indemnity insurance, which covers third-party legal liabilities arising
in connection with the Vessels’ activities, including, among other things, the injury or death of third-party persons, loss or damage to cargo, claims arising from collisions with other vessels and other damage to other third-party property,
including pollution arising from oil or other substances. This insurance is unlimited, except for pollution, which is limited to $1 billion per vessel per incident. The protection and indemnity insurance is maintained through a protection and
indemnity association, and as a member of the association, the Companies may be required to pay amounts above budgeted premiums if the member claims exceed association reserves, subject to certain reinsured amounts. If the Companies experience
multiple claims each with individual deductibles, losses due to risks that are not insured or claims for insured risks that are not paid, it could have a material adverse effect on the Companies’ results of operations and financial condition.

  
 17 

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

Index to Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS Unaudited Combined Financial Statements as of 

March 31, 2014 and for the Three Months Ended March 31, 2014 and 2013 

 

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

  
 18 

 Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS 

Unaudited Combined Statement of Operations 

For the Three Months Ended March 31, 2014 and 2013 

(U.S. Dollars in thousands) 
  

									
	 	  	Three Months Ended
March 31,	 
	 	  	2014	 	 	2013	 
	 Time charter revenues
	  	$	11,372	  	 	$	—  	 
	 Total revenues (Notes 2(d), 4, 5, and 14)
	  	 	11,372	  	 	 	—  	 
	 Operating expenses: (Note 14)
	  				 			
	 Vessel operating expenses (Note 2(d))
	  	 	2,675	  	 	 	—  	 
	 Depreciation and amortization (Note 10)
	  	 	2,835	  	 	 	—  	 
	 General and administrative expenses
	  	 	45	  	 	 	25	  
		  	  
	  
	 	 	  
	  
	 
	 Total operating expenses
	  	 	5,555	  	 	 	25	  
		  	  
	  
	 	 	  
	  
	 
	 Operating income
	  	 	5,817	  	 	 	(25	)
		  	  
	  
	 	 	  
	  
	 
	 Finance income (expense): (Notes 2(e) and 14)
	  				 			
	 Interest income
	  	 	15	  	 	 	—  	 
	 Interest expense (Notes 6(a) and 14)
	  	 	(1,979	) 	 	 	—  	 
	 Other finance expense (Note 6(b))
	  	 	(281	) 	 	 	(148	)
	 Realized and unrealized gain (loss) on derivative instruments (Note 7)
	  	 	632	  	 	 	—  	 
	 Net gain (loss) on foreign currency transactions
	  	 	(31	) 	 	 	486	  
		  	  
	  
	 	 	  
	  
	 
	 Total finance expense
	  	 	(1,644	) 	 	 	338	  
		  	  
	  
	 	 	  
	  
	 
	 Income (loss) before income taxes
	  	 	4,173	  	 	 	313	  
	 Income tax benefit (expense) (Note 13)
	  	 	—  	 	 	 	—  	 
		  	  
	  
	 	 	  
	  
	 
	 Net income (loss)
	  	$	4,173	  	 	$	313	  
		  	  
	  
	 	 	  
	  
	 

 A Statement of Other Comprehensive Income has not been presented as there are no items recognized in other comprehensive
income. 
 The accompanying notes are an integral part of these financial statements. 

  
 19 

 Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS 

Unaudited Combined Balance Sheets 

As of March 31, 2014 and December 31, 2013 

(U.S. Dollars in thousands) 
  

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

 The accompanying notes are an integral part of these financial statements. 

  
 20 

 Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS 

Unaudited Combined Statement of Owner’s Equity 

For the Three Months Ended March 31, 2014 and 2013 

(U.S. Dollars in thousands) 
  

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

  

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

  

	(1)	All shares have the same rights in the Companies. 

 The accompanying notes are an integral
part of these financial statements. 

  
 21 

 Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS 

Unaudited Combined Statement of Cash Flows 

For the Three Months Ended 31, 2014 and 2013 

(U.S. Dollars in thousands) 
  

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

 The accompanying notes are an integral part of these financial statements. 

  
 22 

 1) Description of Business 

Knutsen Shuttle Tankers 14 AS and Knutsen Shuttle Tankers 15 AS (hereafter referred as the “Companies”) own the 123,000 DWT Suez-max
shuttle tanker, Hilda Knutsen, and the 123,000 DWT Suez-max shuttle tanker, Torill Knutsen, respectively, delivered from Hyundai Heavy Industries (HHI) Shipyard in South Korea on August 5, 2013 and November 4, 2013. 

Knutsen Shuttle Tankers 14 AS was established on March 25, 2011 to take ownership of one building contract for one 123,000 DWT Suez-max
shuttle tanker, Hilda Knutsen, delivered on August 5, 2013. Knutsen Shuttle Tankers 15 AS was established on June 1, 2011 to take ownership of one building contract for one 123,000 DWT Suez-max shuttle tanker, Torill Knutsen,
delivered on November 4, 2013. Both the Hilda Knutsen and the Torill Knutsen (the “Vessels”) are on time-charter contracts to Eni Trading and Shipping S.p.A. (“Eni”), for operation primarily on the Goliat
offshore oil field outside northern Norway on a five-year time-charter agreement with five one-year-options. In the case of the charter for the Torill Knutsen, Eni has the option, at any time before May 31, 2016, to extend the charter term to
ten years in exchange for a reduction in the hire rate. 
 The Companies are owned by Knutsen NYK Offshore Tankers AS (“KNOT”),
and are operating as an integrated part of KNOT. KNOT is owned 50% by TS Shipping Invest AS (“TSSI”) and 50% by Nippon Yusen Kaisha (“NYK”). Technical and commercial management of the vessels have been subcontracted to Knutsen
OAS Shipping AS (“KOAS”) up to July 1, 2012 and thereafter by KNOT Management AS, a 100% owned subsidiary of KNOT. KOAS is controlled 99% by TSSI. 

There are no employees in the Companies and daily operation is managed by KNOT Management AS. 

2) Summary of Significant Accounting Policies 
 (a)
Basis of Preparation 
 The combined financial statements are prepared in accordance with accounting principles generally accepted in
the United States (“U.S. GAAP”). 
 (b) Reporting Currency 

The combined financial statements are prepared in the reporting currency of U.S. Dollars. The functional currency of the Companies is the
U.S. Dollar, because both entities operate in the international shipping market all revenues are U.S. Dollars denominated and the majority of the expenditures are made in U.S. Dollars. Transactions involving other currencies during the year are
converted into U.S. Dollars using the exchange rates in effect at the time of the transactions. As of the balance sheet dates, monetary assets and liabilities that are denominated in currencies other than the U.S. Dollar are translated to
reflect the year-end exchange rates. Resulting gains and losses are reflected separately in the accompanying combined statements of operations. 
 (c)
Use of Estimates 
 The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives and impairment of Vessels, drydocking, and income taxes. 

(d) Revenues and Operating Expenses 

The Companies recognize revenues from time charters as operating leases on a straight-line basis over the term of the charter, net of any
commissions. Under time charters, revenue is not recognized during days the Vessel is off-hire. Revenue is recognized from delivery of the Vessel to the charterer, until the end of the contract period. Under time charters, the Companies are
responsible for providing the crewing and other services related to the Vessel’s operations, the cost of which is included in the daily hire rate, except when off-hire. Fees received from customers for customized equipment are deferred and
recognized over the contract period. The Companies recognize revenues from spot contracts as voyage revenues using the percentage of completion method on a discharge-to-discharge basis. 

Voyage expenses are all expenses unique to a particular voyage, including bunker fuel expenses, port fees, cargo loading and unloading
expenses, canal tolls and agency fees. Voyage expenses are paid by the customer under time charters. 
 Vessel operating expenses include
crewing, repairs and maintenance, insurance, stores, lube oils and communication expenses. Vessel operating expenses are paid by the Companies for time charters and during off-hire and are recognized when incurred. As further discussed in Note
14—Related Party Transactions, related parties have provided the management services for the Vessels and employ the crews that work on the Vessels. The Companies have no direct employees and, accordingly, are not liable for any pension or
post-retirement benefits. 
 (e) Financial Income (Expense) 

Interest expenses incurred on the Companies’ debt incurred during the construction of the Vessels exceeding one year are capitalized
during the construction period. 

  
 23 

 (f) Cash and Cash Equivalents 

The Companies consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

 (g) Trade Accounts Receivable 

Accounts receivable are recorded at the invoiced amount and do not bear interest. Under terms of the current time charters, the customers are
committed to pay for the full month’s charter the first day of each month. See Note 2(p) —Summary of Significant Accounting Policies: Prepaid Charter and Deferred Revenue. The allowance for doubtful accounts is the Companies’ best
estimate of the amount of probable credit losses in existing accounts receivable. The Companies establish provisions for doubtful accounts on a case-by-case basis when it is unlikely that required payments of specific amounts will occur. In
establishing these provisions, the Companies consider the financial condition of the customer as well as specific circumstances related to the receivable. Receivable amounts determined to be unrecoverable are written-off. There were no provisions as
allowance for doubtful accounts or amounts written-off against the allowance for doubtful accounts as of March 31, 2014. The Companies do not have any off-balance-sheet credit exposure related to their customers. 

(h) Inventories 
 Inventories,
which are comprised principally of lubricating oils, are stated at the lower of cost or market. For vessels on time charters, there are no bunkers, as the charterer supplies the bunkers, which principally consist of fuel oil. Cost is determined
using the first-in, first-out method for all inventories. 
 (i) Other Current Assets 

Other current assets principally consist of prepaid expenses, the current portion of deferred cost and other receivables. 

(j) Vessels and Equipment 
 Vessels
and equipment are stated at the historical acquisition or construction cost, including capitalized interest, supervision and technical and delivery cost, net of accumulated depreciation and impairment loss, if any. Expenditures for subsequent
conversions and major improvements are capitalized, provided that such costs increase the earnings capacity or improve the efficiency or safety of the vessels. 

Generally, the Companies drydock each vessel every 60 months until the vessel is 15 years old and every 30 months thereafter, as required for
the renewal of certifications issued by classification societies. For vessels operating on time charters, the Companies capitalize the costs directly associated with the classification and regulatory requirements for inspection of the vessels, major
repairs and improvements incurred during drydocking. Drydock cost is amortized on a straight-line basis over the period until the next planned drydocking takes place. The Companies expense costs related to routine repairs and maintenance performed
during drydocking or as otherwise incurred. For vessels that are newly built or acquired, an element of the cost of the vessel is initially allocated to a drydock component and amortized on a straight-line basis over the period until the next
planned drydocking. When significant drydocking expenditures occur prior to the expiration of this period, the Companies expense the remaining unamortized balance of the original drydocking cost in the month of the subsequent drydocking. For vessels
operating on bareboat charters, the charter party bears the cost of any drydocking. 
 Depreciation on vessels and equipment is calculated
on a straight-line basis over the asset’s estimated useful life, less an estimated residual value, as follows: 
  

					
	 	  	Useful Life	 
	 Hull
	  	 	25 years	  
	 Anchor-handling, loading and unloading equipment
	  	 	25 years	  
	 Main/auxiliary engine
	  	 	25 years	  
	 Thruster, dynamic positioning systems, cranes and other equipment
	  	 	25 years	  
	 Drydock costs
	  	 	2.5–5 years	  

 A vessel is depreciated to its estimated residual value, which is calculated based on the weight of the ship
and estimated steel price. Any cost related to the disposal is deducted from the residual value. 
 (k) Capitalized Interest 

Interest expense incurred on the Companies’ debt during the construction of the Vessels exceeding one year is capitalized during the
construction period. 
 (l) Impairment of Long-Lived Assets 

Vessels and equipment, vessels under construction and intangible assets subject to amortization are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Companies first compare undiscounted cash flows
expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying
value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. 

  
 24 

 (m) Debt Issuance Costs 

Debt issuance costs, including fees, commissions and legal expenses, are deferred. Debt issuance costs of term loans are amortized over the
term of the relevant loan. Amortization of debt issuance costs is included in interest expense. 
 (n) Derivative Instruments 

All derivative instruments are initially recorded at fair value as either assets or liabilities in the accompanying combined balance sheets and
subsequently measured to fair value. The Companies do not apply hedge accounting to their derivative instruments. Changes in the fair value of the derivative instruments are recognized in earnings. Gains and losses from the interest rate swap
contracts of the Companies related to long-term mortgage debt are recorded in realized and unrealized gain (loss) on derivative instruments in the combined statements of operations. Cash flows related to interest rate swap contracts are presented as
cash flows provided by operating activities in the combined statements of cash flows. 
 (o) Income Taxes 

The tax expense in the income statement includes both tax payable and changes in deferred tax. Deferred tax is calculated at 28% on the basis
of temporary differences between accounting and tax values and tax loss carried forward at the year end. Tax increasing and tax reducing temporary differences which reverse or may be reversed in the same period are assessed and netted. The Companies
are subject to the Norwegian Tonnage Tax regime (“the tonnage tax regime”). Under the tonnage tax regime, the tax is based on the tonnage of the vessel and the operating income is tax free. The net financial income and expense remains
taxable as ordinary income tax for entities subject to the tonnage tax regime. Tonnage tax is classified as an operating expense. To be within the scheme the Companies should meet certain requirements, such as only ownership of ship/ shares in the
shipping companies, and only own certain types of financial assets. 
 (p) Prepaid Charter and Deferred Revenue 

Under terms of the time charters, the customer pays for the month’s charter the first day of each month and that is recorded as prepaid
charter revenues. Deferred revenues for fees received from customers for customized equipment are classified as prepaid charter and deferred revenue for the current portion and as other long-term liabilities for the non-current portion. 

(q) Commitments, Contingencies and Insurance Proceeds 

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is
probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. See Note 15—Commitments and Contingencies. 

Insurance claims for property damage for recoveries up to the amount of loss recognized are recorded when the claims submitted to insurance
carriers are probable of recovery. Claims for property damage in excess of the loss recognized and for loss off-hire are considered gain contingencies, which are generally recognized when the proceeds are received. 

(r) Fair Value Measurements 
 The
Companies utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Companies determines fair value based on assumptions that market participants would use in
pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs,
which are categorized in one of the following levels: 
  

	 	•	 	Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. 

 

	 	•	 	Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or
liability. 

  

	 	•	 	Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if
any, market activity for the asset or liability at the measurement date. 

 (s) Recently Issued Accounting Standards 

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, Fair
Value measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). The new standards do not extend the use of fair value but, rather, provide guidance
about how fair value should be applied where it already is required or permitted under International Financial Reporting Standards (“IFRS”) or U.S. GAAP. For U.S. GAAP, most of the changes are clarifications of existing guidance or wording
changes to align with IFRS. A public entity is required to apply ASC 2011-04 prospectively for interim and annual periods beginning after December 5, 2011. The adoption of ASU 2011-04 did not have a material impact on the Companies’
combined financial statements. 

  
 25 

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

																	
	 	  	Three Months Ended March 31,	 
	 (U.S. Dollars in thousands)
	  	2014	 	 	2013	 
	 Eni Trading and Shipping S.p.A
	  	$	11,372	  	  	 	100	%	 	$	—  	  	  	 	0	%

 The Companies have financial assets that expose them to credit risk arising from possible default by a
counterparty. The Companies consider their counterparties to be creditworthy financial institutions and do not expect any significant loss to result from non-performance by such counterparties. The maximum loss due to credit risk that the Companies
would incur if counterparties failed completely to perform would be the carrying value of cash and cash equivalents and trade accounts receivable. The Companies, in the normal course of business, do not demand collateral from their counterparties.

 4) Operating Leases 
 The time
charters of the vessels with third parties are accounted for as operating leases. The minimum contractual future revenues to be received from time charters as of March 31, 2014, were as follows: 

 

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

  

	 	•	 	Knutsen Shuttle Tanker 14 AS owns the vessel, Hilda Knutsen, a shuttle tanker built in 2013 that is currently operating under a time charter that expires in August 2018, with Eni, with five one-year-options to
extend until August 2023. 

  

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

  
 26 

 5) Segment Information 

The Companies have not presented segment information as they consider their operations to occur in one reportable segment, the shuttle tanker
market. In time charters, the charterer, not the Companies, controls the choice of which trading areas the vessel will serve. Accordingly, the Companies’ management, including the chief operating decision makers, does not evaluate performance
according to geographical region. 
 For the three month ended period as of March 31, 2014, the vessels operated under two charters.
See Note 3- Significant Risks and Uncertainties Including Business and Credit Concentrations for revenues from customers accounting for over 10% of the combined revenue. In both time charters, the charterer controls the choice of which trading areas
the Vessels will serve. Accordingly, the Companies’ management, including the chief decision makers, do not evaluate performance according to geographical region. 

6) Finance Income (Expense) 
 (a) Interest Expense

 A reconciliation of total interest cost to interest expense as reported in the statement of operations for the three months ended
March 31, 2014 and 2013 is as follows: 
  

									
	 	  	Three Months Ended
March 31,	 
	(U.S. Dollars in thousands)	  	2014	 	  	2013	 
	 Interest cost capitalized
	  	$	—  	 	  	$	871	  
	 Interest expense
	  	 	1,979	  	  	 	—  	 
		  	  
	  
	 	  	  
	  
	 
	 Total interest cost
	  	$	1,979	  	  	$	871	  
		  	  
	  
	 	  	  
	  
	 

 (b) Other Finance Expense 

The following table presents the other finance expense for the three months ended March 31, 2014 and 2013: 

 

									
	 	  	Three Months Ended
March 31,	 
	(U.S. Dollars in thousands)	  	2014	 	 	2013	 
	 Bank fees, charges and external guarantee costs
	  	$	(6	)	 	$	20	  
	 Related party guarantee commission
	  	 	287	  	 	 	129	  
		  	  
	  
	 	 	  
	  
	 
	 Total other finance expense
	  	$	281	  	 	$	148	  
		  	  
	  
	 	 	  
	  
	 

 7) Derivative Instruments 

Interest Rate Risk Management 
 In
February 2014, the Companies entered into interest rate swap agreements effective from July, 2014 and until July 2018, for a total notional amount of $100 million to hedge against the interest rate risks of their variable rate borrowings. Under the
terms of the interest rate swap agreements, the Companies will receive from the counterparty interest on the notional amount based on three-month LIBOR and will pay to the counterparty a fixed rate. For the interest rate swap agreements above, the
Companies will pay to the counterparty a fixed rate of 1.455%. 
 The combined financial statements include the results of interest rate
swap contracts to manage the Companies’ exposure related to changes in interest rates on its variable rate debt instruments. The Companies does not apply hedge accounting for derivative instruments. The Companies do not speculate using
derivative instruments. 
 By using derivative financial instruments to economically hedge exposures to changes in interest rates, the
Companies expose itself to credit risk and market risk. Derivative instruments that economically hedge exposures are used for risk management purposes, but these instruments are not designated as hedges for accounting purposes. Credit risk is the
failure of the counterparty to perform under the terms of the derivative instrument. When the fair value of a derivative instrument is positive, the counterparty owes the Companies, which creates credit risk for the Companies. When the fair value of
a derivative instrument is negative, the Companies owe the counterparty, and, therefore, the Companies are not exposed to the counterparty’s credit risk in those circumstances. The Companies minimizes counterparty credit risk in derivative
instruments by entering into transactions with major banking and financial institutions. The derivative instruments entered into by the Companies do not contain credit risk-related contingent features. 

  
 27 

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

									
	 	  	Three Months Ended
March 31,	 
	(U.S. Dollars in thousands)	  	2014	 	  	2013	 
	 Realized gain (loss)
	  				  			
	 Interest rate swap contracts
	  	$	—  	 	  	$	—  	 
	 Unrealized gain (loss)
	  				  			
	 Interest rate swap contracts
	  	 	632	  	  	 	—  	 
		  	  
	  
	 	  	  
	  
	 
	 Total
	  	$	632	  	  	$	—  	 
		  	  
	  
	 	  	  
	  
	 

 8) Fair Value Measurements 

(a) Fair Value of Financial Instruments 

The following table presents the carrying amounts and estimated fair values of the Companies’ financial instruments as of March 31,
2014 and 2013. Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 

 

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

  
 28 

 The carrying amounts shown in the table above are included in the Companies’ balance sheets
under the indicated captions. The carrying value of trade accounts receivable, trade accounts payable and receivables/payables to owners and affiliates approximate their fair value. 

The fair values of the financial instruments shown in the above table as of March 31, 2014 and December 31, 2013 represent the
amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However,
in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Companies’ own judgment about the assumptions that market participants would use in pricing
the asset or liability. Those judgments are developed by the Companies based on the best information available in the circumstances, including expected cash flows, appropriately risk-adjusted discount rates and available observable and unobservable
inputs. 
 The following methods and assumptions were used to estimate the fair value of each class of financial instruments: 

 

	•	 	Cash and cash equivalents: The fair value of the Companies’ cash balances approximates the carrying amounts due to the current nature of the amounts. 

 

	•	 	Interest rate swap contracts: The fair value of interest-rate swaps is determined using an income approach using the following significant inputs: the term of the swap, the notional amount of the swap, discount
rates interpolated based on relevant LIBOR swap curves and the rate on the fixed leg of the swap. 

  

	•	 	Long-term debt: With respect to long-term debt measurements, the Companies use market interest rates and adjust that rate for all necessary risks, including its own credit risk. In determining an appropriate
spread to reflect its credit standing, the Companies considered interest rates currently offered to KNOT for similar debt instruments of comparable maturities by KNOT’s and the Companies’ bankers as well as other banks that regularly
compete to provide financing to the Companies. 

 (b) Fair Value Hierarchy 

The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring
basis (including items that are required to be measured at fair value or for which fair value is required to be disclosed) as of March 31, 2014 and December 31, 2013: 

 

																	
	 	  	 	 	  	Fair Value Measurements at
Reporting Date Using	 
	(U.S. Dollars in thousands)	  	March 31,
2014	 	  	Quoted Price
in Active
Markets for
Identical
Assets
(Level 1)	 	  	Significant
Other
Observable
Inputs
(Level 2)	 	  	Significant
Unobservable
Inputs
(Level 3)	 
	 Financial assets:
	  				  				  				  			
	 Cash and cash equivalents
	  	$	6,860	  	  	$	6,860	  	  	$	—  	 	  	$	—  	 
	 Non-current derivative assets:
	  				  				  				  			
	 Interest rate swap contracts
	  	 	1,550 	  	  	 	—  	 	  	 	1,550 	  	  	 	—  	 
	 Financial liabilities:
	  				  				  				  			
	 Current derivative liabilities:
	  				  				  				  			
	 Interest rate swap contracts
	  	 	918	  	  				  	 	918	  	  			
	 Long-term debt, current and non-current
	  	 	227,926	  	  	 	—  	 	  	 	227,926	  	  	 	—  	 
			
	 	  	 	 	  	Fair Value Measurements at
Reporting Date Using	 
	(U.S. Dollars in thousands)	  	December 31,
2013	 	  	Quoted Price
in Active
Markets for
Identical
Assets
(Level 1)	 	  	Significant
Other
Observable
Inputs
(Level 2)	 	  	Significant
Unobservable
Inputs
(Level 3)	 
	 Financial assets:
	  				  				  				  			
	 Cash and cash equivalents
	  	$	11,841	  	  	$	11,841	  	  	$	—  	 	  	$	—  	 
	 Non-current derivative assets:
	  				  				  				  			
	 Interest rate swap contracts
	  	 	—  	 	  	 	—  	 	  	 	—  	 	  	 	—  	 
	 Financial liabilities:
	  				  				  				  			
	 Current derivative liabilities:
	  				  				  				  			
	 Interest rate swap contracts
	  	 	—  	 	  	 	—  	 	  	 	—  	 	  	 	—  	 
	 Long-term debt, current and non-current
	  	 	232,894	  	  	 	—  	 	  	 	232,894	  	  	 	—  	 

  
 29 

 The Companies’ accounting policy is to recognize transfers between levels of the fair value
hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of Level 1, Level 2 or Level 3 as of March 31, 2014 and December 31, 2013. 

9) Trade Accounts Receivables 
 (a) Trade Accounts
Receivables 
 Trade accounts receivable are presented net of provisions for doubtful accounts. As of March 31, 2014 and
December 2013, there was no provision for doubtful accounts. 
 (b) Other Current Assets 

Other current assets consist of the following: 
  

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

 10) Vessels and Equipment 
  

																	
	(U.S. Dollars in thousands)	  	Vessels &
equipment	 	  	Vessels under
construction	 	 	Accumulated
depreciation	 	 	Net vessels	 
	 Balance December 31, 2012
	  	$	—  	  	  	 	126,663	 	 	$	—  	  	 	$	126,663	 
	 Additions
	  	 	—  	  	  	 	155,823	  	 	 	—  	  	 	 	155,823	  
	 Drydock costs
	  	 	5,000	  	  	 	—  	  	 	 	—  	  	 	 	5,000	  
	 Transfer from vessels under construction
	  	 	282,486	  	  	 	(282,486	)	 	 	—  	  	 	 	—  	  
	 Disposal
	  	 	—  	  	  	 	—  	  	 	 	—  	  	 	 	—  	  
	 Depreciation
	  	 	—  	  	  	 	—  	  	 	 	(3,303	)	 	 	(3,303	)
	 Balance December 31, 2013
	  	$	287,486	  	  	$	—  	  	 	$	(3,303	)	 	$	284,183	  
		  	  
	  
	 	  	  
	  
	 	 	  
	  
	 	 	  
	  
	 
	 Additions
	  	 	121	  	  	 	—  	  	 	 	—  	  	 	 	121	  
	 Drydock costs
	  	 	—  	  	  	 	—  	  	 	 	—  	  	 	 	—  	  
	 Transfer from vessels under construction
	  	 	—  	  	  	 	—  	  	 	 	—  	  	 	 	—  	  
	 Disposal
	  	 	—  	  	  	 	—  	  	 	 	—  	  	 	 	—  	  
	 Depreciation
	  	 	—  	  	  	 	—  	  	 	 	(2,835	)	 	 	(2,835	)
		  	  
	  
	 	  	  
	  
	 	 	  
	  
	 	 	  
	  
	 
	 Balance March 31, 2014
	  	$	287,607	  	  	 	—  	  	 	$	(6,138	)	 	$	281,469	  
		  	  
	  
	 	  	  
	  
	 	 	  
	  
	 	 	  
	  
	 

 As of March 31, 2014, Vessels with a book value of $281.5 million are pledged as security held as a
guarantee for the Companies’ long-term debt. See Note 12—Long-Term Debt. 
 Drydocking activity for the three months ended
March 31, 2014 is summarized as follows: 
  

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

  
 30 

 11) Accrued Expenses 

The following table presents accrued expenses as of March 31, 2014: 

 

									
	(U.S. Dollars in thousands)	  	At March 31,
2014	 	  	At December 31,
2013	 
	 Operating expenses
	  	$	585	 	  	$	670	  
	 Interest expenses
	  	 	1,150	  	  	 	1,160	  
		  	  
	  
	 	  	  
	  
	 
	 Total accrued expenses
	  	$	1,735	  	  	$	1,830	  
		  	  
	  
	 	  	  
	  
	 

 12) Long-Term Debt 

Long-term debt as of March 31, 2014 and December 31, 2013 consisted of following: 

 

													
	(U.S. Dollars in thousands)	  	Vessel	 	  	March 31,
2014	 	  	December 31,
2013	 
	 $117 million Loan facility
	  	 	Hilda Knutsen	  	  	$	112,125	  	  	$	114,563	  
	 $117 million Loan facility
	  	 	Torill Knutsen	  	  	 	114,563	  	  	 	117,000	  
		  				  	  
	  
	 	  	  
	  
	 
	 Total long-term debt
	  				  	 	226,688	  	  	 	231,563	  
	 Less current installments
	  				  	 	19,500	  	  	 	19,500	  
		  				  	  
	  
	 	  	  
	  
	 
	 Long-term debt, excluding current
	  				  	$	207,188	  	  	$	212,063	  
		  				  	  
	  
	 	  	  
	  
	 

 Hilda Facility 

The $117 million secured loan facility (the “Hilda Facility”) is repayable in quarterly installments over five years with a final
balloon payment due at maturity in August 2018. The Hilda Facility bears interest at LIBOR plus a fixed margin of 2.5%. 
 The Hilda
Knutsen, assignments of earnings, charterparty contracts and insurance proceeds are pledged as collateral for the Hilda Facility. KNOT is the sole guarantor. 

The Hilda Facility contains the following financial covenants: 
  

	 	•	 	Market value of the Hilda Knutsen to be no less than 100% of the outstanding balance under the Hilda Facility for the first 4 years and 125% for the 5th year;

  

	 	•	 	Positive working capital of the borrower and of KNOT and its subsidiaries on a consolidated basis (“KNOT Group”); 

  

	 	•	 	Minimum liquidity of (i) $2 million for the borrower; (ii) $25 million for the guarantor, and (iii) 4% of interest bearing debt for the KNOT Group; 

 

	 	•	 	Minimum book equity ratio for the KNOT Group of 22.5 % until December 31, 2014, and thereafter 25%; and 

  

	 	•	 	EBITDA must exceed interest payable, any amounts payable for the interest rate swaps and debt installments for the KNOT Group calculated on a four quarter rolling basis. 

The Hilda Facility also identifies various events that may trigger mandatory reduction, prepayment and cancellation of the facility, including
total loss or sale of a vessel and customary events of default. 
 The borrower and the guarantor were in compliance with all covenants as
of March 31, 2014, and December 31, 2013. 

  
 31 

 Torill Facility 

The $117 million secured loan facility (the “Torill Facility”) is repayable in quarterly installments over five years with a final
balloon payment due at maturity in November 2018. The Torill Facility bears interest at LIBOR plus a fixed margin of 2.75%. 
 The Torill
Knutsen, assignments of earnings, charterparty contracts and insurance proceeds are pledged as collateral for the Hilda Facility. Knutsen NYK Offshore Tankers AS is the sole guarantor. 

The Torill Facility contains the following financial covenants: 
  

	 	•	 	Market value of the Torill Knutsen to be no less than 100% of the outstanding balance under the Torill Facility for the first 4 years and 125% for the 5th
year; 

  

	 	•	 	Positive working capital of the borrower and KNOT Group; 

  

	 	•	 	Minimum liquidity of (i) $2 million for the borrower; (ii) $25 million for the guarantor, and (iii) 4% of interest bearing debt for the KNOT Group; 

 

	 	•	 	Minimum book equity ratio for the KNOT Group of 22.5 % until December 31, 2014, and thereafter 25%; and 

  

	 	•	 	EBITDA must exceed interest payable, any amounts payable for the interest rate swaps and debt installments for the KNOT Group calculated on a four quarter rolling basis. 

The Torill Facility also identifies various events that may trigger mandatory reduction, prepayment and cancellation of the facility,
including total loss or sale of a vessel and customary events of default. 
 The borrower and the guarantor were in compliance with all
covenants as of March 31, 2014, and December 31, 2013. 
 The total outstanding debt as of March 31, 2014 is repayable as
follows: 
  

					
	(US $ in thousands)	  	 	 
	 2014
	  	$	14,625	  
	 2015
	  	 	19,500	  
	 2016
	  	 	19,500	  
	 2017
	  	 	19,500	  
	 2018 and thereafter
	  	 	153,563	  
	 Total
	  	$	226,688	  

 13) Income Taxes 

Components of Current and Deferred Tax Expense (Benefit) 

The Companies are subject to the Norwegian Tonnage Tax regime (“the tonnage tax regime”). Under the tonnage tax regime, the tax is
based on the tonnage of the vessel and the operating income is tax free. The net financial income and expense remains taxable as ordinary income tax for entities subject to the tonnage tax regime. Tonnage tax is classified as an operating expense.
Tonnage tax amounted to $11,000 in the three months ended March 31, 2014, and $0 in the three months ended March 31, 2013. 
  

									
	 	  	Three Months Ended
March 31,	 
	(US $ in thousands)	  	2014	 	 	2013	 
	 Income (loss) before income taxes
	  	$	4,173	  	 	$	313	  
	 Income tax expense (benefit)
	  	 	—  	 	 	 	—  	 
	 Effective tax rate
	  	 	0	% 	 	 	0	% 

 A valuation allowance for deferred tax assets is recorded when it is more likely than not that some of or all
of the benefit from the deferred tax asset will not be realized. The valuation allowances relate to the financial loss carry forwards and other deferred tax assets for tonnage tax that, in the judgment of the Companies, are more-likely-than not to
be realized reflecting the Companies’ cumulative loss position for tonnage tax. In assessing the realizability of deferred tax assets, the Companies consider whether it is more-likely-than-not that some portion or all of the deferred tax assets
will not be realized taking into account all the positive and negative evidence available, and there is no deferred tax assets recognized as of March 31, 2014 and December 31, 2013. 

  
 32 

 14) Related Party Transactions 

(a) Related Parties 
 The Companies
have been charged by KNOT and KOAS for commercial services related to the charters, technical and operational support related to the operation of the Vessels, certain administrative costs and finance fees. 

The amounts of such costs and expenses included in the combined statements of operations for the three month ended March 31, 2014 and
2013 is as follows: 
  

									
	 	  	Three Months Ended
March 31,	 
	(U.S. Dollars in thousands)	  	2014	 	  	2013	 
	 Statements of operations:
	  				  			
	 Time charter revenues:
	  				  			
	 Commercial commission fee from KNOT to Vessels (1)
	  	$	141	  	  	$	—  	  
	 Operating expenses:
	  				  			
	 Technical and operational management fee from KOAS and KNOT to Vessels (2)
	  	 	219	  	  	 	—  	  
	 General and administrative expenses:
	  				  			
	 Administration fee from KNOT (3)
	  	 	8	  	  	 	15	  
	 Accounting service fee from KNOT (4)
	  	 	7	  	  	 	7	  
	 Finance expense:
	  				  			
	 Interest expense charged from KNOT (5)
	  	 	64	  	  	 	—  	  
	 Guarantee commission from KNOT to Vessels (6)
	  	 	287	  	  	 	129	  
		  	  
	  
	 	  	  
	  
	 
	 Total
	  	$	726	  	  	$	151	  
		  	  
	  
	 	  	  
	  
	 
			
	(U.S. Dollars in thousands)	  	At March 31,
2014	 	  	At December 31,
2013	 
	 Balance sheets:
	  				  			
	 Vessels:
	  				  			
	 New building supervision fee from KOAS to Vessels (7)
	  	$	—  	  	  	$	2,350	  
	 Licensing of technology fees from TSSI to Vessels (8)
	  	 	—  	  	  	 	1,080	  
	 Interest capitalized charged from KNOT to subsidiaries (9)
	  	 	—  	  	  	 	395	  
		  	  
	  
	 	  	  
	  
	 
	 Total
	  	$	—  	  	  	$	3,825	  
		  	  
	  
	 	  	  
	  
	 

  

	(1)	Commercial commission fee from KNOT to Vessels: KNOT provides commercial services related to negotiating and maintaining the charters. KNOT invoices a fixed percentage of revenue as a commercial commission fee
for these services. 

	(2)	Technical and operational management fee from KOAS and KNOT to Vessels: KNOT provides technical and operational management of the vessels on time charter including crewing, purchasing, maintenance and other
operational, bookkeeping and administrative support. 

	(3)	Administration fee from KNOT: Administration costs include the compensation and benefits of KNOT management and administrative staff as well as other general and administration expenses. Net administration costs
are total administration cost plus a 5% margin, reduced for the total fees for services delivered by the administration staffs (the accounting service fees (see (4) below), the financing service fees (see (6) below) and the estimated
shareholder costs for KNOT that have not been allocated. As such, the level of net administration costs as a basis for the allocation can vary from year to year based on the administration and financing services offered by KNOT to all the vessels in
its fleet each year. 

	(4)	Accounting service fee from KNOT: KNOT invoiced each subsidiary a fixed fee for the preparation of the statutory financial statements. 

	(5)	Interest expense charged from, interest income charged to KNOT: KNOT invoiced interest expense (income) for any outstanding payables to (receivable from) owners and affiliates to the vessel-owning subsidiaries.
Interest expense has been allocated based upon the allocated payables to owners and affiliates and the historical interest rates charged. 

	(6)	Guarantee commission from KNOT to Vessels: KNOT was a guarantor for the Companies’ loan facilities (see Note 12—Long-term Debt and Note 14(b)—Related Party Transactions: Guarantees). KNOT invoiced
an annual commission to each of the Vessels as a fixed percentage of the outstanding balance as compensation for the guarantee. 

	(7)	New building supervision fee from KOAS to Vessels: KOAS charges a fixed fee for supervision of each vessel under construction that is invoiced on a straight-line basis over the period of construction. Such fees,
along with direct and incremental supervision costs incurred, are capitalized as part of the Vessels under construction. 

	(8)	Knutsen Ballast Water Treatment installation from TSSI to Vessel: TSSI has developed Knutsen ballast water treatment technology and the system was installed during the construction and all cost is capitalized as
part of the Vessels under construction. 

	(9)	Interest capitalized charged from KNOT to Vessels: KNOT invoiced interest expense for outstanding payables to owners and affiliates to the vessel owning subsidiaries as explained in (5) above. Such interest
expense is capitalized for qualifying Vessels under construction. 

 (b) Guarantees 

As of March 31, 2014, KNOT is guarantor for the Hilda Facility and Torill Facility. 

  
 33 

 (c) Transaction with Management 

The Companies had no personnel during the three months ended March 31, 2014.There has been no direct remuneration to any members of the
Board of Directors of KNOT. Trygve Seglem, the President and CEO of KNOT has received $119,000 in salary from KNOT Management AS during the three months ended March 31, 2014. He also controls Seglem Holding AS, which has a 100% equity interest
of TSSI, which controls KOAS. TSSI owns 50% in KNOT. Trygve Seglem owns 70% of the equity interests in Seglem Holding AS, and each of his daughters, Synnøve Seglem and Jorunn Seglem, each own 15% of the equity interests. 

NYK, which own 50% of KNOT, has management and administrative personnel on secondment to KNOT starting in March 2011. The cost for such
services was $0.8 million during the three months ended March 31, 2014. NYK has no other related party transactions with KNOT apart from interest income on financing offered to KNOT. 

See this Note 14 – Related Party Transactions Items 3 and 4 for discussion of the allocation principles for KNOT’s administrative
costs, including management and administrative staff, included in the combined statements of operations for the two entities. 
 (d) Amounts Due from
(to) Related Parties 
 Balances with related parties consisted of the following: 

 

									
	(U.S. Dollars in thousands)	  	At March 31,
2014	 	  	At December 31,
2013	 
	 Balance Sheets:
	  				  			
	 Trading balances due from KOAS
	  	$	107	  	  	$	—  	 
	 Trading balances due from KNOT and affiliates
	  	 	3,224	  	  	 	775	  
		  	  
	  
	 	  	  
	  
	 
	 Amount due from related parties
	  	$	3,331	  	  	$	775	  
		  	  
	  
	 	  	  
	  
	 
	 Trading balances due to KOAS
	  	$	18	  	  	$	143	  
	 Trading balances due to KNOT and affiliates
	  	 	550	  	  	 	6,922	  
		  	  
	  
	 	  	  
	  
	 
	 Amount due to related parties
	  	$	568	  	  	$	7,065	  
		  	  
	  
	 	  	  
	  
	 

 Amounts due from (to) related parties are unsecured and intended to be settled in the ordinary course of
business. They primarily relate to vessel management and other fees due to KNOT and KOAS. 
 15) Commitments and Contingencies 

Assets Pledged 
 As of
March 31, 2014, Vessels with a book value of $ 281.5 million were pledged as security held as guarantee for the Companies’ long-term debt and interest rate obligations. See Note 7 – Derivative Instruments and Note
12—Long-Term Debt. 
 Insurance 

The Companies maintain insurance to insure against marine and war risks, which include damage to or total loss of the Vessels, subject to
deductible amounts that average $0.150 million per Vessel, and loss of hire. 
 Under the loss of hire policies, the insurer will pay a
compensation for the lost hire rate agreed in respect of each Vessel for each day, in excess of 14 deductible days, for the time that the Vessel is out of service as a result of damage, for a maximum of 180 days. In addition, the Companies maintain
protection and indemnity insurance, which covers third-party legal liabilities arising in connection with the Vessels’ activities, including, among other things, the injury or death of third-party persons, loss or damage to cargo, claims
arising from collisions with other vessels and other damage to other third-party property, including pollution arising from oil or other substances. This insurance is unlimited, except for pollution, which is limited to $1 billion per vessel per
incident. The protection and indemnity insurance is maintained through a protection and indemnity association, and as a member of the association, the Companies may be required to pay amounts above budgeted premiums if the member claims exceed
association reserves, subject to certain reinsured amounts. If the Companies experience multiple claims each with individual deductibles, losses due to risks that are not insured or claims for insured risks that are not paid, it could have a
material adverse effect on the Companies’ results of operations and financial condition. 

  
 34

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